Pfizer and Flynn Pharma are in trouble with the Competition and Markets Authority after hiking the price of a drug they sell to NHS by a percentage that wouldn’t look out of place at the end of a payday loan advert.
A few things here. Drug firms spend a lot of money and time (about 17 years) researching and developing drugs, some of which go on to succeed in the market, whilst others fail. Pfizer may argue that the price increase is a result of a business pricing strategy of selling cheap upon entry to the market and then increasing the price as brand loyalty builds. In addition, they may argue that the profits made by Phenytoin Sodium will be used to fund the R&D of new drugs that NHS patients will benefit from in years to come.
You may ask why doesn’t the NHS shop around? Well, they can’t, because the drug is patented. A patent acts as a barrier to entry as it stops other firms from copying a new drug that a firm has spent years and, potentially, billions of pounds developing. After all, who would spend all that time and money if the day after launch a series of copycat firms come and along and copy all your hard (and costly) work? Firms wouldn’t develop new drugs, and new drugs are good, so patents are good?! The problem is that patents prevent competition, for the 25 year life span of the patent at least, and so firms can exploit their monopoly power by charging extortionate prices. It’s a question of balance, and it appears that the CMA believe the scales are weighted too much in favour of the producer in this instance.