How are pharma companies incentivised to innovate and burn money
1 min read
To incentivize the pharma companies to keep innovating and investing money, regulators across the country offer them protection on their inventions.
If they create a breakthrough drug - like a drug to battle AIDS, cancer, etc - they are granted a patent for 20 years.
During those 20 years, they have exclusive rights to manufacture and sell the drug - no other company can create the same drug with the same formulation.
After 20 years - entry of generics
After 20 years, other companies can step in can create their own versions of the drug. These versions are called generics.
Due to the competition of multiple players in the market, the price of the drug spirals down and becomes affordable.