Social Marketing Strategies for Treating HIV In

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Putting Patients First : Social Marketing Strategies for Treating HIV in Developing Nations Zoë Chance and Rohit Deshpandé Journal of Macromarketing 2009 29: 220 originally published online 21 April 2009 DOI: 10.1177/0276146709334529

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Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 Journal of Macromarketing Volume 29 Number 3 September 2009 220-232 # 2009 SAGE Publications Putting Patients First 10.1177/0276146709334529 http://jmmk.sagepub.com hosted at Social Marketing Strategies for Treating HIV in http://online.sagepub.com Developing Nations Zoe¨Chance Harvard Business School Rohit Deshpande´ Harvard Business School

It is more than mere coincidence that the highest rates of HIV occur in the world’s poorest countries. Of the over forty million people currently living with HIV, 95 percent are in the developing world. The first part of this article explores the economics of HIV and treatment from a social marketing perspective. The second part of the article uses three specific case histories of successful social marketing organizations in Africa, Asia, and South America to inductively generate a consumer (patient)-centric marketing model. The focal organizations are unique in that they all identify patient needs first, then work backwards to develop economically viable solutions. Their solutions are not without flaws, and the future of these programs remains uncertain, but the authors hope that illuminating specific cases within the consumer-centric marketing paradigm will shed light on ways in which other organizations may be able to serve the poor profitably.

Keywords: social marketing; HIV; AIDS; pharmaceuticals; poverty

early forty years ago, Kotler and Zaltman defined to HIV-related health outcomes, good health is a key N ‘‘social marketing’’ as the design and execution of determinant of quality of life (Sirgy et al. 1991; Sirgy, programs to influence the dissemination of social ideas Hansen and Littlefield 1994; Rahtz, Sirgy and Lee through marketing processes (1971); Lazer and Kelley 2004). In a bottom-up spillover model (Diener 1984; (1973) further specified that social marketing aims to Sirgy 2002) in which satisfaction in different life enhance social ends as well as improve social conse- domains aggregates to overall life satisfaction, increas- quences of marketing policies. As Hastings (2003) has ing access to health care and medicines is an important more recently noted, this fairly intuitive notion of apply- step toward improving consumer well-being. ing basic marketing tools and practices to social prob- People living in poverty have little access to good lems has still not fully taken hold. For example, the health care and lack of health care contributes directly notion of being program- or product-driven rather than to poverty, particularly for those suffering from HIV/ consumer-centric is still prevalent, particularly in the AIDS,1 the most lethal epidemic in recorded history. The areas of poverty and health care, where applying what first case of HIV was reported in 1981 (Sengupta and Kotler, Roberto and Leisner (2006) call a ‘‘macro/micro Kumari 1990), and twenty-five years later, no cure had marketing perspective’’ would be greatly beneficial. The been discovered, although advances in drug treatment authors use the term ‘‘social marketing’’ to refer to the had made the disease manageable for those with access creative use of standard marketing tools in the service to medicine. The United Nations’ ‘‘3 by 5’’ directive set of public welfare, and they find that the key to econom- an ambitious global policy goal to increase access to HIV ically successful social marketing outcomes in the medicines in the developing world to three million peo- domain of HIV treatment is consumer or patient centri- ple by 2005 (UN AIDS 2005), and hence the authors set city. To be consumer-centric, a marketing program must their case discussions in that year.2 serve individual as well as collective welfare (Dholakia By 2005, sixty-five million people had been infected 1984), with end users of the product or program under- with HIV, and most of the forty million still living would standing its benefit to themselves and not just to the die without treatment. Although 95 percent of those greater good. Although the authors’ discussion is limited infected lived in the developing world, 90 percent of

