I hope that I can do justice to the organisers' request that I express the position of the R&D based pharmaceutical industry. In any speech one has to steer a fine line between one's own views, those of the organisation one works for - and the industry it is in - and the expectations of the audience. I can assure you that I am very conscious of the tightrope that I am on today!

As you know, I run the Brussels office of SmithKline Beecham, which I have done for the last four years. I have worked in Brussels for the last ten years - and all my working life has been spent working on European public policy issues. In its work MsF believes in a world without frontiers; it was my belief in a Europe without frontiers, and a citizens Europe, which took me into politics. Also, when we are faced with real problems like the one we are discussing today, I think it is important to contribute to solutions. I am proud, for example, that SmithKline Beecham is the first drug company to have done a deal with Cuba. In the last couple of months we have had to find a way through US trade sanctions to do it - but we are now cooperating with a Cuban vaccine institute to develop a vaccine against Meningitis C.

I should also say what I am not: I am not a patent lawyer; I am not a scientist; and I am not a doctor. But like you I think that this is an important issue. It is also one that SmithKline Beecham is willing to search for answers to, with you. It is important that we do this because we employ over 50,000 people, whose jobs depend on it, and because we want to be in business ten years from now. I firmly believe that the debate about access to medicines, which Medicins sans Frontiers has launched, is actually about the strategic future of the pharmaceutical industry. And the industry wants to search for answers too.

I would like to do two things. First, I want to set out the issues involved in promoting access to medicines in the developing world, as I see them, look at the kind of solutions proposed by Jamie Love, Greg Perry, Tido von Schoen-Angerer, Pierre Chirac and others, and set out the reality. Second, I want to look at some ideas about where we go next.

There are four kinds of issues:

• Are patents, and intellectual property rights in general, a problem?
• The assumption that international price differences are a barrier to access
• The real barriers to access
• And global inequality

Firstly, patents. I do not want to go through the usual industry arguments with which you are all familiar and which have been well rehearsed in the past. These are arguments about the importance of intellectual property rights in stimulating R&D, and in the funding of R&D. I think it's worth adding that nobody, as far as I can tell (and I include Jamie Love and Greg Perry here), is interested in a radical overthrow of the existing paradigm of patent law as it applies in market economies. If that is what people want I assume that they would be honest enough to say so.

It is argued that relaxing patent law, through a TRIPs review, will promote equitable access to healthcare.

I am a little amazed that patents are seen as being such a problem. In reality, only ten out of the 300 or so medicines on the Essential Drugs List are still patented. And even of those ten, every one, except one, will be off patent within three years. Greg Perry obviously will have more to say about this - because it is his companies which seem to me to have by far the greatest responsibility - now those drugs have gone off patent - to get them to the developing world cheaply.

If TRIPs is such a problem, and patents the root cause of the access problem, people in developing countries should today have unlimited, unhindered access to almost all the drugs on the EDL. This is blatently not the case. But it certainly is the case that most are not patented any more! Greg Perry says his companies are working on it - but are they working quickly enough?

I think it's also worth saying that patents have the effect in practice of creating a burden-sharing mechanism between rich and poor. The industry funds current research from current revenue. It does not build up huge debts that are somehow paid off when the revenue flows in. The rich countries of the northern hemisphere take the burden of paying for pharmaceutical innovation: the US and Europe, effectively, pay for probably over 80 per cent of innovation. I do not think anyone here would want that to change.

Very few people in the pharmaceutical industry would argue that the developing world should be forced to carry the burden of paying for R&D to anything like the same extent that Europe and the US does. This is obvious. If the industry did seriously think it could reap large rewards from the poor, then presumably it would be busy producing medicines for developing country diseases - which everyone here agrees it abjectly fails to do.

I would like now to say a few words about compulsory licensing. Jamie Love holds this out almost as the Holy Grail, the panacea for all the ills facing the developing world today.

Firstly, and let me say this very clearly: the R&D based pharmaceutical industry is not opposed to the compulsory licensing provisions within the current TRIPs. It supports TRIPs : and you can't pick and mix! And TRIPs permits compulsory licensing. I do not think this has been said clearly enough by my industry. It should have been. The result of not saying it clearly enough is that Jamie Love and others have made the running on it. Earlier Tido (von Schoen-Angerer) said that "compulsory licensing is an extreme measure for extreme cases". We agree!

