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The Dynamics of Pharmaceutical Profits: Patent Expiration's Impact on Market

Structure, Pricing, and Profitability"

Pharmaceutical firms sometimes get very rich from their blockbuster drugs, and the

patent exclusivity helps them to do this. It normally goes by applying for a patent that grants the

company the sole right to make and sell the drug for a particular period of time, usually not more

than 20 years. At this time, the drug can be sold at premium prices because there is no rivalry

that can affect sales, thus ensuring that the company receives a good return on investment made

in research and development.

The profits stem from several factors:

1. Monopoly Pricing Power: Having a patent, the pharmaceutical company gains the unique

right to be the only seller of the medicine during the period of the patent. This means that they

can change prices at any time, since customers have a limited number of brands to choose from.

2. Limited Competition: Patent protection scares other companies from making drugs similar to

those claiming patent, as it would violate the patent and thus be punished by law.

3. Investment Recovery: The introduction of any new drug is a costly and high risk

endeavor. Patents' monopoly power is what brings back companies their investments and helps

to finance future research and development.

Once the patent expires, other pharmaceutical companies can produce and sell generic versions

of the drug, leading to significant changes in the market structure, pricing, and profitability:

1. Increased Competition: Generic products on the market make the market competitive as

many companies compete with one another trying to get a share of the market.

2. Market Fragmentation: The market segmentation during the patent period has been replaced

by the presence of several companies that offer generic alternatives, which makes the markets
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more fragmented.

3. Price Erosion: The prices for the medicine are usually lowered very much when the generic

version comes out and the former branded drug is usually priced more than the generic.

4. Decreased Profitability: The fact that generics being allowed to enter the market will lead to

the decrease in original drug's overall profitability due to the fiercer competition and decrease in

prices.

You are encouraged to look through recent publications in the business or pharmaceutical

industry journals, like The Wall Street Journal, Forbes, or The Pharmaceutical Journal, that

would support this point of view. For instance, researching on "impact of patent expiration on

pharmaceutical industry" or analogous keywords using the platform might give useful

articles. Note down that particular news articles have a short-term effect so it is advisable to

search for the new information.