Parallel Imports in Pharmaceuticals: Implications for Competition and Prices in Developing Countries

The poorest nations of the world suffer from extreme disease burdens, which golargely untreated because weak incomes and the prevailing system of intellectualproperty rights fail to provide sufficient incentives to develop new treatments anddistribute them at low cost. Recent price reductions for HIV/AIDS drugs are encouragingbut offer only a limited solution. We discuss the economic tradeoffs involved insupporting drug and vaccine research through exclusive rights and distributing the fruitsof that research to poor countries. We offer a proposal to overcome these incentiveproblems. Our DEFEND ("Developing Economies' Fund for Essential New Drugs")proposal would work within the existing international legal structure but significantlywould raise the returns to R&D; in critical medicines and expand distribution programs.A public international organization would purchase the license rights for designated areasand distribute the drugs at low cost with a required co-payment from local governments.Furthermore, governments would restrict parallel trade to support desirable pricediscrimination. Costs would be funded largely by increased foreign assistance from thedeveloped nations, but these costs would be low in relation to current aid budgets. Webelieve a strong program could be mounted for $8 billion to $12 billion per year andwould be an extremely effective use of foreign aid. Ganslandt: IUI (The Research Institute of Industrial Economics), P.O. Box 5501, SE-11485 Stockholm, SWEDEN; email [email protected] and Wong: Department of Economics, UCB 256, University of Colorado,Boulder, CO 80309-0256, USA; email [email protected]