Innovation in Global Industries U.S. Firms Competing in a New World (Collected Studies) (2008) / Chapter Skim
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6 Pharmaceuticals
6 Pharmaceuticals
Pages 207-230
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From page 207... ...
In recent decades the industry has undergone dramatic structural changes, with the rise of the biotechnology sector, substantial growth in demand driven by demographics and substitution away from other therapeutic modalities such as surgery, and increased competition from globally active generic manufacturers. These changes have led to some degree of dis-integration and geographic dispersion, but innovative activity is nonetheless highly geographically concentrated, reflecting the economic significance of factors such as localized knowledge spillovers and the strength of patent protection, as well as the influence of government policies such as price regulation, state procurement of drugs, and health and safety regulation.
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From page 208... ...
New drugs are significantly less likely to be launched in poorer countries and, even if they do ultimately become available, it can take many years. Some countries are noticeably different in these respects; for example, Japan and Italy have much higher frequencies of single-country products. Country-specific regulatory requirements and differences in health care delivery systems may require drug companies to make significant investments in local capacity in regulatory affairs and sales and marketing, even where promotion of pharmaceutical products is highly restricted.
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From page 209... ...
2006 release 02, and UK Pharmaceutical Industry Competitiveness Task Force: Competitiveness and Performance Indicators 2005. Data published by OECD on business expenditure on R&D in pharmaceuticals are one basis for examining the global distribution of research effort in the industry.
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From page 210... ...
Innovation in the Pharmaceutical Value Chain The pharmaceutical value chain encompasses many activities, ranging from basic scientific research to marketing and distribution. Innovation in the industry is tightly linked to basic biomedical science, and many companies participate actively in basic scientific research that generates new fundamental knowledge, data, and methods.
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From page 211... ...
Particularly in drug discovery, industrial and publicly funded research efforts are deeply intertwined. Though the bulk of innovative activity is concentrated in drug discovery and development, some R&D is also directed at manufacturing technologies and process improvement.
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From page 212... ...
. While the industry continues to be dominated by large integrated firms that conduct much of this innovative activity in-house, recent decades have seen significant vertical restructuring of the industry and these firms increasingly rely on externally sourced R&D in both the discovery and the development phases of research.
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From page 213... ...
than those historically used by the "big pharma" firms concentrated in Philadelphia, New Jersey, Connecticut, and the Midwest.10 Many factors drive these R&D location decisions, and the observed geographical distribution of research reflects complex trade-offs among them. One the one hand, economies of scale and scope in performing R&D, the presence of internal knowledge spillovers, and costs of coordinating activity across dispersed units suggest that, all else equal, firms should limit geographic dispersion of R&D.
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From page 214... ...
Only when full patent rights were restored, and a relatively loose drug price regulation scheme was instituted, did commercial R&D spending return to previous levels. Countries such as Australia, which have relatively stringent drug price controls, continue to face major challenges in attracting significant R&D investment by multinational drug companies, in spite of strong academic research capabilities, an attractive business environment, and substantial public support of commercial biomedical research.
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From page 215... ...
(Forthcoming) show that patenting by pharmaceutical companies is positively correlated with the volume of academic publications by "local" public-sector scientists.13 The very substantial levels of publicly funded biomedical research in the United States, the United Kingdom, and some other countries has therefore played an important role in sustaining similarly high levels of commercial investment in drug discovery in these countries.
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From page 216... ...
But patents also provide protection for domestic firms conducting R&D, and political choices to weaken or limit patent protection on the products of multinationals may have serious consequences for nascent research sectors in these economies. Impact of Industry Restructuring on Innovation Structural change in the pharmaceutical industry has given pharmaceutical companies more opportunities and much greater flexibility to improve R&D performance by reallocating R&D effort between internal and external projects, and across different locations both within countries and around the world.
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From page 217... ...
Of the many thousands of well-financed entrants with strong patent portfolios and exciting science that have attempted to gain a foothold in the industry as a supplier of technology or competitor to the established multinational incumbent firms, only a few hundred have survived. The prospects for new players in the industry based in emerging countries are therefore mixed.
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From page 218... ...
