By Kevin E. Noonan —

Venezuelan President Hugo Chavez (at right) made headlines last month, and caused not a small amount of consternation, with the pronouncement that his government would act to prevent foreign (read: Western or U.S.) drug companies from enforcing patents to maintain high drug prices in his country.  However, according to a story reported in The Wall Street Journal on July 7th, President Chavez may be in for a surprise:  it seems that Venezuelans prefer branded over generic drugs, and are willing to pay a premium for them.

The article, reported by Avery Johnson, follows the interconnected stories and experiences of citizens at "the bottom of the pyramid" (not the middle class but the working poor) who nonetheless are willing to pay for branded rather than generic versions of drugs (such as Lipitor®).  The report characterizes this trend as being an effort by Western drug companies (including Pfizer, GlaxoSmithKline, Novartis, and Sanofi-Aventis) to "target" the working poor in Venezuela, China, Brasil, India, Russia, and Turkey.  The reason:  drug sales in the U.S. and other Western countries are declining, and in the U.S. drug companies are facing both increased generic competition as well as political pressure to reduce drug costs.  Conversely, sales of prescription drugs in developing countries are rising, from $67.2 billion in 2003 to $152.7 billion in 2008, and such sales are expected to reach $265 billion by 2013, according to industry tracker IMS Health.

These companies are adapting to local realities by reducing per unit drug prices, as illustrated by the figure to the right (Johnson, "Drug Firms See Poorer Nations as Sales Cure," Wall Street Journal, July 7, 2009).

Why would the impoverished spend more for branded drugs than for cheaper generics?  For the same reason that many in Western countries do so — a belief that the branded drugs are better quality.  While drug prices in developing countries are 30% lower than the same drugs are priced in the U.S., they are still up to twice as expensive as generic equivalents.  The article uses as an example Lipitor®, which "costs between $100 and $125 a month for a standard dose, compared with less than $50 for a generic."  The preference for branded drugs by the working poor in Venezuela is more striking because 80% of drugs are paid by patients "out of pocket" according to IMS Health, in a country where the average monthly wage is $450.  The basis for this tendency, the purported superiority of branded over generic drugs, is disputed by organizations like the World Health Organization (WHO); Hans Hogerzeil, the World Health Organization's director of essential medicines and pharmaceutical policies is quoted in the article as stating that "[t]he quality of a product has nothing to do with the brand name."  However, such sentiments fly in the face of the reality that in developing countries up to 30% of drugs are counterfeit and of questionable efficacy, according to Rafael Mendoza, Pfizer's head of strategy in Venezuela.

Physicians, who play a traditional role in these societies, are also part of the circumstances leading to this preference for branded over generic drugs.  "If their doctor tells them — their doctor from birth, the doctor they have had all their life — 'Look, this is what is going to cure you, this is what will guarantee your health,' that's what the patient buys," according to Julio Rodriguez, Pfizer's sales representative whose experiences form the backbone story of the article.

Drug quality in developing countries is also the subject of an article today in The New York Times.  That story, by Thomas Fuller, recounts the work of Facundo M. Fernández, a chemistry professor at Georgia Institute of Technology who works to identify counterfeit drugs sold in developing countries.  Described as part of "an informal group of researchers and government officials spanning Africa, Asia and the United States" that is working with Interpol, Dr. Fernández is focused on detecting and tracking fake drugs sold as treatments for malaria, a disease that kills more than 2,000 children a day in Africa.  Part of this effort depends on recent technological developments, particularly an "ion gun" enhancement of traditional mass spectrometers that permits "hundreds of pills a day" to be analyzed.  The article reports that most counterfeit drugs are not simple sugar pills, but contain "varying amounts" of the active pharmaceutical agent.  However, many contain drugs, such as cheap analgesics, that mask pain but do nothing to treat the underlying causes of disease, according to Dr. Fernández.

Even the WHO recognizes the problem, reporting in 2006 that one quarter of pharmaceuticals sold in developing nations was counterfeit.

Some of the tactics used by investigators smack of CSI, such as analyzing pollen grains contaminating capsules and other inert components of many drugs.  The article cites evidence that many of these drugs come from "the border area between China and Vietnam" and from the "Golden Triangle" border region between Laos, Myanmar, and Thailand, formerly a nexus for international heroin trafficking.  The article notes that while governments in this region are intent on stopping illegal production of heroin, Esctasy, and marijuana, there is less emphasis on counterfeit pharmaceuticals and the penalties are also much less.  (The article does mention that the Chinese government used such pollen-based evidence to halt a counterfeit pharmaceuticals operation in Southern China, however).  These conditions have attracted international organized crime to get involved, according to an Interpol spokeperson quoted in the article, and has in turn led to more targeted enforcement efforts, including a combined effort by "[o]fficials from Cambodia, China, Laos, Myanmar, Singapore, Thailand and Vietnam" in "200 raids in Southeast Asia [that] yielded 16 million doses of fake drugs, with a street value of $6.6 million."

All this leads to the paradox of government leaders, like Venezuela's President Chavez, acting to reduce patent protection and impose com
pulsory licenses on drugs made by Western companies, in an effort to reduce the costs of drugs, in societies where the people (at least, those who can and are willing to pay higher prices) demand branded drugs as a guarantee against counterfeit and adulterated drugs.  The evidence from Dr. Fernández and his colleagues suggest that this appreciation of the value of branded drugs is accurate.  The evidence also suggests that the real emphasis of both Western drug manufacturers and the governments of developing countries should be on devising ways to promote delivery of high quality drugs at prices citizens of those countries can afford.  This will require a greater level of cooperation and indeed trust between entities (companies and governments) with ample reasons to be suspicious of one another.  But unless these suspicions can be overcome, the problems (of counterfeit drugs, increased and unsustainable drug costs, and compulsory licenses imposed by government fiat in developing countries) will persist, to no one's benefit.