are pelly new and it would benefit the patients the most. that's the reform of the end product. it's calibrated at about three times what the agency says it costs to improve a single drug on the cost of capital basis, just for the u.s. market, which is only 24% or 25% of the rural gdp. it's a fairly generous allocation. it asked an open source dividend of $150 million a year to incentivize people to open source access to libraries, patent innovations to make it easier to get the research that the professors referred to that are necessary in the rnd process. finally, it opens the door for the development of competitive intermediaries to fund upstreamers through a competitive system where employers and insurance companies would choose the manager of their money for dealing with these issues

referred to as the so-called valley of death in the development area, but in an open source manner. taken together collectively, this is like a nuclear option for the pharmaceutical sector. it's done in one sector and the aids sector. if it would work in the aids sector, where things are completely unsustainable, where you have the inability at the present to deal with the population, the growing demand and you have tens of millions of people outside the united states which are suffering a huge crisis in funding and sustainability for aids treatment outside the united states, it would take this market. if it would work here, it would create enormous pressure to rethink the rest of the problem for cancer drugs, diabetes and other areas. >> not so loud, somebody may hear you. and so the challenge is the government. if you have a system that doesn't work and it's about innovation, can you innovate and can you do something different? thank you very much.

>> thank you very much. let me start off and let's do this informally. let me start off with an ethical question. and i noticed, doctor, you deal with ethics. i think the average american would be extremely upset to know that people are dying not because we don't know how to treat those people -- that's one sad aspect of life -- but that they can't afford what is, in fact, a minimal cost in terms of the real production of the product to save their lives. riots like somebody over there dying and nobody is going out and reaching them a hand and bringing their in. what are the ethical implications of that? >> of course, i agree that there's a significant ethical question raised by the problem

you described as somebody not stepping forth and saving a drowning child. but i think this problem is actually worse because, as jamie was just emphasizing, the government is intervening in this market already. it's intervention is in the form of an exclusive right called a patent. the consequence of that intervention is to produce a market where only a tiny slice of those who are affected by the disease can actually get access to the drugs. there's a different way for the government to intervene. the government could intervene as the professor has described and as your bill has made possible in a way that would facilitate a wide range of people being able to have access to the drug. so i can the precise ethical mode is when you have two modes of intervention and you sleblth one that will exclude people a who need access to this judge, what possible justification could there be for that? >> so, in other words, the government is preventing people

from getting treatment? >> just add one thing, which is that the government winds up paying for the research, anyway. so it's the public's money. the effect and the way the system is designed the public's money is not being used in an equitable way. >> let me answer that and tell me what i'm missing here. ideally, i think what medicine is about is providing the treatment when people need it. and we've got a couple of physicians up here, at least, and, doctor, if somebody does not get the medicine that they need and the illness continues and they end up in the hospital at a huge expense, are we saving money as a system by not providing the medicine when somebody needs it? what is the financial implication? >> mr. chairman, we see this every day. it's obviously a lot more defensive when somebody gets to the hospital and has to be in the intensive care unit. then you send up hundreds of

thousands, in fact, millions of dollars with no avail. there's no good outcome at that point. so it is basically foolish to be in that position when you could do some preventive work up front with which you not only save the person's life, but you prevent a cross transmission of the disease to the others. so you are fought only providing the treatment of the individual, but you are also protecting society. >> so for $200, roughly speaking, for the hiv/aids cocktail, by not providing that $200, somebody will end up in the hospital, suffered a great financial cost to the society. that does not make a whole lot of sense, i think. >> that does not make sense. it does not make professional sense from a medical stpd, but

that also does not make public health sense where you are leaving this individual untreated and the person continues to spread the disease to others. >> other thoughts on that general subject? >> yes. i think one of the things we mentioned was we're living in a time of treatment as prevention. if the treatment is $25,000 as opposed to $200, the 300,000 people of the 1.2 million don't know they're affected. so from increased testing, try to get them in treatment, we have to be able to afford to do that. so this legislation would make that more possible. >> other thoughts? >> yeah. >> we've been told of cases where some jurisdictions where people are not tested to see if they're hiv positive while they're ip mates in prison until they're released because the institution doesn't want to bear the high cost of paying for the drugs.