Also, you can have as much influence today on "G1 bilateralism", or "big-hat bilateralism", as it was put yesterday, as we can. This was shown by the direct action against Al Gore and the change in the US position on South Africa. Clearly, the pharmaceutical industry no longer has a patent on power! Whether we like it or not, this too is part of the implementation of TRIPs.

What is being proposed now, gradually, however, is not compulsory licensing within TRIPs, of course, but the widespread, easy, systematic use of compulsory licenses beyond TRIPs. If we are in the business of developing new medicines, which we all agree is what are needed, then creating a massive hole in TRIPs, going further than TRIPs, will not help. It runs the risk of deterring research - which is against the interests of all patients, not just those in the southern hemisphere. And it would probably also promote more research for the diseases of the northern hemisphere alone. As Michael Scholtz of the WHO said yesterday, compulsory licensing should be an option of last resort - and voluntary licenses are better!

It's one thing not having a market for products, but throw in to the equation no patent protection either, and you can forget it. I do not honestly believe that MsF, the WHO and others want to go down that route. It would be like issuing an instruction to pharmaceutical companies to stop research into diseases which are prevalent in the developing countries.

Secondly, I would like to say a little about prices. Though this workshop is on the trade-related aspects of access, the issues are so interwoven that it is impossible to separate them entirely.

We all agree that price differences between countries exist. Even within Europe, as John Barker (of the Association of Pharmaceutical Importers) knows well, price differences can generate massive returns for arbitragers in the parallel trade business. But Europe is increasingly a single political entity, and European healthcare systems are converging.

One day, maybe not far away, this will mean similar levels of economic development and therefore similar if not single prices for medicines in Europe. At that point John Barker et. al. will be out of business.

But be careful about parallel trade. Europe is different. It has taken 50 years of political integration across a continent to get to the point where people in the healthcare business - including governments - start to think about single prices in a single market - and even now there's not many that do. It has taken a single currency, a central bank, Europe-wide elections, and an enormous amount of political debate in all our countries. So do not let anyone tell you that "parallel trade is OK in Europe - it must be OK anywhere else". It really is not that simple.

Let's look at the basics. Why do price differences exist? There should be a simple answer: to promote access. The whole point of differentiated, or "steeply preferential" prices, is to sell drugs to people and governments who would otherwise not be able to afford them. You do not need to be a mathematician to see that a global single price would be an absolute disaster (not just because John Barker would be out of business), but because averaged prices would be much higher than now. Michael Scholtz said this too. He is right.

I agree that it is absurd, if it is true, that in some developing countries price levels are massively and widely higher than in Europe or the US, for the same drugs. That is not sustainable. I also think that this is today very difficult to justify morally. Arguably, it is also bad business. It suggests that the industry relies on an easy but probably declining market for the privileged few. The alternative should be to develop markets and to go for the challenge of volume sales to much larger populations. We need to work on this. In SmithKline Beecham, we are now looking at it. I think other companies are too.

However, examples of this kind of ridiculous situation (and HAI have compiled quite a few examples) also point to real problems. The real problems are about access to medicines within countries, and the operation and capacity of healthcare infrastructures within countries. It's worth looking at this a bit more.

Firstly, it is easy to look at the high prices paid by the wealthy few in many developing countries, and to extrapolate these internationally. It's a crude analysis which gives some amazingly good ammunition. It shows glaringly different prices.

But then look a bit closer, and you see that in fact within all these countries there is more than one price, that prices are differentiated within countries - low government tender prices (if the government can afford it) and high private prices.

Secondly, most governments play a dominant role in healthcare - and healthcare is an amazingly controversial and highly political area of public policy. Do you really think that the pharmaceutical industry is going to refuse to supply rather than sell, most of the time? That is not really the main problem. When governments tender, the prices do come down dramatically - and rightly so, most of the time.

As Asia Russell of ACT-UP Philadelphia, and the Treatment Action Campaign speaker both said yesterday, governments have a responsibility to act too. Political will is necessary. Also, the pharmaceutical industry has to respond, to make the kind of transition that will be required as a result of economic development and political change - from small markets of the privileged few to mass markets.

