Some states are more ardent enforcers than others. The intellectual property system is enforced by governments worldwide under the TRIPS agreement, which is one of the key documents of the World Trade Organisation (WTO). Patents mean that pharma companies have legal monopolies on particular drugs: because no other company can undercut them, they can set high prices and make big profits. But the pharma industry is no competitive market. The theory of free market capitalism is that if one company makes high profits, then others will come in and make the same thing but cheaper, pushing down prices and profits. This means no one else is allowed to produce the drug without their permission for the life of the patent, which is 20 years in most countries. Pharma companies hold patents – licenses guaranteeing their “intellectual property” rights – on new medicines. Thus vaccine research was relatively neglected until last year – when COVID-19 suddenly became a rich country issue, and state funding poured in. On the other hand, one-shot vaccines for epidemics that mainly affect poorer countries are the classic example of a bad business prospect. Or, as in the case of opioids like Oxycontin, where the drugs are highly addictive. Best of all are patients in the US, where prices are highest, and with chronic conditions requiring repeat prescriptions.
The best prospects are drugs targeted at patients who are high-value and who will use the drugs long term. One of the biggest problems with a system that directs medical research towards profits rather than needs is that R&D funding is channelled to those products that can make pharma companies the most money. With some of them becoming household names in the UK with the mass vaccine roll-out, we have made this short guide to help people understand the industry and just how it makes money from our health ( see also: our breakdown here of the profits big pharma companies are set to make from the COVID-19 vaccines). i So how do pharma companies make so much money? The biggest pharma companies have profit rates of up to 20% – more than double those in other industries.
The pharmaceutical industry is hugely profitable.
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