CHANGING RELATIONSHIPS BETWEEN THE PHARMACEUTICAL INDUSTRY AND ITS SELECTION ENVIRONMENT

Vivien Walsh 4S paper 2-Sep-04 page 1

Society for Social Studies of Science Conference, Paris, August 2004 Session: Drugs and Regulation

CHANGING RELATIONSHIPS BETWEEN THE PHARMACEUTICAL INDUSTRY AND ITS

SELECTION ENVIRONMENT Vivien Walsh

Institute of Innovation Research, University of Manchester

UK � +44 16 12 00 34 34

email [email protected]

Abstract

Markets are presented as the best, or even the only efficient, means of organising and governing an economic system, though in practice, regulations and other non-market elements may be necessary to make market governance work, and other modes of organisation may be more efficient or equitable.

Much of the innovation literature, however, focuses on supply side issues, and so this paper addresses some issues on the demand side. It analyses recent changes in discovery, appropriation and commercialisation of drugs, using the neo-Schumpeterian concept of the Selection Environment into which innovations diffuse, and which determine whether they succeed or fail. Creating a market is a social-shaping as well as an economic activity, and the selection environment is a wider and more complex idea than a market. We draw on sociology and anthropology as well as evolutionary economics in our analysis.

Consumers and patient organisations are part of the selection environment, as are the public & private health insurance cos which pay for the drugs and apply price controls or limit reimbursable drugs. So is the regulatory régime which determines whether or not a market can exist , while doctors who test and prescribe new drugs, are intermediaries influencing the innovation’s success. Intellectual property rights are normally associated with the supply side, by encouraging invention, but also affect the demand side: by allowing a firm a monopoly, the establishment of a market for the invention or the IP is encouraged; and discoveries in the public sector may not be implemented at all, if a firm cannot turn it into private property via IPR.

Even the behaviour of innovating firms impacts on the demand side via market-creation activity. Drug firms face many changes in its selection environment, from increased regulatory controls in toxicity, efficacy and pricing, to decreased patent life & the intervention of users, and respond by lobbying governments (on regulations, healthcare provision or the definition of “property”); advertising directly to patients (enlisting them in persuading doctors to prescribe); and buying up prescription management firms. The paper analyses changes in the way in which firms, government agencies and


the public interact with each other and attempt to gain some control over the innovation process.

Keywords HEALTH, GENETICS, BIOTECHNOLOGY, INNOVATION, BUILDING MARKETS, CONSUMERS, USERS

Introduction

In the ideology of early 21st century capitalism, markets are normally presented as the

best, or even the only efficient, means of organising and governing an economic system,

even though, in practice, the market is not always very satisfactory for governing and

co-ordinating behaviour or allocating resources1. Regulations and other non-market

elements may be necessary to make market governance work, while for many activities

it is socially more desirable or economically more efficient to use other modes of

organisation and governance. This paper examines some of the features of the demand

side in the case of the pharmaceutical industry, although I shall also argue that there is

an important interaction between the demand and supply sides.

Much writing in the innovation literature focuses on the supply side, on firms’

development and exploitation of technological opportunities and on the changes in the

organisational forms in which innovation takes place. This is particularly so in

pharmaceuticals, which are an important example of a science-based sector in Pavitt’s

taxonomy2, with more than 15% of sales typically spent on R&D, and may therefore be

seen as not only a science based but a “science-push” sector, highly dependent on basic

and public sector research. This is especially true of developments based on

biotechnology, which appeared long before a market existed for them: indeed the firms

concerned could be said to have created markets for them3. For this reason, and also


because I have focused on the supply side of the pharmaceutical industry in another

recent paper4, this paper examines the demand side of innovation in the pharmaceutical

industry.

While neo-classical or standard economics places its emphasis on markets and market

signals and the way in which they govern the allocation of resources or decisions about

technological change, neo-Schumpeterian or evolutionary economics tends to focus on

entrepreneurship, firm capabilities and other supply side factors. In the latter

framework, the role of the firm is stressed as an actor which takes risks, which

undergoes a learning process, and which develops strategies which are influenced by its

own culture, ethos and guiding philosophy as well as by “objective” knowledge. It is not

just an actor which makes decisions on the basis of profit maximisation, given known

prices of inputs and outputs.

