'”Illllllllllllllllllll ; + a ll. Michigan 3:22“: :1 University ,__ I"-_.,..v~ v." .' "'"' 44p...- This is to certify that the thesis entitled PHARMACEUTICAL POLICIES IN SOUTH ASIA: IMPLICATIONS FOR SELF-RELIANT DEVELOPMENT AND GLOBAL INTERDEPENDENCE presented by Nalini Malhotra has been accepted towards fulfillment of the requirements for M.A. degreein Sociology A“. L Major professor Date February 22, 1980 0-7639 (6”oi\\\\ s I ‘ ~ in???” .* I‘. a'.’.' '. 0 . !:\. \g‘.d{/'\:‘ . 0 I ‘\ Q I Q .-".‘ .l OVERDUE FINES: 25¢ per day per item RETURNING LIBRARY MATERIALS: Place in book retu turn to remove dune from circulation records . O Ink . II ‘ll .‘ I‘I.I ‘I K" .ilitr ‘slll.|v‘ lurk: ‘III ‘5'; ~ . 5. Ink Q I -‘.l. .Q )ll‘Il .IITII'EI" PHARMACEUTICAL POLICIES IN SOUTH ASIA: IMPLICATIONS FOR SELF-RELIANT DEVELOPMENT AND GLOBAL INTERDEPENDENCE By Nalini Malhotra A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of Sociology 1980 ABSTRACT PHARMACEUTICAL POLICIES IN SOUTH ASIA: IMPLICATIONS FOR SELF-RELIANT DEVELOPMENT AND GLOBAL INTERDEPENDENCE by Nalini Malhotra The present structure of the global pharmaceutical industry is one in which the bulk of the research and development, production and marketing of drugs is undertaken by a few western transnational corporations. This has significant socioeconomic consequences for developing countries that are striving toward self-reliant develop- ment and symmetric global interdependence. A comparative study of the pharmaceutical policies of India, Pakistan and Sri Lanka indi- cates their diverse attempts to overcome dependence on foreign companies. Data for this sociological study were collected largely from government documents, company reports, secondary analyses, and resports published by international agencies. An analysis of the successes and failures of pharmaceutical policies in the three case- studies suggests that pharmaceutical self-reliance cannot be mean- ingfully understood unless examined in light of a country's vulnerabilities as an actor with, and within, a world system. Recent trends indicate modest efforts to strengthen regional solidarity among developing countries with regard to their pharma- ceutical policies. Dedicated to Ram and Raj Malhotra, and to the loving memory of Gokal Chandra Malhotra ii ACKNOWLEDGMENTS Although the depth of my gratitude to a few individuals can never be fully expressed in words, I take this opportunity to acknowledge their contributions to this thesis. My sincerest appre- ciations are extended to Dr. John Useem, Professor of Sociology and Dr. Ruth Hill Useem, Professor of Sociology and Education, Michigan State University. Dr. John Useem, my major advisor and chairperson of my guidance committee, has extended himself beyond the call of duty in guiding the development of my intellectual thought not only during the writing of this thesis, but throughout the course of my graduate studies at Michigan State University. Dr. Ruth Hill Useem's patience, understanding, and tolerance have been unmatched by anything I have witnessed before. Both of them have unfailingly shown keen interest in helping me overcome the various kinds of academic pressures normally imposed on graduate students. The extent of their assistance reaches far beyond the field of academics alone. I express my heartfelt thanks to both of them. Dr. Elianne Riska, Assistant Professor of Sociology and of Community Health Science, Michigan State University, has been extremely cooperative and understanding in bearing with me under time pressures. I thank her for her constant encouragement, and for drawing my attention to important literature related to the subject. of this thesis. My initial interest in the subject of this thesis developed out of discussions I had with Dr. Zahir Ahmed Quraeshi, Assistant Professor of Marketing, Western Michigan University, over his research on the pharmaceutical industry in Pakistan. Since then, Dr. Quraeshi has commented extensively on earlier drafts of this thesis, and has introduced me to a great deal of the literature on the world-wide pharmaceutical industry. I would like to acknowledge his contributions to this thesis. I thank professors and colleagues of mine who have directly, or indirectly, contributed to the development of the ideas expressed in this thesis by exposing me to their own ideas and insights throughout the course of my graduate studies at Michigan State University. I would further like to thank the American Association of University Women for their financial support in granting me the Margaret E. Tracy International fellowship for 1979-80. iv TABLE OF CONTENTS Page LIST OF TABLES ............................................. vii Chapter I. INTRODUCTION TO THE STUDY ............................ l Theoretical Background to the Study .................. l The Pharmaceutical Industry in South Asia ............ l3 Scope of the Study ................................... l7 Methodology and Limitations of the Study ............. 20 Study Format ......................................... 23 II. SALIENT FEATURES OF THE PHARMACEUTICAL INDUSTRY ...... 25 The History of Modern Drug Therapy ................... 25 Pharmaceutical Research and Development .............. 3O Patents ............................................ 39 Pharmaceutical Technology, Appropriate Technology, Technology Transfers ................. 44 Drug Products and Pharmaceutical Production .......... 48 Pharmaceutical Marketing and Promotion ............... 58 Price Discriminations and Higher Profits ........... 63 The Issue of Brand Versus Generically Named Drugs .. 63 Implications for Sociological Theory ................. 65 III. THREE CASE-STUDIES OF THE PHARMACEUTICAL INDUSTRY IN SOUTH ASIA ........................................ 70 Introduction ......................................... 70 The Case of India .................................... 72 Pharmaceutical Research and Development ............ 76 Pharmaceutical Products and Production ............. 83 Pharmaceutical Marketing and Promotion ............. 86 The Case of Pakistan ................................. 92 Pharmaceutical Research and Development ............ 94 Pharmaceutical Products and Productions ............ 94 Pharmaceutical Marketing and Promotion ............. 97 Chapter Page The Case of Sri Lanka ................................ 105 Pharmaceutical Research and Development ............ 106 Pharmaceutical Products and Production ............. 106 Pharmaceutical Marketing and Promotion ............. lO7 IV. SUMMARY AND CONCLUSIONS: IMPLICATIONS FOR POLICY IN DEVELOPING COUNTRIES .............................. ll7 SELECTED BIBLIOGRAPHY ....................................... T34 APPENDICES A. MEDICAL PERSONNEL, NUMBER OF HOSPITALS AND BEDS IN INDIA, PAKISTAN AND SRI LANKA ..................... 155 B. TEXT OF THE "RESOLUTION ON CO-OPERATION AMONG DEVELOPING COUNTRIES IN THE PRODUCTION, PROCUREMENT AND DISTRIBUTION OF PHARMACEUTICALS," PASSED AT THE FIFTH CONFERENCE OF HEADS OF STATE OR GOVERNMENT OF NON-ALIGNED COUNTRIES HELD AT COLOMBO, SRI LANKA, 158 I976 ................................................. vi Table 10. ll. 12. l3. 14. LIST OF TABLES Overseas Sales Volume as a Percentage of Total Sales Volume of Major Multinational Pharmaceutical Companies (1973) ..................................... World Market for Medicines: Projection of Demand, 1969-1980 ............................................ Market Shares of Foreign and Local Pharmaceutical Companies ............................................ New Product Introductions in the Ethical Pharmaceutical Industry, 1950-1974 ................... Schnee's Distribution of Drug Discoveries, Selected Periods, 1935-1970 ................................... U.S. Expenditures on Medical-Related Research, by Source of Funds, 1960, 1965, 1970 and 1972 ........... Patent Holdings in Developing Countries by Ownership and Use, 1972 ........................................ Selected Drug Price Comparisons--Multinationa1 and "Other" Firms ........................................ Ownership Pattern of Pharmaceutical Units, 1971-1972, by Number of Units ................................... Distribution of Bulk-Drug Production by Different Ownership Group ...................................... Causes of Death and Illness in India, 1962-1964 ...... Disease Pattern and Drug Production .................. Analysis of Products of Indian Pharmaceutical Industry (1972) ...................................... Savings Achieved by the State Pharmaceutical Corporation Takeover of Finished Drug Imports (1972) . vii Page 27 28 29 32 35 36 42 66 74 75 77 78 87 111 Table Page 15. Medical and Allied Health Personnel in India, Pakistan and Sri Lanka ................................ 156 16. Hospitals, Other Medical Establishments and Number of Beds in India, Pakistan and Sri Lanka .............. 157 viii CHAPTER I INTRODUCTION TO THE STUDY Theoretical Background to the Study The second half of the twentieth century has witnessed sub- stantive growth in the literature on development/underdevelopment within the social sciences. This is partly due to the emergence of new independent nations on the geo-political map in the period follow- ing the Second World War. The problems facing these countries in their attempt to modernize, captured the interest of social scientists worldwide. In the 19505 and 19605, the academic community, most notably in the West, contributed to theory building, data col- lection and analysis of the structure and performance of less developed countries (LDC's). Their theoretical contributions were influenced by a number of factors: their concern for the moderniza- tion of LDC's, awareness of the complex interdependencies which bind these societies to their own, Western and Communist political and economic involvement in the newly independent nations, and the new opportunities for comparative, cross-cultural research and analysis of LDC's opened up. Analysis and empirical research in cross-cultural social science have been guided by various conceptual frameworks, some of which are complementary, while others represent diverse sets of assumptions about the process of development. At this point, I will 1 attempt only to briefly summarize the general concepts and assumptions underlying these analytic frameworks, and the policy recommendations they lend themselves to, realizing that I am not detailing all the complexities of, and variations within, these general frameworks. The dominant paradigm of the 19505 and 19605 has been referred to by a number of labels; "modernization" theory (Eisenstadt, 1966), "liberal development theory" (Chirot, 1977; Bodenheimer, 1971), "development-convergence" (Kumar, 1979). This paradigm holds the basic premise that various societies are at different stages of development, some more industrialized than others. Growth is per- ceived as unilinear with the assumption that the less industrialized nations will develop along the pattern of the more industrialized ones (Eisenstadt, 1966; Lerner, 1958; Rostow, 1962). Since poverty and wealth are related to internal characteristics of a society, any effort to modernize the less industrialized countries will begin with internal reform. Such reform can be achieved by internalizing Western values--a modern, rational work ethic, the "need to achieve"-- by evolving new institutions and organizations, and by patterning existing ones along the lines of those in industrialized nations. Specific attention is paid to the role of educational, political and economic institutions in the move toward modernity. Formulated in this manner, the framework establishes the basis for a multi- disciplinary approach toward the study of modernization. The diffusion of science and technology from the industrial- ized countries to their less industrialized counterparts is an important component of the framework. Proponents emphasize greater inter-societal communication linkages between scientific communities through the mechanisms of collaborative research ventures, cross- cultural exchange of students and scholars, the developing of literacy and educated classes, and technical assistance programs. Perceived within this perspective, transnational corporations (TNC's) are one of the newer major conveyors of capital, technology, and managerial skills to LDC's, all three of these being prerequisites for large-scale industrialization. The more recent dependency framework (articulated in the last decade or 50) presents a direct challenge to the earlier moderniza- tion paradigm (the dominant paradigm for almost a quarter of a century). Rather than assume the "harmony of interests" between the industrialized nations of Western Europe and Northern America ("metropoles") and the less industrialized nations of what is generally known as the "Third" and "Fourth" Worlds ("satellites"), dependency is inherently a conflict model on both the international and domestic levels (Bodenheimer, 1971). The basic premise of this paradigm is that development and underdevelopment are inter-related consequences of the same historical process, the expansion of capitalism within a global system (Frank, 1971, 1972; Galtung, 1971; Wallerstein, 1974). Hence, according to proponents of this frame- work, the core nations have industrialized more rapidly than, and often at the expense of, peripheral nations who remained for centuries exporters of primary raw materials and agricultural prod- ucts. The paradigm rejects the earlier evolutionary models which perceive underdevelopment as a transient stage of the process already completed by industrialized nations, and attributes underdevelopment to the specific functions which LDC's have fulfilled as peripheral nations within a world system. Further, the dependency paradigm is a radical departure from the modernization paradigm with respect to diffusion of capital, science, technology and Western values. Whereas the latter perceives the diffusion of foreign capital and aid as posi- tive contributions to development, dependency proponents interpret these as mechanisms of the dominant powers or interests in the inter- national system which generate dependency and hinder development. Consequently, TNC's are viewed as sophisticated, indirect mechanisms by which subtle control over peripheral societies can be exercised, as opposed to earlier direct forms of control through military force and colonial possessions (Emmanuel, 1972; Galtung, 1971). Other points of contention with TNC's in this theoretical tradition concern their role in creating cultural dependency by diffusing Western values and consumption patterns to peripheral host countries, in fostering economic dependence by using raw materials and cheap labor in exchange for "highly" priced finished products mostly manufactured in plants localized in core countries, in wielding political influence on development policies in the periphery, combined with their reluctance to meet the technological needs of peripheral societies. The emerging scientific and political elite in less advanced societies, in close cooperation with the international scientific community, are recognized as the prime movers of the development process in the older modernization tradition. Within the dependency paradigm, however, the emergence of an indigenous, new elitist social class (whether industrial, entrepreneural, bureau- cratic, technical, or professional) that maintains strong Western ties, is antithetical to the process of development. These "bridge- heads" have