Transport conditions

Pharmaceutical producers combine ingredients precisely, under specific conditions,

while negotiating a maze of stringent regulations and quality controls.

Companies that move or store pharmaceutical products must meet similar demands.
Many drugs are highly sensitive to temperature; some are extremely valuable; and all are
subject to a complex array of government regulations. In the pharmaceutical supply
chain, every detail counts.

Pharmaceutical logistics is such a specialized discipline that drug manufacturers have

long been reluctant to outsource to third-party logistics (3PL) service providers, says

Case Study
Temperature control was a major focus when Cadence Pharmaceuticals Inc., San Diego,
worked with FedEx to move an unusually large load of its product OFIRMEV from Italy
to the United States early in 2012.

"For many pharmaceuticals, a two-degree Celsius temperature

variation is all that's needed to spoil the entire lot." Scott Szwast, UPS

Factor Prices and their availability

Drug prices are high for four primary reasons. Firstly, rigorous standards to
protect the public from poor quality, unsafe and inefficacious drugs require
manufacturers to invest in expensive research and development programmes.
Those drugs that pass the standards are priced so that a company obtains a
return sufficient to cover its investment in the drugs themselves, the costs of the
drug research projects that failed, the costs of promotion, investment in future
research and development and still yield the shareholders an attractive
dividend. Secondly, there are certain factors which tend to create monopolies.
One such factor is the quality standard already referred to, which imposes
significant entry barriers for new market participants. Alongside patent protection
it allows pharmaceutical companies to build up monopolistic positions within
important segments of the pharmaceutical market. Products that improve health
are relatively inelastic commodities, and strong demand enables the monopoly
 holder to command a high price. Thirdly, third party payers, rather than the
patient, pay for drugs, making the consumer less price sensitive. Fourthly, as with
all products of which the consumer has no real understanding, he or she tends to
judge the quality and perhaps also the efficacy of a drug on the basis of its price:
a higher price is thought to indicate better quality and, vice versa, a low price (as
in the case of generics) is believed to signify a lower standard.

Government Policies.

Government regulation lengthens the process for bringing new

pharmaceuticals to market and restricts the drugs sector to protect public
safety. Governments create incentives for particular behaviours and
encourage the development of safe and effective drugs. Pharmaceutical
companies are heavily regulated to ensure they are in compliance with federal
safety laws.

Case study-

Prices of related goods

Supply is the quantity of a good or service that a supplier provides to the

market. Innumerable factors and circumstances could affect a seller's

willingness or ability to produce and sell a good. Some of the more common

factors are:

Good's own price: An increase in price will induce an increase in the

quantity supplied.
 Prices of related goods: For purposes of supply analysis, related

goods refer to goods from which inputs are derived to be used in the

production of the primary good.

Conditions of production: The most significant factor here is the state

of technology. If there is a technological advancement related to the

production of the good, the supply increases.