In focusing on the demand side in this paper, I am hoping to redress the balance in

evolutionary economics which tends to neglect markets and demand. I am not

embracing a neo-classical perspective. Evolutionary economics does have the concept

of the selection environment5, which captures the idea of the environment into which an

innovation is launched, and which determines whether or not it will be a success, but

this tends to be neglected relative to the emphasis on firm strategies, structures and

behaviour. The selection environment includes the market, but is a broader concept,

comprising in addition a variety of institutions which determine whether or not a market

can exist or its extent. It is rather complex in the case of pharmaceuticals. It includes

professionals such as doctors who carry out clinical trials and recommend products by

prescribing medicines, and the regulatory system which requires compliance (on safety,


prices and environmental protection) in order for an innovation to be sold. Clearly it

includes the patients who consume the drugs, but also patients’ organisations and

pressure groups which may shape the innovation in various ways, campaign for the

availability of certain drugs, and intervene in the regulatory process.

The analysis in this paper is also intended to explore a rapprochement between

economics and other social science disciplines, especially sociology and anthropology.

The idea of the selection environment is a starting point for this, in that it includes both

the market and the influence of non-market factors such as those mentioned, and thus in

some senses may be said to incorporate ideas about behaviour and culture (the province

of sociology and anthropology) and motivation (the province of psychology) into

economic thinking. Furthermore, the act of market creation is not only an economic but

also a social shaping activity. This paper intends to develop such an interdisciplinary

perspective further.

Demand for medicines

In the 1970s and 1980s, debate about the relative importance of market demand-pull

forces and technology- or discovery-push forces in stimulating innovation6 appeared to

have resolved itself around a consensus that innovation is in fact a coupling process

between technical possibilities or opportunities and market demands or opportunities7,

although at different times in the life cycle of a technology or industry one or other

might be the prime-mover. Radical innovation, for example, is particularly likely to be

initiated by the supply rather than the demand side. But for an innovation to be a

commercial as well as a technical success8, there must be customers who want to buy it

and who have the means to do so.


This suggests that the rational innovator would seek to find out who were likely to be

customers of the innovation, what their needs were, and how the innovation might best

be adapted to meeting those needs. Research in the social sciences, however, shows us

that managers and innovators often believe they “just know” what their customers

want9, while – especially in the case of radical innovations – it may not be immediately

obvious to potential customers that they have needs which might be met by the

innovation. Neither might the innovator know which are likely to turn out to be the most

promising markets or market segments. Innovators may have to take “situated actions”,

actions which have to be adapted to the unforeseeable contingencies of particular

situations, or those which are taken in the context of circumstances which are constantly

changing and can never be fully anticipated10. Where an innovation departs radically

from what is reasonably familiar to potential customers, traditional market research is

not very useful, and markets often have to be created. Innovators do not just introduce

new artefacts into a pre-existing environment on which they then have some impact.

They have to create both inventions and the social and economic environments in which

they can be successful: and then continuously try and mould those environments

accordingly11.

The existence of various illnesses and medical conditions might be considered to

represent a potential demand for drugs to treat them. But the solution may not be a drug

at all, but a reduction in pollution or the provision of clean water. The major part of the

steady drop over most of the 20th century, in infant mortality rates in England and

Wales, for example, was due to improved public health, housing and other living

conditions. Only about a third of the overall decline (important though it was) can be

attributed to new medicines and vaccines12. In any case, a potential demand is not the


same as a market signal, though it may be a motivation for key actors. The gap between

the belief that the existence of a medical condition is an indication of a potential

demand for treatment, and the actual demand that materialises when a product or service

becomes available, was illustrated by Ken Green in the creation of markets for

diagnostics by the active intervention by the innovators13. When biotechnology first

appeared as a potential new technology for the pharmaceutical (and later, other,

industries), the entrepreneurs and investors who first tried to commercialise it

discovered that they had enormously misjudged how long it would take to make profits,

and the conditions that would allow demand to be great enough for products to be

commercially viable.

Users and consumers

According to Eric von Hippel14, users can be prime movers in the innovation process,

while Lundvall writes about the importance of collaboration between users and

innovators15. Customer loyalty, market creation and “lock-in” can all be achieved by

providing technical services or training when a radical innovation is first introduced. In

the case of pharmaceuticals, end users appear at first sight to play little role in the

innovation process. Indeed, they are even divorced from the decision to buy, since it is

the doctor who decisively determines the market for drugs by writing a prescription

specifying a particular product.

However, two recent developments have begun to change this situation. First, sales of

over the counter medicines are of course determined by end users, and drugs are

increasingly becoming available over the counter if they have had a trouble-free period

available on prescription only. Glaxo SmithKline’s Zantac is an example. Second,


manufacturers have begun to promote prescription medicines direct to the public,

especially in the USA where the FDA relaxed broadcast advertising regulations in 1997.

This encourages patients to ask their doctors for branded medicines by name. In the two

years after this change in regulation, 33 products were advertised on US radio or TV (17

of which violated the Food, Drug and Cosmetic Act, typically by inadequate

communication of risks. Just under 20% of 320 advertisements analysed offered a

monetary incentive to the reader for using the promoted drug)16.

