Pharmaceutical Companies and the Availability of Hiv Drugs to African Countries

851 Words Dec 9th, 2011 4 Pages
1) Is the monopoly on patented pharmaceuticals warranted? What barrier to entry prevents the re-importation into the United States of pharmaceuticals sold at lower prices abroad (say, in Canada)? Pharmaceutical companies try to maintain a monopoly in the early stages of a drug in order to recover R&D investment. During this period of exclusivity they will try to make a fair profit. This is not a monopoly in the true sense of the word because this period is limited in time. It is perhaps better to describe it as a limited warranty. There are also other limitations. Pharmaceutical companies in some countries may not respect intellectual property and may copy or produce generic drugs even before the patent expires.

An important
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The successful products must therefore provide sufficient margins to recover R&D costs and to finance future projects. Packaging and transportation will also result in significantly higher costs than say the manufacture of cereal.

Another factor for higher margins is the greater risk that pharmaceutical companies take on. It is impossible to tell whether a viable drug that is safe for the public will emerge, and competitors may launch a better drug in the time period between submission and regulatory approval. Because of grey trade, the company may also find its profit margin in high-priced markets being eroded.

Suggest an approach to the big pharmaceutical company problem of differential pricing in the US, Western Europe, and Japan versus the less-developed world.

At the moment, differential pricing is the pharmaceutical industry’s preferred solution to inadequate financial access to anti-retroviral (ARV) therapies for AIDS. Differential pricing permits drugs to be sold cheaply in low-income countries, while maintaining high prices in markets like the United States.

The alternative to differential pricing would be uniform pricing, wherein the wherein the seller sets one price, adjusted for transport, distribution and other costs, for all consumers and markets. Under such pricing, the seller maximizes his profits against global demand or