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How Pharmaceutical Products Differ From Tennis Balls

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How Pharmaceutical Products Differ From Tennis Balls

Stephen H. Unger

July 2, 2014

From Image from page 467 of .The Canadian druggist. (1889)
Image from page 467 of .The Canadian druggist. (1889)
(image by Internet Archive Book Images)

In addition to the fact that it is too big to swallow, there are a number of critical ways in which a tennis ball, viewed as a commercial product, is very different from any medication that one might buy in a drugstore. The differences are very important, and illuminate the pressing need to treat the manufacture and sale of pharmaceutical products very differently. Let's start by outlining what it takes to succeed as a tennis ball manufacturer.

The Tennis Ball as a Commercial Product

By far, the largest number of tennis balls are purchased by those who play the most, and are therefore the people most able to evaluate the quality of a ball. You don't have to be a tennis champion to notice that the X-brand tennis balls that you just played with for the first time didn't seem as lively as the Y-brand that you had been using previously. Or that, even if they were OK right out of the can, that they wore out much sooner. It is also, of course, immediately obvious if the price of ball X is higher than the price of ball Y.

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There may be tradeoffs between price and quality. For various reasons, some players might sometimes be willing to accept lower quality balls (perhaps for use only in practicing serves) at a sufficiently lower price. Or be willing to pay a premium for balls that last longer.

Since it is not all that costly to go into the business of manufacturing tennis balls, there are a number of competing brands. Assuming no collusion, this ensures reasonable pricing. The result is a market with knowledgeable buyers able to choose freely among competing products. Under these circumstances, a tennis ball manufacturer has a real incentive to produce a good quality product that can be profitably sold at a minimal price. The seller is motivated by self interest to do what is also good for the buyer. (Note that this discussion concerns relations between buyers and sellers. Relations between sellers and their employees are not nearly as compatible [1], and will not be discussed here.) How does this compare with the pharmaceutical industry?

What affects the profitability of a pharmaceutical product?

Tennis balls are easily evaluated by consumers. This is seldom the case with medications. An exception would be where the purpose of the medication is to alleviate immediate pain or discomfort. Perhaps more important, even physicians are very often unable to determine with any degree of confidence whether or not a particular medication will do the job for a given patient. In many cases nobody can make such a determination, because adequate studies have not been made.

Unlike a tennis ball, a pharmaceutical product can do real harm. There are often open questions as to whether there exist harmful side effects of a medication, particularly after long term use, or use in combination with certain other medications. Note that it is seldom obvious what long term effects might be.

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The extent to which a medication is profitable to the manufacturer depends on how many people need it, how often they need to use it, and how long they will need it. From the point of view of the company, a very widespread ailment represents an opportunity for big sales and therefore big profits. But equally important is the number of times a patient needs to be medicated. Consider a product that cures a very serious disease with a single dose. That sounds great! And it is great--for the patient. But, unless they could charge a truly huge amount for each dose (which they often can), it will not be a big moneymaker, unless the ailment is of epidemic proportions, affecting many tens, or even hundreds, of millions of people [2].

An ideal situation from the point of view of a pharmaceutical company would be a very widespread, incurable, chronic disease that is painful, disabling, or life threatening, for which the company has a patented medication that, when taken daily, staves off pain, disability, and death, but does not cure the disease. Such a product provides the company with a large, steady, income flow.

In general, the important parameters of a potentially profitable disease are the number of inflicted people, and the extent to which the disease is curable, life threatening, disabling, or painful (perhaps disfiguring). A medication is potentially profitable to the extent that it alleviates pain and disability, and keeps patients alive. Ability to cure a disease promptly is useful in that it may promote immediate sales, but is detrimental in that it does not lead to long sequences of purchases. The ideal medication is one that must be taken daily, for life, to alleviate the systems of a chronic, incurable, life-threatening disease. Medications for treating diabetes, are prime examples in this category.

In 2011, sales of Pfizer's Lipitor, used to lower cholesterol counts, totaled about $12.5 billion. There were about 30 other pharmaceutical "blockbuster" products with annual sales exceeding $1 billion that year. [3][4]

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I am an engineer. My degrees are in electrical engineering and my work has been in the digital systems area, mainly digital logic, but also computer organization, software and theory. I am a Professor, Emeritus, Computer Science and Electrical (more...)

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