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Research Policy 30 2001.

535588
www.elsevier.nlrlocatereconbase

The dynamics of technological innovation: the case of the


pharmaceutical industry
Basil Achilladelis a,) , Nicholas Antonakis b
b

a
39, Ionias Street, Kifissia, Athens 14563, Greece
Ministry of Deelopment and Uniersity 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 innovation 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 innovations new medicines. commercialized between 1800 and
1990, and on company economic data for the period 19501990. The study is presented in the framework of established
macroeconomic theory of technical change.
Applying both empirical and historical evidence, the study: a. identifies the technological, social and economic driving
forces for TI; b. examines the relation between originality and market performance of medicinal innovations; c. studies the
mechanisms of the diffusion of medicinal technologies that led to the formation of five successive generations of drugs long
waves.; d. describes the structural changes forced on the pharmaceutical industry by the introduction and development of
each successive generation of drugs; 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; and 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 innovation TI. is a dynamic process, perhaps the most dynamic of all industrial
activities. Schumpeter 1943. with his Agales of creative destructionB gave a vivid description of the
effects of the introduction and diffusion of major
)

Corresponding author. Tel.: q30-1-800-01-52; fax: q30-1800-01-52.

technological discoveries and inventions in industry


and the world economy.
Schumpeters seminal theory was further elaborated at the macroeconomic level by many authors
e.g., Freeman, 1996., notably Rosenberg 1969,
1976., Nelson and Winter 1977., Dosi 1982., Freeman and Perez 1988., who, by incorporating Kondratievs 1925. theory of Along wavesB in the
world economy and Kuhns 1962. theory of scientific revolutions, introduced the concepts of Atechno-

0048-7333r01r$ - see front matter q 2001 Elsevier Science B.V. All rights reserved.
PII: S 0 0 4 8 - 7 3 3 3 0 0 . 0 0 0 9 3 - 7

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B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

logical imperativesB or Atechnological paradigmsB


TPs., which initiate Atechnological trajectoriesB
TTs. whose pathways determine the fluctuating rates
of technical change. TT were, in turn, found to
cluster together forming Atechnology systemsB and
Atechno-economic paradigmsB which, by spreading
across numerous industrial and service sectors, cause
the formation and succession of Along wavesB in the
world economy.
These concepts provided an extremely useful
framework for the study of TI, which offered a
number of plausible macroeconomic interpretations
regarding the fluctuations of the rates of technical
change, the diffusion of technologies and their interactions with the economy. Less attention was, however, addressed at the microeconomic aspects of
technological advance, notably the dynamics of TI at
the level of innovating institutions where they are
first expressed and can be more accurately detected
and evaluated. Indeed, the dynamism of TI is expressed in more subtle ways before it integrates into
Atechno-economic paradigmsB and Along wavesB.
For example, TI acts as a catalyst in the interaction
of science and technology accelerating their otherwise arduous advance, in the technological development and market expansion of industrial sectors, in
the research intensity, technological specialization
and business performance of industrial companies,
and in the competitive advantage of national industries.
The mechanisms by which TI exerts such influence can be identified and evaluated by studies of
the technological and business histories of researchintensive industrial sectors. Long-term sectoral studies of TI offer the advantage of a homogeneous
scientific, technological and commercial framework
which allows for the study of the rates of technical
change and for comparisons in science, technology
and business among historical periods, companies
and countries. The use of technology inputroutput
indicators is essential because they provide quantitative evidence for or against any proposed hypothesis.
This is a study of the dynamics of TI in the
pharmaceutical industry from its establishment at the
beginning of the 19th century to 1990. The pharmaceutical industry is a relatively small research-intensive industry that showed a consistently strong innovative record throughout its 200-year-long history.

From its establishment to this day, it has maintained


a close and fruitful two-way relation with academic
research institutions in chemistry, pharmacology, the
life sciences and medicine. The succession of technologies did not create waves but only ripples of
creative destruction because leading companies were
flexible enough to adapt to the exigencies of the new
regimes and even to prosper from them. A thriving
and extremely profitable business was created with
some of its innovations becoming household names
for nearly a century and others having deeply affected the nature, structure and morals of our society.
Indeed, in this latter aspect, there is no other industry
that had a comparable effect.
The study is presented in the following three
sections.
Section 2 describes the sources and assesses the
data used in the study.
Section 3 presents an empirical study of the dynamics of TI in the pharmaceutical industry in the
framework of established theory of technical change.
a. Driing forces of TI. TI involves scientificr
technological and commercial uncertainties and hence
the acceptance of financial risks on the part of public
and private innovating institutions. It is, therefore,
essential to identify the scientific, technological, social and economic forces that have compelled the
pharmaceutical industry throughout its long history
to discover, develop and commercialize new
medicines.
b. Dynamic effects of radical innoations (RIs).
Highly original innovations cause the establishment
of new industrial sectors or subsectors and contribute
to the diffusion of technology. The pharmaceutical
industry is not an exception to this rule. In our
analysis, we examine the technological and commercial characteristics of RIs, which impart to them their
dynamic properties, and investigate the companies
justifications in accepting the higher risks associated
with their development and commercialization.
c. Diffusion of innoation. The 200-year-long
innovation history of the pharmaceutical industry is
unique in manufacturing. To identify the dynamics
and mechanisms by which it maintained a nearly
continuous drive for innovation over such a long
period, we examine the patterns of distribution over
time of radical and incremental innovations IIs. by
therapeutic sector; we identify the characteristics of

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

innovations that served as TPs and of the TTs they


generated; and we find that the clustering of TPs and
trajectories gave rise to five successive generations
of pharmaceuticals that have kept alive the industrys
drive for innovation.
d. The innoatie performance of pharmaceutical companies. Our innovation data show that 30
companies introduced more than 70% of all the
innovations of our sample. Most of these companies
stayed in business for about a century despite the
revolutionary changes of the competitive environment of the pharmaceutical industry caused by the
introduction of successive generations of technology.
We examine the patterns of growth of some of these
companies, their innovation records, and the strategies they adopted to ensure growth including technological and market specialization, mergers and acquisitions and R & D intensity.
e. The geography of innoation. Despite the
universal need for medicines, our data show a strong
concentration of the innovative segment of the pharmaceutical industry in five countries, namely the
USA, Germany, Switzerland, the UK and France.
We examine the causes of this concentration and in
particular the influence of national policies on the
intensities of the driving forces of TI.
Section 4 presents an interpretation of the history
of innovation in the pharmaceutical industry from
the beginning of the 19th century to 1990 based on
the findings and analysis of the previous section.

537

TI. To this end, we identified all the innovations


1736. of 16 subsectors of the pharmaceutical industry described in Martindales Pharmacopoeia Reynolds, 1989., which account for about 80% of all
subsectors Table 1.. The chemical structure and
composition of each drug were obtained from the
USAN and USP Dictionary of Drug Names Fleeger,
1994.; tradenames, innovating companies and years
of commercialization were obtained by crosschecking the above references with the Worlds Pharmaceutical Directory Anon, 1991.. To ensure against
omissions of significant drugs, we cross-checked our
lists with those of the USA Food and Drug Administrations FDA. Center for Drug Evaluation and
Research U.S. Department of Health and Human
Services, 1989.; with the American Medical Associations 1980. AAMA Drug EvaluationsB; and with
Sneaders 1996. book ADrug Prototypes and their
ExploitationB, which describes about 1300 drugs.
Thus, although there must be some omissions, our
data base is adequate for the purposes of our research and analysis.

2. Sources, evaluation and interpretation of data

2.1.1. Process innoations


Although extremely important, we have not included them because, with few notable exceptions,
they are hard to identify and evaluate with certainty.
Most of them are used for the manufacture of one or
a few products so that the study of product innovations covers indirectly processing as well. Furthermore, process innovations are seldom commercialized because companies seldom license their processes unless they license the corresponding product.

2.1. Innoation counts

2.2. Ealuation of innoations

The study is primarily based on the identification


and evaluation of product innovations of the pharmaceutical industry, which were commercialized from
about 1800 to 1990. Product innovations new drugs.
that are included are new chemical entities NCEs.,
i.e., they differ in chemical composition and structure. Mixtures and diverse formulations of NCEs are
not included. From previous studies Achilladelis et
al., 1987; Achilladelis, 1993., we came to understand
that the identification of all the innovations of an
industrial sector or subsector is essential if we are to
arrive to useful conclusions about the dynamics of

2.2.1. Originality
The evaluation of the originality of innovations
was based on their chemical composition, therapeutic
action and effectiveness, timing of their commercialization and the extent to which they were imitated.
2.2.2. Market performance
The measurement of commercial success of pharmaceutical innovations is easier than it is in other
sectors of manufacturing because of governmental
agencies reports on the subject, particularly since
the 1970s when annual reports of the International

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B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Table 1
Therapeutic subsectors and number of innovations included in the study
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

Central Nerous System (CNS) hypnotics, anesthetics, anxiolytics, antidepressants, antipsychotics,


anti-Parkinson, antiemetics.
Cardioascular diuretics, antihypertensives, antithrombotics, coronary and peripheral dilators,
cholesterol reducers, anticoagulants, congestive heart failure.
Antibacterials sulphonamides, natural antibiotics, semisynthetic antibiotics, synthetics,
antimycobacterials against tuberculosis and leprosis.
Corticosteroid antiinflammatories, sex hormones and contraceptie pills
Analgesicsr antipyretics opioids, semisynthetic opioids, non steroid antiinflammatories wNSAIDsx.
Antiprotozoal drugs against malaria, sleeping sickness, leishmaniosis, schistosomatiosis, amoebiasis,
coccidiosis, etc..
Antineoplastic treatment of cancer.
Vaccines rabies, anthrax, tetanus, diphtheria, poliomyelitis, mumps, rubella, meningitis, influenza,
measles etc..
Histamines antiinflammatories, antiemetics, antigastric ulcer treatment.
Antisepticsr antiinfecties not all innovations included.
Fungicides topical and systemic.
Antiasthmatics
Cholinergics not all innovations.
Antiiral
Antidiabetics
Peptide hormones insulin, growth hormones, interferons, other bioengineered products.
Skeletal muscle relaxants
Vitamins
Other unclassified.
TOTAL

Medical Statistics IMS. began to report the annual


value of sales of drugs still in the market. For older
drugs, we relied on company annual reports and on
pharmacopoeias, which provide information about
the length of time that drugs remained in the market.
We also took into account the timing of their introduction as the value of sales of very successful drugs
in the 1950s1960s like penicillin, streptomycin or
prednisone appear to be trivial compared to those of
AblockbusterB drugs in the 1980s1990s, e.g., Zantac, Vasotec, Ceclor.
2.3. Patent and scientific paper counts
Data were obtained from the Chemical Abstracts.
2.4. Company economic data
Time series of company economic data for the
period 19501990 were obtained from Company
Annual Reports. It should be noted that such data
were obtained only for the 16 major American com-

295 drugs
283 drugs
216 drugs
147 drugs
132 drugs
120 drugs
86 drugs
75 drugs
74 drugs
47 drugs
39 drugs
35 drugs
30 drugs
25 drugs
23 drugs
22 drugs
20 drugs
17 drugs
50 drugs
1736 drugs

panies because European companies began to report


similar data in their Annual Reports only by the mid
1970s when they began to be quoted by the New
York Stock Exchange, i.e., for less than half of the
studys time horizon.
3. The dynamics of TI in the pharmaceutical
industry
3.1. Driing forces of TI
TI creates scientific, technical and commercial
uncertainties for the innovating institutions, which
are more pronounced in the case of RI, i.e., the
development and commercialization of discoveries
and inventions.
Most innovations were introduced since the turn
of the 20th century by private companies when they
realized that profits could be made out of the exploitation of scientific and technological advances, as
did before them the great inventorsrentrepreneurs of
the late 19th century. Since then TI has become an

