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Chapter 6
National Support for Emerging Industries
The appropriate role of public policy in promoting specific industries
has been a source of passionate debate in the United States since the founding of
the Republic.1 Many nations in Europe and Asia have not hesitated to use the
full force of government to attain commercial competitive advantage in
industries they regarded as strategic. In the United States, however, the idea of
proactive government help for private industry in the name of economic
development has sometimes raised concerns about distorting market forces and
the wisdom of letting public servants “pick winners.” The debate began with
Alexander Hamilton, who was an early advocate of “bounties” to encourage
desirable industry, continued through the 19th century, and has resurfaced many
times in the post-war era as U.S. industry confronted new competitive
challenges. These policy debates have to some extent obscured actual practice,
both in the United States and abroad.
In reality, the U.S. federal government has played an integral role in the
early development of numerous strategic industries, not only by funding
research and development but also through financial support for new companies
and government procurement. Telecommunications, aerospace, semiconductors,
computers, pharmaceuticals, and nuclear power are among the many industries
that were launched and nurtured with federal support.
The intensifying global race to dominate an array of emerging high-
tech industries once again has focused attention on the role of public policy. As
China, South Korea, Germany, and Taiwan target industries such as renewable
energy equipment, solid-state lighting, electric vehicles, and next-generation
1
The link between national security and the need to develop key domestic industries was identified
by Adam Smith, a contemporary of Hamilton, who noted that “if any particular manufacture was
necessary, indeed, for the defense of the society it might not always be prudent to depend upon our
neighbors for the supply.” Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations, 1776.
321
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322 RISING TO THE CHALLENGE
displays with comprehensive strategies and generous subsidies, the U.S. has
struggled to compete. The financial crisis of 2008 has made it even more
difficult for U.S. technology companies to raise the capital needed to turn
designs into prototypes and prototypes into products made in large volumes.
In recent years, the Science, Technology, and Economic Policy Board
of the National Academies has extensively studied the competitive challenges
facing a number of important high-tech industries. The STEP board also has
studied the policies adopted other nations and compared them to those of the
United States.
This chapter explores the major policy issues in four of these
industries—semiconductors, photovoltaic products, advanced batteries, and
pharmaceuticals. Each of these industries can be regarded as strategic to the
United States. Integrated circuits are the building blocks of all electronics
products and have enabled the breathtaking advances in information technology
that drive productivity gains across all industries. American leadership in
semiconductors also is vital to the technological superiority of the U.S. military.
Photovoltaic cells are the enabling technology of solar power, a key source of
renewable energy that can serve America’s national interests in reducing
dependence on petroleum and cutting greenhouse gas emissions. Advanced
batteries and their electrical management systems are the core components of
hybrid and electric vehicles, much as internal combustion engines have been to
conventional gasoline-powered cars and trucks. A strong domestic battery
industry, therefore, is regarded as crucial to the future competitiveness of the
U.S. auto industry. Lightweight, long-lasting, rechargeable energy-storage
systems also are required for advanced weapons systems being developed by the
U.S. military and for storing renewable energy for utility power grids. The
pharmaceuticals industry is likewise strategic, producing medicines and
vaccines that are essential to the well-being of Americans and indeed the
world’s people. U.S. leadership in this sector has been secured through
enormous federal investments, though the industry faces numerous challenges in
terms of litigation, regulatory pressure, and counterfeit drugs.
Each of these three industries shares another characteristic. The core
technologies are the fruits of decades of research at U.S. universities and
national laboratories at considerable American taxpayer expense. Many of the
early U.S. companies that pioneered these industries, moreover, were supported
over the years through federal research grants, small-business loans, and
government and military procurement.
As they reached the point of large-scale commercial production, each
of these U.S. industries encountered severe global competitive challenges2.
Concerted Japanese government policies to facilitate joint R&D, transfer
2
See Glenn Fong, “Breaking New Ground, Breaking the Rules—Strategic Reorientation in U.S.
Industrial Policy,” International Security 25:2 pp 152ff.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 323
commercial technology to companies, protect domestic producers from imports
helped Japanese companies in the 1970s and 1980s seize a commanding global
market share in dynamic random-access memory chips, sending the U.S.
semiconductor industry into crisis. U.S. companies dominated the nascent
photovoltaic industry through the 1980s. Leadership in mass production of cells
and modules, however, was assumed by Japan in the 1990s—and then Germany,
Taiwan, and China—after each of these nations or regions enacted policies to
build domestic markets for solar power or to promote manufacturing. The
lithium-ion industry is one of several high-tech sectors that grew from U.S.-
invented technology but was never industrialized domestically. Instead,
Japanese companies were the first to mass-produce rechargeable lithium-ion
batteries for electronic devices and notebook computers because of their large-
scale production of consumer electronics. South Korean and Chinese
manufacturers followed their lead. Asian producers, therefore, have a huge
advantage in the small but extremely promising market for rechargeable
batteries for cars and trucks.
The four industries illustrate different aspects of the public policy
debate. The U.S. semiconductor industry is a case study in how a strategic
sector that had lost competitive advantage in production and a once-dominant
market share was able to regain global leadership through cooperation on pre-
competitive R&D and public policy initiatives with responsive government
actions. The public-private research consortium SEMATECH and assertive U.S.
trade policies in response to Japanese dumping and protectionism enabled the
industry rebound.
The photovoltaic industry is an example of a U.S. high-tech sector
that has lost global share but has a solid opportunity to re-emerge as a leader
with the right mix of federal and state policy support. In the case of solar power,
a deciding factor will be whether the United States will become a big enough
market to support a large-scale, globally competitive manufacturing industry.
Federal and state incentives will be essential for the next few years, until the
cost of solar energy can compete against electricity generated from fossil fuels
without subsidies. Another question is whether U.S. companies that focus on
products incorporating promising new technologies will be able to survive
surging imports of low-cost photovoltaic cells and modules based on mature
technologies long enough to attain economies of scale. What’s more, because
technologies are still evolving rapidly, and there are not yet commonly accepted
manufacturing standards, the global race for future leadership remains wide
open. Public-private research partnerships will be essential to ensure that the
U.S. can be a leader in the race for global market share.
