Read the attached case study and submit your answers to each of the questions that can be found at the end of the case in an essay of not more than 3,000 words. Submissions should be appropriately referenced and include a full bibliography.

Read the attached case study and submit your answers to each of the questions that can be found at the end of the case in an essay of not more than 3,000 words. Submissions should be appropriately referenced and include a full bibliography.

Read the attached case study and submit your answers to each of the questions that can be found at the end of the case in an essay of not more than 3,000 words. Submissions should be appropriately referenced and include a full bibliography.

Chapter 7 • Political and legal systems in national environments 219

Political, Legal, and Ethical Dilemmas in the Global Pharmaceutical Industry

The $900 billion global pharmaceutical industry is dominated by about ten firms; five are headquartered in the United States, two in the United Kingdom, two in Switzerland, and one in Israel. Examples include GlaxoSmithKline (United Kingdom, www.gsk.com), Novartis AG (Switzerland, www.novartis.com), Teva (Israel, www.tevapharm.com), Merck (United States, www.merck.com), and Pfizer (United States, www.pfizer.com). Europe and the United States account for roughly 25 percent and 50 percent of worldwide pharmaceutical sales, respectively. The industry is confronted with several challenges. High Cost of Research and Development Pharmaceutical firms engage in large-scale, intensive R&D to create and market drugs meant to treat everything from cancer to hair loss. Thousands of pharmaceutical drugs allow people to live longer and healthier lives. Europe and the United States are home to the major pharmaceutical firms and to industry R&D. They benefit from strong patent protection laws and abundant investment capital. According to industry statistics, it takes 12 to 15 years, and more than $800 million in R&D expense, to successfully bring a new pharmaceutical compound to market. Only 1 in 10,000 investigated and tested compounds is approved for patient use. Only three out of every ten new, approved com- pounds are successful enough to recover their R&D costs. For their successful products, pharmaceutical firms must charge prices high enough to recover not only the high costs of product development, but also to recover the cost of products that never achieve profitability. Limited Protection for Intellectual Property Governments grant patents and provide other types of protections for intellectual property. In practice, such protection is frequently in- adequate, especially in developing countries. India has a history of weak intellectual property protection, which has discouraged R&D and innovation. It is one of the world’s poorest countries, and very few of its citizens can afford health care or medications. In 1972, a major revision to the Indian Patent Act revoked all patents for medicines. Following this dramatic shift, foreign-branded pharmaceutical manufacturers abandoned India, and numerous pharmaceutical “chop shops” emerged. The new firms freely infringed on drug patents and engaged in a selling “free-for-all” in the huge Indian pharmaceutical market. They reverse-engineered patented compounds developed by European and U.S. companies and began selling the pirated generics at drastically lower prices. The foreign pharmaceuticals launched legal actions against these violations but, in the absence of strict patent protection and with little local competition, India’s generic drug manufacturers flourished. The Challenge from Generic Brands Under World Trade Organization (WTO) rules, a patent protects a drug inventor from competition for up to 20 years. In reality, when the lengthy testing and approval phase is factored in, the effective life of a drug patent is often less than 12 years. The manufacturer typically has only 5 to 8 years of patent protection in which to recover its investment before generic manufacturers can legally enter the market. Once a patent expires, generic manufacturers have the right to produce medications originally invented by major pharmaceuticals. Generic manufacturers typically sell the medications that they produce at very low prices. Patent protections are important because they encourage innovation by allowing inventors a limited opportunity to recover their R&D investments. However, patent protection laws governing pharmaceuticals differ substantially around the world. A branded compound is produced under patent protection by a pharmaceutical manufacturer that has undertaken expensive R&D to invent the drug.

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