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posted on 10 November 2015

Why The Drugs Market Is Not Working And What We Can Do To Fix It

from The Conversation

-- this post authored by Martin Chalkley, University of York and Paul Revill, University of York

When the new owners of a life-saving AIDS drug raised its price by 5,000%, an online backlash forced the CEO to change his mind. While the public might have been outraged, this was hardly the first time the pharmaceutical industry failed to make a cheap-to-produce but essential medicine easily available to those who need it.

Earlier this year, experts warned that a vital snakebite antidote had been withdrawn from the market by its manufacturers and that soon there would be no equivalent treatment available at all.

Too often the knowledge and the means to save lives are put at risk by problems with the pharmaceutical market. When these medicines are already developed and can be produced at modest cost, it is all the more frustrating and morally questionable.

We live in a world where the economic system can generally be relied upon to produce things that people want or need - even when those wants and needs could be viewed as trivial. So why, when it comes to something as important as life-saving medicines, does that system sometimes fail us?

Market failure

There are a large number of factors at play, but at the heart of this issue is the way in which these markets work, and sometimes don't. A market is a way for companies to know how valuable their products are. When it works, it is something of a wonder, anticipating the things we want or need at prices that we are willing and able to pay.

But while life-saving medicines have enormous value to those who need them, they are often priced higher than health care systems in low-income countries can afford. This leaves many in the poorest parts of the world without access to even basic treatments.

To understand why that might happen, we need to delve deeper into the workings of markets. The arrangements in the markets for life-saving medicines - - especially those that target diseases prevalent in low-income countries - - are complex. They are characterised by powerful interests, on the sides of both producers and purchasers.

One obvious way we can see this is in how a drug's developer is granted a legal monopoly over its sale through patents and licenses, preventing other companies from reproducing the same drug at a cheaper price. Producers then can (and do) sometimes target very high prices.

Some producers point to the very high costs and substantial risks associated with developing new drugs to justify these prices. They argue the patent system is a means of generating the necessary finance for these risky investments.

We care more about treating baldness than malaria. Reuters

But there is a problem. Through the patent system we are inherently relying on prices to generate incentives for investments. This makes life-saving drugs often unaffordable and skews investment in favour of those drugs that can command the highest prices rather than those that may save the most lives.

The result is that more is spent on R&D for minor ailments in high-income countries, such as for hair loss, than for major global killers afflicting mainly the poor, such as malaria.

Against this backdrop, big purchasers such as governments and aid agencies try to steer a course between negotiating lower prices and encouraging investment in new drugs - and keeping existing ones on the market. They too have limited budgets and cannot know for sure what prices they can afford in the long run.

This means the availability of drugs and the direction of R&D expenditures depend upon the actions of multiple agencies across different countries. If the negotiations go wrong or buyers don't signal enough demand to manufacturers, vital drugs such as snakebite antidotes may cease to exist.

New ideas needed

There are some success stories in markets for pharmaceuticals in low-income countries. The prices for HIV medicines, for instance, have fallen by more than 99% from US$10,000 per patient per year in 2000 to less than $100 today. This has enabled coverage of HIV treatment in Africa to increase from less than 1% to more than 40% of all those infected.

Today, organisations such as the Clinton Health Access Initiative (CHAI) and the UK Department for International Development remain active in stimulating competition and negotiating with manufacturers to further reduce prices of HIV drugs.

In other, lower-profile disease areas, notable successes have been fewer and a more systematic change in drug pricing is required. One idea is to pay drug companies for the impact their pharmaceutical innovations have rather than the number of treatments they produce. Another is to set prices based on different countries' abilities to pay.

Others have called for patents to be temporarily suspended or shared during public health emergencies so cheap, generic versions of drugs can be produced. If pharmaceutical markets are to keep fulfilling our needs, it may be that they need to follow these ideas and take their own life-saving medicine.

The ConversationMartin Chalkley, Professor, Centre for Health Economics, University of York and Paul Revill, Research fellow, Centre for Health Economics, University of York

This article was originally published on The Conversation. Read the original article.

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