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Much of the debate surrounding counterfeit medicines to date hasfocused on how to prevent them seeping into the supply chains ofdeveloped-country markets. The majority of counterfeit medicinesoriginate in Less Developed Countries (LDCs), including most ofthose that end up in the US and EU. Steps should be taken to changethe incentives faced by counterfeiters in LDCs participating in theproduction and trade of counterfeit pharmaceuticals.
The scale of the problem
While counterfeit medicines in wealthy markets are a growingconcern for physicians and law-enforcement agencies, their preva-lence pales in comparison to their penetration of less developedmarkets. According to the World Health Organisation (WHO), 25 percent of all medicines in LDCs are counterfeit.1 In some countries, theprevalence is far higher: ◆ Counterfeit medicines constitute between 40 and 50 per cent of ◆ In China, authorities have found that some products have a counterfeit prevalence ranging between 50 and 85 per cent.3 ◆ 36.5 per cent of antibiotics and anti-malarials on WHO essential drugs list in Thailand and Nigeria are substandard(Shakoor et al., 1997).
204 Fighting the Diseases of Poverty ◆ A recent survey by the WHO of seven African countries found that between 20 and 90 per cent of all anti-malarials failedquality testing. These included chloroquine-based syrup andtablets, whose failure rate range from 23 to 38 per cent; andsulphadoxine / pyrimethamine tablets, up to 90 per cent ofwhich were found to be below standard (WHO, 2003).
In spite of a lack of hard data (Cockburn et al., 2005), it is clear that counterfeit medicines are not confined to a handful of thera-peutic classes. This is especially true in LDCs, where the range offakes on the markets encompasses treatments for a diverse range ofconditions and ailments. The top five counterfeited medicines in thePhilippines provide some illustration of this point: 1. Antihypertensive drugs (Adalat Gits 30mg Tablet).
2. Anti-asthma drugs (Ventolin Expectorant syrup).
3. Analgesic medicines (Ponstan 500). 4. Anti-diarrhoea (Diatabs Reformulated). 5. Vitamins (Propan with Iron Capsule, Ceelin 100 mg/5 ml Syrup, This list is certainly not exhaustive. Other favourites for coun- terfeiting include drugs for treating anaemia, HIV, schizophrenia, aswell as growth promotion hormone (used in the treatment of HIV).
The problem also extends beyond fake pharmaceuticals to medicalconsumables such as non-sterile syringes and gauze and even sub-standard electronic medical equipment.
Where are counterfeit medicines being produced?
A large proportion of the world’s counterfeit medicines originate inAsia. China in particular is a production centre, although precisedata about the scale and scope of the problem within this countryis neither widely available nor reliable. In 2001 it was reported thatChina had 500 illegal medicines factories5 and while no newer data Counterfeit medicines in LDCs: problems and solutions 205 is available, it is safe to assume that number has since increased.
Also in 2001, it was reported that Chinese authorities “closed 1,300factories while investigating 480,000 cases of counterfeit drugsworth $57 million.”6 Most Chinese counterfeit medicines that findtheir way into foreign supply chains first pass through the ports ofHong Kong and Shenzhen.
South East Asia more generally is a major source of counterfeit
medicines. According to the WHO, Cambodia had 2,800 illegalmedicine sellers and 1000 unregistered drugs on the market in 2003.
The same report showed that Laos had about 2,100 illegal medicinessellers, while in Thailand, substandard medicines account forapproximately 8.5 per cent of the total market.7 One 2002 study by government officials showed that 9 per cent of all drugs tested in India were substandard.8 Some 15,000 generics
manufacturers operate in India.9 Although the majority are legiti-
mate, a small minority are likely to be ‘fly by night’ operations that
do not comply with proper standards. Most of the counterfeit med-
icines in Nigeria originate in India, a fact that lead the Nigerian
authorities to threaten to ban the import of all drugs from India in
2003 (Raufu, A., 2003). However, it should be noted that 70 per cent
of the Indian domestic market is supplied by around 20 companies
that regularly pass inspections from visiting officials from Western
Counterfeit medicines also abound in Latin America, with
instances reported in Argentina, Brazil, Colombia, Venezuela,
Mexico, Peru and Guatemala: Mexico is a major global source of
counterfeit medicines, with the trade standing at an estimated
value of US$650mn per year – equal to around 10 per cent of total
drug sales in the country.11
In Russia, it is estimated that counterfeits constitute between
five and ten per cent of the total market.12 In 1999 alone, 1,500 lotsof Russian-made drugs failed to pass quality tests.13 206 Fighting the Diseases of Poverty The impact of counterfeit medicines
Counterfeit medicines can cause harms in various ways: thepresence of toxic chemicals frequently causes injury or death; inap-propriate delivery systems and/or inadequate amounts of activeingredient prevents the drugs from working effectively and, again,can lead to injury or death; more broadly under-dosing fosters resis-tance to the active chemical. In the cases of HIV/AIDS and malaria,this latter aspect is particularly worrying.
