Presentation - Department of History - Oxford Brookes University

Centre for Health, Medicine and Society: Past and Present
History of Medicine Seminar Series, Spring Semester 2012
“The Medical Humanities at Brookes”
“International or global?:
The pharmaceutical industry 1950-2010“
13 March 2012
Judy Slinn
(Department of Business and Management)

International or global? The
pharmaceutical industry 1950-2010.
Judy Slinn, Business School,
Oxford Brookes University

The industry pre-1950
International activity since the 1890s
The innovatory advantage belonged to German
and Swiss companies before WW2
US industry – growing, investing in R&D;
penicillin, antibiotics & cortisone gave it
international leadership
The UK industry was very fragmented – even
major players had R&D on a small scale - &
characterised by low profit margins
Three US companies had established a
manufacturing presence in UK – Parke Davis,
Abbott Laboratories and Eli Lilly

The UK industry
Major players: Burroughs Wellcome, May
& Baker, Boots, British Drug Houses
(BDH), Glaxo and ICI
Many other companies, small - Cox’s -and
large – Beechams, manufacturing nonprescription
(OTC) drugs: companies
manufacturing galenicals – Allen &
Hanburys, Whiffens, Morson

Penicillin
The discovery of penicillin a watershed
A joint Anglo-American development
A technology that rapidly diffused in the
immediate post-war years
A drug that revolutionised the public’s
expectations of medicine
Brought new companies into the industry –
Pfizer in the USA, Distillers in the UK

The industry’s context
A perception that infectious disease conquered
with the discovery and development of penicillin
and the antibiotics
The therapeutic revolution – other new drugs
More affluent societies expecting and
demanding health as a right (USA, Europe,
Japan)
Much larger markets following the establishment
of govt-funded healthcare; e.g. in the UK the
NHS (1948)

The US influence on the UK
Transfer of technology, collaborative
agreements
In the 1950s US companies established
themselves in the UK – Merck, Sharp & Dohme,
SKF, Pfizer –why?
“now … all our American friends have arrived
and settled in the UK and we may expect even
severer competition than we are now
experiencing “ (Glaxo view 1955)
1957 Merger of Glaxo and Allen& Hanburys

The conjunction of marketing
and R&D
For a pharmaceutical company, Sir David
Jack (former head of Glaxo research) said
“ The outcome of its research programme
determines the potential of a company; its
development and marketing activities
determine its performance within that
potential” (1992)

Characteristics of the industry
1945-2000
Significant role of R&D
Products protected by patent
An industry dominated by large
corporations
A highly competitive industry
A very profitable industry
A highly regulated industry (prices and
safety)

Why regulate prices ?
UK Govt view
“ Partly because of lack of ‘consumer
resistance’, partly because a number of
important products are protected by
patents from competition, it has never
been thought safe to rely on normal
market factors to regulate prices of
proprietory drugs…” (NA.MH 168/2 Memo December 1960)

Price regulation in the UK
The first scheme (largely drawn up by the ABPI)
the Voluntary Price Regulation Scheme (VPRS)
introduced in 1957
Subsequently revised several times, renamed
the PPRS in 1978
Black list of products excluded from prescription
introduced 1984
Scheme regulates prices indirectly via profits
rather than by direct costs

Expenditure
Sales promotion of NHS products in 1965 – UK
coys spent 12% of sales, US =15%, Swiss 13%,
other European=18%
For most coys expenditure on sales
representatives = 45-50% of total sales
promotion expenditure
Other expenditure was on advertising, direct
mail, meetings and symposia for medics
Source: the Sainsbury Cttee

1960s-1970s
Slowing down of rate of discovery &
introduction of NMEs
In the wake of thalidomide and Kefauver,
more regulation – safety procedures ate
into patent life
New discoveries – betablockers, antiulcers,
new antibiotics
More reciprocal collaborative agreements

Safety regulation in the UK
1925 Therapeutic Substances Act
1940s Pencillin Acts
1959-62 working party on control of
medicines
1961 thalidomide tragedy, drug withdrawn
1962 Cohen Committee – Committee on
Safety of Medicines
1968 Medicines Act

