Elsevier

The Lancet

Volume 360, Issue 9345, 16 November 2002, Pages 1590-1595
The Lancet

Series
The pharmaceutical industry as a medicines provider

https://doi.org/10.1016/S0140-6736(02)11527-3Get rights and content

Summary

Rising prices of medicines are putting them beyond the reach of many people, even in rich countries. In less-developed countries, millions of individuals do not have access to essential drugs. Drug development is failing to address the major health needs of these countries. The prices of patented medicines usually far exceed the marginal costs of their production; the industry maintains that high prices and patent protection are necessary to compensate for high development costs of innovative products. There is controversy over these claims. Concerns about the harmful effects of the international system of intellectual property rights have led the World Trade Organization to relax the demands placed on least developed countries, and to advocate differential pricing of essential drugs. How these actions will help countries that lack domestic production capacity is unclear. Better access to essential drugs may be achieved through voluntary licensing arrangements between international pharmaceutical companies and manufacturers in developing countries.

Section snippets

Access to drugs

WHO has maintained a list of essential drugs since 1977; the 12th version of the list contains 325 drugs, many of which are available in bulk generic forms from low-cost suppliers.7 Despite the relatively low prices that can be obtained on the international market, availability of essential drugs remains deficient, and over half the poorest people in Africa and Asia still do not have access to these drugs.8 High prices (in part attributable to inappropriately high taxes, mark-ups, and

Market failure and the pharmaceutical industry

Markets work well for society when there is price competition, comprehensive and accurate information, an adequate supply of drugs, where consumers are able to make informed unpressured choices between competing products, and when there are few barriers for entry to the market. However, substantial evidence shows that markets have failed to work. Timely, independent, comprehensive, and accurate information on new drugs is hard to find.11 Diseases that affect a large proportion of the world's

Corporate philanthropy

The pharmaceutical industry has responded to the poor availability of its products in the developing world by donations. Some companies have maintained excellent programmes. Since 1987, Merck has given away well over 100 million treatments with ivermectin for onchocerciasis.14 SmithKline Beecham (now GlaxoSmithKline) has made a similar commitment with albendazole for helminth infection.14 Other programmes have not been so well received, mainly because of limitations imposed by sponsors. Pfizer

Subsidisation of drugs

Because of market failure, government intervention is widespread. Most governments in rich countries subsidise use of drugs in their communities. A survey done by the Organisation for Economic Cooperation and Development reported that member countries spent an average of 15·4% of their health budgets on drugs in 1996.21 Although this figure was unchanged from 1990, the variation between countries (7·6–28·9%) was substantial, and proportions were higher in low-income countries. Total per capita

Price controls

In countries in which governments are large buyers of drugs, dialectic with industry over prices will inevitably take place. Companies want prices to be as high as possible, but they recognise that governments will only tolerate these high prices to a certain point. Governments generally want prices at levels that will not break their drug budget, but recognise that if they demand too low a price, companies might decide not to market a product, and could reduce local investment.

Many governments

The international pharmaceutical industry as a business

Pharmaceutical companies are not especially big in terms of revenues, but they are very profitable. For instance, in 2001, Pfizer was ranked 127th in the world on total revenue (US$32·2 billion) but 7th in terms of profit.29 The pharmaceutical industry is the most profitable business sector, with an average 16·2% profit, ahead of financial companies (11·6%) and beverages (10%).30 However, net income growth has declined, and growth in the value of drug stocks has been reversed in the past year.31

The generic drugs industry

In developed countries, generic drug manufacturers provide many patients with non-patented drugs; some of these companies have consolidated to produce internationally important businesses.36 Industry is expanding in developing countries—eg, India, China, and Brazil—with companies legally selling drugs that are patent-protected in high-income countries.

In 1997, the top ten generic drugs companies had sales of around US$6 billion.35, 36 These companies have considerably grown in size in recent

Privatisation of research

The pharmaceutical industry claims to have invested US$30·5 billion in research and development in 2001, which would make it the largest direct funder of medical research in the USA.35, 38 The nature of this research is changing. Increasing numbers of studies seem to be concerned with marketing issues—eg, establishing equivalence with existing products rather than trying to develop superior drugs. In the USA, studies are done increasingly by for-profit contract research organisations, rather

Identification of development targets

Pharmaceutical companies may choose diseases that offer the largest return on investment, such as chronic disorders with a high prevalence in developed countries. The enormous earnings from drugs for raised cholesterol concentration, depression, and musculoskeletal disorders confirm the success of this strategy. Widening the indications for existing drugs is a useful means for pharmaceutical companies to enhance revenue further, but can distort benefit-to-harm ratios when increasing numbers of

Costs of drug development

The pharmaceutical industry justifies its research decisions and the high cost of its products by pointing to the time, risk, and cost associated with new drug development: drugs take about 12 years to develop, companies have a low success rate, and each product is claimed to cost US$500–600 million to develop.45 Development time is shorter for some classes of drugs, for example, the first 14 antiretroviral drugs took an average of 4·4 years from the date of filing of key patents to approval by

Use and abuse of patents

Although the pharmaceutical industry's high profits and promotional costs have been criticised, the major international battlefield has been intellectual property rights. The industry argues that extensive protection of these rights is essential to generate income to reinvest in research that is needed to ensure a continuing supply of new drugs.45 Only a small proportion of the price of a drug is accounted for by manufacturing costs. The value that is attributed to intellectual property is

Trade-related intellectual property rights

Internationally, exclusivity of production is protected through World Trade Organization (WTO) agreements on trade-related intellectual property (TRIPS).5, 54, 55, 56 Countries that join the WTO benefit from a reduction in tariffs when selling their goods. In return, they must guarantee protection of products and processes by granting patents. TRIPS agreements set the minimum standards of protection that must be implemented by member governments.56 This arrangement can be a rather one-sided for

Conclusions

The international pharmaceutical industry manufactures and distributes many drugs, displays generosity in its philanthropic activities, and has an important role in maintenance of manufacturing standards. However, evidence shows that companies have shifted their core activities from discovery and development of innovative drugs to marketing of products that keep profit to a maximum in high-income countries.

Access to important drugs by low-income countries is generally agreed to remain grossly

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