The pharmaceutical industry argues that because new drugs : GMAT Critical Reasoning (CR)
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# The pharmaceutical industry argues that because new drugs

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The pharmaceutical industry argues that because new drugs [#permalink]

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21 Mar 2005, 00:37
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The pharmaceutical industry argues that because new drugs will not be developed unless heavy development costs can recouped in later sales, the current 20 years of protection provided by patents should be extended in the case of newly developed drugs. However, in other industries new-product development continues despite high development costs, a fact that indicates that the extention is unnecesary.

Which of the following, if true, most strongly supports the pharmaceutical industry's argument against the challenge made above?

A: No industries other than the pharmaceutical industry have asked for an extention of the 20-year limit on patent protection.
B: Clinical trials of new drugs, which occur after the patent is granted and before the new drug can be marked, often now take as long as 10 years to complete.
C: There are several industries in which the ratio of research and development costs to revenue is higher than it is in the pharmaceutical industry.
D: An existing patent for a drug does not legally prevent pharmaceutical companies from bringing to market alternative drugs, provided they are sufficiently dissimilar to the patented drug.
E: Much recent industrial innovation has occurred in products - for example, in the computer and elestronics industries - for which patent protection is often very ineffective.
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21 Mar 2005, 01:33
Taku wrote:
The pharmaceutical industry argues that because new drugs will not be developed unless heavy development costs can recouped in later sales, the current 20 years of protection provided by patents should be extended in the case of newly developed drugs. However, in other industries new-product development continues despite high development costs, a fact that indicates that the extention is unnecesary.

Which of the following, if true, most strongly supports the pharmaceutical industry's argument against the challenge made above?

A: No industries other than the pharmaceutical industry have asked for an extention of the 20-year limit on patent protection.
B: Clinical trials of new drugs, which occur after the patent is granted and before the new drug can be marked, often now take as long as 10 years to complete.
C: There are several industries in which the ratio of research and development costs to revenue is higher than it is in the pharmaceutical industry.
D: An existing patent for a drug does not legally prevent pharmaceutical companies from bringing to market alternative drugs, provided they are sufficiently dissimilar to the patented drug.
E: Much recent industrial innovation has occurred in products - for example, in the computer and elestronics industries - for which patent protection is often very ineffective.

I think option B and D suit most but B is the statement that most directly supports the assertion of the pharma industry.

A) and (C) Oppose the assertion.
B) Since patents are grated as much as 10 years before the drug is released in the market, and the revenues have had little chance of coming in in 10 years before the patent expires, it justifies more time to be provided to patent holder to get revenue from the drug before comprtition steps in.
D) Even the current laws don't effectively prevent the loss of revenues to competing companies, who can bring in a sufficiently differentiated product in the market despite the patents protection, a greater time is required for patents' protection of revenues because the revenues are leaked to the competing companies anyway. So smaller revenues are accrued to the researching companies, which need a longer protection duration to recover investment in R&D.
E) No parallels can be assumed between pharma and computer inductry. Anyway patents ineffectiveness has been addressed directly in point D anyway.

Anyone who has a differing viewpoint may please post.

What's the OA?
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21 Mar 2005, 05:18
I am going ahead with C.

The statement has to support pharmaceutical industry's argument.

"new drugs will not be developed unless heavy development costs can recouped in later sales"

The counter argument to the above says that in other industries the new-product development continues despite high development costs.

The point here is - these other industries may be recouping the costs in alter sales.

Thus, C directly states this. Even other industries, the costs are high and the revenues are low. So, the extension is necessary.

Taku wrote:
The pharmaceutical industry argues that because new drugs will not be developed unless heavy development costs can recouped in later sales, the current 20 years of protection provided by patents should be extended in the case of newly developed drugs. However, in other industries new-product development continues despite high development costs, a fact that indicates that the extention is unnecesary.

Which of the following, if true, most strongly supports the pharmaceutical industry's argument against the challenge made above?

A: No industries other than the pharmaceutical industry have asked for an extention of the 20-year limit on patent protection.
B: Clinical trials of new drugs, which occur after the patent is granted and before the new drug can be marked, often now take as long as 10 years to complete.
C: There are several industries in which the ratio of research and development costs to revenue is higher than it is in the pharmaceutical industry.
D: An existing patent for a drug does not legally prevent pharmaceutical companies from bringing to market alternative drugs, provided they are sufficiently dissimilar to the patented drug.
E: Much recent industrial innovation has occurred in products - for example, in the computer and elestronics industries - for which patent protection is often very ineffective.