a "vested interest" in, and benefit from, the existing structure of the international system. In return for carrying out certain functions on behalf of foreign interests, these classes enjoy a privileged position within their own societies, based largely on economic, political, scientific-technological, or military support from overseas, and are thereby instrumental in perpetuating “depen- dent" development. The dependency framework has also recently been subjected to much criticism and re-evaluation by scholars from a variety of tradi- tions; by Marxian standards, the framework is not sufficiently structuralist in orientation, and especially tends to ignore the internal dynamics of class conflict; liberals question the feasibility and desirability Of the goals and values and the means for fulfilling them as specified or implied within the dependency paradigm; writers within the dependency paradigm itself are constantly developing new concepts and empirical research methods in their search for a new paradigm. To summarize then, the major points of divergence within the two frameworks, modernization is inherently a consensus model, dependency a conflict model. Whereas the first advocated scientific, technological and capital diffusion, the other rejects it. The earlier modernization perspective assumes unilinear growth, the dependency perspective stipulates that growth in core countries occurs at the expense of growth in the periphery, with the establish- ment of a new power hegemony in the periphery that benefits the core. Nation-states comprise the unit of analysis in the former framework; the latter's is the global system. Broadly speaking, modernization proponents have used indices of development based on education, per capita income, GNP, level of industrialization, health welfare and physical well-being, energy consumption, quality of life, as just some examples. Dependency writers have focused on power, control over the means of production, equality/inequality, class.ba1ance of payments, and international wage differentials, to mention some examples. The one method takes as its starting point the existing situation of development/underdevelopment in any country; the other historically traces the origins of developed/dependent structures to their interaction in a world capitalist economy. Juxtaposed in this manner, these two frameworks appear to have little in common. However, to categorize all writers within these frameworks in terms of such polarized extremes is to mistakenly overlook significant advances made in social science theory building. Faced with an increasing awareness of the interdependence of nations, and of the complex patterns and consequences of such interdependencies, scholars within the older modernization tradition are re-evaluating earlier concepts and values, and in large part acknowledge multi- linear patterns of growth, asymmetrical interactions between indus- trialized and less industrialized nations, many gradations in between the "rich versus poor" dichotomy, and greater differentiation between institutions than earlier paradigms had projected. This later re-conceptualization of the earlier modernization paradigm is more commonly known as the "developmental" paradigm. Likewise, distinc- tions exist among dependency writers between the "less radicals" (Fagen, 1978; Sunkel, 1976; Cardoso, 1973) and the "more radicals" (Bodenheimer, 1971; dos Santos, 1970; Frank, 1971, 1972). On reflection, it is apparent that even though "dependencia" arose in Latin America as a radical challenge paradigm, the less radical "dependency" paradigm incorporates many of the "nation-building" ideas of the modernization tradition as "interim policies." This is largely because the "dependencia's" greatest weakness lies in its unspecific policy implications. Although almost all the writers who share the perspective are in general consensus that there must be a "socialist revolution," there seems to be little agreement as to who will lead this, when it should take place, and in what form (violent, nonviolent). Socialism is generally recognized by them as the end- state, but what transpires between now and then is left open to much debate and speculation. Import substitution, "inward-oriented" growth (as opposed to outward, export-oriented growth), nationaliza- tion of the private sector (Turner, 1973), withdrawal from the world capitalist economy, the strategy of "seizing the chance" in periods of global economic contraction (Wallerstein, 1974), are some of the measures available to peripheral nations. However, such recommenda- tions leave many questions unanswered. For example, are peripheral and semi-peripheral countries constrained to wait patiently for the "moments of contraction" in economic cycles before they can "seize the chance," or can they hasten the process through their own or combined initiative? Once they have withdrawn from the capitalist world economy, what is the next step? How are they to obtain goods, capital, and technology to embark on a program of inward-directed growth? In relationship to the preceding discussion, it is appropriate to mention some of the other conceptual frameworks that address these questions in part or full. The "science and technology“ framework (Crane, 1972; Hagstrom, 1965; Speigel-Rosing, 1977; Moravcsik, 1977; Useem and Useem, 1955) has been given its impetus from the older development tradition. As already mentioned in describing the development paradigm, the science and technology framework emphasizes the diffusion of research, science and technology to less industrial- ized countries, the education and training of scientists, and greater cross-societal communication between scientific communities, inter- national institutes and research centers, as goals for societal and international development. Another perspective related to, but quite differenthran, the science and technology framework is the "appro- priate technology" (AT) perspective. AT is important to mention in that it attempts to present an alternative to less industrialized countries in their effort to break away from dependent development and toward self-reliance, defined more modestly in terms of less industrial and technological growth than envisaged in the paradigms discussed earlier. The "appropriate technology" approach has gained fervor in some circles (Dickson, 1974; Eckaus, 1977; Morrison, 1978; Schumacher, 1973) in what Morrison (1978) has described as a “growing worldwide social movement." It has also generated considerable opposition in segments of the third world countries. Although the movement predates the establishment of OPEC in 1974, it received a boost following the oil embargo that exposed the vulnerabilities of non-petroleum pro- ducing nations, and the ensuing asymmetrical interdependence. The concept has also arisen largely as an outgrowth of the 19605 Environ- mentalism in the West, and the disenchantment with 'hard,' capital- intensive technology transfers in the less industrialized countries. The theme, generally, is "small is beautiful": small-scale, low capital, de-centralized, needs-related, labor-intensive, "ecologically sound" technology over large-scale, capital-intensive, centralized, 'elitist,‘ "ecologically unsound“ alternatives (Morrison, 1978). Appropriate Technology is a response to the failure of "trickle down" models, by advocating technological self-reliance at all levels--whether it be for the individual household, local com- munity, or nation-state--assuming, somewhat unjustifiably, according to Morrison (1978:24), that "the combination of natural resources necessary for self-sufficiency is somewhat evenly distributed among the world's nations, and in meeting basic needs each nation's popula- tion puts equal pressure on these resources." Certainly the approach presents a practical alternative to developing countries. But is it necessarily a desirable alternative? 15 it possible to consciously place limits on technological growth, that has its own determinisms (Ellul, 1964; Goulet, 1977)? The approach essentially shares the same 'national development' concerns of the development and dependency perspectives, but differs 10 substantially in its goals and underlying values. Appropriate Technology envisions the stabilization of global development at a level close to basic needs, while material abundance is the image of the other two perspectives. An underlying current of the dependency framework is resource "exploitation," AT's is resource "utilization," and in this respect is similar to development models. Where AT differs with developmentalism, and is in consensus with the dependency concept, is in its rejection of high specialization in resource development, structural differentiation and the international divi- sion of labor. However, AT takes a step further than dependency writers would venture, in also rejecting economies of scale, and the substitution of energy for labor. Full employment and the soft, technology society are ends in themselves, according to the AT approach, as opposed to economic productivity per se. The implica- tions for a policy that is unsympathetic towards TNC's is evident within this model. Another emerging analytic framework, still in the process of development, is the ''global" framework or "transnational perspective." This framework attempts to provide an ideologically free approach in addressing issues of universal concern (environmental, demographic, etc.). The primary actors that identify global problems and that are responsible for world reform are the transnational scientific com- munity, and institutions and groups that transcend political boundaries. The concepts emphasized in this paradigm reflect the reality of an increasingly interdependent global system and the growing numbers of transnationally-oriented scholars (Brown, 1978; 11 Mazrui, 1975; Goulet, 1976). The global framework transcends afore- mentioned ones, in encompassing all mankind in its unit of analysis. It also stresses those values that receive universal consensus, with less focus on those that lead to conflict between nations. Perceived within this framework, international organizations, like the United Nations and its subsidiaries, play an important role in fostering the harmonious co-existence of all of mankind, while cross-cultural research centers contribute internationally acceptable solutions to global problems. Having identified several analytically distinct (and not so distinct) frameworks, and having compared them to find both simi- larities and differences, it becomes increasingly clear that none of these is exclusive. Conflicting interests is as much a process of, and prerequisite for, development as is international cooperation and consensus (Rummel, 1979:283). Thus, in his philosophical piece, Rummel maintains: . . my view is that cooperation and conflict are not polarities but complements--that they are intrinsic parts of the same social process among nations. Cooperation and conflict are multidimensional. They are separate dimensions reflecting phases in the process of building a mutual society, a structure of common norms, expectations and laws. The fact that somewhat diverse frameworks exist in social science research for the study of development does not necessarily constitute a problem. Since none of these frameworks is complete in and of itself, taken together they address many problems, and provide various policy alternatives, certain features of which may also be combined to form a package. Thus, appropriate technology fills a 12 void in dependency theory; mainly, it provides one alternative to how less industrialized countries who choose the inward-directed path can achieve self-reliance in products that satisfy those basic needs they previously depended on TNC's to provide. The implications of the goals of AT amount to, simply, for countries to limit their needs .(or wants) to what small-scale, indigenous industry can provide, and thereby become self-reliant. The problem of defining self-reliant development is perhaps the single most vexing issue for scholars writing on independence/ dependence/interdependence. Are there universal, objective criteria by which to evaluate self-reliance, or is the term relative to each society? Thus, can a nation based on small-scale industrial growth and labor-intensive technologies be compared to a highly industrial- ized, capital-intensive one in terms of self-reliance? Does a nation achieve self-reliance by being able to provide its population with basic subsistence needs defined in terms of clothing, food, shelter, and freedom from disease, or by being able to satisfy wants defined in terms of energy resources, defense and space exploration? Does the definition of self-reliance expand parallel to a country's growth to incorporate wants in addition to needs? Was the United States self-reliant before (and after) the OPEC oil embargo in 1973- 74? Is it possible to view nation-states as self-reliant and yet interdependent? And finally, how can countries that are not self- reliant even by minimal standards maintain symmetric interdependencies with nations that are self-reliant by much higher standards? Evi- dently, there are no easy answers. Leaders, politicians, economists, 13 sociologists, technical experts and administrators have been struggling with these issues for years. In this paper, I make no claim to providing any ready answers. I do not even claim to simplify the problem; empirical reality dictates that the solutions cannot be simplified, but can only be made more complex. What I do hope to achieve in this study is to provide an understanding of the problem and its complexities by raising these questions against one empirical situation: the pharmaceutical industry in South Asia. The Pharmaceutical Industryiin South Asia The pharmaceutical industry provides a good basis for posing the issues, addressed above. First, the choice of this industry rests on the premise that it comprises one among a few "priority" sectors for development and for minimal self-reliance, in that it fulfills a subsistence-level need for freedom from. and control of disease, and consequently, 'good' health and physical well-being. Second, ironic as it may appear, the pharmaceutical industry con- stitutes a classic case of asymmetric interdependence, whereby the developing countries are largely dependent on foreign drugs (especially through TNC's) to supply most of their pharmaceutical needs. The pharmaceutical industry arouses the interest of sociolo- gists at a number of different levels. The special problems of LDC's--poverty, malnutrition, lack of food purification and quality control facilities, low sanitation, and ignorance--have aggravated the spread of disease, especially in rural sectors, and have bestowed 14 heavy responsibility on the medical supplies industries. Within the development perspective, the pharmaceutical sector is significant with respect to these social problems, and raises questions pertinent to "nation-building," industrialization, pharmaceutical research and development, medical delivery systems, health-related professions, and the role of the state vis-a-vis the private sector in providing medical care to the population. A study of the transnational pharmaceutical industry would arouse the interest of scholars writing within the dependency frame- work. Many of the features associated with economic and social dependence are embodied in a striking form in the