The Management Across Cultures Economics Essay

There is a lot of discussion about pharmaceutical companies, intellectual property, and the global AIDS epidemic. Do pharmaceutical companies have a responsibility to distribute drugs for free or low cost in developing countries? Why is intellectual property such a big deal? What impact would South Africa’s decision to levy duties on drugs in the country have on the international distribution of drugs? Was the change that provided patent protection for pharmaceutical companies an appropriate change or a dangerous precedent? Was it necessary to relax intellectual property rules in order to ensure that adequate supplies of AIDs medications would be available for distribution in the developing world? What role to multi-national corporations have in providing funding or other assistance to international organizations such as the Global Fund? All these questions have many arguments for and against but the right answers probably lie somewhere in between.

Having and providing access to affordable medication is one of the greatest challenges we face today. Many people see the pharmaceutical companies as socially irresponsible. The evidence is in the outrageous prices individuals have to pay for medications. Although I don’t like high priced medications I do believe in the right for a business who has the chance to face many lawsuits to make money. To come up with medications it takes years of research and licensing. The pharmaceutical companies don’t want their hard work to be the catalyst for another company to come in and make a cheaper version and take all the profits. With the protection of a patent, the companies that make the drugs can charge high prices in an attempt to make their money back. The profits are then spread to investors and also used for more research for better medications. According to the case in the textbook, on average it takes ten to fifteen years for a drug to be created from start to finish, at a cost of $800 million. Even then, the case goes on to state that only 30 % of the completed product will earn revenues equal to its research and development (R&D). Pharmaceutical companies tend to fund R&D that addresses problems of the developed world, not the developing one. This is because the developed world has the means to finance the research and pay for the completed product. Around 90% of the money spent of health R&D focuses on medical conditions responsible for only 10% of the world’s burden of disease (Benatar, 2000). Pharmaceutical companies feel they have a commitment to deliver performance to their shareholders, and I agree, that is why they focus on diseases prevalent to the market.

Most people in the developing world cannot afford medications used to treat or prevent infectious diseases, such as HIV/AIDS. Some governments, such as India, Bangladesh, Thailand, and Brazil do not honor patents pharmaceutical manufacturing processes but not patents on pharmaceutical products. This strategy allows generic companies operating in these countries to manufacture patented drugs without paying any royalties to the patent holders, as long as they use a manufacturing process that has not been patented (McNeil, 2000a). In some of the countries where AIDS has infected a large portion of the population where it also very poor, local companies will reproduce one or more of the drugs that comprise the AIDS “cocktail” and sell it at prices lower than those of the company who originally manufactured and designed it. This takes business away from the companies that have the equipment and potential funding to continue research and create better medication. By countries allowing this it stifles innovation. If pharmaceutical companies had a greater commitment to social responsibility, then they would help people in the developing world obtain access to affordable medications instead of losing money to the generics being sold. There would still be problems with access to affordable medications once pharmaceutical companies drastically lowered their prices or gave away their medications, due to the inadequacies of the developing world’s health care infrastructure. Due to the lack of resources, an HIV patient cannot receive a necessary medication if he does not have access to doctors, nurses, pharmacies, hospitals, or clinics that can administer medicines safely and efficaciously.

2. The pharmaceutical industry has traditionally resisted the Intellectual Property Rights agreements because they are concerned that the vagueness in the language could allow countries to abuse patent exemptions. Without the incentive of patents, it is doubtful the private sector would have invested so much in the discovery and development of medicines, many of which benefit both developed and developing countries. Some pharmaceutical companies will not patent the product because the markets are small and there is limited technological capacity. Companies may take the view that it is not worth the expense of obtaining and maintaining protection when the potential market is small, and the risk of infringement low. Another reason is that the pharmaceutical companies would lose contributions from competing generic medications. This could cause a domino effect hurting profits in multiple markets. Plus, the pharmaceutical companies fear that the unregulated and unreliable environments could risk creating new strains of drug resistant HIV or other infections. Nongovernmental Organizations feel that developing countries should have the right to produce or import generics. With a global health crisis in these countries, they should be able to have access to the existing sets of treatments that allow people to live with the disease. Without the Intellectual Property Rights, developing countries doctors are telling patients about the cheapest method of burial, since most patients cannot even pay for the daily bed charge. The Intellectual Property Rights enables developing countries to import a generic drug if they can provide evidence of the public health concern, demonstrate the inability of the domestic pharmaceutical industry to produce the drug itself, and prove that it will only use the drug for public, non-commercial purposes. Developing countries are satisfied that the agreement does not limit them to emergency situations or designate only a short list of diseases for which generic drugs can be produced. Instead, it permits them to produce or import drugs to address the particular diseases that affect their countries. Nongovernmental Organizations are recommending the use of differential pricing, which would allow prices for drugs to be lower in developing countries, while higher prices are maintained in developed countries. If this is to work, then it is necessary to stop low priced drugs leaking back to developed countries. Developing countries should aim to facilitate in their legal systems the ability to import patented medicines if they can get them cheaper elsewhere in the world.

