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1. Is Dr Hamied a pirate or an Humanitarian ?

(Nitish)
We would like to take an objective view of the situation and look at the factors which lead to the dilemma of Dr Hamied being either a
pirate or humanitarian. Pharmaceutical industry unlike other industries in lassez-faire economy is perhaps the only one where private
enterprise drive innovation, research and new product development for a social good. This nature of the industry makes it conscientiously
different and therefore the general yardsticks of measuring the performances and the leeway given to enterprises in a free market set up
isnt applicable.

What the MNCs and patent driven developed world thinks:


The general line of argument forwarded by MNCs which undoubtedly spend a bulk in research and development of a drug (in this case
the drug for AIDS). The contention is that manufacture and sale of generic drugs erode their ability to recover the costs that goes into the
drug development. For the big pharma companies Dr. Hamied is a pirate who is keen on plundering the value developed by the company
over years of drug development process. He is taking away the margins their firm would generate in developing nations. In the words of
Josh Bloom (AMERICAN COUNCIL ON SCIENCE AND HEALTH):
Remember that manufacturers of generic drugs contribute nothing to innovation. Yet they take up to 90% of sales away from the comparable brand-name drugs
whose makers risked the time and money to bring breakthrough treatments to market.

The argument that can be put forth is that as per Exhibit 4, the pre-tax profit of Cipla is around 22%. There is little information as to
whether Cipla like most MNCs is in for profit making or whether the cause is entirely humanitarian. Opposers of generic manufacturers
may point out that Cipla is a listed company which essentially has a duty to maximise the returns to its investors. A humanitarian cause
should be delinked with profit making. If Dr Hamied is doing this for Humanitarian causes then why is Cipla reverse engineering Viagra
which is not a life saving drug just for profit. The increasing levels of exports also points to firms profit seeking agenda. His offer to
provide AIDS Drug at dramatically low prices at world forum has also profit seeking agenda. This offer has enabled Cipla to influence
the patent laws. It has imparted them huge social benefits, branding and PR marketing. It has placed Cipla on world platform and at the
end of it Cipla is still breaking even. The cause doesnt seem to be humanitarian at all.

What the generic drug manufacturers and patent regime in developing world thinks:
A crucial point which stands out in the case is the fact that it was duly noted by the press that Cipla inadvertently had amply
demonstrated that the drug prices set by pharma MNCs were malleable. In an environment where the drug companies paid little
heed to the demand for life saving drugs which patients from third world country cannot afford and priced the drug to reap
bumper profits, generics were needed to serve the people who would have died anyway for the lack of cheaper variants of the
drugs. The contention that the generic manufacturing companies like Cipla are responsible for loss in sales rings hollow when we
consider the fact that Cipla had agreed to pay a royalty of 5% of the total sales. This number could have been negotiated to cover
the lost market potential in countries where these generics operated. More so these companies could have tied up with local
generic manufacturers to create affordable versions of these drugs.
From a legal perspective, Cipla is not indulging in any illegal activity. Under the Indian law, only manufacturing processes,
not the products themselves, are covered by patents and so Dr. Hamied is carrying out a perfectly legal business under
Indian laws. As and when the TRIPS agreement is enforced and global patent regime is implemented he will be bound by
those.

Conclusion:
We believe that a pirate commits an illegal act which Dr. Hamied isnt. Moreover if we keep aside the issue of re-imports, Cipla
is not taking the market share of these MNCs so there is no act of stealing because the MNCs are not in anyways able to serve the
developing nation markets. Unlike rogue pirates, Dr. Hamied wants to get into a discussion with these pharma companies and
have a meaningful dialogue to make the drugs readily available to the deprived masses. Given the activities of the big pharma
companies which include ever-greening and under the table agreements to delay the launch of generics in affluent markets, it is
pretty evident that the only motive that these companies have is to make profits. In light of these Dr. Hamieds effort has to be
categorized as humanitarian.

2. What is your assessment of how well the parties handled the global AIDS pandemic (Nitish)
We shall evaluate the handling of the AIDS crisis under the parameters of ethical principles that societies, corporations and
governments need to adhere to:
Pharma players:
The companies have invested substantially in research and development of new drugs to combat AIDS. There were no known
formulation available to act against the disease but the companies invested in gaining the process knowhow to develop a drug to
combat AIDS. However, these organizations, as any good organization, want to maximize the profits to provide a good return to
their shareholders. They established monopolies and started seeking monopolistic rent with very high margins.