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

essential activity for companies in research-intensive


sectors. The acceptance of financial risks associated
with TI on the part of companies indicates that there
are social and economic forces which compel them
to innovate.
However, TIs were also introduced in socialist
countries or when the capitalist system was still
young and research-intensive companies did not exist, as was the case of the pharmaceutical industry
for most of the 19th century. Forces of a less capitalistic nature acted upon individual scientists, engineers, physicians and on institutions, such as universities, hospitals, public or private, not for profit
health-care organizations, which discovered and developed new medicines and made them available to
the public. These forces were effective because of
their relation to AnoncommercialB characteristics of
TI, namely its dependence on scientific advance,
creative individuals and the recognition of societal
needs rather than on market demand, commercial
competition and profit.
Sciencertechnology ApushB and market ApullB
were considered the main driving forces for TI and
many scholars have argued in favor of one or the
other Schmookler, 1976; Mowery and Rosenberg,
1979; Walsh, 1984.. For economists, in particular,
this concept accommodated the treatment of all economic parameters under Amarket demandB leaving
AsciencertechnologyB as an externality. Because of
the complexity of the process of TI, this concept has
a weak explanatory power regarding the interpretation of historical facts and is inadequate for the
support of a theory of the dynamics of TI. These
shortcomings were realized and authors of more
recent studies found it necessary to introduce a multitude of more specific factors to account for differences and fluctuations over time of the innovation
record of industrial sectors, companies and countries
Dosi et al., 1988; Mokyr, 1990; Porter, 1990..
To identify the driving forces that impel companies and other institutions to innovate, we have
reviewed numerous case studies and applied the
findings of two empirical studies that were conducted with the participation of researchers, inventors, managers and many research-intensive companies: Project ASAPPHOB examined the factors that
are associated with success and failure in industrial
innovation Freeman et al., 1971, 1972. and project

539

AInnovation and the firm in the chemical industryB


studied the dynamics of TI including the forces that
drive innovation Achilladelis et al., 1982, 1990..
Seven driving forces were identified and defined
as follows:
v

Scientific and technological adances external


to the innovating institution.;
Raw materials availability or scarcity.;
Market demand evaluated by companies prior
to the decision to proceed with the development
of an innovation.;
Competition response to scientificrtechnicalr
commercial advances made by competing companies.;
Societal needs which could not be evaluated in
terms of market demand prior to the decision to
proceed with the development of an innovation.;
Goernment legislation legislation that affects
R & D and the competitive setting of an industrial sector.;
Company scientific, technological and market
specialization a company has introduced in the
past innovations based on related science, technology and markets..

These driving forces are not independent from


each other but their effects on TI are distinct as
are the responses to them by innovating institutions.
The first six are AenvironmentalB in character, i.e.,
they affect all research-intensive companies of one
or a number of industries. Indeed, they were implicitly identified by Landes 1970. in AUnbound
PrometheusB as factors responsible for technical
change since the Industrial Revolution. The seventh
is company-specific and exerts a strong influence on
a companys innovation record over long periods of
time.
Under the influence of the AenvironmentalB forces,
companies in research-intensive sectors developed
inhouse capabilities to increase their sensitivity and
ability to respond to them: R & D departments for
sciencertechnology advances and new raw materials; marketingrsales departments for market demand
and competition; legal and patent departments for
government legislation. Fig. 1 shows in a schematic
way the interactions between driving forces and innovating companies.

540

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Fig. 1. Driving forces of technological innovation.

The intensities of driving forces are time dependent as are the synergies among them. Their fluctuations determine to a considerable extent the rate of
technical change and the quantity and quality of TI.
They also vary among individual countries as they
depend on national endowment, culture and legislation and, hence, strongly affect the geography of TI.
3.2. Originality of innoations
The origins of new products and new processes
are frequently discoveries revelations of new knowledge. or inventions devices, contrivances or processes originated after study and experimentation.
hence the contributions to individual innovations of
both luck, serendipity and of systematic R & D and
meticulous development. The classification of TIs
according to their originality is not a straightforward
process because of the absence of easily defined
discontinuities in the space separating the inspired
from the trivial. The term RI is sometimes applied
only for innovations that made history by giving rise
to new sectors of industry, e.g., the steam engine, the
railroad, the dynamo, mauveine the first synthetic
dye. bakelite the first plastic material., the DC3
aircraft, nylon, DDT, the jet engine, the transistor,
the electronic computer, etc. Among pharmaceuti-

cals, morphine the first alkaloid., carbolic acid the


first antiseptic., the rabies vaccine, the analgesicrantipyretic phenazone the first synthetic medicine.
arsphenamine the first chemotherapeutic agent.,
penicillin, and the process for recombinant DNA
have had a comparable effect. Some authors Freeman et al., 1982. have used the same term, RI, in a
wider sense by including also innovations, which
have widened the scope and markets of existing
industries by the application or introduction of new
scientific principles, technology or materials and,
having displaced or competed successfully against
products or processes already in the market, served
as models for further innovations. Some examples
from the pharmaceutical industry are: the hypnotic
barbital VERONAL; 32 imitations., the diuretic
chlorthiazide DIURIL; 15 imitations., the antihypertensive propranolol INDERAL; 24 imitations., and
the anxiolytic chlordiazepoxide LIBRIUM; 37 imitations.. In this study, the term RI is used in this
wider sense.
The term II is applied to innovations designed on
the model of existing products or processes with
trivial differences in science, technology, materials,
composition and properties and which, because of
that, do not provide scope for further innovation by
imitation. IIs are sometimes commercially successful

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

and are the vehicle par excellence for the diffusion


of technologies among companies and countries.
3.3. The dynamic effects of RI
RIs play a capital role in the advances of both
science and technology, in the establishment and
growth of industrial sectors, in the diffusion of technology, and in the technological and scientific competencies and market specialization of companies.
3.3.1. RI and the adance of science and technology
Science advances following its own mechanisms,
dynamics and pace, which are determined, on one
hand, by the curiosity of scientists, the strength of
their intellect, their ability to design and perform
experiments, the precision of their observations, the
depth, scope and interpretative power of their theories and, on the other hand, by the excellence of
academic institutions and research schools, the quality of their leadership, the financial support provided
by the public and private sectors and the prestige that
academic and research communities enjoy on the
part of society and the public at large.
Until the middle of the 18th century, scientists,
with the exception of mathematicians, studied natural
phenomena and classified mineral, plant and animal
species. When inventors began to transform the
properties of materials by chemical and physical
methods and to introduce new forms of energy,
scientists extended the scope of their interests to the
study of man made phenomena as well. Science and
technology wereand remain sinceinexorably
linked together so that apart of its traditional mechanisms, scientific advance is also influenced by social
and economic forces.
The strongest links between science and technology were forged by RIscommercializations of inventions and discoveriesintroduced when the scientific knowledge on which they depended was only
partially understood. Such RIs resulted frequently by
trial-and-error experimentation, by luck or serendipity and attracted the curiosity of scientists and engineers, who strived to discover the missing scientific
principles that were responsible for the properties of
the new products and the mechanisms of the new
processes. Their efforts to that end led to the advance
of both science and technology and, in some instances, even to the creation of new scientific disci-

541

plines, e.g., the steam engine and thermodynamics,


mauveine and synthetic organic chemistry, the transistor and solid state physics. In the pharmaceutical
industry, morphine and pharmacology, the rabies
vaccine and bacteriology, arsphenamine and chemotherapy, and the process for recombinant DNA and
biotechnology are such examples.
For most of the 19th century, and even today,
academic researchers who made such discoveries left
their development to others and pursued their academic careers, as were, for example, the physicians
and academics who discovered the first anaesthetics,
hypnotics and antiseptics. However, some among
them with business acumen recognized the commercial opportunities created by their discoveries and
inventions and established companies to develop their
commercial applications. Some of these entrepreneurial companies became the first R & Dintensive companies and led to the orientation of a
significant segment of academic research towards
subjects related to technology. Examples: W. Perkin
in the dyestuffs industry; J. Lawes in the fertilizer
industry; Th. Edison and A.G. Bell in the telecommunications industry; and, in the pharmaceutical industry, P.J. Pelletier and J. Caventou quinine., G.
Merck alkaloids., E.R. Squibb ether., R. Marker
corticosteroids., H. Boyer bioengineering..
With the growth of capitalist economies in the
second half of the 19th century, companies that made
profits from the development and commercialization
of academic discoveries and inventions became interested in improving and standardizing the quality
of their products, in expanding their markets by
introducing new products, in ameliorating the yields,
minimizing the operational costs and eliminating
losses and accidents when running their processes.
All this called for a better understanding of the
scientific principles on which their innovations and
operations depended, hence the work undertaken in
academia out of curiosity and scientific interest was
of commercial interest for entrepreneurs and manufacturers. These common interests caused the forging
of relations between academic researchers and industrialists as the latter, encouraged by the profits made
from such RIs, did not hesitate to back their interest
with money. They began by employing leading academic scientists and engineers as consultants but, as
the urgency for industrial results could not be met by

542

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

the normal pace of academic advance, they began to


fund research projects in universities and polytechnics, and ended by organizing inhouse R & D laboratories that were frequently directed by university
professors and staffed by well-trained scientists and
engineers. These activities created synergies between
academic and industrial interests, which had orientating and accelerating effects in the direction and
advance of both science and technology.
The archetypal example of academiaindustry cooperation is that of the German chemical companies
Beer, 1959., which became R & D-intensive to develop synthetic dyes since the 1860s and which
applied their expertise in synthetic organic chemistry
for the discovery and manufacture of drugs in the
1880s. The pharmaceutical divisions of Bayer and
Hoechst were the first AmodernB pharmaceutical
companies and, by being adopted as models by
European and American manufacturing apothecaries,
they helped shape the structure and practices of the
pharmaceutical industry Baumler, 1968; Verg, 1988;
Lesch, 1993..
Apart from the commercialization of intra- and
extra-mural discoveries and inventions, research-intensive companies play a leading role in the diffusion of technologies by the introduction of IIs. In
contrast to RIs, which require contributions from
leading scientists and engineers who work at the
forefront of their disciplines, the science and technology of IIs follows the advancing frontier of the
relevant disciplines at best by a margin equal to the
lead time of the RI, which was the adopted model
but usually by much longer intervals so that leading
researchers are not keen in stepping back to develop
IIs. This task is, however, important for research
teams in industrial laboratories, which have either
introduced the original RI and want to strengthen
their position by exploiting their own leads or by
competitors who strive to get a foot in a promising
market. In some instances, IIs prove superior to the
original models and become very successful commercially. For example, among AblockbusterB drugs,
Glaxos anti-gastric ulcer ZANTAC was made on
the model of Smith, Kline and Frenchs SKF.
TAGAMET, and Mercks antihypertensive VASOTEC on that of Squibbs CAPOTEN.
Lastly, a discovery, which is not commercialized
or does not succeed in the marketplace, may be

scientifically or therapeutically interesting but fails


to gain the financial support from industry and to
create competition among companies. Progress in
such cases follows the pace of scientific advance
until this or an improved RI gets the nod from the
market. Such was the case of penicillin between its
discovery in 1928 and the realization that it was an
effective antibacterial for humans in 1941 Hare,
1970..
3.3.2. RI and market performance
The relation between originality and commercial
performance of innovations is one of the most important aspects of the dynamics of TI. Only a strong
positive relation of originality to profitability could
keep open the channels of communication and cooperation between centers of academic excellence and
industrial laboratories and the employment of outstanding scientists and engineers by industry. If this
relation did not exist, the interaction of academic and
industrial research would have been haphazard and
consequential. A linear relation between science and
technology would have, most probably, ensued, each
system obeying its own dynamics and pace with
hardly any acceleration caused by the synergies of
interaction.
Apart from these macroeconomic aspects, the relation between originality and market success is a
major concern for company R & D managers who
frequently have to ponder over whether to proceed
with the development of inhouse expertise, build
networks of cooperation with academic leaders and
face the technological and financial uncertainties of a
project aiming at an RI rather than follow a competitors lead hoping that with a relatively modest investment in men and means, an improvement to an
existing process or product may turn out to be more
profitable.
There was much anecdotal information but
scarcely any statistical evidence for the relation between originality and market performance of innovations. To this end, we have carried out three studies
on subsectors of the chemical and the pharmaceutical
industries organic chemical intermediates, pesticides
and antibacterial medicines. for each of which we
have identified all the innovations introduced
throughout their history Achilladelis, 1993;
Achilladelis et al., 1987, 1990.. We repeated this

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588


Table 2
The relation between originality and commercial performance of
innovations
M

Table 2 continued .
M

OR
1

OR
1

543

Total

27%.
44
14%.
Cardioascular
57%.
A
40
59%.
23%.
B
12
18%.
10%.
C
16
24%.
25%.
Total
68
100%.

Total

27%.
44
22%.

46%.
74
64%.

100%.
162
100%.

17%.
12
20%.
36%.
19
31%.
20%.
30
49%.
22%.
61
100%.

26%.
18
12%.
42%.
22
16%.
70%.
105
72%.
53%.
145
100%.

