Pharmaceuticals (L10)

Question 1

Big pharma is idea setting to study:

Answer 1

1. economics of innovation

2. economics of regulation

Question 2

Life cycle of a drug

Answer 2

1. Find chemical compound that might treat a disease
2. Then, test it on animals to show it’s not toxic
3. Test on humans in 3 phases
   Phase I: low dose to healthy individuals (~2 years)
   Phase 2: dose to unhealthy individuals (~2 years)
   Phase 3: test effectiveness in preventing disease or medical conditions (~3-4 years)
4. Get approved for sale by FDA, or similar body
5. Once approved, protected by patent (for 17 years in the US) (provides chance to recoup $$ spent on development)

Question 3

patents

Answer 3

create legal monopoly and opportunity for monopoly profits

Question 4

Patents in developing countries

Answer 4

monopoly prices weight more heavily on low-income populations

Question 5

free rider effect

Answer 5

if US has patent protections, companies will develop new drugs even if there are weak patent protections

Question 6

price discrimination

Answer 6

in theory, drug companies could sell their drugs for different prices in different countries. But in practice, black markets make this impossible

Question 7

price ceilings

Answer 7

set or negotiated by the government

Question 8

induced innovation

Answer 8

discoveries that result when innovators change their research agenda in response to profit opportunities. This harms rare diseases (orphan diseases) and diseases that occur mostly in developing countries).

Question 9

how to address induced innovation

Answer 9

advanced purchase of vaccines for diseases that affect developing countries
drug prizes

Question 10

type I and II errors

Answer 10

Type I error = bad drug is approved
Type II error = good drug is rejected or delayed

More incentive to avoid type I errors because of media attention. Type II errors are hard to catch