Not only that, these monopolies must be sustained, big pharmaceutical companies are known to indulge in practices like minor
change to the drug to get patent extension. To gain windfall profits they are also lobbied hard with the governments to maintain
these monopolies.
Cipla and other generics manufacturer, on the other hand, stood against profit maximization in case of lack of affordability.
In South African incidence, Cipla helped markets discover the true prices of the drug. However, the downside to Ciplas
philanthropy is the fact that it has refused to invest enough to tackle local medical issues and have relied only on generics
manufacturing to make profits.
Global agencies and NGOs:
These players played an important role in highlighting the HIV AIDS and the severity of the disease. The agencies like WHO and
UNICEF often acted as mediators between the pharma companies and governments of countries in Africa for efficient delivery of
life-saving treatments. These agencies are involved in aid and relief effort and therefore buy drugs in bulk, this helps them reduce
the price-point for these drugs. However, the power to carry out the activities by these organizations were limited and there were
allegations that they were controlled by the western governments and pharma lobbies. But, they have played an important role in
creating social pressure on big pharma companies and highlighting the issue to the international community. This helped the local
government decision of treating the scenario as a special case.
Developing Countries:
Though these countries were vocal at international forums regarding the dangers of AIDS, the developing countries often did not
disclose the extent to which they were affected. This made the quantification of severity of the disease a difficult task. The
developing countries did highlight the evident greed shown by MNCs, they often ended up asking for aids from western nations
which were often accompanied with terms dictated by Pharma Groups.
Developed Countries:
Most of the initial R&D expenditure for AIDS was done by the developed nations. They took it upon themselves to find a cure to
the ailment. Most of the research was carried out at US and European universities with government support. However, these
countries are accused of giving up to the lobbying from the pharma firms and protecting their monopolistic tendencies. There
were often instances where the drug makers maintained unnaturally high prices which gave hints of collusion. However, no
actions were taken against these companies. The Developed countries are also accused of neglecting the developing counties after
the situation in their countries have brought under control.

3. Does Ciplas business constitute unfair competition


(Vinit)
We would like to consider the perspectives of the different stakeholders involved before giving a judgement on the business
practices of Cipla. Cipla aims to provide high quality and affordable medications to the poorer sections of the society which is
otherwise unable to afford the expensive patented medicines provided by multinationals. The business model of the company
involves reverse engineering of these highly expensive and life-saving patented drugs so as to make them affordable for the wider
section of the society. The major success of Cipla was driven largely through the sales of generic pharmaceuticals. Now let us
evaluate these practices by considering two scenarios:
Fair competition
Health care is a basic need of the people, hence it should be priced reasonably, be affordable and of high quality. Big Pharma
companies were priced at levels which was outside the reach of most of the people in the developing countries. These companies
had patent rights which prohibits other companies to manufacture the same drugs. Thus, leading to the monopoly by Big Pharma
companies. As a result, it gave rise to greed and arbitrary pricing. Considering the case of Zidovudine (AZT) which is first of the
category referred to as antiretovirals for slowing down the progression of AIDS. The drug was prices at $10,000 for a years
dosage and was unaffordable to wide section of society. Despite the high cost of drug, the company generated an estimated profit
of $592 million in a period of just 6 years. This indicates that MNCs can recover their R&D costs which they claim to be high
even by pricing it a little lower as it can benefit the larger segment of society. For non-basic goods, companies are free to charge
whatever they are willing to but it is dangerous to allow such practices in essential goods like foods and medicines. Generic
manufacturers like Cipla make essential medicines available to people at a very low price. They also ensure Big Pharma
companies reduce the price of drugs. Thus, in this view Ciplas business is constituting fair competition.

Over the past five years, the AMEX Pharmaceutical Index, composed of the 15 largest drug companies, has given investors
returns averaging 24.7% a year, far above the 14% of the Standard and Poors 500 index, a gauge of the broad market. (Source:
Wharton.edu). This means pharmaceutical industry is very lucrative and any arguments by Big Pharma that they are losing
business because of Cipla doesnt seem to be valid.
Unfair competition

Another view that can be looked into is Big Pharma companies have spent a large amount of money(15%) in R&D
compared to Cipla whose investment(0.2%) is nowhere near to them. In general Indian pharma companies spend only
1.8% of their sales on R&D as compared to 16% spent by US. It leads to violation of intellectual property rights. If Big
Pharma companies patents are not protected, then the incentive of carrying out innovation is lost and decreases reward
of doing research.

Cipla has a pre-tax profit of 22% which is comparable to other Big Pharma companies.

