International Management Strategy - Case Study Example

Introduction It is a fact beyond doubt that AIDS is a disaster to the African continent. This is considering the fact that more than eighty three percent of all AIDS related deaths are recorded in this vast continent. South Africa is the most affected nation in sub-Saharan Africa as far as the AIDS epidemic is concerned. Almost 4.2 million people among the 43 million citizens of this country are infected with aids. Breaking down this figure gives the grim picture of almost 1 out of ten individuals in South Africa living with the HIV Virus, the virus that causes AIDS. Aids in the developed nations like United States of America and Europe has been transformed from a killer disease-a death sentence-to a chronic condition that can be managed through effective use of drugs. There are drugs that are available to the western patient that can reduce the severity of the disease and lead to a prolonged and fuller life. The replication of the HIV virus is checked, and as such, early death is averted. These drugs are referred to as antiretroviral and they have worked wonders as far as prolonging the lives of the patients are concerned. The drug does not cure aids; rather, it brings down the viral load in the patient’s system and at the same time, averts opportunistic infections that are the bane of aids. These drugs are manufactured by large, multinational pharmaceutical companies. As such, most of the drugs are patented, a fact that makes them very expensive. They can only be afforded by the rich in the society and in this case, the rich in the western world. This is very sad given the fact that the aids scourge is a phenomenon of the poor and down trodden people in the society and especially from Africa. These people, who require the drugs the most, are unable to afford it. This is because the patent licences deny generic drug manufacturers from coming up with cheaper versions of the same. This being the case, the drug companies continue to make huge profits by selling these drugs at high prices. They mostly sell to the western patients, who can afford the costs. They are not attracted to the African market because there are no potential returns to their investments. The poor Africans cannot afford the drugs in the first place. They cannot sell to the Africans at a cheaper price because they are scared these cheap drugs may make their way back to the western countries and as such, their profitable markets undermined. Objectives of the Study Throughout this research, the writer will be guided by one major objective. This is the analysis of the western drug companies and the aids epidemic in South Africa. To achieve this objective, the writer will be guided by several specific objectives. These are as listed below: 1. an analysis of the reasons why the drug companies find it important to protect their patents 2. What should the policy of drug companies be towards the pricing of patent protected drugs for aids in poor developing nations such as South Africa? 3. What should the pricing policy be in developed nations? Is it ethical to charge a high price for drugs used to treat and manage life threatening conditions like aids? 4. Could the large western pharmaceuticals have reacted differently to the 1997 South African Medicines Act law as opposed to suing the government? How might they have better taken the initiative? 5. Should aids be conceptualised as a special case, or should the large pharmaceutical companies make it a normal practice to price low or give away patent protected medicines to those who cannot afford them in poor nations? Why should this be the case? Why the Drug Companies find it Important to Protect their Patents A patent can be conceptualised as a property right that is accrued to an inventor by a sovereign state. To acquire this right, the inventor must have come up with a novel, “non-obvious and useful” invention (Siddhartha 2005). The fact that the invention must be novel means that the invention must not have been disclosed to another company or person anywhere in the whole world any time before the rights are granted. A patent should not infringe with the public’s ability to access and use what already exists in the society. This is achieved by making sure that the invention is not obvious and as such, an ordinarily skilled person in the society cannot readily access it (Siddhartha 2005). The pharmaceutical, chemical and biotechnology industries are the three foremost industries where patent rights are most prevalent. This is given the fact that these industries invest heavily in research and development (Mathiason 2006). In fact, the three are considered to be the only industries where the amount of investment made on research and development composes a huge chunk of their revenue. But the pharmaceutical industry is the leader among the three. This fact can be gleaned by taking a look at the number of patents that we have in the United States of America. The patent holder has the right to involve or exclude other people in the process of making, using, offering for sale or selling their invention which is protected by the property rights (Redfern 