The pharmaceutical industry in the developing world: generic and branded

 

Disease profiles in the developed and developing world are not the same but contain some overlap.  Of the top 5 causes of death, there is only one that overlaps between developed and developing nations, ischaemic heart disease.[1]  Of the 13 top causes of mortality in Africa only 8 can be considered to significantly affect the developed world.[2]  Because the modern pharmaceutical industry has invented thousands of medications over the past 40 years, there are medications of at least moderate effectiveness that can be used to treat most of the diseases prevalent in poor nations.[3]  However, in the case of medicines used to treat infectious diseases, many are in danger of losing their effectiveness.[4]

 

Because there is significant divergence between the mortality and disease profiles of rich and poor nations drug development efforts benefit rich nations far more than poor nations.  Drugs are developed to treat diseases that affect a relatively small number of the world’s sick.  This has resulted in what is know as the ‘10/90 gap.’  Currently 90% of research dollars are being spent on diseases that account for only 10% of the world’s health burden.[5]  Because of the negative impact that disease has on productivity this disparity is research funding also helps to perpetuate the wide gulf between economic productivity in rich and poor nations.[6]

 

Patents and Generic Pharmaceuticals

Until recently many developing nations did not offer patent protection on pharmaceuticals.  In countries that developed generic[7] manufacturing capacity this lead to a situation where a high percentage of the pharmaceutical market is generic.  Generic companies produce copies for drugs they did not invent and do not engage in pharmaceutical innovation themselves.  A vibrant generic industry developed in a small number of developing countries, in particular India, Brazil and Argentina. 

 

In the absence of patent protection the generic industry copies and sells most new drugs soon after their international launch.  Many Indian made generic pharmaceuticals are sold at a fraction of the cost of the brand name patent protected equivalent.  For example, HIV/AIDS drugs that cost $12,000-$15,000 in developed countries are available from India’s generic pharmaceutical sector at less that $300 per year.[8]  Recently 10 Latin American countries invited generic and innovator companies from around the world to negotiate lowest price offers for drugs to treat HIV/AIDS.  All but one of the name brand firms that invented the drugs refused to participate[9], allowing generic firms, primarily based in India and Argentina, to set the pricing bar.[10] 

 

In both the developed and developing world the presence of generic pharmaceuticals can lead to prices that are significantly lower than those charged by name brand pharmaceutical companies.[11]  However, it is competition that drives these lower prices.  In countries where there is generic production but no real market competition generic products may not have lower prices.  This has been reported in Brazil.[12]  Where patent protection exists generic pharmaceuticals and competition can generally only be introduced after the patent period had expired, generally 20 years.  Where patent protection does not exist generic pharmaceuticals can be produced at any time.  In areas with a patent protection regime the introduction of the first generic competitor is generally at a price 25% lower than the established branded product.  If a larger number of generic manufacturers enter the market the price can be expected to fall to a point close to the price of production.[13]  In a country such as India, with hundreds of generic pharmaceutical manufacturers, competition is generally fierce, leading to overall low drug prices.[14]

 

The Brand Name Pharmaceutical Industry and the Developing World in Conflict

Brand name pharmaceutical companies are a natural target for people frustrated with the continuing health disparities between the world’s rich and poor.  In 2002 the gross sales of the pharmaceutical industry were larger than the combined GDP of the world’s 95 poorest nations, and larger than the GDP of all but 12 nations worldwide.[15]  In addition, the name brand pharmaceutical industry has been the most profitable global industry for several years running, and has had a rate of return triple the average for all industries since 1996.[16]  Whether or not pharmaceutical industry profits are justified by the need to compensate for a high rate of risk inherent in drug development and high research costs,[17] the industry’s wealth and profitability make it a logical target for civil society organizations looking for resources to help improve access to medicines in poor countries.

