Screwing Name Brand Pharmaceuticals

“Screwing the Brand Names,” an article from The Economist, is a commentary on the role the intellectual property rights of the European Union (EU) play in the expanding pharmaceuticals industry. The article specifically discusses the complaints that large drug companies (multinationals), such as Pfizer, have with the smaller drug companies found in many of the countries that have recently joined the EU. The multinational companies are responsible for almost all of the new drugs that result in the market from long periods of research, while the small companies in these new countries (such as Poland) produce generic versions of the name brand drugs, hence providing a cheap alternative to the “over-priced” name brands. As a result of these inexpensive alternatives, multinational companies have lost market share to generic drugs both from the consumer and governments, which has led to the companies’ arguments over the amount of time their patents on new drugs last for in the previously unregulated countries. According to EU legislation, the newly admitted countries must comply with the union’s rules on patents, but the multinationals are apprehensive to trust in the enforcement of these laws in countries that need to lower their healthcare costs.

On the surface, this article appears to be mainly about the discrepancies the multinationals have with the compliance of generic drug producers to EU guidelines on patents. However, the underlying issues that these patent laws pertain to are considerably more important than the legislation itself.

The most important issue to be addressed from this article is the necessity of profit maximization in regards to research-based multinational companies. When a multinational company introduces a new drug to the market, the price of the drug is most always much greater than the cost of production, contributing to the enormous operating profits that multinationals make. However, in order to bring that drug to the market, it may have taken the researchers five years to fully develop and test the drug. As a result, the research and development (R & D) costs to drug companies contribute to the massive fixed costs they must cover (see Appendix 1).

This leads into the problem with profits: when a local company produces generic drugs for a quarter of the price that the name brands are selling for, they essentially destroy the multinationals’ profit margins, effectively forcing them to drop their prices significantly. When the multinationals fear that they may no longer be able to be profitable, or at the very least cover their costs, then they lose their incentive to bring new drugs to the market. This creates a huge problem for the progression of healthcare because without new drugs, generics won’t be knocking anything off but future research and advancement.

The next issue ties into the main issue regarding profit maximization, but focuses on the role the