2007). In the United States of America, most patent rights run for a period of twenty years and as such, the holder has the right to enjoy the returns from this invention. There are several ways that we can view and define what an invention is and what it is not. The basic understanding of this term is “any new or useful process, machine, article of manufacture or composition of matter” (Redfern 2007). A new drug that has never existed before can be seen as making up an invention. However, an improvement that is made on any of these items that have hitherto been defined as an invention can also be viewed as an invention on its own right (Redfern 2007). For example, an improvement on a drug that already exists on the shelves can be conceptualised as an invention itself. The above scenario has been exploited by drug companies to the hilt. It is common to have drug companies who have had a patent for a period of twenty years make some slight improvements on the drug that was already patented-and whose patent is running out- and reapply for a patent again, on the same drug (Beresford 2005). Given that the laws recognise this as an invention, the companies end up being granted further patent rights. This is made worse by the fact that for the past twenty years, the knowledge on how to manufacture the drug had been a closely guarded secret of the patent holder. As such, there is no other person out there who can exploit the knowledge and come up with something new. There are several reasons why the drug companies find it very important to protect their patent rights. One of those reasons is grounded on the fact that the companies invest considerable amount of money on research and development. As earlier expounded, the pharmaceutical industry is one of the few where the amount of money that is invested on research and development composes the larger part of their revenue. The amount invested in research and development is more than that used for other expenses like advertisement and compensation of workers. This being the case, it is very important then for the companies to recoup their investment and the only way that they can do this is by having their inventions protected (Beresford 2005). They are given a monopoly to produce and distribute the drugs that they have invented and in the process, they return the amount of money that they have invested in the research and development. This is because most of the times, the drugs are on demand and as such, the revenues from the sales are likely to make returns after sometime. That is the reason why the patent is extended for a period of at least twenty years. It is assumed that by this time, the firm will not only have recovered the expenses of research and development, but will also have made some amount of profit. Every activity in the society today is motivated by financial gains. This is despite the fact that the activity may be dealing with the production of life saving drugs like those mitigating the effects of aids. As such, if there is no profit, there will be no motivation for the drug companies to invest in the research and development field (Mathiason 2006). In this light, protection of patent rights can be seen as one way of motivating the drug companies to invest more in research and development. The only time that the companies can invest in research and development is when they are assured of the fact that their efforts will be profitable, or will be rewarded. It is important for them to be reassured of this because the pharmaceutical industry is a very fluid one. For example, an antiretroviral could be effective today but after three months, it becomes obsolete given the fact that the virus has developed resistance (Hink 2001). As such, it is very important to keep investing in research and development so that effective drugs can be invented. The pharmaceutical industry cannot survive without research and development. Protection of patent rights gives the pharmaceutical company the monopoly to produce and distribute the drug for a period of at least twenty years, or the duration that the patent runs for, depending on the country and the product being patented. This protects the firm from unfair competition. This is because if the drug was made available to other manufacturers, they will produce it at a lower cost and sell at a lower price than what the inventing company would have done. The inventing company has to sell the drug at a higher price than that of the competitor so as to make returns on the investment that they had made in research and development towards the discovery. The competition in this light can only be described as unfair to the inventor and this is what the patent rights protection is trying to avert (Hink 2001). What the Policy of the Drug Companies towards Developing Nations should be Many people have been asking themselves what the drug companies should do as far as policies of pricing of patented drugs in poor countries is concerned. This is especially so for the patent protected drugs for aids. A case in point is the drug by the name fluconazole. This is a drug that is perhaps the only cure for cryptococcal meningitis (Anup 2009). This