As drug patents come to an end, Big Pharma raises prices

For big pharmaceutical companies, the largest business challenge is that patents are expiring on some of their most popular drugs. If they do not have new "blockbusters" to replace those, revenue is certain to fall. The solution is to raise prices on the best selling drugs and milk them before generics cut sales.

Unfortunately, while this may be a great deal for the companies, it is not so hot for patients and health-care costs. According to The Wall Street Journal [subscription required], "Pharmaceutical companies increased wholesale prices for the 50 top-selling branded drugs by an average of 7.82% in 2007." Prices on some drugs went up 50% or more.

Of course, the costs to produce these drugs is probably not rising much at all. What is obvious is that drug companies will probably face pressure from the government to keep prices down because the costs of health-care are still rising faster than GDP. The Congress may simply elect to put a cap on how much drug prices can rise. Or, the Feds may allow generics to come into the market sooner to provide alternative treatments that are cheaper.

But why should the government involve itself in an industry's pricing? The answer is that it is for the common good. That leaves out the companies themselves and their shareholders.

When the government interferes with the free market systems, it opens a Pandora's Box. Which industries will be regulated and which will not? Which affect the common good and which do not? Call it socialism, because that is what it is.

Douglas A. McIntyre is an editor at 247wallst.com.