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

K. if political and legal systems are weak. Political and Legal Systems affecting the Pharmaceutical Industry Pharmaceutical firms spend vast amounts on research and development (R&D) in creating and marketing drugs. 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. 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. Without these protections in less developed markets. however. According to Nigerian officials. Pfizer allegedly conspired to have Nigeria’s attorney general drop the charges instead of having to pay up. Currently in the U. Facts about the Counterfeit Drugs -In the developing world. that branded drugs do. back in 2005. major pharmaceutical firms have few incentives to fund the R&D that results in new treatments for the diseases that plague the world.. (About 10% of the pharmaceutical industry) and the sales are increasing at nearly twice the pace of legitimate pharmaceutical sales – estimated at 13% annually. However. and the United States patents give protection for 20 years. where few countries have the regulatory and policing power of the United States and the U. more developed countries. Counterfeit drugs are commonly manufactured in countries like China and India. . rather than the entire cost of developing and testing. a major market was developed in India where there was a liberation reform.for use in children. making the consumers pay higher prices than generic drugs. This is a major reason why generic and counterfeit drugs are more often seen in less developed countries. in such a way to reduce the prices. -More recently though. intellectual property laws allow the production of cheap generic and counterfeit drugs. Pfizer agreed to pay $75 million in a settlement to have the charges dropped. 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. Since 2005. Pfizer’s illegal actions killed 11 children and left dozens disabled. According to many sources.K. -Generic drugs only incur the cost of manufacturing. the problem of counterfeit drugs is even more widespread and tragic. (Roughly 80% are from overseas) Worldwide drug counterfeiting generated an estimated $75 billion in 2010. it makes a better market for the pharmaceutical industry because consumers are able to afford the higher prices. India is one of the fastest growing countries in the pharmaceutical industry and currently is the world's third largest in terms of volume.

they believe that R&D is too costly and risky to invest in diseases common in poor countries. This would give people the drugs for very cheap prices regardless of help from the government.org. 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. people desperately need medications but can’t afford the high prices. Some firms focus R&D only on compounds with the most return. Bill and Melinda Gates Foundation is investing billions of dollars to fight AIDS. Tuberculosis. it’s 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. Some governments sanctioned importation of nonapproved generic drugs so their people could afford them. especially compounds that are needed by many people. Consult www. The national government provides incentive packages and public private partnerships to motivate firms to want to focus on other compounds. What steps is the branded industry taking to address the various ethical issues it faces. South Africa) Doing so created international backlash against the firms. The reaction of the branded pharmaceutical manufacturers is to sue. but the poor often cannot afford them. (EX. and various infectious diseases that affect developing countries) Also by having strong patent laws. What is the proper role of the following groups in addressing these dilemmas: national governments. and generic manufacturers? In certain countries. Branded pharmaceutical firms focus on the big returns like cancer and the central nervous system. The Pharmaceutical Research and Manufacturers of America. such as providing affordable drugs to poor countries? Industry-Funded Ghostwriting . Governments may not provide subsidies for health care and medications. Retail prices for the compound can fall by as much as 90% within 12-18 months. 2. Once a patent expires. pharmaceutical firms are more likely to invest in new drugs. Meanwhile.phrma. When it comes to the government not providing subsidies. (Ex. Governments may not be providing subsidies for health care and medications. generic manufacturers typically sell the medications that they produce at very low prices. Generic manufacturers can come in and make generic compounds of the drugs needed but that can only be done after a patent expires. branded pharmaceutical firms. People need medications. pharmaceutical firms focus their R&D on compounds likely to provide the best returns. 3.

giving the appearance that a drug is more effective than it actually is. Publication Bias Problem: Deceives clinicians by only focusing on the positive data. It strikes a balance between the long term benefits and possible short term costs to society. 4.org). It establishes minimum levels of protection that each government has to give to the intellectual property of fellow WTO members. 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. selling what they produce at very low prices because they don’t have the high costs of R&D. and it is a deceptive marketing technique that undermines trust in the medical literature. marketing. 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. Counterfeit Drugs Problem: It is causing an epidemic of deaths across the world including 200.wto. 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 Organization’s (WTO) TRIPS Agreement is an attempt to narrow the gaps in the way intellectual property rights are protected around the world. . Consult the TRIPS agreement at the WTO portal (www. Prescription Data Mining Problem: This is an exploitation of the patient-doctor relationship for marketing purposes. and sales expenses.000 deaths a year in China. and to bring them under common international laws. Affordable Drugs Problem: Companies only focus on developing treatments for diseases that can return the cost of capital and generate profits.Problem: These articles endorse the sponsor’s product.000- 300.

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) . But the term “compulsory licensing” does not appear in the TRIPS Agreement. Parallel (grey-market) imports are not imports of counterfeit products/illegal copies. On one remaining question. they assigned further work to the TRIPS Council — to sort out how to provide extra flexibility.They followed the same guidelines for protection from the World Intellectual Property Organization (WIPO) . These are products marketed by the patent owner or with the patent owner’s permission in one country and imported into another country without the approval of the patent owner. The procedures must be fair and reasonable. but some governments were unsure of how these would be interpreted. Flexibilities such as compulsory licensing are written into the TRIPS Agreement. TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. Instead. and not unnecessarily complicated or costly. so that countries unable to produce pharmaceuticals domestically can import patented drugs made under compulsory and parallel licensing. In current public discussion. in the agreement it says “other use without authorization of the right holder. this is usually associated with pharmaceuticals. WTO ministers issued a special declaration at the Doha Ministerial Conference in November 2001. . and how far their right to use them would be respected. The agreement allows compulsory licensing as part of the agreement’s overall attempt to strike a balance between promoting access to existing drugs and promoting research and development into new drugs. They should not entail unreasonable time-limits or unwarranted delays. but it could also apply to patents in any field. and that the penalties for infringement are tough enough to deter further violations.and other areas that they feel were not talk about enough or were not even mentioned.” 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.

often also referred to as the “Paragraph 6 System” .The agreement describes in some detail how enforcement should be handled. It says courts should have the right. 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. provisional measures. management of pharmaceutical brand-name companies need to employ strategies that will reduce the potential of risks such as these from occurring. and the management of intellectual property rights and the use of flexibilities. including rules for obtaining evidence.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 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. which also included intellectual property rights. under certain conditions. What are the latest developments regarding this treaty? The workshop focused on the flexibilities and policy options available under the WTO’s 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. to order the disposal or destruction of pirated or counterfeit goods. injunctions. 5. What steps should management take to minimize its exposure to such risks? Since large pharmaceutical firms face many political and legal risks. 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. 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. 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. such as the backlash and negative publicity from the AIDS problem in South Africa. damages and other penalties. Willful trademark counterfeiting or copyright piracy on a commercial scale should be criminal offenses. .

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. 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. Qualified local partners are better informed about local conditions and better situated to establish and maintain stable relations with the local government. Allows the firm to improve practices in ways that conform to local laws and political realities. . Since contract law varies widely from country to country. firms must obey local standards. Creates a positive environment for business success. 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. through the process of scanning. Helps the company identify any potential risks and threats to the firm.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.