Meeting Explores Pricing of Pharmaceutical Products

Population Briefs, June 2006 | Go to article overview

Meeting Explores Pricing of Pharmaceutical Products


For decades, patients, doctors, ethicists, and other observers have debated the economics of the pharmaceutical industry. What is the best way to get medications to the people who need them, regardless of their ability to pay for these drugs? Can prices can be lowered without jeopardizing basic research for new drugs? Are drug company pricing practices monopolistic? What are the legal and ethical obligations related to drugs developed--partially or fully--with public funds?

The Population Council convened a day-long meeting of an eminent group of academics, scientists, representatives from the nonprofit sector, the pharmaceutical industry; foundations, and government donor agencies, as well as practicing lawyers and doctors--all of whom have a connection with pharmaceutical products. The purpose of the Day of Dialogue was to explore ways of getting medicinal products--especially those invented and developed partially or fully using public funding--into the hands of the poor people of the world, wherever they live.

F.M. Scherer--Emeritus Harvard University John F. Kennedy School of Government professor and current lecturer at Princeton's Woodrow Wilson School--spoke about the economics of pharmaceutical research and development and product pricing. Scherer's analysis of profits from pharmaceutical sales and investments in research and development (R&D) showed that when profits increase, so does R&D. This suggests that pharmaceutical companies engage in what economists call "virtuous rent-seeking." However, said Scherer, there is still cause for concern. Most R&D is for diseases prevalent in industrialized countries, not those in developing countries. And, while profits themselves drive R&D, so does the threat that a company will lose profits (via patent expiration, for example).

Arthur Caplan--chair of the University of Pennsylvania's department of medical ethics--explored the question "Can ethics save pharma?" Caplan acknowledged that U.S. government funding is limited and will remain so for a while. He stated that those who seek innovation in drag availability and pricing will need to look to the pharmaceutical companies. Potential partners of pharmaceutical companies, however, must recognize and find ways to manage the ethical problems of the industry. Moreover, the pharmaceutical industry should rededicate itself to its scientific foundations and commit itself to heeding ethical guidance on how it carries out research, marketing, and sales.

Bayh--Dole Act

One of the key issues that arise in discussions of pharmaceutical pricing is the Bayh--Dole Act, a 1980 law that governs the status of intellectual property resulting from research funded fully or partially by the U.S. government. The law allows universities, businesses, and nonprofit organizations to retain rights to inventions they make or develop with federal funding. In exchange, these organizations are required, among other things, to promote and attempt to commercialize such inventions. …

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