HarmfulCounterfeit medicines often contain agents that are injurious tohealth, as for example when 89 people in Haiti died after ingest-ing cough syrup manufactured with diethylene glycol (a chemicalcommonly used as anti-freeze). This particular product was madein China, transported through a Dutch company to Germany,before winding up on the Haitian market. A similar case occurredin Nigeria in 1995, resulting in the death of 109 children and againin Bangladesh (Hanif et al., 1995).
The dangers of widespread counterfeiting were illustrated in 1996 during a meningitis epidemic in Nigeria. Some 60,000 peoplewere inoculated with counterfeit vaccines, resulting in the deaths of2,500 people (Pecoul et al., 1999). More importantly, counterfeits medicines typically provide inad- equate doses of drugs, either because too little active ingredient isincluded in pills or because the delivery vehicle (including otherwise‘inactive’ ingredients) are inappropriate (for example, chemicals thatare not water-soluble). As a result, patients receive too littlemedicine and die or are far sicker would have been the case if theyhad received an adequate dose. It is estimated that in China between 200,000 to 300,000 people die each year due to counterfeit or substandard medicine. However,this “official” statistic may over- or under-state the true number ofcases.14 Counterfeit medicines in LDCs: problems and solutions 207 Drug resistancePerhaps one of the most worrying implications of the global boomin counterfeit medicines is the acceleration of new, drug resistantstrains of viruses, parasites and bacteria. If drugs contain too littleof the active ingredient, not all the disease agents are killed andresistant strains are able to multiply and spread.
MalariaThis is already being observed in the treatment of malaria. Coun-terfeiters around the world have cashed in on the massive demandfor the latest and most effective antimalarial drug, artemisinin. Afield survey conducted in 2004 showed that 53 per cent ofartemisinin-based antimalarials in a range of South East Asian coun-tries contained incorrect levels of active ingredient (Dondorp et al.,2004), which implies that swathes of patients are receiving theincorrect dose. The direct consequences are death and serious injuryresulting from improper treatment.
In addition, malaria parasites exposed to inadequate (subthera- peutic) concentrations of artesunate may result in the multiplica-tion of parasites resistant to the drug (White, 1999). Even thoughArtemisinin has only been widely available since the late 1990s, sci-entists are already reporting cases of resistance. According to DrDora Akunyili, the head of Nigeria’s national drug regulator, theracket in fake medicine is directly responsible for this resistance, andis a contributing factor to the doubling of malaria deaths over thelast 20 years.15 HIV AIDSHIV/AIDS treatment is also under threat from counterfeit medicines.
The recent discovery of counterfeit antiretrovirals (stavudine-lamivudine-nevirapine and lamivudine-zidovudine) in the Congo(Ahmad, 2004) raises the prospect that the first line therapies fortreatment of HIV/AIDS could soon be rendered useless. With fewnew research leads in the pipeline, this could have grave implica-tions for the people of sub-Saharan Africa. 208 Fighting the Diseases of Poverty Bird fluFinally, counterfeit medicines could be undermining our ability tocontain and treat a potential avian flu pandemic. As demand hasgrown for the anti-viral drug Tamiflu, one of the best current treat-ments for the disease, counterfeiters have ramped up production ofillegitimate versions. Already, the Internet is awash with spuriousTamiflu, while consignments have been discovered as far apart asNew York and Beijing. The risk is that copies containing sub-thera-peutic levels of active ingredient could facilitate the development ofdrug resistant forms of the avian flu virus, leaving very few tools tocontain a potential pandemic.