pharmaceutical industry. The drug industry is unique in that it is marked by an unusual degree of market power, indicated by the concentration of production within a few industrialized countries, the ability of leading pharmaceutical TNC's to exercise price discrimination, to obtain higher returns on investments than do other manufacturing industries, and to employ marketing tactics to strengthen firms' market positions. The implications of this market power are more serious in the case of the pharmaceutical industry, because of the unique position that it occupies in terms of its human and social importance (Lall, 1975). The pharmaceutical sector raises important questions for writers within the science and technology framework. Because the industry is primarily research-intensive (rather than capital- or labor-intensive: research costs occupy the largest percentage of investments), the establishment of local and international research 15 and development sectors, the role of the scientific community (Moravcsik, 1977; Mulkay, 1977; Skolnikoff, 1977; Useem et a1., 1979), and pharmaceutical technology transfer versus alternative technologies (Bibile, 1977; Lall, 1975; Wortzel, 1971) pose some pressing issues for research. The AT approach directly challenges development and depen- dency approaches with respect to the role of technology in the process of development. Implicit within the more conservative writings of the latter two approaches is the notion that the lack of 'hard,' industrial technology in less industrialized countries is a factor contributing to their underdevelopment. AT assumes that a heavy technology society is the antithesis of development. Technology transfers from the more industrialized to the less industrialized comtries, therefore, is not the solution, but the problem of the development process. Posed within the context of the pharmaceutical industry, the questions are complex. The pharmaceutical TNC's often have been criticized for conducting research on the health problems of only developed countries, and of spreading these 'high' research costs to less industrialized countries in the form of higher prices for drugs. A second common source of criticism has been that the drugs that have been marketed in the developing countries have been unsuitable to the disease patterns of these countries, and have reflected Western drug consump- tion patterns. Therefore, can developing countries manufacture, or cheaply purchase, alternative technologies more suitable to their own needs? Moreover, since appropriate technologies have often come 16 to be associated with "second—rate" technologies, does the concept (AT) apply to the pharmaceutical industry in that cheaper alterna- tives could be substituted for modern medicine without any sacri- fice of effectiveness? Assuming that 'good' health for all mankind is a universal goal, the policy implications that stem from the global (or trans- national) perspective are quite explicit. In order to control and eliminate certain globally common diseases, specialized centers of medical research and development would need to be established, recruiting highly skilled and trained members of the transnational scientific community. By waging a worldwide battle against diseases that could have afflicted all of mankind (for example, cholera, tuberculosis, smallpox) without the necessary preventative measures that have been taken, the World Health Organization (WHO) has almost totally wiped these diseases off the face of the earth. This paper will attempt to examine these issues in the con- text of the pharmaceutical industry in South Asia. The discussion of these issues from a variety of conceptual frameworks will demon- strate the inability of any one framework, in and of itself, to address all these issues, and thereby make a case for the need to combine these paradigms and apply an integrated approach to compara- tive, cross-cultural social science research with respect to an understanding of dependent, independent and interdependent social structures. 17 Scope of the Study The geographical focus of the study has been narrowed to three case-studies of South Asian countries: India, Pakistan and Sri Lanka. A comparison of the pharmaceutical industry in these three countries is of interest for a number of reasons. Firstly, each of these countries differs with respect to pharmaceutical manu- facturing. The United Nations Industrial Development Organization (UNIDO, May, 1969) working groups on the Establishment of Pharma- ceutical Industries in Developing Countries divides countries into five developmental stages with respect to pharmaceutical manufacture. Stage 1 consists of "developing countries with no pharmaceutical product manufacturing.“ Stage 2 is "developing countries whose pharmaceutical industry is in an early stage." Countries in Stage 3 have been described as "developing countries with a well-established pharmaceutical sector aiming at a certain level of backward integra- tion for, at least, certain product lines (engaged in bulk drug manufacture)." Stage 4 is composed of "developing countries having reached a high level of self-sufficiency, oriented toward full inte- gration at least for the main sectors of the pharmaceutical industry (starting the development of medicinal clinical manufacture)." The most advanced countries "with a well established pharmaceutical industry" comprise Stage 5. Sri Lanka is classified in Stage 2; Pakistan in Stage 3 and India in Stage 4.1 1Although these countries have made much progress since these data were collected by UNIDO in 1969, no recent re-classification of these countries along these lines has appeared in print. The absence of such a conceptualization, indeed, reflects in part the influence 18 The distinctions made between these three countries with respect to the degree of sophistication of their pharmaceutical industries are important from the perspective of applied theory and policy in the social science tradition. Earlier literature in the social sciences has reflected a tendency to over-generalize policy options for a less industrialized country as applicable to all or most "other less industrialized countries." Societies have other- wise been classified into "metropolis-satellite“; "core, semi- periphery and periphery"; "North" and "South"; "industrialized-less industrialized"; "developed-underdeveloped"; or have been generally referred to as the "Third World“ and "Fourth World." While such con— cepts are convenient for purposes of generally classifying societies on a continuum, it is easy to lose sight of the fact that such con- cepts tend to obscure and over-simplify structural differences between societies. There is, therefore, a greater need for sensi- tivity to the specific socio-historical, economic, political and technological situations of a society for designing and applying policies toward achieving self-reliance. The diverse policy choices that India, Pakistan, and Sri Lanka have had to face in achieving pharmaceutical self-reliance exemplifies the complex differences (social, political, historical, economic, technological, etc.) between the less industrialized countries. of new challenges to the “stages of growth" analyses. However, such a classification has proven useful in the absence of other data by providing some uniform basis to assess where pharmaceutical produc- tion was at in each of these countries in 1969. 19 A selective comparison of the pharmaceutical industries in India, Pakistan, and Sri Lanka is relevant at another level. There are certain factors that are common to all three countries: they share similar disease patterns and pharmaceutical needs; they are culturally very similar; historically, all three have been British colonies until 1947; and all three have embarked on nation-building efforts since independence in 1947. Thus, by keeping these "variables" (health needs, culture, history and number of years since independence) "controlled" for, it is possible to obtain insight into what other structural conditions and variables are partially responsible for the different directions these countries have taken in their policies, and what directions they are contemplating for their future growth. The pharmaceutical industry in South Asia, as in much of the developing world, has witnessed great penetration of its markets by foreign drug companies. In an effort to limit dependence on foreign drugs and achieve control over drug research, production and marketing in their countries, legislators in LDC's have taken various measures to restrict TNC practices, ranging from tariffs, import regulation and substitution, restrictions on patents and licenses, drug registra- tion in a national formulary, replacing brand names with generic names, to the formulation of state-controlled pFLchasing, manufactur- ing and distribution agencies. The first case to be discussed in this paper is that of India which has restricted patents, emphasized back- ward integration, import substitution and foreign collaboration rather than sole ownership by foreign firms. Pakistan, the second case, created a National Formulary which made up a list of all drug 20 products that could be manufactured and sold in Pakistan, and abolished the use of brand names in the marketing of drugs. The third case, Sri Lanka, introduced the State Pharmaceutical Corpora- tion that invited quotations on tenders, and purchased drugs through TNC's and foreign governments through a system of "bid-buying." Each of these will be described in greater detail in a later chapter. What is theoretically significant in the three case studies is that each sharply brings to focus the implementation of national goals for development and their interplay within and with an inter- national economic system. The convergence and conflict of interests are most evident in these various policies that have addressed not only the structure of local industry, but also its interaction with transnational actors. An understanding of the socio-economic condi- tions, both national and international, leading to the success of some programs in some countries, and of the conflicts, again national and international, leading to the failure of other programs in these and other countries, is important for its contributions to theories of development and dependency in the social sciences. Methodologyand Limitations of the Study If number of publications is any indication at all, scholarly interest in the pharmaceutical industry has been on the steady incline ever since the pricing and promotional practices of the industry have been subject to severe criticism and scrutiny by the Kefauver Senate Committee Hearings (19605) and the Nelson Senate 21 SubcoIImittee on Monopoly (1967) in the United States, triggering off a chain of similar investigations in other countries (Sainsbury Com- mittee, 1967, and Monopolies Commission, 1973, in the United Kingdom; Haathi Committee, 1975, in India). One effect of these investiga- tions has been to somewhat polarize writers on the pharmaceutical industry so that there are extremely emotional critics (Lall, 1975; Steele, 1964) on the one hand, and those who are advocates of pharmaceutical TNC's (Reekie, 1975; Schwartzman, 1975) on the other. These radical differences of opinions have not presented as much a problem for research as would first appear; on the contrary, they have had the positive impact of demanding that the arguments be weighed and the controversies thought through with care. Hence, I have tried to present various sides of the arguments, and assess the alternatives, based on the available empirical evidence. The writers in the field of the pharmaceutical industry have predominantly been trained in business administration and economics, propelled by an interest in TNC's and their role in a global economy. Some have been natural scientists, chemists, and others in the medical profession, concerned with chemical properties, bio- equivalence of drugs, and side-effects of active ingredients. Some stem from international organizations (United National Conference on Trade and Development [UNCTAD]; United Nations Institute for Technology and Research [UNITAR]; United Nations Industrial Develop- ment Organization [UNIDO]; and Organization for Economic Cooperation and Development [OECD]) that have published extensively on technology and its transfer to developing countries. Significantly few 22 contributions have been made by social scientists (other than economists). Where these studies do exist, they have generally taken the form of social-psychological analyses of delinquency, drug dependence and drug abuse. Only in the last decade or so have sociologists been increasingly interested in the structure and functioning of TNC's, and their role in perpetuating development, dependence, and interdependence. Since the pharmaceutical industry presents a unique case-study among other TNC's (for reasons men- tioned earlier), sociologists are only beginning to bring their analytic frameworks and concepts to this problem. This study, there- fore, presents somewhat of a first step in this direction. One of the major problems faced in cross-cultural, compara- tive analyses is the lack of cross-culturally comparative data. This study is no exception with regard to the three regional case-studies used. Although a great deal has been written on the pharmaceutical industry in India, and has been available to me, much relevant data has been published in Indian journals with little or no circulation outside that country. I have relied heavily on secondary analyses, government documents and company reports. Data on the pharmaceutical industry in Pakistan (particularly for the period 1972-76) has been made readily available to me by another researcher (Quraeshi, 1978) in the form of special medical press releases, Pakistani newspaper and journal articles, government reports, and interviews with doctors, chemists, pharmacists, and leaders in government and industry (in cases where confidentiality posed no problem). The data on Sri Lanka are relatively weak. Although a few published materials and secondary 23 analyses do exist, they all largely draw from the same major source of information on the pharmaceutical industry in Sri Lanka (Bibile, 1977), thereby representing similar perspectives. I have therefore tried to employ discretion in interpreting these data. The structure and functioning of TNC's is widely accepted as one of the most mystified areas of research. Data on intra-company transfer prices and profits are generally unavailable, and published company reports on profits are suspiciously regarded as being con- servative estimates. Data on actual breakdown of investments by TNC's into various sectors (research and development, promotion, production, etc.) have often been speculative. Such problems make comparisons between TNC's and local firms difficult in terms of research and development expenditures as percentage of profits, cost of drug production, economies of scale, and so on. This study is, undoubtedly, restricted by the unavailability of these data. StudygFormat After having mentioned in this chapter some of the major conceptual frameworks developed by scholars of social change, Chapter 11 then provides a brief historical background of the origins of the world-wide pharmaceutical industry. The salient features of the industry are then discussed according to the following framework: (a) research and development (including technology