By Vinnie Aggarwal
From birth control pills to antiviral drugs, the pharmaceutical industry has shaped not only how people live, but has also been instrumental in pushing the limits of life itself. It is perhaps not surprising then that global revenues for pharmaceuticals topped more than $600 billion in 2007, with Americans spending $246 billion in 2009.12 But for all its enormous sales, bringing a drug to market is an equally risky and expensive business. On average, it takes $800 million and 10-15 years of rigorous research and development to develop just one drug.3 Although millions of compounds are tested, only about 25 truly new drugs enter the market each year. Once developed, it would seem morally wrong to deny a person access to life-saving medicine simply because they could not afford it. But if the price of a drug dropped to a point where it ceased to be profitable, than drug companies would have no incentive to develop it at all. Putting a price on life is a necessary condition of this business. What that price should be is continually evolving, and perhaps the most important factor influencing it today is healthcare reform, the generic drug market, and the changing sphere of the global market.
At the root of all these issues is the tension between access and incentive. While healthcare reform seeks to reduce the cost of pharmaceuticals and extend coverage, drug companies have sought to protect their interests through extensive lobbying - spending more than $110 million in the first six months of 2009 alone.4 Though the drug industry has agreed to shave off $8 billion a year for 10 years in overall costs, the drug companies have been raising prices at the same time, mitigating the effect of its future concessions.5 By agreeing to this compromise, however, they have received assurances that the Obama administration would not pursue government negotiation of Medicare drug prices or the importation of cheaper Canadian drugs.6 A different battle is brewing over how many years biotechnology drugs (known as biologics) will be afforded patent protection. Though only 20 percent of drugs on the market today are biologics, by 2015, it is expected that its share will grow to 50 percent.7 Pharmaceutical firms have succeeded in arguing for 12 years of patent protection (President Obama proposed five years), but the Federal Trade Commission argues that given the high barriers of entering the biologic market at all, any period of exclusivity could stifle competition.8,9
Perhaps drug companies are so adamant about extending their patent protection rights for biologics because of their experience with the current generic drug market. Indeed, in 2013, nearly $137 billion worth of branded products are expected to be lost due to the expiration of their market exclusivity. Generics are able to lower the prices of drugs and expand access in part due to open competition, the lifting of the research and development burden, as well as help from the substantial marketing that the patent-holder company has previously invested into a drug. At the same time, the FDA has increased its scrutiny, slowing the number of approved drugs and ultimately making the development of new drugs less attractive.10 Even big pharma companies such as GlaoxoSmithKline, Sanofi-Aventis, Novartis, and Pfizer are jumping on board with deals in emerging markets to enter into the generic drug industry.11
China, India, Latin America, and Central and Eastern Europe represent significant potential markets for the production of generic drugs. In addition, China is projected to become the largest consumer of generics by 2013, with 26 percent of the market share compared to the United States’ 20.5 percent.12 In fact, "pharmerging" markets in just seven countries, Brazil, China, India, Mexico, Russia, South Korea, and Turkey, are estimated to have contributed an unprecedented 51 percent to global pharmaceutical growth in 2009, and future growth is expected to continue to be driven by emerging markets.13 However, emerging markets often have weaker institutions and more dubious patent laws than in developed markets, which will certainly also have an impact on the ways that drugs are developed and sold in the future.
Of the 2,900 drugs currently undergoing research and development in the U.S., 312 are targeted toward heart diseases, 150 for diabetes, and 109 for AIDS.14 How many more of these drugs being developed and who gets access to them will affect everybody’s bottom line.
1New York Times, Business, February 4, 2010.
4Time Magazine, Politics, October 22, 2009.
5New York Times, Business, November 15, 2009.
6New York Times, Business, February 4, 2010.
7Time Magazine, Politics, October 22, 2009.
8Reuters, December 26, 2009.
9Time Magazine, Politics, October 22, 2009.
10The Wall Street Journal, June 30, 2008.
11Wall Street Journal, Health, May 20, 2009.