1.

Discuss the role of patents in the pharmaceutical industry in general (discuss the
typical life of patents, the need for patents and the effect of patents).Please refer to the
articles below and discuss the role of regulation in this market. (15 points)

“Seizure-inducing”, the Economist September 3, 2016

“The sharp end of the spear”, the Economist March 2, 2019

Patenting an object currently underway to become a necessity to the population

usually means that no other competitors are able to copy the product and take
advantage of the commercial benefits provided without the cost of the investments on
research and development. Therefore, it is safe to assume that the main reason for the
existence of patents is to promote more research and development procedures in
various industries. Patents are one of the most important tool for the pharmaceutical
industry because it takes on average “10-15 years” of research in order to create a
new dose of clinical dosage that is proven to be consumed to be effective towards a
problem. A U.S. Utility patent is typically granted for 20 years to the product unless a
company does not keep up with the fees associated. The effects after the patent life
span signifies cheaper production costs and create pathway for generic competitors.
This can also prove to be controversial because the private patent market for
pharmaceuticals can be unfair to the needs of patients. In the United States for
example, patent protection is correlated to the market of price controls which can
result in the rise of drug costs for common medicine such as insulin that “sells for
nearly $1500 today” compared to “$200 per vial 15 years ago.” This is because the
government has not put in enough effort “to lower or cap spending on medicines.”
Europe has more control over their prices in the pharmaceutical industry meanwhile
in the U.S, “average launch price of a range of cancer drugs…grew by 10% each
year.” On the other hand, because “American drug firms use thickets of patents and
payoffs to biosimilar upstarts so that a lucrative but ageing drug can be milked a few
more years,” it is threatening for Big pharma companies to throw millions in research
without garnering the investments.
2. Using your knowledge of market structure, discuss how you would characterize the
market for EpiPens. Discuss the different barriers to entry in this market, and
compute a Herfindahl Index for the market for EpiPens. Show the computation
clearly with a clear discussion of how you define EpiPen’s relevant market. (20
points)

EpiPen is a dose of injection that is used to treat patients with anaphylaxis, a life
threatening condition that can result in a person’s death if not treated properly. The
devices are widely prescribed for children and if EpiPen is not prescribed right away,
emergency room services are sure to be needed as a next step in the treatment
process. The EpiPen price increase started in 2011 throughout 2016 reaching up to
$600 U.S Dollars per dose in the United States which is “671% compensation
increase in 8 years.” In this circumstance, Mylan can be considered as having a
monopoly in the EpiPen industry, being the patent holder and having the opportunity
to charge a much higher price than in a competitive market. The characteristics of this
market structure represents that there are high barriers of entry and exit in the EpiPen
industry and that there are less than one or two firms that dominate the entire market.
The demand for Mylan’s EpiPens are inelastic with a steep demand curve along with
high profit margins and gross margins. The different barriers for entry in this market
includes high research and development costs, patents from firms as well as not
having the most highly intensive technology funding. Competitors are therefore
subjected to Mylan’s patent rights to the fastest and easiest way to use epinephrine.

HHI = (market share 1)2 + (market share 2)2= 932 + 72 = 8649 + 49 = 8698

In this, we are to assume that Mylan controls 93% of the EpiPen market because there
is only “one similar product available in the United States, Adrenaclick, which had
only 7% of the market.” The closer a market is to monopoly, the higher the
concentration of the HHI is and the index value 8698 definitely captured the
monopoly market structure of the EpiPen.