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Figure 1 his or her spouse, putting their children at risk of losing Macrolevel and Microlevel Relationship Between both parents. HIV had orphaned ten million children by HIV and Poverty 2005, and it had been estimated that by 2010, forty-four million people would have lost one or both parents to the disease (Biehl 2004). In much of sub-Saharan Africa, the population was shrinking and life expectancy had been reduced by a decade or more. HIV and poverty exacerbated each other in a vicious cycle. The poorer a person was, the more likely he was to contract HIV (Berwick 2002); and as he ailed, he grew poorer still. HIV led to poverty on microeconomic and macroeconomic scales, impoverishing individuals, firms, and nations (see figure 1). At the level of the individual family, HIV-related illnesses led to loss of wages which limited food consumption, which caused health deterioration, which further compromised the immune system, which opened the win- dow for more opportunistic diseases requiring additional patient care, which led parents to withdraw daughters from school, leaving girls both orphaned and uneducated. These girls were less likely to understand HIV prevention, had lower earning capacity, and were more likely to trade sexual favors for food or gifts. This combination of factors Note. Chart begins at #1, with sickness lowering family wages, and put girls at high risk for HIV themselves. reads clockwise ending at #28, with macrolevel unemployment On a firm level, worker absenteeism due to illness, reducing citizens’ ability to pay for their own health care. death, funeral attendance, and caring for ill family members caused productivity to ebb. Simultaneously, those receiving treatment lived in the richest nations. The increased medical care and funeral expenses led to rising trend, however, offered hope, with antiretroviral (ARV) employee benefit costs that raised firm cost structure and treatment in developing nations doubling between 2004 depleted profits. In high-prevalence areas, the consumer and 2005. In this article, the authors discuss the econom- market base had shrunk dramatically due to mortality ics of HIV, then present a consumer-centric social mar- and income reduction resulting from illness and caretak- keting framework inductively based on case studies of ing expenses. As firms’ consumer base diminished, sales three organizations that enjoyed extraordinary economic declined, and investors, wary of increased risk, reduced success as they expanded access to HIV treatment: their investment. Thus, the cost of capital increased, Aspen Pharmacare in South Africa, Cipla in India, and along with firms’ fixed-to-variable cost ratio, putting the National AIDS Program in Brazil. Whereas market entire industries at risk. forces may frequently exclude the marginalized and the The macroeconomic impact of HIV was equally dire. poor from public health benefits (Varman and Vikas Disease prevalence could double within high-risk groups 2007), the authors’ focal institutions demonstrate that in six months and in the general population in three to five under the right conditions, market forces can be years, while socioeconomic improvements took decades employed in the service of the poor, helping them lead (Potts and Walsh 2003). As health care expenses rose, gov- healthier, happier lives. ernments reduced investment in infrastructure and development, which constricted the economy, which reduced tax revenues, contributing to ever-increasing national debt. HIV and Poverty As development stagnated, the poverty rate rose, which facilitated the spread of the disease, which expanded unem- Every day in 2005, more than 8,000 people died of ployment, weakening citizens’ ability to pay for health HIV-related illnesses and more than 13,000 were newly care. Government health care expenditures increased—at infected. The disease was particularly devastating to a rate higher than before—and the cycle continued. families. Due to its intimate mode of transmission, an In the United States, the annual cost of HIV treatment infected husband or wife was likely to pass the virus to averaged more than US$20,000 per patient (Schackman

Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 222 Journal of Macromarketing et al. 2006), but per capita government health care lamivudine until 2017—fifty-three years after its inven- expenditures in developing nations averaged only one tion (Hamied 2005a). thousandth of this amount (Partners AIDS Research Cen- A generic drug was the biologically equivalent ver- ter 2005). Furthermore, per capita treatment and preven- sion of a patented medication. It could be produced or tion costs were directly correlated with prevalence rates, sold in any country where the regulatory body had with infrastructure breakdowns causing expenses to sky- approved it and (1) the drug was not patented, (2) the rocket in countries with high rates of infection (Bonnel patent had expired, (3) national laws permitted an 2000). It had been estimated that in a typical sub-Saharan exception, or (4) the country had declared a national African country with a 15 percent prevalence rate, loss of emergency in accordance with WTO regulations. In potential gross domestic product (GDP) due to HIV could a national emergency, a country could lawfully award a be as severe as 4 percent per year (Dixon, McDonald and compulsory license to a generic manufacturer, paying a Roberts 2001), depleting health care funding along with 2 to 4 percent royalty to the patent holder; however, in other government reserves. For any HIV treatment strat- 2005, no country had yet done so. egy to be viable, therefore, it had to be offered to patients This discussion focuses on distributors of generic at an affordable price, yet also had to generate enough drugs and their dynamic relationship with patent holders, income or savings that the provider could treat a large a delicate balance between the protection and the over- patient base. ARV drugs could be manufactured inexpen- protection of property rights (McMillan 2002). sively; however, patent laws proved a major hurdle impeding their distribution. The Consumer-Centric Marketing Paradigm

International Patent Laws The authors’ marketing framework is rooted in a stakeholder model such as that proposed by Kennedy, Each country’s patent laws were unique, and firms Harris and Lord (2004), in which drug manufacturers and applied for separate patents in each country. The World governments work in tandem to meet the needs of Trade Organization (WTO), with a membership of 149 potential consumers, regardless of their ability to pay. countries, oversaw international patent issues. WTO Calfee and Bate (2004) and others have criticized this member nations abided by certain minimum patent stan- ideal as utopian and unrealistic, but the answer to their dards similar to those of the United States and Europe. assumption that low prices require erosion of profits is One hundred countries were in compliance with these that serving bottom-of-the-pyramid consumers not only rules already, and 49 nations classified as ‘‘least devel- could be a lucrative component of a for-profit business oped countries’’ (LDCs) had been granted a grace period model, for some firms it already is. until 2016. Thirty-five of these LDCs were in Africa, Traditional pharmaceutical marketing strategies, built where the impact of HIV had been greatest. In theory, around premium prices, monopoly profits, and a high these LDCs should have been able to treat their citizens cost structure, had led to profitability in well-established with low-cost generic versions of patented drugs, but markets but by 2005, they had proven inadequate for there were roadblocks to doing this in practice. Further- developing economies. Poor, ailing consumers had little more, some of the hardest hit nations, including South individual ability to pay and were hard to reach through Africa, lacked LDC protection. traditional promotions. In aggregate, however, they rep- Generally, patent laws protected the holder of the resented a tremendous potential market. Seventy percent patent, and in the case of the pharmaceutical industry, of people in the developing world lived in just nine coun- they gave the patent holder a twenty-year monopoly. tries (Brazil, China, India, Indonesia, Mexico, Russia, Although the effective coverage period was only seven South Africa, Thailand, and Turkey), with combined to ten years due to a long development cycle, firms often purchasing power greater than that of the United States extended patents on successful drugs by patenting (Prahalad 2005). And funding was available for the pur- similar formulations or new indications in a process chase of HIV drugs through charitable organizations like known as ‘‘evergreening.’’ For example, zidovudine the United States’ $15 billion President’s Emergency (AZT), the first and most popular HIV drug, was Fund for AIDS Relief (PEPFAR). Although the annual invented in 1964 as a potential cancer treatment and offi- per-patient price of ARVs ran as high as US$25,000 in cially went off-patent in 2005, but it continued to main- the United States, it was possible to earn healthy profits tain patent protection in a cocktail formulation with even charging a mere one-hundredth of this amount. As