100%.
70
26%.
100%.
53
19%.
100%.
151
55%.
100%.
274
100%.

32%.
20
27%.
40%.
19
26%.
25%.
34
47%.
30%.
73
100%.

25%.
16
13%.
40%.
19
15%.
67%.
90
72%.
15%.
125
100%.

100%.
63
26%.
100%.
47
19%.
100%.
134
55%.
100%.
244
100%.

Total

36%.
31
22%.
39%.
42
30%.
15%.
68
48%.

24%.
21
5%.
44%.
48
12%.
76%.
338
83%.

140
22%.

405
64%.

100%.
85
13%.
100%.
105
17%.
100%.
445
70%.
100%.
634
100%.

Organic intermediates
66%.
A
118
70%.
18%.
B
31
19%.
4%.
C
20
12%.
21%.
Total
169
100%.

28%.
50
25%.
53%.
90
45%.
12%.
58
30%.
24%.
198
100%.

6%.
11
2%.
29%.
50
11%.
84%.
393
87%.
55%.
454
100%.

100%.
179
22%.
100%.
171
12%.
100%.
471
57%.
100%.
821
100%.

Central nerous system


43%.
A
27
59%.
19%.
B
9
20%.
7%.
C
10
21%.
19%.
Total
46
100%.

Antibacterials
61%.
A
27
64%.
22%.
B
8
19%.
6%.
C
7
17%.
20%.
Total
42
100%.

18%.
8
25%.
28%.
10
31%.
11%.
14
44%.
16%.
32
100%.

21%.
9
7%.
50%.
18
14%.
83%.
103
79%.
64%.
130
100%.

100%.
44
21%.
100%.
36
18%.
100%.
124
61%.
100%.
204
100%.

OR: originality ranking:1 s radical; 2 s intermediate; 3 s


incremental.
M: market ranking: A s big market success; Bsaverage; C s
unsuccessful.
The figure in bold characters indicates the number of products
classified in each originalityrmarket rank. The upper percentage
figure refers to the horizontal row same market classification..
The lower percentage figure refers to the vertical row same
originality classification..

Corticosteroids
56%.
A
29
66%.
25%.
B
8
18%.
9%.
C
7
16%.

23%.
12
27%.
41%.
13
30%.
24%.
19
43%.

21%.
11
15%.
34%.
11
15%.
67%.
52
70%.

100%.
52
32%.
100%.
32
20%.
100%.
78
48%.

Pesticides
40%.
A
34
37%.
17%.
B
18
20%.
9%.
C
39
43%.
Total
89
14%.

exercise for three subsectors of the pharmaceutical


industry: corticosteroids, cardiovascular and CNS
drugs. Each innovation was then evaluated with the
help of academic researchers and industrial managers
in terms of originality and market performance on a
three level scale: RI 1., intermediate 2., and II 3.;
commercially successful A., intermediate B. and
modest or failure C.. The data are presented in
Table 2. They show a statistically significant positive

544

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

relation of originality with commercial success, and


of triviality with modest market performance or failure. RIs, which represent about 20% of the innovations of each subsector, appear to have a greater
chance to succeed commercially: about 60% of them
were market successes and only 10% were modest
market performers or failures. On the other hand, IIs,
which represent about 60% of all innovations, were
usually commercially unsuccessful: about 70% of
them were poor market performers and only 1015%
were commercially successful.
This relation lies at the heart of the dynamic
function of RI in a capitalist economy as companies
leading in science and technology have a better
chance to be rewarded for their commitment.

3.3.3. The diffusion of technology: RI, TPs and TTs


The hypotheses proposed by Rosenberg, Nelson
and Winter, and Dosi about TPs and TTs offered a
number of plausible mechanisms regarding the advance and diffusion of technologies and their interactions with the economy. The scarcity, however, of
quantitative empirical evidence led to a proliferation
of related hypotheses regarding the microeconomic
mechanisms by which science and technology advance under a multitude of economic and market
conditions and on how the accelerating synergies and
the decelerating bottlenecks, which characterize the
dynamics of TI, form and exert their influence.
To a great extent, the scarcity of empirical quantitative evidence was due to the lack of appropriate
technology output indicators, which are indispensable for the systematic testing of the proposed microand macro-economic hypotheses of technical change.
The study of the technological and business history
of an industrial sector or subsector., the identification of all its innovations, the evaluation of their
originality and commercial success and their distribution over time offer an extremely useful tool for
that purpose. They provide a precise description of
the rate of technical change, of the volume and
quality of innovation of an industrial sector, and
allow for comparisons of the innovation record, timing, period of commitment and commercial performance of individual companies and countries.
A TP, defined as a model for the solution of
related technological problems Dosi, 1982., was, in

most cases in the pharmaceutical industry, either a


commercially successful radical innovation RIrMS.,
which was introduced when the scientific and medical principles on which it depended were not completely elucidated and offered a robust and versatile
model for imitation, or a radical process innovation,
which made possible the discovery or development
of numerous drugs in one or more therapeutic categories. Examples of the first case include: cortisone
CORTONE, Merck, 1948. in corticosteroids, barbital VERONAL, Bayer, 1903. in barbiturate hypnotics; propranolol, the first beta adrenergic blocker
INDERAL, ICI, 1964. in antihypertensives; chlorpromazine LARGACTIL, Rhone
Poulenc, 1952. in
tranquilizers; chlordiazepoxide LIBRIUM, Roche,
1960., in anxiolytics. For more examples, see Table
3.. Examples of the second case include: the chemical processes for the isolation and purification of
alkaloids, which led to the development of many
drugs for a score of therapeutic uses, such as morphine, quinine, papaverine, codeine, noscapine, etc.;
the process of screening soil samples for the identification of fungal metabolites with antibacterial properties and the process of deep aerobic fermentation,
which made possible the industrial production of
penicillin and the discovery of a score of antibiotics,
such as streptomycin, tetracycline, chloramphenicol,
erythromycin, etc., which have nothing in common
in terms of structure or composition. Fermentation
processes for the production of 6-aminopenicillanic
acid and 7-aminocephalosporanic acid made possible
the manufacture of a wide range of semisynthetic
penicillins and cephalosporins. The processes for
recombinant DNA and cell fusion opened the biotechnology era for the pharmaceutical industry and
led to biosynthetic proteins, such as human insulin
and growth hormone, antineoplastic drugs and diagnostics.
It should be noted that there are many commercially successful RIs that cannot be imitated for
technological reasons as was the case of vitamins,
centrally acting antihypertensives, e.g., methyl DOPA
ALDOMET, Merck, 1961., clonidine CATAPRESS, Boehringer, 1966., and antineoplastic drugs,
e.g., tamoxifen NOLVADEX, ICI, 1971. and cisplatin PLATINOL, Bristol, 1978.. Thus, the technology of an industrial sector or subsector advances
by both paradigms and by innovations unrelated to

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

545

Table 3
Generations, clusters of technologies, and radical innovations in the pharmaceutical industry 18001995.
Generations

Technologies

First radical
innovations

Year

Company

Country

First
18021880.

1. Alkaloids

Morphine
Quinine
Ether
Phenazone
Acetanilide
Sulfonmethane
Barbital
Anthrax vaccine
Diphtheria serum
Cocaine
Orthocaine
Arsphenamine
Ergosterol
Retinol
Ascorbic acid
Estrone

ORTHOFORM
SALVARSAN
PRO-VITAMIN D
VITAMIN A
VITAMIN C

1806
1820
1842
1884
1886
1888
1903
1881
1890
1860
1896
1911
1927
1931
1934
1931

GE
FR
USA
GE
GE
GE
GE
FR
GE
GErAUS
GE
GE
GE
SW
SW
USrGE

Testosterone

1935

Sulphamidochrysoidine
Phenbenzamine
Penicillin
Cortisone
Chlorothiazide
Propranolol
Chlorpromazine
Haloperidol
Imipramine
Chlordiazepoxide
Phenethicillin
Cephalothin
Cephaloridine
Phenyl butazone
Ibuprofen
Indomethacin
Mestranolr
norethynodrel
Nifedipine
Captopril
Lovastatin
Methysergide
Carbidopa
Bromocryptine
Domperidone
Cimetidine
Acyclovir
Human insulin

PRONTOSIL

1935

HOECHST
KALLE
BAYER
BAYER

HOECHST

HOECHST
HOECHST

ROCHE
ROCHE
PARKE-DAVIS,
SCHERING
PARKE-DAVIS,
SCHERING,
ORGANON
BAYER

ANTEGRAN
PENALEN
CORTONE
DIURIL
INDERAL
LARGACTIL
HALDOL
TOFRANIL
LIBRIUM
BROXIL
KEFLIN
CEPORIN
BUTAZOLIDIN
BRUFEN
INDOCID
ENOVID

1942
1943
1948
1958
1964
1952
1958
1959
1960
1959
1964
1964
1952
1964
1964
1961

RHONE
MERCK, PFIZER
MERCK
MERCK
ICI
RHONE
JANSSEN
GEIGY
ROCHE
BEECHAM
LILLY
GLAXO
GEIGY
BOOTS
MERCK
SEARLE

FR
US
US
US
UK
FR
BE
SW
SW
UK
US
UK
SW
UK
US
US

ADALAT
CAPOTEN
MEVACOR
SANSERT
SINEMET
PARLODEL
MOTILIUM
TAGAMET
ZOVIRAX
HUMULIN

1974
1977
1987
1962
1967
1978
1979
1976
1982
1983

GE
US
US
SW
US
SW
BE
US
UK
US

PROTROPIN

1985

BAYER
SQUIBB
MERCK
SANDOZ
MERCK
SANDOZ
JANSSEN
SKF
WELLCOME
GENENTECHr
LILLY
GENENTECH

Second
18801930.

2. Organic chemicals
1. AnalgesicsrAntipyretics
2. Hypnotics
3. Biologicals
4. Local anesthetics

Third
19301960.

5. Antiprotozoal
1. Vitamins

2. Sex hormones

3. Sulphonamides

Fourth
19601980.

4. Antihistamines
5. Antibiotics
6. Corticosteroids
1. Antihypertensiverdiuretics
2. Antihypertensive B-blockers
3. CNS drugs
4. Tranquilizers
5. Antidepressants
6. Anxiolytics
7. Semisynthetic antibiotics

8. Non-steroid antiinflammatory
drugs NSAIDS.
9. Oral contraceptives
Fifth
19801993.

1. Calcium ion channel antagonists


2. ACE inhibitors
3. Hypolipidemics
4. Serotonin inhibitors
5. Anti-Parkinson
6. Anti-nausea
7. Gastric and duodenal ulcers
8. Antiviral
9. Biotechnology

Somatrem

ANTIPYRIN
ANTIFEBRIN
SULFONAL
VERONAL

USrGEr
NErSW
GE

US

546

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

them. The greater the contribution of paradigms, the


faster the advance e.g., in the case of CNS drugs,
antihistamines and corticosteroids. because the presence of versatile models for imitation reduces the
dependence of innovating firms on further discoveries, inventions or advances in academic science,
which are less predictable and more difficult to come
e.g., antihypertensives up to the late 1950s and of
antineoplastic drugs..
TTs, defined as the patterns of problem solving
activities, i.e., of progress based on a TP Dosi,
1982., describe the rate of diffusion of technologies.
They are initiated by a commercially successful radical innovation RIrMS., which is followed by many
other RIs and IIs. Robustness and versatility of the
original RIrMS, the size of the market and the
number of competing companies determine the extent to which the model will be imitated, i.e., the
strength and time span of the TT.
The distribution of innovations over time provides
an accurate profile of a TT because the totality of
innovations introduced up to any moment in time
represents the progress of a technology made that
far. Even the stock of academic research and of tacit

knowledge accumulated by researchers and companies is embodied in the innovations, while this is not
the case when using other R & D output indicators,
such as scientific papers or patents.
Figs. 26 present the most important TTs of the
pharmaceutical industry traced by the distribution
over time of the RIs and IIs related to each TP. They
are arranged chronologically in the order of the five
consecutive generations of drugs, which are profiled
by integrating the corresponding TTs. Fig. 7 shows
the overlap of the last three generations of drugs
19301990.. Lastly, Fig. 8 shows the distribution
over time of all RIs and IIs whether they belong to
TTs or not. All TTs are roughly bell-shaped but
show important differences among them caused by
the changing intensities of the driving forces. For
example, the time span varies from nearly 80 years
for the TTs of the first two generations to about 50
years for the TTs of the next two generations, while
those of the last generation have not yet run their full
course. However, even among contemporary TTs,
some have a shorter span either because of very fast
diffusion of the technology due to inadequate patent
protection, e.g., antihistamines and corticosteroids,

Fig. 2. Technological trajectories: first generation of drugs 18201880..

