Let′s say for the past ten years, pharmacy X spent 90% of its R & D (research and development) on development of a drug that cures or slows down AIDS (Acquired Immunodeficiency Syndrome). Finally in 2010, the company launched its product under the protection of a patent right. Overnight, demand for the product grows tenfold as there are no alternatives to the medicine. As a result, Company X decided to charge a premium price that includes a handsome profit. For example, if the cost of producing a tablet is $5 then the company is charging $10 as its final price. Read the following sides: a) It is a risk taking venture from the perspective of a corporation. In the beginning, there is always a 50% chance of being unsuccessful of inventing anything new. It is important to consider opportunity cost of risk that a company takes while the same resources could be used to increase the company’s profitability by making a safer investment. As a result, our government gives incentives to individuals and corporations by providing them with the protection of patent rights. If we take this incentive away, individuals and corporations alike will have no reason to take risks to invent or create new things that could improve the future of the world. b) The objective of a publicly traded company is to make profit for its owners i.e. shareholders. However, there are millions of AIDS victims in this world. Most of these victims are from destitute countries, like African nations. It would be irrational for us to think that these people could afford this medicine at an existing market price. The world organizations, such as WHO (world health organization), provide with assistance by subsidizing AIDS related medicine. However, this is not enough as many people are dying every day. Many argue that this medicine should be free as it is the only way a victim’s life could be prolonged or saved. GlaxcoSmithKline already allows license for generic drug production to countries, like South Africa. Should our government be involved in controlling the price of this drug? Or, should the government force Glaxco to share the key knowledge of this product with its competitors (price becomes competitive)? Explain why or why not? What should be done in order to create an atmosphere where everyone (both business and victims) succeeds?
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