is a condition that can only be viewed as a complication arising from aids. This complication is so serious such that it blinds, cripples and kills the aids patient within a span of two weeks (Anup 2009). Fluconazole is patented by Pfizer, Inc (Anup 2009). It is commonly prescribed in the United States of America for yeast infection in women. It is a one-pill cure. In sub-Saharan Africa, this drug is priced at $18 per pill in most of the countries where it is found. For the drug to be effective, the aids patient needs to take two pills per day for two months (Lester 2008). This amounts to about $1080 for the two months. Afterwards, the pill should be taken once per day for the rest of the patient’s life. This will cost $540 a month. This is very expensive considering the fact that the majority of the people who live in this continent and the majority of those who are infected and affected by aids earn less than one dollar a day. In this light, it is very important for drug companies like Pfizer, Inc. to come up with a different pricing strategy for the African poor. The $540 per month may be afforded by a majority of the aids patients in America and other developed nations. However, the case is very different for the African patient. They simply cannot afford the drug (Goldacre 2009). The companies should think of lowering the prices of these drugs in Africa and other poor countries. The profits that the drug companies are making from the sales that they are conducting in the western countries should be used to cover, to some extent, the cost of the drugs to the African patient. For example, Pfizer may get into a contract with the South African government to the effect that the drug can be sold at subsidised prices in the country. Given the fact that the majority of those who are suffering from aids earn less than a dollar a day, the price of the drug should be subsidised such that one pill, the common dose for a day, should retail at less than the dollar. This is given that the people in Africa are the ones in most need for the drugs. The following chart shows the AIDS prevalence in South Africa: source 1: http://docs.google.com/gview?a=v&q=cache%3AsHhc5fu7qTEJ%3Awww.metam.co.za%2Fdocuments_v2%2FFile%2FRedRibbon_2009%2FProvincial%2520HIV%2520and%2520AIDS%2520statistics%2520for%25202008.pdf+AIDS+south+africa%2Bprevalence+rate%2Bcharts&hl=en&gl=ke&sig=AFQjCNEHdU8OPBZIERzQMjaGe9bpFlS7FA&pli=1 But this strategy has an inherent weakness in it. Unscrupulous drug dealers may buy the drugs at lower costs in Africa, then redirect them to the United States of America or England and sell them at a lower price. This will lower the revenue of the drug companies because many people will opt for the cheaper drugs (Palitza 2009). This is the reason why the drug companies opt to standardise the prices regardless of the place that the drug is been sold in. Pricing Policy in Developed Nations Should the drug companies charge lower for their drugs in Africa and other poor nations, the costs for the same must be covered from somewhere. The only place that these costs can be recovered is in the western markets. The pricing policy in developed nations should vary from that of African and other poor and developing nations. The drugs should be charged higher in these countries. This is because the people in these countries can afford the drugs (Gellman 2005). Countries like the United States of America have their citizens covered in the universal health cover program. This program can be used to cover for the costs of such drugs as fluconazole. This is not the same in Africa. There are no universal health care programs, and regardless, the patients are too poor to afford the drugs. But the above scenario of differential pricing strategy brings up another ethical hurdle. The question that has to be addressed is whether it is ethical, under any circumstances, to charge a high price for drugs that are used to treat and manage life threatening conditions like aids. The above question may appear simple and straight forward but, that is just the face value of it. A deep analysis of this question will prove that the answer to it varies from the pedestal that it is addressed from. It is unethical for the drug companies to charge high prices for these drugs. This is because they know very well that these drugs are for people who have no option left. As such, they will be making profits out of the miseries of others, which is repugnant in every sense of the word (Warren & Neller 2008). The un-ethicality of this practice is aggravated when one thinks of the fact that the high prices may be charged to people that cannot afford them. The fact that the western developed nations have universal health covers and are rich does not mean that there are no poor people within the same society or those that are not covered by the program. These people use all of their savings on drugs that enriches the pockets of the large companies. But there are instances where the higher charging of the drugs by the companies become ethical, and the un-ethicality fades to the background. For example, in cases of differential pricing, there is need for one portion to be charged