Until this latter development in the USA it was common for the very high level of

promotional activity carried out by pharmaceutical firms to be largely invisible to the

general public, and this is still the case in other countries. Pharmaceutical advertising is

aimed mainly at doctors, in the form of ads in medical journals, regular visits by

company representatives, (literally) tons of promotional material sent through the post,

and a huge array of products bearing company logos and product brand names offered

as gifts for doctors to use in their surgeries where they will constantly be reminded of

the drugs’ brand names. In the 1960s, the UK Sainsbury Report17 found that the industry

spent more on marketing than it did on research, while in the USA the Kefauver

hearings reported spending on marketing well over 20% of sales and four times as much

as R&D18. By the 1990s, marketing represented 25% of sales for the industry as a

whole19.

Not only do patients rarely decide which drug to buy, they typically do not pay for their

medicines, either. In most countries, private or public health insurance schemes, or a

mixture of both, reimburse patients for the cost of their medicines. Of course, where

insurance is partially or wholly private, there may be substantial sections of the public


not covered by insurance, typically the poorest. The pattern of separating payment from

consumption, as well as the removal of product choice from the consumer, has been

widespread enough to affect the pattern of competitiveness in the sector decisively.

Price competition has traditionally been rather unimportant in pharmaceuticals, and

firms have tended to compete almost entirely on the basis of new and improved

products.

While the mature period in most engineering and electronics goods sectors is

characterised by cost reduction, minor product variation, design changes and

customisation20, this has not been not the case in pharmaceuticals. Although drug firms

have always produced minor variations on existing medicines both in terms of chemical

variants of active ingredients, and different formulations of dosage forms, a focus on

price reduction through process innovation has not characterised the competitive

strategy of firms in this industry. The strong emphasis on product innovation has been

one of the reasons why the industry was always heavily dependent upon its R&D

activity – to keep the flow of new products arriving – and on its marketing activity to

persuade doctors to prescribe the new brands. In order to keep their profits high and

recoup the costs of R&D, firms have been under pressure to introduce new products

onto the market regularly. High prices are charged for patented and branded drugs, but

once the patent has expired, other firms may make the drugs and sell them under their

generic name at a much lower price.

This, too, is an aspect of the selection environment (and supply side) for drugs which

may be changing. Pisano (1997)21 has argued that radical changes in the market and

technological environments of the pharmaceutical industry since the 1980s have now


begun to emphasise the important strategic role of process development and

manufacturing capabilities for an industry which had traditionally competed on the basis

of introducing new products alone.

Given that public or private insurance pays for most drugs, the structure of the market is

oligopsonistic or even monopsonistic. This is increasingly the case even in the USA,

where health care and health insurance is largely in the private sector, as a result of the

increased importance since the mid 1990s of Health Management Organisations, which

are linked to the health insurance firms and provide healthcare for about half the US

population (70% of employer health plans). Many of them have generated prescription

management firms as subsidiaries, and these are in a strong position to negotiate

discounts from pharmaceutical firms competing for their products to be included in the

prescription management firms’ formulary lists22. Some pharmaceutical firms attempted

to redress this balance of power in the 1990s, by buying prescription management firms:

for example Merck bought Medco Containment Services in 1993, Smith Kline Beecham

bought Diversified Pharmaceutical Services in 1994, and Eli Lilly bought PCS Health

Systems in 199523.

The price of drugs is strongly controlled or even set by national authorities in most

OECD countries. The economically advanced countries, apart from the USA, all have

some kind of national healthcare system which is partially or wholly publicly funded.

This means that the public sector is a major customer, directly or indirectly, of the

pharmaceutical industry. In the years following World War II when these systems were

established, the guarantee, to some extent, of a market for drugs was an important factor


in stimulating innovation24, somewhat like the support given to the early

microelectronics industry by defence procurement.

Public policy and public opinion

Any technology which has or is seen to have moral or ethical implications can generate

public concern, and public opinion and political pressure are very important in matters

concerning health. The result is that aspects of the demand side of pharmaceuticals can

be highly politicised. Firms in the pharmaceutical industry have tried to participate in

the political process through the influence and lobbying of their various industry

associations. The major European pharmaceutical and chemical firms, for example,

allocate resources to lobby governments and the European Commission concerning

regulatory matters. This has been particularly important in relation to intellectual

property rights in areas involving living material, and regulations concerning

biotechnology-based products. The Senior Advisory Group on Biotechnology (SAGB),

for example, was established by the Council of the Chemical Industries in Europe

(CEFIC) and made up of representatives of all the large firms in the industry with

biotechnology interests25, with the remit of producing information and lobbying

decision makers to encourage them to take decisions that were as close to the interests

of the industry as possible, especially concerning environmental, product safety,

intellectual property and other regulations governing biotechnology based products,

processes and services.