The emerging U.S. advanced battery industry represents a bold
experiment by the federal government in direct financial support of private
companies to establish a domestic manufacturing industry. Prior to 2008, the
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324 RISING TO THE CHALLENGE
U.S. had a number of lithium-ion battery start-ups but virtually no production
plants.3 It now has dozens of battery-related factories that are beginning to ramp-
up, thanks in part to $2.4 billion in grants and support under the American
Recovery and Reinvestment Act. Like photovoltaic cells, however, prices of
lithium-ion auto batteries are too high, making hybrid and electric vehicles
expensive for most consumers compared to conventional gasoline-powered
vehicles. Larger demand, in turn, is required for the industry to attain the
economies of scale that will bring prices down, in turn generating higher
demand. In addition, further innovation is required to improve battery
performance and reduce cost. Federal policies to support expansion of the
market and public-private R&D collaboration will likely be required for the
foreseeable future, but the long-term gain to the economy and national security
can be significant.
The ascent of the U.S. pharmaceutical industry has been driven by
massive federal support for life sciences R&D, primarily by the National
Institutes of Health (NIH). During the decade of 2001, U.S. firms developed 57
"new chemical entities" (NCEs) compared with 33 by European firms and nine
by Japanese firms, erasing the European lead which existed in prior decades.
Despite the spectacular successes of past two decades, the U.S. pharmaceutical
industry's future prospects are uncertain. Many of the blockbuster drugs that
drove the industry's success have gone off patent or will do so soon, including
first-generation biotechnology drugs, and branded producers face growing
competitive pressure from generic drug makers. The costs and risks of
developing new drugs and bringing them to market are rising, while the
productivity of the industry's R&D appears to be declining. In light of key
developments, especially in emerging markets, a key challenge is to sustain the
productivity and competitiveness of this strategic U.S. industry.
SEMICONDUCTORS
A little more than two decades ago, the U.S. semiconductor industry
appeared to be going the way of the U.S. consumer electronics industry.
Japanese companies had seized a commanding world market share and
technological lead in memory devices and were rapidly adding more production
capacity. Struggling U.S. chipmakers were abandoning a large segment of the
industry that made memory products, an essential part of computers and other
leading semiconductor technologies of the eighties. There was widespread
concern that erosion of America’s semiconductor industry posed not only
economic challenges, but national security risks as well. Even after the U.S.
government had begun to mount a strong policy response to bolster U.S.
3
“In 2009, the U.S. made less than 2 percent of the world’s lithium-ion batteries.” Jon Gertner,
“Does America Need Manufacturing?” The New York Times, August 24, 2011.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 325
competitiveness, a defense task force warned in 1987 that a dependence on
foreign suppliers for state-of-the-art chips for weapons was an “unacceptable
situation” because it would undermine the U.S. military strategy of maintaining
technological superiority.4 This national security concern and the willingness of
the semiconductor industry to collectively seek policy help from Washington
were instrumental in reversing the loss of market share and technology lead that
seemed irretrievably lost.
Remarkably, as recounted below, the U.S. semiconductor regained
global leadership by the early -1990s and —despite the dramatic rise of new
competitors in South Korea, Taiwan, and China—remains today a top
semiconductor producer. Even though the U.S. market accounts for only 18
percent of the global sales for integrated circuits, sales by U.S. companies
accounted for 48 percent of the world market in 2010.5 [See Figure 6.1] While
only one U.S. company is still a major player in memory chips, the U.S.
semiconductor industry dominates the lucrative market for logic devices such as
microprocessors and analog mixed signal products.6
Moreover, despite rapid growth in outsourcing to Asian foundries
(wafer fabrication factories that produce integrated circuits on a contract basis
for other firms), the vast majority of production and R&D by U.S.
semiconductor companies remains in the United States.7 Seventy-seven percent
of capacity owned by America semiconductor companies is located in U.S. and
74 percent of compensation and benefits is paid to U.S.-based workers.8 And
while the vast majority of chip companies now outsource fabrication of the
devices they design to foundries located in Asia, approximately 500 of the
world’s 1,200 so-called “fabless” design firms—including most of the industry
leaders—are headquartered in North America.9
4
See U.S. Department of Defense, Report on Semiconductor Dependency, Office of the
Undersecretary of Defense for Acquisition, prepared by the Defense Science Board Task Force,
Washington, DC, February 1987.
5
Source: Semiconductor Industry Association citing data from based on World Semiconductor
Trade Statistics data.
6
Micron Technologies, headquartered in Boise, Idaho, is the leading U.S. producer of computer
memory chips.
7
For an analysis of semiconductor R&D has remained in the U.S. despite outsourcing of production,
see Jeffrey T. Macher, David C. Mowery, and Alberto Di Minin, “Semiconductors,” chapter 3 in
National Research Council, Innovation in Global Industries: U.S. Firms Competing in a New World,
Jeffrey T. Macher and David C. Mowery, eds., Washington, DC: The National Academies Press,
2008.
8
Semiconductor Industry Association (SIA), Maintaining America’s Competitive Edge: Government
Policies Affecting Semiconductor Industry R&D and Manufacturing Activity, March 2009. This
report can be accessed at http://www.sia-online.org/galleries/default-
file/Competitiveness_White_Paper.pdf.
9
Global Semiconductor Alliance, Industry Data at
http://www.gsaglobal.org/resources/industrydata/facts.asp. The largest fabless companies include
QUALCOMM, Broadcom, AMD, NVIDIA, and LSI.
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326 RISING TO THE CHALLENGE
70
Share of Global Semiconductor Sales (Percent)
60
50
40
30
20
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
FIGURE 6.1 Global market share of U.S. semiconductor companies, 1982-
2010.
SOURCE: Semiconductor Industry Association.
NOTE: Share data based on nationality of company.