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

547

Fig. 3. Technological trajectories: second generation of drugs 18801930..

or because a new paradigm rendered the technology


obsolete, e.g., corticosteroids.
TTs are divided into four rather distinct stages:
a. The stage of youth, shown by the early, nearly
flat part of the curve, was usually of short duration
and was characterized by a few, mostly radical,
innovations. Unless the new technology addressed a
previously untreatable disease, e.g., Salvarsan for
syphilis, market demand was usually weak at that
stage because of the familiarity of the medical profession with drugs already in the market, e.g., the
case of penicillin in 1942 following the introduction
of antibacterial sulphonamides 1935.. Pharmaceutical companies were, however, aware of both the
societal need and the potential of a therapeutic
market from national and worldwide health statistics.
The stage of youth ended by the introduction of a
commercially successful radical innovation RIrMS.,
which triggered the process of imitation by the innovating company and its competitors.
b. The stage of growth is represented by the
sharply rising part of the bell-shaped curve. It is

characterized by a sharp increase in the number of


innovating companies and innovations many of which
are RIs because TPs were usually sufficiently versatile to offer opportunities for radical departures, not
only for IIs. Many of them were also commercially
successful because the markets were rapidly expanding. Competing companies tried to improve the therapeutic effectiveness of the original drug, to eliminate side effects, to develop better manufacturing
processes and to circumvent patent barriers. Most
RIs and market successful drugs MSs. of a TT were
introduced at that stage and the technology expanded
along unexpected directions hardly envisaged by the
original innovators. The strength of the stage of
growth determined to a considerable extent the length
of the span of the TT, the size and diversity of the
markets and the leading companies of the sector.
Whenever patent protection was particularly effective andror when only few companies could take
advantage of the opportunities opened by the TP
because of low R & D intensity in the industry as a
whole 18201920., the stage of growth spread over

548

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Fig. 4. Technological trajectories: third generation of drugs 19301960..

decades rather than years. Thus, the stages of maturity and decline of the second generation of drugs
was located in the 1940s and beyond, i.e., when
competition sharpened by the entry of many R & Dintensive companies. On the contrary, the span of the
TTs of the third and fourth generations was much
shorter because of the presence at the time of their
introduction of many R & D-intensive companies
Section 4..
c. The stage of maturity is represented by the
rather flat segment of the TT during which the
number of innovations introduced annually reaches
and passes its peak. Most innovations were incremental as the potential of the technology was by then
largely exhausted. The numerous IIs represent the
efforts of latecomer, less expert, companies, which
strived to gain entry in a vigorous market which by
then was reaching its peak. Depending on the size of
the market, some of these IIs became commercially
successful. In many cases, the patents of the original
innovations expired at that stage facilitating the entry

of less expert companies as shown by the vigor of


the Abandwagon effectB, i.e., the number of companies entering the market with an own innovation
Fig. 9.. The length of this stage depends primarily
on the size of the market which, as the technology is
by then unable to create new radical departures,
provides the only initiative for companies already in
the market to pursue their R & D and innovation in
that area, or for newcomers to attempt an entry in
that market despite the established position of the
early innovators. The modest commercial performance of IIs Table 2. can be attributed to their
launching at the later stages of TTs when the leading
drugs were well established in the market and were
difficult to dislocate by newer products most of
which did not offer substantial therapeutic advantages.
d. The stage of decline is represented by the tail
segment of the bell-shaped curve and is characterized by a drastic reduction in the number of innovations and the absence of both RIs and MSs. In many

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

549

Fig. 5. Technological trajectories: fourth generation of drugs 19601980..

instances, the stage of decline was brought about by


the introduction of a new paradigm that rendered the
older technology obsolete. Otherwise, its length depended on the size of the market, the strength of
corporate technology traditions CTTs. of the original innovating companies see following section.,
and the number of less R & D-intensive companies,
which considered it worthwhile to attempt an entry
at a very late stage, having identified a geographical
or therapeutic market niche.
3.3.4. Clusters of RIs, TPs and TTs: formation of
successie generations (long waes) of medicines
3.3.4.1. The clustering of RIs and TPs. Industrial
sectors established since the 18th century originated
from a handful of RIs. They grew initially by the
improvement and the diffusion of these basic innovations and, in many cases, sustained their growth over

longer periods by the introduction of new clusters of


RIs, which led to new generations of products and
technologies. Many of these clusters were introduced
within relatively brief periods, notably in the 1770s
1780s, 1830s1840s, 1880s1890s, 1930s1940s
and 1980s1990s. Some of these RIs gave rise to
completely new industries whenever the existing
companies and sectors could not accommodate, for
technological and economic reasons, all the opportunities for innovation that were created. In the pharmaceutical industry there were also five clusters of
RIs, four of which roughly coincide with the above
periods 1820s1830s, 1880s1890s, 1930s1940s,
1980s1990s. while the fifth was inserted in the
1960s Figs. 26..
The formation of clusters of RIs can be attributed
to the fluctuations over time of the intensities of the
forces that drive TI and to their synergies. There are
periods when some of these forces are exceptionally

550

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

strong and exert powerful pressures on innovating


institutions causing the introduction of numerous RIs
some of which have the qualitiesrobustness, versatility, commercial appealwhich lead to the initiation of TTs. Among driving forces, those which
show abrupt changes in intensity are: scientificr
technological advance, new materials and government legislation.
3.3.4.2. Scientific adance. For the pharmaceutical
industry that thrived on a two-way vigorous relation
with chemistry, the life sciences and medicine, scientific advance was the major driving force for all five
clusters Section 4.. Science and technology advance
by quantum jumps, which are followed by periods of
less adventurous steps along the established pathways. Such discontinuities are not caused only by the
scientific revolutions of historical dimensions described by Kuhn 1962. but also by the gradual
accumulation of knowledge, which at certain moments in time makes possible the understanding of a
group of previously incomprehensible phenomena,
by the introduction of novel scientific instruments

that make possible the observation and study of a


group of natural and man made phenomena, and by
the interaction and cross-fertilization of disciplines,
which open new horizons for study and interpretation. TPs are closely associated with the advancing
frontier of scientific disciplines so that periods of
revolutionary advance create opportunities for more
TPs than do periods of evolutionary advance.
Raw materials are, perhaps, the most obvious
driving force that cause clustering of RIs: cotton
1770s., coal and cheap steel 1830s., coal tar
1880s., oil and petrochemicals 1930s., have all
created clusters of TPs and new R & D-intensive
industries. In the case of the pharmaceutical industry,
tropical medicinal plants 1820s. and coal tar derived
organic chemicals 1880s. have contributed to the
corresponding clusters of TPs.
Goernment legislation has led to clustering of
RIs particularly when it was related to armed conflicts or the preparation for war but in the case of the
pharmaceutical industry, because of its relevance to
public health, it contributed also during peacetime.
The establishment of public medical research labora-

Fig. 6. Technological trajectories: fifth generation of drugs 19801993..

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

551

Fig. 7. Overlap of successive Along wavesB third, fourth, and fifth generations of drugs up to 1990..

tories 1880s., funding of the wartime projects for


penicillin, malaria, and corticosteroids 1940s., the
patenting of drugs Germany, 1880s., of natural
antibiotics USA, 1940s. and of bioengineered proteins USA, 1980s. have all contributed to the clustering of RIs and TPs.

3.3.4.3. The clustering of TTs: successie generations ( A long waesB ) in the pharmaceutical industry. The trajectories that technologies follow beyond
their stage of youth are determined by the qualities
of the TPs, the inherent properties of each technology and by the driving forces for TI, which exert

Fig. 8. Distribution of innovations, radical innovations, and innovations related to technological trajectories over time 3-year moving
average..

552

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Fig. 9. ABandwagon effectB: technological trajectories and first entry of companies by an own innovation.

their influence throughout their span, in particular,


by market demand and competition which become
increasingly important at the later stages of the TTs.
Thus, many of the technologies that are launched
within brief periods are likely to follow parallel
diffusion patterns, i.e., TTs cluster together throughout their span, because innovating institutions are
exposed to the influence of a homogeneous commercial and competitive environment, or, in other words,
to driving forces of similar intensities Figs. 27..
Whenever such a cluster of TTs is formed within
a particular industry, it dominates its technological
and commercial development. The coincidence of
their stages of growth and maturity creates waves of
radical and particularly of IIs, a fast growth of
market demand, a powerful Abandwagon effectB and
the industry as a whole expands and flourishes.
When they reach the stage of decline, they follow
one of two alternative pathways depending on the

rate of advance of the scientific disciplines and the


technologies on which the industry depends: either a
new cluster of RIs is introduced and the industry is
regenerated by riding a new wave of innovation and
commercial expansion, or it becomes a technologically mature sector with declining profitability and
an oligopolistic market due to the dropping out of
many companies and the merger of the rest into few
large, less R & D-intensive companies.
There was considerable overlap between successive clusters of TTs Fig. 7. and substantial dependence of the more recent TTs on their predecessors
because of the cumulative character of scientific and
technological knowledge and of the common markets they addressed. However, the clustering of RIs
and TTs and the formation of successive generations
of drugs is clearly documented by the patterns of
distribution of innovations, the identification of the
scientific and technological advances that caused the

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

emergence of the newer and the obsolescence of the


older technologies, and by significant changes in the
competitive environment of the pharmaceutical industry that were associated with the successions of
generations Section 4.. These characteristics and the
coincidence in the timing of introduction of four out
of the five generations of drugs with those of the
Along wavesB of world economic growth indicate
that the pharmaceutical industry has followed the
general pattern of economic development as described by macroeconomic theory but showed an
exceptional flexibility and adaptability, which ensured its survival as one of the most innovative and
profitable businesses.
As in the case of Along wavesB, the transition
from generation to generation required considerable
skills and ingenuity on the part of individual pharmaceutical companies that were forced to drop traditional products, technologies and markets to develop
new ones and adapt to new competitive settings.
Those companies that failed to make these adjustments lost their competitive edge and either merged
with or were acquired by their more successful competitors.
3.4. The pharmaceutical firm as innoating institution Corporate Technology Traditions (CTTs)
3.4.1. Corporate technology traditions
A common characteristic of companies in R & Dintensive industries is that they tend to specialize in
few technologies on which they rely for the development of their new products. Pavitt 1984. attributed
this phenomenon to a process of knowledge accumulation in industrial firms: A.industrial firms cannot
and do not identify and evaluate all innovation possibilities indifferently, but are constrained in their
search by their existing knowledge and skills to
closely related zonesB. We propose that the synergies
of the driving forces of TI, and the dynamic effects
of RIs and TTs provide a plausible explanation of
how and why this happens.
External driving forces are effective only to the
extent that they generate internal forces within the
institutions that foster innovation: private companies
first and foremost and then academic institutions,
government research laboratories, public and private
not for profit research institutions. The research-in-

553

tensive pharmaceutical firm is the most effective


agency for TI because it is sensitive and able to
respond to the stimuli of all the driving forces; it is
especially sensitive to market demand and competition Fig. 1..
Research-intensive companies respond to external
stimuli by the investment of capital for the development of new products and processes in anticipation
of sizable returns from their commercialization.
Making profit is the Araison d etreB
of a capitalist

enterprise so that however strong the external stimuli


and the conviction of company managers that R & D
and innovation are essential for survival in the competitive setting of an R & D-intensive industry, they
will not support for longand may eventually retreat from the sectorunless the companys cash
flow can provide for the required investments. Company R & D budgets are not determined by expectations but by the size of cash flow Section 3.4.3..
As shown in Table 2, RIs are more frequently
commercially successful than IIs and, hence, more
profitable, so that innovating companies can spend
more on further R & D to perpetuate their advantage
than competitors who introduce IIs. However, the
introduction of an RI has another important consequence: although it is a companys response to the
stimulus of external driving forces, once launched, it
intensifies rather than satisfies them. It has been
argued earlier that the introduction of a commercially successful radical innovation RIrMS. exerts
an orientating effect on scientific or technological
advance, strengthens market demand and sharpens
competition. Thus, the innovating company finds
itself under stronger pressure to pursue R & D and
innovation in the same technology and market after
rather than before the introduction of the RI. This is
an important, but not the only, reason that leads
research-intensive companies to specialize in science, technology and markets.
Apart from intensifying the AenvironmentalB driving forces, RIrMSs when introduced at the early
stages of a TT, create a powerful internal driving
force within innovating companies, which strongly
influences their subsequent R & D, innovation and
markets. We have called this driving force a ACTTB
Achilladelis, 1973; Achilladelis et al., 1987, 1990.
and defined it as AA companys specialization in a
technology, its underlying science and the markets of

554

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

the products derived from it, achieved by an early


commercially successful RI and followed by the
concentration of its resources, the specialization of
its staff and the introduction of many technologically
related innovations over a very long period of time
ranging from 20 to 40 yearsB.
The strong, post innovation, commitment to more
R & D leads, on one hand, to the concentration of the
companys finite R & D resources on one or a few
areas depending on its R & D budget and creativity at
that time and, on the other hand, to an accumulation
of knowledge and experience, including markets and
marketing. This expertise creates opportunities for
the improvement of the original innovation by IIs
and even by further RIs.
This drive for further innovation is caused by the
emergence of the following strong corporate forces.

specialization of company marketingrsales departments, a feature particularly important in the pharmaceutical industry whose markets are global and
the investments required for that purpose immense.
Feedback from users and the medical profession
leads to market expansion by the design of IIs with
improved properties.

