2012

Authored by: Pallavi.Kate

Asthma – Price Elasticity Analysis

1

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

Asthma – Price Elasticity Analysis

Introduction

Asthma is a chronic lung disease that causes episodes of difficult breathing. Asthma is a

chronic inflammation of the bronchial tubes (airways) that causes swelling and narrowing

(constriction) of the airways. The result is difficulty breathing. The bronchial narrowing is

usually either totally or at least partially reversible with treatments.

Bronchial tubes that are chronically inflamed may become overly sensitive to allergens

(specific triggers) or irritants (nonspecific triggers). The airways may become "twitchy" and

remain in a state of heightened sensitivity. This is called "bronchial hyperreactivity" (BHR).

It is likely that there is a spectrum of bronchial hyperreactivity in all individuals. However, it

is clear that asthmatics and allergic individuals (without apparent asthma) have a greater

degree of bronchial hyperreactivity than nonasthmatic and nonallergic people. In sensitive

individuals, the bronchial tubes are more likely to swell and constrict when exposed to

triggers such as allergens, tobacco smoke, or exercise. Amongst asthmatics, some may

have mild BHR and no symptoms while others may have severe BHR and chronic symptoms.

Common symptoms of asthma include wheezing, shortness of breath, chest tightness

and coughing, and use of accessory muscle. Symptoms are often worse at night or in the

early morning, or in response to exercise or cold air. Some people with asthma only rarely

experience symptoms, usually in response to triggers, whereas other may have marked

persistent airflow obstruction.

Asthma is an incurable illness. However, with good treatment and management there is no

reason why a person with asthma cannot live a normal and active life.

Asthma management

Asthma can be alleviated through appropriate asthma management and prevention. The

main approach towards the management of asthma is the use of effective treatments

(pharmacologic managements), and avoidance of exposure to allergens and other triggers

(non-pharmacologic management). In addition, education of both patients and health

professionals is the key to the success of every asthma management and prevention

efforts. Furthermore, an improved adherence to prescriptions of long-term control

medications (such as inhaled corticosteroids) can lead to reduced morbidity, mortality, and

consumption of health care resources

Economic Burden of Asthma

Globally, the economic costs associated with Asthma exceed those of tuberculosis and

HIV/AIDS combined. The economic cost of Asthma is considerable both in terms of direct

medical costs (such as hospital admissions and cost of pharmaceuticals) and indirect

2

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

medical costs (such as time lost from work and premature death). Developed economies

can expect to spend 1 to 2% of their health-care budget on Asthma. Estimates for 1996

indicate that the financial burden on patients with Asthma in different Western countries

ranges from $300 to $1,300 per patient per year. Severe Asthma is associated with

disproportionately high costs in comparison with other degrees of Asthma severity.

Health care costs are under pressure in all countries, and decisions about the use of new

medicines are not only concerned with safety and tolerability assessments, but also value

for money. Hence, it is important for professionals, health economists, and planners to work

as a team to understand the costs of asthma in order to identify where the burden occurs,

to assess the effectiveness of current asthma medications, and to know how to achieve

optimal cost effectiveness.

Asthma Market-REPORT HIGHLIGHTS

Overall sales in the asthma and COPD drugs market were worth $25 billion in 2008, and

increased to an estimated $26 billion in 2009. By 2014, it is projected to increase to $31

billion, for a 5-year compound annual growth rate (CAGR) of 3.3%.

The largest segment asthma drugs market, was valued at approx $15 billion in 2008; this

is expected to increase to $16 billion in 2009, and is projected to reach $17 billion in 2014,

for a 5-year CAGR of 1.2%.

Sales in the COPD drug market amounted to $10 billion in 2008 remained flat in 2009, but

projected to increase to $14 billion in 2014, for a 5-year CAGR of 6.1%.

3

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

Budesonide/formoterol

Budesonide/formoterol is a combination formulation

containing budesonide and formoterol used in the management of asthma and chronic

obstructive pulmonary disease (COPD) in the EU.

Budesonide is an inhaled corticosteroid and thus functions as an anti-inflammatory agent, it

acts by reducing and preventing respiratory tract inflammation

Formoterol works as a long acting beta 2 agonist resulting in bronchodilation, dilates

respiratory tract.

4

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

This combination drug not only act as a maintenance medication but also as-needed

treatment which reduces exacerbations better than as-needed formoterol or as-needed

terbutaline individually.