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Figure 2 Average Expenditures in 2004: Cipla Versus Multinationals

Source. Adapted from Edgar Online, company annual reports, company web sites and Deshpande´2004.

Table 1 Traditional Versus Consumer-Centric Marketing in the Pharmaceutical Industry

Traditional Marketing Paradigm Consumer-Centric Social Marketing Paradigm

Key stakeholders Doctors, insurance companies Patients, governments and NGOs Source of innovation Products Processes Marketing focus Build demand for existing products Meet potential demand in a dynamic environment Sphere of marketing 4Ps (product, price, promotion, and placement) All business processes influence Sales focus Transactions Relationships Measurement of success Market share won from competitors, economic profits New patients served, economic profits (or savings) External orientation Protection of intellectual property through ‘‘Coopetition’’ with rivals, partnerships with governments ‘‘evergreening’’ of patents and NGOs Note. NGO ¼ nongovernmental organization. shown in figure 2, Indian drug company Cipla turned a is determined by insurers rather than patient willingness higher profit on its generic drugs than most multinational to pay. This model is too costly to implement in develop- firms did on their patented ones. ing nations where most people lack health insurance and Table 1 highlights some differences between con- have low incomes. sumer-centric and traditional marketing, illustrated using In the consumer-centric drug company, defining the observed generic and branded pharmaceutical company target market as the patient rather than the physician practices. These contrasts can be observed in more detail opens new markets where none existed—among people in each of the three cases. who cannot afford patented drugs—and forces firms toward innovation in all practices. By listening to the voice of the consumer in all business processes and Key Stakeholders working with patients as activists to identify consumer- Because drug sales depend on prescriptions, tradi- centric solutions such as promoting prevention and tional pharmaceutical firms focus their marketing efforts adherence through consumers’ social networks, these on direct sales calls to physicians, with marketing and firms benefit from low marketing expenses (see figure 2). sales expenses running twice as high as research and Partnerships with governments and nongovernmental development (R&D) costs (see figure 2). Drug pricing organizations (NGOs) further improve efficiency and

Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 224 Journal of Macromarketing grant access to additional revenue streams while assist- Sphere of Marketing Influence ing in the creation of health care infrastructure and programs. The traditional marketing mix toolkit consists of product, price, promotion, and placement (or distribu- Sources of Innovation tion). When product development timelines are long and business models rely on technological innovation, as Traditional drug companies make and sell premium- traditional drug companies do, marketers have little priced medicine. They are technology-pushed rather than influence over product offerings. Heavy sunk costs and market-pulled, making high-risk investments in research market uncertainty require premium pricing strategies, and development to secure patents for new formulations so marketing activities in big pharma are primarily and indications. These firms invest an average of promotion-oriented. US$500 million and ten years to bring a new drug to mar- Generic manufacturers, however, have the luxury of ket in wealthy nations, relying on patent protection to developing low-cost marketing strategies through protect monopoly prices. Only 30 percent of new drugs product, price, placement, and promotional synergies generate sufficient revenues to cover their development with operations. Marketing strategies inform decisions costs (Grabowski, Vernon and DiMasi 2002), so uncer- in supply chain management, consumer relationship tainty about the future of the market leads these firms management, customer service delivery, market knowl- to try to reap profits as quickly as possible. edge management, and innovations management areas. Consumer-centric firms, however, make low-risk investments in operations to serve current and potential Sales Focus customers. They innovate through business processes to reduce controllable uncertainty and offer medicines Seeking to maximize short-term monopoly profits by at the lowest possible prices. price skimming during their limited period of patent protection, multinationals drive sales transactions with a large direct sales force. Unable to afford a direct sales Marketing Focus force to promote low-cost products, consumer-centric The fundamental difference between the marketing firms develop context-specific partnerships, eliminating strategies of multinational pharmaceutical firms and the conventional classifications of competitors, suppliers, organizations profiled here is that big pharma business and customers. strategy is based on building demand for existing products through heavy marketing expenditures in high- Measurement of Success volume global markets, whereas these organizations strive Both consumer-centric and traditional firms depend on to meet potential demand in a dynamic marketplace. economic profits to ensure their survival, but consumer- Adaptability is the key to profitability in changing cir- centric firms seek long-term sustainable profits from cumstances, and consumer-centric firms strive to be mar- increasing the size of the market while traditional firms ket-driving as well as market-driven. When dealing with attempt to win market share from their competitors in a pandemic that affects families, firms, and nations, and high-priced markets. At a marginal cost of pennies per pill, when operating in a sensitive international regulatory it would have been possible in 2005 to provide ARVs to all environment, change is inevitable and hard to predict. patients who needed them, but multinational firms had kept Consumer-centric generic drug manufacturers have prices high to avoid price erosion as well as parallel import- responded to market volatility by (1) reducing uncer- ing, or arbitrage, in richer countries. According to Vachani tainty in areas under their control, making low prices and Smith’s pricing model (2004), based on the number of possible through preorder, prepay manufacturing; (2) patients in the developing world who were being treated at keeping in close contact with consumers to better foresee a price of US$10,000, dropping the price below US$1,000 opportunities and threats; and (3) developing contin- would have increased the consumer base by a factor of fifty gency plans as a matter of course. As they invest in nim- to eighty. This is precisely what the consumer-centric firms ble production capacity to respond quickly to change, sought to do. these organizations look for synergies at every stage of the value chain. By sensing and responding to changes External Orientation in the economic and political environment, these firms expand into new territories, allowing new consumers to The traditional stance can be characterized as def- participate in markets. ensive, the consumer-centric one as opportunistically

