views of several of the other witnesses and to say that the prize fund approach is better than the existing system and indeed, so much better that logic, evidence and duty compel the congress to make the change. as elected representatives, we ask you to improve our lives and to find better ways to solve old problems. the prize fund is a reform that builds on everything that is well known about the economics of innovation. it eliminates the artificial scarcity of new medicines and addresses well known flaws in the current system of granting product monopolies. the current system places a crushing financial burden on patients in the broader public, often at the expense of the access itself. the current system does not appear to be sustainable or appropriate for dealing with the hiv pandemic which requires high

levels of access to new drugs, not only in the united states, but throughout the world. others have referred to a number of basic facts, that the united states, for example, has 1.2 million persons living on hiv. and with new infections, that number is growing every year. i can remember when the size of the community was considered 200,000 people and now it's 1.2 million people. and five years from now, it will be more than 1.2 million people. you mentioned the cost of a triplet being $25,000 a year. that's a fairly inexpensive calculative in the current environment in the united states. some of the more expensive regimes, even for treatment of these patients could be as much as $35,000 and for people that have developed drug resistance, which a lot of patients that

will happen to them over their period of treatment is a lifelong treatment occur at present. the treatments could be $50,000 to $75,000 per year. i don't see how you take a country with 1.2 million people that have that condition and impose those kinds of astronomical costs. the cdc currently says 64% of the people living in the united states are hiv positive, are not receiving drugs. recent studies also show that people, when they are taking drugs, that the risk of reinfection goes down by as much as 95%. some of the companies are trying to encourage people not even hiv positive to take drugs in order to prevent retransmission if they're high risk groups. there's no way you can do that at the current prices. now, the bill proposes a $3 billion reward fund for innovation split into three different types of innovations. and it has an end product prize which is similar to the economic incentive you have out of the

monopoly at present, but it's better because it rewards the innovations based upon the improvement of health drug outcomes and it stops rewarding the products which are comparable to existing drugs. i will note that the 15 largest selling products in the united states for aids, 13 of the 15 were registered by the fda after 2003. i'm sorry, before 2003. they're like 9-year-old products in terms of the underlying drugs that are used in them. some of those are fixed combinations that come on them marked earlier but they're made up of older drugs. we spend probably easily about $8 billion a year more every year than we have to for aids drugs at current prices right now to support the cost of the monopoly. with that, you've got

approximately one drug a year out for the past 25 years of which most of them are minor variations on the same drug. just as f it tc is almost an identical drug to 3tc, a product that is registered in 1995. so the prize fund would reform that incentive. instead of just saying that you get money if you replicate what these other drugs do with minor improvements, it would say that -- it would look at what you do do improve health outcomes benchmarked against existing drugs. it would incentivize things that are 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, to data, to materials and patent innovations of which there are thousands in the hiv area. to make it easier to get the research that mroefr professor stiglitz referred to that are necessary in the r&d 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, which is a completely dysfunctional market right now 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 all sorts of 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, dr. lessig, 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. it's like somebody over there dying and nobody is going out and reaching them a hand and bringing them in. it's like they're drowning in a swimming pool. 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 voluntarily 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. its 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 professor stiglitz 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 think the precise ethical mode is when you have two modes of intervention and you select 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 proactively 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 add to 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 expensive 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 when you can provide the

medicine, you not only save the person's life, but you prevent a cross transmission of the disease to the others. so you are not only providing the treatment of the individual, but you are also protecting society. i think that's the bigger question to discuss. >> so for $200, roughly speaking, for the hiv/aids cocktail, by not providing that $200, somebody will end up in the hospital, suffer a great financial cost to the society. that does not make a whole lot of sense, i think. >> that does not make economic sense. it does not make professional sense from a medical standpoint, 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? mr. akhter?