>> i mean, responding to that would be -- i mean, it really is laughable if it wasn't so tragic, is it? imagine that. not diagnosing somebody because you can't afford to pay for the treatment. yeah. >> thank you. i think the point that the -- the important of prevention and the huge possibilities of preventing new infections in this country as well as worldwide has been well emphasized. if we imagine how the public would react if an aids vaccine were developed that were priced at $25,000, $30,000 per year, i think that drives home some of the ethical quandaries that we're facing, some of the big challenges. but i wanted to get back to the point that was raised. we also know that the u.s. government has been pushing for more standards worldwide including development countries in the 1980s with the

negotiation of the trips agreement and more recently demanding certain types of provisions and free trade agreements being negotiated. demanding higher and higher and higher ip standards knowing full well what the appearlications are. so i think the ethical question reaches far beyond and stretch worldwide. >> let me ask you a dumb bunny question of which i know the answer, but some people watching this on tv may not know. why is that? what are the economic forces involved here? how does that happen? >> well, i think there are others on this panel who can speak more on the problem with the way our policies are developed and decided upon. but i think one rationale that

has been put forward for why it is in the u.s. standards to push for stronger ips abroad is we want country toes pay higher prices for medicine to contribute more to research and development. whether or not that is effective is another issue altogether. but what i think is quite interesting to consider today is there are alternatives that have been put on the table. next week, 193 member states will come together and debate the recommendations that government come together and start to negotiate a binding convention for r&d which is that more predictable, sustainable and fair message for calculating contributions for every country to contribute to r&d so we don't have to rely on high prices. >> anyone want to add to the question of how it just so happens that the united states government goes around the world

telling developing countries that they have to pay prices for drugs that their people simply cannot afford? >> yes. >> first, let me highlight the seriousness of this issue. one of the developing countries that we had a -- had composed an agreement with was a president, a doctor. he had signed an oath to do no harm. and it explained to him that it was inconsistent with that for him to sign the bilateral trade agreement with the united states because by doing that, it would deny access to life saving medicine to his people.

the reason these provisionaries are obviously clear, these are not free treatment agreements that we have. they're managed trade agreements. if they were free trade agreements, they would be a couple pages long, would get rid of all of our trade barriers, their subsidies. these going on for hundreds of pages because they are special interest pieces of legislation. and a special interest that has played a very important role in shaping trade negotiations are intellectual property interest. entertainment industries and the drug companies particularly. and their concerns have been more to maximize the ranks that they get out of their drugs than maximizing innovation or maximizing the health of the

world. so an innovation of particular concern goes well beyond issues of patent. it goes to issues like data exclusivity, which means that in other countries, they cannot use data, even when it's partly financed by the u.s. government to license generic drugs that would provide the basis -- you know, that are equivalent and that would enable poor people in their countries to get access to drugs as you pointed out, at little as 1% of the cost of the current -- the patented drug. the whole structure is to encourage generic medicines and, therefore, to make medicine less accessible which means to hurt

health. >> let me jump from -- yeah? >> add to that, the policy if you go in after medicine took off in the '80s initially. but then, towards the end of president clinton's term, there was activists about aids medications access in canada. president clinton issued an executive order and it surprised a lot of people. george bush kept a lot of those reforms in the early part of his administration. he endorsed the doha in 2008. and in may 10th, he entered into an agreement to protect access to medicine in developing countries and it dealt with by deliver bing the exclusivity.

