TD Fall Investing GuideTD Fall Investing Guide
http://www.canadianbusiness.com (© Rogers Digital Media 2013, All Rights Reserved.)
Updated: Fri, 08 Feb 2013 09:10:00 GMT | By Chris MacDonald

The pharmaceutical industry's competition problem

Generics gimped in drug fight.


 (© Photo: Pat LaCroix/Getty Images)

(Photo: Pat LaCroix/Getty Images)

Once again, the pharmaceutical industry is under attack for all the wrong reasons.

The problem is this: Many of the new generation of blockbuster drugs known as "biologics" are jaw-droppingly expensive, costing tens of thousands of dollars per patient per year or even per treatment. Such drugs aren’t made with old-fashioned chemistry, but are instead produced inside living cells, typically genetically modified ones, inside giant vats known as bio-reactors. To ensure a return on the expensive technology and research used to create these drugs, their makers are seeking government legislation to prevent generic versions from being used instead.

As reported in the New York Times , “Two companies, Amgen and Genentech, are proposing bills that would restrict the ability of pharmacists to substitute generic versions of biological drugs for brand name products.”

These companies are in the wrong, but not in the way you might think.

They claim they’re just trying to protect consumers. The generic versions, they argue, are typically similar, but not identical, to the originals. These aren’t simple drugs like Aspirin or the blood thinner, Coumadin. These are highly complex molecules, and the worry is that even slight differences in the manufacturing process could lead to problematic differences in form and function.

The makers of generics, for their part, acknowledge that worry, and say they’re fine with pharmacists limiting substitution to cases in which the Food and Drug Administration has declared two drugs to be interchangeable. But they oppose any further restrictions, including ones that might be imposed at the state level and for which the name-brand manufacturers are lobbying mightily.

What are we to say, ethically, about efforts by name-brand manufacturers to limit competition and thereby keep prices and profits high? Is it wrong of them to do this in a context in which health-care spending is out of control, and in which patients can die from being unable to afford a life-saving drug?

But as strange as this may seem, there is arguably nothing wrong with pharma behaviour that harms patients and strains private and public healthcare budgets. They aren’t responsible for the fact that people get sick, and they’re not (usually!) responsible for the decisions made by governments or by insurance companies. Their role, as one piece of the larger machine that is the free market, is to innovate and to compete. Innovative, competitive behaviour is good in the long run, but net social benefit is consistent with occasional less-good outcomes for some.

The real sin here isn’t against consumers or governments, but against the market itself.

Markets, and the businesses that populate them, can only promise to be socially beneficial when there is competition. When governments move to foster competition, businesses that profess to believe in free markets cannot rightly cajole governments to do otherwise. The same goes for using lobbyists to encourage government to make a market less competitive. After all, playing by the rules of the game is the fundamental obligation of business. But when it comes to changing the rules of the game, we have to look to the limits implied by the spirit of the game. That’s where pharma is going astray here.

Using government to limit competition isn’t just bad ethics, it’s bad capitalism.

Chris MacDonald is Director of the Jim Pattison Ethical Leadership Education & Research Program at the Ted Rogers School of Management.

More stories from Canadian Business

Scroll upScroll down

Recently recommended stories

advertisement