1.

Specify the types of country risks that pharmaceutical firms face in

international business. How do the political and legal systems of countries
affect the global pharmaceutical industry?

Country Risks - every country is characterized by diverse political and legal

systems that pose significant challenges for company strategy and performance, as
managers must adhere to business laws and regulations
Like most other industries the pharmaceutical industry runs into similar problems,
which involve: Government Invention/Barriers to Trade and Investment

Harmful or unstable political systems

Corruption and other Ethical Blunders
Laws and Regulations Unfavorable to Foreign Firms
Bureaucracy and red tape
Mismanagement or failure of the national economy
Inadequate or undeveloped legal system

Examples of Country-Risk Dimensions affecting the pharmaceutical

industry are:
Government Intervention/ Barriers to Trade and Investment
In advanced markets like the US and European Union, companies must contend with
customs barriers to enable their supply chains to function smoothly. Meanwhile,
many emerging markets, eager to improve their citizens access to affordable, high-
quality healthcare, try to encourage pharmaceutical companies to invest locally.
This undermines efficiency and drives up operating costs with price caps and other
regulations that end up limiting the availability of new treatments. These new
treatments can cost firms upwards of $1 billion to produce one new drug for a
disease and may take anywhere from four to seven years.
In Indonesia, only pharmaceutical companies that set up their own factories or sign
a transfer license with a local manufacturer will be eligible to sell their own drugs in
the fast-growing market following a two-year transition period.
Vietnam sets import quotas for active pharmaceutical ingredients and inner
packaging materials, restricting imports to pharmaceutical companies that invest in
local manufacturing or storage facilities.

Corruption and other Ethical Blunders

In Africa, drug companies have been accused of testing dangerous drugs in children
or conducting drug tests without obtaining informed consent. More specifically in
Nigeria, a panel of medical experts accused Pfizer, Inc. of having violated
international law during a 1996 meningitis epidemic by testing an unapproved drug
for use in children. According to Nigerian officials, Pfizers illegal actions killed 11
children and left dozens disabled.
Pfizer agreed to pay $75 million in a settlement to have the charges dropped.
According to many sources, however, Pfizer allegedly conspired to have Nigerias
attorney general drop the charges instead of having to pay up.
Political and Legal Systems affecting the Pharmaceutical Industry
Pharmaceutical firms spend vast amounts on research and development (R&D) in
creating and marketing drugs, and must charge high prices to recover the cost of
capital and generate profits and in 1995 the Pharmaceutical Tariff Elimination
Agreement was made between 22 countries, more developed countries, in such a
way to reduce the prices. Without these protections in less developed markets,
major pharmaceutical firms have few incentives to fund the R&D that results in new
treatments for the diseases that plague the world.
-More recently though, back in 2005, a major market was developed in India where
there was a liberation reform, which allowed product patents for the first time since
1972 and more or less put an end to any trade barriers in India for the
pharmaceutical industry. Since 2005, India is one of the fastest growing countries in
the pharmaceutical industry and currently is the world's third largest in terms of
volume.
However, if political and legal systems are weak, intellectual property laws allow the
production of cheap generic and counterfeit drugs.
-Generic drugs only incur the cost of manufacturing, rather than the entire cost of
developing and testing, that branded drugs do. Currently in the U.K. and the United
States patents give protection for 20 years, making the consumers pay higher
prices than generic drugs. This essentially only makes a market for branded drugs
and with countries in Europe and the United States being more developed than
countries in Asia and Africa, it makes a better market for the pharmaceutical
industry because consumers are able to afford the higher prices. This is a major
reason why generic and counterfeit drugs are more often seen in less developed
countries.

Facts about the Counterfeit Drugs

-In the developing world, where few countries have the regulatory and policing
power of the United States and the U.K., the problem of counterfeit drugs is even
more widespread and tragic. Counterfeit drugs are commonly manufactured in
countries like China and India. (Roughly 80% are from overseas) Worldwide drug
counterfeiting generated an estimated $75 billion in 2010. (About 10% of the
pharmaceutical industry) and the sales are increasing at nearly twice the pace of
legitimate pharmaceutical sales estimated at 13% annually.
 2. People need medications, but the poor often cannot afford them.
Governments may not provide subsidies for health care and medications.
Meanwhile, pharmaceutical firms focus their R&D on compounds likely to
provide the best returns. What is the proper role of the following groups in
addressing these dilemmas: national governments, branded
pharmaceutical firms, and generic manufacturers?

