Drug Patents Not Driving Profits
As economic theory predicts and as previous research has found, prices decline sharply when competing makers of generic versions of the previously-patented drug enter the market. Normally, lower prices increase demand for a product. However, Frank [Lichtenberg speaking at the Conference on the Economics of Competition and Innovation] found that the total quantity of patented drugs sold actually declines and this is true even when he controls for substitute drugs.
The explanation? Marketing.
. . . This suggests that much of the profit made by pharmaceutical firms is not, in fact, a return on their R&D, but is, instead, a return on their marketing investments. And if you ever harbored the illusion that the market for pharmaceuticals provided a model of well-informed consumers, think again.