Demand inertia
Patients who start a drug tend to stay.
Economists model this as a switching cost. It explains why share responds slowly in the short run, and why net prices can keep rising even when competitors enter.
01
Share response
St = λ St−1 + (1 − λ) S*t. A change only acts on the unattached (1 − λ) share at first.
Attached shareλ0.85
Share before the changeS₀20%
New target shareS*35%
Formulary or price change atmonth 6
First-month response
2.3%
(1 − λ) × gap
Half the gap closed
4.3 mo
ln 0.5 / ln λ
90% of the gap closed
14.2 mo
ln 0.1 / ln λ
02
Choice model
uijt = βxj − αpjt + γ·1[j = ji,t−1] + εijt, with discontinuing as the outside option.
Our clinical valueβx_A2.00
Competitor clinical valueβx_B2.00
Our price ($k / month)p_A5.00
Competitor price ($k / month)p_B5.00
Price sensitivityα0.20
Inertia, value of stayingγ2.00
Implied monthly retention
0.844
P(stay on our drug)
Expected duration
6.4 mo
1 / (1 − r)
12-month persistence
13.0%
r¹²
| This month, choose → | Our drug | Competitor | Discontinue |
|---|---|---|---|
| New patient | 42.2% | 42.2% | 15.5% |
| On our drug last month | 84.4% | 11.4% | 4.2% |
| On competitor last month | 11.4% | 84.4% | 4.2% |
Implied monthly retention r and 12-month persistence as γ grows