3.4.1.1. Scientific leadership. The underlying science


of an RIrMS introduced at an early stage of a TT is
usually close to the advancing frontier of the relevant
scientific disciplines so that company researchers,
encouraged by their success and the availability of
funds, deepen and widen their knowledge and, in
many instances, come to be recognized by their
academic and industrial peers as authorities in their
disciplines. This distinction is appreciated by both
researchers and managers who project it as proof of
the companys technological leadership and are eager to nurse and to maintain it for as long as it is
possible.

3.4.1.6. The A inented hereB syndrome. Companies


show a strong tendency to pursue their own leads
rather than those of their competitors. This is frequently the case of very innovative firms.
The resultant of these forces is the establishment
of CTTs that acquire their own momentum so that
over periods ranging from 20 to 40 years, a disproportionate number of innovations result from the
same technology. Although the originality of all
these innovations cannot be high, some are commercially successful and help perpetuate the CTT.
The study of innovations in subsectors of the
pharmaceutical industry shows that leading companies in each one of them have all introduced RIrMS
at the early stages of the corresponding TTs and
have created long lasting CTTs by which they gained
important competitive advantages Tables 4, 5.. Table
5 lists all the CTTs that we identified in the therapeutic sectors reviewed in this paper.

3.4.1.2. Influence on top management. Innovators


and managers associated with an original and lucrative innovation are usually promoted to positions of
influence from which they steer the companys innovative efforts towards technologies and markets with
which they are most familiar.
3.4.1.3. Time lag. As R & D begins on average 810
years before commercialization of an RI, companies
are eager to consolidate their position by introducing
IIs with improved properties before their competitors
cover that lag and become able to compete.
3.4.1.4. Familiarity with markets. Early commercialization of an RI requires the opening of a new or the
development of an existing market, which lead to

3.4.1.5. Economies of size and scope. Cash flow


created by an RIrMS leads to further investments in
R & D, manufacturing capacity and marketingrsales,
which create economies of size and scope. The
selection of subsequent R & D projects whose cost
can be cut by sharing accumulated knowledge, research facilities and marketing networks, becomes
easier and leads, in turn, to further specialization
Henderson and Cockburn, 1996..

3.4.2. CTTs, TTs and the A riding B of A long waesB


Many innovations of a CTT belong to a particular
TT and it may be said that they represent that part of
the TT, which was appropriated by a particular
company. The strength of this relation is manifested
by the fact that although companies innovate in
successive TTs within a therapeutic market, they
seldom introduce the TP that launches the newer
TTs. The blurred sensitivity of companies with CTTs

Table 4
Top innovating companies 18801992. winnovations, radical innovations RIs., market successes MSs. and the contribution of corporate technology traditions CTTs.x
No. Company

Country 18801930

19301960

19601980

19801992

Total

CTTs

No Innvs RI MS No Innvs RI MS No Innvs RI MS No Innvs RI MS No Innvs RI MS No of Innvs of % of total


CTTs CTTs
Innvs
CIBA-GEIGY
ROCHE
MERCK
HOECHST
BAYER
LILLY
PARKE DAVIS
B-W a
PFIZER
RHONErM&B
UPJOHN
JANSSEN
LEDERLE
BRISTOL
SANDOZ
ABBOTT
STERLING
SCHERING
GLAXO
AHP b
ICI c
SKF d
SQUIBB
SCHERING AG
MERRELL-DOW
BOEHRINGER
SYNTEX
BEECHAM
SEARLE
ORGANON

SW
SW
US
GE
GE
US
US
UK
US
FR
US
BE
US
US
SW
US
US
US
UK
US
UK
US
US
GE
US
GE
US
UK
US
NE

2
3

19
25
5
6
8

1
8

0 2
0 1

8 8
11 11
4 4
3 3
3 3

1 1




1 1
0 2







4 0

0



48
30
33
12
19
15
21
20
18
27
19
4
27
7
8
12
13
14
11
9
13
13
13
10
9
6
8
2
8
6

19
12
17
3
6
8
6
8
4
11
5
1
14
2
2
3
0
4
3
0
3
3
6
7
0
1
3
1
3
3

14
8
18
5
11
6
7
6
7
10
5
1
12
1
0
3
4
8
2
1
4
9
7
4
0
2
2
0
4
3

23
25
30
24
16
28
22
9
22
14
18
28
11
19
17
13
15
9
13
15
12
14
9
11
8
13
8
11
8
7

8 8
4 7
14 15
4 6
6 4
8 10
3 6
3 3
5 7
2 0
5 4
4 5
1 2
6 4
1 2
6 0
1 3
2 2
4 4
0 3
6 4
3 4
4 3
0 0
1 0
2 6
0 4
2 2
1 4
0 1

9
24
16
18
6
10
8
14
7
2
7
12
3
13
12
3
6
10
8
7
5
1
4
1
6
2
6
8
1
1

1
4
7
2
2
5
0
2
3
0
3
0
0
2
3
0
0
3
2
1
0
0
2
1
1
0
0
2
0
0

1
4
10
2
1
4
2
2
1
0
1
3
1
3
4
0
0
0
4
1
2
0
2
0
1
0
0
1
0
0

82
82
79
73
66
58
57
51
47
46
44
44
41
39
38
36
34
33
32
31
30
28
26
26
23
22
22
21
17
14

28
20
38
17
25
25
12
16
12
14
13
5
15
10
7
9
1
9
9
1
9
6
12
12
2
3
3
5
4
3

25
20
43
21
27
24
18
14
15
11
10
9
15
8
7
5
7
10
10
5
10
13
12
4
1
8
6
3
8
4

5
5
7
3
3
2
1
3
2
2
1
3
3
2
1
1

2
1
1
1
1

61
50
60
31
39
18
12
19
24
23
14
34
26
29
13
14

16

16
16
15
9
11

74.
61.
75.
42.
60.
31.
21.
38.
51.
50.
32.
77.
63.
74.
34.
39.

25.

23.

61.

73.
72.
71.
53.
78.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
a

Burroughs-Wellcome.
American Home Products.
c
Imperial Chemical Industries, Zeneca since the 1980s.
d
Smith Kline French.
b

555

556

Table 5
Corporate technology traditions CTTs. by therapeutic sector

ANALGESICSrANTIPYRETICS

ANTIBACTERIALS Sulphonamides,
Antibiotics, Synthetics.

VITAMINS

SEX HORMONESrCORTICOSTEROIDS

CNS MEDICINES anesthetics, hypnotics,


antidepressants, anxiolytics, neuroleptics,
anti-Parkinson, antiemetics.

Company

Innovations

Commitment

No. RIrMS % of company % of sector


innovations
innovations

Period

Years

1.1 HOECHST
1.2 MERCK
1.3 CIBA
1.4 ROCHE
1.5 JANSSEN
2.1 BAYER
2.2 MERCK
2.3 LEDERLE
2.4 PFIZER
2.5 LILLY
2.6 GLAXO
2.7 BRISTOL
2.8 BEECHAM
3.1 ROCHE
3.2 MERCK
4.1 CIBA
4.2 SCHERING AG
4.3 ORGANON
4.4 SYNTEX

12
6
6
8
7
11
13
12
15
14
8
15
15
5
4
14
16
11
16

3r5
2r5
1r1
1r1
1r2
4r5
9r5
4r5
5r6
8r7
4r5
2r1
4r3
4r4
4r4
8r4
7r4
3r4
3r5

16.
7.
7.
10.
16.
16.
16.
30.
32.
24.
25.
38.
70.
5.
5.
17.
61.
78.
73.

9.
4.5.
4.5.
6.
5.
5.
6.
6.
7.
7.
4.
7.
7.
35.
25.
10.
11.
8.
11.

18821981
19451979
19501976
19461982
19581984
19351985
19391986
19401987
19431986
19521983
19551987
19561987
19591985
19341978
19371949
19341973
19311977
19201975
19441981

99
34
26
36
26
50
47
47
43
31
32
31
26
44
12
39
46
55
37

4.5 SEARLE
4.6 UPJOHN

9
14

3r5
3r4

53.
32.

6.
10.

19511965 14
19351979 44

5.1 BAYER
5.2 ABBOTT
5.3 CIBA-GEIGY
5.4 ROCHE
5.5 SANDOZ
5.6 JANSSEN

13
14
11
24
13
20

3r5
1r3
5r4
4r5
2r2
3r3

20.
40.
13.
30.
34.
45.

4.
5.
4.
8.
4.
7.

18881996
19221977
19451977
19481989
19521992
19581988

78
55
32
41
40
30

First RIrMS

ANTIPYRIN 1884.
MYOCRISIN 1945.
BUTAZOLIDIN 1952.
DROMORAN 1946.
PALFIUM 1958.
PRONTOSIL 1935.
PENICILLIN 1943.
AUREOMYCIN 1948.
PENICILLIN 1943.
ILOTICIN 1952.
SEPORAN 1964.
TETREX 1956.
BROXIL 1959.
VITAMIN C 1934.
VITAMIN B1 1937.
PROGESTERONE 1934.
PROGYNON 1931.
OVARIAN EXTRACT 1920.
PROGESTERONE FROM
DIOSGENIN 1944.
NILEVAR 1955.
CORTISONE FROM
PROGESTERONE 1952.
SULPHONAL 1888.
NEONAL 1922.
RESERPINE 1953.
MARSILID 1957.
SANSERT 1962.
HALDOL 1958.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

No. Sector

6.1 LEDERLE
6.2 B-W
6.3 ROCHE
6.4 BRISTOL
CARDIOVASCULAR diuretics,
7.1 PARKE-DAVIS
antihypertensives, anticoagulants, anti7.2 CIBA
thrombotics, cholesterol reducers, congestive 7.3 BOEHRINGER
heart failure, pressors, coronary dilators.
7.4 HOECHST
7.5 MERCK
7.6 ICI
7.7 PFIZER
ANTIPROTOZOAL
8.1 BAYER
8.2 HOECHST
8.3 RHONE
8.4 MERCK
ANTIHISTAMINES
9.1 RHONE
ANTIASTHMATICS
10.1 BOEHRINGER
FUNGICIDES
11.1 JANSSEN
ANTIVIRAL
12.1 B-W
PEPTIDE HORMONES
13.1 LILLY
VACCINESrSERA
14.1 B-W
14.2 LEDERLE
14.3 MERCK
14.4 MERRIEUX
14.5 BEHRINGWERKE

6
6
8
14
12
17
11
11
15
7
9
12
8
12
8
11
5
7
5
4
8
8
14
13
10

3r2
3r3
3r1
8r6
3r5
5r4
2r4
4r3
7r9
3r4
1r2
7r8
2r2
2r2
2r4
3r3
1r3
1r3
1r2
4r3
3r2
3r3
6r7
4r4
3r2

7.
11.
10.
36.
21.
21.
50.
15.
19.
23.
19.
18.
11.
26.
10.
23.
22.
16.
10.
7.
20.
20.
17.
100.
100.

7.
7.
9.
16.
4.
6.
4.
4.
5.
2.
3.
10.
7.
10.
7.
15.
14.
19.
20.
18.
10.
10.
18.
17.
13.

