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Pharmaceuticals for Developing Countries: Conference Proceedings (1979)

Chapter: PROBLEMS AND CONSTRAINTS

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Suggested Citation:"PROBLEMS AND CONSTRAINTS." Institute of Medicine. 1979. Pharmaceuticals for Developing Countries: Conference Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/18441.
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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

PROBLEMS AND CONSTRAINTS

INTRODUCTORY COMMENTS FOR THE PANEL ON PROBLEMS AND CONSTRAINTS, CONFERENCE ON PHARMACEUTICALS FOR DEVELOPING COUNTRIES William Hubbard In order to choose those actions with the greatest likelihood of providing needed pharmacotherapy in developing countries, it is neces- sary to understand the problems and constraints that must be overcome. Medicinals can be effectively used only within some system for delivery of personal health services. Health practitioners with some training in diagnosis and therapy must be supported with the logistics and communications that allow them to serve the population. The fundamental determinants of health include pure water, sani- tary disposal of human and animal excreta, adequate nutrition and hous- ing, control of disease vectors, health education — all within a com- munity that has a viable economy and reasonable political stability for a population whose growth in size is balanced by its increases in resources. Pharmaceutical medicinals — no matter what their quality or quantity — cannot be more than marginal, albeit essential, technology contributing to the effectiveness of a social and political commitment to providing these fundamental determinants of health and of a suitable personal health service delivery system. In the United States, the expenditure of corporate funds for research and development has grown steadily in constant dollars at an average rate of 4.5 percent per year since 1960, for a total increase of more than 102 percent in constant dollars by 1976. But federal fund- ing of research and development carried out by industry has decreased by about 30 percent over the same period. Approximately 10,000 compa- nies in the United States are engaged in research and development. However, in 1976, only 40 companies accounted for 53 percent of all corporate funds spent on research and development. Pharmaceutical companies do not appear among the top 20 companies in annual dollar expenditures for research, a function of their rela- tively small size within American industry. However, there are three pharmaceutical companies among the top 10 research and development 176

spenders, when ranked as a percent of sales or in dollars spent per employee. Along with the computer industry, photographic-based compa- nies, and specialized machinery companies, pharmaceutical companies spend more than 50 percent of their net income on research and development. There is also an extreme concentration of research and development within the pharmaceutical industry itself. Only 14 of the 26 pharmaceu- tical companies that spend more than one million dollars annually on research and development actually spend at the industry average rate of 50 percent of net income. Only four companies account for 37 percent of research and development, while they produce only 21 percent of the industry sales — spending at a rate of 10.8 percent of sales on research and development. The next four most research-intensive compa- nies spend only 6.8 percent of sales on research and development — representing 23 percent of the total industry's research and develop- ment and 24 percent of its sales. It is, therefore, grossly misleading to speak as if research and development intensity were similar among all pharmaceutical companies. After the first 8, the next 12 companies represent 47 percent of total sales but only 33 percent of total research and development. Basic research supported by corporate funds has been declining. From 1953 to 1965, such research was 6 percent to 7 percent of total industry-funded research and development. Between 1965 and 1975, basic research expenditures fell to 3.7 percent of a total research expendi- ture that was rising. Waste caused by erratic policies and delays in regulatory decisions have made well-intentioned legislation an expen- sive burden of doubtful cost effectiveness. At the same time, two things have happened: direct costs of research have strikingly in- creased, and more data of relevance to safety and efficacy have become available through the evolution of science. In the United States, the past decade has seen a decrease in industrial productivity, an increase in corporate debt, a decrease in corporate earnings margin, a sharp decline in industrial capital formation, and a decline in the measurable returns from expenditures on research by industry. In the pharmaceutical industry itself there is, as a matter of government purpose, an ongoing reduction in the eco- nomic advantage to an innovator of a medicinal. All these trends limit the growth of those few companies that already have a heavy research commitment. These trends in the regulatory and general business environments make it unlikely that any new small company can generate the financial resources necessary to develop a long-term research pro- gram that consumes 50 percent of its net income or more than 10 percent of its sales. In the United States, five scientists and engineers work in industry for every two in academia and government combined. It is these scientific professionals in industry who allow our private sector 177

to translate knowledge into utilizable technology. The relationship of science and technology to the industrial sector is generally weak in less-developed countries and constitutes an impediment to transfer of current technology. The accumulation of industry-based scientists in less-developed countries, and their effective interaction with indige- nous academic and government scientists, is a precondition to the devel- opment of their self-reliance in using modern technology — much less their self-sufficiency in creating it. If regulatory processes in the United States continue to be erratic and slow, and if the general business climate deteriorates further, then prudent officers in senior management positions cannot do other than reduce the risk to the life of the corporation that is inher- ent in research expenditures that have no reasonable hope of recovery in product sales. If the degrees of uncertainty and unpredictability in government policy and regulatory practices could be reduced, then the ability of management to make assessments of the risks and benefits of research expenditures would thereby be enhanced. Like all human institutions, the pharmaceutical industry has both structural and operating defects that should be corrected or diminished. At the present time, however, it is the only institution in society cap- able of translating scientific understanding into new medicinals that are generally available for the public benefit. The problems and con- straints that have heretofore operated must be relieved if the pharma- ceutical industry is to serve its social purpose with respect to the needs of less-developed countries. Unique capacity carries with it a unique obligation. Even from the most limited commercial view, it is important that the pharmaceutical industry respond to the potential in- crease in demand for its products by the people in less-developed coun- tries who now have inadequate access to existing pharmaceuticals, let alone access to optimum new pharmaceuticals for diseases peculiar to the southern hemisphere. It is our intention in this panel to describe these problems and constraints so that more effective efforts may be made to solve them. 178

CONSTRAINTS ON EXPANDING THE ROLE OF THE U.S. PHARMACEUTICAL INDUSTRY A. UNITED STATES INDUSTRY PERSPECTIVES W. Clarke Wescoe Yesterday Walsh McDermott, my longtime friend and sometime critic, placed our program in historial perspective in a magnificent way. The problems which we address are biologic and economic (to which I would add — confounded by international boundaries). In respect of the bio-1o- lo gic, the industry has played and will continue to play a leading role; in respect of the economic, the industry has a smaller role to play. The United States pharmaceutical industry developed in an open market economy that promoted and engendered entrepreneurial activity. It arose de novo from the efforts of industrial pioneers, it was not a spin-off from a pre-existing industry, nor was it a resultant of govern- mental stimulus designed to encourage economic development. It devel- oped in a time when the infrastructure for health care was already in place; it continued its own development in parallel with the growth of that infrastructure. Its growth mirrored that of the pharmaceutical industry in other "developed" countries — those countries undergirded by highly developed educational systems, crowned by outstanding univer- sities — countries concerned for the public health and possessed of mechanisms for providing and improving it. Concomitant with the growth of medicinal chemistry, it became a research-based enterprise; coincident with the growth of a scientifi- cally based medical profession and sophisticated establishments for the care of the sick, it too became sophisticated. From its inception the industry was privately financed. The industry represents now a significant investment of capital by millions of shareholders who expect from that investment a reasonable annual return and the possibility of capital appreciation. Indeed, without that appreciation and that return, inflation will erode their investment. The industry's growth across national political boundaries was funded from its domestic profits; its expansion was funded with Ameri- can dollars. It served to stimulate, along with other transnational enterprises, the economies of a host of nations. It provided products 179

and services and, far beyond that, employment, taxable income, and technological advance. In its own country the industry learned to live with an ever- increasing body of law and regulation as well as a burgeoning number of federal agencies, each of which had impact upon it. There is perhaps no other country in the world where the industry is so tightly control- led, so subject inadvertently to transgress a statue or overlook the letter of one among voluminous regulations. In its increasing capacity to serve other countries the industry expanded beyond its own hemisphere. Around the world it built facili- ties — major manufacturing establishments, packaging facilities, research laboratories. It takes pride in providing medicines for man, in being concerned with health the world around, in finding new pro- ducts for the diagnosis of and therapy for disease and in being the primary research source for such products. It takes the greatest pride in funding its research almost entirely from its own resources, a logi- cal extension of which fact is that the prices of its products must, in fairness to its shareholders, provide the continuing basis of the long- range research effort. Because of a record of achievement of which it is justifiably proud, the industry finds itself under constant scrutiny. The scrutiny comes simultaneously from those who believe that medicines (the most cost-beneficial and most easily identified segment of health care expenditures) should cost ever less and from those who critically ask: "What more can you do promptly to elevate the quality of life — and how cheaply?" Frustrated by the ever-increasing costs of total health care, government understandably turns its eyes constantly to medicines because their costs are so easily identifiable, even though their costs have remained remarkably constant and, in this country, are a declining percentage of total health care expenditures. C. Northcote Parkinson wrote about the inevitability of such scrutiny years ago — the smaller the figure, the closer the scrutiny — as he framed those delightful ironies known as Parkinson's Laws. I believe it is understandable too because medicines do not vote whereas all the persons, professional and non-professional, who are involved in health care go to the polls. Frustration is not a monopoly of government; a sense of frustration is common to the industry as well. For that reason let me address my- self to the frustrations rather than the constraints which industry faces as it looks to the prospect of providing pharmaceuticals for the developing countries. The frustrations are many and they are not related entirely or even in largest part to conditions prevailing in the United States or to United States governmental regulations or statutes. Because I believe the constraints or frustrations relating to domestic regulation may not be as important in the global picture as 180

some would believe them to be, let me discuss them first. In the first instance, the laws relating to monopoly, the antitrust statutes, the laws regarding restraint of trade, make it difficult, if not impossible, for United States companies to engage conjointly or in a consortium for an attack on any problem. We are an "arms length" nation when it comes to relationships between individual companies. Whereas it appears to us that the governments of many other countries are active partners with industry to stimulate the flow of products to developing countries, there is no indication that the government of the United States desires such an active partnership. In fact, it appears that we have no effec- tive national policy in this regard, that agencies of the government, the legislative, and the executive branches, often are acting at cross- purposes and with widely varying interpretations of what might (or could) be done. Such is part of the price that one is willing to pay for democratic government. Such determines, moreover, that we will never be an OPEC — an organization of pharmaceutical exporting companies. In addition, from the standpoint of taxation, our government is interested in assuring that all of the taxes it believes payable are paid in the United States by United States companies. That logical pos- ture has posed, and perhaps will continue to pose, problems for our transnational companies in the areas of research expenditure and the construction of facilities for research, or for the production of spe- cial products, or for the underwriting of research conducted abroad for the benefit of other countries. Our own taxing authorities are no dif- ferent from those in other countries, all of whom are intent upon levy- ing taxes on what they believe to be their fair share of our companies' profits. Finally, we must consider some of the impediments created by the Food, Drug, and Cosmetic Act, as amended, and by the encyclopedic regu- lations of the Food and Drug Administration. At present, export provi- sions of the law permit shipment of a new drug for commercial use only if that drug has had issued an approved NDA. When we talk about pro- ducts for diseases endemic in developing countries and non-existent in the United States, we speak about products for which an approved NDA is literally not obtainable. For such products (relating to tropical diseases) at the present time, there is little possibility of manufac- ture in the United States. What is required is either production at a facility outside the United States or construction of a new one else- where in the world with all the investment of capital that such costly construction entails. Even from the standpoint of the export of such a compound for initial clinical trials there are extraordinary obstacles. Such export can be accomplished only if the FDA has approved an IND pro- tocol that has met all the requirements and conditions for a study in the United States. The expertise for the evaluation of such protocols exists minimally in the agency at the present time. I do not think the attempt should be made to establish such expertise. 181

To be sure, the current administration and industry appear to be in agreement that changes in those export provisions must be made. Discussion about changes, however, has always been colored by refer- ences to "adulteration" and "misbranding" and "uncertified" — specific terms (jargon) to United States law. Drugs, legally categorized as "old" are presently allowed to be exported even though technically "adulterated" or "misbranded" under United States law provided, however, that they conform to the laws of the importing country. Similarly, antibiotics are allowed to be exported even though uncertified (certi- fication is an anachronism). The inference is somehow given that to free up export provisions by allowing export of non-approved "new" drugs would lead to the dumping of unfit pharmaceuticals upon the inter- national market. No examples have been given, however, to support a conclusion that such a circumstance will occur or that any such has occurred in the past. Relative to the export of medicines from the United States, I believe the good judgment of the importing nation and its authorities should be heeded. Not all regulatory agencies of the developed nations agree with requirements imposed by the United States Food and Drug Administration; there are on occasion real matters of scientific dif- ference of opinion and, consequently, differing regulations in different countries. There is an inherent inappropriateness in imposing United States value judgments on the adequacy of the health regulations or the regulatory personnel of other countries. The matter of risk/benefit analysis, the relative matter of safety/efficacy, should be left in the hands of the nation that desires the medicine or of some non-national scientifically based body upon which all nations could rely. There is no reason to believe that standards invoked by United States regulatory officials should be considered as universally supreme. There is perhaps one final aspect of United States regulations that should be mentioned, the regulatory influence on the availability of participants in the final and critical stage of research — clinical pharmacology. The area of clinical research is the most difficult of all in the medicine research process; it is the stage where the pharma- ceutical industry must turn over to outside scientists (with careful monitoring, of course) the completion of its long, complex, involved and costly research. For such research to be carried out there must be a continuing number of persons available who are willing to participate in trials to test the safety and the efficacy of a product in humans. If we restrict more and more the pool of persons who can participate in such trials (particularly the early ones), we shall make medicinal research ever more difficult. Because any potential product for use in the treatment of disease endemic to developing countries will have little or no market in the United States, it appears logical that the clinical trials, from Phase I onward, should be conducted in those countries. There is a con- straint in that regard; few such countries possess the necessary cadre 182

of trained individuals capable of carrying on such work. Similarly, extraordinary difficulties can be encountered in the necessary follow- up of the clinical population. It will be difficult to pursue perfect clinical trials but a way must be found. Finally, it will not be pos- sible because of literacy and educational deficiencies to obtain truly informed consent in those trials. I trust, as research progresses in that area in the future, no pharmaceutical company will be criticized for those deficiencies and, contrariwise, governments will accept that burden even though there will be uncommon scrutiny of such trials. Now let me turn to the broader issues which may be even more dispositive of United States industry's involvement with pharmaceuticals for developing countries. It is important to recognize that the health problems of developing nations have their roots in certain fundamental social, cultural, and economic difficulties, compounded in the instance of some by vector-borne and parasitic diseases. Major components of these health problems are typically poor environmental sanitation, lack of health education, malnutrition, population pressures with explosive urbanization, and an inadequate public health infrastructure that often precludes effective delivery of health care. One or more of these prob- lems is frequently aggravated by pressures of economic development. The pharmaceutical industry is not equipped to deal with these underly- ing health problems. A recent study of health issues by the World Bank clearly documents a second important point — that the most serious disease problems of the developing nations are by no means restricted to parasitic diseases. Even earlier, in 1969, a study published by the Rockefeller Foundation cited statistics showing that nonvector-borne diseases are consistently identified as the major health concerns by these countries themselves. In the case of 28 African countries queried in a survey conducted by WHO, governments listed a total of five nonvector diseases (such as tuberculosis and venereal disease) among their major ten health concerns. Also cited among the ten concerns were deficiencies in organization and administration. In fact, nonparasitic infectious diseases are commonly the major causes of death and disability throughout the developing world; malaria is the only vector-borne parasitic disease of comparable importance. We have heard the others described as those affecting the quality of life or increased economic productivity. Tuberculosis, pneumonia, typhoid fever, and cholera are massive disease problems on a global basis. The fact that these diseases have been effectively controlled in the more developed countries demonstrates clearly that existing pro- phylactic and therapeutic measures are adequate to the task. There is thus confirmed that a primary need is often not more or better health technology but its effective delivery. There can be little doubt that a great deal of human and social benefit could be realized by a more aggressive and systematic 183

application of the medicines and vaccines that are available now. What appears to be needed is the establishment in each government of priori- ty for health, by which is meant health in its totality, not drugs for specific diseases. That priority is as important as, and indeed cru- cial to, economic development. Without the development of a viable infrastructure, without a concern for rural as well as urban health affairs, without a program to eradicate causes of infection and re- infection rather than one to treat specific cases, there can be little progress — only continuing anguish and much recrimination. Some pri- vate foundations learned that principle in times past: the creation and growth of sound schools of medicine, nursing and public health had to be supplemented by commitment to active health programs if the goal of better public health was to be achieved. In the long run a better public health program leads to the ultimate economic advantage of better utilization of medicines and thus economy in medical costs and — a springboard to economic development. I look to an establishment of health as a governmental priority. It should not be a matter of concern that in some less developed coun- tries the cost of medicines runs as high as 35 percent of the health budget. The matter of concern should be that the health budget is so low, not that the countries, in desperation, have turned to the most cost-effective materials — medicines. United States-based companies, not surprisingly, have concerned themselves primarily with diseases prominent in the United States. That they have done so is one clear example of their acceptance of domestic social responsibility. Further, their research priorities have had to be directed toward those areas if they were to survive as viable entities in a highly competitive field. In yet another way it could be said that they, in their research priorities, have followed the same direction as has the United States government. The government, unquestionably the largest factor in total health-science research and development expenditures, long ago committed its outlay to research in and the control of the major killers and cripplers in the United States — cancer, heart disease, mental illness, neurological disorders. Thereby, perhaps unwittingly, the public sector permitted the disappear- ance or deterioration of other programs — among them tropical health and hygiene. So did foundations. It has not been possible for the private sector, as represented by the pharmaceutical industry, to stem that tide. Despite public retreat and foundation withdrawal, a significant amount of research directed toward parasitic diseases has been con- ducted by the industry, and with successful results. There have been developed new and effective agents. As we have heard, there have been several new antibiotics; there have been new antimalarial compounds; there have been developed agents for the therapy of leishmaniasis and filariasis, two of superior promise for the treatment of schistosomia- sis, and new amebicides. Still other compounds of great promise have 184

not yet reached the stage of marketing. Widespread effective application of medicines for parasitic diseases has been overwhelmingly disappointing. There is little, if any, private market for these medications. If they are to be maximally useful, they must be introduced by means of an integrated public health program. Integrated public health programs pose substantial logistical problems, and demand a great deal of management, organization and plan- ning; in short, they are expensive. Because of lack of public funds to support such programs there has been a general underutilization of available drugs for treatment of tropical diseases. For other reasons, such as derogatory comments about United States drugs, such as "the pro- duct of United States company research without an NDA from the United States Food and Drug Administration," proven effective products lie un- used in pharmaceutical warehouses. There is more to pharmaceutical research than the thrill of discovery. Underutilization of effective products that represent time, effort, expenditures of funds, and person- nel serves as a powerful disincentive to continued research looking to additional new drugs for the same or similar conditions. In the development of large-scale integrated public health programs required to address diseases unique to developing countries, industry is ill-suited to take the leading role. In every instance the cost of medicine is a small fraction of the total cost of the control program. Unsuited to take the lead role, United States industry is ready to listen to ideas as to how it can help in an effective way. An overriding constraint (or frustration) for United States-based industry is its perception (and its experience) of how it is regarded by some developing countries. It is difficult to accept the complaints about private enterprise failing to work or to solve extraordinary pro- blems in the face of almost totally planned economic structures. That is particularly so when the planned structure appears to have little or no place for private enterprise or, at the least, private enterprise that is part of a foreign corporation. It is even more particularly so when the climate is little less than hostile to it or detrimental to the interests of its shareholders. Pharmaceutical companies are not organized to act as not-for-profit institutions (even the amount of our tax-deductible contributions are limited). In whatever they do, com- panies must have the prospect of a reasonable return on investment and on innovation. Companies conduct and must conduct their research in response to market demands which can afford to meet reasonable prices for pharmaceutical products. That all companies have deviated from that norm by producing service drugs reflects a recognition of their social responsibility. To deviate from the norm in entirety would be to act contrary to the needs and expectations of their shareholders. For a United States-based company today, business conditions, in general, are difficult in a large number of developing countries. Such a company is often faced with a forced dilution of its equity, the loss 185

of its patents and its trademarks, the denial of the fruits of its labor. The desire on the part of every country to have technology transfer (a poorly defined term) is understood. The desire on the part of every country to export pharmaceuticals is also understood. The desire on the part of every nation to participate in pharmaceutical pro- duction from raw materials to manufacture to packaging is understood, even if not practical or economically sound. There are limiting factors to all of these desires — not every country is ready for all technology transfer, not every country can be an exporter (economics dictates otherwise), not every country can become a total producer. There are needs enough for all to share in the fulfilling in the future. It is our responsibility to plan how to get there — and how we plan to deal with each other and with the world's health problems equitably — equitably for industry, for government, and for all people. The single greatest constraint for industry, the largest frustration for the pri- vate sector, would be that in struggling for solutions, equitability would be lost. This Conference is designed to look to the future. It would be tragic if it concluded without proposing a reasonable approach to solv- ing the problems it has discussed. There is, in some medical schools, a regenerated interest in tropical disease. There are some in the poli- tical arena who have a similar commitment. Industry is interested in participating in a new and creative thrust — on an equitable basis. There is need for innovation. I, for one, from the United States industry would like to be a creative partner in that innovative thrust. 186

