Price Reflecting Underlying Value and Innovation Entry

Prices in competitive markets are driven by underlying value and the cost of production, which is generally viewed as good for society. However, in innovative markets, it is important to ensure that innovation can enter the market. The US patent system provides 20 years of exclusivity for new drugs, but the FDA approval process takes around 10 years, during which no money is earned. After the exclusivity period expires, the price of the drug can drop dramatically.