Exam 11: Pharmaceuticals

On average, R&G expenses consume a larger share of pharmaceutical funds than marketing and administrative costs.

The hierarchy of funds to the pharmaceutical market in order of level of expenditures is

Explain the importance of the 1984 Drug Price Competition and Patient Restoration Act (The Hatch-Waxman Act) to the development of the generic drug market.

The average percentage of revenues spent on R&D by pharmaceutical companies in the U.S. has been stable for the past three decades at about 17%.

Which drug is likely to be the most profitable for its producer (in terms of average "per-drug" profit)?

How would you classify the market structure of the pharmaceutical industry: monopoly, oligopoly, monopolistic competition or perfect competition?

It was not until after World War II, that it became clear that control over drug safety mechanisms should rest with governmental agencies rather than with an industry watchdog group.

When a retail pharmacy fills your prescription, they likely have an incentive to

In the presence of insurance coverage, over the counter purchases of drugs like acetaminophen, ibuprofen and naproxen sodium will have a higher elasticity of demand than physician prescribed drugs.

Most studies have shown that the initial stages of the pharmaceutical manufacturing process usually give rise to _________________ , while after the large fixed (sunk) costs are finally paid off, manufacturing of pharmaceutical products exhibits ________________________________.

Jay's physician prescribes a 15-day supply of a pain relieving medication which costs Jay $15 in co-pay because he has an insurance policy which covers prescription drugs. After 15 days, Jay is still in pain and believes that the medicine alleviates his pain about the same as over the counter ibuprofen. Ibuprofen costs $15 for a 15-day supply, and Jay's price elasticity of demand is about the same for both products. Jay will eventually decide to purchase the ibuprofen over the counter because renewing his prescription involves an additional opportunity cost of the doctor visit.

Many mail-order pharmacies these days are owned by PBMs. Discuss whether there might be a potential conflict of interest in such ownership; if consumer welfare may be affected, and whether such pharmacies would have an incentive to change their policy regarding the use of generics: i.e. would they possibly have an incentive to fill more or less with generics? Justify your answers.

Once a firm has isolated and tested a drug on animals, it files a New Drug Application (NDA) with the FDA. Then, three phases of testing take place over a period of several years.

The earliest federal regulation of the pharmaceutical industry was

One act passed by the federal government aimed at reducing the monopoly power of patented drugs was

Discuss the role of risk and return in the pharmaceutical industry.

If the PBM is owned by one of the pharmaceutical companies from whom it buys drugs, why might a conflict arise? Why might the FTC be interested in limiting the amount of vertical integration in the health care industry?

One of the most widely used estimates of the average cost of developing a new drug has been at about $80 million (in 2000 dollars).

While generics account for more than three quarters of all prescription drugs sales by volume, they account for only 10% of all prescription sales revenues.

In the U.S. health expenditures on drugs amount to about 10% of total health expenditures. In Japan, where physicians are legally permitted to sell pharmaceuticals, national expenditures on drugs are almost double the level in the U.S. Discuss how the incentives of physicians differ in both countries. Suggest some reasons why the legal requirements might be so different.