The Multinational Monitor

AUGUST 1980 - VOLUME 1 - NUMBER 7


F O C U S   O N   T H E   P H A R M A C E U T I C A L   I N D U S T R Y

Bucking the Drug Industry

An interview with Dr. Zafrullah Chowdhury

In countries throughout the Third World, the majority of people suffer from woefully inadequate health care systems. In Bangladesh, health facilities are particularly dismal, More than 85 percent of Western-trained doctors serve the 10 percent of the population in the urban areas. Eight multinationals dominate the pharmaceutical industry there, demanding exorbitant prices and marketing an array of worthless and, occasionally, dangerous products.

Into this tragic scene steps Dr. Zafrullah Chowdhury, a person of visionary ideas and the organizational and leadership skills to put them into practice. Chowdhury's goal, to provide health services that meet the needs of the rural poor. His vehicle: Gonoshastama Kendra -the People's Health Center.

Started in 1971 as a field hospital for freedom fighters in the civil war with Pakistan the People's Health Center now serves a rural population of 110,000 in the countryside near Dacca. Operating through a network of village-based units, the Health Center relies upon a group of paramedics trained to perform simple operations. treat routine illnesses and advise on birth control methods and preventive health care.

Chowdhury couples his health care program with other projects designed to' foster local self-reliance, including a school, a vocational training program for women, and an agricultural cooperative in which all the People's Health Center staff participate.

For h is efforts, the 38-year-old Chowdhury has become a national folk hero. An d not surprisingly he is despised by the local landed elite, and alternately scorned and courted by national politicians.

Multinational corporations-playing a critical role in keeping even the most basic drugs beyond the reach of the country's poor-have no great love for Chowdhury either After more than five years of planning, People's Health Center will open a drug factory in late September, designed to produce 30 basic drugs for national marketing. Chowdhury, who has conducted extensive research on the structure of the Bangladesh pharmaceutical industry, expects to manufacture drugs of equal or better quality than those of the multinationals, and sell them at one half the price.

With his pharmaceutical plant, Chowdhury hopes to make essential drugs affordable for most Bangladeshis. The project, however, has additional purposes: to increase natonal awareness of the questionable business practices of multinational, drug companies, and to serve as a model for local and national self-reliance.

The interview was conducted by the Monitors Jonathan Ratner and William Taylor during Chowdhury's recent visit to Washington, D.C to attend an international health conference.


MULTINATIONAL MONITOR: Let's begin by examining the structure of the pharmaceutical industry in Bangladesh. What is the extent of the foreign corporate presence? In what areas of the industry-technology, marketing, etc.-do multinationals wield the greatest influence?

ZAFRULLAH CHOWDHURY: In Bangladesh, eight multinationals control 74 percent of the pharmaceutical market. Another 20 local firms-some with government participation-control 6 percent, and the remaining share is divided among more than 120 smaller local firms.

The foreign corporations are U.S., British and German. Pfizer, from the U.S., is now number one. Fisons, a small British company, has the number two spot. The others are the British Companies May and Becker, Glaxo and ICI (Imperial Chemical Industries), the U.S. companies Squibb and SKF (Smith, Kline and French) and the German firm Hoechst.

MONITOR: Are these eight firms all - full 1 foreign owned? Is there any local participation?

CHOWDHURY: Some are 100 percent foreign owned, others have local private and governmental participation. The Bangladesh government owns shares in several companies, including Squibb and May and Becker. On an equity basis the government has either a 49 percent or 51 percent stake, but in all cases the company holds managing control.

These firms are very clever. They have clauses in their contracts with the government that raw materials will be imported on a competitive international basis, but imports must be approved by the parent company. Consequently, raw materials are constantly being imported directly from the parent company or some other subsidiary. This arrangement allows for much price manipulation. In the international market, tetracycline is selling at between U.S.$40 and $50 per kilogram. Pfizer is importing it for between $120 and $150.

MONITOR: At present, do any multinationals actually produce drugs in Bangladesh, or are they supplied strictly through imports? Have foreign corporations built factories in Bangladesh?

CHOWDHURY:. In the past, all of these companies have had contracts-first with the government of Pakistan, then Bangladesh-pledging that they would bring expertise along with capital investment. They also agreed to produce two basic raw materials.

At present, we find that they are all doing formulations in the country, importing raw materials and then assembling them into tablets or capsules. But in terms of finance capital, they are not investing any money whatsoever. They are in business at the expense of local companies. As we all know, the multinationals have names tacked to them. By virtue of their names, they already have a good market and they successfully compete against Bangladeshi companies for finance 'capital loans from local banks. This is a most important point: multinationals are in business at the expense of local companies.

