The changing structure of the pharmaceutical industry

Health Affairs

Volumn 23, Issue 1, 2004, Pages 10-22

  Cockburn, Iain M ^a  

^a BOSTON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ANTIBIOTIC AGENT; VACCINE;

BIOMEDICINE; BIOTECHNOLOGY; COST CONTROL; DRUG COST; DRUG INDUSTRY; DRUG MANUFACTURE; DRUG MARKETING; ECONOMIC ASPECT; EVOLUTION; FINANCIAL MANAGEMENT; LICENSING; ORGANIZATION; PATENT; POLICY; PRODUCTIVITY; PROSPECTIVE PRICING; REVIEW;

DRUG INDUSTRY; HEALTH CARE SECTOR; ORGANIZATIONAL INNOVATION; RESEARCH; UNITED STATES;

EID: 4243178130     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.23.1.10     Document Type: Review

References (25)

1. EFPIA member companies spent $47 billion in 2002. European Federation of Pharmaceutical Industries and Associations, The Pharmaceutical Industry in Figures, 2003 Update (Brussels: EFPIA, 2003).
2. Seven new biotech drugs and vaccines were approved in both 2001 and 2002, up from one or two per year in the early 1990s. U.S. Food and Drug Administration, Center for Biologies Evaluation and Research, www.fda.gov/cber/products.htm (22 October 2003).
3. Joseph DiMasi and colleagues at the Tufts Center for the Study of Drug Development used proprietary company data to calculate the cost per approved NDA, taking into account failed projects and opportunity cost of money committed to lengthy development processes. Based on their calculations, the cost in constant dollars per approved drug rose from $318 million in the late 1980s to $802 million over the following thirteen years. See J. DiMasi et al., "Cost of Innovation in the Pharmaceutical Industry," Journal of Health Economics 10, no. 2 (1991): 107-142; and J. DiMasi et al., "The Price of Innovation: New Estimates of Drug Development Costs," Journal of Health Economics 22, no. 2 (2003): 151-185.
4. Joseph DiMasi and colleagues at the Tufts Center for the Study of Drug Development used proprietary company data to calculate the cost per approved NDA, taking into account failed projects and opportunity cost of money committed to lengthy development processes. Based on their calculations, the cost in constant dollars per approved drug rose from $318 million in the late 1980s to $802 million over the following thirteen years. See J. DiMasi et al., "Cost of Innovation in the Pharmaceutical Industry," Journal of Health Economics 10, no. 2 (1991): 107-142; and J. DiMasi et al., "The Price of Innovation: New Estimates of Drug Development Costs," Journal of Health Economics 22, no. 2 (2003): 151-185.
5. Pharmaprojects Annual Review, 2003 (London: PJB Publications, 2003).
6. World Health Organization, Global Forum for Health Research, Monitoring Financial Flows for Health Research (Geneva: WHO, 2001).
7. F.R. Lichtenberg "The Impact of New Drug Launches on Longevity: Evidence from Longitudinal, Disease-Level Data from Fifty-two Countries, 1982-2001," NBER Working Paper no. 9754 (Cambridge, Mass.: National Bureau of Economic Research, 2003).
8. R.M. Henderson and I.M. Cockburn, "Measuring Competence: Exploring Firm Effects in Pharmaceutical Research," Strategic Management Journal 15 (1994): 63-84; and R.M. Henderson and I.M. Cockburn, "Scale, Scope, and Spillovers: Determinants of Research Productivity in the Pharmaceutical Industry," RAND Journal of Economics 27, no. 1 (1996): 32-59.
9. R.M. Henderson and I.M. Cockburn, "Measuring Competence: Exploring Firm Effects in Pharmaceutical Research," Strategic Management Journal 15 (1994): 63-84; and R.M. Henderson and I.M. Cockburn, "Scale, Scope, and Spillovers: Determinants of Research Productivity in the Pharmaceutical Industry," RAND Journal of Economics 27, no. 1 (1996): 32-59.
10. See R. Landau, B. Achilladelis, and A. Scriabine, eds., Pharmaceutical Innovation (Philadelphia: Chemical Heritage Press, 1999); and R.A. Maxwell and S.B. Eckhardt, Drug Discovery: A Case Book and Analysts (Clifton, N.J.: Humana Press, 1990).
11. See R. Landau, B. Achilladelis, and A. Scriabine, eds., Pharmaceutical Innovation (Philadelphia: Chemical Heritage Press, 1999); and R.A. Maxwell and S.B. Eckhardt, Drug Discovery: A Case Book and Analysts (Clifton, N.J.: Humana Press, 1990).