It is new once-a-day combination products that are longer acting than drugs current on the

market. The new drugs would be more convenient for patients because they only need to be

taken once a day, rather than several times a day with current drugs.

5

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

Elasticity Of Demand

The elasticity of demand for a commodity is the rate at which quantity changes as the price

changes.

Price elasticity is found to be relatively elastic. This means if there is small change in price

lead to the big change in quantity demanded.

In this case the elasticity for demand is said to more than one(Ed > 1).

Y

P’

P

Q Q’ X

Demand Of Substitutes

From the figure we can see when the price of xxxxxx was p,the quantity demand was Q,

when the price increases to P’ then the quantity demanded to Q’. Therefore we can say that

xxxxx is elastic in nature and its elasticity for demand is more than 1.(Ed>1)

DETERMINANTS OF DEMAND ELASTICITY

Availability of substitute:

In the case of xxxxxxx substitutes are easily available in the market.

Example: Lupin, Dr. Reddy’s Lab, Cipla, Merck etc. (Table Below)

So if there is a increase in the price of xxxx, the consumers will shift their brand from

xxxxxx to other products because of easy availability of related substitutes.

In case of XXXXXXX anti-asthmatic drug (combination of Formoterl +Budesonide) there are

number of substitute brand available in the market as shown in table below, we have Lupin,

Dr. Reddy’s Lab, Cipla, Merck etc. now if the price of XXXXXXX ranges from Rs 450 to Rs

6

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

600 whereas the price of other substitute drugs remain the same then the demand for

XXXXXXX will fall down.

Brand Name (Indian

Market)

Composition Company Packing MRP

Rs.

BUDAMATE inhaler Budesonide 100mcg, formoterol

fumarate 6mcg/dose

LUPIN 200 md 190

BUDAMATE inhaler Budesonide 200mcg, formoterol

fumarate 6mcg/dose

LUPIN 200 md 250

BUDAMATE inhaler Budesonide 400mcg, formoterol

fumarate 6mcg/dose

LUPIN 200 md 299

BUDAMATE

TRANSCAPS cap

Budesonide 100mcg, formoterol

fumarate 6mcg/dose

LUPIN 30 89

BUDAMATE

TRANSCAPS cap

Budesonide 200mcg, formoterol

fumarate 6mcg/dose

LUPIN 30 120

BUDAMATE

TRANSCAPS cap

Budesonide 400mcg, formoterol

fumarate 6mcg/dose

LUPIN 30 142

COMBIHALE-FB inhaler Formoterol 6mcg, budesonide

100mcg

DR. REDDY'S

LABS

120 MD N.A.

COMBIHALE-FB inhaler Formoterol 6mcg, budesonide

200mcg

DR. REDDY'S

LABS

120 MD N.A.

COMBIHALE-FB inhaler Formoterol 6mcg, budesonide

400mcg

DR. REDDY'S

LABS

120 MD N.A.

COMBIHALE-FBredicaps Formoterol 6mcg, budesonide

100mcg

DR. REDDY'S

LABS

30 N.A.

COMBIHALE-FBredicaps Formoterol 6mcg, budesonide

200mcg

DR. REDDY'S

LABS

30 N.A.

COMBIHALE-FBredicaps Formoterol 6mcg, budesonide

400mcg

DR. REDDY'S

LABS

30 N.A.

FORACORT autohaler Budesonide 400mcg, formoterol

6mcg

CIPLA 300 md 985

VENT FB EASCAPScap Budesonide 400mcg, formoterol

6mcg

MERCK 30 63

7

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

*MD (Meter Dose)

*** The biggest selling inhalable drugs for the treatment of asthma and/or COPD by value,

are GlaxoSmithKline’s Seretide/Advair (fluticasone+salmeterol) with sales of £4,977 million

(US$7,794 million) in 2009, Boehringer Ingelheim’s Spiriva (tiotropium) with sales of EUR

2,070 million (US$3,046 million) in 2008, and AstraZeneca’s Symbicort

(budesonide+formoterol) with sales of US$2,294 million in 2009.

TIME & PREFERANCE:

The demand for xxxxx is always related to a time & preference factor. This implies that

elasticity of demand varies with the length of time period & choice (preference). In case of

long run elasticity of demand is elastic (because the period is long enough for the people to

shift their taste and preference) and in case of the short run the demand remain inelastic.

INCOME LEVEL:

The demand for xxxxx is elastic for middle income group. The middle income group is

sensitive to the change in price. Therefore if there is an increase in price of xxxxx, the

demand in the middle income group will decrease.