This turn of fortunes is primarily due to strategic moves and
investments in new technologies by U.S. semiconductor manufacturers. Yet,
their success also rests on the important contributions of U.S. policy that was
driven by an engaged industry. There were two additional interrelated elements
to the U.S. success:10 The research consortium SEMATECH, a $200 million-a-
year research effort co-funded by the federal government and most large
American chip companies, accelerated productivity and innovation in
semiconductor manufacturing based on a common technology roadmap and
10
The recovery of the U.S. industry has been described as a three-legged stool. It is unlikely that any
one factor would have proved sufficient independently. Trade policy, no matter how innovative,
could not have met the requirement to improve U.S. product quality. On the other hand, by their
long-term nature, even effective industry-government partnerships can be rendered useless in a
market unprotected against dumping. Most importantly, neither trade nor technology policy can
succeed in the absence of adaptable, adequately capitalized, effectively managed, technologically
innovative companies.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 327
enabled a rapid decline in prices.11 Persistent trade negotiations and
enforcement of previous agreements won commitments from Japan to open its
market to U.S. semiconductors and curtail dumping in any world market.12
This was deemed essential to prevent the United States from becoming a high-
priced island in a sea of underpriced semiconductors. Had that occurred, it
would have severely disadvantaged downstream American electronics
equipment producers compared with competitors producing abroad utilizing
lower-priced dumped chips.13
The decline and resurgence of the U.S. semiconductor industry offers
many useful lessons for policymakers and industrialists grappling with how to
bolster other American high-technology sectors facing intense international
competitive pressure. It shows that erosion of U.S. leadership in manufacturing
is not irreversible as long as both industry and government are committed to
cooperative action, both on trade policy and in well-designed research programs
that will lead to innovation. In a comprehensive analysis of the semiconductor
experience, the National Research Council concluded that overcoming
competitive challenges requires “continued policy engagement and public
investment through renewed attention to basic research and cooperative
mechanisms such as public-private partnerships.”14
11
For analysis of the contributions of SEMATECH, see presentation by Kenneth Flamm of the
University of Texas in National Research Council, Innovative Flanders: Innovation Policies for the
21st Century—Report of a Symposium, Charles W. Wessner, editor, Washington, DC: The National
Academies Press, 2008. For a more extensive treatment, see Kenneth Flamm, “SEMATECH
Revisited: Assessing Consortium Impacts on Semiconductor Industry R&D,” in National Research
Council, Securing the Future, O P. CIT. See also, Peter Grindley, David C. Mowery and Brian
Silverman. “SEMATECH and Collaborative Research: Lessons in the Design of High Technology
Consortia, Journal of Policy Analysis and Management, 13(4) 1994, pp. 723-758.
12
In the U.S.-Japan Semiconductor Trade Agreement, signed on Sept. 2, 1986, Japan agreed to
eliminate dumping of semiconductors following a U.S. Department of Commerce finding that
Japanese producers sold memory chips in the U.S. at below the cost of production. Japan also agreed
to open its market to foreign-made chips and to cease dumping in any market. In 1990, Japan signed
a second bilateral trade agreement that provided U.S. producers with a “fast-track” process for
addressing dumping allegations and promised to fulfill an earlier pledge that foreign producers
achieve a minimum 20 percent share of the Japanese semiconductor market. This figure was chosen
because it would give foreign producers access to the customer base of the six giant vertically
integrated Japanese companies that controlled the Japanese market. The trade agreement was
remarkable in that it did not close the U.S. market, but instead opened the previously closed
Japanese markets and stopped dumping in third markets.
13
For a full description of the how Japan closed its market for all foreign semiconductor producers,
see Thomas R. Howell, William A. Noellert, Janet H. McLaughlin, and Alan Wm. Wolff, The
Microelectronics Race, Boulder, Colo., and London: Westview Press, 1988.
14
National Research Council, Securing the Future: Regional and National Programs to Support the
Semiconductor Industry, Charles W. Wessner, editor, Washington, DC: The National Academies
Press, 2003.
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328 RISING TO THE CHALLENGE
The Strategic Importance of Semiconductors
The importance of semiconductors to the United States is difficult to
overstate. As an industry, the semiconductor sector directly employs over
180,000 Americans and has consistently ranked as either America’s No. 1 or
No. 2 export industry.15 Semiconductors represent the core technology of the
modern electronics revolution, enabling products from smart phones and
computers to advanced weapons systems. More importantly, semiconductors
have made possible the rapid advances in information technology that drive
productivity gains across other industries. As one National Academies study
noted—
“...often called the ‘crude oil of the information age,’
semiconductors are the basic building blocks of many
electronics industries. Declines in the price/performance ratio
of semiconductor components have propelled their adoption in
an ever-expanding array of applications and have supported
the rapid diffusion of products utilizing them. Semiconductors
have accelerated the development and productivity of
industries as diverse as telecommunications, automobiles, and
military systems. Semiconductor technology has increased the
variety of products offered in industries such as consumer
electronics, personal communications, and home
appliances.”16
The impact of semiconductor-based information technology has been
so pervasive that many economists regard it as the catalyst behind the
acceleration in productivity growth in the U.S. economy since the mid-1990s.17
Meeting critical national needs such as increased energy efficiency, lower-cost
and improved health care services, and ubiquitous access to high-speed
broadband data communications will depend on further advances in
15
Patrick Wilson, Director of Government Affairs, Semiconductor Industry Association,
“Maintaining US Leadership in Semiconductors,” AAAS Annual Meeting, February 18, 2011.
16
This excerpt is taken from Jeffrey T. Macher, David C. Mowery, and David A. Hodges,
“Semiconductors,” U.S. Industry in 2000: Studies in Competitive Performance, David C. Mowery,
ed., Washington, DC: National Academy Press, 1999, p. 245.
17
For an analysis of the role of new information technologies in recent high productivity growth,
often described as the New Economy, see Dale W. Jorgenson, “The Emergence of the New
Economy” in Enhancing Productivity Growth in the Information Age, Dale W. Jorgenson and
Charles W. Wessner, eds., Washington, DC: National Academy Press, 2007. Also see National
Research Council, Measuring and Sustaining the New Economy, Report of a Workshop, D.
Jorgenson and C. Wessner, eds., Washington, DC: National Academy Press, 2003, and Council of
Economic Advisers, Economic Report of the President, H.Doc.107-2, Washington, DC: USGPO,
January 2001.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 329
semiconductors.18 Semiconductors also remain vital to national security,
observes the Industrial College of the Armed Forces, because “they are the
building blocks of the nation’s infrastructure and the space, communications,
and weapons systems that allow the projection of American diplomatic,
information, military, and economic power.”19
A New Set of Challenges
Continued American leadership in semiconductors certainly cannot be
taken for granted, however. The industry faces a range of technological,
financial, and competitive challenges. Among the most prominent—
• Declining share of capacity: U.S. semiconductor companies still
invest billions of dollars in wafer fabrication facilities in the United
States. But investment by manufacturers in Asia is expanding faster.
