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Lec11_drugs1_handout - The Pharmaceutical Industry The...

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The Pharmaceutical Industry The Pharmaceutical Industry Professor Vivian Ho Health Economics Fall 2009
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Outline Outline Competitiveness of the pharmaceutical industry Conduct Performance
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Benefits of Drugs Benefits of Drugs Reduce mortality Reduce morbidity/improve quality of life Reduce cost of treating diseases
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Industry Structure Industry Structure # and size distribution of sellers Buyers’ side characteristics Barriers to entry Government regulation
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http://www.imshealth.com Top 10 U.S. Prescription Drug Sellers, 2008 Company Sales $b Pfizer 20.5 GlaxoSmithKline 18.4 AstraZeneca 16.3 Johnson & Johnson 16.0 Merck & Co 15.5 Amgen 13.4 Hoffman-LaRoche (incl Genentech) 13.1 Novartis 12.4 Lilly 11.4 Sanofi-Aventis 11.0
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Industry 4-firm CR % Apparel 18.4 Basic Chemicals 18.3 Computer software 34.1 Food 14.8 Footwear 34.5 Furniture 18..7 Automobile 87.3 Pharmaceuticals 33.6 4-Firm Concentration Ratios 2002
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Can competition be accurate Can competition be accurate measured at the industry level? measured at the industry level? Most drugs are not substitutes to the patient The relevant product market is the therapeutic market Only a few major drugs compete in most therapeutic markets Concentration ratios at this level are higher than for industry as a whole
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Therapeutic Market Four-Firm Ratio Antidepressants 87* Antihistamines 99* Antihyperlipidemics 73* Antihypertensives 81* Antivirals 80* Gastrointestinal Diseases 91* Concentration Ratios for Therapeutic Markets, 2006 Express Scripts Drug Trend Report, 2006 *Includes “Generics” as a top-4 firm
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Firms tend to make most profits from Firms tend to make most profits from a few key drugs a few key drugs Company Percent of Revenues Glaxo Smith Kline 29.1 Pfizer 40.9 Johnson & Johnson 44.7 Percent of Net Revenues Wyeth 55.5 Bristol-Myers Squibb 47.5 Merck & Co. 44.3 Top 3 Drugs as a % of Worldwide 6 Month Prescription Sales, 2007
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The Buyer Side The Buyer Side Expend. Source ($billions) Percent Total 227.4 100.0% All private 146.6 64.5 Out-of-pocket 47.5 20.9 Private insurance 99.1 43.6 All government 80.8 35.5 Federal 66.5 29.2 State 14.3 6.3 Buyers of Prescription Drugs, 2007
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www.cms.hhs.gov Prescription Drugs as a Percentage of U.S. National Health Expenditures, 1960 - 2007 9.7% 8.8% 7.3% 6.0% 4.7% 5.0% 5.6% 6.0% 8.9% 9.4% 9.8% 10.0% 10.0% 10.1% 10.3% 10.1% 0% 2% 4% 6% 9% 11% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 Share of Health Expenditures
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How 3rd parties influence drug demand How 3rd parties influence drug demand Even if consumers exert little influence
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