19471987
19481968
19621991
19731995
18961986
19241990
19311970
19421990
19521988
19621983
19591989
18901976
19111983
19221974
19381988
19371967
19401977
19721989
19641986
19231983
18961986
19451989
19601996
19581997
19721987

40
20
29
22
90
66
39
48
36
21
30
86
72
52
50
30
37
17
22
60
90
44
36
39
15

TEROPTERIN 1947.
PURINETHOL 1953.
EFUDIX 1962.
BLENOXANE 1973.
ADRENALIN 1902.
CORAMIN 1924.
PERSANTIN 1961.
ASPARSAN 1942.
DIURIL 1958.
INDERAL 1964.
MINIPRESS 1973.
GERMANIN 1920.
SALVARSAN 1911.
STOVARSOL 1922.
SULPHAQUINOXALINE 1938.
ANTEGRAN 1942.
ISOPRENALINE 1940.
DAKTARIN 1972.
ZOVIRAX 1982.
INSULIN 1923.
DIPHTHERIA TOXOID 1923.
DPT VACCINE 1945.
MUMPS VACCINE 1967.
IPOL VACCINE 1958.
VARICELLA-ZOSTER
VACCINE 1982.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

9
10
11
12
13
14

CANCER

557

558

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

to the AenvironmentalB driving forces that lead to the


new TT is discerned at the stage of decline of a

technology when most of the companies that introduced and profited from it, doggedly pursue their

Fig. 10. Major mergers and acquisitions among pharmaceutical companies.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

efforts even after it has become obsolete. In these


instances, the CTT has become so deeply embedded
in the corporate psyche, that acts as a factor of
technological inertia, blocks its sensitivity to the
AenvironmentalB driving forces and undermines the
companys technology and market positions. Thus,
CTTs contribute to the Schumpeterean destruction
associated with the waves of creativity, whereby
companies that have thrived from a technology disappear with its obsolescence.
The relation between CTTs and TTs raises some
intriguing questions regarding the survival of pharmaceutical companies over periods far longer than
individual Along wavesB. Although many manufacturing apothecaries and pharmaceutical companies
have folded in the course of the 200-year-long history of the pharmaceutical industry, nearly all of
todays large companies were established about a
century ago and this indicates that they overcame the
crises associated with the technologies they have
championed Fig. 10..
Company histories and innovation records indicate that their ability to Aride the long wavesB was
primarily due to the fact that they were multiproduct
companies either within or outside the pharmaceutical industry and, accordingly, they did not depend on
one but on a number of TTs. As the life span of TTs
differs even within the same Along waveB, multiproduct companies afforded some time for readjustment during periods of succession of Along wavesB.
3.4.2.1. Horizontal diersification within the pharmaceutical industry. The most research-intensive
companies developed numerous technologies and
markets by means of inhouse R & D Tables 4, 5..
However, diversification was also achieved by mergers and acquisitions of companies with CTTs in
therapeutic markets complementary to their own.
Examples: Merck s CTT in diuretics originated
from its merger with Sharp & Dohme; Bristols CTT
in antineoplastic drugs originated from its acquisition
of Mead and Johnson; Roches entry into bioengineering resulted from its cooperation and, later,
merger with Genentech. This policy was adopted in
the 1940s1950s and, particularly, in the 1980s
1990s as shown by the super mergers, which created
global companies with a very wide spread of therapeutic markets Fig. 10..

559

3.4.2.2. Horizontal diersification outside the pharmaceutical industry. Many pharmaceutical companies were established as branches of chemicalrdyestuffs companies Bayer, Hoechst, Rhone
Poulenc,
Ciba, Geigy, Sandoz, ICI, American Cyanamid. and
were from their beginnings members of multiproduct
companies benefiting in periods of turbulence caused
by the succession of Along wavesB from cash flows
generated by the chemical businesses of the parent
companies. This was possible until the mid 1970s
when the chemical industry began to decline and
companies concentrated on high value added chemicals and pharmaceuticals. Other pharmaceutical companies that began as manufacturing apothecariesas
was the case of most American companieshad
kept during the interwar and early postwar periods
some businesses in proprietary products, such as
over-the-counter OTC. medicines, toiletries and
cosmetics. However, these businesses were modest
compared to chemicals or pharmaceuticals and could
not extricate them during the slow down that accompanied the succession of drug generations. Thus, in
the early 1960s, when the pharmaceutical industry
could not attain rates of growth comparable to those
of many consumer product industries, the American
pharmaceutical companies diversified by merger and
acquisition into a host of sectors Table 6.. Most of
these businesses were less research-intensive and
less profitable than pharmaceuticals but they showed
very high rates of growth. The higher turnover thus
attained allowed the pharmaceutical companies to
sustain, even to increase, their expenditures for R & D
and innovation at a time when they had to overcome
important technological barriers. This diversification
helped the American pharmaceutical companies to
sail through the 19601980 period at the end of
which they divested these acquisitions as the technological and market conditions of the 1980s1990s
guaranteed for the pharmaceutical industry both
growth and profits.
3.4.2.3. Innoation in successie TTs. Companies
that have established a CTT in a therapeutic market
seldom introduce the TP that initiates the next TT.
The case of Lilly and Pfizer, which were protagonists in both natural and semisynthetic antibiotics,
two successive TTs, is one of the very few exceptions that prove the rule. Many companies dropped

560

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

out of a therapeutic market because they missed the


opportunities opened by a new technology. For example, Bayer and Abbott both with strong CTTs
18901940. in CNS depressants barbiturate hypnotics, anticonvulsants. missed the post World War
Two launching of antidepressants, antipsychotics and
anxiolytics; Merck, a protagonist in natural antibiotics penicillin, streptomycin. missed the opportunities of semisynthetic penicillins and cephalosporins,
returning to them after a lapse of 20 years cefoxitin,
MEFOXIN, 1977.. Also, ICI, which introduced the
antihypertensive beta blockers propranolol, INDERAL, 1964., missed the challenge of ACE inhibitors captopril, CAPOTEN, Squibb, 1977., and
of calcium ion blockers nifedipine, ADALAT,
Bayer, 1974..
Many companies, however, were able to extend
their CTTs over two, even more, TTs on account of
their research and, especially, market specialization
that allowed them to regain the lost ground by
developing and introducing therapeutically effective
IIs. The marketing of drugs requires vast, worldwide
and long-term investments so that a company, which
has attained a leading position in a market, does not
give it up easily but strives to regain with an imitative drug the lead time of the competitor that introduced the new technology. This is by no means easy
as it takes time, 5 to 10 years, for a company to
realize the therapeutic and commercial potential of a
Anot invented hereB new drug over its own established products, to shake off its CTT, to circumvent
patent and other barriers and to develop its own
competitive product. Its success depends entirely on
the improvements in therapeutic effectiveness of the
imitative over the original drug but also on the
marketing strategies adopted to compete against an
established product.
3.4.2.4. Innoations independent of TTs. TTs provide
the drive for innovation in a therapeutic market but
only about 70% or less of all the innovations are
related to them Fig. 8.. Systematic screening of
thousands of organic compounds, spinoffs from other
therapeutic sectors and serendipity lead to drugs
unrelated to TTs in terms of composition or chemical
structure with exceptional therapeutic properties but
because of technological prerogatives they are not
easy to imitate. Such drugs are only occasionally

affected by the succession of TTs so that the companies that introduced them are less susceptible to the
upheaval, which characterizes these periods.
Lastly, some drugs with outstanding therapeutic
properties withstood the challenge of time and of
many successive Along wavesB, e.g., ASPIRIN
Bayer, 1899., PREMARIN Ayerst, 1943. and INDERAL ICI, 1964.. Despite the expiration of their
patents and their manufacture and sale as generics by
many companies, the original innovating companies
still maintain a very considerable slice of the market
because of consumer familiarity with the company
and tradename and the long established goodwill of
the medical profession.
3.4.3. A Long waesB corporate growth, innoation
and R & D expenditures of major American pharmaceutical companies
The pharmaceutical industry is one of the most
profitable sectors of manufacturing. Inhouse R & D
and innovation is the route par excellence by which
pharmaceutical companies make profits and grow in
size. However, there were periods in the history of
the industry when innovation could not ensure for
most companies growth rates commensurate with
those of their more successful competitors or of
companies in other fast growing sectors of manufacturing industry putting their investors confidence in
jeopardy. To restore their rates of growth, companies
diversified by mergers and acquisitions either within
the pharmaceutical industrythus widening their
therapeutic marketsor into other manufacturing
sectors showing high rates of growth albeit with
lower profit margins. The adoption of these policies
provides support to the argument that growth maximization subject to a profit constraint is a more
realistic explanation of firm behaviour than profit
maximization Marris, 1964; Freeman, 1974..
Fig. 11a and b presents the trends of annual sales,
ethical drug sales, net profits and R & D expenditures
for major American pharmaceutical companies from
1950 to 1990. Table 7 presents for each company the
cumulative figures for the 40-year period of sales,
ethical drug sales, net profits, R & D expenditures,
employment, profitability net profit as percentage of
sales., R & D intensity R & D expenditure as percentage of sales., numbers of innovations and patents,
and average R & D cost of innovations and patents.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

561

Table 6
Horizontal diversification of American pharmaceutical companies in the 1960s and 1970s major acquisitions only.
No.

Company

Acquired company

Business

Year

MERCK

LILLY

Calgon
Quinton
Baltimore Coil
Kelco
Hubbard Farms
Distillers
Elisabeth Arden
Ivac
Cardiac Pacemakers
Carwin
CPR International
C.K. Williams
Leeming & Pasquin
Coty
Quigley
Howmedica
M & R many companies.

Water purification; environment


Proprietaries
Industrial refrigeration
Chemicals from Kelp
Poultry genetics
Pharmaceuticals
Cosmetics
Electronic Medical Instruments
Pacemakers
Polyurethanes
Polyurethanes
Metals, pigments, magnetic iron oxide
Proprietary health products
Cosmetics
Industrial refractories
Hospital, orthopedic, dental supplies
Nutritionals, baby formula
Medical electronics, clinical laboratories,
hospital care services
Veterinary products
Sports equipment, sunglasses
Ultrasonics
Health Foods
Medical services
Contact lenses
Consumer proprietaries, household products,
Maybeline cosmetics
Foot health products
Scientific, industrial instruments
Scientific instruments
Scientific instruments
Diagnostics
Housewares
Confectionaries
Cookwares
Housewares
Medical instruments
Toiletries, cosmetics
Household products
Pharmaceuticals, baby foods
Dermatological medicines
Orthopedic prosthetics
Orthodontic, dental materials
Confectionaries
Optical instruments, lasers, corrective lenses
Shaving blades, toiletries
Pharmaceuticals
Packaged foods
Pharmaceuticals
Surgical instruments
Tampons
Pigments, dyes, optical brighteners,
flushed colors for inks
Toiletries, cosmetics including Dorothy Gray.
disinfectants

1967
1967
1969
1922
1972
1963
1980
1978
1978
1962
1963
1962
1962
1963
1968
1972
1963
1960s

UPJOHN

PFIZER

ABBOTT

SKF

SCHERING

SEARLE

AHP

10

11

BRISTOL

W-L

12

J&J

13

STERLING

Norden Labs
Sea and Ski
Branson Instruments
Avocet
Clinical Labs
Hydron
Plough
Dr. Scholl
Nuclear Chicago
Fermo Labs
Buchler Instruments many.
Ecko Products
E.J. Brach
A.R. Lite
The Prestige Group
Corometric Medical
Clairol
Drackett
Mead & Johnson
Westwood
Zimmer
Unitek
American Chicklet
American Optical
Eversharp Schick
Parke-Davis
Entenmans
Janssen
Godman-Scritzef
Dr Karl Hahn
Hilton-Davis
Lehr & Fink

1960
1965
1965
1966
1970
1979
1970
1979
1960s
1960s
1960s
1970s
1965
1965
1968
1970
1973
1959
1965
1967
1968
1971
1979
1962
1966
1969
1969
1969
1961
1971
1974
1962
1966

Divested 1980s.
Divested 1980s.
Divested 1980s.

Divested 1980s.
Divested 1990s.
Divested 1990s.
Divested 1984.
Divested 1984.
Divested 1990s.
Divested 1990s.
Divested 1990s.

Divested 1983
Divested 1983

Partially divested
1980s.
Divested 1980s.
Divested 1981.
Divested 1981.
Divested 1983.
Divested 1982.
Divested 1986.
Divested 1982.
Divested 1982.

Divested 1992.

Divested 1987.
Divested 1982.

