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Price controls and compulsory licensing give buyers more power … for a price.

Countries use various methods to control drug expenditures. Beyond simple negotiation, countries can also implement price controls or use WTO-authorized compulsory licensing, which enables a country to produce generic versions of branded drugs if they face a health crisis without violating international patent agreements.

The United States threatened to use compulsory licensing to acquire cheap stocks of the antibiotic Cipro in the wake of anthrax-tainted letters being sent through the mail. Thie threat of compulsory licensing was sufficient to compell Bayer to reduce the price of the drug.

It doesn’t always work out so favorably, however. New Zealand nearly saw AstraZeneca pull out of their market in the face of Zoladex price controls. More recently, Abbot has threatened to stop licensing any drugs to Thailand.

The bottom line here is that there is a clash of interests. Countries need to reduce the burden of health care expenditures on their economies, and drug companies need to recover development costs and make a profit. Price controls and compulsory licensing give countries leverage over drug firms, but if these measures eliminate profits, drug companies are liable to simply stop selling drugs – and also stop developing drugs – for specific markets.

So, what is the solution? How do countries which can’t afford to pay for drugs get drugs developed for their specific needs? Organizations like OneWorld Health and the Bill and Melinda Gates Foundation specialize in developing drugs for needy and under-served markets.

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