Campaigning and pressure groups such as Greenpeace, Friends of the Earth, consumer

organisations, “right to life” and “right to choice” groups, are in a position to play a

significant role, while the media not only reflect but also influence public opinion, and


hence play a part in market shaping. Even though (or perhaps because) consumers rarely

make the decision about which drug they will use or pay for it, they have managed to

play an increasing role in shaping innovation. They are increasingly active in patients’

organisations which not only provide support for others with similar conditions, but

fund – and therefore shape the direction of – research, and they lobby public authorities

over ethical aspects of health care or access to treatment, in some cases achieving

changes in evaluation protocols. In an extreme example of consumer intervention in

innovation, the father of a boy suffering from the fatal genetic disease

adrenoleukodystrophy, himself invented a treatment which became known as

“Lorenzo’s Oil”26

Steven Epstein27 shows that lay AIDS activists challenged the clinical trial as a “black

box”, and by insisting on their rights and claims as patients, were able to change a

central feature of biomedical practice. Eveleen Richards28, has also analysed non-

experts’ participation in biomedical assessment and decision-making, in this case in the

controversy over vitamin C as an anti-cancer agent. Michel Callon and Vololona

Rabeharisoa29 studied AFM, the French Muscular Dystrophy Association which plays

an active role in the co-production of knowledge. Patients and their families have not

only retained control over the association since it was set up in 1958, but also over the

direction of research. They identify three different kinds of organisation, classified by

their relationship with medical and other professionals and their attitude to expertise.

Stuart Blume30 writes about patients who reject the scientific or medical community’s

definition of their state as a threat to their identity, citing the case of deaf people who

refuse cochlear implants.


One of the pioneers in developing the oral contraceptive, biologist Gregory Pincus31,

was strongly influenced by the birth control movement in America. It was more of a

political or pressure group than a patients’ organisation, but it claimed to represent the

interests of potential users. Its campaigners urged Pincus to seek a biological means of

avoiding pregnancy, and funded his research32. One of these, Katherine McCormack,

was more than an absentee benefactor but became actively involved in management of

the project33.

Table 1 gives the percentage of R&D funding coming from sources that were neither

government nor industry. This was as much as 23.6% in the UK, and was 8.8% in

France, 8.5% in Japan, 5.0% in Italy, 4.8% in the USA and 2.5% in Germany in 2001.

This is the category which includes charitable trusts and patients’ organisations, and

indicates that the level of funding, and therefore of innovation shaping, from such

organisations is not trivial.

The regulatory environment

Pharmaceuticals are an important group of products whose market cannot exist without

the approval of regulatory authorities. Firms have to prove their products’ safety and

efficacy, and sometimes that they represent a significant improvement over products

already available, in order to get a license to sell them from a national licensing

authority such as the Food and Drug Administration in the USA, or the European

Medicines Evaluation Agency which approves drugs throughout the EU. In some

countries drug firms are able to build up relationships over long periods of time with the

regulatory authorities, which has the advantage of enabling them to know what tests are

required and how to manage the whole process of steering a new product through


toxicity evaluation and clinical trials; and the disadvantage of reducing objectivity in the

event of a crisis. The UK Department of Health, and the Committee on Safety of

Medicines, were criticised in the 1980s for a too “cosy partnership” with the drug

industry which lead to “complete paralysis of action” in a crisis. The crisis in question

was that concerning the drug opren, which was withdrawn after being found to cause

serious side effects34. There have been some heated debates in the literature about

regulations and their implementation, and whether regulations are too strict, delaying

patients’ access to drugs which might prevent suffering and death, or too lax, enabling

drugs with severe side effects to reach the market. The scandal in the 1950s around the

drug thalidomide, which was intended to prevent nausea in pregnancy but caused foetal

malformation, was the event which gave the impetus to a series of government reports

or hearings followed by new legislation tightening up the requirements for drug firms to

test their new products (such as the 1959 Kefauver-Harris amendment to the US Food

Drug and Cosmetic Act (1938), or the Medicines Act (1968) in the UK).