And thirdly, let's not forget generic prices - and the fact that almost all the Essential Drugs List is now generic. Again the generics people should have more to say on this. Generic prices shadow R&D industry prices and, therefore, display just the same price differences that the R&D based industry stands accused of foisting on the world. Where generics are sold they're just a few percentage points cheaper. The generics people - who have done none of the R&D - are as much a part of this problem, if not a greater part of the problem, than the R&D industry. Their responsibility for getting cheap drugs to patients is as great as our responsibility to continue doing the innovation.

This brings us to the third big issue in barriers to access: healthcare infrastructures. This is about the world within which MsF operates; it is a world in which hospitals frequently do not exist, a world in which clinics are a five hour walk, a world in which millions die every year from diseases which are easily treated, a world of child labour, child mortality and child soldiers, a world of massive population explosion, and a world in which four fifths of the population do not have access to healthcare.

Even if medicines were given away in this kind of environment, many countries would simply not be able to distribute them, or to use them effectively. Some countries, some governments, just cannot afford the costs that come with access to medicines. And just to emphasise this even more, in terms of financing healthcare, medicines are the tip of the iceberg. But like icebergs, they are usually easily visible. So to continue the iceberg analogy, attacking the pharmaceutical industry is a bit like rearranging the deckchairs on the Titantic.

The real problem is about global inequality, social justice and the distribution of wealth, within countries and between hemispheres. This is what we should address - MsF and, if we can organise it, the pharmaceutical industry. It worries me more than a little that getting hung-up on patents, or even prices (just like pharmaceutical industry people do!) tends to neglect the real set of problems, which are about poverty and everything that goes with it.

There's a lot of demonising of big pharma. It's no use doing that - it will just put its head in the sand and hide. The WHO sees the pharmaceutical industry as contributing about a sixth of the problem. I agree. This is about right. Why one sixth: because the WHO says that barriers to access are due to inappropriate drug selection and use; inadequate infrastructure, storage and delivery within countries, cost to national governments, and then prices. I make that one sixth of the problem. And I don't think it's even the most intractable part of the problem.

Most people here also will recognise that clean water, reliable supplies of food, and rural and environmental development projects, will have much greater impact, quicker, on health and well-being in many developing countries than immediate access to the panoply of technology available in the cocooned healthcare systems of the northern hemisphere.

I am not advocating that the pharmaceutical industry should put its head in the sand and say that there is nothing it can do, ostrich-like. There is much it must do. What I am pointing to is the scale of the problem, and the enormity of the task. A simple obsession with patent law, or product prices, or compulsory licensing, or parallel trade, will not work and probably only succeed in actually diverting attention from the real issues. Which, of course, is convenient for some people and some governments.

Firstly, I don't have all the answers. And neither does SmithKline Beecham. But we are willing to listen. And we are open to helping where we can.

I referred earlier to burden sharing. And in Geneva last year Greg spoke a great deal about balance being needed in this debate. I think we must start with these ideas of burden sharing and balance.

We need to be creative about law and the political environment for healthcare. The pharmaceutical industry is very good at developing innovative medicines. It does not stand out as being particularly creative when it comes to public policy.

So where do we go?

Four points:

• Donations
• R&D agendas
• Prices
• Investment models

Firstly, there is now a relatively long history, through the 1980s and 1990s, of philanthropy - of charity - being provided by the pharmaceutical industry. I do not want to dwell on this. Like most people here, I am not a great believer in charity as a mechanism for solving problems which are caused by socio-economic and political inequality. I do not think that Susan Foster is quite right when she says that "it buys you off" (Paris, October 1998) but unquestionably it will not work alone. Charity helps, it should be welcomed when it happens, and it's part of the contribution which should be expected, rightly, of the pharmaceutical industry. It's part of burden sharing.

SmithKline Beecham's major donation programme, with the World Bank and Merck, of albendazole, is one example. We will eliminate lymphatic filariasis. There are many other examples. But its taken us 18 months to get the first shot of albendazole administered. That tells you something about the real infrastructural problems we face in the field, which are not only problems of poverty but also problems entailed in mobilising Kafka-esque bureaucracies.

We also have lots of examples of vaccine donations, which I will not go into but can if anyone wants details.