B. FOOD AND DRUG ADMINISTRATION AND PHARMACEUTICALS FOR DEVELOPING COUNTRIES Donald Kennedy The subject of this Conference is important and complex, and I appreciate this opportunity to share with you my own views and those of the Food and Drug Administration (FDA), especially because the subject encompasses the evolution of the FDA since its inception some 72 years ago. I will explain. When FDA was launched, its primary focus was moral rather than scientific. A violative product was defined by its deviation from a fundamental moral construct — purity. Did the label lie? Was the product adulterated? The moral character of the agency's genesis had a little to do with the political climate at the turn of the century, but much more to do with the state of science at that time. By and large we just did not know what kinds of questions to ask about the chemistry or pharmaceutics of food additives or drugs. This first period of evolution was succeeded during the 1930s, and with accelerating force during the following decades, by a period of true scientific regulation. We began, with increasing clarity, to dis- cern what the questions were; and our ability to analyze both qualita- tively and quantitatively was revolutionized. Now we are in our third period of evolution, into a new role as a regulator of the transfer of technology from innovator to consumer. We have the ability, and we also have, I believe, the self-confidence and the growing sense of responsibility, to look beyond our expertise to examine how the process itself affects the total society. That is why I said that our history reflects the subject of this Conference. Both involve precisely those three basic filaments — of morality, of science, and of technology transfer. In regard to the first of these, you may not be aware that last month the world's first Encyclopedia of Bioethics was published by the Kennedy Institute for the Study of Human Reproduction and Bioethics at Georgetown. This four-volume publication has 313 articles that address such contemporary problems as advertising by the medical profession, 187

cryonics, euthanasia, electroconvulsive therapy, eugenics, fetal research, genetic screening, and prisoner experimentation. It drama- tizes the inseparability of moral and ethical problems from scientific progress. These issues share the dynamic nature of science, and cannot be relegated to some dustbin of yesterday's philosophy. There can be no better reflection of that dynamism than the fact that the moral ques- tions surrounding this Conference are not singled out for examination even in this up-to-date encyclopedia. And yet what we are considering, particularly in relation to the regulation of drugs destined for developing nations, involves morality (or at least can be made to seem to do so) no less than science and — technology transfer. The key question, whether the United States Government should allow the export of useful but potentially hazardous substances not approved for marketing in this country, evokes strong views on both sides. On the one hand, there is concern that current export policy for some products can result in the "dumping" of inferior or even dangerous substances in countries poorly equipped to evaluate the potential risks involved. On the other, it is claimed that export restrictions deprive citizens of foreign countries of the benefits of important products that, often for rather special reasons, have been deemed unsuitable for use by United States citizens. Like other Federal agencies that regulate chemicals, the FDA some- times finds itself at the center of controversy between representatives of these divergent but equally legitimate positions. Over the years, through participation in a number of debates on this issue, we have re- examined the export provisions of our laws to determine if changes were in order. For example, last year, as part of an overall revision of our drug laws, we submitted to Congress significant amendments to the cur- rent export provisions governing drugs. Because of the importance of this change, I would like to discuss it here in some detail, including the ways in which it would modify current law and why we believe it is necessary. I would also like to explore the concept of differing risk/ benefit rates between nations, and to contrast two relevant examples. As to current export policy and how we are seeking to change it: under current law, a new drug may not be exported for commercial use unless it is approved for marketing domestically and complies with all the requirements of Title V of the Federal Food, Drug, and Cosmetic Act, and the drug's new drug application. An unapproved new drug may be exported only under an investigational new drug protocol approved by the FDA. The investigational study must comply with all the conditions and requirements that attend a clinical study conducted in this country. Certain categories of drugs that are not classified as "new drugs" — like antibiotics, insulin, and pre-1938 drugs -may be exported without 188

any prior notice to the FDA, even when these products may be adulterated or misbranded under domestic standards. These drugs must simply comply with the specifications of the foreign purchaser and the laws of the importing country, and be labelled for export only. The Administration's new bill, The Drug Regulation Reform Act of 1978, which was given extensive study by committees of both Houses in the last session of the 95th Congress, would revise the current export rules applicable to drugs. Under the Act, two standards for export would apply to all drugs. Approved drugs in compliance with domestic requirements could be freely exported. Unapproved drugs or approved drugs not in compliance with domestic requirements could be exported only after an export permit had been approved by the Secretary. An export permit would be granted only when the exporter of an unapproved or noncomplying drug demonstrated that the importing government had assented to its importation after being informed of its legal status, and the basis for it, in the United States. The scientific and medi- cal data concerning the drug's unapproved status would be made avail- able to the importing government to assure an informed decision. The Secretary would have authority to deny an export permit where such export would be potentially damaging to the public health. We now provide information on the safety and efficacy of many drugs to the World Health Organization (WHO), and to individual foreign countries. For example, when a drug is withdrawn from the market for reasons of safety, we notify WHO and all those countries that have requested to receive information of this kind. WHO in turn issues spe- cial bulletins to all its member governments. Because we have limited authority and resources to provide technical assistance of this kind to foreign countries, we have included a provision in the Reform Act that would authorize the Secretary to provide assistance to foreign govern- ments. FDA would expand its exchange of drug information with foreign health officials and international organizations, such as WHO, and pro- vide training for representatives of foreign governments where it is needed. We envision that training sessions would be held either in the foreign country or in the United States, as necessary. This technical assistance would not only provide the foreign governent with an in- formed decision as to the importation of a particular noncomplying or unapproved drug, but would also enhance the overall scientific and technical capabilities of those foreign governments which need such assistance. In sum, our proposed change in the law would provide greater protection against the export of some drug products such as adulterated and misbranded antibiotics, insulin, and pre-1938 drugs. At the same time, it would make more drug products available to foreign countries that are needed in those countries. This is essentially the same policy Congress adopted in 1976 when it considered the export policy for 189

medical devices in the Medical Device Amendments. I want to emphasize that a drug or device deemed unsuitable for distribution and use in the United States may nevertheless make substan- tial contributions to the health needs of another country. The rela- tive safety and efficacy of a drug or medical device is a composite judgment which must be made by each country based upon many factors, such as the status of the health care system in that country, patient compliance with dosage regimens, alternative therapies that may be available, and other specific characteristics of its population. Some diseases prevalent throughout the world — especially in the tropics, where most of the developing nations are found — are rare or nonexis- tent in this country. As an illustration of the problems generated by current export provisions, let me discuss Depo-Provera (§). The status of this drug is now the subject of an administrative proceeding between the manufactur- ers and the FDA, and because I am separated by FDA's own administrative procedures from any wide-ranging discussion of the issue of approval of Depo-Provera (R)that goes beyond the historical, I will confine myself to the question of the impact of such decisions on international use. In assessing this impact, I should emphasize that decisions to approve or disapprove drugs for use in the United States are based on domestically oriented risk/benefit calculations: that is, given condi- tions that obtain here, will the benefits exceed the risks or will they not? We are well aware that the ratio between risk and benefit can dif- fer markedly in other nations. For example, at a workshop sponsored by the Program for the Introduction and Adoption of Contraceptive Technolo- gy, Dr. Mahmoud F. Fathalla, Professoor of Obstetrics and Gynecology, Assiut University, Egypt, pointed out that the risk/benefit ratio of contraception is different in the developing world because the risk of an unwanted pregnancy to the mother is higher due to high maternal mortality rates. We realize also that the decision not to approve Depo-Provera (R) in the United States may cause difficulties for developing countries wishing to use it, and we have made an effort to help resolve this prob- lem. On July 25, 1978, we wrote to health ministries in 68 countries to help explain the reasons for FDA's decision not to approve the new indication for Depo-Provera(§) and the Department of State advised American Embassies in these countries of the text of our letter by tele- gram from Secretary Vance. We met also with a representative of the World Health Organization and offered to provide summaries of our evaluations of the safety and efficacy data of this drug, transcripts of advisory committee meetings during which benefit/risk consideration were weighed, and other data that might assist foreign countries in deciding whether to use it. We will continue to cooperate as much as we can with WHO and other 190

appropriate organizations by providing data on this or any other drug or device being considered for use in other nations. A special problem posed by our decision has to do with availabil- ity of Depo-Provera R for countries wanting to use it. Many nations rely to some extent on supplies of drugs and/or financial assistance from our Agency for International Development (AID). As you know, AID's policy, based in part on current provisions of the Federal Food, Drug, and Cosmetics Act, has been to refuse to supply drugs or funds for drugs not approved in the United States. Let me contrast this decision, made necessary by the present stat- ute, with the latitude provided through the Medical Device Amendments of 1976. The latter, perhaps because they are the newest parts of our law, reflect a greater sensitivity to issues such as those we address in this Conference. In South America, there is a need for earlier-gen- eration, manually operated X-ray machines no longer approved for use in the United States. In this country, X-ray devices that automatically limit the beam to the area to be X-rayed are now required because we found that poor operation of the manual machines by United States tech- nicians frequently resulted in unnecessary exposure of patients. The manual machines are still used successfully in some European and Asian countries without causing unnecessary exposure to patients. Such machines are needed in most South American countries because these coun- tries lack the equipment or skilled technicians required to maintain the more complex equipment. Doctors operate these machines; they are trained to limit the beam manually. The Pan American Health Organiza- tion recognized this problem and fully supports the use of the manual equipment in South American countries. Obviously, for these countries, the benefits of having X-ray equipment available for use outweighs the potential risk of unnecessary exposure from manual operation. Because the Encyclopedia of Bioethics fails to address the problem we are dealing with here, it is not surprising that our basic statute fails to foresee that FDA would one day find itself called upon to func- tion as a regulator of the transfer of technology. That understandable lack of foresight clearly handicaps our ability to help meet the thera- peutic needs of developing nations. What we need is statutory authority to make useful drug entities and products available to foreign countries, to do so with due reference to the regulatory decisions of foreign governments, and without subject- ing such countries to unreasonable risks from dangerous entities and products. Much of the developing world is looking to the countries with advanced pharmaceutical industries to provide leadership in research on drugs to meet their unique health problems. We need to find ways that will enable American firms to contribute to this humanitarian effort in a responsible way. 191

CONSTRAINTS ON INVOLVEMENT OF THE U.S. GOVERNMENT AND ACADEMIC RESEARCH COMMUNITY, INCLUDING MANPOWER CONSIDERATIONS Richard M. Krause I would be dishonest if I did not confess at the start that there is a preference in my heart for speaking out about science rather than policy. But innovative science is for the young, and I recognize the reality of senescence which has sovereignty over our lives. And this inevitability of aging is the reason why I speak on policy and con- straints, and not about scientific opportunities. But I am an optimist who takes the long view and believes that the developing countries will develop a science base that will influence their cultural climate 50 to 100 years from now. In this regard, it is of value to recall the cir- cumstances in this country 75 years ago. We were then a nation almost devoid of a scientific establishment. For example, when the Rockefeller Institute for Medical Research was founded at the turn of the century, it was staffed largely by American scientists trained in European labo- ratories, because there were, at that time, no opportunities for such training in our "developing" country. But Rockefeller became a model for United States biomedical research institutions. Creation of simi- lar research institutions in the developing countries will be required if science in those areas is to flourish in the 21st century. What are the constraints on involvement of the United States government and research community toward development of pharmaceuticals for primary use in other parts of the world? As I see it, these con- straints can be grouped under four headings: legislative constraints; inadequate resources; restrictive attitudes; and a lack of investiga- tors committed to this endeavor in either the afflicted nations or the developed world. Dr. William Jordan of our Institute has referred to the legislative constraints under which we operate JL/ and I will not go into that mat- ter again in detail here. As he stated, our legislative authority at the NIH is "to advance the status of the health sciences in the United States and thereby the health of the American people". Nothing is said about the health of people in other countries, although "cooperative endeavors with other countries in health research and research training" are permitted. 192

Each one of us here can mention several cogent reasons why research on tropical diseases is of benefit to the American people. For example, I have no difficulty justifying research on tropical eosinophilia. We know very little about the function of the eosinophil. So, anything that is learned about its role in parasitic immunity may be applicable to research on the eosinophil in asthma and allergic reac- tions. And yet, such a justification has at least the appearance of a contortion to stay within the boundaries of our authority. Eventually, we must examine what it is we intend to do, and who is to do it, and then develop develop the legislative authority consistent with these goals. The next constraint concerns resources, or money to pur- chase and develop those resources. This constraint is linked to legis- lative matters already discussed and also to attitudes, which I will mention next. But the fact remains that money for research on tropical diseases has been meager compared to funds allocated for research on the health problems in the United States. For example the FY 78 budget for the National Institute of Allergy and Infectious Diseases (NIAID) is a little over $162 million; approximately $20 million dollars, or 12 percent, was budgeted for tropical medicine research. Taking this pro- jection one step further, we find that this $20 million is only 0.67 percent of the total NIH budget for FY 78. As shown in Table l, tropical medicine research funded by NIAID with this $20 million is carried out in intramural laboratories, in universities where studies are supported by grants and contracts, and in four International Centers for Medical Research. However, this $20- plus million is spread over more than 20 different focal areas, ranging from amebiasis to yellow fever. Because this is such a wide array of subjects, the amount in any one area is not large. Some notion of the distribution of funds for grants and contracts in several areas is given in Table 2. The tropical disease research budget represents a societal judgment concerning health priorities. Therefore, in our society, the administrative policy of informing the public is an important element in any adjustment either up or down of this budget for tropical disease research. Recently, we have reviewed our fiscal commitment to tropical disease research and have come up with what is known in bureaucratic jargon as a "professional judgment" budget, shown in Table 3. This budget reflects our awareness of the need to go from the present $20 million to approximately $40 million to do justice to these important research areas. Thus, we have proposed for the years through FY 84, a strategy that would gradually strengthen our research programs in inter- national health. I do not know at this tine whether funds will become available for 193

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our institute to carry out these plans. These are issues that in the years ahead will require public debate, and then a choice among the many worthy objectives and demands on the public purse. Realistically or not, I am optimistic about society's generous response when informed of the issues. When it comes to altruism I am inclined to side with Haldane who viewed altruism as one of the powerful instinctive urges for survival of the species. But I do not propose to dwell here on the origins of altruism. Instead, I shall take up several matters of a different sort concerning the influence of restrictive attitudes on our research enterprise. The first of these is our attitude on the need to know more. There are, on the one hand, those health planners who would be practical and address only those health issues of the developing countries that are most sus- ceptible to immediate solution by using the knowledge which we now have available — more privies, pure water supplies, decent housing. But, on the other hand, there are those who would be more theoretical and would search for the hintergedanken of tropical diseases, just as biologists have always done in other medical fields. This "on the one hand" and "on the other hand" calls to mind a story recently heard about Senator Muskie. After one lengthy and inde- cisive hearing — with the scientist who was testifying waffling from "on the one hand" to "on the other hand" — the Senator finally dis- missed the witness with the comment that he wished he could find a one- handed scientist Pasteur would haved made an ideal witness. No "on the one hand" and "on the other hand" for him. He knew what he had to do and how to do it. For, during his lifetime, when he was drawn into the vortex over the argument over basic research and the application of new knowledge, he firmly stated his belief that "there are science and the applications of science linked together as the fruit is to the tree that has borne it." Let me return for a moment to the Rockefeller Institute for Medical Research when it was being established in what was then a "developing country." Many of those scientists who were recruited to the Institute did, indeed, give their first attention to problems of a practical sort, such as pneumonia. But their philosophy, even then, was to dig deep into problems and from intensive study obtain scien- tific wisdom as well as practical knowledge. And, as most of you know, from Avery's early studies on pneumonia at Rockefeller there emerged the discovery of DNA as the thread of life and the development of the recently licensed pneumococcal vaccine. Perhaps the foremost obstacle in regard to developing drugs for tropical diseases is that we do not yet have the necessary scientific knowledge to solve many of the pressing problems. To mention only a few, we are ignorant about the host-parasite relationships in 197

schistosomiasis; the metabolism of the leprosy bacillus; or mechanisms of replication of viruses causing the most prevalent infections. Dig deeply — that is the key. And for those of us who trained with W. Barry Wood, we recall this admonition. Start with whatever problem you will, but dig deeply into it. We must nurture and preserve the oppor- tunity to do this. There is no substitute. And yet today a cautious pragmatism characterizes many funding organizations, including some elements of the Federal government, and this dampens curiosity and innovation. This was recently described by the columnist Art Buchwald in his report of a conversation with a "doc- tor friend." According to the friend, "Even the government wants results before they'll give you grant money to study something. I know one doctor at the National Institutes of Health who was cut off because, by eliminating one problem, he created three others. He was told that government scientists could no longer create new problems in research. While there was still money for old problems, the word is out that if they lead to new problems, NIH doesn't want to hear about them."^/ I might add that Art Buchwald's column had the same caustic words to say about the foundations and their grant policies. There is one other aspect of this issue of attitudes that requires our attention — but this matter is of a different sort. What I have discussed so far is our attitude about what we do. This next matter is our attitude about how we do what we do. Put another way, it's the belief that how we do something takes precedent over what we do — that the form is more important than the substance. And this attitude is having an influence on our government laboratories and I fear on our private institutions as well. There has been a good deal of comment concerning the effectiveness of our scientific establishment, particularly our national laboratories, because of the constraints imposed upon them by micro-management from the central agency to which they are attached. There has been a pro- gressive trend — seen to be ominous by some — of greater and greater agency control over the national laboratories. Greater control over what they do and how they do it. Greater control over the scientific objectives. In general, this control is seen as leading to demands on the national laboratories for short-term solutions. Certainly in part, this micro-management of a national laboratory by a central agency reflects the various pressures brought to bear by more oversight by Congress and the Office of Management and Budget, and indeed, by more public participation in the establishment of research priorities. There is then debate on the level of involvement of the sponsoring agencies in the management of a national laboratory, whether it is Brookhaven or the NIH, the Center for Disease Control or the Bureau of Standards. This issue has been addressed by Dr. George H. Vineyard, Director, Brookhaven National Laboratory, as follows: 198

"Among many critical issues, in addition to the perennial question of funds, I would single out these: At what level should the primary responsibility for directing research programs reside? Should it be with the individual scientist and his institution, or should it be in Washington? The first issue arises because of the strong tendency for research to be directed more and more from Washington. As public concern with technological issues has increased, and as this concern has been reflected in Congress and in the Federal agencies, tighter management from above is being Imposed. In this laboratory, for example, the degree of detailed involvement of our principal sponsor (ERDA) in set- ting priorities and determining the nature of each research program is rapidly increasing, and no limit is in sight. Along with this, our budgets become ever more fine-grained and detailed."_3/ A similar theme has been evoked by Dr. Donald Hornig in a recent report by an advisory panel to the Office of Technology Assessment.4/ In addition to this issue concerning the level of primary responsibility for research programs, there is emerging another aspect of the problem of science management. I am concerned here with what I call the viscosity in the administrative system. In medical terms, we have become obtunded. And, at least as I observe this matter through the NIH speculum,, we are caught up in the details of administration that accrue from the accumulation of government procedures. By micro- management of administration I am referring to the tedious, repetitive details of the procurement process of goods and services, the personnel process, the management process, the budget process, and the dispersal of research funds and — let me add — travel ceilings for investiga- tions abroad. These processes are all taking on a life of their own identity, their own reasons for existence. Whereas, of course, the whole purpose of management should be to nurture scientific imagination rather than suppress it. In my judgment, from by brief experience at the NIH, at least, these administrative procedures are becoming a greater hindrance to scientific progress than any interference with management of the research itself by the Department. And, as Dr. Harvey Brooks has said, if this viscosity in the system of which I speak retards research pro- gress in government laboratories, you can be certain that similar con- ditions will prevail in the future in the universities. I suspect that if the biomedical research enterprise founders, it will be on the micro- management of administrative matters rather than micro-management of research objectives, although the influence of the latter is not to be discounted. 199

