Sustainable development of pharmaceutical industry: Balancing enterprise innovation with public interests

Abstract

In the pharmaceutical industry, the conflicts mainly exist between innovator drug enterprise and generic drug enterprise, and between enterprises and patients. The first kind of conflicts are about technical innovation, and the latter kind are about public interests. Based on non-cooperative game model and theory, this paper analyzes the profit distribution between innovator drug enterprise and generic drug enterprise, highlighting the necessity of patent system in incentivizing the innovation of pharmaceutical enterprises and the problem of high drug prices induced by patent monopoly. Then, the excess profits tax (EPT) was introduced to regulate drug prices and safeguard the medical right of the patients. Further, the authors examined the decision-making motives of pharmaceutical enterprises in the game, and the effect mechanism of taxation. The results show that the patent system should protect both innovator drug enterprise and generic drug enterprise (as the secondary innovator); the system should be supported with taxation to regulate the market prices of drugs, such as to balance innovation with public interests and promote the sustainable development of technology and economy.