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The New York Times reports today that some American drug companies are soon going to face revenue problems as patents will soon expire for ten different medicines. One focus of the article is the drug company Pfizer.

At the end of November, Pfizer stands to lose a $10-billion-a-year revenue stream when the patent on its blockbuster cholesterol drug Lipitor expires and cheaper generics begin to cut into the company’s huge sales.

As the generic drugs come onto the market for lower prices, of course Pfizer and other companies will need to lower prices themselves. As we know, more competition increases efficiency and consumer gains will more than offset the losses of the producers.

The bigger concern with this story is that companies are expected to respond by cutting expenditures on research and development.

…it casts a spotlight on the problems drug companies now face: a drought of big drug breakthroughs and research discoveries; pressure from insurers and the government to hold down prices; regulatory vigilance and government investigations; and thousands of layoffs in research and development.

Of course the whole idea of patents is to allow monopoly profits so as to encourage innovation. Perhaps we are seeing diminishing returns to research expenditures as the number of treatable illnesses becomes smaller. Perhaps it is a better option now to subsidize research, but with the US looking to cut expenditures it seems unlikely to happen soon.

Will we see the research and development somewhere else?

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