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If/when a drug is approved, the Monopoly Period begins. This is where the majority of the reward for successful innovation is earned. Policymakers can influence incentives by deciding how long and how thoroughly new drugs should be protected from competition.
Finally, the Competitive Period starts when other companies are allowed to introduce products to compete with the innovator drug. Again, policymakers determine when & how generics can compete—which profoundly influences drug company profits, as patents & exclusivities expire.
The central insight is that America's drug market is anything but a traditional free market. Lawmakers have constructed every aspect of the system—and thus have many options, beyond price negotiation, to change the calculus for drug innovation & the costs to patients.
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