transfers, patents, the role of the scientific community); (b) pharmaceutical production (including specialization, concentration, backward inte- gration); and (c) marketing and promotion (including pricing, brand 24 and generic names, advertising, and regulation). The views expressed by various actors-—government, the local private sector, TNC's, the medical profession, chemists and pharmacists, and international agencies--are presented, where possible, with regard to each of the above mentioned issues. In Chapter III the various features of the pharmaceutical industry are discussed more specifically in conjunction with the case-studies of India, Pakistan and Sri Lanka. The pharmaceutical industry in each of these countries, together with the various legislative measures taken, are examined in relation to these countries' goals for achieving self-reliance. Chapter IV presents an evaluation of the information pre- sented in earlier sections, and weighs the policy alternatives available to these countries at various levels, whether nationally, regionally, or as actors within an interdependent global system. CHAPTER II SALIENT FEATURES OF THE PHARMACEUTICAL INDUSTRY The History of Modern Drug Therapy One of the great modern revolutions in drugs began in 1935 when a group of German scientists and physicians led by Domagk announced the discovery of Prontosil, a red dye that treated systemic microbial infections without ill effects to healthy parts of the body (Cooper, 1966; Silverman and Lee, 1974; OECD, 1969). This breakthrough triggered a chain of discoveries of chemotherapeutic and antibiotic agents, most notably penicillin, streptomycin (1943), chloramphenicol (1947), and tetracycline (1953). The increased demand for drugs in World War II, and the impetus given by major drug discoveries, led to greater public and private investments in drug research, quality control procedures and bulk manufacturing in England, France, Germany and the United States (Silverman and Lee, 1974). Many of the leading pharmaceutical corporations of present times (for example, Pfizer of the United States, and Hoffman La Roche of Switzerland) emerged during the post-World War II era as leading producers of drugs. The degree of profitability for a firm directly corresponded to the number of drugs they could innovate and successfully market. Consequently, high research expenditure was required for the firm to stay in business, and pharmaceutical companies were quick to 25 26 appreciate that their research programs could only be financed by spreading these costs over large markets. Thus, companies expanded their operations to overseas markets (OECD, 1969). The limited domestic market for such Swiss producers as Ciba-Geigy, Hoffman La Roche and Sandoz made it necessary for them to seek markets abroad. Soon after, companies from other countries, including Japan (Fujisawa, Tanabe, Takeda) and Holland (AKZO), had made their entry into world markets. The mid-twentieth century hence signalled the rise of the present transnational structure of the pharmaceutical industry. By 1973, companies from the United States, Japan, Switzer- land, Germany, France, the United Kingdom and Holland relied heavily on overseas markets, as indicated in Table 1. The total world market for human medicines in 1969 was $14,363 million, of which the demand for drugs in Third World markets comprised $3,514 million. The National Economic Development Office (HMSO, 1972) has projected the demand to increase considerably by 1980 as new drugs are discovered, population increases, and per capita consumption of drugs rises. Their estimates have been summarized in Table 2. In 1968, the less developed countries alone (Latin America, Asia, Near East and Africa) consumed 53.6% of all United States pharmaceutical exports (Pharmaceutical Manufacturers' Association, FACTBOOK, 1973). As these data indicate, the transnational pharmaceutical companies have emerged as the major producers and suppliers of com- mercially marketed drugs in the second half of the twentieth century. 27 TABLE 1.--Overseas Sales Volume as a Percentage of Total Sales Volume of Major Multinational Pharmaceutical Companies (1973). Company % Company % Abbott 35 Merck & Co. 45 Astra 51a E. Merck 42 AKZO 88 3M 40 American Home 29 Pfizer 52 Beecham 58 A. H. Robins 28 Banyu N.A. Rh6ne-Pou1enc 22 Boehringer-Ingelheim 62 Roussell-Uclaf 50 Boehringer-Mannheim N.A. Richardson-Merrell 56 Bayer 67 Sterling Drug 38 Bristol-Myers 24d Sandoz-Wander 97 Clin-Midy N.A. Squibb 33 Ciba-Geigy 98 Schering-Plough 41 Cyanamid 32 Schering AG 58 Dow 46 Shionogi N.A. Eisai N.A. Smith, Kline 31a Fujisawa 5 G. D. Searle 31 Glaxo 56 Sankyo N.A. Hoffman La Roche 90c Syntex 100b Hoechst 58 Takeda 5 ICI 84a Tanabe N.A. ICN 67a Varta 12 Johnson and Johnson 22 Upjohn 38 Lilly 33 Wellcome 9Oa Morton-Norwich 9 Warner-Lambert 42 Montedison N.A. Yamanouchi 1 SOURCE: Barrie G. James, The Future of the Multinational Pharmaceuti- cal Industry to 1990 (New York: Halsted Press, 1970), pp. 251-52. aPharmaceuticals only bPanama based. cEstimate. dInternational Pharmaceutical Marketing, Sogen-Swiss Corp. (New York, 1973). N.A. = Not Available. 28 TABLE 2.--Wor1d Market for Medicines: Projection of Demand, 1969- 1980 (in millions of dollars) Total World Market Third World Market 1969 $14,363 $3,514 1980 37,399 - 48,680 8,533 - 11,522 SOURCE: National Economic Development Office, Focus on Pharma- ceuticals (London: HMSO, 1972). They are concentrated in a few market economies, and the leading market shares are further concentrated within a few companies even within these countries. One of the major reasons contributing to the dominant market positions of a few companies has been their ability to engage in risky, capital-intensive research and develop- ment, leading to drug innovations protected by patent laws. Contrasted to this situation, the developing world as a whole accounts for a small proportion of the global output of com- mercial pharmaceuticals. Thus, around 1971, the share of developing countries to total drug production was only 10% (Lall, UNCTAD, 1975), while the developing market economy supplied 85.7%, and the Southern European countries 4.3%. This meant that developing countries were dependent on foreign sources to supply their pharmaceutical needs. This is more evident when we compare the market share of pharma- ceutical TNC's with local manufacturers within developing countries (see Table 3). 29 TABLE 3.--Market Shares of Foreign and Local Pharmaceutical Companies (in percentages). Share of Market (percentage) Country Year Local Transnational Brazil 1969 22 78 Argentina 1969 35 65 Peru 1964 5 95 Philippines 1966 20 80 India 1969 25-35 65-75 Venezuela 1970 10 9O SOURCE: Tom Heller, Poor Health, Rich Profits: Multinational Drug Companies and the Third World (Nottingham: Spokesman Books, 1977), p. 3. The implications of such dependence on foreign sources has been severe for developing countries. In 1971, industrialized countries had a positive balance of $924 million in their trade in pharmaceuticals, whereas less industrialized countries had an adverse balance of $674 million (Lall, UNCTAD, 1975:8). At another level, developing countries have been concerned about the proliferation of drugs reflecting consumption and disease patterns in industrialized countries, and the cost that they have had to bear for expensive research and development unsuited to their own needs (Illich, 1976; Lall, 1975). This concern has been translated into more intensive efforts to reduce dependence on foreign drug imports and to increase 30 backward integration in the private sector. Since progressive strides have been taken to develop pharmaceutical technology in developed countries in comparison to what has been the case in less industrialized countries, the problem for the latter becomes one of how to close the "gaps in technology," either through technology transfers, or through increased local research and development efforts. It is therefore necessary to turn our attention to the process of pharmaceutical research and development, and to examine what implications this has for developing countries. Pharmaceutical Research and Development The long—term success of a pharmaceutical company depends primarily on the extent and the success of its research and develop- ment, and on the extent to which the products of this research and development can be successfully marketed. The rate of pharmaceutical innovation reached its peak between 1951 and 1960 as the accelerated growth of research and development spending resulted in an increasing flow of new chemical entities (Schnee and Caglarcan, 1978:93). However, there has been a steady decline in the volume of all new drug products and new chemical entities in the 19605 (Schnee et a1., 1978; Schwartzmann, 1975; de Haen, 1967 and 1975). New drugs can be classified into four categories (de Haen, 1967, 1975): (a) a new chemical entity indicates products that are new, single-chemical entities not previously known, including new salts; (b) duplicate single products are those which are put out by various manufacturers; (c) compounded products are any products having 31 more than one active ingredient; and (d) alternate drug forms are products previously marketed in tablets and now offered in capsules, ampules, liquids, etc. Table 4 shows the decline in new product introductions in the "ethical drug" industry between 1950 and 1974. Critics of the industry cite the relatively small number of new products as evidence that the industry is becoming more ineffi- cient. They maintain that the "pharmacological revolution" of the 19505 has been replaced by a new era of "molecular manipulation" presenting little or no therapeutic benefits over existing drugs. A Health, Education and Welfare (HEW) task force on prescription drugs (1968:12) concluded that: Since important new chemical entities represent only a fraction--perhaps 10 to 25 percent--of all new products introduced each year, and the remainder consists merely of minor modifications or combination products, then much of the industry's research and development activities would appear to provide only minor contributions to medical progress. According to those who hold this perspective, these minor drug modifications do not provide significant clinical advantages over already existing drugs. These "me-too" drugs may offer, for example, slightly more rapid absorption, which Silverman and Lee (1974:39) claim may be of more interest to statisticians than to clinicians. The molecular manipulation issue involves the develop- ment of a molecule pharmacologically similar to that of a profitable rival, but distinct enough to obtain patent protection. Thus, research is often geared toward patentable inventions and not toward essential but non-patentable drugs (Steele, 1967:1911-1914). Because of the commercial advantage to the drug company in duplicating 32 TABLE 4.--New Product Introductions in the Ethical Pharmaceutical Industry, 1950-1974. Total New New New Single Duplicate Cmpomded Dosage Products Chemicals Products Products Forms 1950 326 28 100 198 118 1951 321 35 74 212 120 1952 314 35 77 202 170 1953 353 48 79 226 97 1954 380 38 87 255 108 1955 403 31 90 282 96 1956 401 42 79 280 66 1957 400 51 88 261 96 1958 370 44 73 253 109 1959 315 63 49 203 104 1960 306 45 62 199 98 1961 260 39 32 189 106 1962 250 27 43 180 84 1963 199 16 34 149 52 1964 147 17 29 111 41 1965 112 23 18 71 22 1966 80 12 15 53 26 1967 82 25 25 32 14 1968 87 11 26 50 21 1969 62 9 22 31 12 1970 105 16 50 39 23 1971 83 14 4O 29 30 1972 64 11 35 18 30 1973 74 19 37 18 17 1974 83 18 42 23 26 Total 5587 717 1306 3564 1686 SOURCE: Paul de Haen, Ten Year New Product Survey, 1950-1960; Non-Proprietary Name Index, Vol. VI (New York: Paul de Haen, Inc., 1967); New Products Parade,,1973-1974 (New York: Paul de Haen, Inc., 1975), cited in Schnee and Caglarcan, "The Changing Pharmaceutical Research and Development Environment," in The Pharmaceutical Industry, edited by Cotton and Lindsay (New York: John Wiley and Sons, 1978), p. 94. 33 successful new drugs, research tends to be duplicative. Molecular manipulation stimulates applied, rather than basic research, thereby limiting the number of new therapeutic discoveries. The industry view is that molecular manipulation is a per- fectly legitimate and efficient tool in medical chemistry and that its use has often led to the discovery of important new therapeutic compounds, most notably hydrocortisone, methicillin, and ampicillin (Schnee and Caglarcan, 1978; Reekie, 1975). They maintain that this kind of research activity does not "waste" resources any more than other kinds of research and development efforts,and while being equally prone to the elements of risk and failure, the activity does possess a record of innovative success.2 Another controversy relating to pharmaceutical research has centered around the role of the pharmaceutical industry in discover- ing new drugs. The issue surfaced frequently at the Kefauver Hear- ings in the United States. The industry claimed credit for having discovered most drugs. Critics maintained that most of the drugs discovered by the industry were in fact derived from discoveries which had been made by academic and non-industrial scientists. Schwartzman (1975), Schnee (1971) and Seife (cited in Schwartzman, 1975) have conducted independent studies on the origins of drug discoveries in the United States, and conclude that the 2Beckman (1962:72-77) has compiled "an impressive but not exhaustive" list of useful drugs that "would not exist today if some- one had not tinkered with the molecular structure of another drug already in use, or sought by synthetic means to develop useful con- genors of such a drug"; Harry Beckman, "In Defense of Tinkers," The New England Journal of Medicine 267 (July 12, 1962). 34 pharmaceutical industry discovered the majority of all new drugs dis- covered between the periods 1935-1970 (see Table 5 which presents Schnee's findings). Schwartzman further maintains that a decrease in industry's investment in drug research is not likely to be made up by government or other non-industry research. The reason he puts forward is: Academic scientists generally are attracted by research into underlying scientific principles, and are put off by the often routine evaluation of compounds required by the search for new drugs. Moreover, because academic labora- tories are concerned with the advances of knowledge within separate disciplines, their staffing is rarely multi- disciplinary, whereas multi-disciplinary staffing is needed in the search for new drugs (p. 18). Government spokesmen and academia responded by indicating that the major research and development efforts of the industry has been designed to produce drugs that have a large consumer market, would ensure a good volume of sales, and secure monopoly privileges in the form of patents. Thus the industry has neglected research on drugs related to rare but deadly diseases (for example, cancer). Further, compared to total pharmaceutical research and development investment in the United States, the percentage spent by the pharma- ceutical industry is relatively weak. Data for the United States is quite striking. Table 6 shows that the industry contributed 26% of total expenditures on medical research in 1960, and the proportion has been declining ever since, compared to government expenditures that have increased by almost five times in the same period. The controversies are relevant to developing countries con- templating backward integration in their pharmaceutical sector. The TABLE 5 35 .