Pharmaceuticals, generics and health care

It is interesting how many misconceptions there are about the pharmaceutical industry. People seem to think that pharma are there to profit from their bad luck. I'm guessing that, since if everyone was healthy, there wouldn't be any customers, this is somewhat true. But, the drug prices have a strong logic behind them.

An innovative pharmaceutical company will spend from 500 million to about three times that amount in order to develop a drug. Early in this process they have to apply for a patent, good for 12 to 20 years. Taking into account the amount of time it takes to successfully bring the drug to the market, the company will have around a decade left to recuperate its initial investment and turn a profit before cheaper generic drugs can come out and take a big part of their market. Of course, the price of a drug increases with demand but there is a lot of cost involved with creating a drug that isn't included when people usually talk about the manufacturing cost of a particular product.

This is also why generic drugs can cost less, not because generic companies cut corners in manufacturing or that the drugs are of lesser quality. Generics are subject to the same regulations as the innovators. Because they don't have so much spending on R&D, generics can actually spend more on safety and quality than innovators. There are, of course differences. the pill might have a different shape or there might be other cosmetic changes which may appeal to some but be less ideal for others. But these are minor and, in a situation like Canada's, where there is universal health care, generics are an effective way to cut costs without any real sacrifice.

The United States are in the middle of a debate right now about whether or not they should adopt a universal health care system. No matter what then end result is, it is evident that they must find ways to save money (they are already paying too much as it is and costs are going up).

Even if it might hurt innovator companies in the short term, putting a greater emphasis of generics would be beneficial for them. In the long term, it would simply drive innovators to merge with generics, creating stronger companies. Competition would not suffer since, in theory, there would be the same amount of generic companies.

In the end, like pretty much everything in the world lately, the pharmaceutical industry is changing. Hopefully this will mean more profits for the companies while getting higher quality drugs for less money.