Cipla has allocated a part of the R&D budget for subscriptions to foreign chemical & medical journals that is used to
identify the new innovations to be used for genetic manufacturing. Indian pharma companies believe that it is less
costly to reverse-engineer than to develop a new medication from scratch.
Conclusion: Keeping in view the above points, it can be concluded that only for diseases which are epidemic and life-taking and
where no medicines are available other than that provided by Big Pharma, Cipla should be allowed to manufacture. Otherwise,
this type of behaviour should not be encouraged and constitute for unfair competition.
4. What is the role of the following parties in combating global AIDS crisis
pharma companies i.e Are big pharma companies responsible to the society (Nitish)
The excuse given by the drug companies in having sky high prices for the drugs related to AIDS treatment often pertains to
expenses on innovation. A report by Wall street journal quotes government sources mentioning that 84% of the R&D expense of
big pharma is indirectly footed by the government in form of grants to universities or laboratories where the research is carried
out. This should put the onus of ensuring the delivery of drugs to all those in need on the pharma companies which shy away
from such a move citing financials. In essence we believe that the innovation that big pharma talk about is facilitated by the
society and this crucial aspect is enough to hold these companies responsible for the common good.
We would like to quote the classic Merck case for a drug that it conceptualized for river blindness in Africa.
The classic example involves Mercks decision in the late 1970s to adapt one of its patented animal drugs into a cure for river
blindness, a devastating African disease that afflicted huge segments of the population. The company spent hundreds of millions
of dollars it knew it could never recoup, since the disease was confined to poor countries. However the company earned
substantial goodwill which it would have achieved only after spending millions of dollars on PR exercises. And the reputation
that MNC pharmaceuticals will build in countries where they operate will help them capture the market for other drugs which are
not meant for life threatening diseases and where a premium can be charged from willing customers.

rich country Governments

Rich country governments especially of US have incentivized companies to focus on AIDS medication development by funding
57% of the development cost and 1/3 of the cost of clinical trials. They have also helped by cutting the time to approval to nearly
half from industry average of 87.4 months to 44.6 months without decreasing the patent duration, thus increasing the revenue
period. In 2000, the US government revoked the ban on reimportation of prescription drugs manufactured in US and exported to
foreign countries. This not only ensured cheaper imports but it also killed the incentive for pharma companies to go for exports to
foreign countries at a lower price. Later on rich countries tried to put pressure on the pharmaceutical companies to reduce the
price of drugs for combating the disease. But, the considerable time lag between the events displays that the governments were
working in silos.
rd

Local Governments (Nitish)

Top two countries with the greatest number of HIV-AIDS patients are South Africa and India. The approach adopted by
these countries have been to spread the message of prevention of AIDS. Not much has been done by either to look into the
root cause of the epidemic or the treatment needed by the patients. In India, the ground level medical care system is
dysfunctional and not geared for dealing with a disease of magnitude as big as AIDS. What the local governments fail to
realise is that the day to day living and working conditions have a direct forbearing on the vulnerability of the population to
the disease. The fundamental drivers of this epidemic are the more deep rooted institutional problems of poverty,
underdevelopment and the low status of women, including gender based violence, in society.
At a local level there is also a severe lack of resources. Unavailability of contraceptives precede the unavailability of
remedial drugs. From a governance perspective, any welfare measure in a developing country like India is mired steeply in
corruption and it hampers the efficacy of the scheme. Moreover the schemes that are developed are often centralised and
are not tailor made to suit the local requirements. The local governments can make policy decisions which would enable an

AIDS victim to live a respectable life, most national laws and diktats have scant effect at a local level and it is upto the local
governments to enable AIDS prevention and treatment.

NGOs such as Clinton foundation (Vinit)

NGOs have convinced big pharma companies like Bristol-Myers, Glaxosmithkline, and Merck etc to reduce the cost of medication. They
have created awareness that fighting a pandemic is a joint responsibility of the society as a whole. Hence, pharma companies must share
the responsibilities of making life-saving drugs affordable. They have also partnered with Clinton Foundation to distribute HIV drugs in
Africa to combat AIDS. In addition to these, NGOs can work side by side with the developing countries government and mobilize

resources to help countries with the treatment plan. They can purchase drugs in bulk to reduce cost and also distribute drugs in
poor countries at a nominal price to prevent AIDS. They can very well intervene in slowing the spread of AIDS through various
programs which can spread awareness about safer sex and various contraceptive practices. They can provide education, training
and support services to the general public and also confidential counselling, testing and health care to those afflicted with AIDS.

5. What are your views on the allegations against Big Pharma particularly with respect to diseases such as TB, Malaria and
Aids (Vinit)

The pharmaceutical industry is dominated by large multinational enterprises collectively known as Big Pharma. The allegation
against these companies that they want to reap only huge profits, even if its a matter of life and death seems to be valid.