In the December 1978 issue of The American Journal of Medicine, the editor, Dr. Alexander Bearn,_5/ touched on this matter of excessive paper work in regard to grant applications. In his editorial entitled, "The Washington Paper Chase," Dr. Beam describes with some humor, the agonies of preparing a proposal. He says, "Work performed by previous investigators is catalogued in excruciating detail. From Pasteur to Popper, nothing is left out.... The methodology is spelled out ad nauseum.... The Budget takes even more time. Secretaries and Research Associates are halved and quartered without mercy.... But at last it is done. Typed, retyped. Up to the business office and back. Signed by Deans, Sub-Deans, Department Chairmen. Routed all over the Medical Center ... to places and people barely known to exist.... Finally it is bundled up, all 70 pages of it, and dispatched to Washington .... "Slowly, recovery sets in ... but the tranquility is short-1ived: the next day the investigator gets 15 research applications to review. Their average length is 48 pages! The investigator thinks: maybe I overdid mine!" Well, you ask, what to do? I am perhaps too new in government to answer that question but I did have one suggestion a bit perhaps out of Daniel Defoe or Lewis Carroll. I would suggest that we begin by requir- ing that all administrators in government spend at least 50 percent of their time reading professonal journals — in that way to acquire new ideas, new perspectives on the substantive research issues of their department. This would leave only 50 percent of their time for writing memos to each other on all sorts of extravagant and extraneous matters. You know of course that when we run out of people to write a memo to, we write a memo "to the record." This regulation would go a long way to vitiate the mischief of administrative micro-management and provide a greater opportunity for managers to return to the regions of professionalism. The final constraint concerns limitations on the number of special- ized medical scientists who are available to work on tropical medicine, and, hand in hand with this limitation, insufficient numbers of research institutions in the developing countries. Without such research insti- tutions, there are too few opportunities to which newly trained scien- tists can return. Certainly, the problem has not been a lack of training opportunity in the industrialized world for those from other countries, although there are those who would argue that much of this training has been mis- guided with inappropriate objectives. For example, NIH's International Research Fellowship program was established just ten years ago and has been supported and administered by the Fogarty Center since its incep- tion. During that time approximately 2,500 qualified young foreign bio- medical scientists have obtained advanced research training, and have participated in collaborative research in major educational and research institutions throughout the United States, and at NIH. Of these 2,500, 200

only 347 have been from the "developing countries" of South and Central America, Africa, and Asia. Not only have we trained too few of these foreign scientists, we have often failed to link training to any systematic plan for appropri- ate research opportunities after the trainees return to their own coun- tries. It should not be our intention to limit the peripatetic migra- tion of agile and inquiring minds. This is a traffic as old as humanity — in which the talented young aspire to challenges in the intellectual and artistic centers of the world — Athens, Rome, Cairo, and Paris. Recall that St. Augustine immigrated to Rome and Maimonides to Cairo. They migrated to make their mark — or to do their thing, as we would say in this century. Yet, at the same time, if we are to work together with colleagues in other areas of the world, we must find ways for those who are trained here to return to creative environments in their native lands. And this requires building native institutions which provide a stable career opportunity in an atmosphere of creative collegiality. Perhaps the Foundation for International Technological Cooperation which is now being planned can be a help, but there is, at present, no agency in our government with responsibility to catalyze the intricate chemistry of institution building. Construction of such a fragile structure is a precarious undertaking. Such an institution must employ an exceptional group of scientists in a collegial atmosphere and be assured of long-range support. The Agency for International Develop- ment has neither the philosophical nor fiscal responsibility for this sort of institution building. And this surely is beyond the present authority of the Department of Health, Education, and Welfare. It is disturbing that the private foundations, in recent years, have largely abrogated this responsibility for institution building for health research and medicine, although they provided this kind of support in the past. In health, a notable example of such a contribution was the old Peiping Union Medical College, supported originally by the Rockefel- ler Foundation and later by the China Medical Board. But in the last 20 to 30 years, the Foundation has directed its attention to building institutions concerned with agriculture and animal husbandry. And here there have been impressive achievements. For example: the centers in Mexico, Nigeria, and elsewhere under the auspices of the Consultative Group for International Agricultural Research — a joint enterprise between Rockefeller and Ford Foundations. But, in a sense, the Rocke- feller Foundation left the international health field too soon. We are delighted that, under the vigorous direction of Dr. Knowles and Dr. Warren, it is returning to the fold, applying again its special skills in building and strengthening institutions in other countries of the world. We can and we should help build Institutions in Africa and Asia and South America where the theoretical base of science can find expres- sion. But, in these institutions, native scientists must follow a path that is consistent with cultural, ecological, and economic circumstances 201

and must take into consideration the medical resources available for solving problems and implementing solutions. The constraints I have mentioned are not new. We have long been aware that our efforts in tropical medicine were not what we would like them to be. For this reason, over a year ago, I announced, with the approval of Dr. Donald Fredrickson, Director of the NIH, the first steps that our Institute was prepared to take, focusing on four broad objectives. These are: 1. Strengthen tropical medicine in United States universities within the framework of existing biomedical disciplines, £.£. , internal medicine, pediatrics, pharmacology, biochemistry, immunology, etc.; 2. Extend current United States research to the developing coun- tries through "linkages" between United States investigators and those in the countries where tropical diseases prevail; 3. Assist in the establishment or strengthening of centers of excellence in developing countries; and 4. Finally, expand opportunities for research training in the United States for young medical scientists and health professionals from developing countries. Exactly 30 years ago, President Truman asked this country to accept its responsibility in meeting the basic human needs of the people everywhere. On January 20, 1949, in his Inaugural Address, President Truman said: "We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas." Nearly 30 years later, President Carter echoed this theme in his letter to the 1977 World Health Assembly. Endorsing the WHO Tropical Disease Research Program, President Carter said, "these efforts will bring us closer to our goal: a world in which all people can live free from fear of crippling and debilitating diseases." If we are to do that we must break out of the constraints that impede our biomedical research enterprise. Just recently in his State of the Union message, President Carter called for a "new foundation" and this brought to my mind the report entitled, "Sure Foundations" which I prepared for NIAID on the occasion 202

of the 200th anniversary of the United States. This phrase, "sure foundations," was taken from a longer statement by Thomas Jefferson. In a remarkable fashion his remarks speak directly to this Conference on Pharmaceuticals for Developing Countries. In 1807, Thomas Jefferson wrote in a letter to his friend, Dr. Caspar Wistar: "The only sure foundations of medicine are an intimate knowledge of the human body and observations on the effects of medicinal substances on that." I can think of no more perceptive analysis of our problem than this one writ- ten by Jefferson nearly 200 years ago. 203

REFERENCES 1. Jordan Jr William S: Current Programs in U.S. Government and Academic Laboratories for the Development of Preventive, Prophylac- tic, Diagnostic, and Therapeutic Agents for Selected Infectious Diseases. Conference on Pharmaceuticals for Developing Countries. NAS-Institute of Medicine, January 29, 1979. 2. Buchwald, Art: What's Buried in the Grant's Tomb? Research, Probably. Washington Post, January 2, 1979. 3. Science at the Bicentennial. Nat Sc Bd, 1976, p 65 4. The Health of the Scientific and Technical Enterprise. An Advisory Panel Report to the Office of Technology Assessment. October 1978. 5. Beam AG: The Washington Paper Chase, Amer Journal of Med 65: 894, 1978. 204

DISCUSSION: PROBLEMS AND CONSTRAINTS DR. KENNETH WARREN, noting Dr. Krause's comments about foundation support for health research applicable to developing countries, stated that the situation has improved considerably in recent years. He re- viewed recent trends in foundation support for tropical medicine research. Using the Rockefeller Foundation as a leading example, he mentioned the Foundation's new program of support for collaborative research in tropical medicine between groups in the United States and Great Britain and corresponding centers in less developed countries. The Foundation also supports three immunology groups and two major phar- macology groups (at Case Western Reserve and at Rockefeller Universi- ties) and a research career development fellowship program in tropical medicine. The Foundation has recently awarded two grants to the Insti- tute of Medicine for international health studies. For several years, the Edna McConnell Clark Foundation has sup- ported a unique program in schistosomiasis research. Within the govern- ment, there has been a marked increase in interest in tropical medicine research that is hoped to take the form of greater budgetary commit- ments to NIAID. Dr. Warren called for increased participation by the pharmaceutical industry in efforts to find new therapeutic agents for diseases endemic to developing countries. DR. EDGAR MARTIN (US Food and Drug Administration) addressed earl- ier statements by several speakers that FDA actions are arbitrary and bureaucratic. He stressed that the agency's major concerns are with safety and efficacy of drugs, and that its requirements are exactly the same as those promulgated by WHO in 1975 and 1977. Less strict regulations governing the export of drugs to developing countries might result not only in "dumping" of drugs, but would bring the agency into conflict with WHO. He remarked that existing legislation has loop- holes, which permit unsafe practices and exploitation by some members of the industry. From a philosophical viewpoint, he mentioned that new advances in pharmaceuticals do not arise from increased spending alone. Instead, a brilliant scientific breakthrough may be the critical factor in development of new agents. DR. MANSOUR recalled that he had been sent to Egypt to investigate complications reported to follow use of contraceptive steroids by women infected with schistosomiasis. Apparently, the administration of such drugs had produced severe hepatic problems in these women. He referred to the complex issues surrounding such a case, where drugs perceived as non-toxic in the United States could have unexpected side affects in countries where the prevailing disease pattern was different. 205

UNIDENTIFIED asked the panel for an example of an innovative product originating in an industrialized country and then applied in developed countries with good return on the investment. DR. ABDOU SALLAM replied that Egypt offered many successful examples. Three joint venture companies, including Pfizer and Hoechst, have established successful operations in Egypt and are now making better profits there than they do in developed countries. This is due in part to the protected, or centralized market in the Arab Republic of Egypt, which permits very few finished drug imports. Other foreign com- panies also have licensing agreements with Egypt which permit substan- tial profits. DR. HUBBARD interpreted the question to refer to the application of an innovation originating in a developed country. The questioner wanted to define the modus operand! whereby government, pharmaceutical industries, and private sector could cooperate to bring new techniques and products to less developed countries. DR. SALLAM then cited Egypt's poliomyelitis outbreaks which were controlled by collaboration between WHO, UNICEF, and Egyptian institu- tions. Subsequently, the Arab Republic of Egypt has continued to shoulder the expenses of the program. MR. MAX TIEFENBACHER confirmed Dr. Sallam's comments about the profit potential for pharmaceutical companies in Egypt, as experienced by the Hoechst Company since the early 1960s. He also mentioned the company's schistosomiasis research in Egypt, an unusual achievement. DR. ROBERT HELMS (American Enterprise Institute), an economist, pointed out that numerous American economists would likely disagree with Dr. Lall's statement that the "free markets" could not be relied upon to produce drugs for developing countries at reasonable price. In this regard he asked Dr. Lall how he would reach such a conclusion after having given a catalog of ways governments are interfering with free markets through price controls and import restrictions. He also asked if Dr. Lall thought that India might not have a comparative advan- tage in drug production — that India would be better off to import pharmaceuticals, and use its scarce resources elsewhere. DR. SANJAYA LALL referred to the opening statement as a debating point, since "of course" there is no free market, but rather an oligop- oly of drug companies. To the question, India's recent performance in export markets suggests that a competitive advantage in production of drugs and fine chemicals obviously exists. DR. FRANKLIN NEVA (National Institutes of Health) asked for any examples of drug companies' pooling their resources to conduct basic research on diseases endemic to developing countries. 206

DR. HUBBARD interjected that the United States anti-trust laws would prevent a consortium of United States companies' pooling their resources in such a fashion. Such an agreement would also prevent exploitation of any patent advantage. United States companies are subject to United States law even when they operate abroad. MR. TIEFENBACHER noted that it has become quite common for European companies to pool resources in selected areas of research, especially on well-defined subjects such as prostaglandin research. He sees definitive advantages in such arrangements, and referred to his company's long involvement in joint research efforts with the Boehringer Mannheim Company in Germany. DR. SALLAM added that Hoechst is the only one of the three foreign venture companies in the Arab Republic of Egypt which invests in local- ly conducted research. He invited American firms to consider investing in research activities in Egypt, where favourable conditions exist. DR. RONALD ST. JOHN (Center for Disease Control) expressed concern about two inter-related problems: (1) the lack of controls at the retail level on over-the-counter sales of antibiotics and other sub- stances in less developed countries; and (2) the promotion and mislabel- ling by the pharmaceutical industry of particular antibiotics. These two situations have resulted in emergence of many resistant bacterial strains such as gonococci, pneumococci, salmonellae, and shigellae, some of which now respond only to a very few agents. He wondered if international organizations could deal effectively with this problem. DR. VITTORI0 FATTORUSSO commented that these were indeed real problems. However, he was less concerned about misuse when there are no antibiotics in a developing country, than when there is a good sup- ply. He said that the WHO can help to alleviate the situation by dis- seminating information to health workers. DR. LALL offered a less optimistic view based on data which show that many drugs promoted and sold over the counter never go through the health system at all. Therefore, the problem really does lie at the national level, where import policies influence decisions about label- ling, and warnings on use. The drug companies, themselves, could be at least as helpful as WHO in controlling the spread of resistant strains of bacteria. DR. SALLAM continued the theme by referring to an experience he had during his term as Minister of Health. His wife's investigations on antibiotic-resistant strains of bacteria in a university hospital indicated that the situation had reached the point where 100 percent of hospital-isolates were resistant to penicillin, and 80 percent to streptomycin. Dr. Sallam admitted that he did nothing, fearing the backlash of public opinion if restrictions on drug sales were imposed. 207

MR. TIEFENBACHER commented that this problem was not the fault of the pharmaceutical industry alone, but was also related to the lack of infrastructure and effective health delivery systems in developing coun- tries. He stated that WHO plays a useful role through the certifica- tion system which assures that high quality products are being imported. DR. SUNE BERGSTROM (Karolinska Institute) voiced his concern over the problem of how to enlist the enormous research and development potential in the United States to improve health conditions in develop- ing countries. Although WHO has increased its efforts by introducing the tropical disease research program and other training efforts, research and development has actually decreased in comparative terms in the United States. He referred to the extensive networks of clinics being built by WHO in developing countries which represent important resources for clinical testing of new products. Would the pharmaceuti- cal industry be prepared to contract for any testing in underdeveloped countries, perhaps coordinated by WHO? Such arrangements might be simi- lar to the contracts now extant in the cancer field. DR. HUBBARD responded that serious problems and constraints pre- vent cooperative efforts among several companies. It is illegal for American companies to form a consortium for common purpose. Tax laws prevent deduction of charitable contributions made abroad. Neverthe- less, many opportunities do exist in developing countries for conduct of clinical research and testing of new drugs. Thus, the Upjohn Com- pany has begun discussions with Egyptian scientists along such lines. He then noted that it is not possible to speak on behalf of the United States pharmaceutical industry as if it were a single entity, and that industry's response will necessarily be by one company at a time. DR. JOHN BILES (University of Southern California) hoped, as a pharmacist, that the Conference Steering Committee would note the impor- tance of allowing individual practitioners to make sound clinical deci- sions based upon their judgement, and not recommend more government regulations to interfere with their freedom of action. DR. VISCHER requested that Dr. Fattorusso comment upon the widely varying percentages of national expenditures for health among developing countries. He wondered whether governments of developing countries should not be required to contribute a certain percentage of their annual budgets or of their gross national product (GNP) to expenditures for health, as a precondition to receiving assistance in this sector from international agencies. DR. FATTORUSSO replied that only the World Health Assembly can recommend expenditures for health to developing country governments. He agreed in principle that most developing countries should contribute a larger share of their resources to the health sector in the future. 208

MR. TIEFENBACHER wanted to pose the same question to representa- tives of assistance agencies in the audience: would they be willing to make a greater contribution of their overall assistance budgets to improve public health in developing countries? DR. HUBBARD replied (on behalf of those addressed) that the ques- tion involved high policy decisions. Representatives would be hard put to respond candidly, especially in light of the recently released presidential budget for the coming fiscal year. DR. SALLAM believes it is unfair to make the populations of devel- oping countries suffer for the low priority accorded to health expendi- tures by Ministers of Finance and Planning. UNIDENTIFIED commented at length on increasing bacterial resis- tance to antibiotics. He stressed the necessity to consider problems of availability of drugs to the public in situations where there were very few physicians, problems of insufficient training, inadequate record systems, and poor patient compliance. He accused many pharma- ceutical companies, even so-called "good name" companies, of selling bad products to developing countries. He asked how quality control can be assured for developing countries lacking the minimum facilities to police all imports. DR. FATTORUSSO replied that this responsibility lies principally with the importing country, which can request a signed certificate by the drug control authorities of an exporting country that the drug is certified for export, and if not, why not. Also, it can request a statement that the manufacturer is inspected at regular intervals and follows good manufacturing practices. One possible solution to this problem is to pool resources at the regional level, thus minimizing the difficulties of dealing with numerous companies. DR. DAVID FRENCH (Strengthening Health Delivery Systems Project, Abidjan, Ivory Coast) made a point of differentiating between the levels of sophistication among developing countries. For instance, most of the sub-Saharan African countries devote at least 10 percent of their budgets to health. Nevertheless, only 20 to 40 percent of the population has access to pharmaceutical products. He noted a tremendous expectation on the parts of these 20 countries that drug companies will respond to the need for increased availability of drugs. AFRO, the regional office of WHO, has begun training programs to improve the delivery system for essential pharmaceutical products, but availability is still very limited beyond the urban areas. MR. TIEFENBACHER commented that the WHO program on essential drugs will improve distribution and availability in developing countries. He recommended that Dr. French find out more about the initiative mentioned by Dr. Fattorusso which involves several European companies in attempts to improve pharmaceutical product availability. 209

PROBLEMS OF DISTRIBUTION, AVAILABILITY, AND UTILIZATION OF AGENTS IN DEVELOPING COUNTRIES A. INDUSTRY PERSPECTIVES Max P. Tiefenbacher After concentrated discussion of drugs and diseases in developing nations, it may not be amiss to make the obvious comment that drugs are but one component in the health delivery systems of both industrialized and developing nations. Utilization of drugs, in fact, heavily depends on the existence, structure, and functioning of other elements in the health care system: Qualification and number of health personnel; adequacy and geographical dispersion of hospitals, clinics and health centers; facilities and logistics of drug supply; and the extent of coverage and benefits of national health insurance schemes. These all impact directly upon use of pharmaceuticals and the value of their con- tribution to public health. Clearly, then, an overview of the problems and constraints in the availability and utilization of drugs in developing nations must include some reference to the institutions of the health care systems, the major economic and social factors and other contexts of pharmaceuti- cal usage in these countries. Here, we confront a problem of extraordi- nary complexity. Developing countries are highly diverse and extremely heterogeneous, measured by any of the commonly used criteria. Further- more, differences exist not only from country to country, but even to a greater degree within individual countries. Thus, common denomina- tors can be derived only in very broad terms. Generalizations are needed to interpret the matters under discussion, to maintain focus on important issues, and — above all — to reach meaningful conclusions. For these reasons, and so as not to lose sight of realities, I have assembled a worldwide statistical survey on health, pharmaceutical, and development indicators. These data were gathered from a large num- ber of published and unpublished sources, and were provided to partici- pants at the Conference. The charts provide a profile of the health scenario in the developing world in facts and figures, in all its stag- gering gravity, but also its contradictory and irrational elements. Only the most essential data are reproduced in this document. Unfortun- ately, statistical data are in most instances only available for the macro-cosmos of any one country. Reviewing not only the surface symp- toms but also the root causes of the problems under discussion, a more 211

detailed breakdown by population groups, geographically and by other criteria, is badly needed. Willy-nilly, most of the developing nations have evolved a mixed system of health delivery, divided into public and private sectors. The private sector follows the familiar western pattern of distribution, with physicians providing services in private offices, clinics, and hospitals, and themselves dispensing or prescribing drugs to be pur- chased at retail pharmacies. The patient pays for medical services and drugs out of his own pocket or through private or group insurance arrangements. In contrast, the public sector is administered and financed from tax revenues by government bodies — normally health ministries — and frequently also by social security systems. The public sector takes care of health needs of underprivileged parts of the population, mostly through government-run clinics, health centers, and the like. It pro- vides these services at no cost or at minimal cost to the patient. Drugs for the public sector are purchased on a competitive tender basis. It must be recognized that the private segment of health care functions reasonably well. The overwhelming share of pharmaceuticals is absorbed by this market — acounting for 75 to 90 percent of the total drug consumption of developing nations. This market caters by no means, as is so often contended, to an elite minority, to a small privi- leged group of the population. Instead, it benefits a large segment of the Third World population, 20 to 40 percent of the whole, comprising some 300 to 500 million persons. This is the emerging urban middle class social stratum of the population — the literate, educated, employed, and most productive members of developing societies. Their talents and energies may be as decisive to the future development of impoverished societies, as the emerging middle class was in the econo- mic transformation of Europe and North America. If existence of an educated middle class is a crucial prerequisite to building an industri- alized economy, developing countries may indeed be justified in devot- ing a disproportionate share of resources to their benefit. WHO, other UN agencies and political groupings are proposing that developing countries allocate resources increasingly to the social peri- phery of primary health care; for all practical purposes this is to take resources away from the private sector and channel them into the public sector. In a totalitarian regime, this may be enforceable, but in a free society this may be neither feasible nor practicable. An elected government would most likely find itself out of office if it took away medical benefits now enjoyed by the growing middle class — those who presently provide the funds for these services, and who most likely have limited interest or incentive to share these service with the urban unemployed, or the rural population. Medicines supplied in the private segment are appropriate to 212

health needs of the patients. Table 1 points to differences in consumption patterns between some selected developing countries and developed markets. All of Latin America together consumes less anti- diabetic drugs than Holland. India consumes 0.1 percent as many anti- hypertensive drugs as are used in Belgium, although both drug markets are roughly of equal size. Any comparison between the industrialized countries and Africa would show even sharper differences. TABLE 1. LEADING THERAPEUTIC CLASSES BY SALES THROUGH RETAIL PHARMACIES IN SELECTED DEVELOPED AND DEVELOPING MARKETS Country/Class Market Share % Country/Class Market Share 5 BRAZIL systemic antibiotics 14 cough and cold pre- 6 parations vitamins 6 antispasmodics 4 sex hormones 4 analgesics 3 antirheumatics 3 psycholeptics 3 psychoanaleptics 3 cholagogues/hepatic 3 protectors PAKISTAN systemic antibiotics 25 vitamins 13 cough and cold pre- 5 parations analgesics 5 nutrients 3 antianeraics 3 antidiarrheals 3 antacids 3 tuberculostatics 3 antispasmodics 3 PHILIPPINES systemic antibiotics 19 cough and cold pre- 12 parations vitamins 8 analgesics 6 tuberculostatics 5 nutrients 5 antiasthmatics 3 antidiarrheals 3 topical steroids 2 antacids 2 VENEZUELA systemic antibiotics 14 vitamins 8 cough and cold pre- 7 parations analgesics 4 sex hormones 4 topical steroids 3 antianemics 3 psycholeptics 3 systemic steroids 3 antirheumatics 3 Cont'd. 213

