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The Competitive Status
of the U.S. Pharmaceutical
~nclustry
The influences
of Technology in Determining
international industrial
Competitive Advantage
Prepared by the Pharmaceutical Panel,
Committee on Technology and
international Economic and Trade issues
Office of the Foreign Secretary,
National Academy of Engineering
Commission on Engineering and
Technical Systems,
National Research Council
Charles C. Edwards, Chairman
Lacy Glenn Thomas, Rapporteur
NATiONAE ACADEMY PRESS
Washington, DC 1933
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N ational Academy P ress ~ 2
101 Constitution Avenue, N.W · Washington, DC 20418
NOTICE: The project that is the subject of this report was approved by the
Governing Board of the National Research Council, whose members are drawn from
the Councils of the National Academy of Sciences, the National Academy o f
Engineering, and the Institute of Medicine. The members of the committee
responsible for the report were chosen for their special competences and with
regard for appropriate balance.
This report has been reviewed by a group other than the authors according to
procedures approved by a Report Review Committee consisting of members of the
N ational Academy of Sciences, the National Academy of Engineering, and the
Institute of Medicine.
The National Research Council was established by the National Academy of
Sciences in 191A to associate the broad community of science and technology with
the Academy's purposes of furthering knowledge and of advising the federal
government. The Council operates in accordance with general policies determined
by the Academy under the authority of its congressional charter of 1863, which
establishes the Academy as a private, nonprofit, self-governing membership
corporation. The Council has become the principal operating agency of both the
National Academy of Sciences and the National Academy of Enaineerina in the
. . .. . . ~ · ~
conduct of their services to the government, the public, and the scientific and
engineering communities. It is administered jointly by both Academies and the
Institute of Medicine. The National Academy of Engineering and the Institute of
Medicine were established in 1964 and 1970, respectively, under the charter of the
National Academy of Sciences.
This project was supported under Laster Agreement No. 79-02702, between the
National Science Foundation and the National Academy of Sciences.
Library of Congress Catalog Card Number 83-50568
International Standard Book Number 0-309-03396-9
First Printing, August 1983
Second Printing, August 1984
Copyrights 1983 by the National Academy of Sciences
No part of this book may be reproduced by any mechanical, photographic, or
electronic process, or in the form of a phonographic recording, nor may it be stored
in a retrieval system, transmitted, or otherwise copied for public or private use,
without written permission from the publisher, except for the purposes of official
use by the United States Government.
Printed in the United States of America
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Participants at Meetings of the
Pharmaceutical Panel, Committee on
Technology and international Economic
and Tracie issues
Panel
CHARLES C. EDWARDS (Chairman), President, Scripps Clinic
and Research Foundation
KENT BLAIR, Vic - President, Donaldson Lulkin dc Jenrette
WILLIAM NEILL HUBBARD, JR., President, Upjohn Company
PETER BARTON MUTT, Partner, Covington and Burling
PHILIP RANDOLPH LEE, Professor of Social Medicine,
University of California Medical School, San Francisco
ARTHUR M. SACKLER, Research Professor, New York Medical
College, Publisher, Medical Tribune Newspapers
LEWIS HASTINGS SARETT, Senior Vice-President, Merck {c Co.,
In c. ~ etired)
WILLIAM MICHAEL WARDELL, Professor, Department of
Pharmacology, University of Rochester Medical Center
PAUL F. WEHRLE, Professor of Pediatrics, University of
Southern California
ALBERT P. WILLIAMS, Director, Health Science Program, The
Rand Corporation
RICHARD WOOD, Chairman of the Board and Chief Executive
Officer, Eli Lilly {c Company
ALEJANDRO ZAFFARONI, President and Director of Research,
ALZA Corporation
Rapporteur
LACY GLENN THOMAS, Professor, Graduate School of Business,
Columbia University
. . —
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Additional Participants
JAMES ANDRESS, Vice President, Corporate Planning, Abbott
Laboratories
J. RICHARD C ROUT, Director, Bureau of Drugs, Food and Drug
Administration
ELI FROMM, House Science, Research and Technology
Subcommittee of the Science and Technology Committee, U.S.