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Chandra

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21 Mar 2005, 06:01
(B) for me

The main concern of pharma companies seems to be the fact that they're unable to recover the high development cost of the drug unless their product is protected by patent for a longer period of time. Currently, they have a 20 year cover. This, apparently, is insufficient to recover the development cost. So, how can the pharma industry validate its point?

(A) - If no other industry has asked for an extension, it does not justify the pharma industry's claim for an extension

(B) - It takes approximately 10 years after the patent is granted to make the drug commercially available. However, if an extension is granted, the pharma companies effectively have a longer time window to cash in on the monopoly by virtue of the patent.

(C) - Talks about the ratio (Revenue / R&D Cost). This ratio is higher in other industries. This implies that (i) for the same revenue, other industries spend less on R&D or (ii) for the same R&D cost, pharma companies invest more in R&D. However, the revenue margin is not a credible argument for an extension as there could be other means to increase this revenue to R&D cost ratio.

(D) - Alternative drugs would have the same effect on the industry dynamics irrespective of the patent protection time window. There is no restriction on when alternative drugs are introduced with respect to the validity of the patent on the original drug.

(E) - This argument weakens, instead of supporting the pharma industry's claim.
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21 Mar 2005, 06:18
The ratio given is for R&D Cost /Revenue and not for Revenue / R&D Cost.

However, after reading your analysis, even B looks reasonable. But, 'clinical trials' is valid only when we know about the period needed to make profits. That is the reason why I have dropped it.

maaverick wrote:
(B) for me

The main concern of pharma companies seems to be the fact that they're unable to recover the high development cost of the drug unless their product is protected by patent for a longer period of time. Currently, they have a 20 year cover. This, apparently, is insufficient to recover the development cost. So, how can the pharma industry validate its point?

(A) - If no other industry has asked for an extension, it does not justify the pharma industry's claim for an extension

(B) - It takes approximately 10 years after the patent is granted to make the drug commercially available. However, if an extension is granted, the pharma companies effectively have a longer time window to cash in on the monopoly by virtue of the patent.

(C) - Talks about the ratio (Revenue / R&D Cost). This ratio is higher in other industries. This implies that (i) for the same revenue, other industries spend less on R&D or (ii) for the same R&D cost, pharma companies invest more in R&D. However, the revenue margin is not a credible argument for an extension as there could be other means to increase this revenue to R&D cost ratio.

(D) - Alternative drugs would have the same effect on the industry dynamics irrespective of the patent protection time window. There is no restriction on when alternative drugs are introduced with respect to the validity of the patent on the original drug.

(E) - This argument weakens, instead of supporting the pharma industry's claim.

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Chandra

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21 Mar 2005, 06:40
mallelac wrote:
The ratio given is for R&D Cost /Revenue and not for Revenue / R&D Cost.

However, after reading your analysis, even B looks reasonable. But, 'clinical trials' is valid only when we know about the period needed to make profits. That is the reason why I have dropped it.

Thanks, Chandra. I stand corrected. However, the inversion of the ratio does not have a fundamental impact on the reasoning above.

A period of clinical trials implies that the drug, even though protected by a patent, is not commercially available pending approval of various regulatory bodies. Therefore, it is of no economic significance to the drug company. Consequently, the company cannot make any profit during this period. (I know I'm extrapolating a bit here, but that, according to me, is the correct line of reasoning)
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21 Mar 2005, 07:07
would go with B as thats the only choice which is talking about any time length which becomes a primary reason for extension..
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21 Mar 2005, 09:18
maaverick wrote:
(B) for me

The main concern of pharma companies seems to be the fact that they're unable to recover the high development cost of the drug unless their product is protected by patent for a longer period of time. Currently, they have a 20 year cover. This, apparently, is insufficient to recover the development cost. So, how can the pharma industry validate its point?

(A) - If no other industry has asked for an extension, it does not justify the pharma industry's claim for an extension

(B) - It takes approximately 10 years after the patent is granted to make the drug commercially available. However, if an extension is granted, the pharma companies effectively have a longer time window to cash in on the monopoly by virtue of the patent.

