2013_MI_H1_Econs_CSQ1 Mark Scheme

Question 1 The Pharmaceutical Industry Extract 1: AIDS: Branded and Generic anti-HIV drugs Roche, the pharmaceutical giant, recently announced a price of $20,424 for a year's supply of its anti-HIV drug Fuzeon in U.S. This was almost three times the price of the most expensive AIDS drug. Roche claimed that Fuzeon is more expensive to produce than other anti-HIV drugs, claiming that it spent $600 million developing the drug. However, many HIV drugs that cost up to $15,000 a year in the U.S. can be made for less than $300 a year by generic manufacturers overseas. These generic firms are allowed to enter the market and sell copies of the original drug when the pharmaceutical patent expires. As generic drugs contain exactly the same active chemical substances, these are considered as strong substitutes to the original branded drugs. Figure 1 Sources: World Street Journal, 1 Dec 00 and ACT up press release 13 Mar 03 Extract 2: Regulation of branded drugs In the past year, critics have complained that prescription drugs are contributing to escalating health care costs in the developed countries. Some also assail drug manufacturers, contending that drug prices ar e too high. They propose price controls as a way to lower drug prices. Price controls have a consistent history: they don't work. Whether they apply to air fares, gasoline, teleco mmunications or medicines, they discourage innovation, create shortages and fail to keep prices in check. Further, they harm the poor by making whatever is controlled more difficult and more expensive to obtain. However, according to leading prescription drug price and sales database information company, IMS Health, drug costs are rising primar ily because of rising costs of innovation

that contributed to record sales of new products and a changing mix of available products. Price increases have been relatively modest over the past 10 years. Sources: National Centre for Policy Analysis Policy Report No. 23 Oct 99 and Focus 16 Apr 04 Figure 2: Composition of Drug Costs Sources: National Centre for Policy Analysis Policy Report No. 23 Oct 99 and Focus 16 Apr 04 Extract 3: Under-consumption of drugs in developing countries The major communicable diseases of poverty, es pecially AIDS, TB and malaria, cause over six million deaths annually, with devastating social and economic impacts. The global community has recognised the causal links between ill-health, poverty and weak economic growth. Historically, efforts to tackle the ma jor diseases affecting developing countries have been poorly coordinated, resulting in under-consumption of drugs that can cure these diseases. OECD governments and international bodies su ch as the World Bank have stepped up investments in these areas. In response, new private sector allies– especially the pharmaceutical companies are forging partnerships with governments to undertake a wide ran