Living Economics

Since infectious diseases can spread exponentially, correctly identifying the infected quickly can dramatically reduce the period during which the infected can spread them while awaiting test results. In military operations and emergency situations where blood transfusions are required, it is critical that the freshly-drawn blood comes from people at the scene who are not HIV-infected. A rapid test for HIV viruses that takes minutes instead of two weeks can prevent unintended HIV infections.

Such rapid tests for HIV viruses are widely marketed outside the U.S. by the same US drug companies that have dragged their feet in marketing them domestically. Instead of a 15-minute test that can be done at the doctor's office without expensive lab equipment, the HIV tests marketed in the U.S. takes 2 weeks to complete in an expensive lab with trained technicians.

The lab-based HIV tests sold in the U.S. can detect both the more common HIV-1 and the relatively rarer HIV-2 that mainly affects West African immigrants. Although HIV tests are not required by law to test for both HIV strains, an early 1990s CDC recommendation that both strains be tested for had the de facto effect of mandating it. An HIV test that does not test for both would in effect be shunned by users for fear of being sued for malpractice.

To make a test for HIV's, companies must obtain a license from the holders of the HIV-1 and HIV-2 patents. The HIV-1 patent is widely licensed to all companies because it is jointly owned by the NIH and the private French research center Institut Pasteur. But the HIV-2 patent is owned solely by a U.S.-based private company Bio-Rad that has exclusively licensed the patent to Abbott, Chiron and Johnson & Johnson in a series of complex deals. Bio-Rad's deals call for it to secure agreements from its three big licensees before extending more licenses. Over time, Bio-Rad and the three licensees began selling lab-based HIV tests in the U.S., with Abbott dominating the U. S. market.

Even though these same companies are selling rapid tests overseas, the $50 million overseas market is nothing compared with the more lucrative $200 million domestic market. Selling rapid tests at home would simply cannibalize their own markets. Smaller companies that want to exploit this market by making rapid tests have not been able to obtain the license for HIV-2. It looks like that this dilemma would not work itself out until the HIV-2 patent expires in a few more years.

Economic theory tells us that granting patents as property rights would encourage more inventions and ensure they would be freely traded for the highest profit. Indeed, the financial incentives provided by biotechnology patents have helped fuel a 400% increase of biotechnology patents granted in the U.S. in 2000 over 1990. But the pursuit of highest profit may not always be synonymous with the greatest good in each and every instance.