 

Conflict over the price of medicines

Though money to purchase medicines does not guarantee access,[18] without adequate financial resources, either from government, individuals or donors, access to medicines is imposable.[19]  Developing countries generally lack the resources to buy pharmaceuticals for their populations.  The poor tend pay for the most medicines they consume in developing countries,[20] but poverty blocks access completely for many.[21]  In this context, drug companies charging prices for pharmaceuticals in excess of the cost of production are clearly contributing to difficulties in facilitating access to medicines for the poor.[22]

 

In both developing and developed countries drug companies have been accused of charging unconscionably high prices for the drugs that they invent and produce.  In the United States, seniors’ organizations and consumers rights groups such as the American Association of Retired Person and Public Citizens Watch have long campaigned for lower drug prices for consumers in the United States.[23]  Global civil society organizations such as Médicins Sans Frontières (MSF), Oxfam, Health Action International (HAI) and Health Gap have been heavily involved in demanding that the pharmaceutical industry facilitate or provide access to affordable medicines for the world’s poor.[24]

 

The pharmaceutical industry has responded to calls for affordable medicines in poor countries.  In particular, some AIDS medicines have been offered to the nations of Sub-Saharan Africa at zero or dramatically lowered cost.[25]  Pharmaceutical manufacturers have engaged in a significant number of other initiatives to provide low cost or free drugs to treat other diseases.[26]  However, while some drug donation programs have been effective, with the exception of programs to provide AIDS drugs, drug donation programs tend to be time limited and have a history of problematic results.[27]  Of more importance may be emerging public/private partnerships between pharmaceutical companies and civil society organizations seeking to treat diseases that affect predominantly the world’s poor.[28]

 

Despite positive responses from the pharmaceutical industry there remain areas of tention and difficulty.  The pharmaceutical industry has not provided a systematic response to calls for lower drug prices in poor nations.  As recently as February 2003 prices for some AIDS drugs were higher in Guatemala than Switzerland.[29]  The price of medicines continues to vary widely in developing countries.  In developing countries that depend on brand name manufacturers to supply pharmaceuticals, the price of medicines can be higher than the price charged in the United States.[30] 

 

Conflict over the patenting of medicines

The area of conflict between the pharmaceutical industry and civil society organizations that has been the most intense over the past 4 years has been over the patent rights of the pharmaceutical industry in developing nations.  Name brand pharmaceutical companies have lobbied intensively and succeeded in having patent protection for pharmaceuticals extended to developing countries through multilateral trade negotiations.  The Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement and the associated Doha declaration have become an international flash point in the ongoing World Trade Organization negotiations. 

 

There is significant disagreement about the merits of patent protection for developing nations and over the specific obligations that poor nations now have to protect pharmaceutical patents.  Developing nations, and in particular the United States, in response to pressure from the innovative pharmaceutical industry had made compromise between the patent rights of companies and the right of government to override patent rights to provide access to drugs for the world’s poor very difficult.  These issues are currently being negotiated at the World Trade organization.    See here for details on TRIPS, Doha declaration and associated conflict.

 

Conclusion

It is clear that poor nations receive significant benefit from the medicines invented by the global pharmaceutical industry.  It is equally clear that they do not receive as much benefit as they could if access to medicines was a global priority.  This is clearest in the case of drugs to treat HIV/AIIDS.  Without the global pharmaceutical industry these drugs would not exist, and many in developing countries who have access to these drugs would already be dead.  On the other hand, it has been a struggle to convince pharmaceutical companies to provide these drugs for free or at the lowest possible cost.

 

The pharmaceutical industry is driven by business interests and the need to make a profit.  Conflict exists over the extent to which pharmaceutical companies should be allowed to profit from, and the extent to which such companies should be expected to help, in providing medicines to the world’s poor.  Conflicting visions of the pharmaceutical industry’s rights and obligations are currently shaping the conflict over the extent to which poor nations should be allowed to override pharmaceutical company patents in order to encourage the production of low cost drugs.  The compromise that is reached is likely to have a major impact on current and future debates over the pharmaceutical industry’s role in providing medicines for the world’s poor.

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