Drug Firms See Poorer Nations as Sales Cure

by Avery Johnson
Excerpts from The WSJ

A strategic shift in the $770 billion pharmaceutical industry is now targeting the working poor in the developing world.

For the first time in a half-century, sales of prescription drugs are forecast to decline this year in the U.S., historically the industry's biggest and most profitable market. The Obama administration and Congress's attempt to pass legislation overhauling the health-care system, including provisions that could lower the cost of medicine, could put drug makers' U.S. businesses under further pressure.

As a result, developing countries like Venezuela have begun to look more attractive to the industry. Sales of prescription drugs in emerging markets reached $152.7 billion in 2008, up from $67.2 billion in 2003, according to IMS Health, which tracks the industry. IMS forecasts sales will climb to $265 billion by 2013.

With a handful of other drug makers, including the U.K.'s GlaxoSmithKline PLC, Switzerland's Novartis AG and France's Sanofi-Aventis SA, Pfizer is making a big push into the developing world. In addition to Venezuela, the company is expanding in China, India, Brazil, Russia and Turkey. Pfizer brought in $1.4 billion in sales from emerging markets in the first quarter of this year. That's a fraction of its $10.8 billion in overall sales in the same quarter, but a slice Pfizer says it's determined to expand.

Until recently, drug companies doing business in emerging economies have catered mostly to the wealthy and middle class. Now, Pfizer is turning to what it calls, in internal marketing discussions, the "bottom of the pyramid." Its program in Venezuela is an exercise in how to reduce prices enough to attract poorer customers while still turning a profit.

"There's an economy in the barrios," says Rafael Mendoza, the man Pfizer has put in charge of the strategy in Venezuela.

Pfizer is benefiting from a belief in Venezuela and in much of the developing world that branded medicines are worth paying a premium for because they're safer and more effective than generics. Pfizer's prices in Venezuela tend to be about 30% under U.S. prices, but are still 40% to 50% more than generics, which are widely available here since patents aren't usually enforced. In some cases, the spread is even wider. In a few Petare pharmacies, for example, Pfizer's cholesterol-lowering drug Lipitor costs between $100 and $125 a month for a standard dose, compared with less than $50 for a generic.

That can add up in a place where the monthly minimum wage is roughly $450. Some public-health officials question whether Pfizer is promoting what they say is an unfounded perception that generic drugs aren't trustworthy. "The quality of a product has nothing to do with the brand name," says Hans Hogerzeil, the World Health Organization's director of essential medicines and pharmaceutical policies.

Mr. Rodriguez's main approach in persuading Petare's doctors to prescribe Pfizer drugs is to emphasize the brand's quality over generics. He tells doctors that Norvasc, Pfizer's hypertension medicine, for example, stays in patients' blood for 56 hours, making it more reliable for older patients who might forget to take their medicines. Generic drugs, says Mr. Rodriguez, can't guarantee the same longevity.

He says patients in Petare will follow orders even if it means spending more. "If their doctor tells them -- their doctor from birth, the doctor they have had all their life -- 'Look, this is what is going to cure you, this is what will guarantee your health,' that's what the patient buys."

Pfizer also woos doctors by giving them computers and Internet access for use at their offices. In the U.S., the practice of drug maker "giveaways," even of items as small as pens and coffee cups with logos, has drawn fire for influencing doctors' prescribing, and the industry has voluntarily done away with most freebies.

In Venezuela and much of the developing world where doctors don't earn as much, the practice is more common, and it sometimes can benefit patients. At one of the clinics Mr. Rodriguez visited recently, for example, Carlos Serrano beamed about the computer and free Internet access Pfizer has given him. Dr. Serrano, who has practiced medicine in Petare for 30 years, uses the computer and a Pfizer "telemedicine" Web page to help diagnose patients online by communicating in real time with doctors in downtown Caracas.

Pfizer says the computers start out as loans and become permanent gifts once the doctors have shown that they are using them for medical purposes and have signed a waiver stating they understand they're not intended to influence their prescribing.

Dr. Serrano says he's increased by 40% the number of Pfizer drugs he prescribes since Mr. Rodriguez started calling on him in late 2007. The aid doesn't sway him, he adds. "There are some illnesses that have to be treated with a good product, no matter what the cost," Dr. Serrano says.

In the coming weeks, Pfizer plans to refurbish the crumbling exterior of Dr. Serrano's office and paint it with the logo of its program in Petare, called "Healthier Community," which combines "Pfizer blue" and Chávez red.

Mr. Rodriguez visits between eight and 10 of Petare's roughly 560 doctors a day. One group he says he's had less success with are Cuban doctors who staff the several dozen government-run clinics -- part of an oil-for-medicines swap between oil-rich Venezuela and the Castro regime. The clinics give away free drugs.

Mr. Rodriguez says he courted them for a year by passing them Pfizer-branded prescription pads, free samples and educational materials through the gates outside their buildings. At first skeptical, some doctors finally agreed to talk to him, says Mr. Rodriguez. He says he's now able to call on 17 of Petare's roughly 40 Cuban-staffed clinics.

Steve - kudos to WSJ for exposing this. They are using the same model with the developing world as they used in the U.S. Does this make your stomach turn as much as mine?