Pharmaceutical Pharmaceutical Drugs Drugs IndustryIndustry

By Zach Brewer, Joanna Schrank, Tracy Empson, Mark Lyubovitky

ECON-200-002

Structure of the Structure of the IndustryIndustry

1) Johnson and Johnson

2) Pfizer3) Bayer4) GlaxoSmithKline5) Novartis

• The pharmaceutical industry is monopolistically competitive

• Top ten competitors in the industry (based on revenues)

6) Sanofi-Aventis7) Hoffmann–La

Roche8) AstraZeneca9) Merck & Co.10) Abbott

Laboratories

Nature of Demand in the Nature of Demand in the IndustryIndustry

Demand for pharmaceuticals has some special features:

How sensitive is the How sensitive is the industry to changes in industry to changes in income?income?Sensitivity to changes in income

depends on the type of pharmaceuticals.

How sensitive is the industry to How sensitive is the industry to changes in income?changes in income?• In October the New

York Times ran a story about how the economic downturn is affecting the pharmaceutical industry.

• Consumers are cutting back on their prescriptions in order to pay for other necessities.

• Pharmaceutical sales are down

Supply and DemandSupply and Demand• Demand in the

pharmaceutical industry is inelastic, since consumers need pharmaceuticals and will not make a drastic change in the amount they purchase even if prices rise.

• Supply is elastic, since producers have more market power and can raise or lower the price without much change in their number of customers or the quantity customers buy.

Yummy SubstitutesYummy Substitutes Zoloft and

Prozac: Anti-depressants

Aspirin & Ibuprofen: pain relievers

Supply FactorsSupply Factors• Season change. For

example, flu season is during cold weather months, so producers of flu shots will not supply as many flu shots during warmer weather.

• Regulatory requirements (FDA)

• Price pressure – government organizations, employers, consumer advocacy entities (AARP).

• “…competition and the race towards gene profiling for therapeutic drugs may well push big pharmaceutical companies into niche drugs and smaller-batch production” (UPS Supply Chain Solutions).

• http://www.ups-scs.com/solutions/white_papers/wp_pharma2.pdf

Short and Long Term Short and Long Term CostCost

• High cost:• Test products• Educate professionals

• Low cost:• Cost of goods sold

Ability or Inability to Expand

• Contingent on what government will allow

• Competition• Available technology• Social implication• Regulations overseas

Entrance/Exit to and from Entrance/Exit to and from IndustryIndustry

• High cost to enter market• Government regulation