When Hoechst started its factory in the late sixties, total capital investment was $100,000. Some economists have calculated that the company recovered its initial investment after only three years. Bristol-Myers has been "producing" drugs in Bangladesh for ten or 12 years. Funny enough, they have got no factory. They didn't bring in any capital, just a one-room office. One of the national companies, Albert David, produces their drugs for them, and then Bristol-Myers markets them under their name. By the way, Albert David is a government company. It produces penicillin for Bristol-Myers with the same raw materials it uses for its own penicillin. Albert David's brand sells for half the price of Bristol-Myers.

MONITOR: You seem to imply that splits exist between foreign pharmaceutical companies and local producers. Do national firms produce fundamentally different sorts of drugs than the multinationals? Are there general price differentials between drugs produced by local and foreign companies?

CHOWDHURY: That's very interesting. The national firms basically produce the same drugs as the multinationals. Ampicillin is produced by foreign firms and local companies. Vitamins as well. In the area of prices, though, there is a wide gap. There are substantial price differentials among the multinationals, among the nationals, and there is a general price difference between the two types of companies.

In the area of local anaesthetics, a case recently came to our attention. We discovered that May and Becker was asking a fantastically high price for lignocate. Their figures showed that for 50cc of lignocate, the raw material cost three U.S. cents. Administrative costs totalled six cents, but they wanted 50 cents for the bottle. It had to be imported from Britain. They said that no other bottle would do, no other container was good enough for the drug. The final price they demanded from the government was U.S.$1.20. The government had to swallow it, or else May and Becker would not produce the drug.

MONITOR: From your discussion thus far, it would seem foreign pharmaceutical corporations must be making tremendous profits in Bangladesh. The New York Times recently estimated their rates of' return worldwide as between 20 and 30 percent. Do You have any rough idea of current profit levels in, the drug industry in Bangladesh?

CHOWDHURY: Oh, it's much more than that. It's important to remember that these 20 and 30 percent figures are profits made on the final product. But for any product, the foreign companies make tremendous profits in the early stages of production as well.

In Bangladesh, there is a ban on the repatriation of capital and profits. So how do the multinationals get their money out of the country'? It's very simple. They buy their raw materials at an inflated price from the parent company. They might make unrecorded profits of 30 percent on the containers, 40 percent on the raw materials, and 10 percent on shipping. All we can see are the paper-profits. Furthermore, these companies are run by expatriates from the home country. They appoint nationals who receive very high salaries and exist as their slaves. I'll tell you something about the people who manage these multinationals. The companies pay for their servants, houses, cars, trips, any damn thing they want, every damn thing you can think of.

MONITOR: How much accounting manipulation do you think goes on in the drug industry? Is the government making any efforts to collect a higher share of real profits in taxes?

CHOWDHURY: No, no. Third World countries are at a tremendous disadvantage when it comes to regulation. Though we criticize the multinationals, every Third World country is making tremendous efforts to attract foreign capital. The government doesn't want to disturb things. It knows what's happening, but feels the status quo must be maintained.

I would guess the government has been deprived of taxes on two-thirds of the real profits of these companies. One thing is certain. In Bangladesh, foreign corporations with some local private shareholders are paying annual dividends of between 50 percent and 70 percent.

MONITOR: For most of the drugs you have mentioned thus far, Western corporations have no stranglehold over the technology needed to produce them. The primary area where these seem to be exercising their power is in the marketing area.

CHOWDHURY: You are quite right. It is the marketing thing. In particular, they use their name. In a country like Bangladesh, the medical profession was trained in the U.S., England and other Western countries. The doctors are educated in the West and are familiar with American and British medical journals. At the same time, the institutions where they receive their training don't teach about pharmaceuticals. Sure, they know the names of drugs, but the medical colleges don't teach the economics of drugs. Doctors don't understand why there is such a wide variation in the prices of similar drugs. Basically, the companies are trading on the ignorance of the doctors.

To cite merely the ignorance of doctors, though, may be a bit too charitable. Many doctors have a direct financial interest in the status quo. The foreign companies have reached an agreement with the government that they can dispense 10 percent of their total production as samples. But they don't give free samples to every doctor. Instead, they single out the "top" hundred, those that can look smart, doctors who will wear a tie even in the hot summer.

MONITOR: The companies give samples to certain doctors and they dispense them?

CHOWDHURY: Yes, only the very prestigious doctors. The doctors then sell the samples.

MONITOR: I would think there would be a backlash of resentment.

