Forbes Articles

Doing Badly By Doing Good
Date: 10.29.2001

Here's a twist: Pfizer is giving away an AIDS-related drug to Africans--and getting hammered for doing so.

For God's sake, why are we being attacked for a program that's actually produced results?" asks Pfizer Chairman Henry McKinnell, tensing to ramrod posture in his chair.

McKinnell is defending Pfizer's (nyse: PFE - news - people) seemingly generous program to give away its AIDS-related drug, Diflucan, to government clinics in South Africa. Pfizer intends to expand the free-drug program to 50 poor countries, which together have an estimated 12 million people infected with human immuno-deficiency virus. Diflucan, an antifungal medicine, is used to treat devastating infections that commonly strike people infected with HIV. Worldwide Diflucan sales total $1 billion a year.

What could be wrong with such charity? After all, Pfizer is donating its medicine while companies like Merck and Bristol-Myers Squibb have only cut the prices of their AIDS drugs. Plenty is wrong, in the view of several nonprofit humanitarian groups, including Doctors Without Borders, Oxfam International and Treatment Action Campaign, a South African advocacy group for people with HIV/AIDS. Rather than donate drugs, these groups argue, Pfizer instead should lower the price of a needed medicine and allow inexpensive generics into the market.

This is not as crazy as it may sound. In South Africa drugs that are sold cheaply can be distributed widely in both public and private outlets, while giveaway programs involving the government choke on red tape, limiting the number of people who will get the drug.

Pfizer's Diflucan is donated only through public-sector clinics. That means a large segment of the population served by the private sector's 2,500 retail pharmacies do not qualify for the free drug. Those patients pay the retail price of $8 for a 200mg pill, or $3,600 to treat cryptococcal meningitis for a year. Many can't afford it. They could turn to the public clinics, except those are already hugely overburdened and not equipped to handle private-sector patients.

Instead, the aid groups argue, Pfizer should lower the price of Diflucan to between 20 cents and 40 cents. That's the approximate cost of a generic version, which is barred in South Africa but sold elsewhere. Distributed through the country's normal outlets--public and private hospitals, clinics and pharmacies--the drug could be obtained by many more people. Poor patients could always get government aid. "It turns out to be a very conditional gift," says Daniel Berman, coordinator of Access to Essential Medicines Campaign, a unit of Doctors Without Borders.

Politics of Pricing
Under pressure from generic manufacturers and AIDS groups, drug firms have sharply cut their prices in Africa.

*In combination. Sources: Healthcare Distribution Management Association; Forbes.In South Africa 4.7 million of its 42 million people are HIV positive. Although the program was announced in the spring of 2000, only 4,000 patients have received the Pfizer antifungal in 120 of the several thousand public clinics and hospitals. The company originally projected that 50,000 people would get the drug over two years. It's been slow going because the company had to meet with officials from each of South Africa's nine provinces, establish criteria for who would get and administer the drug, and ensure that the drug wouldn't be diverted out of the country.

"What are they talking about?" argues McKinnell, a target of AIDS groups for defending drug patent rights. The giveaway program, he says, is aimed at getting Diflucan into the hands of indigent patients who are served by the government--not the general population. Besides, he argues, price is not the reason badly needed drugs don't get widely distributed. "It is the lack of education, infrastructure and the security to get the drugs responsibly used."

Will Pfizer take a tax deduction for its program? "It's an offensive question," McKinnell snaps. "Absolutely offensive!"

He shouldn't be so defensive. Of course Pfizer will take a deduction--but even with the tax benefit, it will almost certainly be out of pocket for making pills and giving them away. Pfizer hasn't revealed its manufacturing cost, but the number is probably between 40 cents and 80 cents a pill.

None of this is good enough for the humanitarian groups, who suggest Pfizer should act more like its competitors. Under pressure from generic manufacturers and protesters, Merck lowered the price of its two AIDS drugs to cost in March for residents of 40 developing countries. It makes no distinction between public and private markets. Also in March Bristol-Myers started selling two of its AIDS drugs at below cost and has allowed generics to come into the sub-Saharan market.

McKinnell doesn't seem ready to change his mind. "We are doing more good for people than any other pharmaceutical," he says defiantly. "We should all be working together to get this horrible problem under control."