Tiered pricing is the pharmaceutical industry’s answer to providing low-income developing nations with the drugs that they need. In order for pharmaceutical companies to cover their large Research and Development (R&D) expenses, they must charge a high price for their drugs while they are patented. Once a patent expires (usually about 17 years), the drugs are produced by several generic drug manufacturers that can charge lower prices because they don’t have the large R&D budget. Many low-income developing nations have the largest number of people who are in need of these innovative drugs (yet cannot afford them). As a solution, pharmaceutical companies employ a tiered pricing system in which they charge much higher prices in industrial countries, and a much lower price for developing countries.
One major problem with the tiered pricing system is that some deadly diseases don’t exist in industrial nations. This means that the pharmaceutical companies can’t use tiered pricing to cover their high R&D costs. As a result, there is no development by pharmaceutical companies of vaccines and drugs against some of the world’s deadliest diseases, such as malaria. This is where governments and companies fall short of expectations to be socially responsible and solve the problem of disease in developing countries. In the case of Malaria, not-for-profit organizations such as the Bill and Melinda Gates Foundation have stepped in to help fund the development and distribution of a vaccine that could help stop this deadly disease.
Written by Carl Phelps, Research Associate with GLOBAL ID LLC.
For more information, contact us: carlphelps@globalidllc.com
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