CHOWDHURY: No, there is a strange psychology at work here. A doctor will see one of his colleagues receiving the free samples and think, "Well he is prescribing these particular drugs, if l don't prescribe them as well, the client will think I'm no good." What happens, then, is the higher the price of the drug, the better it sells. People think that even . if they have to sell their land or borrow money, 11'a drug is expensive, it must be good. This is a human weakness. The drug companies are playing on human weakness.

There is one more area of direct financial interest by doctors. As I mentioned earlier, several of the multinationals have local shareholders. Take the case of Pfizer, which is partially owned by Bangladeshis. There are only 45 shareholders in the entire country, all private capital. Of these 45, 44 are either doctors or doctors' wives. ICI is a similar case. Many doctors are beginning to form their own drug companies.

These companies are incredibly clever. The medical director of Pfizer's subsidiary in Bangladeshis a member of the Communist party. Here, then, they have the image of a progressive element in their management.

MONITOR: We've talked about how the companies are marketing. Lets discuss brief It' some of the more controversial drugs they are marketing. What sorts o/ drugs do they promote in Bangladesh that the to would not be happy to be seen marketing in other parts of the world?

CHOWDHURY: Take the case of noblyzene-noblyzene is dipyrone. This drug was banned in the U.S;. in 1963. It can still be found in Bangladesh. Two years ago, the government summoned the companies to stop selling it. The companies argued that they had produced so much of it, they needed until 1980 to clear their stocks. They were supposed to stop this year. Instead, they have spent more than two million in takas* to promote the drug. They invited every top doctor in the country to a seminar, they kept them in the Hotel Intercontinental and bought them huge meals. They also brought in five foreigners all linked to the multinationals as experts to speak on analgesics. These experts said "Well, the government allows aspirin to be marketed, then they have no right to stop noblyzene." We then got some journalists to ask why the drug had been banned in America. They said, "Oh, America is a funny country, FDA is too tough." Is it allowed in Britain'? They said they never applied for licensing in Britain. They convinced almost every top doctor in the country to say the drug should be continued. Fortunately, certain officials in the government were able to resist the pressure.

MONITOR: Clearly, -foreign corporations wield substantial influence in the drug industry in Bangladesh. Bur ,just who do they affect? Do the rural poor really feel the impact of artificially expensive drugs and high-powered promotion?

CHOWDHURY: All segments of the population are affected. You must realize that because of the exorbitant prices of drugs, only between 15 percent and 20 percent of the people can afford medicines. In the rural areas, because drugs are so expensive, people cannot possibly afford them. Number one, the doctors are not available, so they don't see a doctor initially. If they do go, they might get a prescription, but will not have the money to fill it. So they wait a few days. Finally, if they are very seriously ill, they have no choice but to buy the drug. They might have to mortgage their land, take a loan, and will still probably only buy half the required amount.

MONITOR: We want to give our readers some sense of the kind of medicine you are practicing. How has the People's Health Center developed?

CHOWDHURY: We are concerned with the mass of poor people in Bangladesh - over 90 percent of the people are living in the rural areas. We have built up two programs really. Our pilot program was started in 1971. It is located 22 miles outside of Dacca, in the administrative area of Savar. We have trained mainly young women, and some men, to deal with a majority of the diseases in the countryside. Not all diseases, but common ones. Since we realize that you cannot live on charity alone, the local people have to pay for the services. The area's population of 200,000 is divided into three categories. The poorest-those who have to miss at least one meal a week because they cannot afford food-- are Category A. Category B have never starved in their lives, but have never had a surplus either. They just manage on the margin. Category C has surplus food, surplus income. Under our plan. category A, the poorest have their health fully covered with one nominal fee. People in category B have to pay a fee of two taka every time they visit the health center. For people in category C, the charge is five taka. If they need to be admitted, they must pay extra money.

For the whole center, about 50 percent of our expenditures are covered by this insurance scheme. Besides our main center, we have centers for every 10 or 15 villages, each staffed by five paramedics. They are full-timers. They provide preventive care, maternal and child welfare, family planning and nutrition advice. They are also involved in education in a broader sense. The subcenters are used as community centers. We feel strongly that you cannot simply deal with health care in the narrow sense; in the rural areas, health care must be part of an overall development scheme. Our people deal directly with cultivation in the villages, they do extensive agricultural extension work. Unless you are really part of the development process you do not understand it. You don't understand the problems related to it, so you don't appreciate the whole thing. People's Health Center is a total development program.

MONITOR: How man t, people, would you sat,, are affected b to the work of Peoples Health Center?

