Description: Continuation on the analysis on Johnson & Johnson. Discusses the changes in demand and supply for Procrit over the last year, as well as price elasticity and the impact on equilibrium prices. Paper written for the college course of Microeconomics.
Johnson and Johnson has had many popular drugs but one of its most successful is Procrit. Procrit is a “…widely prescribed drug used to treat anemia in patients with kidney damage and in cancer patients whose lack of red blood cells results from chemotherapy” (“What is Procrit?”). This drug is classified as having erythropoiesis stimulating agents that are supposed to boost the number of red blood cells made by the kidney. Within the last couple of years, Johnson and Johnson’s top selling drugs Procrit has been having a downward slump and is having to face a newly but very popular rival called Amgen. Conducted research has proven that many more doctors are not only using Amgen’s product in hospitals but also prescribing them as well.
Over recent years Procrit has began to receive many negative inclinations. Such as in 2004 when the side effects in the drug were found to actually increase the chances of hear complications. Worse yet was when many deaths started being linked to the drug in that same year. But because of “…recent research indicates even more serious and potentially fatal adverse events, causing the U.S. Food and Drug Administration to issue a “black-box” warning—the strongest agency label—alerting doctors and patients to the significant risks of the drug” (“What is Procrit?”). Further research has come up claiming that over use of Procrit could not only be a cause for cancer but also ultimately be the a reason for many shorten lives among users. Events such as this has negatively affected Procrit’s image and has helped raise the popularity of its intense rival Amgen.
Despite the negative events and their new rival, Johnson and Johnson continue with sales relatively strong. Last year it was announced that, “…sales for Procrit increased 1 percent to $530 million, compared with $527 million in the first quarter of 2006” (“J&J Reports Steady Procrit Sales for First Quarter”). Furthermore in terms of globe sales this “…product increased 4 percent for the quarter, totaling $817 million, with 11 percent sales growth outside the U.S” (“J&J Reports Steady Procrit Sales for First Quarter”). As such both demand and supply for Procrit as seen an overall increase. And although demand and supply for this product are high price however has seen a decrease within the last year. The reason for price dropping however has greatly increased the popularity of the drug since more patients are now able to afford it. Johnson and Johnson have made it so that they now offer “…aggressive discounts on volume sales of Procrit” (Johnson). In fact research shows that “…over the past two years, the average sales prices for… Procrit have dropped” (Johnson). The movement along the demand curve is being mostly controlled by taste and preference. Since there have been so much speculation about Procrit causing serious damage to its patients the use of this medication will be slowly dropping in the upcoming months/years. As such future movements to the demand curves will be made to the left.
Procrit can be considered an elastic product based on the four determinants: availability of substitutes, necessity vs. luxury, budget, and long-run vs. short-run. There are obviously substitutes in the market for Procrit – ranging from other cheaper brands to the generic version of the drug. While this product is a necessity it cannot be considered inelastic because like I mentioned before there are different versions of the medication and as such Procrit doesn’t need to be bought. Budget, again, ties into the substitution because if the price goes to high and beyond the set budget a person has they will go out and find something cheaper. The whole long run versus short run ties in just like the other determinants in saying the Procrit can be considered elastic. While there is no relation between elasticity and revenue, revenue itself is affected when price changes. Price has seen a decrease within the last year and since revenue moves opposite to price it is true that revenue should have seen an increase. This however is not the case for Procrit, which has fallen as being known as J&J’s top selling drug since the 2005. Earnings for the company have not been great and when it comes to Procrit it went “…down more than 30% versus the year-ago quarter” (Orelli). This however is not surprising since Procrit has been under so many FDA reviews over the past couple of years. So overall this product does not fully go in agreement with economic theory.
Works Citied
- “J&J Reports Steady Procrit Sales for First Quarter.” FDA News. 20 Feb. 2008 <http://www.fdanews.com/newsletter/article?articleId=92207&issueId=10049>.
- Johnson, Avery, and Heather W. Tesoriero. “Some Doctors Quit Injecting Drugs Over Costs.” Wallstreet Journal Online (2007).
- Orelli, Brian. “A Dose of Stability From J&J.” (2008).
- “What is Procrit?” Defective Drugs. 25 Feb. 2008 <http://www.adrugrecall.com/>.