Expensive Pharmaceutical Products versus Cheaper Analogs

Many other drugs also lose patent protection leading to the creation of substitutes that are cheaper.

Economic: Globalization of the pharmaceutical industry is an exciting opportunity to have research and development done at cheaper prices in other countries. However, this could be a double edged sword for companies because it is easy for other countries, such as India, to produce generic versions of the drug in bulk.

Pharmaceutical companies are provided with temporary monopoly rights on the production of new drugs which result in a higher cost on consumers. If competing companies were allowed to produce generic forms of those drugs, consumers will be able to afford those medications even in cases where those consumers have no insurance coverage. The company responsible for developing and inventing the original medication could be offered incentives to invent in the future by either obtaining tax breaks or NIH funding for future research. They could even be offered a percentage of the sales of the generic drugs. Economist Gary S. Becker advocates dropping many FDA requirements that, in his opinion, provide no additional safety measures but rather delay the development of new drugs.[12] Betamethasone, for example, has been part of the standard prenatal care in Europe since the late 1970’s while it got adopted in the U.S. after 1997. On many occasions, the FDA ignores all scientific evidence concerning certain drugs because the manufacturer did not follow their mandated bureaucratic standards.

They have also attacked patent listings in the Food and Drug Administration “Orange Book” and have alleged monopolization through fraud on the Patent and Trademark Office and sham litigation. Yet other cases have condemned distribution agreements as unlawful exclusive dealing. These government actions have led to substantial private class action litigation against the pharmaceutical industry. The FTC has also challenged numerous mergers and acquisitions in the industry over the last decade. One common feature in all of these cases is the need to define a relevant market. In nonmerger cases, the FTC and private plaintiffsgenerally allege narrow markets, limited to a single drug and its generic equivalent in some cases and to generic drugs excluding the bioequivalent “brand-name” drug in other cases. In its merger challenges, on the other hand, the FTC has alleged markets ranging from those based upon a particular chemical compound, to broader markets based upon various drugs’ manner of interaction or dosage form, to still broader markets of all drugs used to treat a disease or condition. In numerous pharmaceutical merger challenges, the government has included in the market not only currently marketed drugs but also other drugs under development, alleging “innovation markets.”

2. Patent related and Generic Competition: The developed countries like US and Europe have strong patent protection laws which gives a lot of benefits for the pharmaceutical companies. But, the patent

Extremely risky drug discovery and development, lengthening development times which increase development cost, return on investments, and generic competitors.

Prescription drug prices are on the rise in the United States. Currently, the United States does not implement a price control on prescription drugs. Every day the supply and demand for prescription drugs fluctuates. Pharmaceutical companies produce drugs that are necessary for survival. Therefore, it is necessary for research and development to continue in the United States. Those suffering the effects of exorbitant prices must do so until a generic form of a prescription drug is produced. Once approved by the FDA, new drugs will make their appearance on the market and patients will no longer suffer financially. Until then, it is necessary for pharmaceutical companies to price their drugs based on the idea of supply and demand. This produces the profit used to fund research. Price controls discourage innovation. If a price control were set in place, of course the price of prescription drugs would decrease. However, the development of new drugs decreases with it. Today’s generation would benefit from lower prices, while future generations would suffer from the loss of drug innovation.

Some people believe that modern medicines are a better choice for healing, rather than the holistic approach. Qiuping Gu, the author of Prescription Drug Use, explained in his studies, “Over the last 10 years, the percentage of Americans who took at least one prescription drug in the past month increased from 44% to 48%”(Gu). This statistic shows that Americans are increasingly relying on medicines to heal themselves. This is not to say that prescription medications are the only method of healing for all people. Citizens in support of prescription drugs say that the FDA regulates drugs,

Another one of Porter’s five forces is the threat of new substitutes, which is the main problem in the generics market. A new firm must be cognisant of the fact that every company in the industry will be able to produce the same

While this case is literally full of negative aspects, we will only focus on the main points for both arguments. Pharmaceutical companies want to be sure that the products they spend years and millions of dollars to create are not easily reproduced and sold at discount prices. The profits pharmaceuticals make of their patented products are supposed to refinance new research. So taking away their exclusive distribution rights and allowing other manufacturers to just copy the product and sell it at

When it comes to market access mechanisms, there are many legal entry barriers into the healthcare industry relating not only to the preparation of a portfolio of prototype and innovative medicines but also to the control and determination of the respective prices by the applicable health policies (patents, drug approval process, health facilities, clinical procedures etc.). In contrast, healthcare organizations focusing on treatment for rare diseases face a low threat of potential substitute products (medicines) regarding treatment for rare diseases, whilst they have a strong bargaining power against various industry players that focus mainly in the production and/or distribution of highly marketable drugs and substances. In addition, traditional market access mechanisms relate to a great extent to payer cost control mechanisms and strategic pricing, factors that are mainly affected by market demand and the supply capacity of the healthcare

* Competitive Pricing – Merck is sometimes forced to lower prices of products, either ones that have gone off patent to maintain market share in the product, as well as for products that are still on patent in order to compete with rival products for the same treatment that are marketed by competitors

Moreover, generic drugs manufacturers sometimes start production of patent-protected drug analogues even before a patent expires. Although research-oriented companies in many cases are able to protect their patents, they do suffer from lost revenues.

GSK is the 2nd largest pharmaceutical firm in the world, and the largest in the UK by sales and profits, it is responsible for 7% of the worlds pharmaceutical market, and has its stocks listed both in UK and US (O 'Rourke, 2002). The origin of the so called blockbuster model, is partly linked with Glaxo (as it was previously known). In the early 80’s, then Glaxo brought to light their first blockbuster drug, Zantac, which was an anti-ulcer drug, which was very similar to the a pre existing drug Tagamet (first ever blockbuster) sold by Smith Kline & French, their completion at the time (MONTALBAN and SAKINÇ, 2011). The introduction of this drug, brought about an increasing sales force in the US, the company soon became dependent on the drug, because it represented a large part of their profit. In 2002, 8 blockbusters of GSK contributed to $14.240 million sales revenue, taking up 53% of its total ethical sales (Froud et al 2006). However, due to the nature of the pharmaceutical industry, the patent began to expire, in other to avoid the patent cliff, Glaxo merged with Wellcome in 1995, which ensured a growing number of sales force, and with Beecham in 2000 (Froud et al., 2006) this merger, boosted the confidence of investors, by growing the business inorganically. For Big Pharma, this block buster model is very profitable, because with the high cost of R&D, the drugs are able to generate ample profit, to cover the sunk costs

There were two important developments in the 1970s which further shaped the industry in the form that we see today. Firstly, the Thalidomide tragedy (where an antiemetic given for morning sickness caused birth defects) led to much tighter regulatory controls on clinical trials, greatly increasing development costs. Secondly, enactment of legislation to set a fixed period on patent protection (typically 20 years from initial filing as a research discovery) led to the appearance of “generic” medicines. Generics medicines are those that have exactly the same active ingredients as the original brand, and compete on price.