--Schnee's Distribution of Drug Discoveries, Selected Periods, 1935-1970 (in percent). Sources of Innovations Periods of Introduct1on Industry Universities Other ------------ Unweighted Distribution ---------- 1935-49 52 34 14 1950-62 69 16 15 1963-70 82 9 9 --------- Distribution Weighted by Sales ------ 1935-49 33 66 1 1950-62 82 8 10 1963-70 85 8 7 ------------ Distribution Weighted by --------- Medical Importance 1935-62 52 37 11 NOTE: In Schnee's table the classes include "innovator and discoverer" and "foreign firm," as well as "universities, hospitals, or research institutions" and "other." Here "innovator and discoverer" and "foreign firm" are grouped under "industry"; “other" includes a few cases where the discoverer was a domestic company which was not the innovator. SOIRCE: Jerome Schnee, "Innovation and Discovery in the Drug Industry," in Mansfield, et a1., Research and Innovation in the, Modern Corporation (New York: W. W. Norton, 1971), p. 178. 36 TABLE 6.--U.S. Expenditures on Medical-Related Research, by Source of Funds, 1960, 1965, 1970 and 1972 (in millions of dollars). 1960a 1965 1970 1972b Total $ 798 $1,715 $2,499 $3,102 Government 471 1,229 1,740 2,223 Federal 488 1,174 1,664 2,144 State and Local 23 55 76 79 Private 121 158 193 211 Foundations and Health 76 88 108 124 Agencies Other Private Contributions 12 25 32 33 Endowment 19 19 19 19 Institutions' Own Funds 14 26 34 35 Industry 206 328 566 668 Industry as Percentage of Total 26 19 23 22 SOURCE: David Schwartzman, The Expected Return from Pharmaceutical Research (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1975), p. 48. aData for 1960 are recorded here as in the original source. However, the author's calculations reveal inaccuracies in totalling these numbers. Accurate figures are unknown. b1972 figures for industry represent budget amounts rather than actual expenditures; other 1972 figures are NIH estimates of actual expenditures. 37 debates bring to surface the much larger issue of the role of the public and private sectors, and the degree of responsibility that should be assigned to each. Is the state-controlled or state- regulated industry more efficient in drug production and research than the private one? And, more importantly, which system is most effective in distributing drugs to the largest segment of the needy population? Reekie's (1975) position on this issue is clearly pro- industry. He asserts that since members of the pharmaceutical market are best informed regarding the supply and demand of medicines and patients' needs, and since they have the most to lose if pharma- ceutical products are inadequate (the physician in terms of his patient's health, and the industry in terms of profits), they there- fore have the greatest incentive to make correct decisions relating to the production and consumption of medicine. Those concerned with the industry's practices, on the other hand, realize that physicians are often unaware of the potency, quality and side-effects of drugs, resulting in the over-use and mis-use of drugs--clinica1, social, and cultural "iatrogenesis“ (Illich, 1977)--and that the profit motive of the industry transcends most other social considerations. With reference to state participation in pharmaceutical research and development (in the United Kingdom), the Sainsbury Committee (1967) said: Nationalisation would have a strong tendency to lead to the central direction of research. We can see no reason why this should produce the best results; we doubt indeed whether it would be efficient. There may be an element of economic waste in competitive research but the evidence we have obtained leads us to believe that without such competition there would be a slower rate of discovery and innovation. 38 This is not, in our view, the type of industry which would better serve the public interest under nationalisation. We therefore do not recommend nationalisation of this industry. The recommendation may be appropriate for a country like the United Kingdom, with highly trained specialists and an advanced pharmaceutical private sector. But the evidence needs more careful examining in the case of a less developed country where, often, scarce resources cannot risk even "an element of economic waste," and where "competitive research" is minimal or even nonexistent (for example, in Sri Lanka). The cost of pharmaceutical research has increased substan- tially over the years, with diminishing rates of return. Schwartzman (1975) estimates that the research and development cost of a new chemical entity in the United States was $1.3 million in 1960 as against $24.4 million in 1973. The increase in prices of goods and services used by research laboratories accounted for 68 percent of the increase. Therefore, the increase in costs of research and development, for reasons other than price increases, was 1,015 per cent (Schwartzman, 1975:48). Several studies indicate that the 1962 Drug Amendments in the United States contributed markedly to this effect, by attempting to restrict industry profits, shorten patent life, and by placing other strong regulatory controls on the drug industry (Peltzman, 1973; Schwartzman, 1975; Reekie, 1975). Advocates of government regulation indicate that these price increases in drugs have been inflated by the pharmaceutical industry, since the latter tend to conceal promotional and marketing expendi- tures as part of research and development investments. 39 Pharmaceutical research is considered by the industry to be a high-risk, time-consuming activity. Joseph Stetler, of the Pharma- ceutical Manufacturers' Association (United States), states (1967): The development and marketing of new drug products is an uncertain enterprise at best. The percentage of the sales dollar which the research-oriented drug companies spend to discover and develop new products is by far the highest of any American industry. Only one out of 6,000 compounds tested by the drug companies turns out to be a marketable product, and even then it can reach the market only after years of animal and clinical testing. In addition, a competitor's new or improved product can appear at any moment to overshadow or make obsolete a profitable product perfected at great cost. A HEW task force (1968), on the other hand, was "unable to find sufficient evidence to support the concept of the drug industry as a potentially risky enterprise," since the oligopolistic structure of the industry is protected by patent laws, thereby discouraging competitors. Patents Closely related to the issue of research and development is the question of patents. The patent system is of special signifi- cance to the drug industry, since in the nature of the industry a new innovation is fairly copiable by competitors, and much of the dis- cussion of the system has revolved around its effects in the industry. In the field of pharmaceuticals, there are basically three types of patents, namely process, product, and application (use) patents. The form of patent protection and its duration varies from country to country. For instance, the United States allows both process and product patents; Pakistan, India, Argentina, Switzerland grant only 4O process patents; a few more, notably Italy, Brazil and Korea grant neither process nor product patents. The usual duration of a drug patent is 17 years in most developed countries, but is shorter in many developing ones. India grants patents for a duration of seven years only. By far the greatest concentration of patents in developing countries is in the chemical sector, and especially in the pharma- ceutical branch. An examination of 3,513 patented processes or products for Colombia showed that 2,534 of them belonged to the pharmaceutical industry and the rest mainly to the textile and chemi- cal industries (UNCTAD, 1975b). One reason for this is that patent protection is a very important incentive for scientific progress in medicine, since new drugs can be quickly imitated and marketed by competing firms who have borne none of the costs of research, safety testing, clinical evaluation and initial marketing in which the innovating firms have invested. Michael H. Cooper (1966), perhaps the most vocal advocate of strong patent pharmaceutical protection, maintains that patents encourage continuity in research. They are the means by which a firm gains the funds for its future research, rather than a 'reward' for its past efforts. He attacks Italy, which grants no patents, for "legalized theft of the world's stock of intangible research knowledge," and indignantly states: "In effect the world is paying for Italy's drugs. Italy is making no contribution to the overhead of the discoveries developed abroad, thus others must clearly pay more to make good the innovator's 1055." Another of his concerns is that most imitating companies are not in 41 full possession of the patent holder's or innovator's knowledge and experience, and may produce drugs that are health hazards. The international patent system has recently encountered much criticism (Group of 77, UNCTAD, 1977; Penrose, 1973; Vaitsos, 1976; UNCTAD, 1975b), emanating mainly from a dependency framework. Con- cern for revising the protection of industrial property has been both at the national and international levels. An UNCTAD report (1975b) concluded: The available evidence suggests that the international patent system is not, in its present form, proving to be of benefit to the developing countries and that it is instead having a negative effect on their development. . . . Patent laws and practices of developing countries, following international standards, have legalized an anamolous situation which had come to act as a reverse system of preferences granted to foreign patent holders in the markets of developing countries. Vaitsos (1976:86) argues that the "existing system of patents . . . has been constructed so as to protect the interests of the patent holders, who are in most cases, nowadays, the transnational enterprises." Thus, in most developing countries, the vast bulk of patents is held by foreign companies. An estimate for 1972 puts foreign ownership of patents in developing countries as a whole at 84 percent, with many individual companies having even a higher figure (UNCTAD, 1975b). A large percentage of foreign ownership of patents presents no serious problem in and of itself, insofar as these patents are used toward meeting the basic health needs of the patenting countries. The problem arises when the interests of those holding the patents does not coincide with those granting the patents. Critics of the 42 patent system maintain that such conflicts of interest are present in that practically all patents granted in developing countries are never worked in their territories. As such, patent protection is divorced from innovative and from investment activity; consequently, it blocks the use of technology to directly work the patented products or processes, grants monopoly privileges to a few trans- national enterprises, and covers innovations not directed to local needs. Data presented in Table 7 shows that 90 to 95 percent of the patents were almost entirely unused in production in developing countries in 1972. TABLE 7.--Patent Holdings in Developing Countries by Ownership and Use, 1972. Number of Patents Held Percentage Item (in thousands) Distribution World Distribution: Developed Countries 3,300 94 Developing Countries 200 __§_ 3,500 100 Distribution in Developing Countries: Held by Nationals 3O 16 Held by Foreignors 170 84 160 of which Used 10 - 7O 5 - 10 Not Used 150 - 160 90 - 95 SOURCE: United Nations Conference on Trade and Development, The Role of the Patent System in the Transfer of Technology to Developing Countries (TD/B/AC.11/19/Rev.l) (New York: 1975), p. 41. 43 Measured against the costs, the patent system also offers benefits to developing countries by (a) creating a favorable climate for foreign investment; (b) protecting domestic innovation; (c) fostering foreign innovation in drugs which have their main markets in developing countries; and (d) facilitating the licensing of domestic firms (Lall, 1978b). Further, (e) developing countries receive income from the "basic" and "annual" fees charged to the patent holders (UNCTAD, 1975b). Not all these benefits are equally significant. Regarding (a), studies indicate that firms invest heavily in countries which grant no pharmaceutical patents (for example, Brazil, Italy). With respect to (e), the UNCTAD report shows that in the developing countries for which information was available (includes India and Sri Lanka), "the broad level of annual fees is much lower than that in the developed countries, and the progression in the increases of the fees over time is much less sharp“ (UNCTAD, 1975b:59-62). The other three benefits mentioned, (b), (c), and (d), carry weight in their claims. Strides toward pharmaceutical self-reliance in developing countries must address the issue of patents. The system of patents impacts national policy both with and within an international system. The alternatives available to developing countries are some- what constrained by these factors. Keeping the benefits and dis- advantages of the patent system for developing countries in mind, Lall (1978b) suggests that in countries with very little industry, a case may be made for weakening the patent system considerably in order to receive the benefits of cheap drug imports. In countries 44 with a developing pharmaceutical industry, a case exists for keeping the system with a number of safeguards so that its potentially restrictive effects on domestic development are minimized. In countries engaged in major research and development, the case is clear for a fairly strong patent system. Similarly, Lall suggests that developing countries should offer weak patent protection for innovations designed primarily for developed countries. For innova- tions developed primarily for developing markets, patent protection would be stronger, guaranteeing a fair return for the innovator. Although Lall's recommendations appear theoretically sound and socially just, problems may be anticipated in enforcing these recom- mendations as policies. Developing countries may face resistance from groups adversely affected by a revision of the international patent system (for example, pharmaceutical TNC's whose products currently hold a monopoly on patent privileges). Pharmaceutical Technology, Appropriate Technology, Technology Transfers The preceding discussion illuminates some of the formidable barriers facing developing countries in their move toward pharma- ceutical self-reliance. How are legislators to encourage research and development investments, suited to their own needs, limit invest- ments on minor drug modifications, decrease foreign dominance and monopoly practices, and obtain technology at costs they can afford without jeopardizing firms' incentives to invest and innovate? In other words, at what point can the convergence of interests between pharmaceutical TNC's and developing countries be optimized? From 45 the point of view of the developing country, this would involve taking stock of their own pharmaceutical facilities, and assessing to what extent TNC's can fill their technological gaps. From the point of view of the TNC, it would involve identifying what the needs of developing countries are, and