These companies invest heavily in R&D to bring new drugs to the market so as to combat chronic diseases. Under the
laws of intellectual property rights, these companies get monopoly grants for 20 years which makes them eligible to
charge as much as they want. Even many pharma companies are involved in the act of evergreening where they get the
extension of their patents by merely bringing a small change in the process of drug manufacturing. This provides them
the extension of charging more to the public where some people are forced to pay that amount so as to save their lives
and many others have to lose their lives due to these high prices.

Pricing in case of monopoly is not at all related to the production cost or development cost but is decided as to how to
maximise the revenue. This was the case in case of AIDS in Africa as well when millions of people lost their lives just
because of these big pharma companies who opposed the generic drugs to reach these people. Infectious diseases like
AIDS, malaria and TB kill over 10 million people each year, out of which more than 90% are from developing
countries[1]. Millions of people in the world do not have access to the medicines that are needed to treat these chronic
diseases.

It has been discovered that 84% of worldwide funding for drug discovery research comes from government and public
sources with pharma companies providing only 12%. These companies rather spend 19 times more on marketing than
on basic research. This indicates that a portion of taxes paid by the people goes into the discovery of drugs which are
then sold back to them at monopoly prices. As even figured out in the case of Zidovudine- popularly known as AZT
which is a drug to slow down the progression of AIDS, the basic clinical research was done by National Institute of
Health while Burroughs enjoyed FDA-expedited approval and orphan drug tax credits.

The prices charged by these big companies are only for a meagre top percentage of the population leaving a large chunk
of population aside.

Apart from this, these big companies even try to cut off the supplies of generic drugs so as to derive revenue out of
each and every consumer possible.

In 2000, Congress overturned the provision of the Prescription Drug marketing act of 1988 that banned the
reimportation. The new legislation allowed pharmacies and wholesalers to reimport drugs into US, thus disincentivising
US pharmaceutical companies to reduce prices outside home market.

Business View

Another view, which can be looked into is since the Big Pharma bear huge R&D costs, they would expect to compensate this
through high prices of drugs. Also, if their patents are not protected, they will not be able to carry out innovations in the future. In
addition to this, if they sell drugs at a lower price in poor countries, they might make their way back to developed countries.
Because of this differential pricing, they would have to cut prices in their homes also, which will have huge repercussions on
them.
[1] World Health Organization: The World Health Report 2001. WHO, 144, 2000

6. What are the ethical dilemmas in this case (Mangesh)


In the case we see a tug-of-war between Cipla, MNCs, Government organisations and humanitarian agencies. They have
been steadily negotiating on grounds of Business and Humanity. We can clearly see a continuous tussle in the decision
making wherein taking sides between profits (business) and humanity. The ethicality in the case is subjective at times as the
values differ for different parties.
Cipla copying foreign drugs: The mere practice of Cipla of reverse-engineering expensive patented drugs and selling
them at very low prices in developing countries where there is no enforcement of International patents poses a strong
dilemma ethically. On one side it is trying to help the poor people of the country by making the expensive drugs affordable
and also making profit for itself whereas on the other hand it is misusing the intellectual property which is a result of huge
investment in R&D in terms of time and money. As per the MNCs the patent laws in the developing countries (India) support
unfair competition which led the Generic drug manufacturers (Cipla) to drastically reduce the prices and gain market share.
Evergreening practices by MNCs: As per international patent law drug companies can have monopoly of their drugs for
20 years and after that they have to give away patent. However on the contrary the MNCs use techniques to extend the life
of their patents well beyond 20 years by making slight modifications to the existing patent. MNCs do this to increase their
profits and maintain their market share as they have spend so much in R&D at the start for the development of the drug, but
they also have responsibility towards the society and giving away the patents would make the drug more affordable.
Medicine and Related Substances Control Act: South African president Nelson Mendela signed the Medicine and
Related Substance Control Act to allow two practices, Firstly, import of pharmaceuticals from any sources regardless of
patent holder approval and Secondly, compulsory licensing to local companies to manufacture generic drugs when valid
patents are held by MNCs. To this pharmaceutical industry reacted by filing a lawsuit. The MNCs were righteous owing to
their huge initial expenses towards R&D which led to development of such drugs. But even the discounted prices at which
the MNCs were selling the drugs would be unaffordable for most of South Africas AIDS sufferers and these companies
were already earning profits from US and european markets. But a move like this by south african government is not
justified.
Burroughs charging heavily for Zidovudine even when the initial clinic research was sponsored and carried out by National
Institute of Health: Elaborate
Cipla was selling products in India but annual reports revealed that the exports to countries with similar patent laws were
increasing. Elaborate