How pharmaceutical giants kill the poor
International intellectual property rights are increasingly serving the needs of the global pharmaceutical industry, writes John Christensen and Khadija Sharife.
IF China is the factory of the world, then India is the pharmacy of the world, exporting over 60 percent of production to the developing world, most noted for supplying generic ARV medicines.
Courtesy of India’s generic drugs, such as CIPLA’s (2001) triple fixed dose combination tablet (FDC)-approved by the WHO, prohibitive costs of US$10 000-US$15 000 per person each year were reduced to US$350, further decreasing to US$140 annually.
Then came 2005, signifying the deadline of the transition period for compliance by low- and middle-income countries (LMICs) to the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), designed to protect the “intellectual property” rights (IP) of Big Pharma.
Prior to TRIPS, drugs were considered “basic needs”; countries were better able to formulate systems structured to serve socio-economic needs. Unlike many developing countries in the position to develop local industries, India did not buckle to the pressure exerted by systemically powerful nations eager to penetrate “public health” markets.
Post-2005, India continued its attempt to manoeuvre, as smoothly as possible, the jagged edges of TRIPS’s draconian IP rule-of-law: In 2007, India’s High Court ruled against the Swiss pharma giant Novartis, refusing the company right of patent for a modified version of an existing drug — an old IP move feigning “innovation”, designed to prolong patent life.
By 2008, 96 of 100 countries purchased generic ARVs from India, with Indian products comprising 80 percent of donor-funded developing country markets, and 87 percent of total purchase volumes.
In Africa, just 7 percent of ARVs are Western patented medicines, while more than 90 percent are generic drugs, chiefly produced by Indian corporations.
The drastic cost difference between the two has often been packaged as one formulated to recoup costs of research. Big Pharma claims that generic companies — manufacturing existing medicines, are able to bypass these costs. Yet, as has been frequently noted, such claims cannot withstand scrutiny.
As MIT Professor Rebecca Henderson noted in a Pfizer newsletter over a decade ago: “Research has been, in general, largely funded by the American taxpayer, and in the past has resulted in products that have revolutionised medicine.”
In 2003, Médecins Sans Frontierès documented in a letter to Robert Zoellick, US Trade Representative, ahead of CAFTA negotiations: “MSF was able to pay between 75 percent and 99 percent less for generics than the government of Guatemala paid for originator drugs. For example, the price of the ARV d4T (40mg) from Bristol-Myers Squibb was US$5 271 per person per year compared with just US$53 per person per year from a generic manufacturer.”
Ironically, some 80 percent of Western ARVs are purchased in developed countries, rendering developing markets in continents like Africa, almost irrelevant.
South Africa, of course, was in the eye of the storm when 39 drug companies brought suit against the government for including generic medicines in the legal framework of the Medicines Act.
In April 2001, the companies withdrew their suit following intense engagements on the part of the government, and especially, national and international civil society resistance, notably the Treatment Action Campaign (TAC).
But the rumble began long before that, evidenced in the “Battle of Seattle” (1999) when as many as 100 000 protestors took to the streets, challenging the structural injustice of globalisation.
India’s own shining progeny Fareed Zakaria, would describe the protests that helped give birth to global change as, “anti-democratic”.
According to Zakaria, those who protested were “rich and privileged”. (The rest, we beg to differ, could not afford the plane tickets.)
Yet beyond the obvious public health genocide caused by the greed of pharmaceutical corporations, intentionally holding developing governments hostage (according to the Doha Declaration: “The TRIPS agreement does not and should not prevent members of the WTO from taking measures to protect public health”), there exists another more subtle form of exploitation: IP constitutes the most substantial class of intangible assets — geographically mobile sources of vast corporate income that remain difficult to financial evaluate via arms length transfer pricing.
This is especially true concerning transactions between subsidiaries of the same corporation. More often than not, intangible assets are shifted to secrecy jurisdictions such as Delaware, specialising in IP holding companies that provide 100 percent tax exemption on royalty income — one of several tax holidays.
Big Pharma corporations like Pfizer, Novartis, Glaxosmithkline — as well as over 60 percent of Fortune 500 multinationals, all maintain entities in Delaware, taking full advantage of ring-fenced legal and financial opacity tools.
In addition to banking secrecy and zero disclosure of beneficial owners, Delaware allows for parent companies to establish holding companies within two days, producing nothing, conducting no economic activity in the state, and generally hosting just one shareholder (the parent company).
Such entities, allowing the parent company to pay the newly created entity a “fee” for use of IP, serves as a passive conduit converting taxable income to passive non-taxable profit. The entity’s sole purpose is to own and “manage” laundered income generated from IP.
Intentionally weak and easily circumvented global rules regulating trade facilitates considerable leeway to exploit — and misprice, the value of intangible assets. A Pfizer patent, for instance, may be worth US$100 million or a US$10: by and large, the company internally determines the value of IP, imputing a “market price”.
Intra-company trading, accounting for 60 percent of global trade, is “governed” by arms length transfer principles, a system endorsed by the OECD, itself comprised of the world’s systemically powerful “developed” countries.
The OECD acknowledges too that intangible assets are “one of the most important commercial developments in recent decades”. Intra-company mispricing not only distorts and manipulates the proposed neoliberal concept of the market (as most efficient allocator of price and resources), but simultaneously drains developing countries of sustainable tax revenues.
More recently, the Anti-Counterfeiting Trade Agreement (ACTA), secretly drawn up by an ad-hoc group of rich countries beginning in 2008, and endorsed by US President Barack Obama in March 2010, seeks to further lock down any loopholes diminishing the all-encompassing power of the IP kings.
