01 May Abbott vs. Thailand has implications for innovation and access
Many of you have been following the Abbott Laboratories story regarding its Kaletra AIDS drug and the conflict with the government of Thailand over patent protection and drug pricing. Some of you may regard this as a relatively isolated tiff between a single drug company and another developing country. Others consider this to be a central – if not the central – problem facing the pharmaceutical industry. And a few – myself included – regard this to be one of the most important issues for our society in general.
At stake is – as Tommy Thompson, the former Governor of Wisconsin and former U.S. Secretary of Health and Human Services wrote – “the balancing act between innovation and access.”
The Abbott-Thailand story is a developing one and some details could change even as this article goes to press. Here is a timeline of what has transpired so far:
Fall 2006: Abbott lowers the price of Kaletra sold in Thailand from $2,200 per year to $1,700.
Jan. 2007: Nevertheless, the government of Thailand institutes a “compulsory drug license” allowing generic versions of the drug to be sold even before patent protection expiration.
Feb. 2007: Abbott responds by withdrawing seven new drugs from entry into the Thai market, including the new formulation of Kaletra (called Aluvia). This move sparks protests in Thailand, including consumer boycotts of Abbott products.
April 2007: Abbott further lowers the price of Kaletra to $1,000 and allows Aluvia to be sold in Thailand. However, Abbott will continue to withhold six other new drugs from entry into that market. At an April 28 Abbott Labs shareholder meeting, CEO Miles White stands firm on the controversial decision to withhold new drug applications in Thailand, remarking that Abbott has spent over $300 million last year alone in humanitarian relief worldwide. Activists as well as shareholders supportive of the Abbott decision spar (fortunately peaceably).
Without taking sides, this sounds to me like a lose-lose situation out of a Shakespearean “tragicomedy,” layered by miscommunication and blinkered outlooks. Both sides have valid points, but should this scenario continue to play out in this fashion, both sides will end up losing.
As feared by the pharmaceutical industry and as the Wall Street Journal pointed out in an article titled “Abbott’s Thai Pact May Augur Pricing Shift,” such pricing pressures (accompanied by threats on intellectual property rights) could severely impact the development of new drugs – not just for Thailand, of course, but for everyone. Drug development is extraordinarily expensive (and risky), and it is only the promise of large returns (supported by relatively high prices) that sustains such innovation.
While Abbott has not entirely capitulated to the Thai pressure (e.g. by continuing to withhold other drugs), it has taken a path down a slippery slope that industry watchers would say endangers not just Abbott but the entire pharmaceutical business model and the ability to bring to market new life-saving medicines in the future.
It should be noted that the markets in developing nations are not trivial. That same Wall Street Journal article quoted a Merck study that indicated that its own revenues in emerging markets would double by 2010 to more than $2 billion per year. And Abbott’s 2006 pharmaceutical sales internationally were nearly equal – at approximately $1.7 billion – to that of its U.S. market.
From the Thai perspective, the government may have achieved a short-term victory on Aluvia pricing, but it lost out on significant other life-saving medicines for their population. That being said, AIDS is a monumental problem in Thailand. The prevalence in that population is estimated at over one percent, which consequently makes AIDS one of the leading causes of death in that country. To a large extent, the AIDS problem in Thailand is rooted in the significant sex industry in that country, which many Thais believe is driven by American and European sex tourism.
One can understand then, the basis for considerable Thai resentment over high prices for AIDS treatments for a problem that many believe to have been, in fact, imported from the West.
Hence, the Abbott-Thailand issue is a critical issue that affects the core of pharmaceutical innovation, the life and death of millions of patients now and in the future, and the standing of the U.S. throughout the world.
“The standing of the U.S. throughout the world?”
Where did that come from, you might ask? As Tommy Thompson indicated in his article “Shrugging diplomatic responsibility: Thailand compulsory licensing symptomatic of a greater problem,” this issue involves more than just negotiations over drug prices but rather requires an integrated diplomacy reaching out to the U.S. government and other parties to achieve a comprehensive solution. Thompson further writes:
“Collaboration has worked in the past. For instance, when foreign governments have aggressively negotiated with U.S. companies, there have been compromises reached that have produced win-win situations for countries that are struggling to take care of their people.”
There is a reason why Abbott Labs and other U.S. drug companies are exporting medicines to developing countries. That reason is called comparative advantage. The U.S. has a comparative advantage relative to other nations in quite a few industries. Aircraft is one of them, military technology is another, financial services also ranks high on the list and, of course, pharmaceuticals and medical technology are significant sources of comparative advantage.
This comparative advantage in medicine manifests itself in many ways. Wealthy Saudi sheikhs (along with their entourages) visit the Cleveland Clinic when they are ill. The famed Johns Hopkins hospital is building an affiliated hospital in Dubai, the government of Ukraine has reached out to GE Healthcare to help build its Children’s Hospital of the Future, and a U.S. military task force called New Horizons sends Army reserve medical specialists to underserved Latin American nations.
However, as compared to other industries, comparative advantage in medical technology has a special position with respect to the unique international goodwill that it can foster. Some foreign policy experts such as the Harvard University professor Joseph Nye would call the export of medical expertise one manifestation of “soft power.” Tommy Thompson and others have called it “Medical Diplomacy” and, quite frankly, given all that is going on in the world, we certainly need more of that.
That is where the Abbott-Thailand controversy could become a true tragedy, not only because it represents an escalating battle in which pharmaceutical innovation and many Thai lives become “collateral damage,” but also because this conflict represents a lost opportunity at medical diplomacy and a failed chance at improving the perception of the U.S. among other nations.
The efforts of U.S. companies to “export” healthcare technology and medical expertise to other nations becomes not just a business matter but something that should be part of our foreign policy and all the support and encouragement that entails.
So how does this broader perspective relate to the Abbott-Thailand affair?
• What if Miles White had called Bill Gates and made a deal with the Gates Foundation to redouble, along with some Abbott support, the AIDS/HIV prevention and treatment efforts in Thailand? Bill Gates should be supportive of efforts that indirectly buttress intellectual property rights.
• What about even stricter efforts (and resources) negotiated between the Thai and western governments to staunch the sex tourism trade, combined with development efforts to provide other gainful employment for sex workers?
• What about having Abbott (and other U.S. companies) seek public-private partnerships with the Thai government to develop and upgrade AIDS clinics in that country?
• In this regard, what about having Abbott work with GE Healthcare (to whom it recently sold its diagnostics business) to develop AIDS hospitals in Thailand?
These are but just a few possible solutions to the dilemma with the common theme being that of collaboration and partnership. Medical diplomacy – like other forms of diplomacy – is not just about money but about relationships and partnerships and, above all, new ways of thinking.
As Abraham Lincoln addressed Congress in 1862: “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves and then we will save our country.”
Lincoln was obviously speaking about the Civil War and arguing not only for his vision of a united United States but perhaps more importantly pointing out the state of mind required to achieve that vision. In our time, the dogma that “innovation justifies high prices” is not necessarily invalid, but we need to “think anew and act anew.”
Previous articles by Ogan Gurel
• Ogan Gurel: Personalized medicine and technology convergence
• Of private equity, research, and drug development
• Ogan Gurel: What patients want: A story of choice, clinical trials & evidence-based medicine
• Ogan Gurel: Healthcare of business: Universal coverage plan includes new business taxes
• Ogan Gurel: And the winners in medical design are…
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission.
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