http://ksbpharmaceutical004.blogspot.in/2012/10/blog-2supply-and-demand-in.

html
Blog #2: Supply and Demand in the Pharmaceutical Industry
The supply and demand graph for the pharmaceutical industry works differently than a normal supply
and demand graph. This is because the pharmaceutical industry works differently than others.
Medicines are always in demand. People will always need medicine to cure their illnesses.
Sometimes people need drugs for a short period of time and other times they need it for life (Lgriffith,
2008). There will never be a time or period of the year where drugs and medicine are not in demand.
Therefore, no matter what the price is or how much of the drug is supplied, there will always be a high
demand for it. This is different than a normal supply and demand curve. In a normal curve, as the
price goes up, the supply of it goes up but the demand for it goes down (Heakal, 2003). This is
normally because people are less willing to pay more for a product, however, when it comes to
medication for their health, they tend to be more willing to pay more for it. Everyone needs medicine
at some point in their life. Many people rely on certain medications more than others. When a doctor
prescribes a drug, people have to pay it, or at least their health insurance providers do. Medications
are a necessary component of life. They help people stay healthy. In this case, the supply and
demand curve for the pharmaceutical industry is not going to look the same as the supply and
demand curves for other industries. The demand curve is always going to go up and never down.
Medicine is always going to be in demand. My company, Novo Nordisk, has the same supply and
demand curve as its industry. Novo Nordisk sells drugs relating mostly to diabetes (Novo Nordisk,
2012). There are always going to be people with diabetes in the world. This way, there are always
going to be people that need medicine to help them with their diabetes. Their products are always
going to be in demand for people suffering with diabetes. The demand for their product is never going
to go down. The supply and demand curve for my company behaves the same way as the supply and
demand curve for the industry as a whole. Medicine is always in demand. That is something that will
probably never change.

Economics of the Pharmaceutical Industry

The economics of the pharmaceutical industry right now is doing very well in particular. According to
George Cressanthis in, the article, now that the baby boom generation is becoming older, more drugs are needed.
Spending on pharmaceuticals represents around 11 percent of total healthcare spending, which in turn is over
14 percent of gross domestic product (GDP) and rising (Cressanthis). The pharmaceutical industry is also
expected to grow in the years and according to the article, it is on an upward trend. This industry makes their
money mostly on a buyer-to-buyer market. The article also says that the main way drug companies make money
in the pharmaceutical industry is in the science and manufacturing operations areas. According to Cressanthis,
Drug discovery and research and development (R&D) will always represent the life-blood of a pharmaceutical
company. Recently, The pharmaceutical industry primarily spends their money on marketing the drugs. With
the recession, drug manufactures are putting more efforts are being placed on novel ways that these new
drugs can be commercialized in the marketplace (Cressenthis). The pharmaceutical industry also spends money
on analyses of the market. The role of the government in regulating pharmaceutical activities, both at the
federal and state levels, is growing. Numerous companies hire economists to conduct analyses on the expected
impacts of proposed governmental policies and develop analyses to propose policy directions of interest and
importance to individual companies and the industry(Cressenthis). Pharmaceutical industries also have
excellent working conditions and environments. This affects the income and cost of the company because the
drug company initially spends money to make their employees happy and comfortable. The combination of

highly competitive compensation and benefit packages and overall high-quality work environment
(opportunities and resources for research, computer programming, software, and technology, and well-trained
staff with advanced degrees operating in a collegial work place) attract and retain top talent (Cressenthis). This
helps with their over all GDP and having the best talent will set them apart from other drug companies.
Finally, drug companies spend their money on increasing Drug discovery and R&D costs. as investments in
drug pipelines require ever greater resources to generate differentiable and novel approaches to treat
diseases(Cressenthis). The drug industry is on an upward trend and had a larger GDP than they are spending.
This is because of the drug companies spending on ways to move product, employees and data analysis. The
drug company relies heavily on the time period and the economy and must change their strategies and spending
accordingly.
Palgrave Macmillan jul. 2008 (pp65-68). Retrieved from
http://proxyau.wrlc.org/login?url=http://search.proquest.com/docview/199823424?
accountid=8285