Divested 1982.

Divested 1980s.

562

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

The figures and the cumulative data show the


divergences of company rates of growth, which can
be attributed to their successes and failures in the
application of commonly adopted policies but also to
a multitude of company-specific factors and historical circumstances, some of which were related to the
uncertainty that characterizes innovation projects.
Detailed company case studies can only lead to a full
understanding of the interplay of such factors and
their effects on the rates of company growth. Here,

we examine some common features, notably the


effects on corporate growth of the succession of drug
generations and the relation between innovation and
R & D intensity.
3.4.3.1. Drug generations (long waes) and company
growth. Freeman and Perez 1988. have suggested
that the succession of Along wavesB brings about
significant changes not only in the technological but
also in the economic and competitive setting of an

Fig. 11. a and b. Trends of annual sales, ethical pharmaceutical sales net profits, and R & D expenditures of American Pharmaceutical
19501990. in constant 1990 US$.. Source: Company Annual Reports.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

563

Fig. 11 continued ..

industry or a group of industries. This was undoubtedly the case of the pharmaceutical industry.
Empirical studies have shown Mansfield, 1968a;
Freeman, 1974. that in research-intensive sectors,
company growth is related to innovativeness and the
pharmaceutical industry provides ample support to
this hypothesis. Tables 4 and 9 show that todays
biggest companies were among the most innovative
at least since the 1930s, and some of them, e.g.,

Hoechst, Bayer, Rhone,


B-W, Ciba, Roche, since the
turn of the century. And yet, only Merck and Lilly
among large American companies were able to grow
throughout this period only on account of their innovative record. Uncertainties as to the outcome of
innovation projects, upheavals associated with the
succession of drug generations, inertia related to
declining CTTs and competitors successes, combined to frustrate companies efforts to sustain high

564

Total sales a
ETH.PH.Sales a
% ETHrTotal
Employment b
Net profitsa
Profitability
R&D Exp.a
R&D Exp.rT. Sales
No. of innvs.
No. of patents
R&D exp.rinnv.c
R&D exp.rpat.c

MERCK

LILLY

UPJOHN

PFIZER

ABBOTT

SKF

STERLING

SEARLE

SCHERING

BRISTOL

J&J

AHP

W-L

133.5
104.5
75
820
21.5
16.2
13.0
9.7
79
5066
32.9
0.5

111.0
70.5
64
743
16.0
14.6
10.5
9.5
58
2316
36.2
0.9

79.0
59.5
75
486
8.5
10.6
8.5
10.7
44
4047
38.6
0.4

146.5
76.0
52
1150
15.5
10.4
7.5
5.1
47
2562
31.9
0.6

94.5
27.0
30
778
10.5
11.0
6.5
6.9
36
1365
36.1
0.9

90.0
55.0
61
546
12.5
13.7
7.5
8.3
28
1487
53.6
1.0

83.5
26.5
32
732
7.0
8.4
2.7
3.2
34
1440
15.8
0.4

34.0
19.5
57
278
4.0
11.8
2.9
8.5
17
1656
34.2
0.4

68.5
43.0
62
474
8.5
12.4
5.0
7.3
33
530
30.8
1.9

145.0
52.5
36
807
15.5
10.7
7.5
5.2
39
1141
38.4
1.1

213.5
42.5
20
1612
17.5
8.2
11.0
5.2
NAd
1206
NAd
1.8

206.0
87.0
42
1340
24.5
11.9
6.0
2.9
31
1464 NAd.
38.7
0.8

143.5
50.0
34
1200
9.5
6.6
6.0
4.2
NAd
1369
NAd
0.9

Source: Calculated from Company Annual Reports; Chemical Abstracts; Survey of innovations.
a
In billion constant 1990 US$.
b
In thousand man years.
c
In million constant 1990 US$.
d
NA: not available because of major mergers.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Table 7
Cumulative economic and technological data of American pharmaceutical companies 19501990.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

rates of growth by means of innovation. For some


companies, such adversities frequently caused their
takeover by stronger competitors Fig. 11..
Most American pharmaceutical companies were
established as manufacturing apothecaries during the
Second Generation of drugs 18801930. Fig. 10.
and began their transformation into modern, research-intensive pharmaceutical companies after the
First World War. The advent of the third generation
of drugs in the 1930s1940s caused the dramatic
acceleration of this process Section 4.. By the 1950s
the tail segment of the third Along waveB most
companies were of medium size annual sales around
US$1000 million; employment between 3500 and
15,000. and showed a modest growth rate largely
based on innovation. There were two groups of
companies: a. those which evolved from manufacturing apothecaries Upjohn, P-D, Abbott, Searle,
Schering, Lilly, SKF. or from manufactures of chemicalrpharmaceutical specialties Merck, Pfizer.
whose ethical drug sales exceeded 60% of the total,
and with R & D expenditures about 7% of sales; and
b. those which were consumer proprietary product
manufactures recently drawn into the pharmaceutical
industry J & J, B-M, W-L, AHP. whose ethical drug
sales accounted for up to 30% of the total and with
R & D expenditures about 34% of sales.
During the fourth generation 19601980., most
companies showed very significant rates of growth
and became very large in terms of sales US$26000
million. and employment 2650,000 employees..
This growth was primarily caused by their diversification by means of mergers and acquisitions outside
the pharmaceutical industry as shown by their declining share of ethical drugs in total sales. Indeed, with
the exception of Merck and Lilly, companies that did
not diversify significantly Upjohn, Searle, P-D, Syntex, Schering. did not grow as much as their competitors that diversified B-M, Pfizer, W-L, J & J,
AHP. Fig. 11a and b.. Diversification into less
R & D-intensive, less profitable sectors guaranteed a
smoother rate of growth by balancing the risks inherent in the dynamics of TI described in previous
sections. Cash flows from well-established, trademarked proprietary products during periods of strong
economic growth as were the 1960s and early 1970s
were more secure than those of ethical drugs whose
commercial lives were frequently shortened by the

565

introduction of ever-more effective drugs. Annual


R & D expenditures in dollar values increased for all
companies but when expressed as percentage of sales
increased only for predominantly pharmaceutical
companies and fell for companies that diversified
into less research-intensive sectors. This can be taken
as an indication that the size of cash flow is related
to the level of a companys R & D expenditure.
The slowdown in economic growth in the industrialized world in the 1980s caused capital to flow
into sectors, which provided sizable returns to investors, notably to Ahigh-techB sectors of electronics,
materials, computers, pharmaceuticals. To improve
their profitability, American pharmaceutical companies divested their nonpharmaceutical businesses, and
to ensure growth, they applied the proceeds to the
formation of giant oligopolistic global companies by
mergers among them. This allowed the simultaneous
worldwide launch of their new drugs that, coupled to
the flexibility in the pricing of drugs allowed by
governments, inflated the dollar value of the markets
and gave rise to AblockbusterB drugs, i.e., products
with annual sales ranging from US$300 to US$3000
million. These strong cash flows allowed companies
to raise their R & D expenditures and to face the risks
associated with breaking into the technologies of the
fifth generation including biotechnology. Furthermore, their horizontal diversification within the pharmaceutical sector, reduced the risks and multiplied
the opportunities associated with innovation by
spreading them across a much wider range of technologies and markets.
It was not possible to put together comparable
figures for the fifth generation 19801993. for all
companies of our sample because of the wave of
mergers among them, but those companies that operated independently in the 1980s show a strong acceleration of rates of growth, a higher ratio of
ethicalrtotal sales, increased profitability and a rise
in R & D expenditures both in dollar values and as
percentage of sales.
3.4.3.2. Company R & D expenditure, innoation and
growth. The relation between level of R & D expenditure, innovation and company growth is by no
means straightforward due to uncertainties as to the
outcome of innovation projects, the wide variation in
commercial performance of innovations, and exter-

566

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

nalities in the research function, namely contributions made by academic and public research institutions and by competitors. Empirical studies have
shown that there is no strong association between
high growth and research intensity Freeman, 1974..
Positive but weak correlations were found only at the
extremes, i.e., companies with very high R & D investments showed considerable growth and those
with very low investments stagnated or disappeared,
but in the middle zone uncertainty predominated.
Our data Table 7. provide some support to this
hypothesis: Merck and Lilly, among the most research-intensive companies in terms of the dollar
value of their investments, are among the largest
companies of today while Sterling and Searle, among
the least research-intensive, showed the weakest
growth rates and were taken over in the 1980s.
However, Upjohn, one of the most research-intensive
companies, showed a modest rate of growth while
AHP, J & J, Pfizer, Bristol and W-L with average
R & D investments showed very high rates of growth.
Studies of the financing of company R & D suggest that most large companies allocate annual R & D
funds on a rule of thumb basis, such as percentage of
sales and that most companies in the same sector
spend about the same percentage Mansfield, 1968b;
Freeman, 1974; Kay, 1979..
Our data show that R & D expenditures expressed
as percentage of sales ranged between 7.3 and 10.7
for companies with ethical drug sales exceeding 50%
of the total, and between 2.9 and 6.9 for more
diversified companies. When R & D expenditures
were expressed as percentage of ethical drug sales,
variations among companies became smoother but
are still important: with the exception of Abbott,
J & J and AHP, they range between 9.9% and 14.9%.
It seems, therefore, that even if some companies
desired to spend on R & D as much as their competitors, there were important structural or financial
constraints that did not allow that.
R & D expenditure and innoation. The long time
horizon of our data allowed us to search for some
relation between R & D expenditure and innovation.
Assuming that the ultimate goal of research in the
pharmaceutical industry is to develop and commercialize new drugs, we calculated the average R & D
cost of innovation for each company by dividing
total R & D expenditures by the number of innova-

tions introduced over that long period Table 7..


With the exception of SKF and Sterling, the figures
obtained are remarkably close ranging between
US$30 and US$40 million. It should be noted a.
that R & D expenditure for new drugs in the 1950s
was trivial compared to that of the 1980s, and b.
that although the most important, we have covered
only 80% of therapeutic sectors so that companies
must have introduced more innovations than those
we have counted.
We derived in the same way R & D cost figures
per patent granted. Again, the figures are remarkably
close: except for J & J and Schering, the R & D cost
for each patent ranges among companies between
US$0.4 and US$1.0 million.
We may, therefore, conclude that despite of their
shortcomings, the data provide some evidence that
R & D expenditures are related to innovativeness, and
that the average R & D cost of an innovation is of the
same order of magnitude among large pharmaceutical companies.
3.4.3.3. The determinants of company R & D expenditure. Because of the importance of R & D expenditure for companies in research-intensive sectors and
its relation to innovativeness, we have assumed that
the levels of funds devoted to R & D cannot be
decided on a rule of thumb basis. Diversification into
less profitable sectors indicated that there must be
some relation between cash flow and company R & D
expenditure. Also, Fig. 11a and b shows that the
trends of annual R & D expenditure are rather smooth
and run parallel to those of total sales and net profits.
We decided, therefore, to test the hypothesis that
annual R & D expenditures in any 1 year are determined by cash flow and R & D expenditure of the
recent past, namely of the previous 2 years.
3.4.3.4. Empirical results. R & D expenditurecash
flow relationships were tested with an equation model
of the following type:
R & Dj s f S j , Pj .
where R & D stands for R & D expenditure, S for
total sales, P for net profits and j for the jth
company. The explanatory variables S and P were
used to represent the cash flow of each company,

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

which, in turn, was expected to affect the companys


R & D expenditure.
In estimating the above equation, the data were
allowed to determine the particular short-run dynamic form using a general-to-specific methodology
for testing exclusion restrictions, in line with prevalent practice Davidson et al., 1978; Harvey, 1983..
The data were annual time series in constant 1990
US$ for the 19501989 period. The first step was to
test the variables of interest for cointegration, since
otherwise the disturbances will be nonstationary and
either relevant variables are missing or a subset of
the variables are cointegrated and the remainder are
included by mistake Holden and Thompson, 1992..
For a set of variables to be cointegrated it is required
that a. the individual series should be integrated to
the same order, and b. the residuals from fitting the
postulated relationship should be integrated to a lower
order than the individual series Engle and Granger,
1987..
As far as our companies data were concerned,
the relevant DickeyFuller DF. and Augmented
DickeyFuller ADF. tests for unit roots and stationarity indicate that the hypothesis of a unit root in the
variables included in the above equation cannot be
rejected at least at the 5% level. Therefore, the
variables in question are integrated of order one
w I i .x and we then tested the null hypothesis of
non-cointegration of the variables. The relevant ADF
test Davidson and MacKinnon, 1993. suggested that
this hypothesis should be rejected.
Having established that the variables of interest
are cointegrated, we proceeded with general estimated equations in line with the above model and
gradually imposed parameter restrictions in order to
find our ApreferredB equations. The above model is
estimated for each company by the OLS method
using the following general ADL n, k:m. form:
n

yj,t s a o q

a i yj,ty1 q bk ,i x j, k ,tyi q u j,t ,


is1

k s1 is0

where y is the dependent variable, xk is the k th


explanatory variable and u t is a white noise disturbance. In this form, the lagged dependent variables
presence can be justified per se, namely R & D expenditure of the previous period is expected to affect
next periods one for reasons related to trend and

567

expectations. Besides, however, the lagged dependent variables presence results from a number of
economometric models distributed lags, partial adjustment, etc.. Wallis, 1979., which provided extra
justification for its inclusion.
Due to sample size limitations, two lags were
introduced in each of the dependent and the explanatory variables. Nonsignificant lags were excluded on
the basis of the F-test and the Likelihood Ratio test
for the validity of exclusion restrictions. After an
efficient specification search, the more parsimonious
representations were the following:
Abbott.
)))

))

R & D . t s y0.647 q 0.938 R & D . ty1 q0.099 Pt ,


9.432 .

y0.837 .

