Competition and the Pharmaceutical Industry

The heightening of the intensity of competition in the pharmaceutical industry would alarm some who view the industry in its traditional compartmentalized form. In other words, there would be nothing new, at least not extraordinarily, in the order of business in the industry given the almost impenetrable, at least in theory, entry barriers that demarcate these compartments. The major pharmaceutical companies for examples customarily invest substantially on research and development (R&D) to produce new-patented drugs, for whose patents the smaller pharmaceutical manufacturers wait to expire before embarking on producing their often-cheaper, generic versions.

However, times are changing, with the former companies also venturing into the generics domain, as the patents of their hitherto-blockbuster medications expire, and competition becomes increasingly intense, not just due to, for example, globalization, but also government policies and regulations, and market forces or otherwise, among others. A July 2007 Fraser Institute study titled Canada's Drug Price Paradox 2007, for example found that Canadian prices for generic prescription medications in 2006 were averagely double the American prices for similar medications1. The study noted that Canadian generic prescription drugs averagely cost 115% more than in the U.S., 78% more in 2005, but that brand name prescription medications cost averagely 51% less in Canada than in the U.S., 43% less in 2005.

Noted the Institute's director of health, pharmaceutical and insurance policy research and co-author of the study, Brett Skinner, “These new findings show that prices for generic drugs in Canada have increased relative to the U.S., while prices for brand-name drugs have decreased.” He added, “Canadians pay more for generic drugs because government policies shield generic drug companies and pharmacy retailers from normal market forces that would naturally reduce prices.” The authors estimated that federal-provincial-territorial prescription drug policies cost the country between $2.5 billion and $6.6 billion in 2006, $20 billion and $26 billion between 2003 and 2006, and argued for jettisoning those government policies that distort the operations of the prescription drugs market.

There is no doubt that generics are going to play an increasingly role in the industry in the years ahead, and that competition would intensify even more in this sector. However, so would it in other sectors as progress in knowledge in medicine and related fields unveils our understanding of diseases and their mechanisms, and their cure, or amelioration. Biologics, for example, a variety of biopharmaceutical substances such as vaccines, allergenic, blood and its components, and cells and tissues, are potent treatment options for conditions such as rheumatoid arthritis, psoriasis, Crohn’s disease, even breast cancer, and would increasingly pose a major challenge to conventional pharmaceuticals in future.

Even in the biologics sector, concerns regarding the emergence of ‘generic’ versions are brewing, and as competition in this sector heats up, would likely constitute a legislative conundrum, as even now perspectives differ across the globe on this matter. The EU for example, has adopted an approval process for the so-called ‘biosimilars’2, such approval still being the subject of debate in the U.S.3.

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