“Pssst, Looking for Some Cheap Drugs?”

2009-04-01 | |
Last updated: 2009-04-01

It seems that everywhere you look on the internet, someone is trying to sell us some type of drugs to treat what ails us. However the internet is simply the latest market in which to make considerable profits selling medicine to the masses. All those large pharmaceutical companies became so big because there is significant money to be made in the creation and sale of new drugs to all of us with medical issues.

When drug companies in the US get a patent or exclusive right to sell the drugs that they have invented, they currently have 20 years of monopoly over the sale of these drugs not including extensions that may be obtained if they “improve upon the original formula”. This means that for this duration of time, they ideally face no pressures from other companies that could reduce their profits by lowering the price on the same drug. However, in some cases, several pharmaceutical companies solve the same problem differently and some competition in prices may result. Alternatively, a different company may develop a much better drug that ends the market life of the first drug prematurely.

In the US right now, with all the focus on overhauling the health care system, the cost of drugs to the public purse is one target that is being eyed as a means of reducing the costs of running the health system. Considering that generic drugs or those without an associated name brand can be a tenth of the cost of brand name counterparts, this would seem to be an easy way to cut down the expenses of providing healthcare.

Towards this end, a Republican Senator and Democrat Senator have teamed together to propose a bill that would reduce the time for which pharmeutical companies would have exclusive rights to produce a medication that they have developed. The bill would allow the Food and Drug Association (FDA) to approve the sale of generic versions of drugs after only 5 years of monopoly by a pharmaceutical company. Based on comments made by President Obama, the introduction of competition from generic drugs would save the health system about $920 million annually. The savings to individual consumers would also be considerable.

However, with the costs of researching a drug and bringing it to market being estimated at somewhere over $800 million, the pharmaceutical companies are likely to put up quite a fight to prevent this bill from becoming law. When we are talking about the sorts of annual profits associated with drug sales being multiple billions a year for a successful drug, some serious legal and lobbying muscle will likely be seen in action.

While the concept of cheaper medications for the population is no doubt a good idea, the 5 year limit that these senators are proposing is too short given the risks that the pharmaceutical companies take to bring a product to market and the number of failed avenues of research that will be explored in the process. However, the current 20 year profit-making monopoly for certain medications is way too far in the other direction. In the 1980s, the effective life of a drug patent was 8 years, but by 2000, it had reached as high as 15 years, almost doubling. According to a year 2000 study by the National Institute for Health Care Management (NIHCM) the increase in the duration of the patent protection for the pharmaceutical companies did nothing to increase new drug innovation and instead simply protected the profits for these companies.

Another study from 2000 by the World Health Organization put the US as highest in costs per individual and 37th in terms of overall performance. There is no doubt that the costs of drugs have played a part in these rankings. Since 2000, costs for the health care system have continued to climb and Americans continue to seek out cheaper sources of drugs such as in Canada through online pharmacies or through cross-border shopping because the regulated Canadian prices are lower. Judging simply by the considerable efforts made by individuals to find cheaper sources of medication, it is clear that the drug costs are posing a significant financial burden that must be addressed.

To curb the cost pressures to individuals and to the health care system due to high medication costs, the life of the sales monopoly for a patented drug must be capped, but for a period of 8 to 10 years. With this sort of limit, the drug companies will still have plenty of profit incentive and incentive to continue innovating new drugs, but would lose their ability to milk the public to the extent that they have been for some 30 years. If the American public is to see a real overhaul of the healthcare system to make it more cost efficient, cheaper drugs must be a part of the formula.

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