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We have all heard or read horror stories about how large Pharmaceutical Companies cheat, lie, misinform, hide and manipulate information in order to increase profits. This article is a reflection about pharmaceutical companies and the art of selling pills.

There is a story in the Polish newspaper Gazeta Wyborcza commenting about Glaxo (a large Pharmaceutical company) failing to disclose side effects of their drug Requip. As a consequence, Glaxo paid 7 million Euros in compensation between 2004 and 2012 and counting.

This paints a very negative image of Gaxo in particular and all other large Pharmaceutical companies in general.

However, the truth is much more complicated than that. Allow us to provide you with a summary.

It is true that pharmaceutical companies spend large amounts of money developing new drugs. How large? It depends of the type of drug and who does the financial calculations. In millions of USD, estimates oscillate between 150 and 1500. That’s a lot of money for every drug that makes it to the market.

To make things even worst, pharmaceutical companies are running out of obvious and simple diseases. Whatever is left is more difficult to research. Higher difficulty means increased costs. This means companies are making less profits.

Add to this problem the competition from generics, which are simply copiers of drugs. They are always waiting anxious for a patent to expire. This is another loss of revenue.

And to make things just a little more interesting, we have a gigantic overhead that governments impose on companies in the form of bureaucratic processes.

This all costs money, and pharmaceutical companies are not in the business of curing diseases but in the business of selling pills. This is fair, since no profit means, no research money. No research money, no new medications, no new cures. And then, we all suffer or die.

There is no free lunch. Why should one be here?

Pharmaceutical companies are desperate to make a profit, given their shrinking bottom line. So they make risk assessments. Where they see strong regulations and enforcements, they tend to play by the book.  Where they see lacking regulations and no enforcement, they tend to be more relaxed with negative information such as side effects.

Is this fair to the patient? Probably not. But look at the bigger picture. Not only is an issue of no money no new drugs; but we must also consider that most people affected by a side effect would probably have taken the drug anyways, because there are no better solutions.

It is not an ideal situation; far from that. Your only choices are either letting a terrible disease progress or take a chance with a risky medication. What would your choice be? Don’t bother answering, it is a rhetorical question.

And although it is true that if full disclosure of all possible side effects were available, people could be vigilant against them and perhaps even prevent some. But not too many people would be able to do so, for the simple reason that they are not doctors.

In addition, we need to tackle the issue from an ethical perspective. Pharmaceutical companies are lying to us or at least not giving us all the information they have, in order to increase profits. OK, that may be true, but realistically speaking, what is the use of them listing all 30 or 40 side effects that were noted during human trials if the incidence was extremely low? Nothing. No doctor can monitor 30 or 40 side effects per patient. That much information serves no purpose and it is misleading. That’s why only the most prevalent side-effects are usually noted. Because they can be monitored. Now the question has shifted from full disclosure to critical disclosure. Who determines what “most prevalent” means? 1%? 1.457%? 12.85%? In truth? Nobody. Pharmaceutical companies are left in limbo and left to guess. However, regulatory agencies are always ready to persecute them for not disclosing enough. Must be nice to have no responsibilities and all the power to impose sanctions! So Pharmaceutical companies are trapped.

They are trapped in expensive and purposely vague regulations. They are trapped between their shrinking profits,  shrinking market shares and shrinking prices.

Pharmaceutical companies are no holy people, that’s for sure. But they are not evil incarnate either.

What they are is meat in a sandwich. On one hand we find governments imposing and demanding all kinds of useless things and on the other the market, demanding impossible prices and magic cures with no side effects. Let’s be realistic: being a Pharmaceutical company is not easy. What makes it worth wile is the profit. But even profit goes both ways since profits are needed to create new medications. Remember that most people (just like you and me) don’t work for free.

So what do Pharmaceutical companies do? They do risk assessments and based on that information they make decisions affecting different markets. Since they know that this decision making process is not perfect, they fully expect to have claims. For that, they usually put some money aside to pay for compensation. That’s how the real world works. That’s what Pharmaceutical companies are pushed to do, mostly due to governments.

So, before you jump to judge them, consider that although they may be richer than you are, they are also providing you with medication that’s saving your life and making it better. We consider this a good deal, however imperfect it may be.

Now for a different perspective. How would this process work in an Absolute Austro-Libertarian system?

To begin, there would be no government so Pharmaceutical companies would not have any bureaucratic overhead. This would not imply sloppiness, just expediency. This would be so because in a truly free market there are no second chances. Word gets out that such-and-such medication from such-and-such company does not work or is toxic, instantly all their products become suspect, sales  drop and the company goes bankrupt.

In other words, although in an AL System Pharmaceutical companies can absolutely shield themselves against undisclosed information of side-effects or other risks through contracts with patients, they cannot shield themselves against the punishment inflicted by a truly free market.

In practical terms, Pharmaceutical companies can play the risk game and leave out side-effects. They will also impose a contract releasing them from any liability from every person taking that medication. It you take that medication, you agree that you will not seek reparations from the Pharmaceutical company. And since in an AL System your ability to contract is absolute, this contract cannot be broken as long as it is voluntary. In essence, you cannot seek reparations.

Seems harsh, doesn’t is? Alas, it is not. In a truly free market there is a huge incentive for companies to provide rankings of medications because there is money in it. These companies make profits by searching and analyzing how well a medication works and what their side effects are. Then they sell this information to the public. If a Pharmaceutical company plays the risk game, then these other ranking companies will drop this medication in their rankings marking it as increasingly unsafe and/or dangerous. With this kind of rankings, sales will plummet and the reputation of the Pharmaceutical company will be in pieces. Bad reputation affects all products. Lower sales implies impending bankruptcy.

This is just one of the mechanism through which a truly free market automatically controls misbehaving companies. Word of mouth has the same effect.

The difference is that when a market punishes a company, the punishment is instantaneous and there is no recourse. There are no governments to hide behind and no lawyer can help you. If people stops buying your product, who are you going to call? Ghostbusters?

Faced with this scenario, intelligent Pharmaceutical companies operating in a truly free market would opt to fully disclose all the information they have. Why? Because it is simpler, faster and gives them credibility. Besides, with full disclosure there is no way that their products may be negatively rated due to lack of information. There are no surprises.

Which provides another advantage to the patient. Medications that today exist but are not in the market because they are considered “too risky”, will suddenly be available. This means that you will not only have more choice, but more informed choice.

Pharmaceutical companies would have strong incentives to market the full array of drugs, even if imperfect, than to shelve them and accept the investment loss.

This will only increase competition and drug copying, which will only decrease prices. A win-win scenario.

And why shouldn’t be like that. In the end, it’s your body and your mind. You should be in charge of making your decisions, not some government bureaucrat with no stake in your life.

Next time you use a medication just stop for a minute or two and consider if you would be happier with more choices and lower prices or as it is today. It’s your decision.

Note: please see the Glossary if you are unfamiliar with certain words.



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