Undercover Economist

For malaria, we just can’t afford to use cheap drugs

There are two ways to take anti-malarial drugs: the expensive way, which helps the world; and the cheap way, which helps only the patient. Most Africans cannot afford the expensive way and, as a result, the world’s most effective anti-malarial drug may lose its potency.

That drug is artemisinin, available either by itself as a “monotherapy”, or with other drugs as a more costly artemisinin combination therapy, or ACT. For now, the monotherapy is excellent from the patient’s perspective. Yet the ACT is greatly preferred by global health wonks, because monotherapies tend to encourage drug resistance in the malaria parasite.

This is no mere theoretical concern: malaria is now highly resistant to a previous wonder drug, chloroquine, and researchers have detected signs of resistance to artemisinin in areas where monotherapies are widely used.

ACTs make it harder for the malaria parasite to develop resistance. “Finding two keys is far more difficult than finding just one key,” says Ramanan Laxminarayan, an economist and epidemiologist at Resources for the Future, a Washington, DC think-tank that has traditionally specialised in developing economic solutions to environmental problems such as congestion and pollution.

To an economist, the problem of malaria resistance looks very similar to the problem of pollution. In the jargon, there is a “negative externality”. The driver of a gas guzzler enjoys the benefits of his vehicle, while strangers suffer most of the costs of the smog, congestion and climate change to which it contributes. Similarly, a Nigerian woman with a sick child, seeking out treatment in a pharmacy in Lagos, will hardly be inclined to ponder her contribution to artemisinin resistance. And who can blame her?

The classic economists’ solution to a negative externality is a tax on the bad stuff, but it would be fatal to price monotherapy out of the reach of Nigerian children. It should be just as efficient – and far more humane – to subsidise the socially superior product, ACT drugs.

This idea was proposed in 2004 by a committee headed by the economist and Nobel laureate Kenneth Arrow. Five years later, the proposal is becoming a reality under the auspices of the donor-funded “Affordable Medicines Facility – Malaria”, usually called AMFm.

Laxminarayan estimates that to flood the global market with cost-competitive ACT drugs would cost around $300m-$400m a year; for now, a less costly pilot will test the idea.

Unlike many grand aid initiatives, AMFm does not try to reshape reality beyond the narrow subsidy. Developers of effective new malaria treatments – there are three in the pipeline at present – should be encouraged by the prospect of tapping into the subsidy. Meanwhile, the proposal does not put too much reliance on public healthcare systems in Africa: most Africans buy their drugs from pharmacists rather than clinics, and the subsidy would do nothing to change that. Instead, by ensuring that the ACT drugs are cheaper than monotherapies on the way into the wholesale markets, donors hope that they will be cheaper over the counter, too.

That is likely, although not guaranteed. The system could, for example, leak at either end – AMFm must ensure that the subsidy does not also benefit producers of monotherapies, while distributors facing limited competition might be able to keep the subsidy profits for themselves.

Still, Laxminarayan is confident. Arrow, now nearly 90, is more cautious, arguing that there is only one way to find out if it works. Big ideas in development aid have often fared poorly, but the record of the aid industry in public health boasts numerous successes. This plan is worth a try.

Also published at ft.com.