In certain countries, people desperately need medications but cant afford the high
prices. Some governments sanctioned importation of nonapproved generic drugs so
their people could afford them. The reaction of the branded pharmaceutical
manufacturers is to sue. (EX. South Africa) Doing so created international backlash
against the firms. It gave much negative publicity for branded pharmaceutical firms
but also made people more aware of the generic drug industry and its potential for
helping those affected by many diseases. Once a patent expires, generic
manufacturers typically sell the medications that they produce at very low prices.
Retail prices for the compound can fall by as much as 90% within 12-18 months.
Governments may not be providing subsidies for health care and medications. When
it comes to the government not providing subsidies, its up to the person who needs
the drug to pay for it all on their own and most branded pharmaceutical firms
charge high prices for the compounds, especially compounds that are needed by
many people. Generic manufacturers can come in and make generic compounds of
the drugs needed but that can only be done after a patent expires. This would give
people the drugs for very cheap prices regardless of help from the government.
Some firms focus R&D only on compounds with the most return, they believe that
R&D is too costly and risky to invest in diseases common in poor countries.
Branded pharmaceutical firms focus on the big returns like cancer and the central
nervous system. The national government provides incentive packages and public
private partnerships to motivate firms to want to focus on other compounds. (Ex.
Bill and Melinda Gates Foundation is investing billions of dollars to fight AIDS,
Tuberculosis, and various infectious diseases that affect developing countries) Also
by having strong patent laws, pharmaceutical firms are more likely to invest in new
drugs.

3. Consult www.phrma.org, The Pharmaceutical Research and

Manufacturers of America. What steps is the branded industry taking to
address the various ethical issues it faces, such as providing affordable
drugs to poor countries?

Industry-Funded Ghostwriting
Problem: These articles endorse the sponsors product, and it is a deceptive marketing
technique that undermines trust in the medical literature.

Prescription Data Mining

Problem: This is an exploitation of the patient-doctor relationship for marketing

purposes.

Affordable Drugs

Problem: Companies only focus on developing treatments for diseases that can
return the cost of capital and generate profits.
Publication Bias
Problem: Deceives clinicians by only focusing on the positive data, giving the
appearance that a drug is more effective than it actually is.
Counterfeit Drugs
Problem: It is causing an epidemic of deaths across the world including 200,000-
300,000 deaths a year in China. Internet-based pharmacies are adding to the
problem because people now have easy access to these tainted and poisonous
drugs.
Intellectual Property Rights
Problem: These patents lives are running out and generic brands are moving in to
steal the drug, selling what they produce at very low prices because they dont
have the high costs of R&D, marketing, and sales expenses.

4. Consult the TRIPS agreement at the WTO portal (www.wto.org). What

are the latest developments regarding this treaty? What types of
protection does this treaty provide to pharmaceutical firms? What
enforcement mechanisms does TRIPS provide for ensuring that these
protections will be carried out?

