Pharma Flashcards
Is the pharma industry perfectly competitive?
Not at all, even though over 20 companies earlier over $10 billion
Why can drug prices be so high?
Demand elasticity and intellectual property rights that reduce competition
What drove the age of drug discovery and development?
The creation of penicillin
What has started to hamper innovation in the drug market?
Diminishing marginal returns on innovation (costs ~$1B to bring a drug to market)
What makes a firm a monopoly?
If it is the sole seller of a product that doesnt have close substitutes
What are the three main sources of the barriers of entry that can lead to monopolies?
- monopoly resources
- government regulation
- production process
How does the government incentivize pharma to innovate and create new drugs?
Granting patents and exclusivity via the FDA
What’s the difference between patents and exclusivity?
Patent: property rights that encompass a wide range of claims and often relate to active ingredients or formulation
Exclusivity: delays and prohibitions on approval of competitor drugs
What is a brand vs generic drug?
Brand: drug developed by a particular company
Generic: same drug but sold by other companies once the exclusivity expires
What happens to the price of brand drugs once generic drugs flood the market?
It’s price decreases
Do generic monopolies exist?
Yup thanks to Hatch-Waxman
What does a price mark up depend on?
Elasticity of demand
Relative to a perfectly competitive firm, a firm with market power can ____ output and charge ___ prices
Restrict
Higher
What is deadweight loss?
Cost to society due to an inefficient allocation of resources
What are formularies?
Tiered systems insurance plans use to determine which drugs are covered and how many insurers and patients will pay for them
Who determines formulary prices?
Pharmaceutical benefit managers who are being acquired by insurers more and more recently
Do mergers and process improvement increase the rate of innovation?
The data doesnt support it
How many new molecular entities are made per company each year?
~1
How do manufacturers defend drug pricing?
Saying length, cost, and risks of developing new drugs justify the price, normal people say the excess profits explain the prices
What did Sertkaya’s paper look into?
Cost of drug development and research and development intensity in the US from 2000-2018
What are the key takeaways of the Sertkaya paper?
- R&D spending increased over 2008 to 2019 but stayed stable among large pharma companies, emphasizing the importance of small pharma companies who were also found to have contributed to 645 of all new molecular entity drug approvals
What is the 340B program?
If hospitals have a disproportionate share adjustment above 11.75%, they can require pharma companies participating in Medicaid to sell outpatient drugs at discounted prices
What is the impact of the 340B program?
- low rates of compliance with 340B program from covered entities
- mixed use of 340B revenue
- quasi studies found less adoption of cheaper alternative and no improvements in quality of inpatient care to Medicaid or uninsured patients
What is off-label prescribing?
Prescribing a drug for an indication that was not explicitly approved by the FDA
What is a benefit to off-label prescribing?
Gives providers the ability to treat a patient based on emerging evidence rather than waiting forever for the FDA to approve it
Off label can sometimes be much cheaper than usual treatment
Are pharma companies allowed to promote off-label prescribing?
No but it seems like they do it anyway
What do pharmaceutical benefit managers do?
- they are the intermediary between pharmacies, insurers and self insured employers, drug manufacturers, and drug wholesalers
- handle network of pharmacies
Insurance companies are ____ integrating PBMs
Vertically