The share of global installed wafer fabrication capacity in the United
States declined from 42 percent in 1980 to about 16 percent in 2007.20
American semiconductor companies are investing a proportionately
larger share of their total worldwide fabrication capacity spending
outside of the United States. The share of spending in the United States
for wafer manufacturing capacity has dropped by 14.6 percentage
points between 1997-1999 and 2005-2007, from 78.5 percent to 63.9
percent.21 The Semiconductor Industry Association (SIA) expects the
U.S. share to decline by another 9.3 percentage points by 2013.22
What’s more, only 14 percent of leading-edge capacity (300 mm
wafers) is located in the United States. The largest market for state-of-
the-art manufacturing equipment is in Asia, principally South Korea,
Taiwan and Japan.23
• Business and capital costs: As the cost of building new leading-edge
wafer fabrication plants reach some $4 to $6 billion, factors such as tax
rates and government incentives now heavily influence corporate
18
The RAND Corporation, for example, estimates that application of information technology in the
health care sector could result in annual efficiency savings of $77 billion. See RAND Corporation,
Health Information Technology: Can HIT Lower Costs and Improve Quality?, 2005,
(http://www.rand.org/pubs/research_briefs/RB9136/index1.html). Also see Jorgenson, “The
Emergence of the New Economy,” op. cit.
19
Industrial College of the Armed Forces, Electronics 2010, Industry Study Final Report, National
Defense University, Spring 2010,
(http://www.ndu.edu/icaf/programs/academic/industry/reports/2010/pdf/icaf-is-report-electronics-
2010.pdf).
20
SIA, Maintaining America’s Competitive Edge, op cit.
21
Ibid.
22
Ibid.
23
SEMI Industry Research and Statistics Group data.
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330 RISING TO THE CHALLENGE
decisions on where to build capacity. Countries such as Malaysia,
India, Singapore, China, and Israel and regions such as Taiwan offer
tax holidays or significantly reduced rates. Germany offers grants and
loans to chip manufacturers. Federal and state tax breaks and other
benefits offered in the U.S. are often either insignificant or non-
competitive,24 according to the SIA.
• Talent: The American semiconductor industry is becoming
increasingly dependent on foreign-born R&D staff at a time when
immigration rules have tightened and opportunities abroad are growing.
More than 50 percent of students graduating from U.S. universities
with master’s degrees and 70 percent of doctorates in science and
engineering disciplines applicable to semiconductors are foreign
nationals.25 Meanwhile, nations and regions such as India, China, and
Taiwan are rapidly increasing their supply of semiconductor engineers.
An inability of industry to hire top talent in the U.S. could lead to a
greater shift of R&D offshore.
• Offshore R&D: Even though U.S. semiconductor companies conduct
most of their R&D onshore, that proportion has declined by 8.4 percent
points from 1997-1999 to the 2005-2007 period. Most of the work is
going to Europe, Israel, and Singapore, and increasingly to Romania.
Meanwhile, the outsourcing by American companies of chip fabrication
to Asian foundries—plants that fabricate chips on a contract basis—
means that semiconductor design can go to any place that has the best
supply of engineers.26
• Competing Consortia: While federally funded U.S. research is under
budget pressure, other nations have learned from the accomplishments
of SEMATECH and have formed their own public-private partnerships
aimed at becoming the first to commercialize next-generation
semiconductor technologies. At the same time, the ability to continue
improving the performance of integrated circuits along the path
predicted by Moore’s Law27 through current transistor technology may
be nearing its physical limits.28 The U.S. faces growing competition to
develop technologies to replace silicon-based, CMOS semiconductors,
24
The U.S. currently offers a 9 percent manufacturing tax credit and a temporary R&D tax credit,
although states such as New York offer sizeable incentives.
25
SIA, Maintaining America’s Competitive Edge, op cit.
26
Ibid.
27
Moore’s Law is based on the prediction by Intel co-founder Gordon Moore in 1965 that the
number of transistors that can be placed inexpensively on an integrated circuit doubles every two
years.
28
One recent development that could alter this view is Intel Corp.’s recent announcement that it had
successfully demonstrated the world’s first 3-D transistor, called Tri-Gate, used in a 22nm
microprocessor. Intel claimed its technology will “advance Moore’s Law into new realms.”
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 331
a challenge that Nanotechnology Research Institute Director Jeffrey
Welser says is as dramatic as the replacement of vacuum tubes by
semiconductors in the 1940s.29
These challenges must be addressed. “At some point,” the SIA warns, “without
sufficient U.S. government support of basic R&D and supportive tax,
immigration, and education policies, it may well prove to be very difficult if not
impossible to reverse current trends.”30
Industry Growth and U.S. Policy
The federal government was at the outset deeply involved in the U.S.
semiconductor industry. Indeed, as economist Laura Tyson observed in 1992:
“The semiconductor industry has never been free of the visible hand of
government intervention.”31
The U.S. Signal Corps was the prime funder of the R&D that led to
development of the transistor and semiconductors for three decades and
purchased most of the initial output. The military funded the first pilot
production lines of Western Electric, General Electric, Raytheon, and Sylvania
and construction of production capacity far in excess of demand. From the late
1950s through the early 1970s, the federal government funded between 40 to 45
percent of U.S. R&D in semiconductors.32 Military purchases of semiconductors
enabled the industry to establish the scale that led to a dramatic drop in prices
between 1962 and 1968,33 making them more practical for commercial use.
Japan’s entry into the dynamic random-access memory (DRAM)
industry, backed by low-cost capital and a protected home market, resulted in
dramatic increases in capacity and dumping of product on third-country markets.
Some U.S. companies also lagged the Japanese competition in quality and
productivity using the same equipment sets. The result was a reduction of the
U.S. global share in this market from around 90 percent to less than 10 percent
by 1985, and producers such as Intel, Advanced Micro Devices, and National
29
Testimony by Jeffrey Welser, Nanoelectronics Research Initiative director, before the House
Committee on Science, Space, and Technology’s Subcommittee on Research and Science Education,
April 14, 2011,
http://science.house.gov/sites/republicans.science.house.gov/files/documents/hearings/Welser%20Te
stimony%20FINAL.pdf).
30
SIA, Maintaining America’s Competitive Edge, op. cit.
31
Laura D’Andrea Tyson, Who’s Bashing Whom? Trade Conflict in High Technology Industries,
Washington, DC: Institute for International Economics, 1992.
32
A concise history of U.S. government involvement in establishment of America’s electronics
industry is found in Kenneth Flamm, Mismanaged Trade?: Strategic Policy and the Semiconductor
Industry, Washington, DC, Brookings Institution, 1996. pp. 27-38.
33
Defense Science Board, “High Performance Microchip Supply,” 2005.
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420 RISING TO THE CHALLENGE
involves complex matters that the committee has not had an opportunity to
examine in detail.