Case Study: India's Pharmaceutical Industry Indian pharmaceutical companies have attracted much attention. Chaudhuri (2005)
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From page 219... ...
. As of early 2006, more than 60 molecules developed by Indian companies were reported to be in late stages of preclinical research, and 16 had reached the clinical trials stage, though none have yet completed Phase III or been approved by the FDA.19 Indian firms have also entered into a small number of highly publicized product development partnerships with multinational R&D-oriented firms: examples include Dr.
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From page 220... ...
21 Patent protection may also be playing a role both in stimulating R&D by domestic firms and in supporting multinational companies' participation in contract research agreements and licensing deals. But drug patents are politically controversial in India, and it remains to be seen whether the operation of the Indian Patent Office and enforcement in domestic courts will provide adequate IP protection for product innovators.22 Other Evidence on the Scope and Volume of Global R&D Though comprehensive and reliable data on global R&D expenditure are not available, the location of discovery and development activity can be tracked using proxy indicators such as patent applications, academic publications, or databases that document clinical trial sites.
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From page 221... ...
Berndt, Cockburn, and Thiers (2007) report results from tabulating the location of more than 65,000 trial sites participating in the clinical trials that have been registered on clinicaltrials.gov since 2001.
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From page 222... ...
United States 51.4 48.8 50.9 49.1 54.6 49.5 45.2 EU15 32.2 29.4 28.9 25.7 23.1 26.3 26.8 Japan 0.0 0.0 1.6 2.1 2.0 2.5 2.7 Other OECD 7.5 8.2 10.3 8.0 7.4 8.0 7.2 India 0.0 0.1 0.3 0.8 0.7 0.9 1.0 China 0.0 0.4 0.2 0.5 0.3 0.5 0.9 NOTES: Table entries are based on the number of sites participating in clinical trials registered on clinicaltrials.gov. The average number of sites per trial is 7.6.
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From page 223... ...
Overall, emerging economies and low-cost locations are a relatively small share of global activity, but this is changing rapidly. Table 6 shows the share of global trial sites by geopolitical region and by traditional versus emerging countries.
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From page 224... ...
Turning to IP issues, the positive association found here between changes in patent protection of biomedical inventions and growth in share of global clinical trials may reflect concerns of both multinational and domestic R&D performers about imitation of their products and their ability to appropriate returns from innovation. Even though sales in these countries are only a very small share of the global pharmaceutical market, and their current profitability is therefore unlikely to be a major driver of R&D decisions, it is clear that they have huge potential for future growth in sales.
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From page 225... ...
Over the past 25 years, however, gains from specialization in different aspects of the drug discovery and development process, changes in IP rules, easy access to venture capital, and the refinement of collaborative business models have driven greater vertical disaggregation of the industry, along with greater geographic dispersion of R&D. Pharmaceutical companies now have more opportunities and much greater flexibility to reallocate R&D effort between internal and external projects and among different locations both within countries and around the world.
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From page 226... ...
But it has also been facilitated by the general trends in the world economy that are driving globalization of many industries, including factors such as improvements in communication technologies, greater international mobility of labor and capital, accumulation of human capital and business infrastructure in low-cost emerging economies, and harmonization of IP rules following the TRIPS agreement.
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From page 227... ...
Emerging countries such as India and China, which have pockets of academic excellence in biomedicine but have had historically relatively low levels of public support for biomedical research, face an uphill struggle to develop this national capacity. The United States enjoys a dominant position in the world in publicly funded biomedical research.
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From page 228... ...
In the long run, emerging countries may succeed in developing a large enough base of local academic and publicly funded biomedical science to threaten the substantial competitive advantage that the United States currently enjoys in this area. Commercial R&D location decisions are tightly linked to publicly funded science; therefore, it will be necessary for public policy in the United States to play close attention to vitality and viability of academic- and government-supported biomedical science if the United States is to retain global leadership in the pharmaceutical industry.
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From page 229... ...
. The Globalization of Clinical Trials for New Medicines into Emerging Economies: Where Are They Going and Why?
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From page 230... ...
. Patents, Price Controls and the Arrival of New Drugs: How Policy Affects In ternational Launch Patterns.
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