Research Policy 30Ž. 2001 535–588 www.elsevier.nlrlocatereconbase The dynamics of technological innovation: the case of the pharmaceutical industry Basil Achilladelis a,), Nicholas Antonakis b a 39, Ionias Street, Kifissia, Athens 14563, Greece b Ministry of DeÕelopment and UniÕersity of Athens, Athens Greece Received 9 April 1999; received in revised form 7 October 1999; accepted 18 January 2000 Abstract This is an empirical and historical study of the dynamics of technological innovationŽ. TI in the pharmaceutical industry from its establishment at the beginning of the 19th century to 1990. It is based on the identification and evaluation of the originality and commercial significance of 1736 product innovationsŽ. new medicines commercialized between 1800 and 1990, and on company economic data for the period 1950–1990. The study is presented in the framework of established macroeconomic theory of technical change. Applying both empirical and historical evidence, the study:Ž. a identifies the technological, social and economic driving forces for TI;Ž. b examines the relation between originality and market performance of medicinal innovations;Ž. c studies the mechanisms of the diffusion of medicinal technologies that led to the formation of five successive generations of drugsŽ long waves.Ž. ; d describes the structural changes forced on the pharmaceutical industry by the introduction and development of each successive generation of drugs;Ž. e provides evidence of the concentration of the innovative segment of the pharmaceutical industry among few large companies, which sustained high levels of growth and R&D expenditures by means of inhouse innovation, technological and therapeutic market specialization, and mergers and acquisitions of companies within and outside the pharmaceutical industry; andŽ. f shows that the localization of the innovative segment of the pharmaceutical industry in the USA, UK, Germany, Switzerland and France was caused by the influence of national environments on the intensities of the driving forces for TI. q 2001 Elsevier Science B.V. All rights reserved. Keywords: Dynamics of technological innovation; Pharmaceutical industry; Long waves of technical change 1. Introduction technological discoveries and inventions in industry and the world economy. Technological innovationŽ. TI is a dynamic pro- Schumpeter’s seminal theory was further elabo- cess, perhaps the most dynamic of all industrial rated at the macroeconomic level by many authors activities. SchumpeterŽ. 1943 with his Agales of cre- Ž.e.g., Freeman, 1996 , notably Rosenberg Ž 1969, ative destructionB gave a vivid description of the 1976.Ž.Ž. , Nelson and Winter 1977 , Dosi 1982 , Free- effects of the introduction and diffusion of major man and PerezŽ. 1988 , who, by incorporating Kon- dratiev’sŽ. 1925 theory of Along wavesB in the ) Corresponding author. Tel.: q30-1-800-01-52; fax: q30-1- world economy and Kuhn’sŽ. 1962 theory of scien- 800-01-52. tific revolutions, introduced the concepts of Atechno- 0048-7333r01r$ - see front matter q 2001 Elsevier Science B.V. All rights reserved. PII: S0048-7333Ž. 00 00093-7 536 B. Achilladelis, N. AntonakisrResearch Policy 30() 2001 535–588 logical imperativesB or Atechnological paradigmsB From its establishment to this day, it has maintained Ž.TPs , which initiate Atechnological trajectoriesB a close and fruitful two-way relation with academic Ž.TTs whose pathways determine the fluctuating rates research institutions in chemistry, pharmacology, the of technical change. TT were, in turn, found to life sciences and medicine. The succession of tech- cluster together forming Atechnology systemsB and nologies did not create waves but only ripples of Atechno-economic paradigmsB which, by spreading creative destruction because leading companies were across numerous industrial and service sectors, cause flexible enough to adapt to the exigencies of the new the formation and succession of Along wavesB in the regimes and even to prosper from them. A thriving world economy. and extremely profitable business was created with These concepts provided an extremely useful some of its innovations becoming household names framework for the study of TI, which offered a for nearly a century and others having deeply af- number of plausible macroeconomic interpretations fected the nature, structure and morals of our society. regarding the fluctuations of the rates of technical Indeed, in this latter aspect, there is no other industry change, the diffusion of technologies and their inter- that had a comparable effect. actions with the economy. Less attention was, how- The study is presented in the following three ever, addressed at the microeconomic aspects of sections. technological advance, notably the dynamics