The cost of drug treatment

From Reuters, via Yahoo News:

Cash-strapped governments have slashed drug prices, racked up close to $20 billion (12.7 billion pounds) in unpaid bills for treatments and are becoming increasingly reluctant to pay for innovation.

So disillusioned drugmakers are cutting back operations in Europe and launching more and more drugs elsewhere – trends that look set to accelerate as they question the case for clinical research in countries that may never pay for their inventions.

The frustration is evident at pharmaceutical giants like GlaxoSmithKline and Germany’s Bayer , both of which have deep manufacturing and research roots in their home markets.

“Europe has unfortunately slipped in terms of its willingness to pay for innovation,” GSK Chief Executive Andrew Witty told analysts last week.

By comparison, the U.S. market is a better bet, even with healthcare reform, and Japan is a surprise bright spot. Green lights for a run of new drugs means 48 percent of GSK’s Japanese sales in 2011 were of products launched in the last five years.

Areas to think about:

• Drug development is expensive, and relatively short patent durations mean that pharmaceutical companies must recoup their costs and turn a profit over a short space of time. Would it be a good idea to lengthen patent durations, to enable a more medium-term approach to profitability? Or would that simply lead to higher prices for longer?
• If drug companies increasingly find their profits in the USA, Japan and elsewhere, is there a risk that they will move research centres away from Europe, leading to job losses? How might this be countered?
• In countries where national governments pay (directly or indirectly) for the health care of their citizens, there is generally more pressure to reduce drug company payments. This means that new drugs are more rarely introduced compared to countries where the consumer (or their insurer) pays for healthcare. What is the impact of this on the healthcare available to populations? How would you solve the conundrum of encouraging innovation while dealing with a tight drug budget?