now the obama administration is in a new agreement and meeting in dallas as we speak on this issue. the obama administration is now reneging on the may 10th agreement. they're now reuping the demands for data exclusivity and patent extensions. vietnam in involved in that. it's designed for very pore countries. the new proposal is secret, except if you're a drug company lobbyist and you could be on an advisory board and you have access to that information. and they refuse the present the text that the u.s. is proposing on this to ordinary citizens and taxpayers. it's only available if you -- if

you can find yourself on one of these advisory groups that the u.s. government has. now, one other point, that is that india recently issued a compulsory license for a cancer drug called nexivar. the drug was priced at $69,000 per year for cancer patients for kidney and liver cancer in india, a company that recently had a per capita income of $13 per year. the government said $69,000 a year in india was not roently affordable. now, consequently, the secretary of commerce in the united states gathered a few weeks ago and met to complain about this. and ryan kirk listed this issue on the recent may 1st, august 31st special 301 report. so, yeah, it's a huge problem. and i think the one way i'd sort of think about this is in the

united states, we're increasing the ipr protection. nobody thinks it's enough to do anything about. it's like we're a frog being put in a pot of water where it's being turned up one degree at a time. and we're just going to be cooked. it's worse than it was five years ago, it's worse than it was ten years ago. where is it going to be 20 years from now? this bill is to build a bridge for the future so the future is something that's consistent with human rights, consistent with universal access, consistent with our values. >> one point. as jamie's intervention makes clear, it's a party that doesn't affect one person in this.

this is an independent senator raising this issue because, obviously, the need to keep vip interest, both pharmaceutical companies on hollywood happy is something that both dems and republicans are addicted to. there's no way out of that particular addiction so long as we have the structure. >> let me just pick up on that. a number of years ago when i was in the house of representatives, i went on a bipartisan trip to south africa. that was after mandela. and he was being berated for standing up to the pharmaceutical companies in that country. he was being attacked by democrats and republicans. so you're right, i think this is

very much a bipartisan concern. i want to jump to another issue. doctor, when we talk about very, very expensive treatments for hiv/aids, at a time when we know the same treatment is available abroad because of u.s. funding at 1% of the cost, what does it mean, you have education problems, virtually everyone is feeling financial constrabts. what does it mean to pay very, very high prices for medicine when you know it should be available at a much lesser price? >> mr. chairman, with the current prices, they are not

available nor sustainable neither in washington, d.c. or in any other state. if the current way continues, who knows where it will end up? we'll be saying, right now, 9,000 people don't get it. maybe 100,000 people will not get it. and that is where the things are. speaking strictly from the budgetary stpandpoint, it's a budget buster. unless the federal government does something, the city governments don't have much control of it. we have gone from every avenue i know to get the discount prices. for the private citizen to go and buy the drug, it could be $5,000 or $30,000 a year. this is not sustainable.

if you look at minimum life time costs, it will be too high. so this is really not affordable, not sustainable. there's another issue also. when costs are so high, people who have no health insurance or people who can't afford it, they then go and try to buy it from other countries. try to smuggle into it or try to come and register in washington, d.c. where the thing may be available and end up doing something that's illegal. so we are asking people who are otherwise law-abiding, they have been paying their taxes, they have been working very hard. we are asking them to do this illegal thing because we don't have medications available. and i think that's a very fundamental human question in addition to the budget question. >> let me jump to another issue. we have been talking about the

impact of high costs on individuals, people dying because they can't afford the artificially high price. but let me go back to a question or an issue that jamie love raised, as well. and that is not only if the current system forcing in some cases mandating that people die if they can't o ford the treatments and cities to bear unburden prices, but apparently the industry isn't doing much new in terms of resirch and innovations. and i think dr. stiglitz mentioned that other companies can make more money by making me, too, products rather than investing in the health crises