(Cont'd) TABLE 1. LEADING THERAPEUTIC CLASSES BY SALES THROUGH RETAIL PHARMACIES IN SELECTED DEVELOPED AND DEVELOPING MARKETS Country/Class Market Share % Country/Class Market Share ° JAPAN a/ systemic antibiotics 26 vitamins 6 antirheumatics 4 antacids 4 hematologicals 4 hospital solutions 4 cardiac therapy 3 cytostatics (anti-cancer) 3 psycholeptics 3 cholagogues and heptic 3 protectors USA psycholeptics 9 (tranquilizers/ sedatives) analgesics 8 systemic antibiotics 7 cough and cold pre- 6 parations vitamins 5 hypotensives 4 diuretics 4 sex hormones 4 antirheumatics 3 psychoanaleptics 3 WEST GERMANY cardiac therapy 11 psycholeptics 6 peripheral vasodilators 5 cough and cold pre- 5 parations analgesics 4 vasoprotectives 4 systemic antibiotics 4 hypotensives 4 sex hormones 3 antidiabetics 3 a/Measured by sales through wholesalers. In the private sector the population:doctor ratio, the population: hospital ratio, and per capita drug consumption reach levels that can be considered adequate, albeit minimal. Health standards have been steadily improving. Average life expectancy increased by about eight years in 34 poorer countries between 1960 and 1975. It would be safe to assume that the lion's share of this is attributable to the popula- tion in the private sector. It is the public sector that is woefully in disorder from any vantage point. This applies to the medical infrastruture, medical care 214

provided by governments, drug supply, and to the other essential health services that are so often referred to for the underserved parts of the population: the poorest, the unemployed, the geographically unaccessible. The state has the responsibility to secure their health and provide opportunities for physical well-being. It is often said that this responsibility cannot be met because of severe lack of funds. But as Tables 2 and 3 demonstrate, it is by no means a matter of poverty alone. Matters of health mostly have very low priority in developing countries. Health must compete for available funds with national defense, and in almost all countries it lags woefully behind. The same holds true in terms of spending for health matters as a percent of GNP. TABLE 2. NATIONAL EXPENDITURE ON HEALTH AS % OF GNP Country Category Total as % GNP Low Income India 1.0 Ethiopia 0.8 Kenya 1.7 Middle Income Philippines 0.5 Iran 0.6 Brazil 0.5 Centrally Planned Economies Hungary 3.0 USSR 3.5 Industrialized Italy 8.0 W. Germany 8.0 U.S.A. 7.9 In general developed countries spend 5-8 percent of GNP on health care, of which 10-20 percent represents expenditure on pharmaceuti- cals. Figures vary more in low income countries but pharmaceutical expenditure rarely rises to US $2 and often accounts for up to 50 percent of total health care. Figures relate to 1975 or latest available year. 215

TABLE 3. DISTRIBUTION OF PUBLIC FINANCE IN SELECTED DEVELOPING COUNTRIES (1975) Country Category Total Nat'l Finance % Distribution Local Currency millions Education Health Defence Low Income Bangladesh a/ Ethiopia India Kenya a/ Sri Lanka c/ Tanzania c/ 6307 1049 174100 d/ 219 8150 6640 10.3 2.5 f/ 6.7 15.5 4.4 - 17.6 8.0 e/ 3.3 e/ 12.1 21.1 6.6 6.5 10.5 6.1 2.2 12.5 6.2 11.0 Middle Income Bolivia 6293 27.5 9.0 h/ 16.5 Brazil a/ 58556 5.0 1.0 14.0 Colombia a/ 46528 18.4 7.4 8.6 Dominican Rep. 495 9.0 5.0 i/ 9.6 Ghana 1162 20.3 8.2 - 7.7 Nigeria _b/ 18006 14.1 5.5 20.7 Sudan 245 3.5 2.1 16.3 Thailand 67 22.0 5.0 19.4 Venezuela a/ 39497 10.8 6.1 i/ 5.0 a/1974 W1973 c/1976 d/National Finance plus States' Finance (not balanced). e/Data given only for States' Finances. The figure including National Finance is not available. _f/0ther health expenditures in the non-itemized entry for "Development Expenditure" are excluded. j>/Including law administration and police. h/Including "social welfare." i/Including other "social services." 216

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Furthermore, development aid provided by major donor nations largely disregards health care (Table 4). Only 3 to 5 percent is spent in this area, and much of this goes into sanitary services, family plan- ning, medical education, and other health related areas. But it is not only a matter of finances. The health delivery systems in the low-income areas of developing countries are grossly inadequate, poorly organized, and often conspicuous by their absence. This is certainly one of the very central problems and constraints to better utilization of drugs, and — I wish to stress again — this is a problem centered in the public sector. In a recent report to the World Health Organization, the Pan American Health Organization acknowledges that ... despite the considerable efforts made in most of the Latin American countries to extend the network of institu- tions providing health services, including basic sanitation, on a national basis, the services are badly distributed, fail to reach important groups of the rural population and are inadequate to meet the demands of a rural population which is settling in the cities in increasing numbers and under wretched conditions. State-run health insurance systems — the core of the public sector — are rudimentary at best in most developing countries. In many, not much has changed since colonial times. Social security systems, where they exist at all, exclude large segments of the popula- tion from medical benefits. Dependents of employed workers may receive only partial care — maternity benefits alone, for example, and these only for employed women. Agricultural workers are often excluded, especially in least developed countries, where they constitute 80 to 90 percent of the labor force. Vast geographical areas may be ineligi- ble for medical benefits. In advanced parts of the developing world the typical pattern of development of social security proceeds from coverage of employees of relatively large firms in the capital city or other large urban centers, expanding vertically and geographically as hospitals and other medical facilities can be built and staffed in cities and rural areas. Needless to say, expansion has been slow, largely because of underfinancing. Some Latin American countries, notably Brazil and Uruguay, are about to attack the problem in a comprehensive and vigorous way. They are developing strong initiatives in creating national welfare services in the health field that extend health care to the needy and under- served. If further proof were needed of the gross deficiencies of the public sector, it can be found in the use of drugs against tropical diseases. They are the big killers in the tropics. But as Table 5 shows, in six of the more advanced developing nations, antiparasitic 218

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drugs account for only 1 to 2 percent of total drugs consumed. As this is central to the main issue under discussion, I would like to emphasize that, if it were just for the private sector, this Conference would most likely not have taken place at all. It is the public sector that gives cause for alarm. New strategies and new visions must undoubtedly be found to correct the deplorable state of the public sector. Curative medicine, modeled after health care practices of rich industrialized nations, offers little help. The primary health care program as recommended by the Alma Ata Conference in September last year may well offer a solu- tion. ' The basic philosophy is sound, but only workable if national governments are willing to provide the financial support, and if the program obtains the bilateral aid and multilateral technical coopera- tion it deserves. The research-based pharmaceutical companies have much to contribute to development of the public sector. They have frequently been called upon to play a more significant role in addressing disease problems of developing countries. Therefore, it is only proper to analyze problems and constraints that inhibit industry from such greater involvement. It has now become commonplace to observe that the pharmaceutical industry is over-regulated. This is a worldwide phenomenon. In the developing world the traditional regulatory thrust is less toward assurance of safety, efficacy, and quality, as it is economic and poli- tical in nature. This impetus has escalated in recent years to the point at which international drug companies are now operating in large areas of the developing world under conditions that are quickly becom- ing intolerable. They are being pressured on half a dozen fronts — most importantly patents, trademarks, and prices, but also dilution of equity, import restrictions, restrictions in transfer of royalties, and dividends. Let me touch briefly on the nature and consequences of certain policies to restrict the activities of the multinational pharmaceutical industry in developing countries. Patents It has become fashionable in Third World countries to attack patent practices of the multinational drug producers. The proclaimed reason for this assault on patent rights is that industry is employing the international patent system to prevent local production and secure import monopolies. The patent system, it is charged, makes possible an alleged overpricing of drugs by preventing emergence of local com- petitors who would drive prices down through market rivalry. 220

Although these charges have been refuted time and again, develop- ing nations have systematically undermined patent protection for pharmaceuticals. Table 6 illustrates that patents in the Third World countries have for all practical purposes become an illusion. Patents on pharmaceutical products are simply not allowed in nearly a quarter of the nations. In other cases, patents are not legally enforceable in local courts. Or patents may be issued only for manufacturing process- es, requiring a reversal of the burden of proof to those challenging the patent. In still others the patent life of five or ten years is consumed in testing the product for efficacy and safety, and securing government regulatory approval for marketing. Thus, a patent may well have expired before the manufacturer has marketed his product. Finally, an increasing number or countries routinely demand compulsory licensing, at fees so low as to be meaningless. TABLE 6. PATENT PROTECTION FOR PHARMACEUTICALS IN SELECTED DEVELOPING COUNTRIES Country Patent situation satisfactory Patents legally possible, but worthless a/ Patents not allowed CENTRAL & SOUTH AMERICA Brazil Argentina Chile Venezuela Peru Ecuador Colombia Paraguay Uruguay Mexico Costa Rica a/Patents may be obtained which cover only the manufacturing process, they are not enforceable, their life is too short or other legal obstacles deprive the patentee of any real protection. (Table 6 - Cont'd) 221

(Cont'd.) TABLE 6. PATENT PROTECTION FOR PHARMACEUTICALS IN SELECTED DEVELOPING COUNTRIES Country Patent situation Patents legally Patents not satisfactory possible, but allowed worthless ASIA India + China + Taiwan + Philippines . + Iran + Syria + Lebanon + Turkey + Indonesia + Thailand + Afghanistan + Saudi Arabia + Pakistan + AFRICA Egypt Algeria Libya Tunisia Cameroon Chad Zaire Dahomey Gabon Ivory Coast Madagascar Mauritania Morocco Nigeria Togo Senegal a/See previous page. 222

Until the early 1970s, assaults on the patent system were on a national basis by individual countries. Since then the pharmaceutical industry has become subject to an even stronger centralized pressure from some UN agencies, in particular UNCTAD (United Nations Conference on Trade and Development) and WIPO (World Intellectual Property Organi- zation), aiming at a drastic curtailment of the rights of the patentee, imposing heavy burdens on licensors of pharmaceuticals and related technologies. In stark contrast to the weakening of patent rights in the develop- ing world, industrial nations are tending toward strengthening patent protection for pharmaceuticals although, for socio-economic reasons, they too exert utmost pressure to reduce the cost of drugs. Even socialist countries have realized — after a period of trial and error — that the classical patent system is a solid foundation for transfer of technology and other valuable forms of international cooperation. The traditional patent system is often faulted for retarding progress in developing countries, but no evidence has been presented to show a notably improved level of technology or available drugs in countries which have weakened or abolished patent protection for pharmaceuticals. Indeed, virtual abolition of patent protection in Brazil and India, by way of examples, has neither reduced prices of pharmaceuticals, nor brought benefits to the country in economic terms, nor has local indus- try derived any real advantages. Mr. Arcot Ramachandran, Secretary to the Department of Science and Technology of the Government of India, stated at the WIPO Columbo Sym- posium 1977, "that the provision on compulsory licences and that on licences of right have not yielded the results expected of the patent system in India. It appears that the provision of the license of right has resulted in a situation where patents relating to these areas; namely, chemical processes, drugs, and food articles, are not longer being presented for registration". In other words, transfer of tech- nology from industrialized nations to India has already started to dry up. This process will continue as research oriented pharmaceutical companies find it inadvisable to file patent applications in India. Trade Name Restriction A growing number of developing countries are abolishing or restricting trade names, and are requiring or encouraging prescription by generic name. .Where trade names have been abrogated, such as in Pakistan, the result has been chaos. The market was flooded by generic drugs inadequately tested or made with slipshod or nonexistent quality control standards. Physicians found they could no longer accurately predict the effects of drug therapy, complicating management of disease and endangering patients. Consumers came to insist upon trade named drugs, and a black market in branded products soon appeared. The scheme was abandoned. 223

Price Controls Almost all developing countries control local selling prices of pharmaceuticals and the transfer prices of intra-company imports. It is an extremely difficult undertaking for any government to arrive at a satisfactory formula for control of drug prices. As a convenient expedient, governments resort to freezing drug prices, allowing adjust- ments for the massive inflationary rate or devaluation of their curren- cies only at long intervals. Such arbitrary measures short-change local subsidiaries — plunging them into one financial crisis after another. There is rampant misunderstanding of the basic principles of intra-company pricing policies of multinational research-oriented drug companies. This is particularly so in regard to transfer prices for active principles from which local subsidiaries produce finished products. It has become customary to assess the reasonableness of such trans fer prices by comparing them with prices offered by imitators, who usually quote on the basis of straightforward manufacturing costs of the substance. Research-oriented pharmaceutical companies, however, are not merely offering commodities, but a complex package of goods and services. In addition to the active principle they also provide regula- tory data (manufacturing and quality procedures, stability data, animal pharmacological and toxicological studies, all available clinical data, updating of these data during the product's life), medical and other technical services support, product information services which give the local company full access to worldwide experience with the product, and above all financing of research and developing aimed at discovery of future products. Once discovered, developed, and marketed, most new drugs are capa ble of being copied at minimal expense by any firm with experience in the relevant field of manufacture. It is quite evident that such companies can offer active ingredients at prices well below those of research-oriented companies. Arbitrary and inequitable price controls have led to price levels in developing countries that are substantially lower than in most indus- trialized nations. When comparing the weighted averages for 1977 in my company, Hoechst, we find that developing countries have price levels 35 to 50 percent lower than Germany. There can be little doubt that because of the low-price levels, problems in transfer prices and in the remittance of dividends and royalties, developing countries do not carry their share of research and development costs of the multinational drug companies. These 224

escalating expenses are increasingly borne by consumers in developed nations, and by drug companies which see a steady decline in their rate of return. As can be seen, government interventionist policies, bureaucratic regulations, and manifold restrictions on activities of research- oriented pharmaceutical companies in developing nations have increased to a critical point. For our industry developing countries have become high-risk low-profit environments, posing every possible disincentive to any attempt to respond creatively to their needs, urgent as these may be. This is a road on which I do not see that there will be a turning back as long as a deep seated suspicion of the free market system in pharmaceuticals dominates the thinking of UN agencies — as long as these UN agencies actively support the program of the so-called non- aligned countries in urging governments of developing countries to adopt drug policies controlling foreign investments, transfer of tech- nologies, industrial property and patents, prices, drug information, eliminating brand names and adopting generic names and, last but not least, slashing the number of products on the market. The little room for individual initiative left to drug companies is to be further reduced, virtually putting them in a strait-jacket. Until recently, Sri Lanka had practiced drug policies of this nature for a number of years. Many faults have come to light. These include distribution of substandard drugs, acute shortages of life-sav- ing medicines, proliferation of bureaucratic restrictions, and a crip- pling of the effectiveness of physicians. Since November 1977, the new government of Sri Lanka has largely abandoned the system. Many con- trols have been modified or dismantled. But surprisingly, some inter- national agencies are still encouraging developing nations to adopt the very programs that Sri Lanka has discarded. It appears that the Chinese sage Confucius was right when he said that, "experience is a book that everyone writes, but nobody reads". Though we are concerned with pharmaceuticals in developing countries, it is only proper to point out that developments in the industrialized world now also pose major challenges to research-oriented pharmaceutical companies. Increasing regulatory stringency in every country and at every stage of development has fostered a slowdown in the introduction of improved pharmaceuticals. In addition to regula- tory inhibitions, the productivitiy of research has declined for other reasons. Cost containment by health insurance systems results in extreme pressures on economic issues of vital importance to the indus- try. Especially for smaller companies, the drug market has become dramatically less accessible. Profit margins of the industry have declined in recent years, particularly when adjustments for inflation are made. Thus, industry's resources to engage in high risk ventures with small market return are shrinking. 225

Continuing deterioration of the business climate in developing countries will increase disenchantment and frustration of pharmaceuti- cal company managers in these nations. Increasingly, they will look homeward. Ultimately, the hostile environment must lead one day to withdrawal of multinational companies from the least developed coun- tries. I do not foresee a sudden and dramatic exodus, but a gradual retreat. The companies will fade from the scene by virtue of thousands of daily decisions taken on their operational levels. In fact, I wonder whether multinational corporations have not already begun this process of withdrawal from the developing world. I recall my own experiences in the 1950s, when so many companies entered with courage and enthusiasm into Third World countries, taking pride in their operations and the value of their contributions to the economy and society, willing to venture high risks and long-term investments. Since those days of promise and achievement, the corporate spirit has undergone a profound change. It has given way to a sense of caution and restraint. The future is no longer perceived to lie in the vast, underserved portions of the world, but in the highly industrialized countries of North America, Europe, and the Far East. Research, invest- ment — the thrust of priorities in general — has clearly shifted to the markets of the industrialized world. Proponents of destruction of the free pharmaceutical market in developing countries may pride themselves at having made so many drug companies accept their terms for operating in their countries. They may not be displeased by this eventuality. However, if they were governed less by ideology and more by a hard analysis of the gains and losses involved, they would realize that it cannot be in the best inter- ests of their countries to destroy the operational base of those who now supply from 60 to 70 percent of the pharmaceuticals; who constitute the core of drug production in their countries; who have contributed so greatly to their industrial and social development; who are the best hope for new drugs, not only for tropical disorders, but for progress in medicaments for all the unconquered diseases they experience now and in the future. In conclusion, let me say that health and well being of the peoples of the developing world is far more dependent on political and economic decisions than on scientific and technological developments. Governmental policies alone cannot ensure the welfare of a nation, but they can provoke its decline. Therefore, the message of this Conference must be addressed to a wider audience than the distinguished scientists and statesmen who are within this hall. They must reach the ears not only of the United States Congress and the President, not only governmental health agencies and the academic community. They must wing beyond the seas, to legislators and policymakers of the developed nations and inter- national organizations concerned with health, economic development, and 226

multilateral aid. But most importantly, they must be heard and understood by governments of developing nations. It is within their power to create economic and social environments that will enlist the aid of the developed world. It is equally within their power to erect barriers to meaningful assistance. 227

B. PERSPECTIVES ON THE DISTRIBUTION AND AVAILABILITY OF PHARMACEUTICALS IN AFRICA AND THE MIDDLE EAST Abdou M. Sallam I am pleased and honoured to be here today at the National Academy of Sciences, sharing in this Conference on "Pharmaceuticals for Develop- ing Countries". It is a subject to which I have given the last 25 years of my life, first as Chairman of CID, "Chemical Industries Devel- opment Company", the largest pharmaceutical company in my developing country, Egypt, then, as Chairman of the Pharmaceutical Organization, entrusted with responsibilities concerning pharmaceuticals, planning, local manufacture, import, distribution, and price fixation. Now, I am Chairman of ACDIMA, "The Arab Company for Drug Industries and Medical Appliances", created to shoulder the responsibility for developing not only a pharmaceutical industry for the Arab World, but also the manu- facture of all that is needed by the health service; namely, pharmaceu- tical raw materials, package materials, and medical appliances. Africa and the Middle East comprise 68 developing countries with a population of about 600 million: 400 million in Africa, and 200 mil- lion in the Asian Middle East countries. This population represents 14 to 15 percent of the world's population (4,300 million). Africa, home to 10 percent of the world's population, accounts for only 2 to 4 per- cent of the word's drug consumption of $49 billion, with an average annual per capita consumption of only $3. In the Middle East Asian countries, the situation is a bit better: 5 percent of the world's population here accounts for 2 percent of the world's drug consumption, with an average annual per capita consumption of $5. For the whole world the average per capita consumption was $11 in 1977. Developing countries, which comprise 75 percent of the world's population (3,200 million), consumed less than 20 percent (a per capita consumption of $3), while the developed world, comprising 25 percent, accounted for more than 80 percent of the $49 billion world's consump- tion of drugs, with an average per capita consumption of $34. In developing countries the per capita consumption in 1977 varied from 90 cents in North Yemen, and $2.0 in Nigeria, to $20.0 in Kuwait. In the developed countries, consumption varied from $46 in the United States, to $55 in Japan, $57 in France, and $65 in West Germany, for an 228

average of $34. Six of the most advanced countries, (U.S.A., Japan, West Germany, France, Italy, and England), home to only 12.5 percent of the world's population, accounted for 55 percent of the world's consumption. The consumption and availability of drugs in Africa and the Middle East are influenced by several factors: First: the intrinsic characteristics of drugs Drugs differ significantly from other consumables. As there is always a risk in taking any drug, potential risks limit consumption. Because of prevail- ing endemic diseases in developing countries, these possible risks are greater than in developing countries mainly because of prevailing liver afflictions*mentioned for steroid hormones this morning; thus, drugs have to be registered before their use can be permitted. Proper legislation is vital to permit drugs to be circulated on the market. A significant trend in all Middle Eastern and African coun- tries is beginning to emerge in new legislations. Another unique intrinsic characteristic of drugs is that they usually have to be prescribed by a doctor. Thus, physicians act as "purchasing agents" for the consumer. The consumer, all over the world, is thus "captive" to a degree not present in any other industry. The question of branded versus generic drugs is very important to the majority of developing countries wishing to benefit from the avail- ability of reasonably priced generic drugs of adequate quality. Second: the characteristics of the population Physical size, age distribution, mortality rate, urban concentration, culture, and traditions are important determinants of drug use. Having been pre- viously colonized, and with high illiteracy rates, the majority of the population in the Arab and African countries still prefer imported drugs. Third: type and pattern of illness Diseases of the elderly populations of industrialized countries differ basically from those of the younger populations of developing countries. Fourth: the social security system The systems differ widely from country to country. However, the trend is toward an integrated and comprehensive public system, with increased governmental controls. Fifth: price controls In countries such as Egypt and Iraq, with efficient and sufficient control of the drug market, there are also price controls. The public price is fixed over longer periods (at least for one year), and is not changed unless major unforeseen events occur. 229