This includes vehicles such as “borders measures” concerning any TRIPS-related goods imported, exported or “in-transit”. Vessels passing through rich countries carrying generic goods for poor countries — irrespective of whether such goods are legal at source and destination jurisdictions, may be held up for seemingly as long as the intermediary nation deems fit.
Such systems certainly promote a kind of socialism — but only for the uber-wealthy.
Meanwhile, the poor are forced to pay with their wallets — and their lives. Thanks to the system underpinning TRIPS, arms length transfer pricing, and the like, IP kings not only make a killing from patents but from secrecy jurisdictions too.
Drug Topics’ 2011 business outlook survey: Steady sailing for now
While the economy in many industries has yet to rebound, the pharmacy industry has remained strong and most pharmacists are hopeful about 2011. However, optimism isn’t running as high as it was last year, and the pharmacy community is concerned about how competition, reimbursement, and healthcare reform will affect the industry.
These are just a few of the conclusions drawn from Drug Topics’ annual business outlook survey, an online survey conducted in October that received more than 400 responses from community, hospital, and long-term-care (LTC) pharmacists.
Overall, respondents believe that the business climate looks positive for 2011. Of the 305 community pharmacists who responded to the survey, 77% believe that 2010 will be an excellent, very good, or good business year, and 68% predict that the trend will continue in 2011.
In addition, of the 96 hospital and LTC pharmacists who responded, 84% anticipate that 2010 will be an excellent, very good, or good business year, and 73% believe that will also be the case in 2011.
“I think there are a lot of very positive things going on in pharmacy, and so I think [pharmacists’] optimism is warranted, but it isn’t going to get any easier,” said Thomas Menighan, executive vice president and chief executive officer of the American Pharmacists Association (APhA). “Margins are not going to get larger. People are going to have to be more efficient. They are going to have to find ways to make the services that pharmacists can provide pay off rather than relying on buy low, sell high.”
Community pharmacists’ financial outlook
Pharmacists’ financial expectations for 2011 are generally positive, but they aren’t without their concerns.
Nearly half (45%) of community pharmacists surveyed believe that sales will increase in 2011. For those who anticipate rising sales figures, the average increase expected is 4.5%.
However, not everyone sees predicted sales in such a positive light. Survey findings indicate that 11% believe sales will decrease, and they predict an average decrease in 2011 of 2.3%.
In addition, 56% anticipate an increase to operating expenses, while 6% expect a decrease. For those who believe there will be an increase, the average expected increase is 4.1%. For those who anticipate a decrease, the average expected decrease is 1.2%.
About a third, or 35%, expect net profits to increase in 2011 by an average of 2.6%.
Half of community pharmacists believe that in their pharmacies, pharmacist salaries will increase in 2011, while 40% do not expect an increase. For the 50% who expect an increase, the average expected increase is 3.6%.
Hospital pharmacists’ financial outlook
Hospital and LTC pharmacists are less optimistic about sales expectations than are their counterparts in community pharmacy. According to the results, just 30% of hospital pharmacists expect an increase in sales in the coming year; the average increase they anticipate is 3.9%. However, only 6% predict a decrease in sales. For those who expected a decrease, the average expected decrease was 2.1%.
Most hospital pharmacists surveyed (51%) expect operating expenses to increase in the new year; they predict an average increase of 5.4%. On the other side of the spectrum, 6% of those surveyed believe operating expenses will decrease and expect an average decrease in 2011 of 0.6%.
Nearly a quarter, or 23%, of hospital pharmacists expect net profits to increase in 2011 by an average increase of 2.5%.
A significant percentage of hospital pharmacists do not believe a raise is in their future in 2011. According to the survey results, 47% do not expect a salary increase. However, 42% do believe that their pharmacies will be giving pharmacists a raise in 2011. The average increase anticipated is 3%.
Anna Garrett, PharmD, BCPS, manager of outpatient clinical pharmacy services for Mission Hospital in Asheville, N.C., believes that if pharmacists are expecting salary increases now, those increases will be more in line with cost-of-living adjustments, rather than being significant jumps in pay.
“It looks like the days when everybody is getting the huge raises are over,” said Garrett, who is joining Drug Topics’ editorial advisory board next month.
Challenges and opportunities
In any given year, the pharmacy industry will face challenges and opportunities, and 2011 is no exception. In one section of the survey, pharmacists identified the top 3 positive and top 3 negative factors that they believe will influence the industry in the coming year.
The most frequently cited positive factors expected to affect business are major brand-name drugs going off patent (cited by 62% of respondents), an increase of e-prescriptions (cited by 37% of respondents), and immunization certification (cited by 36% of respondents).
The most frequently mentioned negative factors affecting business for 2011 are expected to be the recession (cited by 77% of respondents), low reimbursement from third parties (cited by 66% of respondents), and mail-order programs (cited by 63% of respondents).
Charlie Mollien, PharmD, a staff pharmacist with Meijer Pharmacy, Jenison, Mich., and a Drug Topics Frontline editorial advisory board member, said that he is optimistic about the future of pharmacy, although he does see some hurdles. While he believes that pharmacy utilization will continue to increase, he added that low reimbursement could translate into pharmacists filling more prescriptions for less profit.
To combat the problem, and to make up profits, Mollien said, pharmacists may need to look into other areas, such as adopting education programs for smoking cessation or chronic disease management. For the programs to be successful, however, pharmacists would need to be given the time, staff, and leadership support to run them.
The biggest challenges pharmacists will face in 2011 are said to be competition from chains offering generics at low or no cost (cited by 51% of respondents), competition from mail-order pharmacies (cited by 59%), and state Medicaid rates and Maximum Allowable Cost (MAC) and Federal Upper Limit (FUL) programs (cited by 53% of respondents).