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3rd Year > Pharmaceuticals Market > Flashcards

Pharmaceuticals Market Flashcards

1
Q

How much total health care expenditure goes to the Pharmaceuticals market?

A

10-20% ($1,105 billion in 2016)

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2
Q

What did Morton and Kyler (2011) say about OECD pharmaceutical spending?

A

OECD average spend of 17% of total health care expenditure in the pharmaceutical market

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3
Q

How large is the market worldwide?

A

41% goes to US
13% to the EU5
11% to China

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4
Q

Percentage of the market made of original brands?

A

52%

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5
Q

Main type of illnesses the drugs target?

A

Non-communicable diseases (37%) e.g. stroke, CVD

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6
Q

How much did the industry spend on Research and development in 2015?

A

$150 billion

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7
Q

Social benefits/criticisms of the industry?

A

Social: Decline in aids, productivity, casual treatment
Criticisms: Huge profits! Useless/harmful drugs and excessive advertising spend

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8
Q

Role of the regulator in the market?

A 
Advertising regulation
Reimbursement scheme
Cost containment
Safety, efficiency
Patent regulation
Price regulation
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9
Q

Features of the demand for the market?

A
  • Doctors act as imperfect agents for prescriptions
  • Reimbursement for insurance
  • Lack of substitutes
  • Inelastic demand
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10
Q

Externalities to the pharmaceuticals market?

A
  • Health improvements
  • Cost saving
  • Tech transfers
  • Employment
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11
Q

Features of the supply side of the market?

A
  • High R&D investment
  • Innovation
  • Monopoly power
  • Product discrimination
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12
Q

Breakthrough stages of Pharmaceuticals development?

A

Need to secure survival through innovation. Optimisation, need MR to cover the expected MC

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13
Q

What is product innovation?

A

Creates a product with modified or even completely new characteristics.

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14
Q

Why is access to the market so key?

A

Provides an avenue to sell the product in order to recuperate costs

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15
Q

What is consumption technology?

A

A combination of the drugs characteristics

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16
Q

What is new demand theory? Papers on it?

A

Lancaster, 1966 and Becker, 1965: Consumers derive utility not from the good itself but the goods characteristics

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17
Q

What characteristics of drugs do people compare?

A
  • Beneficial principal effect
  • Adverse drug reaction
  • Convenience of handling
  • Storability
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18
Q

Which drugs are guaranteed market access?

A

Breakthrough drugs (health insurance guarantees success)

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19
Q

Key facts about the pre-clinical stage of drug testing?

A

Research Discovery.
3-6 Years.
21.5% of the budget.
<0.01% successful

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20
Q

Key facts about the Clinical trials stage of drug testing?

A

Development, Clinical Trials: 6-7 Years. 65% of the budget.

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21
Q

3 Stages of Main stage drug testing?

A

Stage 1, 20-100 people, 65% success.
Stage 2, 100-500 people, 40% success.
Stage 3: 1000-5000 people, 50% chance of success

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22
Q

How much of the budget is spent getting market approval?

A

3.5% of the budget.

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23
Q

What are Phase 4 trials?

A

Ongoing Checks. 10% of the budget.

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24
Q

How has the cost of marketing a drug changed?

A

Increase in the cost (average) of a marketable drug. Lower chance of success and a longer development phases

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25
Q

Morton and Kyler (2011) quote on innovation?

A

Innovation is stochastic

26
Q

Average costs of marketing a drug?

A

1950s: $7.5 million. (Bailey)
80s: $200 million.
2003: $800 million (Di Masi)

27
Q

How is profitability measured?

A

Net Present Value =

Revenues, costs, interest rate

28
Q

What is the IRR

A

Internal rate or return: Interest rate that yields

NPV =0

29
Q

On average when is the flow of revenues from a new drug positive?

A

12 years

30
Q

Average IRR in the 1990s?

A

11.5% (Grabowski et al, 2002)

31
Q

What did Joglekar (1986) say the Median IRR was in the 70s?