Further, and applicable both to imported and to locally manufac- tured drugs, the public price is fixed in relation to the need, and not according to the cost of purchase or manufacture. Cost is only one of many factors taken into consideration. The more essential a drug (as for life-saving drugs), the more it is used for long periods of time (as with' antidiabetic and anticancer drugs), and the poorer the patient is likely to be (as in the case of antituberculosis drugs), the lower the public price will be. This is offset by fixing the public price of drugs of lesser import, such as vitamins and tonics, at prices much higher than cost, thus allowing the importer or local manufacturer a net overall profit of 10 to 15 percent on his business activity. With this form of internal subsidy, drugs are made more easily available to meet the real needs of the masses without any financial burden having to be shouldered by the government. Sixth: the environment Climatic conditions determine the nature of many infectious and endemic diseases which prevail in Africa and the Arab countries. Seventh: medical practice and the existing infrastructure In developing countries, "shock treatment" tactics often tend to be used to combat infections peculiar to the local settings. The relative scarcity of doctors and institutions, and the high cost of drugs rela- tive to per capita income, also influence drug consumption. Eighth: political and economic instability Many African states gained their independence relatively recently. They have not yet attained political stability. The crisis of development in Africa is characterized by: • Excessive dependence on external forces, resulting in local repercussions from economic fluctuations among the industri- alized countries. • Inflation has led many governments to resort to deficit financ- ing which has inevitably aggravated inflationary pressures. • Many African states are burdened by rapidly growing, crippling debts. • Except for the countries of the Arabian Gulf, Libya, and per- haps Algeria and South Africa, African and Arab countries suffer — to varying degrees — from shortages of hard currency. Overall, drug consumption is growing relatively rapidly, with annual growth rates of 16 percent in Africa and 19 percent in the Middle East being recorded. Consumption by the smaller urban popula- tions is much greater than among the much larger rural populations. Measures aimed at controlling prices, quality, and quantity of 230

drugs are now being exercised by many African and Middle East countries. In Kuwait, for example, a new ruling has been introduced, requiring registration of all pharmaceutical products registered prior to 1978. This measure is an attempt to prevent import of pharmaceuticals which do not comply with the regulations, and to reduce the number of prepara- tions available on the market. In most countries of the area, a large number of products is registered of which only a fraction is actually used. In the Sudan, for instance, 15,000 products are registered, while only 3,500 are being used. Local production (if it exists at all) is carried out by several (usually) small manufacturers and under inadequate conditions. On the whole, the Arab world manufactures 44 percent of its consumption, where- as Africa manufactures less than 10 percent of its current requirements. Esypt, however, satisfied 85 percent of its requirements through local manufacture; Morocco produces 70 percent, Iraq 40 percent, and Syria 15 percent. In most other Arab and African countries local manufacture accounts for smaller fractions of indigenous consumption despite the fact that experience (in Egypt) has shown that local manufacture of a previously imported drug saves about two-thirds of the hard currency paid to import it as a finished product. In other countries, various fractions of local manufacture are accounted for by drugs produced under licence (with varying conditions) from foreign producers. The output of local manufacture is limited by difficulties in importing raw-materials, the cost of which is often greater than the price offered by overseas suppliers for finished products. The incentive to local production (costing about 15 to 20 percent more than the lowest tender price) is often not sufficient to ensure utilization of plant capacities for local manufacture. Usually, local manufacture also entails small sacrifices in the appearance of the package for the sake of making the public price as low as possible. Relatively little is spent on research and development. Many available medicinal plants and raw materials are not studied or exploited. Ohly weak linkages exist between industry and the research centers among faculties of pharmacy, medicine, veterinary medicine, and the sciences. Unfortunately, drugs and vaccines for veterinary use do not receive due attention; the rights of animals are sacrificed to the demands of mankind. Recommendations for Future Implementation 1. The many small national markets must coalesce into larger regional markets to collaborate on and coordinate import policies, thus making possible purchases at better prices and under more favorable 231

conditions. More funds would then become available to improve avail- ability of pharmaceutical products and facilitate their distribution at lower public prices. Real savings for patient and community would result. The countries of the Arabian Gulf have already adopted a pool arrangement for drug imports. 2. Encourage, finance, and provide generous incentives for research on innovative drugs directed against major scourges, and especially the diseases endemic in tropical areas. Strengthen the links between the pharmaceutical industry and research centers. Invest- igate medicinal plants and other potentially useful natural resources. 3. Intensify and upgrade control measures and facilities; devise appropriate rules and regulations for production units, machinery, and buildings; adopt proper manufacturing procedures; ensure proper storage and transport conditions; schedule appropriate sampling intervals, including for on-the-shelf products. 4. In Arab and African countries, it would be better to avoid permanency of registration in favor of 5-to-10 year intervals. This would permit revision and elimination of obsolete drugs, and increase the alertness of registration authorities toward nationally or inter- nationally discovered side-effects. It would also prevent unnecessary accumulation of drug lists. Any changes should be communicated readily and frequently to physicians and pharmacists. 5. When considering availability and distribution of drugs, strive for equity between: a. urban and rural populations; b. rich and poor; and c. needs of human beings and those of animals. 6. Seek inter-regional cooperation, as advocated by international authorities (APEC, UNIDO, UNCTAD, WHO), toward creation of regional cooperative production of pharmaceuticals and establishment of Tech- nology Centers (COPPECS) to realise the following: a. Establishment of priority lists for the pharmaceutical needs of each developing country. b. Adoption of a generic nomenclature. c. Establishment of national procurement agencies for purchase and supply of pharmaceuticals. d. Revision of patent and trademark laws. 232

e. Establishment, where possible, of a domestic pharmaceuti- cal industry, beginning with formulation and packaging, and developing towards more complex production activities, if economically feasible. A realistic example of regional collaboration is now undergoing trials in Arab countries. These countries established a Pan Arab Phar- maceutical Company (ACDIMA) in accord with the previously stated aims and on a diversified basis also embodying medical instruments, appli- ances, and devices, together with meeting the needs of veterinary medi- cine. All these activities are to be supported through a research and development capability which is to guarantee the appropriate adoption, adaptation, and improvement of the pharmaceutical technology which has been transferred. The company was established in March 1976, and has been collaborat- ing with other countries and with UNIDO to begin implementation of essential projects for production of: • Pharmaceutical raw materials, including some antibiotics; and some synthetic bulk pharmaceutical chemicals. • Pharmaceutical packaging materials, such as glass containers and hard gelatin capsules. • Other pharmaceuticals, such as medicinal plant extracts, extracts of animal by-products, veterinary pharmaceuticals, and large volume parenteral solutions. • Medicinal appliances ACDIMA also is to help the eleven Arab countries without indigenous pharmaceutical production to start a formulation industry; and help those now in possession of such industry to upgrade it and make better use of facilities. ACDIMA aims to increase the percentage of local drug manufacture in the Arab world from the present 44 percent (1977) to 60 percent by 1985. This is a gigantic ambition. It means that the current local manufac- ture of $528 million will have to be tripled to $l,560 million to meet the needs resulting from the present 15 percent annual increase in con- sumption. For the next seven years, this will mean that present produc- tion capacity must be augmented by four new factories yearly, each with a production capacity of $20 millions. Already this year, the countries of the Arabian Gulf are building two new factories — one in Iraq and the second in Ras El Kheima. The Gulf countries' health ministers have decided to add two more: one in Kuwait and the other in Saudi Arabia. ACDIMA is executing these plans. Egypt is also building a new formulation plant with participation from 233

ACDIMA. However, ACDIMA, despite its noble and humanitarian aims to make drugs available more easily and cheaply to the 160 million Arab citizens the company was created to serve, is meeting great difficul- ties due to international rises in prices of drugs and raw materials, and the growing difficulty and expense of technology assessment and transfer in the manufacture of raw and packaged materials. A factory for manufacture of antibiotics, previously estimated to cost about $40 million, will now require an investment of $90 million; worse, the pharmaceutical glass factory projected to cost a maximum of $45 million, is now estimated to require an investment of $128 million These costs are almost prohibitive for anyone, even for a group of developing countries wishing to embark on the manufacture of raw or packaged drug materials What can be done by the United States and the American pharmaceuti- cal industry? I cannot add much to what Dr. Krause has said. I second all his suggestions. The fact, as mentioned by another speaker, that more than 50 million dollars have to be spent before a new medicine can be marketed essentially precludes such research by developing countries. Therefore, please carry out your research on tropical diseases in the developing countries concerned. It is much cheaper, and there are enough people with advanced degrees, and enough laboratories and research facilities for the purpose. As we were told by previous speakers, the world suffers from hav- ing more than half its 4,300 million population afflicted with ill health. This is reflected in unrealized productivity and production, poverty and low purchasing capacity, in addition to being a reservoir of illnesses, many of which are endemic or epidemic, and which pose the risks of periodic flare-up and spread. If this were to continue unchanged, I cannot believe the world would be able to cope with a popu- lation of 7,000 millions in the year 2000, only 22 years from now, espe- cially if more than half would — as now — have less than the minimal acceptable level of health. I believe this situation would be very harmful to developed and developing countries alike. I claim that, in the long run, it will be to the benefit also of the developed countries to struggle against ill health anywhere in the world, and to devote a maximum effort to improve this situation. This cannot be done if technological achievements and advances in the health fields — including pharmaceuticals — remain confined to the developed countries. It is not only inhuman to deprive the poor of the benefits of scientific advances in prevention and treatment of disease because of their prohibitive cost; this is also against the interests of the owners of the technology, and of the world as a whole. On the other hand, we were told that the pharmaceutical industry is not a charitable organization, and should not be expected to invest more in research on diseases of the developing countries to find drugs 234

that cannot be profitably marketed because of the prevailing poverty and low purchasing power of those countries. There is no guarantee that they will get a return on their investment. What can be done? From the platform of this shrine of science at "The National Academy of Sciences," I am launching a plea to all scientists of the world. It is time that scientists and the United Nations devote more serious thought and action to improve dramatically the present state of ill health in the world. Health improvement should become of cen- tral concern to the world. No sick person should be deprived of the benefits of scientific advancement. Sickness should not any longer be a source of excessive wealth to anybody. All discoveries and scientific advances in the health field should belong to the world and become the world's property, but without harm- ing or impairing research in any way. The discoverer or technology owner should be compensated generously for his efforts and expenses. He can be repaid doubly or triply for his work. The idea of world ownership is neither fancy nor new. UNESCO already regards temples, monuments, historic buildings, and other trea- sures as part of the human heritage, and pools money to preserve them as a source of enjoyment and nourishment for mind and soul; it is time for the world also to pool money and raise a fund through WHO, UNIDO or a new "International Bank of Health". In this way, the world can own discoveries and technologies in the health field, and make them availa- ble especially to developing countries, not gratis, but at prices adjusted to each country's purchasing power. A revolving fund of per- haps $50-100 million would be enough to achieve this noble, essential, and long hoped-for objective. UNIDO has already been thinking along such lines, buying the technology for chloroquine manufacture to make it easily available to India to enable her to control recurring malaria. Unfortunately, I learned only last week in the UNIDO Conference held in Cairo — on the same subject, "Pharmaceuticals for Developing Countries" — that this objective could not be achieved. It is a race with time, and this is the only hope for achieving a healthier world in the year 2000. In summary, and as a citizen of a developing country, let me express my deepest respect, appreciation, and gratitude to the American government, scientists, and industry for the care and interest they devote to developing countries and the health of their populations. What I have heard from Mr. Kennedy and the other American speakers at this Conference permits me to return home much more pro-American than I ever was before I came. 235

C. PROBLEMS OF DISTRIBUTION, AVAILABILITY AND UTILIZATION OF AGENTS IN DEVELOPING COUNTRIES: AN ASIAN PERSPECTIVE * Sanjaya Lall This paper represents an economist's view of the main problems in providing adequate medication to the populations of poor countries. In taking the "Asian perspective," there is of course considerable lati- tude in what one can cover, from the problems of OPEC countries in digesting their vast wealth to those of Mainland China in providing socialized medicine on meager resources. I shall only pick on the experience of two South Asian countries — India and Sri Lanka — with which I have some familiarity. Even these offer a wide range: Sri Lanka with a relatively unindustrialized but socially advanced economy, endowed with a good educational infrastructure, but suffering from a long period of economic stagnation and dependent on imports for most of its medicinal needs; and India with its impoverished masses, poor social facilities and enormous size, on the one hand, and advanced industrial capabilities, strong indigenous entrepreneurship and increas- ing penetration of world pharmaceutical markets, on the other. Between them, these two countries furnish a fairly broad range of drug provi- sion problems in developing countries. In this brief space I cannot hope to deal with the whole array of relevant issues._l/ I shall, therefore, concentrate on a few which the recent experience of the South Asian countries has revealed as particu- larly significant. Furthermore, I shall only discuss problems of drug distribution and availability: it is beyond my competence to deal with problems of utilization. I shall proceed as follows. First, thumbnail sketch of recent policy developments in the pharmaceutical sector in India and Sri Lanka; second, a discussion of the main problems as far as the availability of drugs is concerned; third, problems of drug distribution; last, the main conclusions. * I am grateful to Drs. Harold Simon and W. N. Hubbard, Jr. for their suggestions on the preparation of this paper. They must not, however, in any way be held responsible for the views expressed here. 236

Recent Pharmaceuticals Policies in India and Sri Lanka The Indian Government has traditionally followed a policy on pharmaceuticals composed of these elements: - a heavy emphasis on import substitution in all stages of manufacture, down to the basic stages of manufacturing fine chemicals; - the promotion of "Indianization" in the ownership of the industry, with exceptions made only in cases where very advanced technologies are involved; - the promotion of public-sector manufacturing activity in bulk drug manufacturing; - - a reduction of patent protection and a liberal interpreta- tion of patent laws to favour domestic imitators of foreign technology; - strict price controls on drugs; and - encouragement of research and development locally, especially for plants and herbs. In recent years, especially following upon the official Hathi Committee Report on the industry,^/ the government has increased its emphasis on "Indianization" of foreign drug companies, though more extreme demands for nationalization have been rejected. The overriding concern of the government continues to be promotion of local production, and to this end increasing attention is given to attracting advanced technology from abroad, by licensing where feasible and by direct for- eign investment where necessary. The last two or three years have wit- nessed the following significant developments. The Hathi Committee's recommendation on gradual abolition of brand names has been accepted, though initially it will be implemented (in the teeth of fierce industry opposition) on only five drugs; it is not clear how far and how fast this will be extended. The emphasis on self-sufficiency in drug production continues, but with greater attention placed on the 117 "essential drugs" identified by the Hathi Committee (it is not, however, clear how the essential drug program fits in with a 5-year plan (for 1978-83) to boost produc- tion and exports). Production has registered sustained growth recently, and reached $1.3 billion in 1977-78, an increase of 25 percent over the previous year (formulations grew by 27 percent and bulk drugs by 9 per- cent _3/); however, the Indian government identified the "non-availabil- ity of certain technologies" as a major barrier to fuller future devel- opment of the industry. 237

Exports are increasing as rapidly as production. In a three-year period (March 1975 to March 1978) the exports of bulk drugs and formula- tions doubled, and in the first six months of the current fiscal year (i^£. , March-September 1978) they have increased over 40 percent com- pared to the corresponding period last year.4/ On an annual basis this yields total exports of some $80-90 million, directed mostly at the United States, Eastern Europe, Japan, and the Soviet Union. The govern- ment is putting a major effort behind its export drive, especially to increase bulk drug exports to Europe and to other developing countries. A planned development of special interest is "offshore formulation" of Russian bulk drugs for re-export to Russia and third countries ._5/ This is the first time, at least in India, where such activity (common in electronics and transport equipment) has been found to be economical in pharmaceuticals, and this has important implications for the course of development of the industry in the Third World. Development of local technology is being promoted both within the foreign and local sectors. For foreign firms, only firms which produce "high technology" drugs will be allowed to retain majority equity participation.^)/ Furthermore, the government is planning to require all foreign firms to invest at least 4 percent of local turnover in research and development in India._?/ At the same time, the Central Drugs Research Institute in Lucknow is proceeding with its research, mainly into plants and herbs, and has taken out several patents. Several Indian firms (public and private) have been successful in pro- cess innovation: improving imported processes, making new processes and adapting processes to use locally available materials. India has, in a modest way, become an exporter of pharmaceutical technology. It has set up its own "mini multinationals" which are investing in neighboring Asian countries; the IDPL (Indian Drugs and Pharmaceuticals Limited, a large public sector firm) is selling turnkey plant technical assistance and training services to Arab countries, Sri Lanka, and Bangladesh; Sarabhai Chemicals (a private firm) is setting up a turnkey multi-purpose plant in Cuba, under a contract awarded by UNIDO; and several possibilities of technical cooperation with Latin America are being explored, again under UNIDO auspices. A few drug patents have been sold abroad for commercial exploitation. The Hathi Committee commented extensively on the serious problems raised by poor quality control and lack of adequate testing and inspec- tion facilities in certain parts of the country. Surveys have shown that the proportion of poor quality and 'spurious' drugs on the market is unacceptably high. There is little doubt that the foreign firms have excellent records in this respect, as do most of the larger units in the 'organized' sector. Most of the difficulties arise with the myriads of small firms, especially formulators, but they must not all be tarred with the same brush: many of them are extremely efficient producers. However, several are incompetent, ill-equipped or simply corrupt, and, despite efforts to eradicate them, grave deficiencies in 238

this respect still persist. Let us now consider Sri Lanka. In 1972, Sri Lanka set up a State Pharmaceuticals Corporation (SPC) to centralize all drug imports, to economize on their purchase and to replace the sale and use of drugs by brand names to generic names.JJ/ Sri Lanka was, and continues to be, dependent upon imports for the bulk of its drug needs; local production, by a few small local firms and five affiliates of foreign firms, was confined to the relatively simple formulation and packaging of a few imported pharmaceutical chemicals. The main features of Sri Lanka's reform were: The number of drugs imported was reduced to 600 from several thousand brand named versions of 2,100 drugs. This rationalization in purchase of drugs, implemented by a committee comprising pharmacolo- gists and medical practitioners, sought to delete imitative drugs, "irrational" combination drugs and drugs of high toxicity or unproved efficacy. It was implemented gradually, and its progress depended on the resistance emanating from the medical profession. The experience of the United States Food and Drug Administration in checking the safety and efficacy of drugs proved to be of major significance in guid- ing this aspect of policy. It was sought to economize on the costs of drug purchase by buying in bulk, by buying generically and by "shopping around" world markets, subject to the overriding consideration of getting drugs of adequate quality and bioavailability. Many drugs continued to be purchased from the multinational firms which had traditionally supplied Sri Lanka; others were substituted for by small firms in developed countries, East European producers and other developing countries (mainly India). The savings achieved were considerable (over 40 percent in 1972), depending on the extent of competition before the reform and the source of pur- chase ;£/ the benefits accrued automatically to the consumer in terms of correspondingly lower prices. While some problems were encountered with the quality of a few drugs — and these were seized upon and publi- cized by opponents of the reform — there is little doubt that the over- all benefits far exceeded its (probably inherent) risks even in the early stages. The process of rationalizing the imports of finished drugs proved easier than those of pharmaceutical chemicals for local formulation, because of the resistance put up by local affiliates of foreign (British and United States) enterprises. The government found itself unable to make some of them formulate chemicals imported by the SPC, both because of pressures exerted from abroad and because of its own deteriorating political position. The SPC succeeded in achieving a considerable, but not total, switch in use of drugs by brand names to their use by generic names. This move was strongly resisted by the medical profession (for reasons 239

well known to everyone familiar with the industry); nevertheless, a process of re-education and re-information, coupled with careful con- trol on quality of generic drugs, did succeed in rationalizing prescrib- ing practices to some extent, and in providing more objective informa- tion on use of drugs than is normally provided by market mechanisms. Clearly, the Sri Lanka case is valuable for study of the problems of drug availability and distribution in developing countries. Its main interest lies in the sweeping nature of the reform in terms of defining need for drugs, identifying source of supply and rationalizing the information and distribution system. The Indian experience, on the other hand, serves to highlight issues of industrial and technological development, since Indian policies have not dealt with problems of drug proliferation, brand/generic names (except marginally), or information dissemination. While the achievements of reform in Sri Lanka were impressive, resistance from multinational affiliates, drug importers, and the medi- cal profession continued, and the change of government in 1977 led to some emasculation of the activities of the SPC. Detailed information on the most recent developments are not available but indications are that a private market, with brand-named drugs, will be restored,^0/ and that the SPC will continue to function as the major importer for the state health services and possibly also (like CEME in Brazil) for the poor sections of the population. It is also likely that more drugs will be bought by the SPC from the multinational companies and that product patents (which were never abolished) will be observed more strictly. Problems of Availability The problems of drug availability may be discussed under three general headings: imports, local production, and the range of drugs to be provided. Let us take them in reverse order. 1. The problems concerning number and types of drugs to be pro- vided by developing countries are currently receiving a great deal of attention in discussions of the WHO's work on "Essential Drugs." Because this will be taken up in detail by another participant, I need not go into details here; I would, however, like to make a couple of points in passing. First, some confusion exists about what a list of "essential drugs" contains. The WHO seems to interpret it, as does India, as a list of most commonly needed drugs for primary health care, a sort of "priority" list, which must be filled (in the large quantities needed) before the other drugs are provided, but which coexists with a free market unre- stricted supply of drugs elsewhere in the country. Others interpret it as a "rationalized" list of all drugs provided in a country, similar to 240

the SPC's list in Sri Lanka; of these, allocations are made according to need and cost between the major requirements of drugs at the primary care levels and the minor, but perhaps more expensive, requirements at the secondary and tertiary levels. Second, these two concepts of "essential drugs" are directed at different problems and entail different sets of policies. The "pri- ority" drugs concept is concerned mainly with the fact that primary health care in developing countries is gravely deficient and that the drugs required are expensive in relation to available resources. It thus aims to bypass the market mechanism by obtaining increased quanti- ties of essential drugs at reduced prices in world markets (£•_£• , the WHO scheme in cooperation [so far] with German, Swiss and a few French firms), or by stepping up domestic production and subsidizing prices to the consumer (the scheme proposed in India).li^/ The "rationlized" drug list concept, based on formularies used in most hospitals, is concerned with the fact that the free market throws up a tremendous proliferation of branded drugs, backed by powerful and expensive promotion, and on average priced much higher than generic equivalents. Thus, it seeks to reduce some of the confusion in information flows inherent in the pre- sent system, to improve prescribing practice, to reduce prices and obtain all drugs at competitive rates. The second scheme is far more sweeping and difficult to implement than the first, but I believe that a good case can be made for thoroughgoing "rationalization" in poor countries. Third, there are several problems in trying to implement any sort of essential drug scheme. Not only is there great resistance from large, multinational drug firms 12/ and from the medical profession, there are two real risks which have to be faced: (l) a bureaucratical- ly determined list may be too inflexible to provide the best therapies, and (2) cutting of prices on brand-named drugs may have an adverse effect on innovation. These subjects are beyond the scope of my brief, so I will not discuss them further. 2. The area of local production of drugs contains a host of difficult issues, most of of which are general to the whole problem of industrialization in the Third World and not peculiar to this industry. However, they do arise here as much as anywhere else, and, in view of the fact that most developing countries have identified pharmaceuticals as an important area for industrial growth, it may be worth taking them up. Most developing countries confine local manufacturing of drugs to simple formulation and packaging activity, where skill requirements are narrow (mainly for quality control), scale economies absent and capital investment relatively low. A few, like India, Argentina, Brazil, Mexico, and Egypt, have gone beyond this stage to production of drugs from first stages, with India having the most diversified and vertically integrated structure, supported by a large research establishment. Since Sri 241

