Global Competitiveness in Pharmaceuticals
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Ref. Ares(2014)77485 - 15/01/2014 GLOBAL COMPETITIVENESS IN PHARMACEUTICALS A EUROPEAN PERSPECTIVE* * § ¨ ALFONSO GAMBARDELLA , LUIGI ORSENIGO , FABIO PAMMOLLI November 2000 Report prepared for the Enterprise Directorate-General of the European Commission * The authors wish to thank G. Baio, N. Lacetera, L. Magazzini, M. Mariani, R. Pammolli, and M. Riccaboni for skillfull research assistance. * Sant’Anna School of Advanced Studies, Pisa, [email protected]. § Bocconi University, Milan, [email protected]. ¨ Faculty of Economics Richard M. Goodwin, University of Siena, [email protected]. Enterprise Papers Enterprise Papers are a mix of policy papers, sector-specific studies, and a combination of both. Written by the staff of the Enterprise Directorate-General, or by experts working in association with them, they aim to raise awareness of enterprise policy issues and stimulate debate. These papers do not necessarily reflect the opinion or position of the European Commission. Occasional ‘special editions’ may carry communications, conference proceedings, and reports to the Council. This report was prepared for the Enterprise Directorate-General by Alfonso Gambardella, Luigi Orsenigo and Fabio Pammolli. For further information, contact European Commission Enterprise Directorate-General Information and communication unit Rue de la Loi/ Wetstraat 200 B-1049 Brussels Fax: (32-2) 299 1926 To request copies, fax (32-2) 296 9930. E-mail: [email protected] A great deal of additional information on the European Union is available on the internet. It can be accessed through the Europa server (http://europa.eu.int). Luxembourg: Office for Official Publications of the European Communities, 2001 ISBN 92-894-1071-X © European Communities, 2001 Reproduction is authorised provided the source is acknowledged. Printed in Belgium I. INTRODUCTION............................................................................................... 1 II. STRUCTURAL INDICATORS IN THE EU, USA, AND JAPAN.................. 11 III. THE EUROPEAN AND US MULTINATIONALS: COMPARATIVE PERFORMANCE ...................................................................................................... 25 IV. R&D AND INNOVATION AS SOURCES OF COMPETITIVE ADVANTAGES.......................................................................................................... 36 IV.1 THE DIVISION OF INNOVATIVE LABOUR IN PHARMACEUTICALS ....................... 36 IV.2 THE US AS AN INCREASINGLY PREFERRED LOCATION FOR INVENTION?............ 39 IV.3 COLLABORATION IN RESEARCH, MARKETS FOR TECHNOLOGY, AND IMPLICATIONS FOR COMPETITIVENESS..................................................................... 43 IV.4 DRUG RESEARCH TOOLS: ANOTHER LARGELY US PHENOMENON?.................. 53 V. THE ROLE OF COMPETITION .................................................................... 57 VI. INSTITUTIONAL DETERMINANTS OF INDUSTRIAL COMPETITIVENESS ............................................................................................... 66 VI.1 EDUCATION AND RESEARCH IN BIOMEDICAL INNOVATION SYSTEMS ............... 67 VI.2 FINANCIAL MARKETS, CORPORATE GOVERNANCE, AND LABOUR MARKETS FOR SKILLED RESEARCHERS AND MANAGERS. ........................................ 73 VI.3 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS ......................................... 76 VI.4 DEGREES AND FORMS OF COMPETITION ON THE FINAL MARKET...................... 78 VII. CONCLUSIONS ........................................................................................... 82 VII.1. SUMMARY OF THE MAIN RESULTS AND ISSUES ............................................... 82 VII.2 GLOBAL COMPETITIVENESS IN PHARMACEUTICALS. AN INTERPRETATIVE FRAMEWORK........................................................................................................... 86 I. Introduction Pharmaceuticals is a large, high-growth, globalised, and innovation intensive industry. Its products – drugs – are directed to satisfy consumer needs in an area – health care – which is vital for society. Health care and therapeutics are among the most relevant issues in the definition of the concepts of welfare and democracy in the new Century. Thus, the pharmaceutical industry is clearly a “strategic” sector for Europe. Ever since the XIX Century, pharmaceuticals has been a stronghold of the European industry, and it still provides by far the largest contribution to the European trade balance in high-technology, R&D intensive sectors. However, it is now a diffused perception that the European pharmaceutical industry is losing ground vis-à-vis the United States. Against this background, the Report examines the competitive position of the European pharmaceutical companies