The world pharmaceutical Industry, with sales exceeding $200 billion in the mid-1990s, is one of the world's most dynamic industries^l. It is extraordinarily research-intensive, devoting approximately 15 per cent of its sales revenues to research and development and generating as a consequence numerous new products that expand the arsenal of physicians' weapons against disease. It is also one of the most regulated private-sector industries. In recent decades national and supra-national governments have implemented widely varying and rapidly changing regulatory policies to influence the behaviour of member companies. In response to these policies and other environmental shifts, the Industry is beginning to undergo important structural transformations.

¹ For an extensive compendium of data, see BALLANCE et al. (1992).

Comprising the Industry are a large number of companies with home bases in many of the world's industrialized and emerging nations. In the United States alone, the Pharmaceutical Manufacturers Association in 1994 included 47 members of U.S. origin plus 16 major subsidiaries of foreign companies². In addition to these, there are dozens of typically small biotechnology companies who have not yet marketed drug products, and hence are not considered mainstream pharmaceutical Industry members. The leading companies are characteristically multinational, extending their reach through direct foreign investment and exports outside their home markets. Figure 1 provides an overview of national origins, attributing the sales in nine leading industrial nations during 1985 to the countries in which the companies making those sales (through both on-shore production and exports) had their headquarters³. By a substantial margin, U.S.-based companies commanded the largest share of sales (43 per cent) within the nine sampled nations, with Japanese companies ranking second and German firms third.

² In 1995, the «PMA» was renamed the Pharmaceutical Research and Manufacturers Association.
³ The data are drawn from THOMAS (1996).

FIGURE 1. - National companies' shares of nine-nation market

Source: THOMAS, 1996

Figure 2 offers a different perspective, tallying the sales of companies by national origin outside their home markets as a percentage of their total nine-nation sales in 1985 (THOMAS, 1996). Powerful firms such as Hoffmann LaRoche and Ciba-Geigy with a home base in the relatively small Swiss market secure more than 90 per cent of their sales abroad. Drug makers in the small Swedish and Dutch markets also depend heavily upon external sales. British and German pharmaceutical houses are distinctive in achieving more than half their sales outside their relatively large home markets. Japanese companies enjoyed a 20 per cent nine-nation market share (Figure 1) almost entirely through home market sales, which reached high volumes in part because of the large home population and partly because physicians in Japan, deriving a substantial fraction of their incomes from the direct sale of drugs to their patients, write an extraordinarily high average number of prescriptions per patient (BALLANCE et al., 1992). Sales in markets other than Japan accounted for less than 1 per cent of Japanese companies' nine-nation total sales.

Despite the extensive multinationality of leading manufacturers' operations, it would be an exaggeration to say that the market for pharmaceutical products is world-wide in scope, as it is, say, for semiconductors or crude oil. Rather, individual national markets are insulated to a considerable degree from world supply and demand phenomena by differences in regulatory regimes, the methods national health authorities use to procure supplies and contain costs, physician prescribing proclivities, and other barriers to international trade⁴. In this paper I will pay particular attention to the regulatory dimension.

⁴ Among other things, this has led to consternation by European Union competition policy authorities over the wide discrepancies in drug prices among Common Market nations and the failure of parallel imports to remedy the situation. In 1995, the EC Commission levied fines on Bayer AG for its actions inhibiting parallel imports of its calcium channel blocker Adalat from Spain and France to the United Kingdom. The case record shows that the wholesale prices of Adalat in Spain were 35 to 47 per cent lower than in the U.K., while French prices were 24 per cent lower. Commission decision on Adalat, Case IV/34.279/3 (1995). For an address anticipating such Commission interventions, see BRITTAN (1992).

FIGURE 2. - Fraction of company sales outside home market

Source: THOMAS 1996.