Stock prices of life sciences firms are frequently volatile and can be
affected by disclosure (whether or not authorized) of the results of clinical trials
and FDA proceedings associated with approval of a promising new drug.
Allegedly misleading disclosure or nondisclosure of problems can result in
volatility in the share prices of a company's stock. The collapse of share prices
under such circumstances commonly gives rise to costly class action lawsuits.447
Companies may also face enforcement proceedings by the Securities and
Exchange Commission.448
Compulsory Licensing. Pharmaceutical companies with proprietary
drugs are under price pressure from many governments outside the United
States, and one powerful legal tool that is sometimes utilized is the compulsory
licensing of patented drugs.449 The World Trade Organization (WTO)
Agreement on the Trade-Related Aspects of Intellectual Property Rights
(TRIPS) permits governments under certain conditions to compel a patent holder
to allow the subject of the patent to be used by others.450 This clause has been
invoked by several countries.451 A number of governments have used a threat of
447
The experience of Sequenom illustrates this phenomenon. In June 2008, Sequenom disclosed that
a non-invasive prenatal test which it had developed to screen maternal blood for Downs syndrome
was effective in all samples, sending its shares up 21.8 percent on eight times average volume.
However, on the eve of the product launch, Sequenom revealed that the introduction of the test
would be delayed "due to the discovery by company officials of employee mishandling of R&D test
data and results," and that the company's board had launched an independent internal investigation.
The special committee charged with conducting the investigation concluded that Sequenom "failed
to provide adequate protocols and controls" of results of the prenatal test. The company's CFO and
other executives resigned. The company fired its CEO and head of research and development.
Share prices collapsed, and numerous class action suits were brought on behalf of shareholders who
bought Sequnom shares after the 2008 disclosure of a promising new drug. The complaints alleged
that the company made "materially false and misleading statements regarding the clinical
performance of the Company's developmental Down syndrome test." "Sequenom Announces
Additional Positive Tests Results for Down Syndrome Test at Analyst Briefing. "Chemical Business
NewsBase (September 23, 2008); "Sequenom Raises Bar in Prenatal Test Field," Investor's Business
Daily (December 16, 2008); "Sequenom Readies Tests for Market," Business Review Western
Michigan (March 26, 2009); "Sequenom Announces Delay in Launch of SEQureDx Trisomy 21
Test," Business Wire (April 29, 2009); "Sequenom: Bloodied and Unbowed," Barron's (September
29, 2009).
448
In 2008, the SEC filed a civil fraud action against Biopure Corporation, alleging that the company
materially misled the investment community by failing to disclose — or by framing as positive
developments — certain negative information from the FDA regarding the approval prospects of its
synthetic blood product, Hemopure." "Increased Scrutiny of Investor Communications by Federla
Regulators," Food and Drug Law Institute (January/February 2006).
449
"Big Pharma Learns to Live With Generics," Bangkok Post (August 15, 2009).
450
Compulsory licensing can be used in "a national emergency as other circumstances of extreme
urgency." TRIPS Article 31.
451
In 2007, Brazil issued a compulsory license for Merck's anti-AIDS drug Efavirenz. In 2006,
Thailand issued compulsory license for two anti-AIDS drugs made by Merck and Abbott
Laboratories, and a compulsory license for the anti-cancer drug Docetaxel, patented by the French
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 421
TABLE 6.5 Shareholder Class Action Lawsuits Against Life Sciences Firms
Year Defendant Product Allegation
2009 Pozen Inc Treximet False or misleading
statements about migraine
drug candidate, Treximet
2009 Caraco Pharmaceutical various tablets Failure to disclose
Laboratories material information re
FDA warning letter on
drug manufacturing.
2009 Rigel Pharmaceuticals R788 False and misleading
statements with respect to
clinical trial of a drug,
R788 for treatment of
rheumatoid arthritis
2008 KV Pharmaceutical Co Makena Failure to disclosure
compliance problems with
FDA requirements
2009 Immucor Blood reagents Failure to disclose
and related compliance problems with
equipment FDA requirements
SOURCE: Brian Johnson et al v. Pozen Inc. et al, U.S. District Court, Middle
District of North Carolina (2009)l ; Wilkof v. Caraco Pharmaceutical
Laboratories, Ltd., U.S. District Court, Eastern District of Michigan (2009);
Immucor, Inc. Form 10-K for the fiscal year ended May 31, 2011, p. 16; “KV
Pharmaceutical Company Hit by Investor Class Action Over Alleged Securities
Law Violations, “ Shareholders Foundation (October 19, 2011).
compulsory licensing to pressure foreign pharmaceutical firms into reducing
drug prices.452 TRIPS requires that compulsory license "shall be authorized
predominantly for the supply of the domestic market," but in 2009 the WTO
firm Sanofi-Aventis. "Compulsory Thai Licensing of AIDS Drug Sets Precedent," Deutsche Press
Agentur (July 29, 2008); "Commerce Ministry Asks Council of State for Opinion on Legality of
Compulsory Licensing of Cancer Drug," Thai Press Reports (August 22, 2008).
452
In 2009, Korea threatened Roche with compulsory licensing in negotiations over the supply of
Tamiflu to Korea. The government of Brazil has applied similar pressure to multinational drug
makers, particularly with respect to the supply of anti-retroviral drugs to treat HIV/AIDS. "Tamiflu
Generics Protection Planned," Korea Times (September 9, 2009); "GSK and Fiocruz to Develop and
Product Vaccines," Economist Intelligence Unit (September 14, 2009).
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422 RISING TO THE CHALLENGE
ruled that Pakistan could grant compulsory licenses on patented drugs for export
to third countries that lacked their own manufacturing capacity.453 In March
2012, the Controller of Patents, Mumbai, granted Natco Pharma, an Indian
company, a compulsory license for manufacture of a generic version of
sorafenib toyslate, a drug developed by Bayer to treat liver and kidney cancer,
stating that the drug was "exorbitantly priced."454
Supply chain vulnerabilities. Governments in western countries are
pressing pharmaceutical firms to reduce the cost of their products, and one way
in which the industry is responding is to move the manufacture of drugs to lower
cost countries and to source ingredients from those countries. Roughly 80
percent of the active ingredients used in U.S. prescription drugs originate
outside the U.S.455 “[W]hether locally made generics, or patented drugs
produced by either a multinational or a contract-manufacturing organization,
Chinese-made prescription drugs will soon become unavoidable.” Imports from
China and India accounted for about 20 percent of the generic and over-the-
counter drugs sold in the U.S. in 2008.456 A number of scandals have occurred
in which U.S. consumers have been harmed through use of drugs with
adulterated ingredients derived from unregulated or under-regulated companies
in China.457 Recently the Chinese government has taken steps to strengthen
supervision of companies which comprise the pharmaceutical supply chain, but
a recent incident in which large numbers of commonly used capsule drugs were
found to contain high levels of toxic chromium indicates that significant risks
still exist.458
453
"WTO Allows Pakistan to Grant License," Business Recorder (October 3, 2009).