The profitability of the pharmaceutical industry is normally justified in terms of the high

cost of bringing a new drug to market, the number of new products that have to be made

for every drug that successfully meets all the requirements of the regulatory system and

is approved for marketing, and the fact that the pharmaceutical industry funds most of

its own research, in contrast to some other high tech sectors (electronics, aerospace)

which receive substantial amounts of government funding. However, many of the new

chemical entities made in the search for new drugs are rejected before going through the

whole range of animal and clinical tests, that is, before the highest development costs

will have been incurred. In addition, Nader and Love (1993)35 calculated that if the

number of new drugs are classified according to novelty and therapeutic value,


governments pay for a much higher proportion of the R&D costs of the most significant

drugs.

“Good Citizens”

The building of inter-firm and inter-organisational alliances has been motivated by

firms’ needing to tap into and embed themselves in the different national systems of

innovation, not only for supply side reasons (eg to make the best use of the science and

technology infrastructure, tax-breaks and other favourable government policies) but also

for demand-side reasons. By becoming recognised as an established part, and “good

citizens” of the countries in which they sell their products, firms may shape and

influence their selection environment, notably by influencing the policies of

governments that affect markets, prices and regulatory régimes, as well as carry out the

more traditional activities of establishing links with lead users and compliance with

regulatory requirements necessitating local trials36.

Intellectual Property Rights

An efficient intellectual property system is intended to encourage innovators by

ensuring that they can make a profit from their discoveries and their investments. But it

has an impact on the market, too, since patenting a technology establishes a market, or

the possibility of a market, in what is patented, or in the patents themselves (eg via

licensing or cross-licensing agreements). Strong patent protection allows a firm to have

a monopoly, and therefore to charge monopoly prices for a limited period, while freely

available technology may not be implemented at all, if a firm cannot protect its ability to

generate a revenue from its discoveries. Andrew Tylecote and Paulina Ramirez argue37


that appropriability, or the ability of intellectual property and other frameworks to

ensure that the profit from innovation accrues mainly to the shareholders of the firm, is

one of three major challenges for financial and corporate governance systems. They

suggest that patenting is an effective means of intellectual property protection in

pharmaceuticals. Other research suggests, however, that pharmaceutical firms have had

to rely on a variety of other means of appropriating knowledge.

In recent years there has been a considerable expansion of what can be considered

intellectual property, and therefore subject to protection via patents, trademarks and

copyrights. Of particular relevance to pharmaceuticals are the rapid changes over the

past 25 years in what the public expects and accepts in IPRs, especially covering

biotechnology38. These have been extended to cover life forms such as novel plants,

genetically modified organisms and genetic sequences, despite opposition especially to

the latter. In addition, trademark law has evolved from an emphasis on protecting

consumers from ‘fakes’ to the protection of manufacturers from competition39, while

new methods of appropriation of resources or knowledge have been adopted, including

exclusive-use contracts, private databases covered by the terms of commercial

confidentiality, and the Co-operative Research and Development Agreement (CRADA)

introduced in the USA under the Federal Transfer of Technology Act (1986). The first

two have been used to appropriate collections of genealogical and medical data, then

used to add value to gene sequence information in the development of diagnostics and

therapies40. CRADAs and trademarks have been invoked in commercialising public

sector research, as in the case of the anticancer drug taxol41. Elsewhere I have discussed

the problems of IPR where the innovation process is cumulative over time and/or

distributed over multiple actors42. Establishing intellectual property rights and extending

�� Need to check that this is not repeating what is written elsewhere, and if it is, which to delete.


their scope (both geographically and in terms of what constitutes ‘property’), is one way

of privatising what was once in the public domain, or the property of a community, and

of creating markets in those areas. Legal and policy changes designed to encourage the

commercialisation of the output of public sector research (eg the Bayh-Dole (1980) and

Federal Transfer of Technology (1986) Acts in the USA) has not only encouraged the

collaboration of academics with existing firms, but also the establishment of new firms

by academics.

Barriers to Market Entry

Alice Sapienza (1989)43 talks about the barriers to entry for new firms in

pharmaceuticals markets. One of the major barriers is the regulatory procedure a drug

must go through in order to undergo clinical trials and then to reach the market. Only

the major firms can afford the sort of investment necessary to demonstrate that its

products meet safety and efficacy regulations, or will have built up the networks of

relationships with the doctors who carry out trials and subsequently recommend

products, or with the regulatory authorities and licensing bodies with whom they

negotiate the tests required for approval, or the prices to be charged and the conditions

under which the product may be used.

Another barrier to entry is the patenting procedure firms follow. The cost and

expertise required in taking out patent protection in all the countries where the new

product might be sold is beyond the means of smaller firms. Meanwhile, patents are

taken out before starting the procedure of trial and compliance with regulations, leaving

only a short time in which to recoup their investment, by marketing the product as

widely as possible in international markets, another activity requiring accumulated


experience and investment of resources usually limited to the largest firms. The third

barrier to entry is the marketing and distribution network (see above for costs relative to

R&D), and the fourth barrier to entry is the creation or acquisition of new knowledge

necessary for a competitive strategy based on product innovation: the level of

investment in R&D to generate new products and to enable knowledge to be acquired

from outside the firm. The drug firms with the best in-house scientific research are the

best able both to make efficient use of internal R&D and successfully exploit external

knowledge (Gambardella 1992) 44.