Introduction
The World Trade Organizations (WTO) TRIPS Agreement is an attempt to narrow the
gaps in the way intellectual property rights are protected around the world, and to
bring them under common international laws.
It establishes minimum levels of protection that each government has to give to the
intellectual property of fellow WTO members.
It strikes a balance between the long term benefits and possible short term costs to
society.
What types of protection does this treaty provide to pharmaceutical firms?
They wanted to make sure that adequate standards of protection exist in all
member countries.
They followed the same guidelines for protection from the World Intellectual
Property Organization (WIPO) - the Paris Convention for the Protection of Industrial
Property (protection of industrial property) and the Berne Convention for the
Protection of Literary and Artistic Works (protection of the work and rights of
authors) - and other areas that they feel were not talk about enough or were not
even mentioned.
Flexibilities such as compulsory licensing are written into the TRIPS Agreement, but
some governments were unsure of how these would be interpreted, and how far
their right to use them would be respected.
WTO ministers issued a special declaration at the Doha Ministerial Conference in
November 2001.
TRIPS Agreement does not and should not prevent members from taking measures
to protect public health.
On one remaining question, they assigned further work to the TRIPS Council to
sort out how to provide extra flexibility, so that countries unable to produce
pharmaceuticals domestically can import patented drugs made under compulsory
and parallel licensing.
Compulsory licensing is when a government allows someone else to produce the
patented product or process without the consent of the patent owner. In current
public discussion, this is usually associated with pharmaceuticals, but it could also
apply to patents in any field.
Parallel (grey-market) imports are not imports of counterfeit products/illegal copies.
These are products marketed by the patent owner or with the patent owners
permission in one country and imported into another country without the approval
of the patent owner.
The agreement allows compulsory licensing as part of the agreements overall
attempt to strike a balance between promoting access to existing drugs and
promoting research and development into new drugs.
But the term compulsory licensing does not appear in the TRIPS Agreement.
Instead, in the agreement it says other use without authorization of the right
holder.
What enforcement mechanisms does TRIPS provide for ensuring that
these protections will be carried out?
Governments have to ensure that intellectual property rights can be enforced under
their laws, and that the penalties for infringement are tough enough to deter further
violations.
The procedures must be fair and reasonable, and not unnecessarily complicated or
costly.
They should not entail unreasonable time-limits or unwarranted delays.
The agreement describes in some detail how enforcement should be handled,
including rules for obtaining evidence, provisional measures, injunctions, damages
and other penalties.
It says courts should have the right, under certain conditions, to order the disposal
or destruction of pirated or counterfeit goods.
Willful trademark counterfeiting or copyright piracy on a commercial scale should be
criminal offenses.
What are the latest developments regarding this treaty?
The workshop focused on the flexibilities and policy options available under the
WTOs Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) and other intellectual property treaties administered by WIPO
The workshop covered a large variety of topics around the question of access to
medicines and innovation in the pharmaceutical sector, which also included
intellectual property rights.
The main purpose of holding this workshop was to raise participants awareness of
the need to take a holistic approach and to ensure that knowledge across different
sectors is properly involved in the domestic policy making process.
They introduced the key concepts of intellectual property protection and the
flexibilities contained in the TRIPS Agreement
Familiarized participants with the additional flexibility made available to WTO
members, often also referred to as the Paragraph 6 System - special compulsory
licenses can be granted solely for the purpose of producing and exporting medicines
needed in countries which do not have sufficient capacities to manufacture those
medicines at home.
They also held discussions that were dedicated to health-related topics and some of
the broader aspects directly related to intellectual property rights and public health
During the workshop, participants were provided with an opportunity to report on
their countries specific needs in the health sector and to share experiences
regarding the implementation of the intellectual property rule, and the management
of intellectual property rights and the use of flexibilities.

5. Recommend a strategy that management at a large pharmaceutical firm

should employ to reduce the likelihood of political and legal risks that
such firms face. What steps should management take to minimize its
exposure to such risks?
Since large pharmaceutical firms face many political and legal risks, such as the
backlash and negative publicity from the AIDS problem in South Africa,
management of pharmaceutical brand-name companies need to employ strategies
that will reduce the potential of risks such as these from occurring.
Strategies:

Proactive Environmental Scanning

Strict Adherence to Ethical Standards
Alliances with Qualified Local Partners
Protection through Legal Contracts

Proactive Environmental Scanning

Managers develop a comprehensive understanding of the political and legal
environment in target countries.
Helps the company identify any potential risks and threats to the firm, through the
process of scanning.
Allows the firm to improve practices in ways that conform to local laws and political
realities.
Creates a positive environment for business success.

Strict Adherence to Ethical Standards

Ethical behavior helps protect firms from some country risks that they may
encounter.
Companies that engage in questionable or potentially unethical practices and/or
operate outside of the law will inevitably cause more skepticism from the
governments of the host countries where they do business.
Alliances with Qualified Local Partners
A practical approach to reducing potential country risks that entails a collaboration
with a knowledgeable and reliable local partner in the target market.
Qualified local partners are better informed about local conditions and better
situated to establish and maintain stable relations with the local government.
Protection through Legal Contracts
Legal contracts spell out the rights and obligations of all parties involved.
Especially important when relationships of parties undertake unexpected changes.
Since contract law varies widely from country to country, firms must obey local
standards.