The National Institutes of Health is holding a hearing Tuesday on citizen demands that the government seize the patent of Abbott Laboratories’ AIDS drug ritonavir, whose initial version was discovered on a government grant. Here’s a few important facts to keep in mind while reading or listening to the news coverage.

First, between 1985, when President Ronald Reagan was forced to finally take the AIDS epidemic seriously, and 1996, when the triple cocktail for controlling the disease finally emerged, the U.S. government spent over $10 billion on AIDS research. Industry in that 11-year span spent less than $3 billion.

Second, all of the early drugs for fighting AIDS, which didn’t become effective until protease inhibitors were discovered, were largely developed by government scientists.

Third, the protease inhibitor class, which includes Abbott’s ritonavir, were developed in industry labs. But those private sector researchers collaborated with government researchers every step of the way.

Why is this ancient history still important? AIDS therapy in the advanced industrial world today is a $7 billion a year market. A few months ago, Abbott raised the price of its protease inhibitor fivefold in order to gain a larger share of that market. They could get away with it because virtually every AIDS doctor adds a bit of ritonavir to their prescribed regimen because of its unique properties — it inhibits the metabolism of the other drugs.

Abbott’s goal was to force new AIDS patients to take their combination pill, which has ritonavir built in, instead of combinations made by competitors. What Abbott’s marketers didn’t plan on was angry opposition from existing AIDS patients, who can’t easily switch from their existing drug cocktails without spawning drug-resistant forms of the disease. So the AIDS activist community, which in recent years had largely turned its attention to the problem of getting AIDS drugs to the developing world, once again went on the warpath.

Abbott has already mounted its counter offensive. “We’ve spent over $300 million developing ritonavir,” their spokesman are saying, “while the government spent only $3.7 million on this drug.”

What they won’t say is that they wouldn’t even pay to have their own scientist work on the initial stages of the drug’s development until the government ponied up the cash. Nor will they admit that it was only at the urging of independent researchers that they moved to testing their drug in combination with others already approved by the Food and Drug Administration. Nor will they admit that most of that $300 million was spent AFTER ritonavir was approved by the FDA. It was spent on so-called seeding trials that are designed to familiarize doctors with the drug, that is to say, trials that are really part of marketing even though it is called R&D.

A lot of Tuesday’s discussion will revolve around legal interpretations of the government’s technology transfer laws. Industry proponents (which includes most of the NIH bureaucracy) will argue that the “government rights” clause does not pertain to unreasonable pricing of government inventions.

My own reading of the late 1970s debate leading up to passage of the tech transfer laws says the issue was never really discussed in those terms. Government advisers like Admiral Hyman Rickover worried more about subsidizing big business. His close relationship with military contractors over the years had taught him that price gouging was inevitable when the government granted exclusive licenses for inventions discovered on the taxpayer nickel. In those days, it was the $600 toilet seat. Today, it’s the $10-a-day AIDS drug.

There’s no doubt that Abbott will escape Tuesday’s hearing unscathed. The drug industry rarely loses when money is at stake and Washington is the battleground.

But they may wind up losing the war. Generic AIDS medications are finally on their way to the developing world. Even the Bush administration couldn’t stand up to the pressure mounted by the World Health Organization, UNAIDS and global non-governmental groups.

One of the industry’s main arguments against allowing countries like India to make generics for Africa was their fear that these drugs would inevitably leak into the advanced industrial world through the so-called gray market, thus undercutting domestic prices.

If the industry responds to the arrival of Third World generics with price gouging a la Abbott, their fears will become reality. And when it does, they’ll have no one to blame but themselves.

Yesterday’s announcement that the Bush administration is finally willing to provide generic AIDS medications to the developing world is welcome news. Previously, the administration’s Third World AIDS czar, former Eli Lilly executive Randall Tobias, had pushed for U.S. aid to buy patented drugs at near-market prices.

Before we break out the champagne to congratulate the administration (and heave a sigh of relief that our taxpayer dollars will go a bit farther), a few salient facts are in order. Between 1985 and 1996 when the AIDS triple cocktail emerged from research labs, the U.S. government poured more than $10 billion into AIDS research. European governments and Japan spent billions more. Industry spending, meanwhile, totaled less than $3 billion, well under a quarter of the total.

So it should come as no surprise that every one of the first AIDS drugs, most of which are still on the market, emerged from those early government efforts. Even several members of the first generation of protease inhibitors, the drugs that made the triple cocktail work, began their lives on government grants or relied on government-funded clinical trials to pass Food and Drug Administration muster.

I don’t bring up these facts merely to harrumph over the Bush administration’s reversal. Access to affordable medicines is a problem here, just as it is in Zimbabwe and South Africa. AIDS therapy in the advanced industrial world is now estimated to be a $7 billion a year market, much of which is picked up by Medicaid and other government assistance programs. The drug industry invested significant sums in developing the first and subsequent generations of AIDS drugs, to be sure. But they have been and continue to be well reimbursed for their efforts.

The question now is this: If the developing world can have affordable AIDS drugs, why not here? A few months ago, Illinois-based Abbott Laboratories quadrupled the price on its protease inhibitor, Norvir, which was approved in 1996 and is the direct descendant of a drug invented on a government grant.

Why the massive price increase? Norvir (the generic name is ritonavir) has some peculiar properties. It makes all the other AIDS drugs stay in the blood stream longer. So many physicians prescribe it in small doses to go along with the triple cocktail. As an old-time ward heeler from the city that gave birth to Abbott once put it, “I saws my opportunity, and I took it.”

The price increase drew howls of outrage from the AIDS activist community. One group sued. The Consumer Project on Technology, a Nader spin-off, petitioned the National Institutes of Health to exercise a “government rights” clause that is attached to every invention made with government funds. If CPT had its way, the government would seize the ritonavir patent and give it to a generic manufacturer.

On May 25th, NIH will hold a hearing on that petition. Don’t expect much action from the government. But it should provide an entertaining glimpse into industry thinking. We’ll keep you posted.