>> 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 infected. so if we increase 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 inmates in prison until they're released because the institution doesn't want to bear the high cost of paying for the drugs. >> i mean it really would be, in responding to that, i mean, it really is laughable if it wasn't so tragic, isn't 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, $35,000 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 professor lessig raised that government interventions in the market. we also know that the u.s. government has been pushing for more stringent ip 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 implications are for access to medicine. so i think the ethical question reaches far beyond and stretch

really worldwide. >> let me ask you, dr. moon, 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 own government is functioning and our own trade policies are designated -- sorry, decided upon. but i think one rationale that has been put forward for why it is in the u.s. interests to push for stronger ips abroad is we want countries to pay higher prices for medicine to contribute more to research and development. whether or not that is effective

and acceptable where kcountries are living on $100 a year, $200 a year is a different 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 at the world health assembly 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 methods 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 it to pay, in some cases, prices for drugs that their people simply cannot afford? yes, dr. stiglitz. >> yes.

first, let me highlight the seriousness of this issue. we have bilateral trade agreements with some countries. one of the developing countries that we had a -- had proposed an agreement with was a president was a doctor. he had signed the hippocratic 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 included are obviously clear. the united states -- 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,

you get rid of your trade barriers. all our subsidies, their subsidies. these go on, as you know, for hundreds of pages because they are really 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 example 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 discourage generic med since 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 in africa. vice president gore and president bush, they moderated their position. 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 deck clargs in 2008. and in may 10th, he entered into an agreement to protect access to medicine in developing countries and it dealt with by eliminating the requirement for data exclusivity in developing countries, that was the agreement they reached, to moderate demands on patent extensions and other issues. now the obama administration is in a new trade agreement called the transpacific partnership agreement right now. they're meeting this week in dallas as we speak on this issue. the obama administration is now reneging on the may 10th

agreement. they're now reupping the demands for data exclusivity and patent extensions. vietnam is part of that negotiation. peru is part of that negotiation. it's designed for very pour countri countries. the new proposal is called a team proposal. access to medicine. it's 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 india, a country that recently had a per capita income of $13 per year. the government said $69,000 a year in india was not reasonably affordable. i agree with that conclusion. now subsequently the secretary of commerce in the united states gathered a few weeks ago and met to complain about this. and ryan kirk, the u.s. trade representative, 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. and we're raising the prices. internationally we do it. 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. you have to ask yourself, 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. >> can i just add one point? as jamie's intervention makes clear, it's a problem that doesn't afflict one person in this. so let me amend my comments about the uniqueness of this event. it's also significant that this is an independent senator raising this issue because, obviously, the need to keep vip interest, both pharmaceutical companies and hollywood happy is something that both the democrats 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 congressional delegation to south africa, and it was bipartisan, tri-partisan. i will never forget sitting in the room with the president of south africa. that was after mandela. and he was being berated for standing up to the pharmaceutical industry at that time and suggesting that the people in this very, very poor country needed drugs that they could afford. 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. i speak now as a member of the budget committee, former mayor of the city. 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, d.c., you have educational problems, virtually everyone is feeling serious financial constraints right now. 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 affordable nor sustainable not only in washington, d.c., or in any other state. this is a major cost driver for us, for a number of years, a number of patients will continue to increase. the cost will continue to increase. 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 standpoint, 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. and that's how 9,400 came to be. go through the defense department. buy in bulk. we do this. for the private citizen to go and buy the drug, it could be $25,000 or $30,000 a year. this is not sustainable. if you look at minimum life time costs of $300,000, it will be too high. the average american in vermont. 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. we talked with about the problems facing city and state and federal government budgets. 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 afford the treatments and cities to bear undue financial burden, but apparently the industry isn't doing much new in terms of re r research and innovations. we are not seeing the kinds of breakthroughs. i think others have mentioned -- and i think dr. stiglitz moengsed that drug companies can make more money by making me, too, products rather than investing in the most important health crisis 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 to protect the fact that there continues 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 to flat earth. it has to be compared to absolutely nothing at all. it cannot be possibly compared to this price system. in the national academy was asked to look at this. we hope they will take a deep look at it. 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. make some informed estimates on what's spent. >> 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.