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Global Distribution of Activity

Many, though not all, new pharmaceutical products are marketed worldwide. “Blockbuster” products—the relatively small fraction of drugs that realize global sales in the range of billions of dollars per year—are normally sold in most middle- and high-income countries. Patients in Organisation for Economic Co-operation and Development (OECD) countries ultimately have access to 80-90 percent of these products, albeit with longer delays in countries with more stringent price controls or weaker intellectual property (IP) protection. “Minor” products—those products with global sales below $1 billion per year—are typically launched in fewer countries; patients in the average country ultimately gain access to well under half of the total number of drugs introduced worldwide within 10 years of their first sale. 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.1 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.

Drug manufacture is also a multinational phenomenon, with an active global trade in intermediates (specialty chemicals), active pharmaceutical ingredients, and finished products. Stringent regulatory requirements for manufacturing imposed by government agencies in major markets such as the United States have extended quality standards worldwide, and several countries have become major loci of manufacturing activity that supplies global markets, notably Ireland and Puerto Rico, as well Israel and India for generic products.

R&D, by contrast, is much more geographically concentrated; the bulk of all R&D expenditure occurs in the United States, a handful of European countries, and Japan. Table 1 provides one measure of the global allocation of aggregate industrial pharmaceutical R&D expenditures. Unfortunately, reliable nationally comparable statistics on R&D spending in pharmaceuticals are difficult to obtain. National trade associations for the industry often report global rather than national spending by their members, and use varying definitions of R&D. For smaller countries, particularly emerging economies, data are simply unavailable, intermittently available, or of very questionable quality. With these caveats, aggregate statistics based on government censuses may nonetheless be informative, and they suggest a relatively stable share of the allocation of total industry R&D expenditure among developed countries, though even these numbers are difficult to compare due to differences in industry definitions, reporting standards, and data collection methods as well as exchange rate issues.

1

See Lanjouw (2005), Kyle (2006, 2007), and Danzon et al. (2003).



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