454
"India Uses Arm-Twist Rule for Cancer Drug," The Telegraph Online (March 13, 2012).
455
“Counterfeit Avastin Seized in the US,” Pharma Times (February 16, 2012).
456
“Clamping Down on Fakes,” Chemical Business NewsBase (September 8, 2008).
457
“Chinese Chemicals Flow Unchecked Onto World Drug Market,:” The New York Times (October
31, 2007). In 2008 Baxter International suspended sales of the anti-coagulant heparin produced at an
uncertified plant in China which was not inspected by the government after four U.S. users died and
350 suffered complications. “China Didn’t Check Drug Suppliers, Files Show,” The New York
Times (February 16, 2008). “Will US Inspections Help Improve the Safety of Chinese Drugs?”
Economist Intelligence Unit (April 15, 2008).
458
The capsules were made of industrial gelatin, and the chromium could cause digestive disorders
and internal organ failure. An advisory expert at the State Food and Drug Administration
commented that "drug quality control has been quite strict on end products. We examine all the
quantities and qualities of medical substances inside the capsules. But somehow we have left out
instrumental materials like the capsules themselves. That's a loophole, and we certainly need to
address it." The government shut down two of the capsule plants and took four plant owners into
police custody. "Capsule Scandal Exposes Loopholes in Drug Quality Control," China Radio
International Online (April 17, 2012). In China, Good Manufacturing Practices (GMP) standards
were introduced in the late 1970s but were phased in very slowly. The State Food and Drug
Administration (SFDA) issued revised GMP standards in 1999, requiring all pharmaceutical
manufacturers to meet GMP standards and secure GMP certification by June 30, 2004. New and
more stringent GMP rules governing pharmaceutical production took effect October 1, 2010,
requiring producers to apply for supplementary registration if the new standards were not met.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 423
Supply chain vulnerabilities arise out of the increasing use of lower-
cost bulk active pharmaceutical ingredients (APIs) as ingredients in
manufactured drugs. In some major countries makers of APIs can sidestep
regulatory scrutiny by not disclosing that their chemicals will be used in
pharmaceutical products.459 Bulk APIs are now sold over the Internet, which is
also a global platform for marketing and sale of counterfeit drugs. Some
contaminated substances find their way into the U.S. healthcare system.460
Counterfeiting and mislabeling. Counterfeit and mislabeled
medicines are a growing global concern both for legitimate pharmaceutical
manufacturers and consumers. According to the World Health Organization,
fake drugs account for under one percent in developed countries but from 10 to
30 percent of drug sales in emerging markets.461 Counterfeit medicines “are
often produced in unsanitary conditions by people without any medical or
scientific background.”462 Spuriously/falsely-labeled/falsified/counterfeit
(SFFC) medicines can result in treatment failure and death. In 2012 the FDA
sent out letters to 19 medical practices warning that counterfeit versions of
Avastin, made by Roche and Greentech, had been detected in the U.S. and “may
have left patients without their therapy.”463 The World Health Organization
cites a number of other examples of known SFFC incidents.
Counterfeit drugs increase the business risks of legitimate
pharmaceutical manufacturers. Branded firms may find themselves targeted by
lawsuits based on consumer use of worthless or toxic counterfeit medicine
bearing the company’s brand. U.S. and European pharmaceutical firms which
have Chinese operations or incorporate Chinese APIs in their manufacturing
processes risk legal actions by consumers. Historically legitimate
Many Chinese manufacturers are finding compliance with GMP standards to be financially
burdensome. Some companies reportedly received GMP certification despite their deviation from
GMP requirements, and “one factor causing this poor state of GMP implementation is believed to
be a lack of transparency in the drug administration system” (Royan Gai, et al, “GMP
Implementation in China: A Double-Edged Sword for the Pharmaceutical Industry”, Drug
Discoveries and Therapeutics (January 2007))
459
Chinese regulators do not supervise the production of raw materials used in pharmaceutical
manufacture, so-called “intermediates” which are used to make APIs. The lack of oversight has
contributed to tragedies such as the death and disability of 128 Panamanians who used cold medicine
manufactured in China which contained diethylene glycol, a toxic substance normally used as engine
coolant but sometimes utilized as a substitute for glycerine. “Chemicals Flow Unchecked from
China to Drug Market,” Kyodo (November 1, 2007).
460
In 2007 University Health Care System, based in Augusta, Georgia was warned by one of its
suppliers that some of the oral care kits used by the hospital might contain toothpaste made in China
containing toxic diethylene glycol. “This Problem Made in China,” Modern Healthcare (October
22, 2007).
461
“Just How Big is the Counterfeit-Drug Problem?” FiercePharma (September 13, 2010).
462
“Pfizer Steps Up Campaign in Fight Against Counterfeit Drugs,” Pharma Times (September 30,
2011).
463
“Counterfeit Avastin Seized in the US,” Pharma Times (February 6, 2012).
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424 RISING TO THE CHALLENGE
TABLE 6.6 Examples of SFFC Medicines
SFFC medicine Country/Year Report
Anti-diabetic traditional China, 2009 Contained six times the
medicine (used to lower normal dose of
blood sugar) glibenclamide (two
people died, nine people
hospitalized)
Metakelfin (antimalarial) United Republic of Discovered in 40
Tanzania, 2009 pharmacies: lacked
sufficient active
ingredient
Viagra & Cialis (for Thailand, 2008 Smuggled into Thailand
erectile dysfunction) from an unknown source
in an unknown country
Xenical (for fighting United States of Contained no active
obesity) America, 2007 ingredient and sold via
Internet sites operated
outside the USA
Zyprexa (for treating United Kingdom, 2007 Detected in the legal
bipolar disorder and supply chain: lacked
schizophrenia) sufficient active
ingredient
Lipitor (for lowering United Kingdom, 2006 Detected in the legal
cholesterol) supply chain: lacked
sufficient active
ingredient
SOURCE: WHO Fact Sheet No. 275 (January 2010)
www.who.int/mediacentre/factsheets/fs275/en/.
pharmaceutical companies have been reluctant to complain publicly about fake
drugs because it could damage their business.464
464
Robert Cockburn, Paul Newton, Kyermateng Agyarko, Dora Akunyii and Nicholas White, “The
Global Threat of Counterfeit Drugs: Why Industry and Government Must Communicate the
Dangers,” Plos Medicine (March 2005).
