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Summary HPI4001 Case 5
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Lecture Case 5 Pharmaceutical Market EH1.Pharmaceutical Market
Roles of the pharmaceutical industry:
To develop and produce medicines and vaccines
-Drugs as a method to preserve health and save lives
-Next to nutrition, sanitation and medical care (also important)
To drive innovation in drugs
-To develop, test and produce drugs safety for human use
-Early years very successful: e.g. insulin (diabetes), antibiotics and polio vaccination
Economic growth factor worldwide
Example of pharmaceutical success:
-Decreased number of deaths among HIV-cases in Europe due to availability of effective drugs.
-Increase in life expectancy (2000-2009) is also partly a result of innovative medicine
Number of employment in pharmaceutical industry is important -> this number is increasing in
Europe (25% is involved in R&D department). Pharmaceutical R&D expenditure in Europe, USA and
Japan have significantly increased (more than double sometimes) -> so there is a lot of investment.
- Nowadays with corona we will expect that expenditure continues to increase
- Currently Netherlands spend 7% of healthcare budget on drugs (low percentage compared to
other countries).
Pharmaceutical expenditures:
Spending on pharmaceuticals account for a significant proportion of total health spending in
European countries
Increased consumption of pharmaceuticals due to the introduction of new drugs and the
ageing of populations (comorbidities in elderly -> main consumers of drugs)
Reforms in pharmaceutical market (opportunities to be more efficient in healthcare
spending)
Around 60% of drug spending is publicly financed on average across OECD countries (18% in
Bulgaria to 90% in UK)
Characteristics of the pharmaceutical market:
Multinational enterprises
-Lot of mergers and acquisitions
Barriers to entry by the protection of product by patents
-Monopoly position (when there is a patent, only this company is allowed to sell this drug
which leads to a monopoly position -> could lead to high price, however certain regulations
are set by the government to contain this)
-Research and development expenditures (receive back some costs by patents, otherwise
company could just copy your drug)
High willingness to pay for drugs
-Price regulation (talk between industry and payer)
-Often reimbursed in whole or in part by insurance
More regulation in drug development
-Due to Thalomid (1960) which was a drug for sleeping that cured morning sickness in
pregnant women but also caused problems (malformations) in their babies later.
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, Product uncertainty: regarding side-effects, safety and effectiveness of the new drug
-Therefore payers are using some new coverage decisions.
Aggressive advertisement (toward physician) from pharmaceutical industry and
government bans for end of users (you are not allowed to promote drugs on television)
-Detailing activity to doctors (a sales representative visits a doctor to discuss the
characteristics of a specific drug
-Brochures in doctors’ office, advertising in medical journals etc
You often need a prescription from a physician to get a drug
Government interventions: because of specific nature of pharmaceutical market; some examples:
1. Drug development regulation (clinical trials)
2. Entry barriers - without patent protection, no innovation
3. Drug price regulation
4. Ban on advertisement (on television etc)
5. Specific regulation by example for orphan drugs
6. Reimbursement/access: co-payment or promotion of generics
2.Type of drugs
Ethical (or prescription) drugs: licensed medicine that is regulated by legislation to require a
prescription before it can be obtained
OTC (Over The Counter) -drugs: medicines that may be sold without a prescription in contrast to
prescription drugs (e.g. aspirin)
Brand(ed) drug: drug which is produced and distributed with patent protection (when one company
only is allowed to produce and distribute this drug basically)
Generic drug (generics): drug which is produced and distributed without patent protection.
- Contains the same active substance as the reference medicine and it is used at the same
dose to treat the same disease.
- However the inactive ingredients, name, appearance and packaging can be different
- Generic medicines are manufactured according to the same quality standards as all other
medicines (EMA definition)
Typically generic drugs increase efficiency in the pharmaceutical market because they are often 30-
40% lower in costs than branded drug which leads to greater access to healthcare (due to reducing
out of pocket contribution in some countries)
Generic drugs have a high contribution in the total pharmaceutical market
- In Netherlands, 70% of the drugs are generic drugs
- Use have increased due to economic crisis (reduced prices of drugs)
Me-too drug: drug that is structurally very similar to already known drugs, with only minor
differences (e.g. Fosamax consist of alendronate and vitamin D which already existed but now it is
combined into the new drug). Reasons/Rationale for developing this type of me-too drugs are:
To avoid patent protection (add extra element to avoid patent and make it new drug)
Drug companies tend to present the drug as new in order to get it patented (even if it slightly
differs)
Improved technical properties
More and more difficult to develop new drugs
Me-too problems:
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