MI 2023 PU3 H2 Econs EOY P1 Question Paper

Class Adm No Candidate Name: This question paper consists of 7 printed pages and 1 blank page. [Turn over 2023 Preliminary Exams Pre-university 3 ECONOMICS 9757/01 Paper 1 29 August 2023 2 hours 15 minutes Additional Materials: Answer Booklet READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, highlighters, glue or correction fluid. Answer all questions. You are reminded of the need for clear presentation in your answers. An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you ne ed additional paper, ask the invigilator for a continuation booklet. The number of marks is given in brackets [ ] at the end of each question or part question. Answer all questions.

2 MI/9757/01/PU3/EOY2023 Question 1: The Pharmaceutical Industry Figure 1: Cumulative percent change in Consumer Pri ce Index for All US Urban Consumers for medical care and for all goods and services, January 2000 - June 2023 Note: Medical care includes medical services as wel l as commodities such as equipment and drugs. Source: Peterson, KFF Health System Tracker Extract 1: Why are prescription drug prices in the US so high Americans spend more on prescription drugs than anyone else in the world. It’s true that they take a lot of pills. But what really sets the US apart from most other countries is high prices. In August, Congress passed a law aimed at cutting drug costs for elderly and disabled patients who rely on the government’s Medicare health program. The pharmaceutical industry opposes the change, and Merck & Co. is suing the government over it. Higher drug prices are often the result of drug patents that pharmaceutical companies hold. Strategic drug patenting prevents companies that make generic drugs from competing. T his is because their generic products could be subject to court action. While private insurers and government programs pick up the biggest share of the bill, high drug costs are ulti mately passed on to members of the public through the premiums they pay to keep their insurance policies active and the taxes they pay to the government. Patients in the US directly pay about 13% of prescription medicine costs out of their own pockets. In one survey, one in five adults in the US said they failed to complete a prescribed course of medicine because of cost. Source : Adapted from Bloomberg, 19 Jul 2022 Extract 2: Will imposing price control on prescription drugs help? A lot of people, including President Joe Biden, blame "corporate greed" for high prescription costs. In his State of the Union address this month, Biden said that expanding price controls to cover all Americans, and not just Medicare recip ients, is the solution to lower pharmaceutical prices. One of the big reasons why drug prices are so high now is because the federal government protects the pharmaceutical industry from competition abroad. Just as tariffs make US products more expensive, the Food and Drug Administration (FDA) makes prescriptions more expensive by prohibiting Americans from buying cheaper medication from other countries. The FDA's slow and complex approval process for generic drugs also makes drug prices higher than necessary. The approval process for a generic drug can take years. That's one reason why more than 500 brand drugs don't have any competition.

3 MI/9757/01/PU3/EOY2022 [Turn over Price controls have many unintended consequences. P rices are signals in the market that balance supply and demand. When the government choo ses a price below what the free market would set, supply decreases and demand increases. In other words, producers lose their profit motive so production is discouraged, and consumers are encouraged to buy more. That results in shortages, rationing, inferior product quality and illegal markets. Source: USA Today, 21 Feb 2023 Extract 3: The “innovation gap” haunts big pharmaceutical firms The innovation gap, also called the innovation deficit, is happening as companies watch some of their bestselling products of the last decade approach the end of patent protection, revenues are bound to erode. Research and development pipeli nes aren’t likely to make up the difference in time without some major overhaul, experts say. Patent expirations are expected to put $226 billion in global prescription sales at risk through 2026, according to a report from Evaluate Pharma. Pfizer Inc is investing more than $2.5 billion at its drug making plants in Belgium and Ireland, gearing up to launch new products it hopes can repl ace lost revenue as patents expire and COVID-19 vaccine sales decline. The drugmaker said on Friday it plans to spend more than 1.2 billion euros ($1.26 billion) to expand its Puurs, Belgium, manufacturing site. Source: Pharma Voice, 28 Apr 2022, Reuters, 3 Dec 2022 Extract 4: US sues to block Amgen’s $27.8 Billion takeover of Horizon Therapeutics The Federal Trade Commission (FTC) on Tuesday sued to block the drug maker Amgen’s $27.8 billion acquisition of the pharmaceutical company Horizon Therapeutics, saying it would thwart competition in the drug industry. The FTC said the deal would allow Amgen to exploit a maneuver known as bundling, in which pharmaceutical companies take advantage of their large portfolios of drugs to offer discounts to insurers and others in exchange for favoring their products. The agency pointed to two expensive Horiz on medications that lack competition, saying that bundling would entrench those monopolies. Holly Vedova, a senior commission official, said the agency’s lawsuit “sends a clear signal to the market: The FTC won’t hesitate to challenge mer gers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition.” The FTC’s concern about bundling in the Amgen-Horizon merger is linked to concerns about high drug prices. Source: The New York Times, 16 May 2023 Extract 5: Merger and acquisition crackdown a ‘disaster’ for pharma sector A senior Pfizer executive has warned that a crackdo wn on mergers and acquisitions (M&A) by antitrust regulators would be a “disaster” for t he system of innovation that underpins the pharmaceutical industry. William Pao, Pfizer’s chie f development officer, said M&A is an important part of the funding ecosystem that supports the development of innovative therapies by scientists. “I think it will be a disaster for the system,” he said on Wednesday when asked what impact a tightening of the antitrust regime would have on the sector. “If you can’t get those M&A and then get those molecules distributed across the globe, it stifles innovation for sure,” said Pao, who heads the Pfizer arm responsible for clinical development of drugs and ensuring a pipeline of new therapies. His comments came after the US Federal

4 MI/9757/01/PU3/EOY2023 Trade Commission on Tuesday sued to block Amgen’s $ 28bn takeover of Horizon Therapeutics. It marked the first time in more than a decade that the US competition regulator has sought to halt a deal in the pharmaceutical sector. Analysts have warned the FTC action threatens to up end a decades-long business model pursued by large pharmaceutical companies, which of ten rely on buying small and midsize biotech groups to replenish their drug pipelines. “The FTC filing a lawsuit to block this deal will dampen M&A enthusiasm across the biotech sector, pa rticularly given the lack of direct portfolio overlap between Amgen and Horizon,” said Matt Phipps, a