A

-5.5% (50% of the innovations launched in the US in 70’s not paid costs even after 36 years)

32
Q

Average NPV according to Grabowski and Vernon (1994)

A

$22.2 million

33
Q

Estimated social returns from drug development?

A

Add about 200% to the private rate of return

34
Q

Morton and Kyler (2011) warn about with drug development?

A

High social costs of a bad drug

35
Q

What is Arkelofs problem in this field? (1970)

A

Lemon problem- consumer cannot assess the drugs properly.

36
Q

Problem with insurance in the market?

A

Exaggerates peoples willingness to pay and overestimates the social return.

37
Q

Why do companies want a patent?

A

To protect the invention, and ensure price remains above MC. Gives a monopoly position

38
Q

Problem with patents?

A

Creates a dead weight loss to society

39
Q

Why did Cohan (2000) say patents are key?

A

Cost structure, and ease of innovation explain why patents are key.

40
Q

Push/pull incentives other than patents?

A

Push: Decrease the costs of R&D. Tax subsidies for clinical trial/research. Grants for academic research
Pull: Increase revenue, patents, data protection and drug pricing.

41
Q

What was the orphan day act (1983)?

A

Funding for ‘rare disease’ affecting less than 200,000 people in the US. Federal funding, tax credit (50% of testing costs) and 7-year market exclusivity.

42
Q

How many drugs approved under Orphan Day Act?

A

1967-83: 34 drugs approved 1984-2009: 347 approved (Botox has 3 approvals).

43
Q

What is price regulation?

A

Due to patent monopoly can create and the elastic demand. Governments have to regulate prices to limit health care expenditure.

44
Q

Limits to price regulation?

A
  • Co-payments introduce moral hazard into the market. -Global efficiency losses
  • Less innovation.
  • Is price competition enough?
45
Q

Morton and Kyler (2011), why is there political pressure to reduce drug costs in the US?

A

US government buys 50% of drugs in the US (in/directly), huge pressure to reduce the costs.

46
Q

Pricing structure for manufacturers examples?

A

UK no VAT
Denmark 25% VAT
France 2.1% VAT

47
Q

Pricing structure for wholesaler examples?

A

Mark-up + VAT: 6-12% Mark up in Germany (Vogler, 2008)

48
Q

Example of the pricing structure for pharmacies?

A

(Mark-up + VAT): Germany €8.10 + 3%, regressive limit to mark-up

49
Q

What is the price to the insurer?

A

Reimbursement price

50
Q

What is the price to the consumer called?

A

Co-payment

51
Q

How does list pricing work?

A

Payer/commission recommends a list price. In the UK this is binding (NICE). France, negotiation with the agency afterwards

52
Q

Example of direct price regulation?

A

Prices of new products and changes in the prices of existing drugs require approval by a public authority (e.g. France, Spain and Italy). Use international prices as a benchmark.

53
Q

Problems with price regulation?

A

Doesn’t reflect consumers willingness to pay, negotiations delay payment for small innovators and delay new products.

54
Q

How does a reference price work?

A

Group properties of drugs, set a common reference price. In theory can charge consumers the difference but, few do. Ideally, manufacturers lower their prices.

55
Q

What is the rate of return capped at in the UK?

A

29.4%, forced to repay NHS if they go over. In reality very hard to prove profits and companies manipulate the figures.

56
Q

German Health Care Structure, 1993 reforms- did they work?

A

Budget Control to Doctors: Promising initiative but failed as no physician was sanctioned and opposition from industry/doctors too strong.

57
Q

How is price competition weakened by health insurance?

A

Patients only interested in the quality and not the price

58
Q

How long do Me too drugs take to emerge?

A

1-6 years

59
Q

What are generic drugs?

A

Non-branded imitations, 4x lower price

60
Q

How do generic drugs affect the original products market share?

A

Reduce originals market share by 45% no effect on its price really. Competition amongst generic drugs, 1- 10 suppliers, reduces the price by 50%.

61
Q

Why is price competition better in the US?

A

More effective in the US (large co-payments) rather than the UK with the NHS.

3rd Year (7 decks)

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