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Figure 3 When the HIV epidemic hit South Africa in the 1980s, Decrease in South African Life Expectancy Due the nation was suffering under economic sanctions from to HIV much of the developed world due to racist apartheid laws in effect until 1994. Political and social turmoil precluded a systematic response to the disease, and com- pared to its similarly HIV-stricken neighbors, South Africa was a sensationalized public relations nightmare. Global media regularly reported scandals such as how in 1999, the national AIDS program squandered 20 percent of its annual budget on a musical production (Cohen 2000). It was also widely believed that having sex with 100 virgins would cure a man of HIV (O’Reilly 2000). President Thabo Mbeki and Health Minister Manto Tshabala Msimang denied that HIV causes AIDS (Asser 2000), claiming the disease had been planted in Africa as part of an Illuminati plan for world domination (Hodge 2000).3 Although these incidents indicate a lack of public support for HIV patients, the more relevant rea- sons for the epidemic’s quick spread and devastation were widespread poverty, gender inequality, lack of education, high migrant worker population, and political turmoil focusing national resources away from health care. Simultaneously, the high prices of imported ARVs Source. Adapted from World Population Prospects: The 2006 Revi- precluded treatment for a majority of the infected sion (United Nations Population Division). population. For many years, South Africa had been one of the few cooperative. Patent holders seek to extend the monopoly African nations with both Western-style intellectual period of their intellectual property protection through property laws and a local pharmaceutical industry (Sid- evergreening, viewing generic manufacturers as ‘‘pirates’’ ley 2002). The nation made its foray into the global HIV and ‘‘free-riders.’’ These opportunists, however, are more battle in 1997, when the legislature, under then President likely to pursue business relationships with rivals, Nelson Mandela, approved the Medicines and Related making them suppliers, customers, and sometimes joint Substances Control Act and subsequently faced with- venture partners. drawal of US foreign aid and a lawsuit by thirty-seven The authors have presented a general classification of pharmaceutical companies (Deshpande´ 2004). Provi- consumer-centric marketing strategies, but since each sions in the act permitted compulsory licensing and market’s needs, capabilities, and restrictions are unique, parallel importing (purchasing patented drugs from other firms will differ in their tactics. They now present three nations with negotiated price reductions), guaranteeing ways in which organizations have leveraged the laws and lower prices for lifesaving drugs. Upon learning of the economic situations in their own countries to the greatest lawsuit, activists across the globe demonstrated publicly good of impoverished patients with HIV. against the drug companies that ‘‘would rather cure a bald American than a dying African’’ (McNeil 2000). The plaintiffs eventually dropped the court case, promis- Case 1: South Africa ing price reductions of up to 90 percent. These reductions, however, failed to materialize. South Africa was home to more people living with In 2004, the government found itself embroiled in HIV than any other nation in the world. In 2005, 5.3 mil- American party politics: both the Clinton Foundation, a lion South Africans had been infected—22 percent of non-governmental organization started by former Presi- adults aged 15 to 49 years, plus an additional 200,000 dent Bill Clinton, and then US President George W. children. In some areas, local unemployment rates were Bush’s PEPFAR were vying to negotiate pricing and as high as 60 percent. Average life expectancy had procurement terms for the country’s new AIDS relief dropped by twelve years due to AIDS, reversing half a program. The Clinton plan was more favorable, guaran- century of progress (figure 3). teeing access to low-priced generics, but the PEPFAR

Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 226 Journal of Macromarketing initiative had more funding, though it was earmarked for Pharmacare to export nevirapine to thirteen other Afri- patented HIV drugs. Adopting either plan could have had can countries. negative political repercussions, but local drug manufac- When in 2004, the Clinton/Bush dilemma hung in the turer Aspen Pharmacare was able to help South Africa balance, Aspen Pharmacare was successful in negotiat- realize the benefits of both the Clinton and the PEPFAR ing deals with all the major stakeholders. Because the plans through a determined focus on patient care and firm was manufacturing patented drugs, it was eligible cooperative business relationships. for PEPFAR funding, and after becoming the first generic firm approved by the Food and Drug Administra- tion’s (FDA’s) new fast-track process, it became the first Aspen Pharmacare generic firm approved by PEPFAR. Additionally, Aspen Pharmacare’s manufacturing costs were low enough to If you want to make peace with your enemy, work with supply drugs at the Clinton Foundation’s floor price, and your enemy. Then he becomes your partner. the firm became the Clinton Foundation’s first approved –Nelson Mandela, former President of South Africa supplier as well. Aspen Pharmacare also negotiated a fourth ARV marketing agreement, this one with Ameri- Founded in 1997 in a suburban home in the Kwa-Zulu can biopharmaceutical firm Gilead Sciences, for the Natal province, where the HIV prevalence rate reached rights to sell Gilead’s ARVs in ninety-five countries 33 percent, the highest in the nation (Leggett 2004), around the world. The South African government Aspen Pharmacare had quickly grown to become Afri- awarded Aspen Pharmacare the lion’s share of its public ca’s leading generic pharmaceutical manufacturer (The ARV tender for drugs to treat more than one million Economist 2005). 2005 was a record year for the firm, patients. The governments of Nigeria and Uganda soon with net profits up 39 percent since the year before followed suit, placing orders with Aspen Pharmacare for (Aspen Pharmacare, 2005). It was no wonder Aspen their own national AIDS programs. Pharmacare was a rising star on the Johannesburg Stock The firm continued exploring new opportunities to Exchange, combining solid financial performance with reduce costs and serve new patients. In September an unmatched core competence in business diplomacy. 2005, Aspen Pharmacare signed a joint venture with Rather than focusing on high-margin drugs, the firm was Indian generic pharmaceutical manufacturer Matrix, to committed to treating its nation’s biggest problem: HIV. strengthen vertical integration into active pharmaceutical Since patents protected all the major drugs for treating ingredients (APIs), the costliest component of its drugs. HIV and poor South Africans could not afford their high This investment in further manufacturing capacity would cost, Aspen Pharmacare worked to negotiate unusual allow the Aspen-Matrix JV to supply APIs to other nonexclusive licensing agreements to expand treatment manufacturers, ensuring a low-cost supply of drugs to to the poor, earn healthy returns and prevent price ero- consumers in Africa. sion in Western markets. The case of Aspen Pharmacare illustrates a skillful Aspen Pharmacare was the first African firm to enter balancing of key stakeholders’ interests, meeting patient the ARV market, and the first firm in the world granted needs while satisfying the requirements of funding voluntary licenses for the development and manufacture organizations, the South African government, and the of patented ARVs. Working with the national govern- patent-holding pharmaceutical companies. By partnering ment on an ARV rollout program, Aspen Pharmacare with potential rivals, the firm grew the market for ARVs launched a licensed version of American Bristol-Myers in South Africa—and elsewhere in Africa—as it saved Squibb’s patented stavudine in 2003, followed by Ger- lives while enhancing its own bottom line. man Boehringer Ingelheim’s nevirapine, for preventing mother-to-child transmission, and British GlaxoSmith- Kline’s lamivudine/zidovudine cocktail in 2004. The Case 2: India terms of these agreements reflected public relations benefits to the licensing firms: GlaxoSmithKline waived With 5.1 million people afflicted, India had the second its licensing royalty in exchange for a donation of highest number of HIV cases in the world in 2005. 30 percent of sales to local HIV programs (Vachani Health and wealth disparity went hand-in-hand, with the and Smith 2004), and Boehringer Ingelheim required poorest quintile of Indians suffering double the mortality no royalties or donations. Additionally, the Boehringer rate of the wealthiest quintile (Misra, Chatterjee and Rao Ingelheim agreement—the multinational firm’s first 2003). World Bank estimates predicted that during the nonexclusive voluntary license—would allow Aspen next ten years, as many as thirty-five million Indians

Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 Chance, Deshpande´/ Social Marketing Strategies for Treating HIV 227 could become infected—nearly doubling the number of countries, enabling the firm to provide low-cost medi- HIV patients in the entire world. The epidemic was still cines to the poor. nascent, however, with a national prevalence rate of only For seventy years, Cipla had pursued novel strategies 0.8 percent, so expedient action might contain it. for improving the health of the poor while enriching its Changes in India’s patent laws during the twentieth- shareholders (Deshpande´2004). During World War II, and early twenty-first-centuries had stimulated major when drugs were in short supply, Cipla began manufac- shifts in the country’s pharmaceutical sector, and more turing APIs for British pharmaceutical companies, and big changes lay ahead. From the early 1900s until after the war, continued producing these raw materials 1970, India had obeyed British-style patent laws, but in as well as a variety of generic drugs. Ownership over the 1970, Indian drug manufacturers successfully lobbied supply chain, from chemical ingredient to finished parliament to pass a Patent Ordinance prohibiting prod- product, provided the necessary condition for India to uct patents in the key areas of food and medicine. Indian reconsider its patent laws after independence. Whereas generic drug companies were soon outselling the multi- Cipla had been the fifty-sixth largest pharmaceutical national pharmaceutical firms that had dominated the firm in India in 1970, it gradually surpassed all the for- Indian market for decades and access to drugs expanded eign multinationals and secured the top spot in 2005. as prices dropped dramatically (Huang and Hogan 2002). As the company grew, Cipla focused its business on life- Patients in other countries benefited too, as Indian firms saving drugs and chronic medicines. Under India’s sold their generic drugs and bulk ingredients where laws revised patent laws, Cipla could reverse-engineer any permitted. By 2005, 50 percent of all generic ARVs dis- patented drug and sell it at an affordable price in all tributed in developing countries had been imported from countries where local laws permitted. India (Hamied 2005b). By the late 1990s, ARV cocktails requiring patients to In 2005, Indian generic firms were at a crossroads: take three separate drugs had proven effective for treat- India was required to comply with restrictive WTO intel- ing HIV symptoms, but because patent ownership was lectual property laws in January of that year, and because divided, no firm was manufacturing a combination of parliament had made the patent law retroactive, all these drugs. And because of the added difficulty of patents submitted since 1995 would be considered. Since obtaining the multiple drugs and timing their use prop- less than 1 percent of drugs produced in India were under erly, patient compliance was low. Misuse or sporadic use patent in 2005, there would be little effect on current of ARVs was of great concern because it resulted in the offerings; however, patents submitted in 1995 would spread of drug-resistant strains of HIV. Cipla scientists cover drugs only just reaching the market, so the future reverse-engineered the most promising and cost-effec- impact would be much greater. Poor patients all over the tive ARV drugs on the market to sell them at affordable globe might be unable to afford new treatments if Indian prices (Deshpande´ 2004). The firm approached patent firms could not produce them. holders for licensing agreements, as Aspen Pharmacare had but was refused and so pursued its own drug development. The process led to the creation of Triomune, a CIPLA patient-friendly, triple-therapy cocktail in one tablet that could be sold for less than US$200 per patient per year. Be the change you wish to see in the world. As of 2005, Cipla’s ARV business had grown to cover –Mohandas (Mahatma) Gandhi, former leader of the 150 countries and 25 percent of the total ARV market Indian National Congress (Hamied 2005b). Through the Clinton Foundation, Cipla (along with Aspen Pharmacare) sold triple cocktail One of the firms on which India’s pharmaceutical therapy for as low as US$140 per patient per year in future rested was the country’s top drug company, Cipla. some countries (Biswas 2003.) Cipla was a global success by any measure. During the How was Cipla able to sell Triomune for such a low previous decade, Cipla’s revenues had risen 25 percent price, when other firms were charging seventy times annually, and in 2004, sales growth outpaced the national more for the same three drugs? The crux of the firm’s pharmaceutical industry by 400 percent. The firm main- low-cost strategy was synergy between marketing and tained a healthy 22 percent net profit, outperforming operations. Serving the poor can require sale prices lower multinational companies that were charging up to twenty than competitors’ total cost, so consumer-centric market- times more for identical drugs. During the past three ing calls for reconceptualizing the business model. decades, India’s patent laws had given Cipla a Cipla recouped its greatest cost savings in marketing. unique advantage over generics manufacturers in other While multinational corporations were spending 33

Downloaded from jmk.sagepub.com at Yale University Library on June 30, 2012 228 Journal of Macromarketing percent of sales on marketing and administration, Cipla cycle could not continue indefinitely, of course, and spent only 9 percent on these tasks (see figure 2). There India’s 2005 patent laws challenged Cipla’s nimbleness were three main factors responsible for Cipla’s cost sav- in all the areas the authors have mentioned. Under the ings in marketing. First, like all generics companies, new laws, any drug granted a new patent (current or ret- Cipla benefited from marketing investments made by the roactive) would be off-limits for generic manufacturers firms that had originally brought these drugs to market until 2015 at the earliest. These laws dealt a huge blow and built demand within the global medical community. to Cipla, the national pharmaceutical industry, and the For this reason, some patent holders called their generic poor patients who depended on India’s low-cost generic rivals ‘‘pirates,’’ although they were operating in accor- drugs for their survival. As Cipla Chairman Yusuf dance with national laws. Second, Cipla’s message was Hamied put it, simple to communicate: low-priced drugs treating life- threatening conditions. Third, the firm leveraged social It will divide the human race into those who can afford and media networks through activist groups and non- lifesaving drugs and those who cannot. It will lead to a profit organizations. For example, when the company systematic denial of drugs to 3 billion people in the was ready to offer its first ARVs at the sensationally low poorer nations, an act tantamount to selective genocide price of US$350 per patient per year, Cipla made the by the year 2015. (Hamied 2005a) offer directly to global aid organization Medicins Sans Frontieres (Doctors without Borders; Deshpande´2004). It was unlikely most people in India would have Since it was the aid organization’s interest to drive prices access to new drugs in the future without government down around the world, its officers helped publicize intervention: issuing a compulsory license, mandating the offer and were instrumental in securing New York price caps, or modifying the patent law. (The chance of Times headlines—publicity no marketing budget could patent holders voluntarily licensing their products as they secure. did in South Africa was small, given their profit potential In addition to cost savings due to reduced marketing in the lucrative Indian market, and evidenced by the fact expenditures, Cipla streamlined its operations to reduce that they declined to do so when patent laws did not favor cost at every critical juncture. One of these was the their position.) Cipla, though lobbying for such firm’s pricing structure. Rather than segmenting the glo- government intervention, did not wait for a government bal market by country as its more traditional competitors decision. Keeping nimble, the firm began to devise new do, Cipla chose to offer a tiered pricing system to allow lawful ways to get around patent restrictions to continue purchasers to segment themselves. The requirements for serving the poor in other nations. In October 2005, the its lowest price tier were simple: bulk preorders, prepay- Ugandan Health Minister announced that Cipla and the ment, shipping and customs responsibility, protection Ugandan firm Quality Chemicals Ltd had signed a deal against price inflation of raw materials, and indemnity to partner with the Ugandan government in building from patent suits. These simple requirements dealt with Uganda’s first ARV manufacturing facility. Since two additional critical junctures: inventory cost and cash Uganda was one of the WTO’s designated LDCs, it flow. As it received preorders, the firm purchased raw would not be required to adhere to international patent materials and produced its product efficiently, minimiz- standards until 2016. The Ugandan ARV plant would ing inventory and waste. As it received prepayments, the manufacture new patented ARV drugs as they came to firm could pay its own suppliers in cash rather than market, distributing them to Uganda’s AIDS patients and credit, eliminating finance charges; invest the positive exporting them to Kenya, Tanzania, Rwanda, and other cash flow in company growth; and prevent bad debt. LDC nations. With Cipla’s assistance, Uganda followed With advance planning, manufacturing capacity could some best practices of the most successful state-run be optimized and manufacturing costs minimized. AIDS program in the world: Brazil’s (Xinhuanet 2005). Because buyers took responsibility for their own Cipla is an exemplar of consumer-centric marketing in shipping and customs, Cipla further reduced its own the ARV industry. The firm’s leaders were instrumental uncertainty and risk. in changing Indian patent law to protect patients in the Cost minimization is a virtuous cycle in the consumer- 1970s and continued evolving creative strategies to serve centric marketing paradigm. Low costs enable firms to patients too poor to pay the high prices of patented drugs. charge low prices, empowering more consumers to par- The firm leveraged NGOs in its communications strategy, ticipate in the market, increasing sales, leading to innovated in the areas of finances and market segmenta- increased economies of scale, and lowering costs. The tion, and increased the global market for ARVs.

