Drug Marketing Push in Developing Countries Has Upside and Potential Downside for Poor People

July 10, 2009

The Wall Street Journal published an article on Tuesday, entitled “Drug Firms See Poorer Nations as Sales Cure,” that raises important issues about international on-patent drug pricing and the sustainability of drug access in poor market segments of developing countries.

The basic gist of the article is that drug firms like Pfizer have targeted the working poor in emerging markets like Venezuela as a potential revenue source to make up for the expected shortfall in the U.S. drug market after healthcare reform. The article notes that sales of prescription drugs in emerging markets reached $152.7 billion in 2008, up from $67.2 billion in 2003, and are expected to climb to $265 billion by 2013, citing IMS Health as the source of that data.

It is a good news, potentially bad news story.

The Good News
For years, drug firms have struggled with pricing for middle income markets like Venezuela and for on-patent drugs like Lipitor. The purported reasons are that: (1) the low priced drug might somehow physically be exported to rich country markets; (2) the low price for the drug could be used formally by a rich government to set lower prices for that drug in their public sector (a practice called reference pricing); or (3) rich country consumers would learn of lower prices in another country and complain (which is basically informal reference pricing), creating political pressure for lower prices in that rich market, which is what has been happening in the United States.

The unspoken, but widely-understood calculus has been that more lucrative developed country drug markets would not be undermined by low prices or donations of drugs for infectious diseases like HIV/AIDS, TB, malaria, and neglected tropical diseases (where those drugs exist) in the least developed countries. For other on-patent drugs and middle income countries, drug firms have largely restricted themselves to selling to wealthy private sector market segments within those countries at prices comparable to those charged in the developed world

The WSJ article suggests that dynamic may be changing.

Lipitor is used to treat cardiovascular disease. The WSJ article suggests that Lipitor is either unpatented in Venezuela or that patent protection is ineffective. It is not, however, off patent in the U.S. Pfizer has enjoyed blockbuster sales of Lipitor in the U.S. and, according to news reports, will be on-patent in the U.S. until at least March 2010. The WSJ article notes that Pfizer’s prices in Venezuela tend to be about 30% under U.S. prices, and sometimes 20% less than that with rebates.

This suggests there may be a trend towards more effective international differential drug pricing between developed and developing countries and for a much larger range of products. If so, U.S. health care reform may be driving the trend. The direct effect of that reform, which the WSJ article notes, is that drug firms are looking to emerging markets to make up for the expected loss in U.S. revenues. The indirect effect of reform may be that drug firms are less concerned about the risks of parallel importation and reference pricing in a world in which on-patent drug prices in the U.S., which has represented roughly 50 percent of world drug market, are no longer expected to remain as anomalously high.

The fact that drug firms are looking to be more creative about taking advantage of the purchasing power of the working poor in developing countries is also positive for the long-term sustainability of drug access in those market segments. Donor funding won’t last forever; long-term, the accessibility of essential medical technologies in poor markets cannot rely on that funding alone. Many of the poor have purchasing power that has remained untapped because potential technology producers and suppliers have not spent the time or energy to understand the needs of that market. If those resources can be tapped in sustainable fashion, long-term access to these technologies in poor market segments would be much improved.

The Potential Bad News
The WSJ article raises important ethical issues that should be considered in the event that drug firms like Pfizer are exploiting or driving perceptions of inferior quality of generic drugs per se. Avery Johnson, the author, writes:

Pfizer is benefiting from a belief in Venezuela and in much of the developing world that branded medicines are worth paying a premium for because they’re safer and more effective than generics. . . . Some public-health officials question whether Pfizer is promoting what they say is an unfounded perception that generic drugs aren’t trustworthy. “The quality of a product has nothing to do with the brand name,” says Hans Hogerzeil, the World Health Organization’s director of essential medicines and pharmaceutical policies.

If drug firms were to use unwarranted scare campaigns regarding generics to boost prices and sales, the goal of sustainable drug access in these markets would be significantly undermined. Long term damage could be done by undermining the patients’ confidence in generic drugs generally in those markets – an outcome which may well result in less sustainable drug access for those markets than had previously existed.

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4 Responses to “Drug Marketing Push in Developing Countries Has Upside and Potential Downside for Poor People”

Johnson Says:
July 10th, 2009 at 5:23 pm

I don’t understand how this kind of differential pricing doesn’t violate anti-dumping regulations. Charge more in the home country and then charge cheaper more competitive prices abroad that may even be below total production cost (including R&D) and don’t you have classic case of dumping?
Tom Says:
July 14th, 2009 at 4:55 pm

Great question. Leaving aside the like product analysis (often tricky with pharmaceuticals) and the question of material injury to the Venezuelan domestic pharmaceutical industry, this would not be dumping because it is not a sale below cost under the WTO Antidumping Agreement. The bulk of the costs for a pharmaceutical product are research and development, which are sunk and joint costs – incurred before the launch of the product and largely invariant to the number of countries or patients that use the drug. Marginal costs of production for most patented drugs are low and decline over time due to mass production and sales. Under the WTO Antidumping Agreement, a product may be sold under its cost of production (including R&D), provided those sales occur over an extended period and in a quantity and at a price that would allow recovery of that cost of production over a reasonable period.
Marco Says:
July 23rd, 2009 at 5:22 am

There is much conversation and research that needs to take place to look at the policy impacts which drug marketing have on the local scale and pricing of drugs, not to mention on-patent drug pricing and the sustainability of drug access in … medicines. The disease-awareness campaigns need to be seriously regulated. It’s not healthy for children or adults to sit in front of a wall of drug-company promotion every day that tells healthy people they’re sick.I actually think quite strongly that there must be a conversation about how or if to regulate this. I think that’s extremely unlikely [in the USA] in the near future. I think the Europeans are a little more civilized about this stuff. And in fact the Europeans recently rejected loosening the rules on advertising. As governments and public health care systems are increasingly confronted with the high cost of medications, no doubt the issue of medicalization and disease mongering will become even more important in future debates.
Narconon Arrowhead Says:
August 4th, 2009 at 11:57 am

Thanks for sharing. Great post