New essential drugs are often expensive
Affordable prices are important for both public and private sectors. The issue of affordability is becoming more important because resistance to well-known antibiotics, which are widely available as generic products, is increasing. New essential drugs for the treatment of some infectious diseases, such as malaria, tuberculosis and HIV/AIDS, are often very costly.
In a perfect market, buyers and consumers are left to transact their business, and the balance between supply and demand results in a reasonable price. However, conditions for such markets are rarely met in pharmaceuticals because of the following factors:26
• Information imbalance. The patient knows less than the prescriber or the dispenser about the efficacy, quality and appropriateness of the drug. This can result in misleading advice and miscommunication, and ultimately inappropriate drug use. For markets to work properly both buyers and sellers should have complete information.
• Failure of competition. This occurs when market power is created through exclusive rights, such as patents and trademarks, and when production is concentrated in a small number of suppliers.
• Externalities. Some health services (such as childhood immunizations, and treatment of tuberculosis and sexually transmitted diseases) benefit not only the person using them but others whose risk of illness is reduced. These third party or “spillover” benefits are externalities. Such health services, with large public health benefits for society as a whole, cannot be left to the market and justify public investment.
International trade agreements
The Uruguay Round of trade negotiations under the General Agreement on Tariffs and Trade was concluded in 1994. The World Trade Organization (WTO) was created to administer the new multilateral trade agreements that include the comprehensive TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights). TRIPS sets minimum standards in the field of intellectual property and obliges WTO Member States to grant full patent protection (both process and product patents) for at least 20 years; this includes pharmaceuticals.
Social benefits may arise from patent protection, through the development of new drugs. Developing countries should be aware of the implications for local pharmaceutical production and the possible increased cost of some finished products in the future. The impact of the TRIPS Agreement on access to drugs should be carefully monitored and evaluated.27, 28
The pharmaceutical industry is changing as the result of a wave of mergers, acquisitions and strategic alliances. The generic industry is also consolidating.