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Case 3: Brazil middle- and upper class, well-educated communities meant patients had considerable political clout. Brazil’s case is interesting and important because Oddly, Brazil’s economic instability was another key although its AIDS program had been phenomenally suc- to the success of its National AIDS Program. From the cessful, similarly to India, it faced grave challenges mid-1980s to the mid-1990s, the new government was ahead in 2005. Unlike India, Brazil had continued sup- spending much faster than it was collecting taxes, stimu- porting its national pharmaceutical industry and its HIV lating hyperinflation of up to 2,000 percent. Government patients even when WTO patent laws went into effect. leaders realized currency devaluation would put Brazil was the first national government to fund ARV imported drugs out of reach, but because health care was production, declaring its commitment to patient rights a guaranteed right, Brazil’s leaders made the landmark above patent rights (Flanagan and Whiteman 2007). decision to ensure access to ARVs by investing in local When Brazil launched its National AIDS Program in production capability (Biehl 2004). 1992, the nation’s HIV prevalence rate was equal to South Africa’s, with a typical patient surviving only six months postdiagnosis. By 2005, Brazil’s National AIDS The National AIDS Program Program had become the global gold standard for Our position as government was not aimed at proposing fighting AIDS and had contained the epidemic to a the abolition of intellectual property protection, but prevalence rate of only 0.7 percent when in South Africa, rather to suggest and defend a position stating that patent the prevalence of the unchecked disease was thirty times rules must make it possible to achieve a balance between higher. The National AIDS Program had succeeded the objectives of the private and public interests. largely because it was a product of Brazil’s unique –Jose´Serra, Brazil’s former Minister of Health political, social, epidemiological, and economic circum- stances. Although thirty-one countries had adopted As the government of Brazil took steps toward solving Brazil’s treatment and prevention guidelines by 2005, the AIDS crisis, commitment to patients was complete only Guyana replicated the whole system. and unambiguous. In 1996, President Fernando Henrique Following an army revolt, from 1965 to 1984 a suc- Cardoso signed a law-making ARV treatment free for cession of military regimes ruled Brazil, suppressing everyone who needed it, for their entire lives. The com- individual rights, suspending constitutional protections, mitment to a problem rather than to a solution spurred and imposing press censorship. In 1985, Brazilians the National AIDS Program (and over it the Ministry democratically elected a civilian president, and in of Health and the Brazilian government) to develop 1988, they ratified a new constitution declaring health creative and efficient solutions. One roadblock avoided a universal human right. Many government leaders who by commitment to efficacy was moral rhetoric. The took office were former activists and union organizers National AIDS Program’s prevention practices all cen- favoring liberal social policy. tered on understanding the problem without blaming the Journalists and other individuals embraced their new patient. This consumer-centric approach helped recruit right to free speech, candidly discussing sexuality in gen- supporters from all the high-risk groups, even winning eral, and homosexuality in particular, and this openness the support of the Catholic Church in Brazil. Prostitutes’ contributed to the success of Brazil’s HIV prevention unions were highly active in shaping HIV education, social marketing program. One path of prevention was meeting regularly with the National AIDS Program to through schools, where students received HIV education help determine policy. The no-blame, human rights– and free condoms starting in their early teens. When the based perspective was so actively embraced that in the school program was initiated, only 5 percent of young summer of 2005, the National AIDS Program turned people had used condoms during their first intercourse; down US$40 million of USAID funding because the by 2003 that number had increased to 55 percent grant would have required recipients to sign a pledge (Olveira-Cruz, Kowalski and McPake 2004). condemning prostitution, which is legal in Brazil (Phil- The initial spread of HIV in Brazil, as in many other lips and Moffett 2005). nations, was among high-risk groups (gay men, sex By any measure, the National AIDS Program’s suc- workers, and intravenous drug users) in metropolitan cess had been dramatic. By 2001, it had averted half areas. The concentration of the epidemic was a favorable the 1.2 million predicted infections, decreased hospitali- epidemiological condition increasing the likelihood of zation and mortality rates by 50 percent, and reduced containment, and the fact that it had spread among mother-to-child transmission by two-thirds (Biehl 2004).