Lanka's problems are much more elementary as far as local production goes, I shall confine myself to India. The problems in promoting the availability of drugs through local production may be divided into four headings: (l) Technology: The major constraint on further development of the pharmaceutical industry in India now is availability of new and complex technology. There are three ways to resolve this constraint: direct investment by foreign firms in production of bulk chemicals; licensing of technology by foreign firms of local enterprises, public and private; and indigenous development of process technology. All three are, as indicated above, being actively pursued by Indian govern- ment. Multinational firms are being encouraged, and pressed, to invest in high technology areas of bulk drug production in the country; local firms are entering into joint ventures and licensing agreements with foreign holders of technology, in the Eastern as well as Western blocs; and development of local technologies has achieved a certain degree of success. There is, however, some conflict between the desire of multi- national firms to exploit proprietary technology themselves, and that of the Indians to buy it outright for their own use. While such con- flict is natural in an R&D based industry with high rents accruing to innovators, it has been exacerbated, on the one hand, by reluctance of the multinationals to enter bulk drug production in a big way and to part with their technology, and, on the other, by price controls and "Indianization" requirements of the government. No doubt this conflict over technological ownership between foreign firms and local ones has led to a weakening of the patent system to accommodate the growing capabilities of the latter. (2) Public and private sectors: A different sort of conflict has simmered in India between the public and private sectors in pharma- ceutical production. Though the public sector has devoted most of its activity to bulk drug manufacture in areas where private firms were reluctant to invest, the conflict has focused around, first, the fact that private formulators were required to use bulk drugs made in the public sector (allegedly at small scales and consequent high costs), and, second, exclusion of private firms from areas where they did want to enter. It is difficult to assess the merits of these debates. There is an inevitable ideological element in the public-private contro- versy which makes an objective evaluation of arguments very problematic. It can hardly be denied that most public enterprises in India have had "running in" problems, especially in industries where new, complex, and often unsuitable technology was imported. On the other hand, it is clear that recent performance of the public sector in general, and IDPL in particular, has shown remarkable improvement, with a professionaliza- tion of management, investments in in-house R&D and aggressive attacks on export markets. I do not myself see the public-private conflict as an important source of problems in drug availability in India. 242

(3) Poor quality control: This problem afflicts mainly the thousands of small scale producers whose promotion is a strong plank of government industrial policy. The Hathi Committee identified sever- al causes of this phenomenon: poor technical and mechanical facilities, inadequate inspection facilities, corrupt practices, the attractions of imitating high-profit branded drugs, and so on. Clearly, none of them admits to easy solutions. As noted previously, the experience of sever- al excellent small-scale producers leads us to believe that they can serve a very useful economic purpose. However, the incidence of sub- standard drugs on Indian markets (about 20 percent according to one estimate) is too high to contemplate with any complacency. (4) Price control: The Indian government operates, like most others, a pervasive and strict system of price controls on drugs, and producers complain, as they do elsewhere, of the detrimental effects on profitability. The price control formula is complex, with differential incentives built in for R&D, bulk drug production, exports and so on, and with some prices frozen over long periods. In view of recent investments by local and foreign companies, and their consistently high recorded profitability, it is difficult to believe that the system is as much of a straitjacket as the trade associations claim; on the other hand, it is also difficult not to believe that the system is cumbersome, often rigid, and sometimes inimical to the stated aims of the government to promote investment and innovation. 3. The issue of drug imports can best be considered for the case of Sri Lanka, and may be subdivided into two components: import of finished pharmaceutical products, and that of intermediate pharmaceuti- cal chemicals. Problems facing developing countries in the import of finished drugs are in essence an international extension of problems facing the U.S. Food and Drug Administration in promoting generic prescribing, or of European authorities in introducing a two-tier price structure for new and imitative drugs. Problems of quality and bioequivalence are, however, much more serious for a small country "shopping around" on world markets, for obvious reasons, than for a national authority promoting generic sales from domestic manufacturers. To counterbalance this, the developing country has the option of renouncing patent legis- lation, or at least implementing patents "flexibly", which is not open to a national drug authority like the FDA. The general problems of substituting generic for branded drugs, of ensuring equivalence, or winning doctor/consumer acceptance, are too well known to repeat here. It should suffice to point out that there is, on the one hand, considerable scope for safe, desirable, and econo- mical substitution (especially within the framework of an essential drug list), but that, on the other, there do exist serious problems which call for very cautious, gradual, and well-planned reform. The 243

United States leads the developed world in promotion of drug substitu- tion and in fostering of a dynamic generic market: what developing countries need to do is to create such a market on an international scale. Such a policy is clearly very difficult for an individual coun- try like Sri Lanka. Its experience shows that its tendering procedures did not reach the main generic market in the United States, that its limited resources forced it to refuse bids from, say, Italy where it could not evaluate the manufacturing practices of the firms concerned, that its quality control procedures were not fully effective and that the pressures brought by brand-name manufacturers on doctors could, for these reasons, slow down reform. A more broadly-based scheme, compris- ing a group of developing countries, or an international body like WHO, or a North-South cooperative venture of regulatory bodies in rich and poor countries, has obvious advantages in countering these problems. The most significant developments in this context are the WHO-Certifica- tion scheme for drugs sold to developing countries and the Swiss-German scheme of providing a few basic drugs at preferential prices through WHO — in effect launching a competitive generic mini-market for multi- source drugs. As far as new patented drugs are concerned, the problems are more difficult. Should poor countries, facing acute shortages of medicines, observe patents on drugs innovated mainly for rich countries? What is the "right" rate of return on drug innovation? How long is the "right" life for a drug patent? How should the burden of financing innovation be shared between rich and poor countries? There cannot be straightfor- ward answers to these questions, for three reasons: (l) institution of the patent system as such is controversial, and debate will always con- tinue on the correct balance between private monopoly and public inter- est; (2) there is a fundamental value judgment involved about sharing of costs of innovation between nations; and (3) patents may enable a broadly-based monopoly position to be built up which provides returns often in excess of a "just" reward for innovation, and it is practical- ly impossible to separate these two elements. The best solution here may be for both sides to recognize that compromise is required. Drug companies should accept that poor countries constitute a special case in that their need for innovation is low (except for specific tropical diseases), their ability to pay is limited and their propensity to renounce patents is high. The developing countries, for their part, should recognize that some form of adherence to patents is desirable in the interests of innovation, and that a stable legal framework may help to promote investment and transfer of technology. A brief note on pricing of intermediate chemical imports: the main problem in this context is that of transfer pricing of imports by affiliates from their parent companies, and the pharmaceutical industry has received the greatest amount of exposure over this issue. As with patented finished drugs, pricing of intermediates involves immense dif- ficulties in evaluating correct rates of return on risky innovation. However, given the flexibility inherent in pricing of intra-firm trade, 244

and limitations of government monitoring, there is little doubt that the firms concerned use such trade to minimize tax burdens and reduce exposure to other types of risks. The Sri Lanka experience shows the large reductions in prices of intermediate chemicals which could be obtained by bargaining and "shopping around" (83 percent on ampicillin was offered by Beecham, and Hoechst was prepared to supply tetracycline at 80 percent below prices charged by Pfizer). In general, however, it is the developed countries that have gone furthest in regulating possible transfer-pricing abuses by multinational enterprises. Developing countries tend to veer between excessively restrictive regimes and overly liberal ones on controlling intra-firn prices, but they lack resources to mount a continuous, sophisticated and comprehensive survey of transfer prices._13/ While richer countries progress towards information exchange between tax authorities and even international joint tax audits (being started by Canada and the United States), poorer ones are in danger of being excluded from a privileged club of efficient tax administrations. The problem stretches far beyond the drug industry, of course, but this industry is the one where it comes up most frequently. Problems of Distribution Problems of drug distribution may be discussed under three headings: drug information, drug pricing, and the physical distribu- tion of drugs. Under the general title of "information," we may place the range of vexing but well-known problems concerning high costs of promotion, brand versus generic names (which have been discussed above), and labelling and information provision, which are familiar fare for every- one dealing with the industry in the United States. It is also widely recognized that these problems may be worse in developing countries because doctors are even more dependent on companies for their infor- mation on drug use, and because authorities are more lax in controlling advertising and claims by the companies._l4/ A strong case can be made that an alternative system of information provision can work more cheaply and effectively to promote rational (and economical) prescribing. Few developing countries have attempted to install such a system. India has, by and large, tended to ignore problems in this broad area. Sri Lanka has launched a thorough reform, with tremendous resistance from the medical establishment, but it is as yet impossible to evaluate the success of its attempt. Some other countries, like Afghanistan, are banning advertising of branded drugs altogether, but it is not clear what alternative channels of information dissemination will replace it. One interesting proposal by Drs. Andrew Herxheimer and N. D. W. Lionel, for "minimum information" data sheets (MIDS), deserves 245

serious consideration in this context «_15/ The MIDS are supposed to counter deficiencies in the present system of providing information to doctors in the United Kingdom and elsewhere, by providing concise and easily digestible information on clearly validated uses, more controver- sial uses, serious and less serious side effects, and so on. An inter- nationally harmonized MIDS system, provided as a counter to the exist- ing system, can be greatly beneficial in developing countries, and may serve as a basis for rationalizing the whole information system in the longer term. The problem of drug pricing is so complex that it would be impossi- ble to do it justice here. The central difficulty arises from pricing of innovations relative to other drugs, and we may refer to attempts of various European countries (mainly France) to set up a system which encourages innovation while forcing down the price of imitation drugs. India has, as noted above, a system with four categories of drugs, each with different markups over cost, but I am not equipped to discuss it in detail. While it is feasible to generate any number of pricing systems with different incentives for different kinds of drugs, the inherent problem of reconciling private incentive with public interest is difficult to resolve, especially when risky innovation is at stake, and each society must strike its own balance. Developing countries may tend to strike it on the side of economy rather than innovation, and perhaps this is justifiable given their needs and resources. Physical distribution of drugs raises several problems: location of pharmacies, their accessibility, storage facilities, stocking prac- tices, control over drugs with short shelf-1ives, refrigeration, trans- portation, and so on. It is almost a definition of underdevelopment that distribution is much worse in rural areas than in urban ones, and that the best facilities are centralized where rich elites live. It is difficult to see how drug distribution can be radically improved with- out a tremendous upgrading of the primary health care delivery system; and this, in turn, may require a much greater emphasis on social equity than many developing countries are prepared to give. Within the given structure, however, there may be substantial gains possible by improv- ing transportation, storage, and pharmacy facilities, but discussion of these is not the task of the economist. Conclusions In this paper I have touched on a vast array of problems. It is beyond my present brief to discuss policy requirements to remedy them, but several recommendations have naturally been implicit in the discus- sion of difficulties facing developing countries. In another recent paper, I have tackled more directly what multinational drug companies may do to meet the aspirations and needs of the Third World,_16/ The most general conclusion I arrive at is that the "free market" system as it now exists is incapable of resolving the various conflicts that 246

exist between drug multinationals and developing countries without substantial modification. It needs reform in terms of the number and prices of drugs it provides, of the assistance it gives to local pro- duction capabilities of less-developed nations, of the system of drug promotion and information dissemination, and of the importation and distribution of drugs. To some extent, developing countries can achieve improvements on their own, but clearly they run up against barriers after a short distance: and here assistance from abroad, even in terms of an acceptance of their objectives and policies, would be very helpful. At the same time, a massive structure of controls and regulations should not be recommended lightly to the administrations of developing countries. It is to be hoped that some flexible and pragma- tic compromise will emerge which achieves progress with minimum cost and conflict. 247

REFERENCES AND NOTES 1. I draw upon some of my earlier work, in particular "The International Pharmaceutical Industry and Less-Developed Countries, With Special Reference to India," Oxford Bulletin of Economics and Statistics, August, 1974; "The Political Economy of Controlling Transnationals: The Pharmaceutical Industry in Sri Lanka 1972- 1976," (with S. Bibile) International Journal of Health Services February 1978; and The Growth of the Pharmaceutical Industry in Developing Countries: Problems and Prospects, Vienna; U.N. Indus- trial Development Organization (ID/204), 1978. 2. Report of the Committee on Drugs and Pharmaceuticval Industry, Ministry of Petroleum and Chemicals, Government of India, 1975, Chaired by Mr. J. Hathi. 3. Of the total value of production of $980 million in 1976-77, bulk drugs accounted for 18 percent (of which 33 percent was produced by two public sector units, 60 percent by large private units and 7 percent by small-scale units) and 82 percent by formulations (7 percent public sector, 76 percent large private and 17 percent overall-scale units). Data from Scrip, 17 June 1978, p. 16. The successful participation of some 2,500 small-scale units in bulk drug and formulation production is worth notice — on the positive side because of their flexibility and employment creation and on the negative because of the greater risk of poor quality. 4. Scrip, 4 November 1978, p 12 5. Scrip, 23 September 1978, p 21. Indian firms are, according to information received privately, also subcontracting from the United Kingdom for the manufacture of capsules; their advantage lies in their willingness to meet specific requirements. 6. Scrip, 8 April 1978, pp 20-21 7. Scrip, 8 July 1978, p 24. In 1975, of 36 foreign companies sur- veyed 26 invested less than 2 percent in local R&D; the top four R&D spenders (in India) were Uni-Sankyo (10.6 percent) CIBA-GEIGY (6.8 percent), May and Baker (6.4 percent) and Wyeth (4.1 percent). (Scrip, 28 January 1978, p 15) 8. The experience is discussed in greater detail by Lall and Bibile, op cit, and S Bibile. A Case Study of Pharmaceutical Policies in Sri Lanka, UNCTAD, TD/B/C.6/2l, 1977 248

9. For a statistical analysis of the Sri Lanka savings on drug purchase see S. Lall, Price Competition and the International Pharmaceutical Industry, Oxford Bulleting of Economics and Statistics, February 1978, pp 9-22 10. See Scrip, 31 December 1977, p 18 11. It may be noted that obtaining essential drugs at the lowest possible prices may conflict with the objective of increasing local production, at least in the short-term until local enter- prises are able to assimilate the technology and achieve economies of scale. This conflict arises, of course, only for large coun- tries like India with well-developed local industry. 12. Recently, for instance, all the large drug firms in Argentina have decided to boycott a scheme to buy drugs at preferential prices for the social security. Scrip, 1 November 1978, p 13 13. Some of these problems are reviewed in my "Transfer Pricing and LDCs: Some Problems of Investigation," World Development, January 1979. 14. It appears, however, that the problem of excessive claims and suppressed adverse reactions publicized by Professor Milton Silver- man has been overcome in Latin America by the companies themselves controlling their marketing practices (Scrip, 8 July 1978). 15. See the British Medical Journal, 21 October 1978, and Scrip, 4 November 1978, p 14 16. Emerging Trends and Future Prospects in the Less-Developed Countries. Medicines for the Year 2000. Edited by G Teeling- Smith. London: Office of Health Economics (forthcoming). 249

D. DEVELOPING COUNTRY PERSPECTIVES - AN OVERVIEW Vittorio Fattorusso Over the past few years, as Director of the WHO Division dealing with pharmaceuticals, I have become deeply involved in the issue of "Pharmaceuticals for Developing Countries" and delivery of health care to large segments of the world's population. I have visited several of these countries in different parts of the world to gather first-hand information on problems of pharmaceutical supply and of drug utiliza- tion in health care and in disease control. What the absence of basic drugs can mean in daily life was eloquently described by Dr. F. Johnson-Romuald in his presidential address at the opening of the discussions at the World Health Assembly last May. "You really only become aware of how essential is water when you are in a desert," he noted, "and you only fully understand the vital importance of drugs for health care when you see the long queues of the sick in front of a little dispensary out in the bush which has nothing on its shelves, not a single tablet of an antimalarial or a flacon of antibiotic. Yet this is the situation in entire regions of the world." The subject under discussion at this Conference is very complex. As I was asked to give an "overall view of problems and constraints," I should like to concentrate on what I consider are some key issues in the less developed among developing countries. Pharmaceuticals cannot be separated from health care systems. In many developing countries, health services are overwhelmingly Western- styled, based on city hospitals which use 80 percent of the national health expenditure, but cater to the needs of a mere 20 percent of the population. However, the whole approach to health care in the world is on the brink of far-reaching changes. The developing countries have come to realize increasingly that the conventional approach inherited from the industrialized countries is hopelesly inappropriate when it comes to meeting, within a reasonable period of time and from available resources, the basic health needs of their vast populations. 250

The problem is not just to extend the existing medical infrastruc- ture, which is generally very limited. It is to begin building at the other end, in villages and city slums. This is the concept of "primary health care", of essential care made universally accessible to individu- als and families in the community by means acceptable to them, through their full participation and at a cost the community and the country can afford. While these new ideas on primary health care, already implemented in a few countries, take root in other countries and help to break the present log-jam in extending medical care from the urban, elitist minorities into the vast rural populations, the whole problem of an ade- quate supply in the public sector of pharmaceuticals indispensable to meet the basic health needs of large populations is assuming a new social dimension. Already, in a consultation on drug policies held in Geneva in 1976, with participation by representatives of the pharmaceutical industry, the question was raised of whether the "free market" system existing in the international trade of pharmaceuticals could meet the health needs of the world's poor without concerted, corrective measures. The follow- ing was stated in the report of the consultation: "In many areas of the world, there are insufficient quantities of essential drugs and severe problems of distribution. To resolve these difficulties, countries must examine their real health needs, determine which of their health problems should be given the highest priority, and then relate their drug supply with these needs and problems." "The consultation, appreciating the urgency of the growing prob- lems of ensuring that resources are adequate to meet the basic needs of the populations of developing countries, considered that the fulfill- ment of their health and drug needs in particular will soon demand a completely new approach. It is worth embarking now on an exploration of special considerations and arrangements for drugs on lines similar to those already followed for food (£•£. , The World Food Program)." The operation of a country's medical and health services requires three main components: - qualified personnel (doctors, pharmacists, auxiliaries); - adequate infrastructure (hospitals, dispensaries, warehouses); - medical supplies including pharmaceuticals of adequate quality and in sufficient quantity suitable to meet the needs of differ- ent levels of the health services. Let me first comment on the third component — the pharmaceuticals — and come later to trained personnel and infrastructure. 251