The impact of thalidomide
Perception of drug manufacturers as
“downright suspect … nasty vulture-like
greedy creatures, predatory and thriving
on human pain and disease …” (Chain)
More extensive clinical trials demanded –
stronger regulatory system to be put in
place

Regulation for safety
• Acceptance of drug by national regulatory
authority (FDA in USA, MCA in UK) must
precede launch on market
• Clinical trials – three phases, 8-9 years (of
product’s patent life)
• Risk and uncertainty
• High cost

Changes in the 1970s
UK companies wanted access to US
market in their own right
Why? – to exploit patents fully in largest
world market
Established subsidiaries – often by
acquiring smaller US operations – in the
USA, e.g. Glaxo
Beecham attempt to acquire Glaxo failed

The challenge of the biotechnology
industry
Development started in USA 1970s,
followed in UK and Europe 1980s
Characteristic business is SME – known
as DBF (dedicated biotechnology firm)
Usually financed initially by venture
capital, followed by IPO
Usually strong and continuing connection
with academe

Scientific Steps
Identification of nature and function of
genes in 1930s
Identification of DNA and its structure in
1950s
Recombinant DNA technique 1973 (Cohen
& Boyer, Genentech)
Hybridoma technology & monoclonal
antibodies 1975 (Milstein & Kohler)

Biotechnology’s problems with
marketing
Many biotech companies found it took
longer to develop products than envisaged
Getting regulatory approval took a long
time
They did not have the marketing
organisation, skills, contacts, experience
New sources of funding needed

Problems facing the
pharmaceutical companies
“ The early 1990s were a watershed in the
evolution of the pharmaceutical industry.
After years of relatively stable growth, high
profits and an enviable record of
innovation, [they] found themselves
struggling against a tide of hostile forces”
G Pisano, 1997

Agreements between pharma
and biotech
A variety of agreements – R&D,
production, licensing and marketing
In 1992 Ciba-Geigy (now part of Novartis)
had a complex of agreements with more
than 20 DBFs – so did Hoffman La Roche,
so did Merck
Pharma traded its cash and expertise for a
stake in future profits of biotech

Structural changes in the 1980s
and 1990s
Merger of SmithKline Beckman and Beechams
ICI spun off fine chemicals to form Zeneca –later
merged with Astra
Glaxo merged with Wellcome
Boots sold pharma division to Knoll (BASF)
RP & Hoechst formed Aventis (inc. May &
Baker)
Merger of SmithKline Beecham and Glaxo
Wellcome to form GSK

Dominance of US in biotech industry (2004)
Companies by region
%
USA 32.7
Europe 41.1
Canada 10.7
Asia/Pacific 15.5
Share of global
revenue %
USA 78.3
Europe 14.2
Canada 3.8
Asia/Pacific 3.8
Source: Ernst & Young,
Beyond Borders report
2005

The challenge of globalization ?
Globalization of markets ?
Globalization of production ?
Global strategies ?
Standardization of products ?
A process beyond multinationalism ?

Dimensions of globalization
Playing big in major markets
Standardizing the core product
Concentrating value-adding activities in a few
countries
Adopting a uniform marketing position and
marketing mix
Integrating competitive strategy across countries
(Yip et al. 1988 )

Pharma: significant factors
differentiating the industry
1. The indirect nature of the transaction by
which prescription medicine reaches the
consumer
2. Clear relationship between health (or
healthcare) and wealth
3. The use and value of patents
4. The regulatory regimes

Factors driving globalization
Cost of R&D – need to secure maximum
exploitation of patents and maximum
penetration of markets
Production - economies of scale available
Creating a market: lifestyle drugs

Factors anti-globalisation
National systems of delivering healthcare
National epidemiological profiles
National medical practices
National systems of price and safety
regulation
Fragmentation of markets – therapeutic
sub-groups

Industry consolidation
‣ Some mergers between biotech and
pharma ( but more alliances)
For example – 2004 Celltech was acquired
by the Belgian pharma and chemical
company UBS
In the previous year Celltech itself had
acquired fellow biotech company Oxford
GlycoSciences

International or global?
The triadisation argument – USA, Europe,
Japan
Difficulties in standardisation and adopting
uniform marketing position
Differing national regulatory regimes
Changing business models