12. "For whosoever hath, to him shall be given, and he shall have more abundance," Matt. 12:13. The "Matthew Effect" means that established researchers have greater success in obtaining resources than do younger colleagues with untested ideas. See R.K. Merton, "The Matthew Effect in Science," Science 159 (1968): 56.
13. L. Zucker, M. Darby, and M. Brewer, "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review 88, no. 1 (1998): 290-306.
14. The Bayh-Dole Patent and Trademark Amendments Act of 1980 provided blanket permission to apply for patents on results of federally funded research, harmonized an ad hoc system of intellectual property rules that had been negotiated between individual universities and government agencies, and expressed explicit congressional support for universities to negotiate exclusive licenses with corporations for the results of federally funded research. Regarding the regulatory changes, see P. Gompers and J. Lerner, The Venture Capital Cycle (Cambridge, Mass.: MIT Press, 1999).
15. I.M. Cockburn and R.M. Henderson, "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics 46, no. 2 (1998): 157-182.
16. CMR International, as cited in EFPIA, The Pharmaceutical Industry in Figures (Brussels: EFPIA, 2000).
17. The same observation holds true for earlier major medical discoveries, such as penicillin and cortisone.
18. Salient examples such as Genentech's development of recombinant human insulin, developed remarkably quickly in contrast to the decades taken to bring statins or angiotensin-converting enzyme (ACE) inhibitors to market, suggest that these gains could be very large. But there is little systematic evidence on the relative productivity of biotechs versus Big Pharma or, indeed, on whether breakthrough product development times (from fundamental science to product launch) are any faster or slower since the 1980s.
19. A. Agrawal and L Garlappi, "Public Sector Science and the Strategy of the Commons (Abridged)," Best Paper Proceedings, Academy of Management, 2002. An interesting variant of this "scorched earth" strategy is to sponsor university research, but only on condition that it be licensed nonexclusively.
20. The theoretical literature on patents stresses the importance of incentives to early-stage inventors for equilibrium rates of technological progress. See S. Scotchmer, "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives 5, no. 1 (1991): 29-41.
21. K. Judd, K. Schmedders, and S. Yeltekin, "Optimal Rules for Patent Races," Discussion Paper no. 1344 (Northwestern University, April 2002).
22. See M.A. Heller and R.S. Eisenberg, "Can Patents Deter Innovation? The Anticommons in Biomedical Research," Science 280 (1998): 698-701.
23. See R.S. Eisenberg, "Property Rights and the Norms of Science in Biotechnology Research," Yale Law Journal 97 (1987): 177-223; A. Rai, "Regulating Scientific Research: Intellectual Property Rights and the Norms of Science," Northwestern University Law Review 77 (1999): 94-129; and the interesting counterargument of S. Kieff, "Facilitating Scientific Research: Intellectual Property Rights and the Norms of Science - A Response to Rai and Eisenberg," Northwestern University Law Review 95 (2000): 691.
24. See R.S. Eisenberg, "Property Rights and the Norms of Science in Biotechnology Research," Yale Law Journal 97 (1987): 177-223; A. Rai, "Regulating Scientific Research: Intellectual Property Rights and the Norms of Science," Northwestern University Law Review 77 (1999): 94-129; and the interesting counterargument of S. Kieff, "Facilitating Scientific Research: Intellectual Property Rights and the Norms of Science - A Response to Rai and Eisenberg," Northwestern University Law Review 95 (2000): 691.
25. See R.S. Eisenberg, "Property Rights and the Norms of Science in Biotechnology Research," Yale Law Journal 97 (1987): 177-223; A. Rai, "Regulating Scientific Research: Intellectual Property Rights and the Norms of Science," Northwestern University Law Review 77 (1999): 94-129; and the interesting counterargument of S. Kieff, "Facilitating Scientific Research: Intellectual Property Rights and the Norms of Science - A Response to Rai and Eisenberg," Northwestern University Law Review 95 (2000): 691.