22 Apr 2009Working Paper Summaries

Where is the Pharmacy to the World? International Regulatory Variation and Pharmaceutical Industry Location

by Arthur Daemmrich
The era of paternalistic medicine has passed, but the notion that patients can act as consumers and make appropriate decisions concerning medical treatment poses countervailing risks of its own. A better accommodation among key players needs to be struck to foster the safe use of pharmaceuticals, according to HBS professor Arthur Daemmrich. The "pharmacy to the world," once located at the intersection of Germany, Switzerland, and France, today is found in the United States. Studies of the industry have attributed this sustained competitive advantage to a variety of factors, including U.S. intellectual property policies, funding for biomedical research through the National Institutes of Health, the absence of government controls on drug prices, and the availability of venture capital and other factors that fostered the growth of the biotechnology industry. The data and analysis presented in this working paper, however speculative, are an initial step toward deepening the understanding of interrelationships between government regulation, patients' mobilization both as regulators and as consumers, and the functioning of the pharmaceutical industry. Key concepts include:
  • An open question is whether the current "pharmacy to the world" of the United States will lose ground to competitors from developing countries, especially India and China.
  • Regulation plays a role in the success and failure of the pharmaceutical industry.
  • The consumer mode that has emerged in the United States has proven easy to manipulate for the industry, as in cases of corporate-financed organizations claiming to be self-organized by patients.
  • The consumer mode in the United States has also driven a focus on disease prevalent in wealthy countries, to the detriment of research into HIV/AIDS, malaria, and other ailments prevalent in the developing world.
  • The combination of public attention to drug prices, health concerns from product withdrawals due to adverse reactions, and criticisms of the failure to deliver medicines to patients in developing countries pose significant challenges to the industry and regulators.
  • The emergence of a consumer model of regulation poses a number of critical, unresolved questions about the longer-term role of government, industry, the medical profession, and citizens.

Author Abstract

A consumer-oriented model for drug development and use has attracted attention in recent years as an alternative to the much-maligned approach of mass-marketing blockbuster drugs. In a parallel development, patients and disease-based organizations have assumed greater roles in defining disease categories than in the past and now influence clinical trials and participate in regulatory decision-making. Yet these developments are far from universal and are taking very different forms around the world. Building on data showing that pharmaceutical firms headquartered in the United States have performed well since 1980 when compared to firms in Europe or Asia (measured both by sales and by numbers of new product introductions), this essay explores the interplay of regulation, definitions of "patient" and "consumer," and centers of power for the pharmaceutical industry. A comparison of the United States and Germany in particular, and the United States and European Union more generally, suggests that how countries resolve tensions between protecting patients and empowering consumers will impact the international competitive standing of their domestic pharmaceutical industries. 22 pages.

Paper Information

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