Healthy Skepticism Library item: 271

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Bailey M.
Big Pharma's tiny gestures
The Guardian 2004 Mar 21

Full text:

In the past few months, people suffering from HIV/Aids in developing countries have enjoyed some good news.

In December, drug companies GlaxoSmithKline (GSK) and Boehringer Ingelheim allowed generic firms to supply South African patients with low-cost versions of their anti-retroviral medicines (ARVs). And in January, the Brazilian Ministry of Health announced a pounds 40 million reduction in its annual drugs bill for ARVs, due to price cuts by five international companies – a saving that helps to ensure the sustainability of its world-renowned treatment programme.

Meanwhile in Thailand, Bristol-Myers Squibb (BMS) recently surrendered its exclusive right to produce its ARV, didanosine, enabling the government pharmaceutical labs to manufacture a generic equivalent at a fraction of the annual pounds 900 per patient charged by BMS.

So is ‘Big Pharma’ reforming itself and confounding those who accuse it of relentlessly hunting for profits in poor countries? Sadly, the short answer is no. These advances only came about after the companies were facing legal action and widespread social disapproval.

In South Africa, the Treatment Action Campaign had successfully argued to the competition authorities that GSK and Boehringer had greatly overpriced their patented products the companies backed down rather than challenge the finding and tarnish their image still further. In Brazil, it took government threats to override patents and licence generic manufacture before the price of patented ARVs fell. In the Thai case, BMS dropped the case after a three-year legal battle initiated by local activists, who claimed that the high price of the didanosine patent was an infringement of the human rights of sufferers.

All this suggests that risk management has still not entered the industry mindset, and that the rickety old business model trundles along, regardless of advice from many quarters, including investors, to swap it for a new one.

The old model contains three strategies. The first is to charge as much as any market can bear, irrespective of public health needs. In the developing world, this usually means charging a ‘First World’ price on low volumes sold to the well-off. Even if you have to bring down ARV prices in the glare of publicity, you hold the line on treatments for other diseases such as hepatitis and cancer.

The second strategy – industry’s version of the domino theory – is to defend patents as ruthlessly as imperial Rome defended its furthest outposts, even where they have little economic value. The third is to make sure that you have the US government and a smattering of OECD governments on your side, so that you can disregard public opinion and the rest of the world’s governments put together.

To be fair, some firms, notably GSK, have accepted the principle of setting lower prices in the poorer developing countries, although the range of medicines and eligible countries is too narrow and prices could come down still further. However, Pfizer, the largest pharmaceutical company in the world, still rejects this idea, preferring to respond to public pressure by donating several drugs to treatment programmes in selected countries. While such donations can be useful, they only address a tiny part of the problem and are by their nature unsustainable.

The welcome drop in the price of Aids drugs in Africa has certainly opened the way for expanded treatment programmes and has prompted a World Health Organisation campaign to have three million patients under medication by 2005. However, the price falls did not coincide with boardroom enlightenment but with the arrival of Indian generic medicines at a fraction the cost of the originals. This underlines the critical need for competition. Unfortunately, under World Trade Organisation patent rules – the Trips (trade-related aspects of intellectual property rights) agreement – India is no longer able to produce generic versions of new drugs.

Despite furious industry lobbying, the WTO summit in 2001 stated that patent privileges should not overrule public health interests. The Doha declaration confirmed that governments could override patents and commission low-cost generic production when necessary. This ability to issue ‘compulsory licences’ gives developing countries real leverage when negotiating prices, as Brazil has demonstrated. The declaration also promised to amend a highly discriminatory Trips clause which restricts poor countries from importing affordable generic medicines from abroad.

Unfortunately, industry’s acceptance of the declaration is only honoured in the breach. In reality, it is fighting an intense rearguard action to render the amendment of Trips unworkable. At the same time, the US government, acting at industry’s behest, is using bilateral trade agreements and heavy diplomatic pressure to make developing countries enact business-friendly national patent laws. These dilute the public health safeguards allowed by Trips and offer longer periods of ‘market exclusivity’ for medicines, which means higher prices.

In response to the claim that drug patents drive up the price of vital medicines for people in poverty, the industry stresses that its enviably large profits finance needed innovation. There is indeed substantial investment in R&D (though it is only half the expenditure on marketing and distribution), but little of this is directed at diseases specific to developing countries because these are not lucrative markets. If the annual toll of two million TB-related deaths occurred in Europe or North America, we would not be waiting 30 years for a new TB treatment to appear. The social contract implicit in a patent (citizens pay more for medicines, but get innovation in return) simply does not hold for the developing world. The solution to this massive market failure rests largely on public funding. That said, companies such as GSK and Novartis have increased their investment in infectious-disease research, as has GSK in the critical area of vaccine development. The problem, as with donations, is the small scale.

Another common industry answer to criticism of its role in poor countries is ‘don’t point the finger at us’. In a remarkable reversal of their normal advertising messages, companies argue that health problems are due to poverty, lack of health infrastructure and sanitation, low educational standards and so on. Lack of medicines comes well down the list. This, of course, deliberately misses the point that affordable medicines are one essential ingredient in addressing the health crisis and are something that industry has the power to provide.

So how can society ensure that industry plays a more socially valuable role? First, firms themselves should accept that corporate long-term interest may be better served by a much more flexible approach to prices and patents in developing countries. Greater sensitivity to the health needs of developing countries will help to restore legitimacy to an industry that depends heavily on the trust of the public and governments. Institutional shareholders can reinforce this shift by requiring better risk management and improved industry practices. The framework for assessing corporate responses to the health crisis, launched by City financial institutions in April 2003, was a breakthrough in generating sustained pressure for reform.

Second, since no one firm operating in a competitive market can be expected to take a significant hit to its bottom line, however good the cause, the rules of the game must also change. One very simple policy measure that will bring medicine prices down is to allow generic competition in developing countries. This means facing the major political challenge of reforming Trips, which demands a minimum 20-year patent term worldwide.

Short of that, the governments of developing countries have little choice but to wriggle around inside the straitjacket and ensure that they have the best possible domestic laws and practices, including compulsory licensing. Even this requires determination on their part, continued support from concerned citizens worldwide and large injections of enlightened business thinking into the industry.