Because intellectual property and patent estates are worth billions of dollars in the pharmaceutical industry, drug companies will often do whatever it takes to protect these sources of competitive advantage. Last week, Abbott Laboratories (NYSE:ABT) took a drastic step to defend its patents in its ongoing struggle with the government of Thailand.
As a result of the Thai government's decision to start producing generic versions of one of Abbott's HIV drugs that is still under patent protection, Abbott announced that it will not sell any new drugs in Thailand. Abbott decided not to halt sales of current drugs, probably to give Thailand no further incentive to make copies of its existing compounds.
The Thai people will undoubtedly feel the effect of the ban. Many drugs, such as biologics or complex sugars, can't easily be replicated like the compounds the Thai government has already genericized. And now, the government will have no way of getting any new products into the country if other drug companies follow Abbott's lead.
Thailand's actions offer a good warning of what can happen when governments try to intervene too much in existing markets. Many people in the U.S. often decry rising health-care costs and the expense of new drugs. But it is because of the United States' relatively free-market system for drug pricing and respect for intellectual-property rights that the U.S. is almost always the first country where pharmaceutical companies try to market their new and novel medications.
This isn't a case of big, nameless corporations trying to take advantage of people in need. In the short run, the move to genericize branded drugs before their patents expire may save the Thai government some money. But in the long run, the Thai government's actions only reduce the incentive for pharmaceutical companies to innovate -- and that's bad for everybody.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
