HPU
A bitter pill to swallow
Author: Jasson UrbachDate: 26 May 2009

More and more studies are revealing the shocking trade in fake and substandard medicines across the globe. These drugs result in millions of people unwittingly consuming all manner of content from talcum powder, to sawdust and cement. Fake medicines are most prevalent in poor countries that lack sufficient monitoring mechanisms and where defective legal systems create a thriving environment for them. The World Health Organisation (WHO) estimates that counterfeit drugs constitute 10 per cent of the global drug market, rising to 25 per cent in developing countries and projected to be worth $75 billion by 2010. However, due to the very nature of counterfeiting where much of the trade goes undetected, the problem is likely to be a lot more severe than the statistical estimate.

A new study entitled: Keeping it Real – Combating the spread of fake drugs in poor countries, prepared by the International Policy Network, (United Kingdom), in collaboration with the Health Policy Unit (South Africa), raises a few concerns about the prevalence of these drugs and offers insight into the causes and remedies to alleviate the problem. The authors of the study note, “Fake tuberculosis and malaria drugs alone kill approximately 700,000 people every year”. To put this in perspective, this equates to four fully laden jumbo jets crashing every day.

Fake drugs fail to cure patients’ ailments because often they contain little or no active ingredient. In many cases, fakes contain harmful chemicals that not only fail to treat the underlying ailment but also cause direct harm to the patient. Of particular concern are fake drugs that do contain some active ingredient.  These drugs increase the probability of resistance emerging to good quality drugs and this has the potential to render an entire class of drugs useless and introduce serious long-term implications for our ability to fight disease. 

Resistance is currently a serious problem with tuberculosis (TB). Consider the emergence of extreme drug resistant TB strains (XDR-TB) recently documented in South Africa (SA) and now confirmed in at least 49 countries. Recent evidence from the Thai-Cambodia border demonstrates that the malaria parasite is becoming increasingly resistant to our most effective anti-malaria medication – artemisinin. No new class of antimalarial treatments is expected to become available in the near future. We are also witnessing increasing resistance to HIV/AIDS drugs. In July 2008, the director of infectious diseases at Belgium’s St Pierre University Hospital told the Financial Times of his shock at finding that 30 of the 100 AIDS patients he examined in the Democratic Republic of the Congo had virus strains that resisted the standard medicines.

Many of the root causes of drug counterfeiting are exacerbated by government interference, such as price controls and taxation. Price controls aimed at making drugs cheaper, can have dire consequences. They deter companies from registering their medicines in a market, hence reducing competition, which is the best means of keeping prices down.

Moreover, the purveyors of high-quality medicine, who typically have the highest manufacturing costs due to their high manufacturing standards, will be the most deterred by price controls, while producers of cheap substandard drugs and fakes will be encouraged to enter the market. Price controls also cause shortages in medicines, creating a gap that counterfeiters then fill.

WHO notes that government-imposed measures such as taxes and tariffs add a world average of 68.6 per cent to the cost of imported pharmaceuticals. In SA, the government has eliminated all tariffs on pharmaceutical products, which goes a long way to speeding up entry procedures and is particularly important for sensitive products such as vaccines that require specific storage conditions. Free entry at the ports reduces opportunities for corruption because there is no reason for these products to be held up. However, the SA government still charges VAT on medicines. By imposing VAT on pharmaceutical products, the government is taxing the sickest and most vulnerable members of our society, which is counter-intuitive because presumably one of SA’s goals is to have a healthy and productive workforce. At a simple stroke of the pen the SA government can remove all taxes on pharmaceutical products, which will result in increased access to genuine medicines from reputable manufacturers and thereby reduce opportunities for the sale of fakes.

Early efforts by the private sector to control the prevalence of fake drugs, such as the introduction of trademarked branding and tamper-evident packaging systems, initially demonstrated some success. However, even these were copied by counterfeiters, making more drastic measures necessary. Current efforts by the private sector focus on mass serialisations systems, using technologies based on barcodes or simple scratch panels. Technological developments are helping to alleviate the problem. For example, mobile phones that have become almost ubiquitous across developing countries enable purchasers of medicines to check the authenticity of their packs by sending the serial number to the manufacturer for confirmation.

Counterfeit drugs are a growing worldwide threat to health, a threat that in many cases is made worse by government policies. Instead of declaring periodic crackdowns, governments should back permanent vigilance and the rule of law. They should also promote competition and reduce market distortions such as price controls, taxes and tariffs that assist counterfeiters.

Author: Jasson Urbach is an economist with the Free Market Foundation and a director of Africa Fighting Malaria. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

HPU Feature Article / 26 May 2009