CHOWDHURY: Well, 110,000 people are totally covered. We have their death rates, birth rates, infant mortality rates, every detail recorded. Another 100,000 people are partially covered. We recently started a second center 120 miles from the first and will start two more this year.

MONITOR: How are plans moving forward with tour drug plant? In your mind, how significant a step is it to go from providing health services to actually producing drugs?

CHOWDHURY: I think it's extremely important. Over the last eight years we have proven that if you give the opportunity and good training to ordinary people they can take charge of between 50 percent and 75 percent of their own health needs. By delegating some of the work now being performed by professionals, you can provide much better care. Otherwise, so long as the professional group will remain a small, elite circle, they will always maneuver to do unnecessary things.

When people are unaware, when knowledge is kept outside the people's domain, people can be blocked. We've proved that knowledge can be transferred to the people. After the knowledge is transferred, the people are trained, but they are without ammunition. In the health field, drugs are ammunition. We have given people a gun, but because drugs are so costly they cannot afford the bullets.

We have two motives for starting our factory. One, to produce drugs in order to cut down the profits of the multinationals, and to produce quality drugs at a cheaper price. Also, we wanted to introduce generic drugs, as an example to other doctors.

MONITOR: What role has the government played in the development of the plant?

CHOWDHURY: We had a tough time getting government approval for the factory. It took us three years. To finance construction of the factory we got a loan from a government-owned industrial bank as well as a grant from NOVIV, a Dutch organization.

MONITOR: How do the grant and loan break down?

CHOWDHURY: We are putting about U.S.$4 million into the plant. The grant will cover 75 percent of the costs, the loan 25 percent. Here it is essential that you realize one thing. In considering the prices of our drugs, the grant will be taken as a cost. We will put this pharmaceutical factory on a proper business footing. The trust that owns the pharmaceutical factory is a registered charity, so we could have established the plant on a charity basis and have been exempt from taxes. Instead, we chose to establish the thing on a proper business footing. That means we are going to pay as much tax as any other company has ever paid. We will pay the same custom duties, the same excise duties. No multinationals or national will ever be able to say, "Well, they are in a privileged position, that's why their drugs are cheap." The plant will open in September, and should be able to service 10 percent of the total market for the country in the first year.

MONITOR: It would seem that to be successful, you are going to have to fight fire with fire. How are you going to tell the people of Bangladesh about your products?

CHOWDHURY: Well, this is another issue. In our first year, we do not want to begin commercial marketing. We are afraid that while we can produce the drugs cheaply, retailers will not sell them at a low price. We are now planning alternative retail distribution systems.

For the first year, we want to supply two organizations-the government and UNICEF. Eighty percent of our total production will go to the government and UNICEF, only 20 percent will be sold commercially.

MONITOR: If the government initially opposed your plan, don't you think they might be purchasing your drugs as an act of appeasement?

CHOWDHURY: No, no. The government has agreed to buy our drugs for several reasons. First, by buying our drugs, they will be able to buy twice as much for the same amount of money-our pharmaceuticals will be sold at half the price charged by the multinationals. So for its own interest it will be buying them. Health services will improve.

MONITOR: After marketing to the government, will you begin to educate the mass of people before moving on to the retail market?

CHOWDHURY: We are trying to tell everybody how the drugs are produced. We wanted to advertise to everyone the economics of drug production. With ampicillin, for example, we would tell everyone, here is the international price of the raw material; with a kilo you can produce this many tablets; add in the administrative and promotion cost, and the capsule might sell for 75 paisha (five U.S. cents). We would sell it for 85 and make a 15 percent profit. By advertising, people would then be able to look at the price being charged by the multinationals and realize the percentage profit they arc making.

It all comes down to consumer awareness. We want to make the consumer aware. Unfortunately, the government has told us this is unethical advertising, they will not let us do it. We can put these sorts of advertisements into professional journals, but not into the lay press.

MONITOR: Why does the government say, "OK, we'll buy your drugs, but we won't let you market them directly to the people, creating demand from below? "

CHOWDHURY: This is how the multinationals and exploitive national companies survive-in the name of ethics, ethics to protect the interests of the exploiters. The government tells us drug companies are not allowed to advertise in the lay press anywhere in the world. We reply that nowhere in the world can multinationals exploit the people as much as in Bangladesh. The consumers must be given information to protect themselves.

MONITOR: How do the retail and institutional markets break down? Will drugs being produced by your plant be directly displacing those now marketed by the multinationals?