PROPORTION OF INCOME SPENDS ON THE GOODS:

xxxxxx is that product which is meant for the asthma & COPD patients. In the long run the

demand is relatively inelastic because even in the long run if there is a increase in price of

xxxx even the patient will shift their preference because of the constrain in their pocket

whereas in short run the demand is inelastic.

8

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

INCOME ELASTICITY

If the income rises by 20% then the demand will rise by 10% the curve is positively sloped

means that elasticity of Income is >0 and <1.

(When the average income was Rs. 10,000 and demand was 100)

Demand Of Substitutes

14

13

12

11

10

09

08

07

06

Inco

me

100 110 120 130 140 150 160 170

9

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

CROSS ELASTICITY OF DEMAND

It is ratio of proportionate change in quantity demanded of Y to a given proportionate

change in the price of the relative commodity X.

TYPES OF CROSS ELASTICITTY OF DEMAND:

POSITIVE:

When goods are substitute of each other then the cross elasticity of demand is positive. E.g.

if the price of xxxx increases, this will lead to increase in the demand for substitute drugs.

In the figure given below, the horizontal axis represents demand for substitute drugs

whereas on vertical axis we measure price of xxxxx. If the price of xxxxx increases from Rs

150 to Rs 200 then the demand for substitute drugs will increase from 40 to 50 units.

350

300

250

200

150

100

50

Pri

ce

90 100 110 120 130

Demand

10

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

INCOME ELASTICITY OF DEMAND:

It shows the way in which consumers purchase any good as a result of change in his

income.

As there is a positive relationship between incomes of the consumer and quantity demanded

for xxxxx, so we can say that xxxxx is a normal good.

Demand of Substitute

14

13

12

11

10

09

08

07

06

Inco

me

100 110 120 130 140 150 160 170

11

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

DETERMINANTS OF INCOME ELASTICITY DEMAND

Level of income

If the income of the consumer is more than the quantity demanded for xxxxx will be more

and vice versa.

Time period

Time period take the concept of marginal propensity to consume. If the consumers have

high income they have more propensities to consume, hence the demand for xxxxx

increases and vice versa.

Availability of Close Substitutes

If there are close substitutes, buyers will move away from more expensive items and

demand will be elastic.

12

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

Pricing Strategy:

Reflect the value you provide versus your competitors

Consider what the market will truly pay for your offering

Enable you to reach your revenue and market share goals

Maximize your profits

It is best to create your brand strategy and identify your distribution channels before you

develop your pricing strategy. By doing so, you’ll ensure that your pricing reflects your

value proposition and reinforces your brand; you can also minimize pricing conflicts with

any channel partners.

Sale Strategy:

Commit to provide samples of xxxxx product per year through its sales representatives to

physicians. These samples will be available free of charge to patients. These samples will

provide all patients with access to xxxxxx. Since physicians routinely distribute samples to

help the low-income or uninsured patients, these patents will be major beneficiaries of these samples.

In addition to samples, public and private patient assistance or discount programs exist.

Insurance coverage for prescription pharmaceuticals.

Voluntary price freeze for xxxxxxx. Prices for all payers should remain stable.

13

Ast

hm

a –

Pri

ce E

last

icit

y A

nal

ysis

| 5/

16/2

012

FACTSHEET (India):

Current cost of treatment of asthma (Rs/patient) per year:

Year Chronic Mild Chronic: Moderate &

Severe

Hospitalization

charges per episode

1996 303 11250 3042

2001 436 16200 4379

2006 569 21,141 5716

2011 702 26,087 7053

2016 835 31,045 8394

Estimated number of chronic cases of asthma (in lakh):

Urban Rural

Year Males Females Total Males Females Total

1996 24.18 22.56 46.73 92.18 83.42 175.60

2001 27.15 24.82 51.97 100.67 94.76 195.43

2006 30.76 28.30 59.05 114.34 108.34 222.68

2011 34.57 32.05 66.62 128.69 122.89 251.58

2016 37.30 35.97 73.27 139.50 137.99 277.49

CONCLUSION:

Since our product xxxxx is elastic in nature therefore if there is a slight increase in the price

of the product, there is a tremendous change demand of the product because of the number

of the substitutes available in the market.

Vice-versa drop in the price of the product, there is a rise in demand of the product since

the above factsheet says there would be considerable rise in asthmatic cases.