Interaction with the supply side

Managers and R&D staff in the innovating firm, normally considered as part of the

supply side, make selections and choices based on their experience and assessment of

what is likely to work or to be accepted by customers. In this way a degree of

interaction or a blurring of boundaries exists between the supply and the demand sides.

Sociologists working in the framework of actor-network theory have developed this

point by discussing the simultaneous construction of a product or a technology and the

market for it. Lead users, for example, may adapt the prototype of an innovative product

to meet their own needs better, or provide feedback to the innovators who will make

adjustments, while at the same time adapting their own practices, relationships and

related products to make better use of the prototype, and enlisting new potential users

by means of a demonstration effect. The market is created and shaped at the same time

as the technology is modified, and there is a blurring of the distinction between “early

adopters” and “late designers”45.

This kind of adjustment between the supply and the demand sides, however, works


better with an innovative project or system where the lead users can actually get their

hands on and adjust the prototype – such as a road guidance or telecommunications

system or something else which is “designed”. The pharmaceutical industry, which

bases its discovery processes on chemical technology and biotechnology, tends to have

a different relationship to the innovation and the innovator than is the case with

mechanical and electronic example, and do not modify the product to suit their needs in

quite the same way, (except where they may be concerned with innovation in

instruments, equipment, control systems, or chemical plant).

Instead, various users and stakeholders along the supply chain (such as doctors, health

care services, insurance companies, patients’ organisations, pharmacists, public interest

campaign groups and regulatory bodies) play a role in shaping products and services

typically by making demands of the supplier - the innovating firm - rather than playing

the part of “lead users” in the way that users of IT products and services (for example)

might do. They also shape markets by their own acceptance, recommendation,

opposition, reassurance, raising of concerns or campaigning, as the case may be. The

nearest to a conventional lead user is the medical consultant who carries out clinical

trials, provides feedback to the innovator, and may modify dosages or methods of

delivery.

Conclusions

Clearly consumers, potential consumers and consumer organisation are part of the

selection environment, as are the public and private healthcare organisations which pay

for treatment and which try to reduce the drugs bill via direct price controls or limits to

the range of drugs that may be reimbursed. In addition the regulatory régime is a part of


the selection environment, since it determines whether or not a market can exist in the

first place, while doctors test new drugs, write prescriptions, inform consumers and

raise areas of concern, thereby acting as intermediaries who influence the success or

otherwise of the innovation both directly and indirectly. The intellectual property

régime is normally associated with the supply side, since it is intended to encourage

inventors to invent, but I have argued that it also affects the demand side in an important

way, by enabling the creation of markets for drugs. The behaviour of innovating firms is

a major part of the supply side, but one which interacts significantly with the demand

side through the firms’ market-creating activities.

The pharmaceutical industry has experienced changes in all aspects of its selection

environment, from increased regulatory controls in toxicity, efficacy and pricing,

decreased patent life, and the intervention of users in various ways, to which it has

responded by actively lobbying governments (on regulatory requirements, healthcare

provision, or what may be covered by intellectual property protection); bu advertising

directly to patients (who are enlisted into persuading doctors to prescribe); and (in the

USA) by the acquisition of prescription management firms. The paper has begun a

process of analysing all these changes in the way in which firms, government agencies

and the public interact with each other and attempt to gain some control over the

innovation process, in which moves by one are both cause and consequence of changes

in direction by each of the others.


Table 1 R&D Resources by Source of Funds. 1985 and 2001

Country Year Government Industry Other Total

USA 1985 48.3 50.0 1.7 100%

2001 30.2 68.3 4.8 100%

UK 1985 43.4 46.0 10.5 100%

2001 30.2 46.2 23.6 100%

Japan 1985 19.1 74.0 6.9 100%

2001 18.5 73.0 8.5 100%

France 1985 52.9 41.4 5.6 100%

2001 38.7 52.5 8.8 100%

Germany 1985 36.7 61.8 1.5 100%

2001 31.5 66.0 2.5 100%

Italy 1985 44.7 51.7 3.6 100%

2001 51.1 43.9 5.0 100%

Source: OECD, 2003: Main Science and Technology Indicators, Organisation for Economic Cooperation and Development, Paris


NOTES

1 Richard Nelson, 2000: On the complexities and limits of market organisation. Paper presented at the CRIC Workshop on Market Relations and the Competitive Process, Manchester-UMIST Centre for Research on Innovation and Competition, Manchester May 4-5. To be published in a book edited by J. Stanley Metcalfe & Alan Warde, by Manchester University Press.

