The Economics of the Pharmaceutical Industry

154 Pages·1975·11.512 MB·English

by  W. Duncan Reekie (auth.)

THE ECONOMICS OF THE PHARMACEUTICAL INDUSTRY
By the same author
ADVERTISING: ITS PLACE IN POLITICAL AND MANAGERIAL
ECONOMICS
MANAGEMENT IN THE SOCIAL AND SAFETY SERVICES
(with N. C. Hunt)
THE ECONOMICS
OF THE
PHARMACEUTICAL
INDUSTRY
w.
Duncan Reekie
© W. Duncan Reekie 1975
Softcover reprint of the hardcover 15t edition 1975
All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means,
without permission.
First published 7975 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in New York
Dublin Melbourne Johannesburg and Madras
SBN 333 166906
ISBN 978-1-349-02258-8 ISBN 978-1-349-02256-4 (eBook)
D00O1I 1100..11000077//997788--11--334499--0022225566--44
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For Basil
But know also, man has an inborn craving for medicine ... the desire to
take medicine is one feature which distinguishes man the animal, from
his fellow creatures. It is really one of the most serious difficulties with
which we have to contend.
William Osler, 1894
Contents
A cknowledgemen ts ix
'Introduction
Definition -- origins and history - recent growth - benefits
produced by the industry - the costs of the pharmaceutical
industry
2 Structure and Morphology 19
Market concentration and firm size - the sub-market concept-
ownership patterns - exports and imports - industry entry -
diversification out of pharmaceuticals
3 Patterns of Competition 35
Price competition - promotional competition - competition
by innovation - diversification within pharmaceuticals - entry
barriers
4 Research and Development 50
Medical and pharmaceutical R&D statistics - nature and
performance of pharmaceutical R&D - the direction of
pharmaceutical R&D - trends and patterns in pharmaceutical
innovation
5 Marketing 71
The nature of pharmaceutical promotion - branding - the
evidence of econometrics - some recent trends
6 Patents 84
The rationale for patents - patent monopoly in the
pharmaceutical industry - provisions to counter abuse -
evaluation
vii
viii Contents
7 Relationships with the State 100
Historical development - invoking countervailing power -
price control - influencing prescribing patterns - control of
quality and safety - another view
8 Current Areas of Controversy 113
Market structure - profits and prices - state participation in
R&D
9 Summary and Conclusions 126
Background - market structure - profit levels - product
differentiation - legislative control - where the future may
lead
References 137
Index 143
Acknowledgements
Past experience had forewarned me that in writing a book of this sort I
would be indebted to literally dozens of individuals. This book would
not have been possible without the assistance of the many executives of
pharmaceutical firms who so willingly gave me their aid. In particular, I
spent many hours scanning the library and records of the Association of
the British Pharmaceutical Industry and the files of Intercontinental
Medical Statistics Limited.
It would be remiss of me, however, not to mention two individuals
by name. My interest in the industry was first aroused by Professor
K. J. W. Alexander of the University of Strathclyde. His frequent
counsel and interested advice proved an unfailing source of stimulus.
Second, George Teeling-Smith, Director of the Office of Health
Economics, read and commented on an early manuscript of this book.
My own fascination with the pharmaceutical industry springs to no
small degree from the infectious enthusiasm held for the subject by the
Director of the OHE.
Finally, my thanks to my typists for transforming the manuscript
into a readable whole.
The responsibility for the opinions expressed in the following
chapters is exclusively my own.
W. DUNCAN REEKIE
ix
1
Introduction
1 Definition
No two firms in the British pharmaceutical industry are alike. Their
products range from fertilisers to antibiotics; from emulsion paints to
tranquilisers. Many are subsidiaries of overseas parents, principally
American, but also German, Swiss, Italian, Dutch and French. Only a
few are quoted on the London Stock Exchange and one of these, lei
Ltd, has barely 2~ per cent of its turnover in pharmaceuticals. A precise
definition of the 'pharmaceutical industry' is obviously necessary in
order to isolate it conceptually from the wide variety of company types
which participate in it.
Economists usually define an industry from one of two viewpoints;
that of the producer or that of the consumer. From the producer's
position, industry boundaries are indicated by the immobility of
productive resources. If the same productive resources can be easily
used to manufacture two or more distinct products, then the products
come from the same industry. From the consumer's position, if two or
more products are regarded as acceptable substitutes for one another
then they are produced in the same industry.
The pharmaceutical industry as seen by the consumer is the group of
firms manufacturing and distributing medicines in finished forms such
as ointments, capsules, tablets and syrups. The industry as seen by the
producer performs the following manufacturing and processing activi
ties:
1. bulk manufacture of synthetic organic chemicals, such as vita
mins, antihistamines, diuretics and sulphonamides. These, often
complex, substances include many different classes of drugs;
2. bulk manufacture by fermentation, synthesis, or both of anti
biotics, such as penicillin and streptomycin, which are normally