Congress
LEO R. McINTYRE, Office of Basic Industries, U.S. Department
of Commerce
PAUL MEYER, Assistant Director of Public Affairs for Public
Policy, Pfizer, Inc.
DUFFY MILLER, Editor, PMA Newsletter, Pharmaceutical
Manufacturers Assoc.
SUMIYE OKUBO, Policy Analyst, Division of Policy Research and
Analysis Scientific, Technological, and International Affairs,
National Science Foundation
ROLF PIEKARZ, Senior Policy Analyst, Division of Policy
Research and Analysis, Scientific, Technological, and
International Affairs, National Science Foundation
ALAN RAPOPORT, Policy Analyst, Division of Policy Research
and Analysis, Scientific, Technological, and Internationa 1
Affairs, National Science Foundation
C. MELVIN STONE, Director, International Economic Research,
Pharmaceutical Manufacturing Association
JULIUS SPIRO, Economist, U.S. Department of Labor
Consultant
BENGT-ARNE VEDIN, Research Program Director, Business and
Social Research Institute, Stockholm, Sweden
Staff
HUGH H. MILLER, Executive [Director, Committee on Technology
and International Economic and Trade Issues
MARLENE R.B. BEAUDIN, Study Director, Committee on
Technology and International Economic and Trade Issues
ELSIE IHNAT, Secretary, Committee on Technology and
International Economic and Trade Issues
STEPHANIE ZIERVOGEL, Secretary, Committee on Technology
and International Economic and Trade Issues
i
,v
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Committee on Technology and
international Economic and Trace issues (CT ET)
Chairman
N. BRUCE HANNAY, National Academy of Engineering Foreign
Secretary and Vice-President, Research and Patents, Bel 1
Laboratories (retired)
Members
WILLIAM J. ABERNATHY, Professor, Harvard University
Graduate School of Business Administration and Chairman,
CTIETI Automobile Panel
JACK N. BEHRMAN, Luther Hodges Distinguished Professor of
International Business, University of North Carolina
CHARLES C. EDWARDS, President, Scripps Clinic and Research
Foundation and Chairman, CTIETI Pharmaceutical Panel
W. DENNEY FREESTON, JR., Associate Dean, College of
Engineering, Georgia Institute of Technology and Chairman,
CTIETI Fibers, Textiles, and Apparel Panel
JERRIER A. HADDAD, Vice-President, Technical Personnel
Development, IBM Corporation (retired)
MILTON KATZ, Henry L. Stimson Professor of Law Emeritus,
Harvard Law School
RALPH LANDAU, Chairman, Listowel Incorporated and
Vice-President National Academy of Engineering*
JOHN G. LINVILL, Professor, Department of Electrical
Engineering, Stanford University and Chairman,
E1 ectronics Panel
*Formerly, Chairman of the Board, Halcon-SD Group.
v
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E. RAY McCLURE, Program Leader, Precision Engineering
Program, Lawrence Livermore Laboratory and Chairman,
CTIETI Machine Tools Panel
BRUCE S. OLD, President, Bruce S. Old Associates, Inc. and
Chairman, CTIETI Ferrous Metals Panel
MARKLEY ROBERTS, Economist, AFL-CIO
LOWELL W. STEELE, Consultant--Technology Planning and
M anagement*
MONTE C. THRODAHL, Vice-President, Technology, Monsanto
Company
*Formerly, Staff Executive, General Electric Company.
V1
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Preface
In August 1976 the Committee on Technology and International
Economic and Trade Issues examined a number of technological
issues and their relationship to the potential entrepreneuria 1
vitality of the U.S. economy. The committee was concerned with:
· Technology and its effect on trade between the United
States and other countries of the Organization for Economic
Cooperation and Development (OECD);
· Relationships between technological innovation and U.S.
productivity and competitiveness in world trade; impacts of
technology and trade on U.S. levels of employment;
· Effects of technology transfer on the development of the
less-developed countries (LDCs) and the impact of this transfer on
U.S trade with these nations; and
.
security.