2 Keith Pavitt, 1984: Sectoral Patterns of Technical Change: Towards a Taxonomy and a Theory, Research Policy, 13 (6) , pp. 343-373.

3 Ken Green, 1992 : Creating demand for biotechnology : shaping technologies and markets. In Rod Coombs, Paolo Saviotti & Vivien Walsh (eds) Technological Change and Company Strategies. London: Academic Press.

4 Vivien Walsh, 2004 : Paradigms in the evolution of life sciences research, and the changing structure of the innovative organisation. To be published in Karl Grandin (ed) Science and Industry in the Twentieth Century, Science History Publications, Canton, MA. 5 For example, Richard Nelson & Sidney Winter, 1982: An Evolutionary Theory of Economic Change, Harvard University Press. 6 eg Vivien Walsh 1984 : Invention and Innovation in the Chemical Industry: Demand-Pull or Discovery-Push, Research Policy, 13, pp. 211-234. 7 eg Wendy Faulkner and Jacqueline Senker, 1995 : Knowledge Frontiers: public sector research and industrial innovation in biotechnology, engineering ceramics and parallel computing. Clarendon Press, Oxford, pp 206-211.

8 Christopher Freeman, following Joseph Schumpeter, defines innovation so as to capture two notions : technological novelty and commercial transaction, contributions of both the supply and the demand sides. Freeman 1982: The Economics of Industrial Innovation, London: Frances Pinter p 7.

9 Madeleine Akrich, 1995: User representations, practices, methods and sociology. Pp 167-184 in Managing Technology in Society: the approach of constructive technology assessment, edited by Arie Rip, Thomas Misa and Johan Schot. London: Pinter Publishers.

10 Lucy Suchman, 1987 : Plans and Situated Actions : the problem of human-machine communication, Cambridge: Cambridge University Press.

11 Michel Callon calls such innovators « engineer-sociologists ». Callon 1987: Society in the making: the study of technology as a tool for sociological analysis. In W. Bijker, T. Hughes and T. Pinch (eds) The Social Construction of Technological Systems. Cambridge, MA: MIT Press.


12 Bryan Reuben and Mike Burstall, 1973 : The Chemical Economy, London: Longman, p 340

13 Ken Green, 1992 : Op Cit note 3.

14 Eric von Hippel, 1988 : The Sources of Innovation. New York: Oxford University Press.

15 Bengt-Åke Lundvall, 1995 : The social dimensions of the the learning economy, Inaugural Lecture, Department of Business Studies, Ålborg University, November 10th.

16 Lexchin, J. & Mintzes, B., 2002: Comments to the Food and Drug Administration on Direct-to-Consumer Advertising of Prescription Drugs. www.fda.gov/ohrms/ dockets/dailys/02/Sep02/091302/02N-0209_emc-000108-01.DOC. 17 The Sainsbury Report, 1967: Report of the Committee of Inquiry into the relationship of the pharmaceutical industry with the National Health Service. Cmnd 3410. London: HMSO. 18 Jordan Goodman, 2000 : Pharmaceutical industry. In J. Pickstone & R. Cooter (eds) Medicine in the Twentieth Century. Harwood Academic Publishers, London, 143-156.

19 Tarabusi and Vickery 1998 : Globalisation in the Pharmaceutical Industry. International Journal of Health Services, 28 (2) 281-303

20 Utterback, J.M., 1994: Mastering the Dynamics of Technological Change, Harvard Business School Press, Boston, MA, p xvii

21 Pisano, G., 1997: The Development Factory: Unlocking the Potential of Process Innovation. Harvard Business School Press, Boston, MA.

22 Scrip Magazine, May 1996, 36-37.

23 G.M. Taber, 1995: Remaking an industry: Drug makers have an urge to merge as they try to get their profits back up. TIME Magazine, 146 (10), 4 September, p 1. 24 Vivien Walsh, Paulina Ramirez and Gindo Tampubolon, 2000 : La mondialisation de l’activité innovatrice dans l’industrie pharmaceutique. In M. Delapierre, P. Moati & E. Mouhoud (eds) Connaissance et Mondialisation, Economica, Paris. English version available as mimeo (‘Globalisation of innovation in the pharmaceutical industry’).

25 Eg SAGB 1990: Economic Benefits and European Competitiveness, CEFIC, Brussels.

26 David Concar, 2002: Lorenzo’s Oil finally proven to work. New Scientist.com news service 26th September. Accessed 18.8.04.