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 425
Looking Ahead
The U.S. pharmaceutical industry continues to pursue growth strategies
despite the numerous challenges it confronts. Major branded pharmaceutical
companies will seek to offset declining R&D productivity through partnerships
with innovative biotechnology firms, a strategy which also may help to counter
competitive pressure from generics makers. U.S. pharmaceutical firms will
increase investments in R&D in emerging markets, where demand for medicines
is growing at a far more rapid rate than in developed country markets. And the
industry will pursue niche strategies in areas such as biosimilars and orphan
drugs.
Strategic combinations. Pharmaceutical and biotechnology firms are
increasingly entering into complex strategic alliances with other companies,
including licensing and cross-licensing of patents, joint ventures, joint
development and trials, and distribution alliances. Such combinations mitigate
the costs and risks associated with development of new drugs and enable
companies to enter new product and geographic markets. Development of
biopharmaceuticals may also help branded pharmaceutical firms to counter
competition from generic drug makers. The high cost of developing biologics
such as monoclonal antibodies serves as a partial competitive foil to generics
makers. On industry analyst observed in 2010 that—
It's not going to be that easy for generic players to be very
successful in the biotech area. They are not easy to copy and
not easy to manufacture.465
In 2009 the CEO of Johnson & Johnson, William Weldon, said that
J&J would acquire minority shareholding and develop alliances with its
competitors in order to share costs and risks.
[Weldon’s] remarks reflect a trend even by large, cash,
generative pharmaceuticals companies to fund new ways to
share the potential costs as well as the profits in proving the
safety and efficacy of new drugs to regulators and winning
agreement by health care systems to reimburse them.466
465
Rajith Gopinathan, analyst with industry market research firm Frost & Sullivan, in
"Pharmaceutical Companies Seek Biotech Acquisitions to Boost Drug Pipelines," ICIS.com
(February 12, 2010).
466
J&J Wants Deals with Rivals to Share Risk,” Financial Times (October 25, 2009).
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426 RISING TO THE CHALLENGE
TABLE 6.7 Strategic Alliances in Pharmaceuticals
Year Companies Activity
2008 Sequenom, Apply Sequenom genotyping to enhance
MetaMorphix livestock DNA screening
2009 PRA International, LSK Joint management of clinical trials in Asia
Global Pharma Services,
Mediscience Planning
2009 Illumina, Agilent Scalable solution for researchers
conducting targeted sequencing studies
2009 Eli Lilly, Cadila Heath Development of cardiovascular drugs
care
2009 Johnson & Johnson, J&J acquires rights to Elan Alzheimer
Elan immunotherapy program, 18 percent stake
in Elan, and links to Elan partners Biogen
Idec and Wyeth (Pfizer)
2009 Johnson & Johnson, Develop monoclonal antibodies for
Crucell N.V. prevention/treatment of influenza
2009 Johnson & Johnson, Use joint trials to develop a once-daily
Gilead HIV therapy
2009 GlaxoSmithKlein, Pfizer Combine experimental and existing HIV
medicines with joint venture
2009 AstraZeneca, Bristol- Joint development of diabetes treatment
Meyers Squibb drugs
SOURCE: “Johnson & Johnson Completes Deal with Elan, Acquiring its
Alzheimers Assets, “ Business Wire (October 14, 2009); “Johnson & Johnson
and Crucell form Drug Discovery Collaboration,” Datamonitor (September 30,
2009); “MetaMorphix and Sequenom Agree to Build on Success,” Business
Wire (January 9, 2008); “PRA International, LSK Global Pharma Services and
Mediscience Form Partnership,” Datamonitor (January 15, 2009); “Illumina and
Agilent Sign Co-Marketing Agreement,” Datamonitor (April 20, 2009);
“PharmaChem, Cadila, Eli Lilly in Drug Development Deal,” Chemical
Business NewsBase (March 31, 2009); “j&J, Gilead HIV Drug Wins FDA
Approval,” Blomberg (August 10, 2011); “GaxoSmithKline, Pfizer Inc. HIV
Venture Plans Russian Manufacturing,” Chemical Business NewsBase
(November 3, 2011); “Onglyza Study by Bristol-Meyers Squibb and
Astrazenica,”Asia Pulse ( June 29, 2010).
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 427
Emerging markets. Pharmaceutical markets are growing far more
rapidly in emerging economies than in mature markets in the United States,
Europe and Japan.467
The pharmaceutical industry will necessarily pursue growth by
increasing its presence in emerging markets, particularly countries with large
populations and rising standards of living.468
China. China is now the world's third largest pharmaceuticals market,
is reportedly growing at a rate of over 25 percent per year, and is forecast to
overtake Japan as the world's second largest market in 2016. In 2011, the
government announced its intention to boost healthcare spending by 16.3
percent to about $26 billion. At present over 90 percent of China's population is
covered by some form of insurance, making modern medicine more affordable.
Demand is particularly strong for drugs to treat chronic illnesses, which account
for 80 percent of deaths in China.469 In 2011, Merck indicated its R&D
spending in China would reach $1.5 billion over the next five years, and that it
would construct a 600-person R&D headquarters in Beijing.470 U.S.
pharmaceuticals companies investing in China face a number of challenges,
including government intervention in drug pricing, competition from locally-
produced generics, and infringement of intellectual property.
Major foreign pharmaceutical makers have made significant
commitments in China.471 Novartis announced in 2009 that it would invest $1
billion in R&D in China over the next five years, augmented by acquisition of
an 85 percent stake in one of the largest private makers of vaccines in the
country, Zhejiang Tianyuan Bio-Pharmaceutical Co. Ltd. Eli Lilly opened an
R&D center in Shanghai in 2008 and has entered into a venture capital initiative
to launch new products in collaboration with Chinese institutes and
companies.472
South Korea. Major U.S. pharmaceuticals firms are establishing a
presence in South Korea, a country with a strong university and science
infrastructure, a large pool of skilled manpower, and the ability to conduct
467
“A 2010 study by Thomson Reuters Pharma observed that demand for pharmaceuticals was
growing at an annual rate of 25-27 percent in China and 15-17 percent in markets such as Brazil,
India, Poland and Russia. Western European markets were growing at an annual rate of 1-3 percent
and the United States 3-5 percent.” Thomson Reuters Pharma, “The Ones to Watch: A Pharma
Matters Report,” (July-September 2010).
