9.) Pharmaceuticals Flashcards
What is the process of drug development?
Chemicals analysed, animal trials, healthy human trials (testing if it is harmful), major clinical trials on people needing treatment, very expensive and long process. Need statistical evidence that the drug is safe and effective. Then firm will submit a drug application.
What happens to a drug once it is approved?
The drug firm has a patent (lasting 17yrs in the US), protected from competition, earn monopoly profits, has to establish itself in the market, can earn monopoly profits. Once patent expires, other companies produce generics, compete on price. Drug firms have to continuously innovate to stay profitable.
What is induced innovation?
Demand-responsive research and development.
What are patents?
Government-sanctioned monopoly in a limited market, usually for one specific idea, algorithm or product. Patents are typically awarded to the first person or firm that invents a new technology.
Why are patents so important?
They compensate for the large costs firms face during R&D. They insure innovation is financially worthwhile for firms. Without patents other firms could free-ride on the information acquired as drugs are easy to replicate.
What are the benefits of price discrimination?
Everyone has the opportunity to afford it, maximises the profit for the firms and ensures more innovations are made.
Why is price discrimination not common?
Political controversy and fear of price leakages, the reimportation of drugs and selling them at a lower price
What problems do drug firms face in developing countries?
Many do not have patent protection in place, meaning generic drugs are manufactured and deprive the innovators of profits. Little benefit of supplier to developing countries at all
What are price controls and their impacts?
Price controls set by governments, large buyers and have monopsony power. Controls prevent firms charging monopoly prices and limit the incentive for innovation but protect consumers.
How can price controls in one country effect other countries?
They impose a negative externality to all other countries. Other people outside this country will have to pay higher prices for their drugs. The US market offers the most incentives to drug firms, other countries benefit from R&D in the US.
What is induced innovation?
Discoveries that result when innovators change their research agenda in response to profit opportunities. For pharmaceutical companies, profit opportunities might include the outbreak of a new disease or a rapidly ageing population
What are orphan diseases?
Rare disease that receives little or no research attention from major drug companies. A disease that affects fewer than 200,000 people.
How are drugs regulated?
Drugs have to be approved after trials for safety and effectiveness. Most drugs are only available with prescription. This improves safety but makes drugs more expensive due to access and transaction costs. There is little advertisements of drugs