In the less developed countries, the problem of pharmaceuticals can be summed up in a word: shortage. There are two main causes for this shortage: - an economic cause: the purchasing power of most of the people of developing countries is too limited to allow them to buy modern drugs at the current market price; - a geographic cause: many developing countries are far away from the main centers of pharmaceutical production and, particu- larly for landlocked countries and the small islands, transport is difficult, long, and costly. Within the developing countries themselves, the remoteness of large population groups from the distribution centres in urban areas is the main constraint. The shortage of pharmaceuticals in developing countries is evident, and economists can measure it: pharmaceutical expenditure may be less than one dollar per capita/per year, or three dollars or ten dollars, compared to an average of up to U.S. $70 in certain industrialized nations. I may surprise some of you by stating that, at present, I personal- ly do not think our attention should be focused only on this disparity, real as it is, nor do I think that the average amount spent on drugs necessarily reflects the quality and effectiveness of health care of the whole population of a country. We should be much more concerned about the types of pharmaceuticals available to the population, their quality, their distribution in rural areas, and proper use by health personnel. These qualitative elements cannot be measured by economists; nevertheless, they are crucial issues in the modernization of health care in developing countries. In this connection, the position of WHO on selection of essential or basic drugs is unequivocally clear, as stated in a resolution adopted by the World Health Assembly last May. As this position does not seem to have been properly explained at large, I should like to provide some information. The concept of the selection of essential drugs to meet basic health needs of the population is so closely linked with the con- cept of primary health care, and so important, that you must forgive me for repeating some of these obvious statements. 1. As medical scientists, we can agree that health needs of a particular population can best be determined by epidemiological studies or, in their absence, by whatever health information is available and that, once identified, these needs should be reviewed regularly. 2. Having determined priority needs, we should determine which modern drugs are most suitable to meet these needs within available resources. The less developed countries will be in no position to meet basic needs of the vast majority of their populations without a series 252

of concerted measures, one of which will have to be some kind of selection of the most essential drugs at different levels of their health care systems, with particular emphasis on needs at the primary health care level. 3. Again, as scientists, we would like to see that this process of selection of the drugs most suitable to meet basic health needs under severe economic constraints is, as far as possible, unbiased and based on adequate scientific data obtained in controlled clinical trials and/or epidemiological studies. Furthermore, information on the proper use of the selected drugs should be made available. This is the whole concept behind selection of essential drugs which created heated debates when publicized two years ago. It is now gaining wider acceptance, although some confusion still exists. 4. Another important point — preparation of a list of essential drugs of uniform and general acceptability is not possible because of the great differences among developing countries with regard to the pattern of prevalent diseases, type of health personnel available and genetic, demographic, and environmental factors. There is not, and probably there will never be, a WHO List of Essential Drugs. There are only principles and criteria recommended to developing countries will- ing to follow this approach. 5. It follows that selection of essential drugs to meet basic health needs of a given population can only take place locally, at different levels of the health care network, taking into account finan- cial resources and product availability. The process should directly involve doctors and pharmacists responsible for delivery of health care and drug procurement, with advice from pharmacologists, particularly clinical pharmacologists, and epidemiologists. The process of selec- tion should be dynamic and flexible, to avoid a rigid approach which would be counter-productive and would prevent therapeutic progress. 6. A limited selection of pharmaceuticals cannot provide for the needs of every person, but should certainly meet those of the vast majority. Therefore, exclusion does not mean rejection, or that no other drugs are useful, but simply that in a particular situation and under certain constraints, the selected drugs are the most needed and should be available in the public sector to health services in adequate amounts and in proper dosage forms. Information on proper use of selected drugs must be available. Last month, I attended a meeting in Suva in the Fiji Islands, where representatives of the South Pacific countries (or areas) adopted, in accordance with the above-mentioned principles, a South Pacific List of Essential Drugs for combined bulk purchasing by governments (this does not affect the private sector). The meeting brought together, for 253

the first time, doctors and pharmacists who are involved with procure- ment, distribution, and use of drugs in the region. It also offered an opportunity for exchange of information relating to sources of sup- ply, sales prices, drug utilization, drug toxicity, and related pharma- ceutical matters. The meeting considered each drug and its dosage presentation and, on the basis of therapeutic relevance, pharmacological justification, cost/effectiveness ratio and suitability for collective bulk purchasing by governments, adopted the South Pacific List of Essential Drugs, which will be revised regularly. Among the essential drugs included in the list were those which would provide orders of sufficient size to be economically attractive to suppliers only if orders from individual countries were pooled. The relatively large turnover of other drugs on the list would enhance the collective bargaining position and, therefore, reduce drug costs. Some drugs included in the list may not be suitable for bulk purchasing, but are life-saving or essential for health care and, as such, should be made available. It was understood, however, that drugs which are not on the list might well be used by individual member countries, accord- ing to their special needs. Having adopted the South Pacific List of Essential Drugs, which will be published shortly, the meeting made a proposal to be considered by a Conference of Ministers of Health, to be held later this year, for establishment of a joint South Pacific pharmaceutical service which might include a quality control laboratory. This is just an example of the practical application of the concept of selection of essential drugs. Before leaving the subject of selection of essential drugs, I should like to say that there are great numbers of other pharmaceuti- cals widely used in both developed and developing countries, for which well-documented toxicological, pharmacological, and clinical studies are lacking or are inconclusive. The market for many of these products is considerable as demand by consumers is high. Most are considered to be safe, in that toxic effects have not been recorded in widespread use, but their efficacy in influencing specific health conditions in a pre- dictable fashion is dubious, to say the least, their use being mainly to satisfy hopes and expectations of the patient. In the public sector, expensive, imported pharmaceuticals of this type, irrelevant to basic health needs, may become a wasteful drain on a developing country's scarce resources for health care and could be replaced by cheaper items of local production, particularly herbal remedies. Finally, in developing countries there is also a growing demand 254

for psychotropic drugs liable to abuse. Some pharmaceuticals contain- ing dependence-producing active substances are essential for health care, but there is also a demand for non-medical uses of such drugs, and they may constitute a public health problem in some developing countries. There are many other aspects of pharmaceuticals in developing countries where problems and constraints should be mentioned in an overall view. I shall comment on these very briefly in presenting to you an outline of the new WHO Action Program on Essential Drugs, as approved by the WHO Executive Board on 24 January 1979. This new program has broad objectives and is distinct from the Special Program on Research and Training in Tropical Diseases. The aim of WHO is to stimulate, through the new program, broad international cooperation among governments, both of developed and developing countries, interested United Nations agencies, development aid organizations, and pharmaceutical industries, in order to alleviate the situation in the public sector of those developing countries where large segments of the population do not have access to the most essen- tial drugs, including vaccines, that are indispensable to ensure even a minimum of health care. The resolution of the WHO Executive Board indicates that high priority should be given to the urgent needs of the least developed countries, among them especially the landlocked coun- tries and small islands. For many diseases affecting millions of people, effective drugs and vaccines already exist, but are not available in sufficient quanti- ties, are too expensive, and are not effectively distributed or uti- lized. Without such essential drugs, effective health care cannot be provided, no matter what efforts are made to train health workers and to develop an infrastructure. It is also recognized that such essential drugs for which reliable scientific, clinical, and epidemiological data on efficacy, safety, and quality are available, are mainly produced in the industrialized coun- tries. While it is expected that in the coming decades more developing countries, having reached an advanced stage of industrial development, will produce more of such drugs, most of the less developed countries (LDCs) will continue to depend on imports. Where programs are implemented in these countries to extend health care coverage of the population, pharmaceutical supply is becoming an important constraint because countries cannot afford current prices of essential drugs on the international market. In most cases, these drugs must be paid for in scarce convertible currencies and, in some cases, the import of unnecessary, expensive pharmaceuticals causes a wasteful drain. Lack of information, education, and training in selec- tion, control, storage, distribution, and proper use of drugs is also a major problem in these countries. 255

In coming decades, development of primary health care systems in the developing world will require a concomitant development of pharma- ceutical supply systems adapted to needs of large populations, and new forms of international cooperation. The objectives of the new WHO program can be stated as follows: 1. To strengthen national capabilities of developing countries in selection, procurement, supply, distribution, and proper use of essential drugs to meet health needs of the majority of the population. 2. To strengthen, whenever feasible, quality control and local production of such drugs. 3. To make available to the less developed countries (LDCs) essential drugs, including vaccines, under favorable conditions in order to extend health care coverage and disease control programmes to larger segments of the population. WHO should give careful consideration to the proper balance of actions in developing countries necessary, on the one hand, to achieve urgent improvements in the supply position and, on the other hand, to build up national capabilities. Otherwise, results could be counter- productive. For example, in some countries, provision of finished products could inhibit or delay the step-by-step expansion of local production, starting with the simplest operations and moving to more complex ones. It is envisaged that, at the request of a government, the Action Program could provide immediate help to improve the supply position where lack of essential drugs is the main constraint for development of a national program of primary health care. At the same time, adequate support could be provided for a comprehensive survey of the country situation which, in turn, could lead to further cooperation in strengthening national technical and managerial capabiities, in train- ing personnel, in transfer of information and in building up infra- structures in the following six main areas: 1. Drug selection and requirements. As already mentioned, epidemiological surveys, drug utilization studies and clinical pharma- cological expertise are required for selection of essential drugs and to determine the quantities required at different levels of health ser- vices, particularly at the primary health care level, taking into account local conditions and plans for extension of health care cover- age of the population. 2. Quality assurance. Proper training of personnel for drug procurement and building up of regional quality control laboratories, linked with laboratories in the more advanced countries, are required 256

for developing countries that cannot afford an efficient national control laboratory. There is a need for transfer of information on national drug legislation, on implementation of good manufacturing practices in producing countries, on trends in international prices for essential drugs, and on possible sources of supply. Ensuring the quality of drugs and vaccines was one of the points most frequently raised at the World Health Assembly as a main concern of national health authorities of developing countries. It is evident that a country gains nothing, or may even lose, if it buys cheap drugs or starts to produce them locally and then discovers that these drugs are either unsafe or ineffective because of poor quality. The WHO Certification Scheme on Quality Control of Pharmaceutical Products mov- ing in International Commerce may provide a partial quality assurance of essential drugs. However, when bioavailability of a drug is of cru- cial importance, a reliable product may be the easiest answer and such information may be obtained by the drug regulatory agencies of some pro- ducing countries. 3. Distribution and logistics. This is a very important component, as already mentioned. I have no time to dwell on it and can only say that building up of an efficient drug distribution system, parallel to the health care network, is vital to ensure that the "right" drugs are properly stored and are constantly accessible to those who need them, particularly in rural areas. 4. Local production. Having ensured adequate control facilities, there is a need for improvement of existing formulation units or for establishment of new units for processing of imported intermediates or raw materials, or for production of parenteral solutions or vaccines. Feasibility studies should determine the capital investment required and annual operating costs in order to compare cost of local production to cost of equivalent imported products. 5. Natural resources. Use of herbal remedies may, as already mentioned, replace many expensive imported products. Trained personnel and adequate equipment are required for collection and processing of medicinal plants. 6. Research and development. Almost everything has been said on research and development of better tools for control of tropical dis- eases, but this discussion should not obscure other areas, such as clinical and epidemiological studies on safety and efficacy of existing drugs used under local conditions, development of appropriate technolo- gies for drug formulation and packaging, including stability of the products under tropical conditions, and development of more heat-resis- tant vaccines, etc. While research and development of new and better drugs is crucial to progress in health care — and the outstanding contribution of the 257

pharmaceutical industry in this respect is fully recognized — I should like to return to the fundamental question: Is it real progress if most people in the world continue to be excluded from the benefits of modern drugs? The industry tells us that many effective drugs developed in recent years for control of diseases prevalent in developing countries are not in widespread and effective use. Perhaps the new Action Pro- gram on Essential Drugs, outlined above, coupled with development of primary health care efforts in developing countries, could increase effective use of modern drugs, open new markets in the public sector for such drugs and, by the same token, provide incentives for research and development efforts of the industry more relevant to particular needs of developing countries. This new program of WHO is in its initial stages, and its success will largely depend on the political will of the governments of develop- ing countries to tackle the problems in their own countries, and on the readiness of more affluent countries to work together in true partner- ship with the less affluent to define and implement a plan of action as part of social and economic development. It will also depend on new visions and new initiatives of the major drug industries. In this respect, I should like to say that the first reactions coming from Euro- pean companies are very encouraging. Some of these companies have pledged their participation in the program through the provision, to governments of less developed countries, of selected products suitable for use in extending and in improving the health care coverage of the population. These companies, which are among the major drug manufacturers, have stated that selected products would be made available under spe- cially favorable conditions in economic packages, taking into account the requirements of primary health care and tropical climatic condi- tions, with uniform labelling, including generic names and possibly an emblem indicating the special character of the Action Program, since these products should not move into the private commerical sector or be re-exported. Conditions would be even more favorable if require- ments could be planned ahead for periods of 3 to 5 years. The products fall into the following categories: amebicides, analgesics, antipyre- tics, antibiotics, anti-infectives, antimalarials, antischistosomals, antitrypanosomals, antituberculosis drugs, cardiovascular drugs, and vaccines, etc. I should like to add that some pharmaceutical companies have also expressed interest in providing services to the least developed coun- tries, including training of technical personnel and building the infra- structure required for provision of essential drugs on the basis of an assessment of the basic health needs of the population. We hope that major American companies, to whom we have not yet had an opportunity 258

to explain the new program, might consider participation. Obviously, these are matters to be decided by individual manufacturers, in agreement with the governments concerned, because the challenge is not intended to fall solely on the shoulders of the pharma- ceutical industry. But it is a challenge to see if industry and govern- ments can work together on urgent problems whose solutions require pool- ing of talents and resources — public and private. Perhaps the new WHO Action Program on Essential Drugs can stimulate this approach. Let me close by making a pledge to those of you working in the pharmaceutical industry who, I realize, deal with reality instead of hopes and theories. We shall do our best to stimulate mutual under- standing and cooperation between governments and private industries in order that the fruits of your technology — modern drugs, vaccines, diagnostic products and all the rest — which are indispensable for modernization of health care and effective disease control in developing countries, get into the hands of more health workers for the benefit of a larger proportion of the world's population who, at present, are denied access to them. In this effort, your understanding and cooperation will be of immeasurable help in striking a fair balance between economic constraints of the industry and acute needs of developing countries, between investment by industry in drug research and reasonable oppor- tunities for a fair return. This requires search for pragmatic solu- tions, rather than prolonging dissent, and a more sober dialogue in a climate of mutual confidence. 259

INNOVATION AND AVAILABILITY IN THE UNITED STATES OF DRUGS FOR TROPICAL DISEASES Jean DiRaddo and William M. Wardell This report presents analyses of objective data describing the environment for, and the rate of, development of new drugs for treat- ment of parasitic and other tropical diseases by the United States- owned pharmaceutical industry. Data on drugs already approved for use in the United States, or available from the Center for Disease Control (CDC), are also presented. Although the relevant data base is small, this examination of the past and present situation has clear implica- tions for the future of American research and development (R&D) in this field. Current Concerns in Drug Development for Parasitic and Tropical Diseases Drugs currently available for treatment of parasitic diseases have limitations due to problems of toxicity, development of resistance to the drugs, and the fact that they are generally expensive.^,^/ In addi- tion to better distribution of existing therapies, less developed coun- tries (LDCs) need new drugs that are safer, more effective, and more easily administered for treatment of these diseases. Development and availability of such compounds represent problems of high priority for LCDs. It has been stated that industrial research directed toward development of such drugs has decreased over the past decade.^/ The large scale of the scientific, technological, and financial resources necessary for developing new drugs means that, with the exception of Phase II and III clinical trials, the discovery and development process is limited to a very small number of developed countries — essentially the United States, Western Europe, and Japan. Not only are local health needs and priorities in developed countries very different from those in LDCs, but also pharmaceutical firms in developed countries are subject to increasingly stringent systems of drug regulation to ensure that drugs approved for marketing are safe and effective and, in some cases, safer or more effective than other available therapies. A significant investment of resources is 260

required to meet these regulatory criteria. For example, the average cost to a United States-owned firm for developing a new chemical entity (NCE) to the point of marketing approval in the United States is approximately $54 million (in 1976 dollars).4/ Furthermore, the aver- age length of time from initiation fo clinical testing in the United States to marketing approval for all NCEs approved in 1976 was more than six years ,Jj/ and preliminary data from a more recent study suggest that for those NCEs discovered wholly within the United States industry this span of time was approaching nine years in 1976. Despite these apparent disincentives, certain pharmaceutical firms continue to be actively involved in research on drugs for parasitic dis- eases. The World Health Organization (WHO) initiated a Special Program for Research and Training in Tropical and Parasitic Diseases in 1976. One objective of the Program is development of new agents for control of six diseases: malaria, schistosomiasis, trypanosomiasis, filariasis, leprosy, and leishmaniasis. Several companies are cooperating with WHO in this The New Drug Approval Process in the United States The upper portion of Figure 1 depicts the various stages through which a new drug must pass before it can be marketed in the United States. After the preclinical testing phase and initial toxicological studies, a manufacturer must file with the FDA for an investigational new drug exemption (IND) prior to initiating human testing. Clinical investigations are divided into three phases. During Phase I, a drug is given to a small number of healthy human volunteers with the princi- pal objectives of looking for evidence of toxicity and determining basic properties of the drug in man. In Phase II studies, the drug's effects on a small population of patients with the appropriate disease are examined to determine its therapeutic value and to detect any adverse effects or possible toxicity. Phase III consists of larger- scale testing to uncover less common side effects and to approximate more closely the type of drug utilization (£•£. , in patients of varying disease severity) that would occur in medical practice if the drug were marketed. When a manufacturer believes he has adequate evidence to demon- strate safety and effectiveness of the compound (after clinical trials that last from four to six years), a new drug application (NDA) is sub- mitted to the FDA. When and if the NDA is approved (an assessment pro- cess that usually takes two to three years) the drug can be marketed in this country. Certain drugs without NDAs, including several drugs for parasitic diseases, are made available under the IND procedure in the United States from the CDC. These may be termed "therapeutic INDs" because licensure and commercial production and distribution in the United 261

FIGURE 1. DRUG DEVELOPMENT (U.S.A.) a/ IND0962) NDA:B38 PRECLINICAL! CLINICAL >; i IND FILING NOA SUBMISSION NOA APPROVAL IND PHASE NDA PHASE MARKETING PHASES: PRECLINICAL (ANIMAL) PHARMACOLOGY CHEMICAL LAB. phose 1 phose2 pta»3 phase 3 (cent.) Pho5e4 1 TOXICOLOGY I- 3yrs(?) TIME REQUIRED (minimum) ATTRITION K),000(?) I,OOCX?) K) COST (81976) — 4-6 yrt 2-3yrs 830 million I $24 million AVERAGE EFFECTIVE PATENT LIFE (from NDA approval date) 1966 1977 13 8 yrs 9 yrs a/The following aspects of the United States regulatory process are particularly relevant to development of drugs for parasitic and other tropical diseases. 1. Since export of non-IND drugs from the United States is prohibited, a United States IND is required before a drug can be tested in man in the United States or abroad. 2. A drug cannot be exported for marketing without an approved United States NDA. 3. In part because of the high attrition rates shown in Figure l, the cost of filing sufficient compounds at the IND level in the United States to obtain one successful NDA is $30 million; to obtain one approved NDA requires a total of six to nine years from the time of IND filing and a further $24 million (in 1976 dollars).kj A. The "effective patent life" (the time from NDA approval to expiration of the patent) has fallen from a mean of 13.8 years for those drugs with NDAs approved in 1966 to nine years in 1977 JJ/ — the difference being largely accounted for by the increase in development time between those years. 262

States are not generally being sought by the manufacturer due to limited demand for these drugs.9/ Export Restrictions: Relationship to IND and NDA If a drug synthesized in the United States can only be tested clinically for a tropical disease in the country in which that disease occurs, then the drug needs to be exported from the United States in order to be properly evaluated. Therefore, the effects of regulatory restrictions on export of drugs from the United States, whether for clinical investigation or for sale, are important in the case of drugs for conditions such as parasitic diseases that do not usually occur in the United States. Present regulations stipulate that no drug may be sent abroad for clinical investigations unless it has at least a United States IND, and no drug can be exported for marketing unless it has an approved United States NDA. Legislative revisions of this policy that would allow for export under certain conditions of compounds not approved for use in the United States are currently being considered and will be commented on in the Discussion. METHODS Measures of Innovation in Pharmaceuticals There are several possible ways of measuring pharmaceutical innovation, but all present technical problems._10,_11/ Among possible criteria that may be used to measure innovative output are the number of new molecular structures (new chemical entities, or NCEs) synthe- sized, novelty of their molecular structure, novelty of their pharmaco- logic action, number of patents issued, number of NCEs tested in man, number of NCEs marketed, and qualitative measures of the value of mar- keted NCEs. The measure we have recently developed in some detail is the number of NCEs taken into human testing, and their subsequent pro- gression through clinical and regulatory stages of drug development. This is a useful measure, since the point of entry into human testing represents a firm's decision that a compound is worth further testing and investment. It also represents the first appearance of innovative output outside a firm and, in the United States, it marks the entry of the compound into the regulatory pathway. Investigational NCEs Data on investigational NCEs presented in this paper are a subset taken from a comprehensive study of development of NCEs in all therapeu- tic categories in the United States. This study is based on responses 263

to two surveys: the overall results of our 1975 survey have been reported 12/ and we do not yet have a complete response to our expanded 1977 survey. The present study is an analysis of our current data from United States-owned firms on NCEs for treatment of parasitic and tropical dis- eases, those that were classified by responding firms in that survey as antiamebic, antimalarial, antischistosomal, antitrypanosomal, anti- protozoal (otherwise unclassified), and anthelmintic agents. Antilepro- tic drugs would also have been included, but no NCEs were listed as being developed for leprosy. Because only the initial therapeutic cate- gory is given for each NCE, drugs useful for a parasitic disease but that were first tested for another indication (e^£. , rifampin, which was tested first for tuberculosis and subsequently for leprosy) cannot be included in our analysis. The information provided on the 1975 and 1977 investigational NCE surveys, and analyzed in this study, includes for each compound the date and country of first administration to man; dates of IND filing, IND closure, NDA submission, and NDA approval; reason(s) for termina- tion of IND research; and the country in which it was first synthesized. Response to the 1977 survey is nearly complete and all available infor- mation on drugs in the parasitic disease categories is reported here. Since data requested in the surveys are not publicly available and were provided under a confidentiality agreement with responding firms, results of the surveys are expressed in aggregate form without identify- ing any individual company or compound. Although the contribution of foreign-owned pharmaceutical firms to new drug development in this field is known to be substantial, complete data on the experience of these firms were not obtained in our investi- gational NCE survey; the investigational NCEs described in this paper represent only those developed by United States-owned pharmaceutical companies. Marketed NCEs Publicly available data on NCEs marketed in the United States have been obtained from the FDA,_13/ pharmaceutical companies, and market research organizations.14/ Information on those "therapeutic INDs" available thorough the CDC was also obtained. A survey currently in progress will provide detailed information on development of those drugs that have successfully passed through the United States regula- tory pathway. 264