468
Merck has reportedly embraced an aggressive growth plan for emerging markets which would up
its 18 percent growth rate in 2012 to 25 percent in 2013, focusing R&D in each country on products
that are important for that country. "Merck and Company Firms Up Plan for Emerging Markets,"
The Economic Times (Mumbai, February 17, 2012).
469
"Alliances Form in Growing Pharmaceutical Market," Business Daily Update (August 3, 2011).
470
"Merck Play R&D Centre in China," Chemical Business Newsbase (December 12, 2011).
471
"Foreign Giants Dominate China Pharmaceutical Market," SinoCast (November 5, 2010).
472
"Eli Lilly Opens China R&D Headquarters in Shanghai,"SinoCast (October 17, 2008); "Eli Lilly
Asia VC Fund Settles in Shanghai," SinoCast (November 16, 2007).
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428 RISING TO THE CHALLENGE
clinical trials in an extremely efficient manner.473 Pfizer announced in 2007 that
it would make Korea a "key research bank for its new medicine development"
and invest $300 million over a five year period.474 In 2007, VGX
Pharmaceutical Inc., a U.S. firm that specializes in hepatitis and HIV treatments,
announced it would invest $200 million to establish its Asian headquarters in
Korea.475 Johnson & Johnson manufactures drugs in Korea through a
subsidiary, Janssen Korea, which functions as J&J's production base for the
entire Asian market.476 Foreign pharmaceutical firms operating in Korea face
significant challenges, including pressure by healthcare providers to give
suppliers rebates,477 lack of transparency with respect to Korea's pricing and
reimbursement of drugs,478 and government pressure on the intellectual property
of branded drug firms.479
Biosimilars. The first generation of biotechnology drugs is going off-
patent, giving rise to a promising new market for "follow-on biological," also
known as biosimilars. A number of the major branded pharmaceutical
producers are entering the biosimilars markets, including Merck, Eli Lilly, and
AstraZenica. In contrast to small molecule drugs formed through chemical
synthesis, biologics are molecularly complex and potentially sensitive to
changes in manufacturing processes, raising the prospect that they might not
have the same effects in human beings as the original drug.480 As a result,
biosimilars face an uncertain regulatory path to approval which is still evolving
473
Korea has a unique advantage in the form of large hospitals in a dense area; with so many
patients, clinical trials can be done quickly. In addition, Korean hospitals have strong links with
university R&D organizations. "Novartis Stays Ahead with New Ideas: Country Head Says
Dedication," The Korea Herald (March 31, 2004).
474
"Pfizer Pharmaceutical Company to Invest 300m Dollars in South Korea by 2012," Yonhap (June
14, 2007).
475
"US Drug Maker to Have Headquarters in Korea," Korea Times (July 9, 2007).
476
"Pharmaceutical Giant to Expand Korea Operations," Dong-A Ibo (February 18, 2008).
477
Since 2007, a significant number of manufacturers, including Eli Lilly, Pfizer and
GlaxoSmithCline have been fined by the Korea Fair Trade Commission (KFTC) for illegal payment
of rebates to hospitals, doctors and pharmacists. The U.S. government has noted concerns expressed
by U.S. companies targeted by the KFTC that they have not been accorded a significant opportunity
to review and respond to the evidence against them, including an opportunity to cross-examine
witnesses at KFTC hearings. "10 Pharmaceutical Firms Face Heavy Fines for Rebates," Korea
Times (October 25, 2007); "War Declared on Drug Makers' Rebates to Doctors," Dong-A Ilbo (July
31, 2009); "Cleanup Drive to Sweep Pharm Industry," Korea Times (March 31, 2009). Office of the
U.S. Trade Representative, 2009 National Trade Estimate on Foreign Trade Business (2009) p. 316.
478
Imported pharmaceuticals are subject to multiple price reduction mechanisms under the Korean
Drug Expenditure Rationalization Plan (DERP) cost containment measures, enacted in 2006, which
affects not only drugs entering the market since DERP was adopted, but retroactively affects drugs
approved for reimbursement in the pre-DERP era. Office of the U.S. Trade Representative, 2009
National Trade Estimates Report on Foreign Trade Barriers (2009) p. 317.
479
"ROK Firms Plan Tamiflu Generics Production," Korea Times (September 9, 2009).
480
The makers of follow on biologic drugs do not have access to the originating company's active
drug substances, cell bank, molecular clone or fermentation and purification processes.
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NATIONAL SUPPORT FOR EMERGING INDUSTRIES 429
in the U.S. and Europe.481 The Patient Protection and Affordable Cure Act,
enacted in 2010, establishes a 12 year period of data exclusivity for new
biological drugs between the date of FDA approval and the filing date for
biosimilar approval based on the innovator's original data, a measure which may
inhibit the introduction of biosimilars.
IN CLOSING
The global competitive environment is being shaped to an important
degree by the national policies of our competitors. This chapter has explored the
major policy issues affecting the competitiveness of the semiconductor,
photovoltaic products, advanced batteries, and pharmaceuticals industries. Each
of these industries can be regarded as strategic to the United States. While many
nations in Europe and Asia use the full force of government to attain
commercial competitive advantage in industries they regarded as strategic, the
idea of proactive government help for private industry in the name of economic
development has sometimes raised concerns in the United States about distorting
market forces and the wisdom of letting public servants “pick winners.” In
reality, the U.S. federal government has long played an integral role in the early
development of numerous strategic industries, not only by funding research and
development but also through financial support for new companies and
government procurement.
Each of the four industries studied face unique circumstances and
challenges. At the same time, they illustrate the important role that national
investments have played in supporting their development and the need for public
policies to ensure that the nation captures the benefits of these investments in
terms of economic growth and high value employment.
481
In the U.S. the Biologics Price Competition and Innovation Act of 2009 was enacted in 2010 to
create a shortened path to regulatory approval for biosimilars. The FDA is currently developing
guidelines for the approval process for biosimilars. As of March 2012 it had not yet received its first
biosimilars application. "Fitch Looks at Implications of FDA Biosimilar Guidance," Pharma Times
(February 13, 2012).
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