E-drug: Drug patents and prices
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The international pharmaceutical industry has been using the results of a
recent study to claim that the enactment of intellectual property
protection in developing countries does not affect drug prices.<1> The key
problem with this study is that it deals with the factory gate price for
drugs, i.e. the price that manufacturers charge for their products, not the
price that consumers pay for a prescription.
The importance of the difference between these two concepts, manufacturers
prices and prescription prices, can be illustrated by looking at what has
been happening in Canada over the last decade or so. Up until 1987 Canada
had compulsory licensing to import and as a result generic competitors to
the most popular brand name products were appearing 5-7 years after the
brand name product was marketed. Over the next four years compulsory
licensing was weakened and, in 1991, finally abolished. In order to try
and stop companies from overcharging Canadian consumers controls were put
in place that limited the introductory prices of new patented drugs and
restricted the growth of prices of existing patented medications to no more
than the rate of inflation.
As a result of these controls and the monopsony buying power of the
provincial drug plans, from 1988 to 1996 the price for patented products
rose only 1.2% per annum compared to an annual inflation rate of 2.9%.<2>
In contrast the average price of a prescription went up by 11.6% per year
from 1987 to 1993.<3> The reason for this difference is because newer,
more expensive drugs were replacing older, less expensive, but not
necessarily less effective, ones. The accompanying table illustrates the
discrepancy in price changes for the different groups of drugs. This sort
of product substitution was not something that started with the abolition
of compulsory licensing but prior to that time, the rapid appearance of
generic competitors served to limited the increase in the cost of a
prescription. The first generic competitor was generally priced about 25%
below the brand name product and by the time there were two or three
generic version the price differential was about 50%.<4>
The study by Rozek and Berkowitz briefly attempts to deal with this
substitution effect but in a very cursory way. If the pharmaceutical
industry wants to show that intellectual property rights do not affect drug
prices in developing countries then it needs to focus on what really
matters to people: how much they pay when they walk into the pharmacy to
fill a prescription.
REFERENCES
1. Rozek RP, Berkowitz R. The effects of patent protection on the prices
of pharmaceutical products: is intellectual property protection raising
the drug bill in developing countries? Washington: National Economic
Research Associates, January 1998.
2. Patented Medicine Prices Review Board. Ninth annual report for the
year ended December 31, 1996. Ottawa, 1997.
3. Green Shield Canada. A report on drug costs. Toronto, 1994.
4. Lexchin J. The effect of generic competition on the price of
prescription drugs in the Province of Ontario. Can Med Assoc J
1993;148:35-8.
Increase in prescription prices, 1987-1993*
Cost per prescription ($)
New Existing
Unpatented
patented patented drugs
drugs drugs
1987 - 23.79
10.38
1988 29.96 25.68 11.67
1989 32.45 28.17 12.59
1990 41.45 30.13 13.46
1991 45.90 31.63 14.26
1992 53.60 34.48 15.81
1993 56.07 35.75 16.16
Average 13.4% 7.0% 7.6%
annual
increase
1987/88-1993
*Includes manufacturer and wholesale distribution costs; excludes
dispensing fee.
[An edited copy of this message appears as a letter in the 15 August issue
of the Lancet.]
Joel Lexchin
Joel Lexchin MD
121 Walmer Rd.
Toronto, Ontario
CANADA M5R 2X8
Phone: (416)-964-7186
Fax: (416)-923-9515
e mail: joel.lexchin@utoronto.ca
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