Undermining R&DCounterfeiting can also undermine the incentives of R&D basedcompanies to invest in future innovation. Even near-perfect copiesof on-patent medicines cause harm by competing with legitimatesupplies of medicines from originating companies, which reducesrevenues and undermines incentives to invest in future R&D.
Underlying causes of LDC counterfeiting
Absent or defective IP protection. One way to prevent the sale of unauthorised copies of medicines is to enable companies toregister and enforce trademarks. These enable vendors tosignal the quality of their product to potential purchasers.
Trademark owners have strong incentives to ensure that thequality of their product is maintained because their reputationand hence future profitability depend upon it.In many LDCs, itis difficult to enforce trademarks – even for local companies.
Where trademarks cannot be enforced, cheaply produced poorquality copies will typically crowd out good quality drugs.
Lack of adequate civil liability. Civil law protects the consumer against mis-sold or defective goods. By enabling consumers (ortheir relatives) to obtain redress from the manufacturer orsupplier of a harmful product, such liability both compensates Counterfeit medicines in LDCs: problems and solutions 209 those who are harmed and discourages manufacturers andsuppliers from selling counterfeits. In many LDCs, however,civil law is either poorly defined or difficult to enforce.
Inability to resolve disputes over property rights and contracts in independent courts. Underlying the lack of civil liability andweak IP protection are costly and inefficient legal systems Asa result, it can often take years for cases to be heard. Manycourts in LDCs are hampered by a lack of basic things suchas reliable electricity and inefficient processes, causingdelays.
In many LDCs, law enforcement is also corrupt. In such places, criminal counterfeiting gangs may be able to paycorrupt law enforcement agents to turn a blind eye to theiractivities. If a case does make it to court, the gangs may be ableto pay off the judge and thereby induce a favourablejudgement. ◆ Weak or absent rule of law: In LDCs with a weak rule of law, political and legal decisions tend to be arbitrary and designedto benefit the elite. As a result, regulation designed to combatcounterfeiting is often ineffective. Corruption within regulatoryagencies and police forces exacerbates this problem, so that theenforcement of regulations is seen as an opportunity to collectbribes.
Price controls. The imposition of price controls by governments prevents companies from selling goods at different prices todifferent consumers. Also, where prices are controlled atdifferent levels in different markets, traders exploit these pricedifferentials through arbitrage. Such trade (called paralleltrade) may create gaps in the supply chain which can beexploited by counterfeiters. For example, it is often necessaryto repackage drugs in order to sell them in a different market,which requires that the packages will require relabelling in thecorrect language. This creates opportunities for unscrupulousintermediaries to infiltrate the supply chain with fakes. Pricecontrols in wealthy country markets therefore increases the 210 Fighting the Diseases of Poverty Duties and taxes on retail medicines
Country Combined total duties and taxes
Table adapted from European Commission, 2003 chance that copies of patented medicines produced in LDCs willleak back into wealthy country markets.
In addition, companies have less incentive to register products in markets where their drugs are subject to pricecontrols, leading to shortages in supplies. They also reduce themargins made by pharmacies, making the distribution of drugsto remote and rural regions financially unviable. For example,the price caps forced on certain drugs in South Africa havebeen implicated in the closure of 103 pharmacies.16 If marketsare left unsupplied in this way, it presents a clear incentive forcounterfeiters to fill in the unmet demand.
Taxes and tariffs. LDC governments also stimulate demand for cheaper fakes by artificially driving up the price of legitimatedrugs through taxes and tariffs, which can inflate the retailprice of drugs by up to 50 per cent (see table below). Many ofthe high tariff countries also have a significant indigenouscounterfeit medicine industry and / or problem. It is unlikelythat this is entirely coincidental.
Counterfeit medicines in LDCs: problems and solutions 211 What can be done in Less Developed Countries?
In order to contain the global counterfeiting scourge, it is necessaryto address those dynamics which encourage the manufacture andsupply of counterfeit medicines. Since the majority of these drugsoriginate in LDCs, it should be a matter of priority to address thoselacunae of governance which allow LDC counterfeiters to ply theirtrade with relative impunity.