trying to penetrate local markets in these areas. However, the basic contradiction exists, in that a country's therapeutic needs do not always correspond to its commercial need. Thus, drugs that present a high volume of sales and require fairly simple production techniques are commercially more viable than drugs that are required to counteract less fre- quently occurring diseases, that may require lengthy research and manufacturing processes. Much of the responsibility for meeting these latter drug needs rests, at present, with the respective country. The origins of the pharmaceutical industry have shown that heavy research and development investments were requisite for establishing a pharmaceutical industry. Developing countries today need not necessarily contend with these requirements for capital in that they can benefit from the research and development tradition of TNC's. The manufacture of many widely used drugs (antibiotics, aspirins, cough and cold preparations, syrups) require what has now become "stable technology," involving standardized, relatively simple procedures, available to even small manufacturers in developing countries. Hence a pharmaceutical company today can support itself without incurring major capital expenditures on research and develop- ment, even though it may not be able to obtain monopoly privileges 46 granted to those who make innovative contributions. Until they can stimulate and afford their own research and development efforts, developing countries may rely on foreign sources for new pharmaceuti- cal technologies, granting patents, where appropriate, for only new chemical entities (as also discussed earlier). All this assumes, of course, that developing countries are content, for the time being, with "intermediate technologies" and drugs that are considered some- what obsolete in the developed world because of the rapid turnover in drugs. And the question still remains as to hgw_developing countries are going to stimulate local research and development efforts. This is an ideal point to pause for a while and consider a model for development that addresses not the 39w, but, more basically, questions the why_of heavy research and development programs. If low capital, decentralized, small-scale technologies close to basic needs is the goal of the Appropriate Technology model, in the case of the pharmaceutical industry, how is one to identify what are the basic health needs? Although protection against infectious and parasitic diseases (dysentery, malaria, cholera, tapeworm) and diseases of the respiratory system (tuberculosis) constitute major areas of concern for the developing world today, social factors like increasing industrialization, urbanization and overpopulation may yet reveal symptoms of new diseases (mental and psychoneurotic disorders, cancer, cardio-vascular diseases) commonly associated with such social change. Clearly then, a commitment to appropriate technology in the pharmaceutical sector must correspond to appropriate technology 47 policies overall, including all other sectors. The issue of defining basic needs will be taken up again in another section that discusses the development of an essential drugs list and a National Formulary. The issue of whether low-capital, small-scale firms are economically viable in the pharmaceutical industry has been open to much debate. The economies and diseconomies of scale of large and small pharmaceutical companies constitutes an area for research in itself. Various studies relating size of firm to research and development output and size of research and development effort to innovative output, have presented conflicting conclusions (Comanor, 1966; Grabowski, 1976; Monopolies Commission, 1973; OECD, 1969; Reekie, 1975; Schnee, 1971; Schwartzman, 1975). Reekie (1975:114- 118) discusses these controversies in more detail. Although the debate remains unresolved, the issues involved merit the close atten- tion of those contemplating the appropriate technology model of development. Encouraging to the proponents of the appropriate technology model is the growing realization in recent years that traditional, indigenous medicines have not been fully explored or appreciated in modern, science-based therapy. Local botanical products and animal organs have tremendous potential for use as raw materials in indus- trial pharmaceutical production. Local production can therefore exploit this resource by developing appropriate technologies for the extraction, purification, formulation and packaging of these materials. India has already made steps in this direction, and UNIDO is promoting 48 international cooperation among developing countries to promote industrial development based partly on medicinal plants. Drug Products and Pharmaceutical Production The concentration of drug production within a few developed countries (already described on pages 26-30), illustrates the dependence of developing countries on these few developed countries. Even within the leading drug producing countries--United States, Japan, Germany, Switzerland, and the United Kingdom--the production of pharmaceuticals is largely concentrated in ten leading drug companies that account for nearly one quarter of world pharmaceutical output (Lall, 1975). Developing countries and Southern European countries therefore import four to five times more drugs than they export. Pharmaceutical manufacturing technology consists of two components: raw material (active ingredient) manufacture, and dosage form fabrication. Raw material manufacture involves a variety of processes, ranging from chemical synthesis to fermentation and testing procedures, which may be quite complex. The technology of dosage form fabrication, on the other hand, is less sophisticated, requiring relatively simple equipment and easy-to-follow procedures. Tablets or capsules can be formulated, regardless of active ingredient, using essentially the same procedures. Countries at various stages of pharmaceutical development (according to the UNIDO classification mentioned on page 17) have a number of alternatives available to them as regards supplying 49 pharmaceuticals to their populations. They may either import finished products; they may import finished or semi-finished bulk medicinal chemicals and then finish and/or package these locally; they may expand or establish 'self-sufficient' manufacturing facili- ties; or they may use some combination of all the above alternatives (Deering, UNIDO, 1970:31). While some countries have little or nor manufacturing facilities, other countries (India, Mexico, Brazil) have acquired facilities representing 60 percent of the technology required to produce bulk chemicals of the essential pharmaceuticals. Although there is disagreement regarding economies of scale in research and development activity (mentioned earlier), most writers agree that formulation and packaging facilities can be economical with quite small markets. However, economies of scale are important in the production of bulk chemicals and antibiotics, so that developing countries can only undertake economical production if they have large markets. This is evident in that India has been able to establish a viable manufacturing sector, while constraints (in terms of market size) appear in Sri Lanka. The United Nations Industrial Development Organization (UNIDO) has published specific guidelines for the "Establishment of Pharmaceutical Industries in Developing Countries" (ID/35, 1970) listing the resources required by those countries contemplating the establishment of a pharmaceutical sector. These include adequate supplies of chemical raw materials, semi-finished products, raw materials of vegetable origin, raw foodstuffs, packaging materials, adequate supplies of water and electrical power, transport conditions, 50 trained professionals and a specialized staff, and an adequate economic base (Valashek, UNIDO, 1970:53). UNIDO aids developing countries in establishing local pharmaceutical sectors by undertaking the "planning of the enterprise, the initiation of its operation, the development of production, training of the staff needed, organization of marketing and ensuring that there will be adequate motivation for management" (UNIDO, 1970:52). In addition to these conditions and pre-requisites for manu- facturing drugs, another very important consideration involves monitoring the quality of drugs. Great quantities of drug production alone, without adequate quality control, will not guarantee the sale of drugs, particularly since foreign companies have strengthened their market power on the basis of their ability to publicize their superior quality control techniques. More importantly, unmonitored drugs will more likely be health hazards, rather than cures. The World Health Organization (WHO) has established a code of basic standards to be adopted in manufacturing practices, and published in an "International Pharmacopoeia: Specifications for the Quality Control of Pharmaceutical Preparations" (1967). Drug monitoring is crucial not only to ensure that standards of safety and quality have been met, but also to evaluate the therapeutic equivalence of similar compound ingredients. Hence, "chemically equivalent" drugs may not be either "biologically equivalent" or "clinically equivalent."3 3The Health, Education and Welfare task force makes distinc- tions between these three as follow (HEW, 1968:3): 51 In addition to these considerations, the creation of a National Formulary (NF), is one of the basic tasks of any drug industry. The need for such a list is evident in the case of India when one notices the inappropriateness of the drugs marketed to the disease patterns of the country (as noted in Table 12, pp. 78-79). The issue facing most legislators is: Who is to be responsible for drawing up the drug priorities? Will the consumers themselves dic- tate which drugs are to persist through their purchasing vote in the market place, determining the supply of drugs? Obviously, when 80 percent of the population can demonstrate no effective demand to influence supply and demand (as in India; Haathi Committee, 1975), such a policy is biased toward the few who have such purchasing power. Besides, the decision to consume drugs does not rest with the consumer, but with the physician (and often the pharmacist). The nature of medicines is such that consumers cannot make rational choices about the effectiveness of one medicine over another (unlike other consumer goods, for example, clothes or soap) without expert guidance. Should doctors then be responsible for determining priorities? To some degree, yes. But another problem rests Chemical equivalents: Those multiple-source drug products which contain essentially identical amounts of the identical active ingredients, in addition to dosage forms, and which meet existing physicochemical standards in the official compendia. Biological equivalents: Those chemical equivalents which, when administered in the same amounts, will provide essentially the same biological or physiological availability, as measured by blood levels, and so forth. Clinical equivalents: Those chemical equivalents which, when administered in the same amounts, will provide essentially the same therapeutic effect as measured by the control of a symptom or a disease. 52 in the inadequate flow of information to physicians, whereby "detail- men" from private companies make visits to physicians to promote their own products. Moreover, since there are few physicians and pharmacists in rural areas, many of the diseases prevalent there go undetected and unreported. Evidence regarding the proliferation of 'irrelevant' drugs indicates that the industry itself is not to be entrusted with ultimate responsibility. The efficiency and expertise of government bureaucracies has often been challenged. Pharmacologists and bio-chemists provide some hope, although the counter-argument is that they are concerned primarily with basic, rather than applied research. Obviously, the answer is not easy, and calls for a combination of expertise from all of these sources. But it is clear that the responsibility must lie with an elitist group--the administrative, scientific, technological and professional elite, ruling out the possibility of mass, democratic decision- making. It is therefore the responsibility of this group, coordinated perhaps by the government, to set the guidelines and priorities for drug manufacture, based on India's health needs. The related problem becomes, how is one to define basic health needs? 15 the drug list to be prepared on the basis of what were, in the past, the most frequently sold drugs? Again, this would only encompass the 20 percent who had purchasing power. Besides, consumption patterns may reflect drug dependence, over-use or under- use of drugs. An alternative method is to analyze the occurrence and frequency of diseases based on past experience, but this method' again misses out on those cases of diseases that go undetected, 53 unreported, and untreated. And who is to predict what new diseases make their appearances in the future, and which drugs become impotent as a result of resistances built in the body to those drugs through their constant use? 15 the industry to concentrate its efforts in the manufacture of commonly spread i11nesses--such as colds, fever--that are widespread but not fatal, or on rare but fatal diseases like cancer? These issues provide dilemmas not only for policy-makers in developing countries, but are shared throughout the world. Efforts to provide a priority drug list for developing countries have been undertaken by UNIDO and WHO (WHO, 1977). This "rationalized drug list" (rather than an "essential drug list") allocates different priorities to different kinds of drugs, based on therapeutic need, efficacy and cost. All the drugs contained within the list would be provided within the country, but would be grouped into three categories according to priority. First-line drugs would be the main drugs needed by the primary health-care units of the country. These products would be relevant to the diseases of wide prevalence and would include pharmaceuticals needed for preventive care. Such drugs would number 50 to 60 and would meet 80 to 90 percent of total health needs of developing countries. Second-line drugs would be available at district or regional hospitals and would be needed for cases that have not responded to first-line drugs or that are so severe that second-line drugs should be used immediately; they would also be needed for less prevalent conditions. This list may be longer than the first, but the Quantities needed would be much less. Finally, the third-line drugs would be available only for specialized tertiary care. What is usually meant by basic drugs refers to first-line drugs, while all the drugs taken together may be called the "rationalized list" of drugs (Lall, UNIDO, 1978:30-31). 