Demand and Supply Disequilibrium of Gilead’s Sovaldi
Synopsis
This case flyer is suitable for teaching the concepts of demand & supply and the ‘elusive’ equilibrium between them. The case flyer helps understand these concepts taking the interesting example of Sovaldi drug whose demand and supply curves have unique characteristics and there exists supplier-led disequilibrium between the two. It is debatable if the disequilibrium is a ‘planned disequilibrium’ by Gilead, producer of Sovaldi. In trying to understand the demand and supply dynamics of Sovaldi and its price differentials in the US and India, the case flyer also enables a discussion on the structure and operation of healthcare and pharmaceutical industries.
Prerequisite Conceptual Understanding and Before the Case Flyer Discussion
- • Paul A. Samuelson and William D. Nordhaus, “Basic Elements of Supply and Demand”, Economics, 19th Edition, McGraw Hill Education (India) Private Limited, 2010 – To understand the concepts of demand and supply and the equilibrium thereof
- • Aditya Kalra and Zeba Siddiqui, “Gilead licenses hepatitis C drug to Cipla, Ranbaxy, five others”, http://in.reuters.com/article/2014/09/15/gilead-sciences-india-idINKBN0HA0TI20140915,
- September 15th 2014 (accessed date: July 15th 2015) – To understand the dynamics behind sale of Sovaldi drug in India
Case Positioning and Setting
This Case Flyer can be used for:
- • MBA Program in Managerial Economics course to teach the concepts of demand & supply and the equilibrium thereof
- • MDP in Healthcare Economics course to teach the dynamics of pharmaceutical industry
Suggested Movies
The students/participants should also be encouraged to watch the following movies to get sensitized to the dynamics of healthcare and pharmaceutical industry, especially in the US:
- • John Q, Directed by Nick Cassavetes, Produced by New Line Cinema, Burg/Koules Productions and Evolution Entertainment, 2002 – The movie highlights the travails of a patient’s father fighting for the provision of healthcare for his son
- • Sicko, Directed by Michael Moore, Dog Eat Dog Films and The Weinstein Company, 2007 – The movie compares US healthcare industry with other countries
- • Beyond Borders, Directed by Martin Campbell, Mandalay Pictures, et al., 2003 – The movie showcases some of the ethical problems faced by healthcare professionals in making available healthcare facilities to the impoverished in underdeveloped/poor countries
Preamble to this Case Flyer Analysis
This case flyer is an attempt to introduce the participants/students to the operation of law of demand and law of supply at multiple price points. Presented through the price differentials of Sovaldi drug, this case flyer also presupposes a basic understanding of healthcare industry in general and pharmaceutical industry in particular, out of which the relevant economics of the industry can be analyzed. Accordingly, this case flyer was orchestrated in the classroom......
During the Case Flyer Discussion in the Classroom
The discussion on the Case Flyer was conducted under three broad topics [Exhibit (TN)-I]. The classroom analysis of the Case Flyer was carried out by discussing the questions of the Case Flyer sequentially. In each section, the participants had an elaborate discussion on one of the questions which formed the ‘anchor point of discussion’ for the given section..............
Case Analysis/Case Flyer Discussion
I. Pharmaceutical Industry and Drug Pricing
• The first section of the case flyer focused on discussing the basics of pharmaceutical and healthcare industry which was required to have a meaningful discussion of the supply and demand dynamics of Sovaldi
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Anchor Point Discussion – Identifying the constituents of the healthcare industry and analyzing their role in delivering effective healthcare [Exhibit (TN)-II].
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In the value chain, each constituent plays a role in achieving the final objective i.e., curing patients → Each unit of healthcare delivery requires the services of trained professionals (doctors, nurses, para-medical staff, etc.), medicines (blockbuster drugs and generic drugs), medical equipment, medical infrastructure (hospitals, clinics and diagnostic centres) and third party services (insurance, banking and administration) → The products, services and professionals are in-turn created by educational institutions, pharmaceutical companies, equipment manufacturers, construction companies, banking and non-banking financial institutions and third parties → All the product and services providers are governed by regulators and certifying bodies such as Central Drugs Standard Control Organization (CDSCO), Medical Council of India, Dental Council of India, The Indian Medicine Central Council, All India Council for Technical Education (AICTE), etc., in India → Thus, to create one unit of healthcare, each component of the value chain has to play its role..................
Exhibits
Exhibit (TN)-I: Discussion Dashboard
Exhibit (TN)-II: Constituents of the Healthcare Industry
Exhibit (TN)-III: Healthcare Industry and the Circular Flow of Economy
Exhibit (TN)-IV: Big Pharma Companies and Generic Drug Companies
Exhibit (TN)-V: Interplay of Scarcity, Choice and Efficiency
Exhibit (TN)-VI: PPF of an Underdeveloped Country
Exhibit (TN)-VII: Relationship between Public Goods and Quality of Healthcare
Exhibit (TN)-VIII: Inelastic and Elastic Demand Curves of Life Saving Drugs
Exhibit (TN)-IX: Demand and Supply of Sovaldi
Exhibit (TN)-X: Factors Influencing the Demand and Supply of Sovaldi
