Normative Narratives

Transparency Thursday: Generic Drugs in the Developing World; Is Access to Quality Healthcare a “Human Right”?

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As the partisan fight over the right to healthcare rages on in America, significant steps are being made to ensure that the world most impoverished receive access to life saving drugs at affordable prices:

“The two companies that make vaccines against cervical cancer announced Thursday that they would cut their prices to the world’s poorest countries below $5 per dose, eventually making it possible for millions of girls to be protected against a major cancer killer.

Thanks to Pap tests, fatal cervical cancers are almost unknown today in rich countries. But the disease kills an estimated 275,000 women a year in poor countries where Pap tests are impractical and the vaccine is far too expensive for the average woman to afford, so the price cut could lead to a significant advance in women’s health.”

“The low price will initially apply to a few million doses for demonstration projects in Kenya, Ghana, Laos, Madagascar and elsewhere, but Dr. Seth Berkley, the alliance’s chief executive officer, said he hoped that by 2020, 30 million girls in 40 countries would get the vaccine at that price or less.”

“The vaccines cost about $130 a dose in the United States, and each girl needs three doses. The lowest price that any other agency or government has negotiated, Dr. Berkley said, is the $13 paid by the Pan American Health Organization, which negotiates a bulk price for Latin American countries.

Since Latin America includes a mix of poor and middle-income countries, the manufacturers do not offer rock-bottom prices there, he said. The alliance subsidizes vaccine costs for the poorest countries in Africa, Asia and elsewhere, with the subsidies shrinking as the countries get richer.”

“Dr. Julie Gerberding, a former director of the Centers for Disease Control and Prevention who is president of Merck’s vaccine division, said $4.50 was Merck’s manufacturing cost, with no previous research, marketing or other costs built in.

‘The price is what we calculate to be our cost of goods — we could be off by a few cents but not more,”’ she said. ‘As we expand volumes, the cost per unit can go down. Our intent is to sell it to GAVI at a price that does not bring profit to Merck.’”

“Dr. Berkley described the new prices as a ceiling, and said he expected them to go down as millions more doses were ordered and as rival vaccine makers from lower-cost countries like India and China entered the field. Other companies, including the Serum Institute of India, the world’s largest vaccine manufacturer, are developing papillomavirus vaccines, but at the moment only the Glaxo and Merck vaccines have approval from the World Health Organization.

The alliance, Dr. Berkley said, has already negotiated sharp price drops in the cost of pentavalent vaccine, a shot that protects against diphtheria, tetanus, whooping cough, hepatitis B and Haemophilus influenzae B.

That shot costs about $30 in wealthy countries and the alliance first started purchasing it at $3.50. “Now we’ve got it down to $1.19,” he said.”

The “spotlight effect” continues to be one of the main drivers influencing prescription drug maker’s decisions in the developing world. The Access to Medicine Index is one example of how much company’s value the goodwill they receive from socially conscious operations. A Google search of “pharmaceuticals CSR” (corporate social responsibility) yields results from many major pharmaceutical companies highlighting their work in the field.

It is no secret that the Pharmaceutical industry, which is dominated by large multinational corporations, realizes very large profit margins. There is nothing wrong with large profit margins (despite what some may think based on the content of this website, I am a great supporter of capitalism and it’s self-perpetuating innovative mechanisms, as long as there are rules to make sure companies are not taking advantage of society as a whole in the name of maximizing shareholder earnings), as there are significant research and development costs associated with creating new medicines.

On moral, ethical, and even economic grounds, it is difficult to defend companies not allowing developing countries to produce generic versions of their drugs. There is no loss of revenue for the drug companies; these people are not sitting on cash waiting for handouts, they would not be able to afford the drugs at a higher cost. Economics calls this “third degree price discrimination”; selling a good at a lower cost based on the realities of the targeted market. The goodwill and positive press these companies receive is just icing on the cake if pharmaceutical companies sell their drugs at cost (zero profits, but all costs are covered; financially it is a wash and in so many other ways beneficial).

One of the main concerns is that, by allowing developing countries to produce generic versions of drugs, “black markets” will form as criminals in these countries–which tend to lack the oversight capacity—will export these cheaper drugs to wealthy nations. A study by the Universities Allied for Essential Medicines refutes these claims, “pharmaceutical arbitrage from poor countries to the high income was “still largely theoretical.”

But the “spotlight effect” is not a sustainable way to ensure the poor have access to life saving vaccines. “According to the WHO, 10 million people die every year that could be saved by existing drugs.” To this end, India’s Supreme Court recently set legal precedent for protecting generic drug producers:

“Production of the generic drugs in India, the world’s biggest provider of cheap medicines, was ensured on Monday in a ruling by the Indian Supreme Court.”

“The ruling will also help India maintain its role as the world’s most important provider of inexpensive medicines, which is critical in the global fight against deadly diseases. Gleevec, for example, can cost as much as $70,000 a year, while Indian generic versions cost about $2,500 a year.”

“In Monday’s decision, India’s Supreme Court ruled that the patent that Novartis sought for Gleevec did not represent a true invention.”

“I think other countries will now be looking at India and saying, ‘Well, hold on a minute — India stuck to its guns,’ ” said Tahir Amin, a director of the Initiative for Medicines, Access and Knowledge, a group based in New York that works on patent cases to foster access to drugs.”

Essentially, the Indian Supreme Court ruled that in order for a drug to receive a renewed patent (and thereby disallowing generic version to be produced), a “true innovation” in the drug has to be proven. Simply changing proportions of minor ingredients, or repackaging an existing drug as something new, will not allow companies to get new patents.

Some in the pharmaceutical industry have tried to protect their interests, saying this ruling will compromise their “ability to develop and manufacture innovative medicines.” I believe we will see the opposite effect. Companies, knowing they need truly innovative breakthroughs to receive new patents, will focus their efforts on creating these new drugs, instead of tinkering with existing drugs in hopes of extending their IP rights on drugs they have already greatly profited off of.

What do you think? Certainly Pharmaceutical companies have reaped huge profit margins, and benefit from an implicit oligopoly (various barriers to entry make new Pharmaceutical companies almost non-existent).

Is there a moral obligation for pharmaceutical comapnies to allow cheap generic alternatives to be produced for people in the developing world? Or is it just an act of charity when these companies do something socially responsible, but not something those in the developing world should count on? Or is it up to the legal systems in the developing world to stand up to vested interested, and uphold the right to access to affordable medicine for their citizens, as the Indian Supreme Court recently has done?

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