Pharmaceuticals Regulation

Drugs in Emerging Markets

Governments in emerging markets want their citizens to have better drugs. The big pharmaceutical firms are keen to sell to them. But they are fighting bitterly over the terms. – The Economist.

Should emerging markets compel companies to sell drugs to them?  As an economist, I am by nature averse to government coercion.  When people are dying from HIV and other diseases, is there a case to be made?

I would argue that the answer to this question is yes and no.  On the one hand, I would allow drug-makers to enforce their patents and be able to sell only to individuals at any price they wish.  This approach will have an adverse effect on patient health for those suffering from these drugs.  However, allowing drug makers to leverage their patents will increase drug company profits and encourage them to produce more drugs that can help individuals with other diseases.  This will help drug makers cover the $800 million it costs to develop a drug.

Now I said that drug companies should have the freedom to sell drugs to who they want at any price they want.  Drug companies ability to price drugs as a monopolist, however, should be significantly curtailed.  Patents for drugs in the U.S. last between 20 and 30 years.  This is way too long.  A 10 year patent is likely sufficient.  A shorter patent window incentivize generic drug makers to begin production rapidly; further the price of drugs would drop much quicker than would be the case for longer patents. Other drug companies can modify the drugs once they come off of patent and potentially improve their efficacy or reduce side effects.

This balanced approach will help drug makers increase profits in developing countries in the short-term but will increase patient access to these drugs in medium to long-run.

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