How Businesses Use The Law To Their Economic Advantage  The Ethics of Pricing Drugs Learning Objectives  Recognizing ho

How Businesses Use The Law To Their Economic Advantage 

The Ethics of Pricing Drugs

Learning Objectives 

• Recognizing how our laws affect the cost of drugs in America
• Identify how laws can create lucrative business opportunities
• Understanding everything has a cost, balancing maximizing profits and the social good

Guidelines 

• Write at least 150 words.
• The majority of your post must be original words, thoughts and ideas.
• Identify the source of all information that you use.
• All posts must be typed in the discussion Canvas message box.
• Do not use one paragraph, separate into short paragraphs.
  Points will deducted if guidelines are not followed.

Note:  See grading rubrics for weekly discussions

Overview of the Law

Laws regulate the flow of goods and services throughout a society. Laws determine the direction and flow of the goods and determines who can take advantage of this flow before others. For example, a patent is a licensed monopoly. The federal government (i.e.,g USPTO – United States Patent and Trademark Office) grant license monopolies to inventors to commercialize their inventions before anyone else can profit from the invention. The theory being that it takes time and money to create the invention and the inventor should be able to recapture the fruits of his/her investment before the invention becomes freely accessible to everyone.

Drug companies rely on patents to protect their markets and to bring in huge profits. While they have a monopoly on the manufacture and sale of the drug, they can charge higher prices. The drug company may try to apply for additional patents to create a technology moat or fortress around its core patented technologies to extend the life of the patent to keep competitors out, or it may try to find new uses for its drug(s).

As the patent is nearing the end of its life cycle, the drug company begin to lower its prices to compete with the generic drugs in the same market space after the patent’s usefulness has ended. The drug company may move onto the next “big thing”  and leave the market to its competitors to pick up the scrapes of what is left. For many large multinational companies, a small market or a niche market does not produce the profit margins that they require to keep expending resources in a certain area. Generally, if the niche market size is less than $1 billion, major multinationals will pull out of the market space. It’s too small for them.

This creates business opportunities for the niche market players in the space. When the demand for the product is limited and the profit margins are too small, competitors will leave the market place.

The number of players leaving the market place may create a vacuum for a bit player to make a lot of money. Remember, in the capitalist market system, supply and demand is supposed to reign supreme. The government has regulated the flow of goods and services by implementing laws for the big Pharma players have but has neglected the small players and the fringe markets.

When the market is down to 1-2 players, they can pretty charge what they want based on what the market will bear.

Here are two examples of how drug companies were able to identify a niche market where there was a high demand for its product, they were the only manufacturer, the need for the product was great, the market for the market was very small, less than 2% of the entire US population used the product, and the profit margins were thin. What do these industrious capitalists do

Reading Assignment 

Read the articles below on how some pharmaceutical companies are changing the social and economic dynamics of the generic marketplace. These companies are buying up the right to manufacture and sell generic drugs (whose patent protection have long since lapsed) that have small niche markets. They are repackaging the drug and selling it for a higher price. In one case, a drug that cost $1.00 to manufacture and sold for $13.50 was rebranded and sold for $750.

Discussion Assignment 

Discussion whether you think its right for a drug manufacturer to take a life saving drug that is no longer patent protected and marking the prices up so as to make it virtually unaffordable except to the wealthiest people. There is currently no law that prevent this from happening but should we do it, why or why not? Are there other cases like this one? Should we allow market forces to dictate supply and demand? What is the role of government in this type of situation? Why or why not? Explain. You can use outside research to support your position. Please provide an Internet link to any sources that you used or cite.