(C) - Talks about the ratio (Revenue / R&D Cost). This ratio is higher in other industries. This implies that (i) for the same revenue, other industries spend less on R&D or (ii) for the same R&D cost, pharma companies invest more in R&D. However, the revenue margin is not a credible argument for an extension as there could be other means to increase this revenue to R&D cost ratio.

(D) - Alternative drugs would have the same effect on the industry dynamics irrespective of the patent protection time window. There is no restriction on when alternative drugs are introduced with respect to the validity of the patent on the original drug.

(E) - This argument weakens, instead of supporting the pharma industry's claim.

Maaverick and Mallelac,

I am a little confused by your take on option C, which you guys have described in fairly positive terms for the pharma industry's assertion.

I have a quite different viewpoint:

If other companies have a higher R&D Vs Revenue ratio, and they don't demand protection from competition for more than 20 years, Pharma industry is, in no way justified in asking for it.

That's why I reasoned, that this choice opposes the pharma industry's contention that the 20 year protection should be increased.

Can you guys have a look at this logic and let me know what you think about it?

Thanks.
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21 Mar 2005, 10:20
Hi kapslock,

I think you and Maaverick are right. I am definitely wrong. Your point has made very clear why I am wrong.

Thanks..

kapslock wrote:
maaverick wrote:
(B) for me

The main concern of pharma companies seems to be the fact that they're unable to recover the high development cost of the drug unless their product is protected by patent for a longer period of time. Currently, they have a 20 year cover. This, apparently, is insufficient to recover the development cost. So, how can the pharma industry validate its point?

(A) - If no other industry has asked for an extension, it does not justify the pharma industry's claim for an extension

(B) - It takes approximately 10 years after the patent is granted to make the drug commercially available. However, if an extension is granted, the pharma companies effectively have a longer time window to cash in on the monopoly by virtue of the patent.

(C) - Talks about the ratio (Revenue / R&D Cost). This ratio is higher in other industries. This implies that (i) for the same revenue, other industries spend less on R&D or (ii) for the same R&D cost, pharma companies invest more in R&D. However, the revenue margin is not a credible argument for an extension as there could be other means to increase this revenue to R&D cost ratio.

(D) - Alternative drugs would have the same effect on the industry dynamics irrespective of the patent protection time window. There is no restriction on when alternative drugs are introduced with respect to the validity of the patent on the original drug.

(E) - This argument weakens, instead of supporting the pharma industry's claim.

Maaverick and Mallelac,

I am a little confused by your take on option C, which you guys have described in fairly positive terms for the pharma industry's assertion.

I have a quite different viewpoint:

If other companies have a higher R&D Vs Revenue ratio, and they don't demand protection from competition for more than 20 years, Pharma industry is, in no way justified in asking for it.

That's why I reasoned, that this choice opposes the pharma industry's contention that the 20 year protection should be increased.

Can you guys have a look at this logic and let me know what you think about it?

Thanks.

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Awaiting response,

Thnx & Rgds,
Chandra

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21 Mar 2005, 19:11
A: No industries other than the pharmaceutical industry have asked for an extention of the 20-year limit on patent protection.
- out.

B: Clinical trials of new drugs, which occur after the patent is granted and before the new drug can be marked, often now take as long as 10 years to complete.
- This will strengthen the argument. If clinical trials take as long as 10 yrs to complete, then the patent should be extended. This choice also highlights the difference between the pharmaceutical industry and other industries.

C: There are several industries in which the ratio of research and development costs to revenue is higher than it is in the pharmaceutical industry.
- weakens the stand

D: An existing patent for a drug does not legally prevent pharmaceutical companies from bringing to market alternative drugs, provided they are sufficiently dissimilar to the patented drug.
- Out.

E: Much recent industrial innovation has occurred in products - for example, in the computer and elestronics industries - for which patent protection is often very ineffective.
- out of scope

B it is.
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24 Mar 2005, 04:06
Dear all,
My appologies for the late response regarding the OA, as I was out of the country on BIZ trip. The OA is (B) and the choice I picked up was (E). Thanks to everyone's aurgements, I was fully able to understand why (B) is correct. Thank you.
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24 Mar 2005, 04:06
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