Question

Pharmaceutical companies spend more than ever on research and development; yet the number of new drugs patented each year has dropped since 1963. At the same time, profits—at constant 1963 dollars—for the industry as a whole have been steadily increasing.

Option A
Option B
Option C
Option D
Option E

(This question is from Official Guide. Therefore, because of copyrights, the complete question cannot be copied here. The question can be accessed at GMAT Club)

Solution

The Story

Pharmaceutical companies spend more than ever on research and development;

Pharma companies spend on R&D more than they ever did.

yet the number of new drugs patented each year has dropped since 1963.

‘yet’ – a contrast word comes here. Even though these companies are spending more than ever, the number of new drugs patented has dropped since 1963. (It seems to have become more expensive to come up with a new drug)

At the same time, profits—at constant 1963 dollars—for the industry as a whole have been steadily increasing.

First of all, let’s understand the meaning of “profits – at the constant 1963 dollars”. It means we are taking inflation into account. Because of inflation, $1 of 1963 is not equivalent to $1 today. Right? You could buy a lot more with $1 in 1963 than you can buy today. Let’s say that $1 of 1963 is equal to $2 today i.e. you can buy with $2 today what you could buy with $1 in 1963. Now, if a company makes a profit of $2 million this year and made a profit of $1 million in 1963, has its profit really grown? No, in terms of how much they can buy, it hasn’t.

So, when we say that profits – at constant 1963 dollars – have increased, it means that even after taking inflation into account and thus reducing the current profits by a factor (so that they can be compared with 1963 profits), the current profits are greater than the profits in 1963. So, let’s say we take the numbers discussed above. If the profits in 1963 were $1 million, the current profits are greater than $2 million.

Gist: Even though Pharma companies spend more than ever on R&D, the number of drugs patented has dropped. However, the profits of the companies together have steadily increased.

The Goal

We are given three observations: 

  1. Higher spending
  2. Fewer patents
  3. Greater profits

The first doesn’t align with the second, and the second doesn’t align with the third. We have to find a factor that best explains, at least partially, the existence of these three things together.

One possible way we can explain these three things is that the effectiveness requirements for the patenting of drugs have increased considerably i.e. a drug now needs to be much more effective to get patented (can explain 1st and 2nd) and, as a result, significantly more people are willing to take the drugs that finally get the patents (bigger market can explain 3rd).

 

The Evaluation

(A) IncorrectWhile this option can explain 1st and 2nd, it cannot, at all, explain the 3rd point. If more stringent requirements led to a bigger market, the option needs to state that explicitly. In such a case, this option would be correct. However, we cannot assume on our own that more stringent requirements lead to a bigger market.

(B) CorrectThis option says that research competition among pharma companies has steadily increased. Why? Because all these companies are trying to develop selective drugs for which there is a large market. Given the increased competition and a narrower focus of research, it is expected that developing drugs that can get patented would be more expensive. Thus, 1st and 2nd points are explained. The 3rd point is explained by “for which there is a large market”. So, even though there are fewer drugs patented, since each drug has a large market, the overall profits are likely to be higher. 

(C) Incorrect. While the ‘very generous salaries’ part can explain 1st and 2nd points, the option says it’s the case with some pharma companies, not the whole pharma industry. Besides, the option doesn’t explain the 3rd point.

(D) Incorrect. This option can explain the 1st and the 2nd points. However, it cannot explain the 3rd point. There’s no reason why higher duplication of work across companies might cause profits for the industry to increase.

(E) Incorrect. Clearly, this option cannot explain anything given in the passage.

Additional Notes

This is a unique question in that it is an extension of the paradox questions. In a paradox question, we are asked to explain the coexistence of two seemingly contradictory situations. In this question, there were three such situations. The correct option needed to explain the existence of all three together, as was clearly mentioned in the question stem. While Option A and D could explain two of the situations, they were wrong since they couldn’t simultaneously explain the third situation. The way to solve these non-standard questions is to read the question stem very carefully. 

SC Notes: “Pharmaceutical companies spend more than ever on research and development” – In this, we use the simple present tense to illustrate an ongoing trend and not present continuous.

This solution was created by Anish Passi and Chiranjeev Singh.

If you have any doubts regarding any part of this solution, please feel free to ask in the comments section.

  • Milan says:

    D- Doubt- According to the explanation option D doesn’t cover 3rd point. My understanding is the companies are copying drugs from other companies to sell such drugs as their own, increasing their market and thereby their profits?

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