entire process starts off with the pharmaceutical industry who is concerned
with the discovery, development and production of drugs. The drugs are moved according
to the graph shown above wherein the distributors get it from the
pharmaceutical company who in turn give it to different pharmacies. These drugs
then end up with the end patients who use these drugs according to the prescribed
usage. This is based on the assumption that drugs are sold as per
prescriptions. However, this tends to vary in different countries as different
government have regulations that differ.
with the parties that influence the supply chain of a particular product, there
are certain influencing parties that play an extremely vital role in this
industry. In certain economies, the government plays the role of an insurer wherein
the government reimburses the patient either wholly or partly. The same
scenario applies to the insurance companies that function in a country. The reimbursement
amounts are dependent on who is covering the patient’s expenses and under what
scheme does such expenses fall in. It would be noteworthy that these factors
vary from economy to economy. To make it easier for our reader, we will be
assuming that both the government and insurance companies facilitate
reimbursements on the basis of its type and degree of coverage. Hence
we say that drugs are price inelastic in this industry as most of the expenses
are not covered by the patient themselves.
add on to the list of influencing parties in the industry, doctors or
physicians are the entities that prescribe certain drugs or medicines to the
patient. Here we work on the assumption that there are many drugs that an
individual can’t get their hands on without the use of a prescription. Medical
prescriptions are extremely important, especially in developed countries since
these countries are subjected to stricter regulatory measures.
play a remarkable role in this sector as there is a lot of money pushed into
the research and development of various drugs and products. The use of a patent
aligns with the security of the investment a company makes during the R&D
process of a company. As soon as a new drug has been invented by a company, the
company general tends to file for a particular patent to protect its invention.
The use of a patent limits the supply of a drug in the market because there is
only one drug that cures a particular disease. This puts the patent owner in a
very privileged position as the owner can offer the drug at a price that he
deems fit. Hence, most patent owners establish a very high margin for that
particular drug and earn extra-ordinary profits.
companies can be distinguished amongst themselves on the basis of their size:
Small Players- Most of the small
players do not generally own their own patents. They end up paying royalties
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