Most importantly, it is essential that contracts, property rights and the rule of law be upheld in the countries in which themajority of these drugs are produced. When properly upheld, theseformal market institutions enable entrepreneurs to participatefreely in the market, leading to economic growth and technologi-cal development. When these institutions are not upheld, as is thecase in most lower-income countries, people are forced into theinformal economy as a way of side-stepping the cost and difficultyof conducting business formally. And when the majority of the pop-ulation subsist within the informal economy, they are unable toavail themselves of the protection that would otherwise exist fromcontracts or the implied reputation of trademark-protectedproducts.
Some concrete steps to overcome these problems in LDCs include ◆ Adjudication of disputes over contracts should be simpler and cheaper, so that contracts may be more readily enforced.
◆ Bureaucratic restrictions on doing business should be removed.
◆ The manufacturers of brand goods should be able more effectively to protect their trademarks. ◆ Most fundamentally, courts of law should be granted greater independence, so that their rulings are more impartial and lessinfluenced by powerful vested interests.
◆ The legislature should not have the power to interfere with ◆ The power of law enforcement agents should be curtailed and their actions subject to judicial review. 212 Fighting the Diseases of Poverty ◆ The actions of other government agents (e.g. regulators) should ◆ Regulation restricting the supply of medicines should be ◆ Governments should reduce taxes and tariffs on all What can be done? Internationally
TRIPsAt the international level, the agreement on trade related aspects ofintellectual property rights (TRIPs), which is part of the WTO Agree-ments of 1994 and is mandatory for all World Trade Organisationmembers, requires that the trademark laws of member jurisdictionsare compatible with each other, a quality which is known as ‘har-monisation.’ LDCs that are members of the WTO should thereforehave TRIPs-compliant trademark recognition.
However, the only way for aggrieved countries to enforce breaches of the TRIPs agreement is through trade sanctions. This isoften not a particularly desirable option, for several reasons. First,trade sanctions hurt both parties – people in the offending countrywill lose much-needed export revenue and associated employmentopportunities, while people the aggrieved country will lose theeconomic benefits of importing goods from a country that has acomparative advantage in production. To the extent that employ-ment falls in the offending country, more people may end up with asmaller disposable income and thereby more likely to purchasecheaper counterfeit medicines.
Secondly, the enforcement of TRIPs can, in certain cases, under- mine popular support for intellectual property protection, makingfuture enforcement more difficult politically. For example, in 2001the research-based pharmaceutical companies sought to challengein the courts a South African law that seemingly contravened TRIPS.
In response to a very vocal campaign by AIDS activists, the phar-maceutical companies withdrew their case. While the dispute was Counterfeit medicines in LDCs: problems and solutions 213 not brought in the WTO, the negative PR given to it created a per-sistent fear of the possible fall-out from bringing such a WTOdispute. Bilateral trade agreementsAn alternative way of persuading LDCs to institute intellectualproperty regimes is through tempting them with bilateral andregional free trade agreements (FTAs). Most FTAs involving theUnited States contain provisions that require signatory countries tobolster their intellectual property regimes. By promising access tolarge and lucrative markets, these agreements can be a way of per-suading LDCs to respect the fundamentals of intellectual propertyprotection, which is a vital step for curtailing counterfeiting. Although these agreements are not as beneficial as unconditional free trade, they are a step in the right direction, freeing up trade andthereby improving economic well-being. However, they do raisecomplications in the form of ‘rules of origin’ issues, which are costlyto monitor and administer. Furthermore, an overly-complex ‘rules oforigin’ system may lead to the development of illicit trade routeswhich could be exploited by traders in illegitimate goods such ascounterfeit medicines. Conclusion
The counterfeiting of drugs is a global problem which will not beeliminated until the supply-side issues are addressed. The majorityof counterfeit drugs are manufactured in LDCs, so reform in thesecountries is absolutely vital if progress is to be made. The mostpressing area for reform in the majority of LDCs is the application ofthe rule of law, the definition and enforceability of property rightsand the enforceability of contracts. Without such reforms, counter-feiters will continue to kill hundreds of thousands of people everyyear.


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