54 The basic list in this case is defined by the prevalence of illness, therapeutic effectiveness, available resources and cost. The list does not correspond to the pattern of domestic production of drugs, since production is governed by different criteria (comparative advantages, skills, scale, technology, etc.). However, many of the basic drugs are fairly standard and unpatented, and the technology for their production already exists in the developing world (Lall, 1978). It is quite evident that although the manufacturing of pharmaceuticals is quite a complicated venture, such international bodies as the United Nations Organization and its agencies have standardized, to a great degree, the process and established guide- lines for the benefit of developing countries. But the economic con- straints (TNC's power to influence policies in host countries), and social constraints (peoples' reliance on indigenous medical prac- titioners, foreign companies, or household remedies) may still per- sist. If we grant that many of the above-mentioned constraints are overcome and the establishment of a local pharmaceutical industry is indeed possible, one must further question whether it is necessary or even desirable? Must every nation-state establish its own pharmaceutical industry within its boundaries? With regard to environmental factors, the potential for such development in each country is not totally impossible because of the very nature of drugs 4 and their active ingredients. The manufacturing of drugs does not depend totally on any one non-renewable raw material or natural 4Although climatic conditions and temperatures do vary from region to region, and do effect the effectiveness of drugs, temperatures can be controlled under laboratory and storage condi- tions. 55 resource (as petroleum does on non-renewable crude), nor are there significant concerns that the natural resources are concentrated primarily within a few countries (as crude is largely in the Middle East). Active ingredients required for various drugs can be chemically synthesized, or developed from animal and vegetable extracts, of which no particular country has any significant monopoly over others. The possibilities of a "pharmaceutical embargo" occur- ring similar to the OPEC oil embargo of 1973-74 are therefore some- what diminished. But in spite of decentralized raw materials, the pharmaceutical industry is still one sector in which a few TNC's have been able to maintain a great degree of monopolistic power, largely because of their research and development capacities and the economies of scale of large-scale production. One possibility for an emerging drug firm in a developing country to compete in a global market is to specialize its manu- facturing to one therapeutic submarket. Within the total drug market, there are a number of sub-markets (analgesics, antihista- mines, contraceptions, cough and cold preparations, hormones, laxa- tives, psychotropics, vitamins and nutrients, etc.), and the medi- cines produced to satisfy the demand in any one sub-market are of little or no value to satisfy the demand in others. Within each sub-market or therapeutic grouping, there will be a number of medi- cines available to the patient, each of which will be appropriate to a greater or lesser degree to be used as a treatment for the patient's ailment. There is consequently much scope for competition within the various sub-markets but for very little between them. 56 Although major drug TNC's are diversified into the production of a number of drugs in various sub-markets, much of their volume of sales depends largely on one therapeutic sub-market. For example, Hoffman La Roche's tranquilizers--Valium and Librium--comprised the greatest percentage of its sales volume. The question yet remains as to whether each nation-state should seek to develop its own pharmaceutical sector to balance their reliance on a few foreign-owned TNC's. The answer to this question must vary according to the specific situation of each country. With respect to economic considerations, cost efficiency will more likely accrue to countries with larger populations (like India), and most economies of scale can be attained by the larger TNC's. Data pre- sented earlier, however, indicate that the savings in cost obtained by TNC's are not always passed on to the consumer. On the other 5 do contemplate establish- hand, if countries with large populations ing a local pharmaceutical industry, population size does not guarantee the sales of drugs, since factors other than price may be equally important in determining the use of drugs. A large per- centage of the population may rely on homeopathic medicine and other indigenous cures. Home remedies are often extremely popular among rural, and even urban, people in many developing countries. Besides, 5It is difficult to define how large is "large," and what the appropriate ratio is between market size and volume of drug pro- duction, to obtain optimum economies of scale in production. How- ever, it may be safe to assume that by any measures, India's popula- tion is large enough (600 million) to obtain economies of scale in drug production, and Sri Lanka's is relatively small (14 million). 57 there are many forms of ill health for which there may not be any readily available drug cures. For example, although malnutrition constitutes a common problem in developing countries, there is no better cure than food and nutrition intake. Some may argue that vitamins, tonics and other diet supplements can help ameliorate mal- nutrition. But one must keep in mind that these diet supplements are often considered a luxury by those who cannot afford a daily subsistence diet. Also, other infrastructure (storage and trans- portation of drugs, dispensaries, etc.) may not be available to maintain an effective medical delivery system. Besides the purely economic considerations, the scientific-technological issues must also be addressed. For instance, does each country have a competent scientific community, and if so, what is their relationship to the technological infrastructure of the country? Can the technological infrastructure meaningfully absorb the skills and expertise of these professionals or will this community look overseas for more advanced research and employment opportunities in collaboration with the global scientific community? These are all important considerations. Perhaps most important of all, one must address the issue of the distribution of drugs to the largest segment of the needy popula- tion, in contemplating the development of a local pharmaceutical manufacturing sector. Thus, are drugs more available to the largest segment of the population in an industrial structure that is wholly nationally owned, foreign-owned, or some combination of national and foreign ownership (contractual agreements, licences, joint-ventures, etc.)? Many countries have engaged in collaborative agreements with 58 TNC's for largely technological and economic reasons. Surprisingly, I have come across no research on the effects of these different kinds of industrial structures on the distribution of drugs to the popula- tion. Price efficiency and volume of drug production are important factors determining the distribution of drugs, but as already indi- cated, not the only ones. One of the main reasons for establishing a local pharmaceuti- cal industry (rather than relying on imported drugs) by a developing country is to achieve self-reliance, overcome dependence on foreign drug companies, develop "national pride," and to be able to interact symmetrically in a world market. However, if drugs are not distrib- uted to the largest possible proportion of the needy population, but are only consumed by an urban, wealthy minority, even the establish- ment of the most technologically sophisticated industry cannot be taken as a substitute for national self-reliance. The issue of self- reliance will be taken up in more detail in Chapter IV. Pharmaceutical Marketinggand Promotion The pharmaceutical industry is also unique with respect to its exceptionally high marketing expenditures. Data indicate that the leading pharmaceutical firms spend more on promoting their brand name than on research and development, even in countries where most of the world's pharmaceutical research and development is performed. The following statistics are self-descriptive. In the United States, marketing expenditures range from three to four times research and development expenditures and account for up to one-third of the value 59 of sales. Altogether, promotional expenditures in the pharmaceutical industry in the developed countries in l970 exceeded $3 billion (Lall, l973). Prescribed drugs are consumer products of a very special kind, because the actual consumer of drugs neither determines the demand for, nor does he choose the products he will purchase. Con- sumers have but one responsibility regarding the acquisition of pre- scribed drugs--that of paying for the products selected for them by someone else. It is the physician, therefore, with whom both the consumer of drugs and the prescription drug company are especially concerned. The particular prescribing decisions of practitioners can make the difference between a sale or none at all for a particu- lar manufacturer.6 Consequently, the bulk of the manufacturer's promotional efforts goes into persuading them to prescribe by brand names rather than by generic names. It is naturally the aim of each drug company to promote its own brand names and to draw the least attention to price differences between these and generic products. This is done by means of an immense paraphernalia of modern marketing, which has earned the industry considerable notoriety. As Senator Edward Kennedy puts it: What we have is a system of hard sell, rather than a system of objective information dissemination; we have salesmen instead of analysts; we have the tools of selling-- gimmicks, gifts, bonus deals--rather than the tools of 61h many developing countries, however, prescription drugs are often sold "over-the-counter," or are "prescribed" to the patient by a pharmacist. 60 science and medicine--comparative information, analysis of risks and benefits of competing products.7 Silverman (l974), a critic of "heavy" promotional expensi- tures, estimates these expenditures (including "detailmen's" salaries) in the United States to be about 20 percent of corporate sales. The TNC's use much the same strategies in promoting their products in LDC's. In Pakistan, drug promotion is mainly directed at 8,500 practicing physicians, and the promotional expenditure per physician was Rs. 3,798 in l972 (Quraeshi, l978). Critics of such promotion maintain that this expense is unjustified in a country that had a per capita income of Rs. 700 at the time. The industry justifies such expense on the grounds that they are 'educating' the medical profession, a claim that is not totally unfounded in developing (and developed) countries. Hence, in Pakistan, as in many other countries, these 'detailmen' provided the major--and in many cases the only--source of drug information for doctors. The very speed of introduction of new products, and slight variations of existing ones, competing brand names, coupled with a lack of information from non-industry sources on comparative costs and effectiveness of drugs, have left the medical profession almost totally dependent on the drug firms themselves for information, which is not always objective. Furthermore, physicians in developing countries are often trained along the lines of their counterparts 7Senator Edward Kennedy, Statement before the U.S. Senate Subcommittee on Monopoly, Competitive Problems in the Drug Industry (Washington, D.C.: Government Printing Office, l972), p. 792. 6l in developed countries, whereby they become familiar with inter- national brand names. The physicians (and their patients) also have a strong prejudice in favor of foreign as compared to domestic pro- ducers, sometimes justifiably reinforced by the fear that some local products are of inferior quality. Handoussa,8 writing about Egypt, and the Haithi Committee (1975), writing about India, remark that even on termination of licence contracts with TNC's, "local firms choose brand names that are as close as possible to the original foreign brand name." With regard to the United States, Dr. James Faulkner of the Massachusetts Medical Society says: . medical education has failed to grasp the signifi- cance of the vast proliferation of new drugs which has taken place over the last couple of decades . . . the practicing physician finds himself obliged to choose between a bewildering array of drugs for which competing claims are made and more often than not he finds himself not only ill prepared to make correct judgments but at a loss to know where to turn for unbiased information. . It is indeed deplorable that so much of what the medical student and the practitioner learn about drug therapy comes to them from pharmaceutical firms who are actively promoting their own products.9 Consequently, in the United States, drug advertising and the promotional materials supplied by drug firms are subject to review by the Food and Drug Administration, which is responsible for assuring that the claims made are accurate and substantiated by 8H. A. Handoussa, "The Pharmaceutical Industry in Egypt" (Ph.D. dissertation, University of London, l974), p. l4l, cited in Lall, UNCTAD, l975. 9Dr. James Faulkner, Statement before the U. S. Senate Sub-- committee on Mon0poly, Competitive Problems in the DrugIndustry, Part l0 (Washington, D. C. Government Printing Office, l972), p. 4054. 62 evidence. Testimony presented before the U.S. Senate (l968) indi- cates, however, that the agency has had continuous problems in policing the promotional programs of many manufacturers. There is little doubt that the companies' representatives do have a signifi- cant impact in influencing the physician's prescribing methods. Regarding the marketing of "ineffective" drugs, recent investigations in the United Kingdom showed that several TNC's were selling several hundred drugs, costing at best several millions of pounds, which had been withdrawn from the American market by the FDA as "lacking evidence of effectiveness." There are cases in which drugs disapproved by the FDA in the United States were being sold in developing countries by TNC's (Dowie, l979). A drug can be "overeffective" in the sense that it possesses, for example, a five percent advantage of efficacy over an alternative but costs, say, a hundred times more. If a new drug represents only a very slight improvement, for instance, in terms of fewer possible adverse reactions compared with older and much less expensive drugs, Friebel (UNIDO, 1970:34) argues that from the viewpoint of the health needs of a poor country, the less effective (older) drugs may be more appropriate, since many more patients could thus receive therapeutic treatment which would compensate for the slightly greater occurrence of side effects. If doctors had more objective information on the side effects of drugs, and on comparative prices, they would perhaps more carefully scrutinize the promotional strategies used by the drug supplies industry. Friebel, however, assumes that price fluctuations alone determine the demand and 63 supply of drugs, and does not consider the social factors affecting the consumption of drugs (discussed earlier on pages 56-57). Price Discriminations and Higher Profits Pricing policies of TNC's have concerned governments in both developed and developing countries. In the United States, both the Kefauver Senate Committee Hearings and the Nelson Senate Subcommittee on Monopoly addressed the issue of drug prices and profits, and the comparative efficacy of brand-name drugs and their lower cost generic counterparts. The Senate reports show that the leading drug com- panies engage in substantial price discriminations among different purchases within the same or in different countries; they charge much more than smaller