Pharma has struggled with the dilemma of drug pricing and patent enforcement in developing countries for decades but recent developments suggest the industry may take a new route, write Leo Neels and Walter Van Dyck
In an ideal world, everyone has access to quality health services without financial hardship, but, in the real world, not every country has a strong, efficient and well-run health system. In the past, pharmaceutical companies have been named and shamed for focusing on the richer countries that can afford to pay the prices needed to recoup high R&D costs – but things may be changing.
Then, the term 'neglected diseases' was coined and diseases associated with poverty – often those eliminated from the developed world and primarily found near the equator – started to attract a high level of attention from international organisations, philanthropic initiatives and pharmaceutical companies.
Nowadays, good treatments are available for HIV, malaria and tuberculosis as a result of combined efforts to bring together science, capital, focus and resolve to meet formerly unmet medical needs. Health-related Millennium Development Goals played a key role in the search for treatments that save lives and reduce the toll of such diseases; some of the Goals may have been missed but progress was significant.
There has been a significant focus on vaccines through the GAVI Alliance and the Drugs for Neglected Diseases Initiative (DNDi). GAVI combines the efforts of the Bill and Melinda Gates Foundation, WHO, UNICEF and World Bank with pharma companies such as GSK, Janssen, Novartis, MSD, Pfizer and Sanofi Pasteur, to help create equal access to new and underused vaccines for children living in the world's poorest countries. DNDi develops a collaborative R&D model for neglected tropical diseases including human African trypanosomiasis, leishmaniasis, Chagas disease, filarial diseases and paediatric HIV. This push has turbocharged efforts to address the needs of patients in low and middle-income countries and offers novel R&D models and a dynamic approach.
Access to health has traditionally been hindered by poor healthcare provision in poor and unstable countries on the one hand, and high medicine prices on the other. For the former, pharmaceutical companies have intervened with aid to support hospitals or emergency units and the education and training of nurses.
With pricing, companies have evolved in a very significant manner from incidents in the past where companies charged 'Western' prices for the first HIV treatments in South Africa leading to litigation and severe criticism from world authorities, as well as frontal attacks on intellectual property and patents and pricing abuses. An overview of how pharmaceutical companies reacted can be found at the International Federation of Pharmaceutical Manufacturers and Associations website.
Nowadays, companies operate a wide range of adaptive pricing plans that relate to the standard of living criteria in different regions, allowing for a more flexible approach that combines IP protection and affordability of medicines. GSK's recent announcement that it will not seek patent protection on medicines in low-income countries in order to widen access was a new and significant step, coming as it did just before an important meeting at the WHO.
This initiative is an elegant example of adaptive pricing. In least-developed, low-income countries (as classified by the World Bank), GSK medicines will be freely available for generic manufacturers for local production, whereas in middle-income countries (including Guatemala, Pakistan and the Philippines) GSK will file for patents but will seek licence agreements with generic companies for a small royalty fee. With full IP protection and consequential pricing applied in higher income countries, this acts as an internal 'subsidy' to poorer markets. Emerging countries, such as China, Brazil and India – with both wealthy
and poorer populations – will negotiate pricing on a country basis.
Sir Andrew Witty's move is yet another example of a 'non-market strategy' that strives for credibility and to build trust. While 'market strategy' is fundamentally about creating value and making profits, non-market strategy is about values – in this case doing good.
This approach should be viewed within the context of Ramsey optimal pricing, where different prices in different markets are based on willingness and ability to pay. In poorer countries, ability to pay is low so why not give drugs away in an (almost) free but controlled way? It almost sounds like Microsoft's strategy not to sue copycats in China, in direct contrast to the developed world where they do take imitators to court.
So, are moves like this really about doing good for the world's poorest people? At the least, companies get a handle on its brand and control its distribution in poor countries where it will be copied anyway, while lost profits can be recuperated in richer economies. After all, somebody has to pay for innovation.
Professor Leo Neels is chairman of the advisory board and Professor Walter Van Dyck is director of the Vlerick Healthcare Management Centre. Professor Van Dyck can be contacted at email@example.com