Why are drug prices so high?
Why are drug prices so high? Why, to support all that R&D they do, or so we are told. Thus patents have to be defended so they can recover their costs. The Financial Times (8/18/06, p.15) reports another aspect however. Drug companies faced with a rival who is about to introduce a generic equivalent to their patented drug will cut a deal with the rival. The rival agrees to hold off on the generic, the patent owning company agrees not to sue for patent infringement. It happened recently with a generic substitute for Adderall XR, a ADHD drug. Shire got Barr Laboratories to withhold their drug for some years. And this will give Shire time to figure out how to move their patents to a modified form of their current drug.
The Federal Trade Commission has prevented money from changing hands, at least openly, in these deals, but clearly the deals are motivated by calculations of opportunity cost and deferred costs.