Trade and technology exports in relation to U.S. national
In its 1978 report, Technology, Trade, and the U.S. Economy,*
the committee concluded that the state of the nation's competi-
tive position in world trade is a reflection of the health of the
domestic economy. The committee stated that, as a consequence,
the improvement of our position in international trade depends
primarily upon improvement of the domestic economy. The
committee further concluded that one of the major factors
affecting the health of our domestic economy is the state of
industrial innovation. Considerable evidence was presented during
the study to indicate that the innovation process in the United
States is not as vigorous as it once was. The committee recom-
*National Research Council, 1978. Technology, Trade, and the
U.S. Economy. Report of a Workshop held at Woods Hole,
Massachusetts, August 22-31,1976. National Academy of Sciences,
Washington, D.C.
. —
V11
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mended that further work be undertaken to provide a mar e
detailed examination of the U.S. government policies and
practices that may bear on technological innovation.
The first phase of study based on the original recommenda-
tions resulted in a series of published monographs that addressed
government policies in the following areas:
· The International Technology Transfer Process.*
· The Impact of Regulation on Industrial Innovation.*
· The Impact of Tax and Financial Regulatory Policies 0 n
Industrial Innovation.*
· Antitrust, Uncertainty, and Technological Innovation.*
This report on the pharmaceutical industry is one of six
industry-specific studies that were conducted as the second phase
of work by this committee. Panels were also set up by the com-
mittee to address automobiles, electronics, ferrous metals,
machine tools, and fibers, textiles, and apparel. The objective of
these studies was to (1 ) identify global shifts of industrial
technological capacity on a sector-by-sector basis, (2) relate those
shifts in international competitive industrial advantage to
technological and other factors, and (3) assess future prospects for
further technological change and industrial development.
As a part of the formal studies, each panel developed (1) a brief
historical description of the industry, (2) an assessment of the
dynamic changes that have been occurring and are anticipated as
occurring in the next decade, and (3) a series of policy options and
scenarios to describe alternative futures for the industry. The
primary charge to the panel was to develop a series of policy
options to be considered by both public and private policymakers.
The methodology of the studies included a series of panel
meetings involving discussions between (1) experts named to the
panel, (2) invited experts from outside the panel who attended as
resource persons, and (3) government agency and congressional
representatives presenting current governmental views an d
summaries of current deliberations and oversight efforts.
The drafting work on this report was done by Dr. Lacy Glenn
Thomas, Columbia University. Professor Thomas was responsible
for providing research and resource assistance as well as producing
a series of drafts, based on the panel deliberations, that were
reviewed and critiqued by the panel members at each of their
three meetings.
*Available from the National Academy of Engineering, Office of
the Foreign Secretary, 210 1 Constitution Avenue, N.W.,
Washington, D.C. 20418.
. · —
vail
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Contents
SUMMARY
1 OVERVIEW OF U.S. PHARMACEUTICAL INDUSTRY
Emergence of the Modern Pharmaceutical Industry, 7
Nature of Pharmaceutical Competition, 12
Benefits and Risks of Technical Change, 14
Overview and Limitations of this Study, 17
2 COMPETITIVE POSITION OF THE U.S.
PHARMACEUTICAL INDUSTRY
Research, 23
Innovation, 27
Production, 32
Sales, 32
Structure, 37
Trade, 47
Summary, 49
3 DETERMINANTS OF NATIONAL PHARM ACEUTICAL
COMPETITIVE ADVANTAGE
Labor Costs, 53
Market Growth, 54
National Scientific Capacity, 55
General Relative Decline of U.S. Industry, 5 5
Industrial Policy: Regulation, 57
Industrial Policy: Taxation, 6 7
Industrial Policy: Trade, 68
Summary, 69
1X
21
53
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4 NEW DEVELOPMENTS AFFECTING THE INDUSTRY 72
Scientific Advances, 72
Japanese Developments, 75
5 OPTIONS FOR AMERICAN INDUSTRIAL POLICY
Trade Options, 78
Domestic Economic Options, 79
Regulatory Options, 81
BIOGRAPHICAL SKETCHES
INDEX
x
77
89
93
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The Competitive Status
of the U.S. Pharmaceutical
~ nclustry
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