by KHADIJA SHARIFE
Picasaweb
Alongside pneumococcal diseases such as meningitis and pneumonia, rotavirus-related diarrhoea is a primary childhood killer in developing countries, thought to snuff out the lives of 500,000 children each and every year. An overwhelming 85 per cent of these children are African and Asian. The need for medical miracles is as great as ever, but corporate mispricing generates huge profits, while driving up the price of life saving medicines.
British-based drug corporation GlaxoSmithKline (GSK) recently offered a five-year deal to supply poor nations with 125 million doses of the rotavirus vaccine – Rotarix – at $2.50 a dose, just five per cent of the current going price in Western markets. Through the GAVI group, the international vaccine agency financed by developed nations such as the UK, it is hoped that GSK and pharmaceutical multinational Merck – who, between them, dominate the rotavirus vaccine market – will provide a secure line of low-cost drugs for as many as forty countries in the near future.
But is it really a discount, and if so, who is paying the cost?
The financing mechanism subsidising the vaccine is named the Advance Market Commitment (AMC), a pot created by the G8, as well as the World Bank and the Gates Foundation, as a “pull” incentive for drug multinationals to consider developing countries’ long-term markets for pharmaceutical “public goods”, such as vaccines. Rotarix has taken off well: Since 2007, some 50 million children – through 100 million doses – have already benefited from Rotarix; by 2009, global Rotarix sales reached $440 million – increasing by 50 per cent from 2008, and Merck’s Rotateq reach $564 million in sales.
GSK Chief executive Andrew Witty described the pricing structure as, “neither a gimmick nor a one-off philanthropic gesture”, but rather “part of a concerted strategy to change our business model” – designed to combine “commercial success with long-term sustainable contributions”.
PRICING STRUCTURES AND PROFITS
Drug companies such as GSK have often claimed that the high cost of “innovation” ie: research and development (R&D) is between $1bn and $1.7bn to bring a new drug to market. The AMC and GAVI – collecting some $4.3bn to finance purchase of vaccinations, were designed with the premise that the high cost of drug multinationals’ R&D must be met.
During the past several decades, the pharmaceutical industry in the US – more than half of which comprises European-based companies – has largely been the most profitable industry in the nation’s economy, thanks to mechanisms such as the lack of a government-imposed pricing structure. “Free pricing and fast approval secure rapid access to innovation without rationing,” said Daniel Vasella, the former head of (Swiss-based) Novartis, of the advantages of doing business in the US.
Drug multinationals claim that US consumers are forced to fund the necessary research and development in order to keep global innovation going. In Australia, Europe, as well as Canada – the source of much prescription drug “re-importing” by US citizens, where drugs sometimes sell for half the going US price – governments ensure pricing structures render patented drugs affordable.
While drug multinationals generate considerable profits from these countries, about 50 per cent of global drug industry profits are generated in the US. In 2006, for instance, global prescription drug sales totalled more than $640bn – of which almost $300bn were US-generated sales.
But the real deception is less the Machiavellian tactics used by Big Pharma to Botox the bottom line than the terrible myth behind the “true” price of innovation: the $1bn pill. From 1996-2005, Big Pharma firms spent $739bn on marketing and administration (M&A): “Administration” costs here include accounting, executive salaries (including bonuses, stock options etc) – as well as human resources expenditure. “Marketing”, meanwhile, consists of direct-to-consumer advertising, sales pitches and free samples to doctors, alongside advertising in medical journals.
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