Price Trends
In the pharmaceutical industry, there is a relatively inelastic demand for medicine (OECD
page 14). The pricing is based on a free market concept, meaning there is no regulation, especially
for over the counter drugs (OECD page 14). To set prices, The most commonly used methods involve
comparing proposed prices for new products against those prices paid by other payers, a practice
known as external price referencing, or against those prices already paid for products judged to be
similar (OECD page 14). Profit controls, Pricing and regulation of the distribution chain is undertaken
in many systems are also used (OECD page 14). For the people purchasing the products in the
pharmaceutical industry, reference price systems are often used to set common reimbursement
amounts, Consumers than pay an out-of-pocket difference on the products (OECD page 14).
Pharmaceutical prices are also determined by market powers (OECD page 14). This means the
perceived value of the product and competition from other companies. For example, a more well know
company like mine, Pfizer, sets the price of many drugs because they are a well known brand with the
consumers. Retail prices of pharmaceuticals also are affected by the countrys income (OECD page
10). This means higher income in the country can affect consumption positively. This means in the US
there is a higher consumption of pharmaceuticals and resulting in higher prices and because it is
inelastic expenditure changes with income, but not as fast (OECD page 10). Pricing is heavily
determined by the company of the produced and not regulated in the US; some critics say it is too
high and should be lowered for people to afford the medicine they might need to stay alive.

OECD Health Policy Studies Pharmaceutical Pricing Policies in a Global Market (pp.10-14) 2008.
Received from
http://www.oecd-ilibrary.org/docserver/download/fulltext/8108041e.pdf?
expires=1351113230&id=id&accname=ocid194320&checksum=F374541A8A30BEA51FC5D5423D7
C3230

Blog #3 Differentiation
One of the biggest differentiations of pharmaceutical companies are their patents. Their patents
hold the most value when it comes to product distribution, but when the patents begin to expire;
competition heightens when generics appear on the shelves. A battle between brands versus generics
ensues and differentiation becomes extremely important for the companies.
Product strategy is a way which companies help their products have a longer market life.
When a companies products sales begin to slow down due to generics coming out, the company will
find other clinical usages for the drug, thus strengthen its market life. Also, advertising directly to
consumers helps to promote the product so that patients would be encouraged to ask their physicians
to prescribe them that product. For example, my company, AstraZeneca, has a drug called Nexium

which topped advertisement to consumers at about 255 millions of dollars, increasing public
awareness and sales.
Altering product form can also differentiate companies, just by simply changing the form of the
medication; like from a liquid to a tablet. Giving consumers a variety of one product can help
differentiate a company from a generic, as well as brand loyalty. Brand loyalty stems from experience
of using a product and having a good reaction toward it. This gives the consumer a tendency to buy
from the brand rather than the generic, in fear of the generic not having the same effect.
In the end, pharmaceutical company differentiation is really based on how the companies promote
and differentiate their products. The more they make their drugs have more benefits, the more likely
consumers will buy that drug.
Dubey, Rajesh. "Journal of Medical Marketing:Device, Diagnostic and Pharmaceutical Marketing."SAGE.
SAGE, n.d. Web. 24 Oct 2012. <http://intl-mmj.sagepub.com/content/9/2/104.full.pdf html>.
Behner, Peter. "2012 Healthcare - Pharmaceutical Industry Perspective." Booz&co.. Booz&co, 07 2011.
Web. 24 Oct 2012.
<http://www.booz.com/global/home/what_we_think/featured_content/perspectives_12/health_pharmaceutical_2
012/49983621>.

Blog 3: Marketing Segmentation

The pharmaceutical industry can be divided into multiple segments. First of all,
the pharmaceutical industry is segmented by customers. This is not difficult to
guess, since not every medicine is designed for every customer, and customers
have varying needs. Some medical products have warnings labels alerting
consequences of consumption towards pregnant women or children, or even
customers which health problems (Smith 2012). Some companies, like Teva,
make products pandering to the needs of different types of consumers, whereas
other companies make products for specific consumer needs. For example, Novo
Nordisk makes products for patients with diabetes, including growth hormone
therapy and hormone replacement therapy. Additionally, another important part
of the pharmaceutical industry is the cost of the product. Pharmaceutical
products are always in high demand because people are always sick. For brand
name products, this can lead to price inelasticity, in which they raise the price of
their product, knowing that the consumers will still purchase the product.
However, in order to reach a targeted market (and to compete with generic
products at cheaper price points), products must be maintained at an
appropriate price. Another segmentation in this industry is the geography and
product distribution. Products should be readily accessible to consumers. The
United States is one of the worlds top leading competitors in product
distribution, along with Europe and Asia. United States used to be the lead
competitor of product distribution, but in recent years, Europe and Asia have
been dominating the market. These segmentations continue to morph and
expand the pharmaceutical industry.
Smith, Brian. (April 2012). Super segmentation in pharma marketing. Retrieved
from
http://www.pmlive.com/pharma_news/superior_segmentation_pharma_marketing
_397304.