27 Epstein, S., 1995: The construction of lay expertise: AIDS activism and the forging of credibility in the reform of clinical trials. Science, Technology & Human Values, 20 208-437; Ibid, 1996: Impure Science: AIDS, Activism and the Politics of Knowledge. University of California Press, Berkeley; Ibid, 1997: Activism, drug regulation, and the


politics of therapeutic evaluation in the AIDS era: a case study of the ddC and the “surrogate markers” debate. Social Studies of Science, 27, 691-726.

28 Eveleen Richards, 1988: The politics of therapeutic evaluation: the vitamin C and cancer controversy. Social Studies of Science, 18, 653-701; Ibid, 1991: Vitamin C and Cancer: Medicine or Politics. Macmillan, Basingstoke.

29 Michel Callon, & Vololona Rabeharisoa, 2003: Research “in the wild” and the shaping of new social identities, Technology in Society, 25, 193-204. See also Rabeharisoa, V. & Callon, M., 2001: The involvement of patients in research activities supported by the French Muscular Dystrophy Association. In S. Jasanoff (ed) States of Knowledge: Science, Power and Political Culture. Chicago University Press, Chicago, IL.

30 Stuart Blume, 1997: The rhetorics and counter rhetorics of a “bionic” technology. Science, Technology and Human Values, 32, 51-6.

31 Gregory Pincus, 1965: The Control of Fertility, London, Academic Press.

32 Pincus first received a grant from the Planned Parenthood Federation of America (Reed 1984) and then Katherine McCormack funded his work to the tune of over $2 million altogether (Marks 2001: 56), from her farm machinery business (Seaman & Seaman 1978). B. Seaman & G. Seaman, 1978: Women and the Crisis in Sex Hormones, Harvester Press, New York. Lara Marks, 2001 (see next ref). James Reed, 1984: The Birth Control Movement and American Society: From Private Vice to Public Virtue. Princeton University Press, Princeton, NJ.

33 Lara Marks 2001: Sexual Chemistry, Yale University Press, New Haven pp 53-59

34 F. Lesser, 1983 : Drugs monitor needs sharper teeth. New Scientist, March 17th. 35 Nader, R., and Love, J., 1993: Federally Funded Pharmaceutical Inventions. Testimony before the Special Committee on Aging, United States Senate, February 24.

36 Vivien Walsh, Paulina Ramirez and Gindo Tampubolon, 2000 : La mondialisation de l’activité innovatrice dans l’industrie pharmaceutique. In M. Delapierre, P. Moati & E. Mouhoud (eds) Connaissance et Mondialisation, Economica, Paris. English version available as mimeo (‘Globalisation of innovation in the pharmaceutical industry’).

37 Tylecote and Ramirez 2004: Hybrid corporate governance and its effects on innovation: a case study of AstraZeneca. Technology Analysis and Strategic Management, 16 (1) 97-119.

38 Maurice Cassier 2002: Private Property, collective property and public property in the age of genomics, International Social Science Journal, n° 171, p 83-98; Cori Hayden, 1998: A biodiversity sampler for the millennium. In Franklin, Sarah & Ragoné, Helena (eds) Reproducing Reproduction: Kinship, Power and Technological Innovation. Philadelphia, PA: The University of Pennsylvania Press.


39 Rosemary Coombe,1998: The Cultural Life of Intellectual Properties: Authorship, appropriation and the law. Durham, NC: Duke University Press, p 53

40 Gísli Pálsson and Kristín Har�ardottir, 2002: For Whom the Cell Tolls: Debates About Biomedicine Current Anthropology, April. Hilary Rose, 2001: The Commodification of Bioinformation: the Icelandic Health Database. London: The Wellcome Trust.

41 Walsh, V., & Goodman, J., 2002: From taxol to Taxol�: the changing identities and ownership of an anticancer drug. Medical Anthropology, 21, 307-336.

42 Vivien Walsh, 2004 : see ref 4.

43 Sapienza, A., 1989: R&D Collaboration as a Global Competitive Tactic: Biotechnology and the Ethical Pharmaceutical Industry. R&D Management, 19 (4) 285-295.

44 Gambardella, A., 1992: Competitive advantages from in-house basic research, Research Policy, 21, 391-407.

45 Eg Vincent Mangematin and Michel Callon, 1995 : Technological competition, strategies of firms and the choice of the first users : the case of road guidance technologies. Research Policy, 24, 441-458. Madeleine Akrich, ref 9.

CHANGING RELATIONSHIPS BETWEEN THE PHARMACEUTICAL INDUSTRY AND ITS SELECTION ENVIRONMENT

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