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Figure 4 Figure 5 Antiretroviral (ARV) Drug Price Reductions Brazilian Patients Served as Antiretroviral (ARV) Through Brazilian National AIDS Program, Costs Decreased, 1997–2004 1996–2002

Note. HIV-positive patients with a low viral load do not require ARV therapy. Source. Adapted from Brazilian Ministry of Health—Brazilian National AIDS Program. Source. Adapted from presentation by Pedro Chequer, Director of National AIDS Program, Brazilian Ministry of Health. Reisen de Pinho 2006) (see figure 4). Although Brazil The number of new infections had declined each year, had not yet needed to follow through with compulsory and 100 percent of reported HIV patients were under licensing, it lent credibility to its threat by offering treatment. Ninety-seven percent of the population knew guided tours of its drug manufacturing facilities to exec- how AIDS was transmitted, and free condoms and nee- utives of patent-holding multinational firms (Flanagan dles were widely available. It had been clear since the and Whiteman 2007). National AIDS Program began that the number of AIDS As seen in figure 5, price negotiations and economies patients would increase while the national health budget of scale in local production allowed the National AIDS remained constant and the currency fluctuated, so the Program to offer ARV therapy to an increasing number Ministry of Health committed to local production of of patients each year, saving thousands of lives. ARVs. In 1992, state-run pharmaceutical facility Far- The miracle of this successful social program was that Manguinhos started local production of AIDS drugs not it was a profitable business model as well, creating social covered by Brazilian patent law at that time, and these and economic value. The benefits outweighed the costs drugs were being distributed to patients by the next year in every way. Total spending on the National AIDS at a small fraction of the price of the patented versions. Program between 1999 and 2004 was US$2 billion, and By 2005, Far-Manguinhos manufactured more than 20 savings in reduced hospitalizations and discounted drug percent of the ARVs distributed in Brazil, at an average prices was US$3.8 billion—a nearly 100 percent return cost savings of 60 percent (company Web site). The on investment. Shrewd business management was at the greatest economic advantage of local production, how- root of the National AIDS Program’s processes and prac- ever, had been in leveraging price negotiations with tices, such as maintaining a central database to ensure pharmaceutical patent holders. Since the late 1990s, proper treatment and control inventory, implementing Far-Manguinhos had been reverse-engineering all the mobile treatment units to reduce hospitalizations and HIV medications on the market so that at any time, working with activist groups to spread social marketing Brazil could declare a national emergency and begin messages. Through its Positive Future project, Far- full-scale production of these drugs. Price negotiations Manguinhos cooperated with other nations to set up local had repeatedly made global news as Brazil bargained generic ARV production. In 2005, Brazil entered into an down patented drug prices by 40 percent to 60 percent, agreement to build the first generic pharmaceutical fac- a total reduction of 87 percent when combined with tory in Mozambique (Valy 2008), and other countries Far-Manguinhos-produced medicines (Deshpande´ and were considering local production as well.

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The case of Brazil’s National AIDS Program demon- own governments. All these upstream groups (Andrea- strates that public organizations can use the same con- sen 2006) must focus on the needs of the patients first, sumer-centric techniques as private firms, resulting in and profits will follow. The customer-centric model illu- savings that allow broad patient coverage. As the country’s strated here may also be applied to other diseases preva- leaders committed to providing HIV treatment free of lent in poor nations, and future research could further its charge, National AIDS Program leaders were forced to application in non-health domains as well. be resourceful as they worked within a limited budget. Threatening to produce patented drugs under a compulsory licensing program permitted by the WTO’s Doha Declara- Notes tion enabled health officials to negotiate low prices from patent holders, increasing the drug treatment base to all 1. HIV is the virus that causes AIDS, with AIDS being the final Brazilian patients who needed medication. By 2005, these stage of the disease. The distinction between the two is based on a threshold number of T-cells present and the presence of one or more were nearly half the total number of patients in the develop- opportunistic infections. In this article, the authors will generally use ing world receiving ARV treatment (Reid 2004). the broader term ‘‘HIV,’’ which encompasses all AIDS infections. 2. This goal was achieved at the end of 2007. At the time of this writing, ‘‘All by 2010’’ was the current target. Conclusion 3. Mbeki was forced to resign in September, 2008, after a progres- sive loss of political support due in part to his mishandling of the HIV crisis. 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