high so that the costs for the other side can be covered effectively. For example, when the western markets are charged highly for the drugs, the revenue accrued from this is used to provide subsidised drugs to the African man, who cannot afford the full dosage. The drug companies also need money to invest some more in research and development. This money can only be sourced by charging highly for the drugs that are already patented. In fact, the drugs that are claimed to be charged exorbitantly for example the aforementioned fluconazole, could not be in existence in the first place if companies like Pfizer did not make investments in the research and development efforts of their company. As such, it is ethical to charge highly for the drugs if the charges go to researching for more effective drugs rather than been used by few greedy individuals who own the companies. South African Medicines and Related Substances Control Amendment Act of 1997 Access to drugs and especially antiretroviral ones has been a thorny issue in South Africa. Many people have opined that the lack of generic drugs in the country was making the cost of managing aids to rise dramatically and for this fact, many people could not access the services. It is in this light that the South African parliament passed the medicines act in 1997 (Kasper & Toby 2004). This was an angry reaction by the government and other non-profit organisations which were irked by the fact that the large pharmaceutical drug companies were making huge profits in South Africa by hiding behind their patent protection rights. This act called for parallel importation of patented drugs and manufacture of generics of some patented drugs that were effective in combating viral infections (Stillwaggon 2009: Epstein 2008). The large pharmaceutical companies reacted with an equal measure of anger and sued the government for infringing on their patents. This case was later thrown out by the high court in Pretoria and the medicines act prevailed (Stillwaggon 2009). The companies should have taken another course of action that would have been ethical and palatable to the general public. They could have negotiated with the government such that instead of the government importing the drugs, they sell them to it on a subsidised basis. This way, they would not have appeared so greedy; like people motivated by profits and not human welfare. Is AIDS a Special Case? There have been concerns surrounding the issue of whether aids is such a special case. Should the drug companies make it a normal practice to price low or give away patent protected drugs to those who cannot afford it in poor countries? As much as the human race would like to forget about the scourge that is aids, there is no way that we can make it a normal case. It is a special case. How can one treat a phenomenon that killed more people in Africa between 1999 and 2007 than all of the people that have died in wars in this continent? South Africa has treated aids as a normal case for far too long and now, it has the highest prevalence of aids cases in sub-Saharan Africa (McNeil 2008: Selsky 2009). Before they came to their senses and realised that the disease is not a normal case but a special one, too much damage was already done. It is easy to concur with the argument that the drug companies should price low patented aids drugs to those people who cannot afford the same in poor countries. This is because these are the people who need the drugs more but cannot afford them. But this should be counteracted by having either the government fund the subsidisation of the drugs, or the drug companies charging higher prices in the western nations. This is the only way that research and development funds can be made available to the drug firms for them to invest. Otherwise, if the drugs are made absolutely free such that the drug companies make no returns, they will react by failing to invest in research and development (Lehman 2008: Angell 2006: Burton 2007). If this comes to pass, we would have created a new problem by solving another. Lack of research and development in aids means that there is no hope for getting a cure in the future. Bibliography Angell, MB 2006, “The Truth Behind Drug Companies.” New York Book Review, 51(12). 28-30. Epstein, WQ 2008, “Solidarity with South Africa on Medicines Act” Pretoria Times, 23rd November 2008. 28. Hink, RD 2001, Intellectual Property Rights and the AIDS Scourge in South Africa, retrieved from http://www1.american.edu/ted/aidstrips.htm; November 13 2009. Kasper, DO & Toby, WE 2004, “Medicines Act of South Africa: The Government Won First Round, But Can this be Sustained?” the Washington Post, 23rd November 2004, 18. McNeil, DG 2008, “African Nations take on Multinational Drug Companies as AIDS Scourge Increases.” The New York Times, 15th September 2008. 35. Redfern, GO 2007, Importance of Patenting Inventions, New York: McGraw-Hill, 234-256. Siddhartha, PZ 2005, Patent Protection: Research and Development in Drug Companies, Intellectual Property Magazine, 3(32), 38-39. Stillwaggon, CA 2009, Intellectual Property and AIDS Medication in South Africa, Durban: Pretoria Book House, 289-296. Read More