I think it is a reasonable objective for philanthropy to evolve, to mature. It can become a structured relationship with aid and humanitarian organisations, with the WHO, with MsF and UNICEF, and others. This is good because it leads to relationships based on trust, and relationships which are less one sided

Secondly, a real question exists about R&D agendas. How do we encourage research into diseases for which markets do not exist. The Americans here have a very simple answer: publicly funded R&D associated with generic manufacture. Again, if only the world was that simple.

There are basically three ways of doing it:

• Global, or multinational, funding mechanisms. The Medicines for Malaria Venture, of which we are a part, is an example of trying to find affordable and appropriate antimalarial drugs.

• Research incentives: There are lots of possibilities. One of the ideas going around is to extend patent laws on northern hemisphere blockbuster drugs to finance developing country medicine research. I like this idea because it provides real and large commercial incentives to do research that otherwise would not be done. It also introduces real burden sharing. We can negotiate the length of patent extension and the number of tropical drugs required. But as an idea it's simple, it's about burden-sharing, and it promotes innovation in neglected diseases. Unfortunately, the generics people will fight it, and have fought it to the hilt, because they want their commercial return in Europe and the US too, as you know as soon as possible.

• Specific legislation, such as Orphan Drug legislation, which might include incentives and funds too.

But here we need organisations like MsF to become part of the political debate - and they haven't really been yet! Focus on prices and patents and you miss the real issues. MsF now says that Europe's draft orphan drug legislation "is not enough". But that voice hasn't been heard in Brussels until now. It should have been. This becomes even more important now that the Commission has said that it is going do something about medicines for diseases of the developing world. I hope that MsF will be part of that debate, and that we can work together on it!

Thirdly, as I said earlier, you do not need to be a mathematician to see that differentiated prices are probably part of a solution. Not everyone will agree but clearly price mechanisms can be seen as being one way of creating access to medicines in the developing world. Average, single, universal, global prices would probably mean higher prices for the developing countries.

In Geneva in 1998 Greg Perry suggested - maybe not very clearly but nevertheless perceptively - that one part of a deal might be for developing country governments to outlaw parallel trade from their countries, in return for cheap, or even sometimes cost price, medicines. It's an interesting idea that's worth looking at. I'm not proposing it - but other people in the humanitarian aid community have mentioned it to us separately from Greg. Again, Michael Scholtz said it yesterday too - were we all listening? It's a realistic deal.

Do that and we might start to make progress. That would be a real "exception sanitaire" from TRIPs! It would be a win-win solution - except for John Barker's people.

Fourthly, and finally, we must think a little about the investment community. As a European, I find myself being no great advocate of a "chemically pure" form of Anglo-Saxon market capitalism (to paraphrase Lionel Jospin). I also have an instinctive bias against American market solutions being imposed on Europe.

However, political change is about influencing the context in which decisions are made just as much as it is about influencing the decisions themselves.

Why does a pharmaceutical company lose over a tenth of its value when it suffers the disaster of one of its new drugs failing to be licensed? Why aren't donations of medicines to MsF or to the WHO highly rated by the investment community? After all, its people, many of whom are like us, who directly or indirectly own the shares of pharmaceutical companies - including your pension funds.

There is lots of evidence that the investment community is slowly becoming more socially responsible. The evidence indicates that not long from now it might well make good commercial sense for the pharmaceutical industry to be just a little bit more aware - a little bit more responsive - to the socio-economic condition and needs of large parts of the world, which many of you claim it currently neglects.

I think we have a choice. It is a choice between realistic policy options which have a chance of confronting the effects of global inequality and poverty, or those which are outwardly attractive and simplistic but which could actually be counter-productive. I would choose the former. These are options which:

• envisage donation programmes evolving into structural partnerships rather than charitable operations
• options which promote legislation which genuinely influence R&D agendas and funding
• options which see differentiated and fair prices as creating access
• and options which don't just seek to keep profits high today but which also look forward and try to create a more equitable and sustainable future for tomorrow's global community

These kind of solutions keep the pharmaceutical business motivated to innovate. We need to keep new medicines coming on stream through the pipeline. I would argue that you don't get that through tinkering with TRIPs - exactly the opposite in fact. Focus on opening up TRIPs, or putting massive holes in it, and we run the risk of delaying real action on access to medicines for five to ten years, if not indefinitely. For me, that's too great a risk to take.

David Earnshaw

26 November 1999