CHOWDHURY: Yes. Initially, we will be manufacturing 30 essential drugs to be sold under their generic names. Both the multinationals and nationals are producing the drugs we plan to sell. At the same time, l don't think foreign corporations will be affected much in the initial stages. The consumer market has been increasing, and we are aimed. - mainly at the institutional market. Today, multinationals supply only about 20 percent of the government market.

MONITOR: Some say the only, way to fundamentally' challenge multinational corporate power is, to establish an alternative retail distribution system, so you can control the price at which your drugs are sold ...

CHOWDHURY: Yes, this is true. But we will need the help of the government for this. We are trying to convince the Planning Commission to enact a partnership with us and form a retail chain with shops in every rural hospital in the country.

The idea is simple. The government has built rural health centers throughout the countryside. We want to set up a retail outlet in every 'health center. The government can provide the physical facilities since they already have the buildings and they're largely unused, and they can' come in as an equity partner. If they provide the space, we will provide the planning capital and the drugs.

We are not concerned about the ownership split as long as we have full control over management. This is the key point. This is how we will be able to run the outlets efficiently. We must have the right to hire and fire, we must have financial control. Through this system, we can ensure that our drugs are sold at o a fair price.

The problem with the government is, suppose you know that somebody is corrupt. You can not sack him; you have to show cause, and go through months and months.

But if there is someone who is doing the job honestly you must give him a good salary, you must give him the bonus, you must allow him to share the profits. I believe in the people; I don't think the people are basically dishonest. The system is making them corrupt and dishonest. So that's why we must start with five or six outlets and learn the process. That's why we cannot have a retail chain overnight in Bangladesh. It will probably take us five years.

MONITOR: I guess 1 just don't have a sense of how far the government can, be pushed. How far will the government go in cooperating with you?

CHOWDHURY: I think one thing has to be made clear. The government of Bangladesh is not a homogeneous body; there are a lot of conflicts of interest throughout the government. We have to attack the conflicts of interest within the government.

MONITOR: What are your plans for the revenues generated by the factory?

CHOWDHURY: Well, as I said earlier, :ouro insurance scheme accounts for 50 percent of our expenses. The remaining 50 percent comes from international donor agencies. With the money from our drugs, People's Health Center will become completely independent financially. Unless we really have a major disaster, which I don't foresee, if we make only a 10 percent profit, we will ' have sufficient surplus to become totally independent. The remaining profit will be plowed back into expansion of the factory, research, the development of herbal' medicines, and as financial aid to other organizations.

MONITOR: That leads us into a whole new area of questioning. Many critics of Western pharmaceutical firms cite their failure to carry out research and development on drugs appropriate to Third World needs, drugs to treat tropical diseases ...

CHOWDHURY: That's an important point. Just imagine, we have put 500 square feet for research and development in our factory. That's more space than the whole production area for one of the multinationals. We are picking the most qualified people nationally available to direct our R&D. We just hired a Bangladeshi manager from ICI. He had been working for them for 15 years.

MONITOR: Where will your research activities focus?

CHOWDHURY: For now, we will concentrate on the drugs we will be producing. We want to test local variations --temperature, humidity, all these things--and we want to make sure the drugs are of exceptionally high quality. After we step up production, our research cell will be focusing on both herbal medicines and Western drugs: That's important. You can't be too idealistic and say "No Western medicines, just local and traditional ones." Western medicine has much to offer as well.

MONITOR: Lets talk about your work in a more general political context. While dealing with the government and multinationals is crucial, aren't the feudal social and economic structures in rural Bangladesh an equally important impediment?

CHOWDHURY: The feudal structures, they are there, but they are working hand-in-hand with the government. There are family ties, land and other linkages between people in government and local landlords. The people in the government are the representatives of all the feudal interests. Otherwise, the feudal structure could not survive.

MONITOR: Will changing the governments perspective through lobbying and pressure really he sufficient or do You see a need to mobilize pressure from below."

CHOWDHURY: Pressure from below. You see, to really change things, pressure must come from the people. Then you might ask why the government would want to help. Because by pharmaceuticals alone we are not threatening them. In fact, ",care helping the government; that's why they are helping us.

MONITOR: Well, do You see your movement as integrally linked to organizing the rural poor."

CHOWDHURY: Our other programs are most definitely linked to organizing the poor. We are showing the potential for success with a responsive government and good organization. We have to show how Third World countries can survive with our limited resources and the help of the international community. We also have to make better use of the help others give us. We have to be able to stand on our own feet. We are not a basket case. If in five years we can show we no longer need help in the pharmaceuticals area, people will see we don't have to, and we certainly don't want to, live on charity.


*One taka equals approximately U.S.$.07.


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