RESULTS Part I: Investigational NCEs for Parasitic Diseases* Of approximately 900 NCEs studied in man by United States-owned pharmaceutical firms from 1963 through 1976, 20 were candidates pri- marily for tropical or parasitic diseases. These 20 NCEs came from 11 of the 41 United States-owned pharmaceutical firms and affiliates from which data are currently available. These NCEs were classified accord- ing to a single therapeutic category provided by the firms: one anti- amebic, one antimalarial, five antischistosomal, one antitrypanosomal, three antiprotozoal (otherwise unclassified), and ten anthelmintic agents. (It cannot be determined from the data available but it is pos- sible that some of these compounds may fall within more than one thera- peutic category.) Because of the small number of compounds in each specific category, all categories ar combined in this initial report. Countries in which NCEs were First Synthesized Table 1 lists the countries where the investigational NCEs for parasitic diseases were first synthesized. Where the information is known, one-third of the United States-owned firms' drugs in this area were synthesized abroad, including those originated in foreign labora- tories of United States firms. Location and Time Trends of First Human Administration Nine of the 20 NCEs were first administered to man in the United States. Of the 11 given to man abroad, six were first tested in Western Europe. Table 2 shows the location of first human administration (United States versus foreign) as a function of time. From the mid-1960s to the early 1970s, more NCEs were first tested in man in the United States than abroad. However, no NCE for parasitic disease therapy has been first introduced into clinical study in the United States since 1972, although four have been studied abroad. Considering NCEs in all therapeutic categories combined, we previously observed a trend toward * Very few United States-owned companies have not yet provided data and we believe those firms are not likely to have taken many tropical disease NCEs into human testing. The distinction between this study and Sarett's observations of the number of firms engaged in research in this area (also reported in this volume) is that we have included only information from United States-owned firms and have considered only those NCEs that have reached the stage of clinical investigation. 265

TABLE 1. COUNTRIES IN WHICH INVESTIGATIONS NCEs FOR PARASITIC DISEASES WERE FIRST SYNTHESIZED Total 20 NCEs United States 9 United Kingdom 2 Belgium 1 Italy 1 South Africa 1 Not Supplied 6 an increasing proportion of NCEs being first given to man abroad over time.12_/ The pattern observed for parasitic disease NCEs represents an extreme case consistent with that trend. IND Filings INDs have been filed on 16 (80 percent) of the 20 NCEs. These represent those NCEs that have been cleared for United States study and that may therefore be transferred abroad for clinical study. The remaining four NCEs, tested in man abroad between 1968 and 1975, do not have INDs, and so presumably originated in foreign subsidiaries or affiliates of United States firms and have not been developed within the United States regulatory system. Of the 16 INDs, 10 have been formally closed and one has been abandoned (clinical research under the IND has been terminated). Two reached the point of NDA submission and were approved, leaving only three unmarketed compounds on which research was still proceeding under the United States IND at the end of 1976. The IND filings are shown in Figure 2 as a function of time. The rate of IND filings by United States firms and their affiliates was fairly constant (i^e.., a total of one or two per year) except for the periods 1965-1966 and 1973-1975, when there were no IND filings. The life in months of each of the 10 closed INDs and of the one abandoned IND is also shown in Figure 2. If one can generalize from 266

FIGURE 2. IND STATUS AND DURATIONS OF CLOSED AND ABANDONED INDs BY YEAR OF IND FILING IND Status • = Closed D =0pen Q = Open but Research Terminated (Abandoned) 1963 1965 1967 1969 1971 1973 1975 -an' D* D - D Months from IND Filing to IND Closure (or Termination of IND Research) 20,27 46,73 (0) 18,30 33 9 13, 14 •These compounds had received NDA approval by the end of 1976. 267

TABLE 2. LOCATION AND TIME OF INTRODUCTION OF NCEs INTO HUMAN TESTING BY THE UNITED STATES-OWNED PHARMACEUTICAL INDUSTRY United States Abroad Total 9 NCEs 11 NCEs Date Unknown 0 2 1963-64 1 2 1965-67 2 1 1968-70 3 1 197l-73 3 1 1974-76 0 4 the admittedly small number of cases, decisions to terminate research on compounds are being made considerably sooner after IND filing in the 1970s than was true in the 1960s. Reasons given for terminating research fell into two major cate- gories (Table 3). Six of the reasons given pertained to commercial or apparently related problems, while three pertained to safety or effi- cacy problems. NDA Submissions NDAs were submitted for only two of these antiparasitic drugs; both NDAs were approved. This observation is consistent with our pre- vious finding, based on NCEs in all therapeutic categories, that only 10 percent of INDs filed reached the stage of NDA submission. Once a company has decided that a drug is worth submitting for an NDA, that drug has high likelihood (88 percent) of eventually obtaining NDA approval.12/ For each of these drugs the IND phase was shorter than the NDA phase, in contrast to the pattern seen for NCEs in all therapeutic areas, for which the average IND phase was longer than the average NDA phase. 12/ 268

TABLE 3. REASONS GIVEN FOR TERMINATION OF IND RESEARCH a/ Total 6 NCEs Commercial or Related Problems: Commercial Market Too Limited 2 "Not Commercially Feasible" 1 "Studies Outside United States Since 2 Drug for Tropical Disease Treatment" "Analog" 1 Total 3 NCEs Safety or Efficacy Problems: Lack of Efficacy 1.5 Human Toxicity 1 Human Pharmacokinetics 0.5 a/ Two reasons were given for one NCE so each is counted as 0.5. Some possible responses were listed in the survey and respon- dents were asked to specify any reasons other than those listed; these additions are noted by quotation marks. Reasons were not provided for two NCEs. Part II: Marketed NCEs for Parasitic Diseases This part deals with NCEs that have received NDA approval and are marketed in the United States by United States-owned or foreign firms. Within our data base of all NCEs that have received NDA approval in the United States from 1940 through 1978, 35 of the approximately 850 drugs are in the parasitic and tropical disease categories.* *Drugs with more than one parasitic disease indication are listed, for this analysis, in the category of their earliest approval. Since the original approved indications for the older (pre-1963) drugs are not uniformly available, it was necessary for us to classify the drugs into disease categories. 269

(Drugs used topically are excluded from this list but are given in Reference 15.) The breakdown by disease category is as follows: ten antiamebic, three antileprotic, nine antimalarial, one antischistosomal, one antitrypanosomal, eight anthelmintic, and three otherwise unclassi- fied antiparasitic drugs. The specific drugs are listed by category in Table 4, together with the year of NDA approval and duration of the NDA phase ^i-£., interval from NDA submission to NDA approval) for each NCE. (There was no IND filing, and hence no IND phase, prior to 1963.) Comparing the NDA phase for parasitic disease drugs with those for drugs approved over all therapeutic categories,^/ the NDA phases for antiparasitic drugs approved in the 1960s were generally longer than average whereas those approved in the 1970s were similar to the average values. It will be noted that out of the 35 drugs, only three have been developed since the present IND/NDA system was instituted in the United States in mid-1963; the others had been in clinical investigation prior to that time. The IND phase for pyrantel pamoate (IND filed in 1967*) was 27 months, compared to an average of about 34 months for all NCE NDAs approved in 1971; the IND phase for trimethoprim-sulfamethoxazole (for the earliest IND filing) was 35 months, compared to an average of about 42 months for all 1973 approvals; and the IND for mebendazole (filed in 1972) was 11 months, versus an average of about 40 months for all 1974 aprovals. Part III: Antiparasitic NCEs Available from the CDC Because of the special position of the CDC with respect to drugs for tropical and parasitic diseases, the distinction between investiga- tional and marketed drugs, and hence the significance of IND filing and NDA approval, is not as meaningful as for NCEs developed by industry. Information from CDC on their INDs in this area indicated that none were first testd in man in the United States. Sources of the INDs were United States-owned firms or their affiliates for 30 percent of the NCEs and, considering only those on which this information was avail- able, 14 percent were synthesized in the United States. *The data of IND filing for these approved NDAs were obtained through correspondence with the FDA. 270

TABLE 4. ANTIPARASITIC NCEs APPROVED FOR U.S. MARKETING SINCE 1940 Category and NCE a/ Year of NDA Approval Duration in Months of NDA Phase b/ Antiamebic Carbarsone 1944 Not Available (Carbarsone) Glycobiarsol 1949 0 (Milibis) Arsthinole 1949 5 (STB) Thiocarbarsone 1950 1 (Enseals Thiocarbarsone) Diiodohydroxyquin 1952 9 (Bacta) Fumagillin 1953 1 (Fumidil) Bialamicol 1954 1 (Camof orm) Chlorbetamide 1955 2 (Mantomide) Glaucarubin 1957 25 (Glaucarubin) Paromomycin Sulfate 1960 10 (Humatin) Antileprotic Glucosulfone 1944 1 (Promin) Sulfoxone 1946 2 (Diasone Sodium Enterab) Daps one 1955 1 (Avlosulfon) [Rifampin (Rifadin, Rimactane)] c/ Antimalarial Quinacrine (Atabrine) Not Available Chloroquine 1946 1 (Aralen) Chloroguanide 1947 5 ( Chloroguanide ) Pentaquine 1948 7 (Pentaquine) Amodiaquin 1948 1 (Camoquin) Primaquine 1951 0 (Primaquine) Pyrimethamine 1953 6 (Daraprim) Hydroxy chloroquine 1955 3 (Plaquenil Sulfate) Table 4 - Cont'd 271

Table 4. (Cont'd) Category and NCE a/ Year of NDA Approval Duration in Months of NDA Phase b/ Amopyroquin 1966 (Propoquin) Antischistosomal Lucanthone 1960 (Lucanthone) Antitrypanosomal Stilbamidine Isethionate 1953 (Stilbamidine Isethionate) Anthelmintic Diethylcarbamazine 1948 (Hetrazan) Piperazine Citrate 1953 (Antepar) d/ Pyrvinium 1955 Dithiazanine Iodide 1958 (Delvex) Bephenium Hydroxynaphthoate 1967 (Alcopara) Thiabendazole 1967 (Mintezol) Pyrantel Pamoate 1971 (Antiminth) Mebendazole 1974 (Vermox) Other Amphotericin B 1957 (Fungizone) Metronidazole 1963 e/ (Flagyl) Trimethoprim-Sulfamethoxazole 1973 _f/ (Bactrim, Septra) 50 1 13 10 2 87 30 28 14 5 34 11 a Each NCE is listed, by generic (and trade) names, with the category and date of its earliest NDA approval where this information is avail- able. Otherwise, we have assigned the NCEs to these categories. _b/This is the difference between the dates of NDA submission and approval. c/Rifampin is available in the United States but has not been approved for leprosy. dyPiperazine itself was available previously (approved in 1940 as Uroli- zine) but its early indication appears to have been for the treatment of gout. e/lletronidazole was approved in 1963 for trichomoniasis and was subse- quently (197l) approved for amebiasis. J/This approval date is for its use as an antibacterial. 272

Table 5 lists antiparasitic drugs available for therapeutic use in the United States under INDs from the CDC.8/ Seven of the drugs listed have trade names and presumably are marketed abroad by foreign- owned companies. TABLE 5. ANTIPARASITIC DRUGS AVAILABLE FOR INVESTIGATION FROM THE CDC a/ Drug Disease Bayer 2502 Bithionol Dehydroemetine Melarsoprol (Mel B, Arsobal) Niclosamide (Yomesan) Niridazole (Ambilhar) Pentamidine Isethionate (Lomidine) Sodium Antimony Dimercaptosuccinate (Astiban) Sodium Antimony Gluconate (Pentostam) Suramin Diloxanide Furcate (Furamide) Chagas' Disease Paragonimiasis Amebiasis Sleeping Sickness Tapeworm Infections Schistosomiasis Pneumocystis Pneumonia, Gambian Sleeping Sickness Schistosomiasis Leishmaniasis Rhodesian Sleeping Sickness, Onchocerciasis Amebiasis a/This information is primarily from: Johnson RH, Ellis RJ, Immunobiologic agents and drugs available from the Center for Disease Control. Annals of Internal Medicine 81:6l-67, 1974 273

DISCUSSION The data presented show that for parasitic and other tropical diseases, few NCEs from United States-owned firms and their affiliates are being studied in the United States and fewer still have made it to the United States market. Since there are only three open INDs that have been filed since 1967 (excluding the two INDs on drugs with NDA approvals), and the IND plus NDA phases require an average of more than six years before a new drug can be approved for United States marketing, these represent the probable limit of what can be approved in this coun- try over the next several years. Because there are so few INDs, and because a drug needs an IND or an NDA in order to be transferred abroad for clinical study or marketing, the results indicate that few NCEs of United States origin are being studied worldwide. Current United States export requirements have received consider- able attention in hearings concerning FDA's decision not to approve Depo-Provera (g)(medroxyprogesterone acetate) for use as a longacting injectable contraceptive in the United States.JU>/ Revision of current policy has been proposed to permit export of an unapproved drug when the government that is importing the drug indicates its awareness of the drug's status, and when the drug is not thought to represent a danger to the public health (i_.^. , provisions of the Drug Regulation Reform Bill of 1978). It must be recognized, however, that even if United States export requirements are revised, many countries have a "country of origin" rule whereby a drug can only be imported if it is approved in the country where it is put into the final dosage form. Export considerations may thus influence extent and location of R&D activities on drugs for parasitic diseases. J. Richard Crout, Director of FDA's Bureau of Drugs, has said that FDA policies on regulations pertaining to acceptance of foreign data are not responsible for lack of any recent NDA approvals in this field since drugs for tropical diseases that do not occur in the United States could be approved on the basis of foreign data._17/ In addition to the current export policies referred to above, however, othe United States regulatory procedures may influence the level of R&D activity in antiparasitic drugs and drugs for other therapeutic areas. In addition to the time and cost requirements involved in developing an NCE to the point of approval for marketing in this country that were cited pre- viously, the average effective patent life (time remaining on a drug's patent when the NDA is approved) has declined from 13.8 years for NDAs approved in 1966 to nine years for those approved in 1977 (Figure 1).J5/ The Bioresearch Monitoring Program regulations that are being proposed and implemented by the FDA may in the future also serve as additional disincentives for research. Components of this program include regula- tions pertaining to good Laboratory Practices;_18/ proposed regulations regarding sponsor/monitor obligations;^/ clinical investigator obliga- tions ;H)/ the role of institutional review boards;^! and proposed regu- lations on informed consent procedures. 274

Another possible change in United States regulatory policy, disclosure of data submitted to the FDA, may influence submission of NCEs for NDA approval. For example, it has been alleged that some com- panies developing antiepileptic drugs abroad do not intend to submit these drugs for approval in the United States regulatory system because of the possibility of release of data under future revisions of regula- tory policies. Provisions requiring release of data were discussed in hearings on the Drug Regulation Reform Bill of 1978. The activities and policies of several major United States and foreign pharmaceutical firms in regard to research on drugs for para- sitic and other tropical diseases have recently been described by Behrman.j)/ One of the points made by the firms, and by Crout, is that lack of market potential in many Third World countries is one of the major reasons for the low levels of activity in this area._17/ This is in general supported by our data (Table 3). In this regard it has been suggested that further efforts are needed to ensure effective distribu- tion and use of existing therapies. An expansion of the present study would be needed to provide a more complete picture of the state of new drug development for anti- parasitic therapy. One source from which new therapies may reach the market is new antiparasitic indications discovered for existing drugs. One drug that followed this pathway is rifampin, which was approved for tuberculosis and subsequently found effective for leprosy (although not approved for this use in the United States). Another example is approv- al of metronidazole for amebiasis eight years after its approval for trichomoniasis. Information on supplemental NBAs was only obtained from our surveys for NCEs marketed since 1963, so complete data are not available on investigational use of existing drugs for new indications. An additional pathway that may provide new drugs for human use is drugs first approved for veterinary use. The analyses described here do not include data from any non- industry sources other than CDC; data from the United States Army's antii i.ii.ir ;a program, for example, would be useful. An international expansion of this study to include comparable worldwide activities of foreign-owned pharmaceutical firms is being contemplated when the data are available. The status of new drug development for these diseases is important because of the long interval between discovery and avail- ability of any new compound, and the current picture indicates that few new therapies will become available in the next five to ten years. The potential contribution of new drug development in this field must be considered in regard to the unmet needs for improved systems of health care delivery in the LDCs. 275

CONCLUSIONS 1. The nuuibei of NCEs brought to the point of human testing for tropical and parasitic diseases by United States industry over the past 14 years is small. By the end of 1976, 20 of the approximately 900 NCEs tested in man were for these diseases; 16 had been filed as INDs in the United States, while four had been developed outside the United States system. Of the 16 INDs, two had reached the stage of approved NDAs, and three others were still being investigated clinically as drug candidates. 2. The requirement for obtaining a United States IND prior to export is a deterrent that prevents more United States-discovered drugs from being studied abroad clinically at an earlier stage of their devel- opment. The FDA should be supported in its efforts to lessen export restrictions for investigational drugs; a recommendation from Third World recipients of such drugs would be a useful contribution to these efforts. 3. The requirement for an approved NDA before a drug can be exported commercially from the United States would be expected to encourage United States-owned firms to bypass the United States regula- tory system completely by conducting all tropical disease drug develop- ment work abroad. This would tend to restrict research in tropical and parasitic diseases to those few companies large enough to have a for- eign subsidiary or affiliate that is completely equipped to handle all stages of drug development. 4. A further deterrent to drug development in this area is the cost of developing enough drugs to the IND stage to find one that will reach the point of NDA approval (this cost averages 430 million for drugs in all therapeutic areas).kj This factor must be taken into account when society considers creating incentives for the private sec- tor to continue research in drug development for tropical diseases. 5. Among steps that would facilitate the process of drug development for these diseases are: a. less restrictive standards for introduction of these drug candidates into human testing. Perhaps these standards should be determined by developing countries themselves since they are directly concerned with these diseases and drugs, instead of by developed countries; and b. expedited international transfer of molecules discovered in developed countries to LDCs for clinical testing. 276

ACKNOWLEDGEMENTS This study was supported by a grant from the Edna McConnell Clark Foundation. Some of the data were initially collected in the course of research supported by the National Science Foundaton under Grant No. 75 19066. The findings and conclusions expressed are those of the authors and do not necessarily reflect those of either foundation. The authors wish to thank the Center for Disease Control and the pharmaceutical firms that provided data for our study. 277

REFERENCES 1. Van den Bossche H: Chemotherapy of parasitic infections. Nature 273:626-630, 1978. 2. Marsden PD: Current concepts in parasitology: Leishmaniasis. NEJM 300:350-352, 1979 3. Ehrlich P: World Health Organization says industry has critical role in tropical diseases. SCRIP, 19 February 1977, p 12 4. Hansen R: The pharmaceutical development process: Estimates of current development costs and times and the effects of regulatory changes. Center for Research in Government Policy and Business, University of Rochester, GPB 77-10, August 1977 5. Hansen RW, Wardell WM: Regulation and competition in the pharma- ceutical industry. Report prepared for the Bureau of Competition, Federal Trade Commission, October 1977 6. Behrman JR: Pharmaceutical programs in tropical diseases. Forthcoming from the Fund for Multinational Management Education, New York (1979, in press) 7. WHO to spend $25.5 million in 1979 in tropical R&D and training. SCRIP, 16 December 1978, p 12 8. Data from the Center for the Study of Drug Development, University of Rochester, Rochester, New York. 9. Johnson RH, Ellis RJ: Immunobiologic agents and drugs available from the Center for Disease Control. Ann Int Med 81(l):6l-67, 1974 10. DiRaddo J, Wardell WM: Methodology for measuring the effects of regulation on pharmaceutical innovation: Regulatory disposition and national origin of new chemical entities in the United States. American Chemical Society Symposium Series: The Effects of Govern- ment Regulation on Technological Innovation (1979, in press) 11. Lasagna L, Wardell WM, Hansen RW, DiRaddo J: Pharmaceutical innovation: Approaches to evaluating the impact of regulation. Clinical Engineering (1979, in press) 278

12. Wardell WM, Hassar M, Anavekar SN, Lasagna L: The rate of development of new drugs in the United States, 1963 through 1975. Clinical Pharmacology and Therapeutics 24:133-145, August 1978 13. FDA Product Coordination Staff: Listing of all approved NDAs. FY76-16, 35l, 13 October 1976 14. DeHaen P: Compilation of new drugs, 1940 through 1975. Pharmacy Times, 1976, pp 40-74 15. Drugs for parasitic infections. Medical Letter 20:17-24, 1978 16. U.S. House of Representatives, Select Committee on Population, Hearings on Depo-Provera, 8-10 August 1978 17. Crout JR: Guidelines of the Food and Drug Administration for study of new drugs in human subjects. Ann Int Med 89:832-834, 1978 18. Nonclinical laboratory studies: Good Laboratory Practice Regula- tions. Fed Reg 43:59986-60025, 22 December 1978 19. Obligations of sponsors and monitors of clinical investigations. Fed Reg 42:49612-49630, 27 September 1977 20. Obligations of clinical investigators of regulated articles. Fed Reg 43:35210-35236, 8 August 1978 21. Standards for institutional review boards for clinical investigations. Fed Reg 43:35186-35208, 8 August 1978 279

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