Pharmaceutical Industry: Pricing, Patents, and Product Innovation

This case study explores the complexities of pharmaceutical pricing, patent systems, and product innovation, particularly focusing on the impact on third-world countries. It examines how the pharmaceutical industry utilizes patents to protect profits, leading to concerns about high drug costs, especially for diseases like malaria and HIV/AIDS. Key findings reveal that research and development costs significantly influence drug pricing, with patent systems playing a crucial role in recouping investments. The analysis delves into the sensitivity of patients and medics to drug pricing, the potential for competition to reduce monopolies, and the industry's substantial investment in marketing. The study reflects on the effects of price controls, the questioning of patent rights, and the challenges faced by low-income countries in accessing essential medicines. It concludes with questions about the effectiveness of price cutting and the necessity of patent monopolies, suggesting that competition could drive innovation and reduce costs. This document is available on Desklib, a platform offering a range of study resources including past papers and solved assignments.

Case study: product and service innovation1
Case study: product and service innovation
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Case study: product and service innovation
Background of the case
 Seeks to explain how pharmaceutical industries are overpricing drugs.
 The industry mostly imposes patent system on drugs used to treat malaria and HIV/AIDS.
 It mainly based on third world countries which are the most affected.
 To explore the area of intellectual property and the different forms of protection (Kyle
and Qian 2014).
 To control prices of drugs by involving regulatory bodies.
 To find out the relationship between research and development and the pricing (Renwick,
Brogan and Mossialos 2016).
Key findings
 The most affected countries are the third world countries.
 Huge amounts of money are used on research and development to innovate drug.
 Pricing of the drugs has been a challenge since it is dependent on the amount the
consumers and the government.
 Not only has the patent system in pharmaceuticals affected the third world countries but
also London, as depicted by the lady suffering from breast cancer.
 Patenting drugs has mostly been used to recover the huge expenses (Vernaz et al. 2013).
 The cost of most drugs is indirectly proportional to the cost of production
Analysis of developments
 Patients who consume the drugs and the medics who prescribe them are not
sensitive about their pricing.
 Competition in the industry can be used to slash down monopoly (Schoonveld
2016).
 The patent system alone cannot stimulate innovation.
 A lot of resources are used on marketing the existing products.
 The industry plays key role in science and technology.
 Many people are benefiting from it since it’s a huge employer.
Relevance of topics
 There has been substantial price drop on drugs by Britain companies.

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 Developing countries have benefited since drugs are being supplied at low
costs.
 Third world countries have demanded patent rights.
 Patent system has been used to carry out research and development
 Healthy competition has been born to cut off monopoly in markets.
 Free markets are essential for innovation in underdeveloped countries.
 The cost of production can now be systematically matched to the pricing
 Pharmaceutical companies can now venture into new product development
to come up with sophisticated drugs.
Reflection
 Price control can discourage rapid product entry in the market
(Schoonveld 2016).
 Questioning the patent rights system has effectively lead to growth in
technology.
 Reduced lead times and availability to consumers when countries regulate
prices
 High income countries have easy access to the market entry due to strong
patent systems.
 It’s unfair to turn the pharmaceutical industry into a money reaping
business.
 Intellectual property holders think the poor quality of enforcement in third
world countries lowers the value of patent rights (Kyle and Qian 2014).
Questions and answers
 Is price cutting a solution to relieving third world countries of burden of cost
of drugs?
YES. Price reduction has seen to it that developing countries get help they
need, cheap HIV medications and infectious diseases curbed effectively.
 Is it necessary to have patent monopoly to support research?
NO. Competition would enhance innovation and new product development at
low costs.
Question 1

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The price of drugs is not controlled by the government. If price controls were introduced,
companies would scale back their investments into research.
Question 2
The industry has a large variety of supporters and advocates and that thousands of people’s lives
are being saved and extended by new sophisticated drugs.
Question 3
The price is determined by government who are the main buyers.
Question 4
It’s costly.

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References
Kyle, M. and Qian, Y., 2014. Intellectual property rights and access to innovation: evidence
from TRIPS (No. w20799). National Bureau of Economic Research. [Online]. Available at:
https://www.nber.org/papers/w20799[Accessed on 18 March 2019].
Renwick, M.J., Brogan, D.M. and Mossialos, E., 2016. A systematic review and critical
assessment of incentive strategies for discovery and development of novel antibiotics. The
Journal of antibiotics, 69(2), p.73. [Online]. Available at:
https://www.nature.com/articles/ja201598 [Accessed on 18 March 2019].
Schoonveld, E., 2016. The price of global health: drug pricing strategies to balance patient
access and the funding of innovation. Routledge. [Online]. Available at:
https://www.taylorfrancis.com/books/9781317019305[Accessed on 18 March 2019].
Vernaz, N., Haller, G., Girardin, F., Huttner, B., Combescure, C., Dayer, P., Muscionico, D.,
Salomon, J.L. and Bonnabry, P., 2013. Patented drug extension strategies on healthcare
spending: a cost-evaluation analysis. PLoS medicine, 10(6), p.e1001460. [Online]. Available at:

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https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001460[Accessed on 18
March 2019].