Pharmaceutical indusrry - Essay Example

With this monopoly, comes a lot of power which gives pharmaceutical companies the incentive to focus on the large amount of capital needed for research and development. This then allows them to profit more from competitive companies by use of these patents. Without these patents, only one company, which had invested in research and development, would be responsible for development a new drug into the system. All the other pharmaceuticals would only be responsible for reproducing this new, innovative drug.

Pharmaceutical companies are trying hard to recover the research and development costs that are incurred during the innovation of a new drug. One of the ways of achieving this is by marketing these drugs. Unlike most consumer drugs that can be purchased from the seller to the buyer directly, these drugs have to be prescriptions from the doctor or physician. Without these prescriptions, the drugs cannot be legally sold. Since the physician does not stand to legally profit from authorizing the drug to be used, the drug companies stopped the advertising campaigns that were directed at physicians.

This was mainly because the physicians would likely act in their own interest, and in the best interest of the patient, as well. However, as time went by, the FDA (Food and Drugs Administration), began letting the pharmaceuticals to do direct consumer exchanges (Acemoglu, p 1). This made them target their advertising and campaigns to consumers. The aim of this was that when the consumer went to the physician they could ask for a drug. This in effect, increased the advertising costs and raised the costs of innovative new drugs.

Clinical trials have significantly increased because of the reduced willingness of test subjects. This coupled with greater challenges in drug trials are responsible for an increase in costs. Due to increased development,