drug companies for practically identical products; they consistently earn profits that seem to exceed the limits of a "fair return" on investment. An example is that of Hoffman La Roche's Valium and Librium, two of the leading tranquil- izers which account for 90 percent of the sales of tranquilizers in the United States. Data show that Librium and Valium are sold to different developed countries at price differences of nearly 600 to l,000 percent (U.S. Senate, Competitive Problems, l972). The Issue of Brand Versus Generically Named Drugs List prices, which are often the basis for comparing the costs of different products, are not always the actual prices charged retail distributors, because of discounting and other sales and 64 promotional considerations. Yet, even after list prices are adjusted for these factors, wide differences in the prices asked for competing brands of drugs remained. To take the case of the two drugs whose prices were frequently discussed in the Hearings before the Subcom- mittee on Monopoly--reserpine and sodium secobarbital (generic names), data show that, generally speaking, products marketed under trade- name desig1ations, usually by larger firms, tended to be higher priced than products sold by smaller companies who sell drugs under generic names. (Smith Kline and French sold reserpine under the brand name Eskaserp ar $46.00 per l000 tablets of 0.25 m.g. each, whereas the same quantity was sold by Darby under its generic name at 59¢; U.S. Senate, l972:l0). Price differentials existing among compethg branded products sold by larger firms sometimes were also of major proportions. For example, the price charged for CIBA's Serpasil (brand name for reserpine) at $33.50 per 1000 tablets of 0.25 m.g. each is nearly four times that of Lilly's brand of reserpine, sold under the trade name Sandril, at $9.l2 for the same quantity (U.S. Senate, l972:l0). In Italy, where there is no patent protection, seven firms were selling at prices 30 percent lower than Roche without making a dent on Roche's 80 percent share of the market. In India, Librium was sold in l972 at Rs. l6.00 (per l00 tablets of l0 m.g. each) when generic name equivalents were available from small producers for prices as low as Rs. l.50. The appeal of brand named drugs (whether backed by patent protection or not) is so strong that the big drug producers can 65 charge whatever price the market will bear. These prices have little relation to the cost of production or to prices charged by smaller competitors. Table 8 shows the comparative prices of drugs between multinational and other firms. Data indicate that the pharmaceutical industry earns con- sistenly higher returns on investment of the order of 20 to 25 per- cent, as compared to an average of l0 to l5 percent for other industries as a whole (Silverman and Lee, 1974). It is ironical that consumers must pay high prices for a product that satisfies basic priority needs, particularly in countries where people have low purchasing power. An educated, urban minority are the major consumers of drugs in India (Haathi Committee, l975). The industry justifies its pricing policies by maintaining that their brand names provide an assurance of quality products, and that they need to support their research and development efforts. Both these claims are not invalid, as is brought out in the discus- sion of the generic names policy adopted by Pakistan in Chapter III. Implications for Sociological Theory The features of the pharmaceutical industry just described throw light upon issues that are of concern to sociologists of social change. TNC's have been identified as subtle mechanisms of imperialism within the dependency paradigm (Turner, l973) whereby they transfer "surplus" capital from the periphery to support the core. Galtung (l97l) further conceptualizes this process as a series of cores and peripheries whereby the elite in developing countries 66 .ucmsccm>om cm_nsopou asp com umpumFPOU mpmo .A¢Km_ .coucmca_u "ugomxov mmmwcagwpcm Pocowumcmcoch new cowuanwgpmwo meoucH agpcsoucmpca .momuwm> .> .o ”momaom oo.om mm.mp - oo.m_ ewbmussoeo_go _ouw=mccaaopu oo.fiep._ oo.oo_ - oo.- xwmab au_emmoc=e oo.m~ o~.m - o¢.N =o=_bmam mewsab=a_op oo.mm mm.c_ - om.m_ ona_o mu_sm_o~abau< oo.mm om.¢_ - m_.F_ Fema_a _o~w_nw=mepaz oo.omm oc.o__ - om.- ewuoucfi ae_uapae°u=H oo.o¢_ oo._~ - mm.np _acwaa mcwuabmsoca mm.m~m om.m¢_ - oo.oo_ a:0mo_H aewuxsoepzem oo.o._ oo.o~ - om.m~ a=__owuabmwcm amam acwpvuacump oo.o~¢ oo.oo~ - om.~op wamcpcwa a=_qu.as< oo.mmo.~ o~.mo_ cmuamoz chmNQwaz ”W mm m~.m - om.~ ewu_cb=aw _o~ae=emc_=m oo.oom.m mm.me - oo.om e=__a> cmam~m_o oo.om~._w oo.o~ - om.mpw E=PLQ_4 ouwerBNaweeopeu Paeowpac_b~=z .cagpo. msmz munch msmz Pmuwewgu » .m.: cw opwx Lma wows; .mELwe =cagbo. new _a:o_pa=wp_=z--m=omwcaaeou matte uses embum_am--.m msmqp 67 (CF) maintain a vested interest in supporting international capital- ist relations at the expense of the less privileged classes in the periphery (pP). Similarly, the "internal colonialism" is also manifested in core nations, whereby the "bourgeoisie elite" (cC) benefit at the expense of the Western lower classes (pC), leading to a complex pattern of dominant-subordinate relationships both inter- and intra-nationally. In Galtung's definition: Imperialism is a relation between a Center and a Periphery nation so that (1) there is a harmony of interest between the center in the Center nation and the center in the Periphery nation, (2) there is more disharmony of interest within the Periphery nation than within the Center nations, (3) there is a disharmony of interest within the eri her in the Center nation and the periphery in the Periphery nation. Within Galtung's scheme, TNC's are among one of the inter- national organizations that link the Center to the Periphery in the contemporary phase of neo-colonialism. If one is to go by this scheme, then many of the described features of the pharmaceutical industry remain unexplained. For example, the pricing and promo- tional practices and research activities of the industry have come under much criticism in developed countries as much as in less developed cones. The Kefauver Committee Hearings exposed the world- wide restrictive business practices of pharmaceutical TNC's. Price differentials between equivalent drugs and even the same drugs exist within developed countries as within less developed ones. Galtung's 68 scheme tends to simplify what is in reality a much more complex network of conflicting and consensual relationships. Implicit within the statement that TNC's are modern mechanisms of economic imperialism is the assumption that there is a harmony of interest between corporate executives and the elites in developing and developed countries. If so, then how is one to explain the attempts to regulate the transnational pharmaceutical industry both within the core and periphery through stern legisla- tive measures? 0n the other hand, if one assumes that the activities of TNC's are not consistent with the interest of policy makers in developed and developing countries, then why have policy makers in these countries not joined forces to restrict business practices? Part of the confusion in making any such conclusive statements from Galtung's schemata arises because of the lack of a definition as to which elites he is referring to: government legislators (political elites), the intellectual elites, corporate executives (economic elite), the scientific-technological elite, or even some combination of all these. The issues surrounding the pharmaceutical industry and the debates between various groups-~elite and non-elite--give insight into the complexity of "center-peripheral" conflicting and consensual relationships, and the interaction of TNC's with this system. Using an economic analysis, if the elites in the core and periphery are indeed the owners of the means of production, that is, the corporate executives, in Galtung's framework, then clearly in the case of the pharmaceutical industry they have formed a 69 particular enclave of people with interests not entirely identical to other groups in developed, developing countries and international organizations insofar as these latter groups have expressed concern over the operations of the pharmaceutical industry in their own country and overseas. The dependency framework has tended to thus over-simplify the patterns of symmetric and asymmetric interdependencies both between and within nations by emphasizing only one dimension of global interactions: conflicting, dominating-dependent relationships between cores, semi-peripheries and peripheries. By focusing on the economic relationships between these three groups (both globally and nationally) the dependency paradigm has also minimized the dis- tinction between the various kinds of elites (economic, political, technocratic and intellectual) which each play different and sig- nificant roles in influencing policy at various levels. That the distinction between these elites is important to make will be further demonstrated in the next chapter when the roles of each of these actors in relation to the pharmaceutical industries in India, Pakistan, and Sri Lanka are discussed. CHAPTER III THREE CASE-STUDIES OF THE PHARMACEUTICAL INDUSTRY IN SOUTH ASIA Introduction The previous section summarized some of the major issues associated with medical research and development, pharmaceutical pro- duction, promotion and distribution. These issues, when posed as policy question, are complex and perplexing globally and nationally. The issues, however, when analysed within the various paradigms, vary in their emphases and their priorities with regard to social change policies and goals. Hence, research and development and technology transfer are of particular relevance to the literature on the rela- tionship between science, technology and development. The policy questions, framed within this perspective, concern identifying the person who is to define the direction of medical research. What pro- portion of the research and the research expenditure of drugs is to be borne in a country by the public sector, private sector, or trans- national bodies? Are there limits to technological growth within the pharmaceutical industry, and if so, how are they defined? Posed within the developmental perspective, priority issues concern the production of drugs, the establishment of local pharmaceutical firms, and educating the population on hygiene and health care. The follow- ing are some examples of the questions that need to be raised. Is 70 71 large-scale production more efficient than production in small scale firms? How can production costs and drug prices be held at "afford- able"levels without harming research and development incentives? The issue of pharmaceutical distribution is particularly emphasized within the dependency perspective, whether it be the distribution of drugs both intra- and inter-nationally or the distribution of resources, technology, and the capital that ensues from pharmaceuti- cal production. The above statement is not intended to give the impression that each of these perspectives addresses only those questions that are mentioned in relation to them. By the very inter-related nature of these issues, it is not meaningful to discuss one without mention of the others. For example, any analysis that deals with the transfer of pharmaceutical technology without addressing the alternatives of local drug production, alternative technologies, international inter- dependence and trade, the patterns of drug, capital and resource distribution, and the mechanisms of technology transfer, is incom- plete. The perspectives, however, do differ in the degree of emphasis they attach to each of these issues. The three countries to be analyzed in this section, India, Pakistan and Sri Lanka, have, like- wise, placed varying degrees of emphasis on these issues with regard to their policies for self-reliance, in keeping with their particular levels of pharmaceutical development and their specific needs. Although the emphases may differ, there appears to be a fair consensus among writers within the various perspectives, and among legislators within various countries, as to what the pharmaceutical 72 needs of developing countries are. Ideally, the product structure of the pharmaceutical industry should correspond to the disease pattern of the country, the price structure should match the income levels of the population, and drugs should be available to all who may require them. That this has not been the case so far, and most particularly in the developing countries, has already been shown in Chapter II. This chapter will then discuss the attempts made by India, Pakistan and Sri Lanka to achieve something corresponding to this ideal situation. The Case of India The modern pharmaceutical industry in India dates from the British colonial period. British pharmaceutical manufacturers opened trading branches and agencies in India and kept India as a preserve for their finished products until the 19405. British manufacturers and traders shipped out from India chemical raw materials and shipped back to India extracts and other medical preparations for general prescription. With the remarkable pharmaceutical discoveries in the » post-World War II period, non-British firms, mainly from the United., States and Switzerland, also entered the Indian market. With the advent of independence, the government of India set up a Pharmaceuticals Enquiry Comnittee which made recomnendations I, designed to promote the growth of the pharmaceutical industry in India. The pharmaceutical industry was designated as among the priority areas for development, and as a field where both private and public enterprises were allowed to act side by side. The national 73 Indian policy also recognized the importance of foreign investment and the import of technology for rapid industrialization, and encouraged foreign enterprise to begin manufacturing finished products in India. On the basis of the classification scheme suggested by the UNCTAD secretariat (UNCTAD, l972a), the Indian Council of Scientific and Industrial Research in collaboration with Jawaharlal Nehru University analyzed the present ownership of pharmaceutical firms in India along four categories: (l) full majority foreign ownership, (2) foreign minority ownership, (3) Indian full ownership, (4) public sector undertakings. Table 9 shows the pattern of ownership in l97l-72 in India, by number of units. Although the table shows the predominance of Indian-owned units in both the large-scale (units with a minimum investment of Rs. l0 million in plant and equipment) and small-scale (units with less than Rs. 0.75 million investment in plant and equipment) sectors, the industry is clearly under the dominance of foreign firms because of their disproportionately large share in the turnover of drugs. Hence, in l97l-72, 25 units with full or foreign majority control accounted for more than 50 percent of the gross turnover of Rs. 2,960 million. The two public sector undertakings in the pharmaceutical industry (Hindustan Antibiotics Ltd., and Indian Drugs and Pharmaceuticals Ltd.) contributed Rs. 200 million (UNCTAD, l977:7). Moreover, while foreign-controlled firms maintain a considerable share in the market for pharmaceuticals, they contribute a relatively small proportion to the manufacture of the. basic ingredients used in the production of modern drugs. 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