The pharmaceutical industry (aka “big pharma”) is dominated by about 20 goliath companies each with annual turnovers of tens of billions of dollars. Johnson & Johnson leads the pack with a 2019 revenue of $82 bn. Is bigger really better? Maybe it provides the finance needed to take the risk of bringing a new drug to market.
The cost of drug development is astronomical – roughly speaking $2 bn to take a drug to market, which is about half of the annual budget for all UK research councils combined. It is high, largely, because of the cost of failure – not in a “they did something wrong” kind of way – but just that biology is complicated and good early signs often lead nowhere. Only about 1 in 10 drugs that start human clinical trials make it to market – and those are only a fraction of the compounds that were tested, and failed, in the lab.
The argument, therefore, is that those few-and-far-between drugs that are marketable need to make lots of money to pay for all of the other failures. Someone has to pay for research and development either way. However, others argue that most of the intellectual property that is patented and profited by these pharmaceutical companies started off in publicly funded universities and so profits should not be pocketed by people who happen to have shares in those organisations.
Being focussed on profit also has a distorting effect on what is developed. It’s not a good economic business decision to develop a drug that cures people immediately – needing an expensive one-off fee for a pill. It’s much better if patients need to take medicines for life, providing a nice steady income for the manufacturer.
The good news is that even with the remedies for chronic conditions, the big players don’t get it all their own way. Once the patent protection runs out (after 20 years) other manufacturers produce generics - drugs made by the same principles as the original drugs, but sold at a reduced price as often the actual raw materials and manufacturing costs are a fraction of the branded drug’s selling price. Generics now make up about 50% of the market.
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