of TI at Section 2 describes the sources and assesses the the level of innovating institutions where they are data used in the study. first expressed and can be more accurately detected Section 3 presents an empirical study of the dy- and evaluated. Indeed, the dynamism of TI is ex- namics of TI in the pharmaceutical industry in the pressed in more subtle ways before it integrates into framework of established theory of technical change. Atechno-economic paradigmsB and Along wavesB. Ž.a DriÕing forces of TI. TI involves scientificr For example, TI acts as a catalyst in the interaction technological and commercial uncertainties and hence of science and technology accelerating their other- the acceptance of financial risks on the part of public wise arduous advance, in the technological develop- and private innovating institutions. It is, therefore, ment and market expansion of industrial sectors, in essential to identify the scientific, technological, so- the research intensity, technological specialization cial and economic forces that have compelled the and business performance of industrial companies, pharmaceutical industry throughout its long history and in the competitive advantage of national indus- to discover, develop and commercialize new tries. medicines. The mechanisms by which TI exerts such influ- Ž.b Dynamic effects of radical innoÕations() RIs . ence can be identified and evaluated by studies of Highly original innovations cause the establishment the technological and business histories of research- of new industrial sectors or subsectors and contribute intensive industrial sectors. Long-term sectoral stud- to the diffusion of technology. The pharmaceutical ies of TI offer the advantage of a homogeneous industry is not an exception to this rule. In our scientific, technological and commercial framework analysis, we examine the technological and commer- which allows for the study of the rates of technical cial characteristics of RIs, which impart to them their change and for comparisons in science, technology dynamic properties, and investigate the companies’ and business among historical periods, companies justifications in accepting the higher risks associated and countries. The use of technology inputroutput with their development and commercialization. indicators is essential because they provide quantita- Ž.c Diffusion of innoÕation. The 200-year-long tive evidence for or against any proposed hypothesis. innovation history of the pharmaceutical industry is This is a study of the dynamics of TI in the unique in manufacturing. To identify the dynamics pharmaceutical industry from its establishment at the and mechanisms by which it maintained a nearly beginning of the 19th century to 1990. The pharma- continuous drive for innovation over such a long ceutical industry is a relatively small research-inten- period, we examine the patterns of distribution over sive industry that showed a consistently strong inno- time of radical and incremental innovationsŽ. IIs by vative record throughout its 200-year-long history. therapeutic sector; we identify the characteristics of B. Achilladelis, N. AntonakisrResearch Policy 30() 2001 535–588 537 innovations that served as TPs and of the TTs they TI. To this end, we identified all the innovations generated; and we find that the clustering of TPs and Ž.1736 of 16 subsectors of the pharmaceutical indus- trajectories gave rise to five successive generations try described in Martindale’s PharmacopoeiaŽ Re- of pharmaceuticals that have kept alive the industry’s ynolds, 1989. , which account for about 80% of all drive for innovation. subsectorsŽ. Table 1 . The chemical structure and Ž.d The innoÕatiÕe performance of pharmaceuti- composition of each drug were obtained from the cal companies. Our innovation data show that 30 USAN and USP Dictionary of Drug NamesŽ Fleeger, companies introduced more than 70% of all the 1994. ; tradenames, innovating companies and years innovations of our sample. Most of these companies of commercialization were obtained by crosscheck- stayed in business for about a century despite the ing the above references with the World’s Pharma- revolutionary changes of the competitive environ- ceutical DirectoryŽ. Anon, 1991 . To ensure against ment of the pharmaceutical industry caused by the omissions of significant drugs, we cross-checked our introduction of successive generations of technology. lists with those of the USA Food and Drug Admi- We examine the patterns of growth of some of these nistration’sŽ. FDA Center for Drug Evaluation and companies, their innovation records, and the strate- ResearchŽ U.S. Department of Health and Human gies they adopted to ensure growth including techno- Services, 1989. ; with the American Medical Associa-