October 2017 saw the UK National Health Service (NHS) begin a 3-year trial of the Pre-exposure Prophylaxis (PrEP) drug Truvada1. This once-a-day tablet, likened to taking the contraceptive pill, could significantly reduce the likelihood of uninfected but ‘high-at-risk’ people contracting HIV amongst certain communities2.The United States Food and Drug Administration (FDA) became the first body to approve the drug for use as PrEP back in 20123. With an average of 16 new diagnoses a day in the UK since then4, why has it taken so long for the NHS to follow suit? The answer may be due to a market failure caused by the monopoly the manufacturer of Truvada has over the PrEP market.
Monopolies & Inefficient Allocation
A monopoly is when a single producer dominates an entire market. In these situations, because of a lack of competition, the producer can charge a higher price than consumers theoretically should be willing to pay, according to the net benefit (or ‘marginal-utility’) that good or service provides to them5.This creates a profit for the monopolist.
Monopolies force consumers (that can afford it) to pay the elevated price. This is classed as a market failure due to inefficient allocation. Efficient allocation or ‘pareto-efficient allocation’ refers the state of the market in which the level of production meets the level of consumer demand and where no other reallocation would make one consumer better off without making another worse off5. As not every potential consumer in a monopolised market is able to afford the elevated price, production does not reflect demand and thus allocation is inefficient.
In developed countries, laws have been put in place to stop monopolies, however, there are cases where they are encouraged. An example of this is when governments grant patents, essentially giving the patent holder a legal monopoly of a market. Seen as a ’necessary evil’, patents are believed to incentivise innovation, as research and development (R&D) costs can be reimbursed by the profit gained by having the monopoly6.
Gilead Sciences: The Monopolist
Gilead Sciences holds the patent for the PrEP drug ‘Truvada’ and thus holds a monopoly over the market for PrEP. Studies have found that the cost effectiveness of Truvada is “unsuitably expensive” and that the current cost is 2.5x greater than what the average American would be willing to pay for general health interventions7. With health services such as the NHS using cost effectiveness studies like this to decide which drugs to fund8, the hiked price tag has so far fallen onto the consumers7. This satiates demand for those who can pay but ultimately excludes those who can’t. This, by definition, is inefficient allocation.
In order to avoid long term market failure, patents are only granted for a certain length of time. Once the patent has expired, competitors are theoretically able to advance into the market. Within the pharmaceutical industry, this is when cheaper generic drugs begin to be developed. In the UK, the patent for Truvada is expected to expire in 20179 and activists believe that this is why the NHS is only now making its move10. However, with almost 30,000 people being diagnosed with HIV in the UK between FDA approval in 2012 and the NHS trial in 20174, would cheaper prices from day one have caused that number to be significantly smaller?
Generic drugs: a solution
As the current market has seemingly failed to efficiently allocate, I believe that government intervention is required to lower costs and allow for widespread implementation. To ensure lower costs for PrEP the government needs to encourage generic drugs to enter the market. Once the patent has expired for Truvada, strategies need to be put in place to lower entry costs and find ways of reducing production costs. This requires strong governmental support and an independent drug regulatory body to support and oversee the creation of appropriate (and safe) production and distribution structures. Once a competitive market has been established competition should theoretically drive down the cost of PrEP drugs. However, this requires heavy financial investment from the state
In my opinion, this financial investment is unfortunately necessary. Finding a way to lower the costs for PrEP drugs seems to be the most effective method of dealing with the HIV epidemic in the UK. It is becoming more apparent that PrEP use shows a reduction in infection rates11 and there is evidence to suggest that if drug costs fell by 50%, PrEP could actually be cost-saving for the NHS9. If this financial investment truly is necessary, granting a patent to Gilead Sciences may have served to increase costs for the UK government whilst also allowing infection rates to continue at a consistent rate. The UK government may retrospectively find that allowing a monopolised PrEP market may have been a bitter pill to swallow.
- Duffy, N. 2017. NHS trial of HIV-preventing drugs for gay men begins. Pink News. [Online]. 12 October. [Accessed 10 November 2017]. Available from: www.pinknews.co.uk
- Gomez, G.B., Borquez, A., Case, K.K., Wheelock, A., Vassall, A. and Hankins, C., 2013. The cost and impact of scaling up pre-exposure prophylaxis for HIV prevention: a systematic review of cost-effectiveness modelling studies. PLoS medicine. [Online]. 10(3). [Accessed 10 November 2017]. Available from: journals.plos.org
- Myers, J.E. and Sepkowitz, K.A., 2013. A pill for HIV prevention: deja vu all over again? Clinical infectious diseases. 56(11), pp.1604-1612.
- Public Health England. 2017. National HIV surveillance data tables. UK Government. [Online]. [Accessed 10 November 2017]. Available from: www.gov.uk
- Daly, H.E. and Farley, J., 2011. Ecological Economics: Principles and Applications. 2nd ed. Washington D.C.: Island Press.
- Dasgupta, P., 2007. Economics: a very short introduction. Oxford: Oxford University Press.
- Keller, S.B. and Smith, D.M., 2011. The price of tenofovir-emtricitabine undermines the cost-effectiveness and advancement of pre-exposure prophylaxis. AIDS. [Online]. 25(18). [Accessed 10 November 2017].
- Ogden, J., 2017. QALYs and their role in the NICE decision‐making process. Prescriber. 28(4), pp.41-43.
- Cairns, G. 2015. Provision of PrEP in the UK will be cost-effective for gay men at high risk of HIV, model finds. Aids Map. [Online]. 01 June. [Accessed 10 November 2017]. Available from: www.aidsmap.com
- Feuer, C., 2017. PrEP Stymied in Europe: What's the hold up?. AVAC. [Online]. 5 June. [Accessed 10 November 2017]. Available from: www.avac.org
- McCormack, S., Dunn, D.T., Desai, M., Dolling, D.I., Gafos, M., Gilson, R., Sullivan, A.K., Clarke, A., Reeves, I., Schembri, G. and Mackie, N., 2016. Pre-exposure prophylaxis to prevent the acquisition of HIV-1 infection (PROUD): effectiveness results from the pilot phase of a pragmatic open-label randomised trial. The Lancet. 387(10013), pp.53-60.