Pharma

Question 1

Is the pharma industry perfectly competitive?

Answer 1

Not at all, even though over 20 companies earlier over $10 billion

Question 2

Why can drug prices be so high?

Answer 2

Demand elasticity and intellectual property rights that reduce competition

Question 3

What drove the age of drug discovery and development?

Answer 3

The creation of penicillin

Question 4

What has started to hamper innovation in the drug market?

Answer 4

Diminishing marginal returns on innovation (costs ~$1B to bring a drug to market)

Question 5

What makes a firm a monopoly?

Answer 5

If it is the sole seller of a product that doesnt have close substitutes

Question 6

What are the three main sources of the barriers of entry that can lead to monopolies?

Answer 6

• monopoly resources
• government regulation
• production process

Question 7

How does the government incentivize pharma to innovate and create new drugs?

Answer 7

Granting patents and exclusivity via the FDA

Question 8

What’s the difference between patents and exclusivity?

Answer 8

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

Question 9

What is a brand vs generic drug?

Answer 9

Brand: drug developed by a particular company

Generic: same drug but sold by other companies once the exclusivity expires

Question 10

What happens to the price of brand drugs once generic drugs flood the market?

Answer 10

It’s price decreases

Question 11

Do generic monopolies exist?

Answer 11

Yup thanks to Hatch-Waxman

Question 12

What does a price mark up depend on?

Answer 12

Elasticity of demand

Question 13

Relative to a perfectly competitive firm, a firm with market power can ____ output and charge ___ prices

Answer 13

Restrict
Higher

Question 14

What is deadweight loss?

Answer 14

Cost to society due to an inefficient allocation of resources

Question 15

What are formularies?

Answer 15

Tiered systems insurance plans use to determine which drugs are covered and how many insurers and patients will pay for them

Question 16

Who determines formulary prices?

Answer 16

Pharmaceutical benefit managers who are being acquired by insurers more and more recently

Question 17

Do mergers and process improvement increase the rate of innovation?

Answer 17

The data doesnt support it

Question 18

How many new molecular entities are made per company each year?

Answer 18

~1

Question 19

How do manufacturers defend drug pricing?

Answer 19

Saying length, cost, and risks of developing new drugs justify the price, normal people say the excess profits explain the prices

Question 20

What did Sertkaya’s paper look into?

Answer 20

Cost of drug development and research and development intensity in the US from 2000-2018

Question 21

What are the key takeaways of the Sertkaya paper?

Answer 21

• 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

Question 22

What is the 340B program?

Answer 22

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

Question 23

What is the impact of the 340B program?

Answer 23

• 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

Question 24

What is off-label prescribing?

Answer 24

Prescribing a drug for an indication that was not explicitly approved by the FDA

Question 25

What is a benefit to off-label prescribing?

Answer 25

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

Question 26

Are pharma companies allowed to promote off-label prescribing?

Answer 26

No but it seems like they do it anyway

Question 27

What do pharmaceutical benefit managers do?

Answer 27

• they are the intermediary between pharmacies, insurers and self insured employers, drug manufacturers, and drug wholesalers
• handle network of pharmacies

Question 28

Insurance companies are ____ integrating PBMs

Answer 28

Vertically