and industries, and compares them with the pharmaceutical companies and industries in other parts of the world, particularly the US. Over the last two decades, the industry has experienced some important structural changes, mainly driven by technological and institutional shocks that have affected all the stages of its value chain. In turn, this has led to changes in firms’ organisation and in market structure, within domestic markets, regionally, and globally. On the one hand, the life sciences have transformed the prospects and the processes of drug discovery and development. On the other hand, the rise of healthcare and prescription drug spending has induced cost containment policies, which have affected the structure of demand in all the major national markets. In addition, increasingly stringent requirements for the approval of new drugs, together with the orientation of research towards increasingly complex pathologies, have implied 1 larger, more costly and internationally based clinical trials. Developments in legislation and in courts’ interpretation of issues concerning intellectual property rights, as well as the increasing openness of domestic markets to foreign competition, have influenced patterns of industrial competition and the evolution of industry structure. Jointly, these tendencies have implied a sharp increase in the resources needed to develop new drugs. Equally important, they have led to a redefinition of the nature and the complementarities between the fundamental sources of competitive advantages in this industry, namely R&D and innovative competencies, marketing and distribution capabilities. The pharmaceutical industry today has to be understood as a system or network. Innovative activities, as welll as production and commercialisation of drugs, rest on and involve, either directly or indirectly, a large variety of actors: different types of firms, other research organisations like universities and public and private research centers, financial institutions, regulatory authorities, governments, health care systems, consumers, physicians, etc. These actors are linked together through a web of different relationships, which include almost pure market transactions, “command and control” administrative rules, competition, collaboration, and all sorts of “intermediate forms”. This suggests that the competitiveness of the industry cannot be assessed by looking only at the individual firms, but also at the broader set of institutions, infrastructures, and policies that influence the actions of companies, and – even more important – at the dynamic interactions between these levels of analysis. The picture is further complicated by the fact that the industry is populated by very different firms. In the first place, there are the multinational companies, which cover between 40 to 60% of most national markets in the advanced countries. These are fairly global firms. Although they do keep a good share of activities and sales in their own domestic, or at least continental markets, these companies operate across national or even continental borders, and they set divisions and 2 activities in other countries and regions as well. Often, their property is spread across different countries, particularly Europe and the US. These are highly R&D- intensive companies with large sunk costs both in R&D and in marketing and 1 distribution assets. The industry is populated by two other types of firms. First, there are smaller companies which are specialised in the sales of non R&D-intensive drugs. They conduct mainly manufacturing and commercialisation activities, and do not invest in R&D. These are typically national companies which operate almost exclusively in their own markets. Since the past twenty years or so, another set of companies have populated this industry, notably the research intensive companies that have sprung off from the new opportunities opened up by the life sciences – the so- called New Biotechnology Firms (NBFs). These companies are specialised in the new biotechnologies, and their activities range from the discovery and development of new drug compounds to the development of new drug screening or research tools and technologies in fields like genomics, bioinformatics, etc. Measuring competitiveness is always a difficult exercise, given the ambiguity with which this concept is sometimes used and the different possible interpretation that can be found in the literature. As a consequence, and given the complexity of the pharmaceutical industry in its relationships with the research, regulatory and healthcare systems, we introduce here a set of differentiated indicators, including various measures of value added, productivity, trade balance, world market shares and, above all, innovativeness. Jointly, these measures provide