facing americans all over the world. dr. love, do you want to say a word on that or anybody else? >> i'm not a doctor, so i'll just set the record straight on that. but, i mean, the good news is that there's been about 25 different new chemical entities that have come on the market in the past 25 years. that's a positive thing. i think patients need a complicated mixture of products. they need a minimum of three in highly active treatment. a lot of them use four products and some people use more than that. the feasible combinations are complicated in people that develop resistance. it's a positive thing that there's been a pipeline of drugs. i think everyone that works on issues at a very minimum wants to protect the fact that there's

continuous innovation products with serious side effects. the reality is 1 of the 15 largest products are based on drugs that are at least 9 years old. so given the fact that we're spending $8 billion a year to support the monopoly system on this, you know, and you maybe have two drugs on this thing that have come on the market since 1999, i'd have to say the only way you could justify the economics of this is if you didn't really try and justify it compared to anything else. it has to be compared with to flat earth. it has to be compared to absolutely nothing at all. it cannot be possibly compared to this price system. but in terms of the thing, the most profitable products for companies are the chronic -- >> that's not you.

>> the most profitable products are the products you take every day for the rest of the your life. that's the goal for the company. you mentioned lifetime. that's exactly right. they want to look at what is a lifetime cap on insurance for somebody or something like that. but the -- obviously, with 1.2 million people that are hiv positive, a number that's headed north, you know, it just isn't really feasible to get the number of patients you want. what you want to have is products which -- you want the money that you are spending, which is probably less than -- i don't know what the exact numbers are. if you ask how much is being spent on aids drugs, you would say, if we're spending $9 billion or $10 billion on drugs or whatever the number is, you'd have to say, then, how much money are the companies reinvesting in r&d? is it $1 billion? >> do we know? >> no, you don't know.

i think we could make some estimates based on the number of people in clinical trials. >> in other words, what you would like is what we would like is the drug companies to be investing in trying to find solutions to the most serious illnesses that we face. >> they do make investments. what we don't know is how much. nerds, if prices are higher by $8 billion, how much of that trickles down into r&d. >> you are a doctor, right? why don't you -- >> not a real doctor. >> it will do for this committee. >> the fundamental problem is that the incentives do not direct attention to the areas that are the most socially productive. that's a fundamental problem. so if the returns are higher for a drug that doesn't add any real

value or very little value, that's what they're going to do. it's somebody's profit by half and we know we can do it because it's been proven. so the incentives for direction of research are not -- in any way with social returns. it's particularly true if you look at it from a global point of view because many of the diseases are diseases of poor people and one of the attributes of poor people is they don't have the money. >> you need to know an economist is my question. >> and the result is they aren't going to be a profit extender. but we are all affected by that because we're a global -- because they don't carry passports and know about visas to go across boundaries so that

we can all be exposed to originate. at one time, the disease are the poor and they become the more diseases in the advanced industrial countries. the broader point which jamie has emphasized is if you look at the difference between what we pay government or we as a nation pay for drugs and the cost of product, that's a huge amount. i mentioned in my oral system study that's showed that the gap for the government along is something like a quarter of $1 trillion a year over ten years, we're talking about how do we make up for the -- our budgetary. this is a big poesht. if all of that money went into productive research, you might say, well, it was well spent.

but, in that case, a relatively small fraction of that pone goes into productive research. more money is spending advertising, marketing. as i, again, pointed out, many of that goes to trying to reduce the demand to increase market power, to increase monopoly profits rather than disseminate information, to make sure our health care system is working better. >> i just wanted to reiterate something. these companies, they don't have the money to produce it. one of them in that way has the way. this works on a human being and you have to have money to get through the second level of trials the fda actually says they have something that actually works.

because some of these, you have to take the complicated regimens. but along with the vaccine, it may fit into being more realivic in people's lives. if i'm feeling healthy and i have hiv at an old level, i have to take care of the family, raise money, do things like that. the therapeutic regularmen is something that we may not have enough money to develop it. >> i think this raises a very important point which is prizes. it opens up the problem to be solved to a much broader population of potential solvers than other methods. and i think what he has reminded us of is it's far from