If South Africa decided to levy duties on drugs imported from Western nations it would cause a shortage on those drugs. The prices for the drugs would go up and the population already has issues affording them. Another problem with charging duties on the drugs is the time and quantity based limitations and a continuing dependence of developing country’s health care planning on the amount of drugs from the Western nations commercial organizations. The Western pharmaceutical companies could also cease shipping the medications.

In 2002 the World Trade Organization extended the transition period for the least developed countries to provide patent protection for pharmaceuticals. The idea behind this was to try and ensure that intellectual property protection supports poorer countries need in public health care not to obstruct the countries health care systems. Countries making use of the extended time still have to allow inventors to submit patent applications during the period. If developing countries have insufficient or no manufacturing capacities in the pharmaceutical sector it allows them additional time to find solutions. The internationally-mandated expansion of intellectual property rights is unlikely to generate significant benefits for most developing countries and likely to impose costs, such as the overall cost of medicines. This makes poverty reduction more difficult in many areas of importance to development, such as health, agriculture, education and information technologies. The expansion of the intellectual property rights can also cause increases to the cost of accessibility to many products and technologies that developing countries need. The extension of intellectual property rights globally will diminish the degree of competition worldwide for many products and services. For example, the degree of competition in developing country markets for patented pharmaceutical products will diminish when major suppliers of generic versions of such medicines will have to apply patent protection under Trade-Related Aspects of Intellectual Property Rights. Other ramifications are the dependence on the intellectual property’s charity morally degrades the individual by fostering dependence, promoting an attitude of humility toward the giver, and relieving the recipient of the ability to set terms and negotiate the terms of receipt. This argument is difficult to use, because it risks proving that aid is wrong, rather than the specific form of aid which is supererogatory, discretionary, conditional charity. Intellectual property’s argument is that the donation of drugs is a partial fulfillment of a duty to the disaster-struck. The donation of drugs provides immediate assistance but stifles the country’s ability to provide for themselves. If they can get the medication for free or drastically lower from developed countries they won’t invest in improving their countries pharmaceuticals to compete, leaving the country stagnant in improvements and reliant on other countries to provide for them.

The obligation of developed nations to address the AIDS epidemic in the developing world can be justified on several grounds. First, compassion may motivate developed nations to help alleviate the suffering caused by the AIDS epidemic. Second, to the extent that good health and healthcare are basic human rights, nations who are able to help are obligated to contribute resources to guarantee these rights. Third, because the wealth, and health, disparities between the developed and developing world are largely a legacy of colonialism, the developed nations have an obligation to address those problems to which they contributed. Finally, it is in the self-interest of developed nations to assist the developing world. If the AIDS epidemic is not controlled in the developing world, the resulting economic and political instability will threaten the security of all nations.

Since the vast majority of the people infected with HIV and has AIDS do not live in developed countries and do not have an access to the health care needed, the countries with the biggest AIDS problems are essentially forced to pay whatever the drug companies demand for their products. Developing nations feel justified in using the threat of using generic drugs to force the companies to lower their prices. Because of the absence of wealth and the poor state of health in developing nations a lot of people feel they deserve discounted medicines no matter how they receive them. Local governments cannot afford vast reimbursements of health care products to dispense to their citizens the lifesaving medications. The issue is complicated by the fact that developing countries have poor infrastructure, poor health care systems and poverty that prevent the distribution of anti-AIDS drugs. Generic drugs have little or no research and development cost to create, they can be sold for a far reduced price from what the pharmaceutical companies are charging, which makes it an acceptable idea for developing companies. For pharmaceutical companies to be competitive, they should reduce the price for the AIDS drugs, it can be recouped from the fact that the drugs will suddenly become affordable to a market of millions of sufferers, many of whom will be using the drugs for the duration of the disease, so it would make little profit per customer but the amount of customers could make up the difference.

All major pharmaceutical firms have an obligation to offer assistance when social, political, and economic conditions make it impossible for patients to receive life-saving medicines. Multinational corporations that participate in the Global Funding show that they have the capacity to act morally by aiding those affected by disaster. The positive features of such donations are that they are not coerced and they represent an assumption of moral responsibility by corporations.

Multinational corporations can expand their reach into local host country communities, building relationships with families and networks of local leaders, and in some cases, offering business opportunities to vulnerable populations. These large multilateral organizations such as the World Bank, are able to make their decisions fairly independently of the countries that provide their funds. This means they can allocate money to countries and projects that might have otherwise been ignored by other funding organizations.

The Global Fund has been suffering from poor funding, slow distribution, and other political obstacles from some of the richest countries such as the United States that would prefer their own initiatives. As a bilateral donor the United States President’s Emergency Plan For AIDS Relief is able to decide where the donated money should be spent. On initial thought, this sounds reasonable; a nation such as the United States has the resources and ability to determine where that money should be spent. However, the concern is that the decisions become political, rather than need driven. The Global Fund is supposed to be a fund where countries donate without any strings attached. Multinational corporations argue that donating this way allows the United States to avoid the wrong perception because where the funds end up.