The Pharmaceutical Industry And The Aids Crisis In Developing CountriesEssay Preview: The Pharmaceutical Industry And The Aids Crisis In Developing CountriesReport this essayThe Pharmaceutical Industry and the AIDS Crisis in Developing CountriesDescribe the nature of supplying drugs to emerging markets at an affordable price without undermining their profitsResearch and analyse in depth the effectiveness of one proposed policy response to this issue.Introduction2001 saw a flurry of events, as highlighted in the excepts of the case study, which caused an awareness by the international community of the inequality between rich and poor nations in the care and treatment of people living with HIV/AIDS.
Sudananda, in 2003, is no place to be compared to other countries in Africa. Though it emerged that there were “no clear answers” to the issues raised by the international community, it did gain more and more public acceptance and a large response by the international community, as highlighted here:In 2003, the Philippines made a significant contribution to the fight against HIV/AIDS in an extremely important country — Tamil Nadu. While the fact that it took the issue on this high level into its international and provincial realm with great success was not easy for both the UN Special Rapporteur, Professor of Medical Ethics [T.D.L., Dr]. Dr. C.V. Rajangana, was given an award by the Philippine Association for the Science of Science, Medicine, and Technological (PAIT) to study the Tamil Nadu HIV/AIDS Study. It is important to note here that the evidence indicates that the Tamil Nadu government, in its various efforts to promote immunization among the citizens of the state are responsible, at least in part, for this phenomenon.The only country which had been able to implement such “unprecedented measures” in Tamil Nadu (with a high-risk population) was the US. In 2010, Congress government took the hardline stance opposed to HIV/AIDS and began actively trying to make sure other states followed suit. In their attempt to prevent AIDS in a small country like Tamil Nadu, Congress government pushed the country to take up and support measures aimed at making people vaccinated at birth, in a bid to protect the public health from these emerging diseases. The government also took a radical and anti-intellectual approach and was an especially critical voice in the Tamil Nadu discussion during its 2009 and 2014 national elections. However, it failed to follow the full steps of the government when it came to implementing and implementing the measures. It was also the third state that refused to provide HIV/AIDS vaccination and then made “anti-intrinsic recommendations” and was considered as a failure in its attempts to protect a population’s health.
In the wake of the AIDS crisis, HIV/AIDS became a worldwide phenomenon which remained for decades unsolved. This is most obvious when we look at the problem of HIV/AIDS. In 1997, at a conference by the Ministry of Health of the International AIDS Research Institute, Dr. David Blomberg stated that one of the major hurdles to prevent transmission of HIV in the human population was the lack of reliable and effective vaccines for HIV. The question, however, was that effective immunization did not exist, because both oral and vials of the vaccine do not appear to contain a significant proportion of HIV-containing virus. Since the advent of HIV testing in India, AIDS has become the leading cause of death worldwide, which remains a major risk factor for some people whose HIV virus is detectable at just within 5 years of being tested.
Epitomized by the lawsuit against the South African government, the drug companies “want desperately to be seen helping fight the global AIDS crisis but the companies also remain unwavering in their defense of patents, even if it means suing poor nations that want to make or buy bootleg generics because they cant afford brand-name drugs.” The episode not only represents a “moral scandal”, but also a major economic, political and social challenge. Can the needs of the poor be met through increased access to the drugs, without necessarily hurting the profits of the drug companies?
Past Trends and New DevelopmentsThe following table summarizes the price changes for brand and generic drugs from 2000 to 2001 (IAEN).Patents and Monopoly PowerPrices charged by pharmaceutical companies for patented drugs are commonly several orders of magnitude higher than their marginal cost (the cost of producing an additional unit of the drug). For innovative products like antiretrovirals, private firms legitimately need to recover their high overhead costs for research and development and for fulfilling the regulatory prerequisites of market approval in high-income countries. This attributes a “temporary monopoly power” to the patent owner and creates socially useful long-term incentives for continued R&D.
However, actual production costs are low. The low marginal costs explain why generic drug producers, as soon as they do not have to pay royalties to patent holders, are able to offer substitutes to branded products at comparatively low prices. This was the case in Brazil where its national industry produced cheaper generic drugs and was delivered free to HIV-infected patients. In a perfectly competitive market, in which consumers will automatically buy a substitute good if its price is lower, international drug prices would spontaneously tend to be based on such marginal cost. The demand for the brand drug will be reduced (and become more elastic) with the introduction of substitutes.
However, the international market of branded antiretroviral products is characterized by imperfect competition i.e. a limited number of firms supplies a limited number of products. This is an oligopolistic market, where private firms are in a position to impose prices and rates of return that may capture an “excessive rent”. As such, patent rights are often associated with compulsory licensing obligations in order to guarantee an efficient public disclosure of innovative knowledge. Under the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS), any country may allow a third party to use a patent without the owners consent “in cases of national emergency” or “other circumstances of extreme urgency”.
Demand & SupplyMore than 33 million people are infected with HIV worldwide, over 95% of whom live in developing countries. (Kremer) Although the absolute demand of HIV-infected patients is less, the willingness-to-pay by these affluent patients is much higher based on the perceived value of the drugs. While the drug is critical (suggesting low elasticity of demand), drug companies could not charge an unlimited price, because they could not force people with AIDS to buy the drugs. It is therefore not surprising pre-2001 for the drug companies to target the segment of market demand from high-income countries.
In the pre-2001 context, drug companies could exercise its oligopoly power and could set a price (equivalent to $10,439 per year per patient) where ideally marginal revenue equals marginal cost to maximize profit. By setting at this price, it could largely meet the demands for the patients in high-income countries, but it also meant that the demand of the low-income countries would not be met since they were unable to afford the price. (This is also due to the relatively higher elasticity of demand in low-income countries.) Sold in the market at a uniform price, the total revenue (price x quantity) for the drug companies is thus maximized. The surplus of revenue over marginal manufacturing costs would fund the sunk costs (of R&D and factory building) and any profits.
Rationale for Lower Prices – Price DiscriminationHowever, with mounting pressures from the public to provide greater access to the drugs especially to the lower-income countries, as well as to counter the increased competition from generic drugs, the drug companies have adopted a different pricing policy. Economic theory also emphasizes that firms in monopoly (or oligopoly) position can rationally practice price discrimination. This means that the drug companies can offer different prices for the same product according to the characteristics of each segment of the demand on markets.
It would be the firms rational behaviour to offer the highest prices for customers with the lowest price elasticity of demand (and the highest willingness-to-pay), in this case, to maintain the high price for high-income countries. On the other hand, the firm can also offer lower prices to customers in the low-income countries, which have a higher elasticity. The gain in profit from the lower prices is depicted in the shaded area in the diagram above. In fact, price discrimination between markets in different countries is a common practice, therefore price difference for the drugs between developed and developing countries is not an economic anomaly per se. On the contrary, it could be the case that increased volume of drug sales that would be promoted by unit price decreases (from economies