Pharmaceutical Industry and the Aids Crisis

1. Executive Summary

The pharmaceutical industry is characterised as a highly risky and lengthy R&D process, intense competition for intellectual property, stringent government regulation and powerful purchaser pressures (Batiz-Lazo & Holland, 2004). These characteristics have impacted on the willingness of the pharmaceutical companies to cater to the emerging markets and the involvement of ethical issues.

This paper looks at the nature of supplying drugs to emerging markets and suggestions included the following:

a. Enforcement in patent rights in emerging markets

b. Outsourcing

c. Granting distribution rights

d. Alliances to market drug

e. Tax credit scheme

In consideration for an effectiveness of a proposed policy in response to the issue on hand, the Global Alliance for Vaccines and Immunization (GAVI) has been chosen for discussion in this paper as it is viewed as an effective model of international cooperation to conceptualize global initiatives through private-public collaboration.

2. Nature of Supply Drugs to Emerging Markets

The global pharmaceutical industry has enjoyed strong and consistent growth with many key factors of which one of these include the introduction of breakthrough drugs especially for those in the areas of heart disease, cancer, arthritis, diabetes and HIV (1998). In pursuing continuous growth in the various markets the industry has also faced growing condemnation of its response to the enormous unmet need in the developing countries and was criticized for the use of patents and trademarks to protect proprietary technology and some misleading marketing practices (Batiz-Lazo & Holland, 2004). The pharmaceutical industry is the only industry whereby patents are thought to play an important role in bringing new products to the market and the patent protection is more limited as compared to other industries due to the lengthy gap between discovery and approval of a new drug (Boldrin & Levine).

In 2001, the international community was suddenly awaken by a law suit which pitted the call for the poorest countries to have low-priced drugs and vaccines against the need of major medical firms to see their patents respected and duly rewarded (Sachs, 1999). The law suit in object was the one put up by the drug companies against the South African Government for having passed a law in which South Africa can import cheap, generic versions of patented medicines without the permission (and the related payment of fee) from the patent owner.

There lies the civil question on whether poor countries can offer to their poverty-stricken citizens the rights to cure themselves with medicine while still preserving the economical returns to drug seller companies granted by their billionaire patents. In reality, diffusion of new and available technology from richer and developed markets to emerging markets is slow as there are several factors from the players in the market hindering the progress.

First is the point of view of the drug companies and their reluctance in supplying drugs to these emerging markets. The problems which need to be addressed first before companies are willing to look into catering for emerging markets are:

a) Intellectual property rights protection

b) Marketability of the drugs in light of political or economical barriers in various countries

The initial start-up cost such as expensive scientific equipment and well-provisioned research laboratories, the return of investment will be realized with economics of scale and shifting of production to developing countries. However, the research into these fields is hardly viewed as profitable as there is a possibility of copycats who would just duplicate their efforts at a lower cost to reap profits. Adding to this, there is also no clearly defined markets to which these products can be marketed to. These two reasons are the main obstacles in which drug companies are reluctant to pursue mass marketing of vaccines.

Figure 1 shows the relationship between revenues and cost of R&D for major drugs companies and for one local Indian company, CIPLA, selling bootleg drugs (Kennedy, 2001). Intellectual property rights protection has to be emphasized to safeguard and reward the drug companies which poured in millions for R&D into new drugs. Otherwise, it would be the end-users who would suffer as the drug company may pull the plug on its research should