"...every individual...endeavours as much as he can .. to employ his capital in support of the domestick industry, and so to direct that industry that its produce may be of the greatest value.......and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, ... led by an invisible hand to promote an end which was no part of his intention."
An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith 1776
Smith's basic premise regarding the workings of a market economy is that decisions are based on personal welfare (greed) and that people respond to incentives. Be clear though, the greed applies to both sides of the transaction.
The pharmaceutical industry is an easy target for those that do not like the results of free markets. A drug company develops a drug that can cure millions of people and then charges enormous sums of money to those people that want the drug. The argument goes something like: "The drug companies are just in business to make a profit off the backs of the sick".
A quick search of the web brought up numerous articles attesting to this. For example:
- A November 2009 article from BBC regarding a drug for liver cancer. (Click here)
- A March 2010 article from the Telegraph regading a drug for bone marrow cancer. (Click here)
- An August 2002 article from New Zealand TV regarding a leukaemia drug (Click here)
Pharmaceutical companies are in business to earn a profit. To that end, they undertake medical research develop new drugs, patent them and submit them to clinical trials. If the clinical trials show sufficient efficacy with tolerable side effects the drug is licensed for sale in a particular jurisdiction. Each different jurisdiction requires its own licencing procedures. A 2003 article in the Journal of Health Economics estimates that the capitalized cost of bringing a drug to market is around $800 million. (Click here)
Why would a firm invest $800 million on a product? To earn a profit. They are greedy. They make no apologies for their greed, nor should they.
So what of those people who think those drugs should be available to them for free? Or at least at a price where the developer doesn't earn profits? Why is it that people want pharmaceuticals? To make their quality of life improve, or to extend the length of their lives, or the lives of loved ones, or a combination thereof. All of these reasons create benefits for the drug user and their families ... they are greedy, they want to increase their well being.
Adam Smith tells us that it is this mutual greed that drives a market economy. People want drugs to make them better and firms will develop those drugs to earn profits. If no one wanted the drug, the firm wouldn't bother to create it.
There is a lot of hypocrisy on the anti-profit side. I have never heard of an accountant, sales rep, biochemist, secretary or fork lift driver offering to work for a pharmaceutical company for free. So why do these same people expect that a pharmaceutical company will do all that work producing drugs for free? These very people, that object to the profit motive, are also among those that sue drug companies when the drugs don't perform exactly as intended. Is that not greed?
Our patent system gives the developer of a drug the exclusive right to produce and sell a drug for a period of 20 years. After that time, other firms may produce and sell the drug. This system encourages the research and development needed to produce new drugs and also ensures that the price of drugs will eventually fall.
Greed is not a bad thing. It is the motivation for decision making. We tend to do what is best for ourselves. Everyone doing this is how a market works. Market economies have their shortcomings, but they are better, by far, than anything else we have tried to date.
Now, I have to go take my medications that are way too expensive!!!
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