2.112 .

where R 2 s 0.992, F s 2266.705, LM s 1.592,


ARCHs 1.078, RESET F . s 4.654.
Merck.
)))

R & D . t s 0.262 q 0.764 R & D . ty1


0.339 .

5.353 .

))

q 0.303 R & D . ty2


2.000 .
)))

q 0.020 St y Sty2 . ,
2.757 .

where R 2 s 0.995, F s 3002.015, LM s 2.477,


ARCHs 1.531, RESET F . s 1.609.
Johnson & Johnson.
)

R & D . t s 3.908 q 0.360 R & D . ty1


0.531 .

1.906 .

)))

q 0.634 R & D . ty2 q 0.018 Sty2


3.272 .

1.962 .

y 0.141 Pty1 ,
y1.980 .

where R s 0.974, F s 175.330, LM s 0.397,


ARCHs 0.289, RESET F . s 0.600.
Warner-Lambert.
)))

)))

R & D . t s 4.736 q 1.298 R & D . ty1


2.822 .

20.808 .

)))

))

q 0.051 St y Sty1 . y 0.098 Pt


5.900 .
)))

y 0.119 Pty1 ,
y3.979 .

y2.565 .

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

568

where R 2 s 0.976, F s 278.617, LM s 1.267,


ARCHs 0.253, RESET F . s 2.377.
Sterling-Winthrop.
))

where R 2 s 0.997, F s 3256.690, LM s 1.140,


ARCHs 1.532, RESET F . s 7.543.
Upjohn.

)))

R & D . t s 12.987 q 0.930 R & D . ty1


2.353 .

)))

11.539 .

)))

3.180 .

))

q 0.188 Pt y Pty1 . y 0.209 Pty2 ,


4.863 .

y 2.409 .

where R 2 s 0.951, F s 93.204, LM s 5.848, ARCH


s 1.284, RESET F . s 1.983.
Bristol-Myers.
))

R & D . t s y0.983 q 0.470 R & D . ty1


2.529 .

y1.052 .

)))

y R & D . ty2 q 0.476 Pt ,


53.693 .

where R 2 s 0.991, F s 2100.779, LM s 6.273,


ARCHs 6.504, RESET F . s 3.928.
Lilly.
)))

R & D . t s y0.965 q 1.161 R & D . ty2


44.233 .

y0.604 .
)))

q 0.273 Pt y Pty1 . ,
5.350 .

where R s 0.984, F s 1141.137, LM s 7.647,


ARCHs 18.392, RESET F . s 6.044.
SKF.
))

R & D . t s y0.223 q 0.219 R & D . ty1


2.064 .

y0.518 .
)))

)))

q 0.477 R & D . ty2 q 0.104 St y Sty2 .


5.012 .

9.684 .

)))

)))

)))

y 0.228 Pt q 0.195 Pty1 q 0.211 Pty2 ,


2.951 .

y5.842 .

2.924 .

where R s 0.998, F s 3353.708, LM s 1.245,


ARCHs 5.667, RESET F . s 0.507.
Schering-Plough.
)))

R & D . t s 0.082 q 0.699 R & D . ty1


0.274 .

4.866 .

))

)))

q 0.306 R & D . ty2 q 0.011 St


1.946 .
))

3.403 .

)))

q 0.009 Sty2 y 0.111 Pty2 ,


2.137 .

5.450 .

)))

R & D . t s 2.289 q 1.113 R & D . ty1 q 0.007 Sty2


29.527 .

1.874 .

)))

y 0.179 Pty1 ,
y3.920 .

where R 2 s 0.995, F s 2839.208, LM s 3.685,


ARCHs 0.038, RESET F . s 4.101.
R 2 is the coefficient of determination adjusted for
df, F is the regression F-statistic, LM is the x 2 test
for residual autocorrelation, ARCH is the Engles
1982. x 2 statistic for autoregressive conditional
heteroscedasticity, RESET F . is the Ramseys
1974. F-statistic for functional misspecification,
with the t-values of the respective regression coefficients appearing in the parentheses ) denotes significance at the 10% level, ) ) at the 5% level, and ) ) )
at the 1% level..
Before discussing the results, the following points
are worth making. First, and as already noted, the
exact form of the equation of each company resulted
from the data and estimation procedure. Accordingly, the difference in the right-hand side of the
equations resulted from accepted equality restrictions
on the more general forms. Second, all conventional
econometric tests were passed by our preferred equations, with the exception of the RESET F . test for
the LILLY and SCHERING equations and the ARCH
test for the LILLY equation. This suggests that the
econometric results are reliable.
With the above explanations, it now feels safe to
proceed to the results, which suggest the following.
a. The cash flow variables appear to affect significantly R & D expenditure in all regressions. Most of
the regression coefficients are significant at the 15%
level, indicating that the inclusion of the respective
independent variables in the equations adds considerably to the explanation of R & D expenditure.
b. The explanatory power of the regressions is
extremely high, even for time series. The variation of
the explanatory variables explains 95.199.8% of the
variation of R & D expenditure in all equations. This
suggests that even if there were other noncash flow

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

factors, which could appear as explanatory variables


in the regressions, their impact on R & D expenditure
would prove trivial.
c. Overall, the results support the R & D expenditurecash flow strong relationship.
Thus, annual R & D budgets are determined by
cash flow and the level of R & D expenditure of the
recent past. Continuity in the support of the research
function is essential because of the long-term horizon of medicinal innovation projects and because
R & D departments and their highly specialized researchers represent a valuable resource that cannot
be upset by frequent or abrupt changes in the allocation of funds.
To conclude, large pharmaceutical companies
were able to survive the upheavals associated with
the succession of generations of medicinal technologies by their strong commitment to R & D and innovation, by the high profitability of new drugs, by the
development of CTTs, and by their adaptability to a
changing competitive environment. The latter was
achieved by means of drastic structural changes including mergers and acquisitions of companies within
or outside the pharmaceutical sector by which they
widened their markets and the scope of their technologies and ensured company growth and cash flow
commensurate with the expectations of investors and
their needs for further R & D and innovation. Lastly,
the relation between cash flow and R & D expendi-

569

ture combined to the fact that the average R & D cost


of a new drug is of the same order of magnitude
among firms, accounts for the strong innovative
record of large companies compared to that of smaller
competitors even when the latter are more researchintensive, i.e., spend a higher percentage of their
income on R & D.
3.5. The competitive advantage of national pharmaceutical industries
Technologies since the 18th century originated in
a handful of West European countries, the USA and
Japan and technological advance was successively
led by Britain, Germany, the USA and Japan. In the
case of the pharmaceutical industry, the USA,
Switzerland, Germany, Britain and France contributed more than 80% of all the innovations Section 4., their exports exceeded 60% of worldwide
trade, and were the home countries of nearly all the
large innovative companies Tables 8, 9..
The competitive advantage of national industries
was studied by economic historians, historians of
science and technology and scholars of business and
management Bernal, 1954; Servan-Schreiber, 1968;
Landes, 1970; Mokyr, 1990; Porter, 1990., and was
attributed to a score of factors including: a strong
higher education system, a technically well-trained
and abundant work force, the presence of specialized

Table 8
The competive advantage of national pharmaceutical industries 1988.
No.
1
2
3
4
5
6
7
8
9
10
11
12

Industry
USA
GERMANY
SWITZERLAND
UK
FRANCE
ITALY
NETHERLANDS
BELGIUM
DENMARK
SWEDEN
HUNGARY
JAPAN

Value of exports
in million US$.

Exports % of
world exports

Medicines

Of which
Active ingredients

3540
4000
3172
2800
2345
1282
1040
1026
840
830
740
721

13.4
15.1
12.0
10.5
8.8
4.8
4.0
3.9
3.2
3.1
2.8
2.7

47.5
66.0
67.3
78.6
80.0
48.5
89.0
70.5
78.0
94.0
62.0
22.3

52.5
34.0
32.7
21.4
20.0
51.5
11.0
29.5
22.0
6.0
37.0
77.7

Source: R. Ballance, J. Pegany, H. Forstner, The Worlds Pharmaceutical Industries Edward Elgar, Aldershot, 1992..

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

570

Table 9
The largest pharmaceutical companies 1990.
No.

Company

Country

Drug sales

Market share

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

MERCK
BRISTOLrSQUIBB
GLAXO
JOHNSON & JOHNSON
SMITH KLINE BEECHAM
CIBA-GEIGY
AMERICAN HOME PRODUCTS
HOECHST
LILLY
BAYER
ROCHE
PFIZER
SANDOZ
RHONE POULENC
UPJOHN
SCHERING-PLOUGH
BOEHRINGER
MARION MERRELL-DOW
ICI-STUART
WARNER-LAMBERT
LEDERLE
BURROUGHS-WELLCOME
TAKEDA
SCHERING

US
US
UK
US
UK
SW
US
GE
US
GE
SW
US
SW
FRA
US
US
GE
US
UK
US
US
UK
JP
GE

5700
5260
5180
4455
4322
4224
3912
3845
3680
3260
3240
3234
3230
3160
2400
2330
2310
2260
2150
2080
2000
1880
1700
1530

3.8
3.5
3.3
3.0
2.9
2.8
2.6
2.6
2.5
2.2
2.2
2.2
2.2
2.1
1.6
1.6
1.5
1.5
1.4
1.4
1.3
1.3
1.1
1.0

Source: Sanford C. Bernstein and Co.

research-intensive companies and supportive industries, a strong home market demand and the relative
price of factor inputs.
3.5.1. Driing forces for TI and the competitie
adantage of national pharmaceutical industries
Although some of these factors have contributed
to the concentration of the pharmaceutical industry
in very few countries, we shall argue that for research-intensive industries, which have depended on
technological advance throughout their history, the
geography of technological advance and the competitive advantage of national industries were determined to a considerable extent by the intensities and
synergies of the driving forces for TI, which, apart
from their fluctuations over time, are strongly influenced by national environments.
3.5.1.1. Scientific adance
Scientific knowledge is widely conceived as flowing freely across national boundaries because of the

speedy communication and publication of the findings of academic research. However, this is only part
of what happens in reality: the creation of knowledge
and its application are strongly influenced by national environments and its diffusion across borders
is tempered by the presence or absence in universities or companies of the skills required for its assimilation and also by barriers raised by industrial and
commercial interests.
A countrys academic institutions, however large
and wealthy she is, may excel in a few or many but
certainly not in all scientific disciplines. Universities
and research-intensive companies cooperate within
rather than across national frontiers. Indeed, some
studies have shown that this cooperation is even
stronger whenever universities and companies are in
close geographical proximity within the same country Cockburn and Henderson, 1995.. Thus, the specialization and scientific leadership of academic institutions are strongly related to the specialization
and excellence of a countrys research-intensive industries. Examples: chemistry and the German

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

dyestuffsrchemical industry; mechanicalrelectrical


engineering and the French motor car, railways,
aircraft and power generation industries; chemical
engineering and the American oil refining, petrochemical and chemical plant construction industries.
The pharmaceutical industry has depended
throughout its history on advances in a score of
scientific disciplines: medicine, physiology, organic
chemistry, pharmacology, bacteriology, biology, enzymology, molecular biology, and because of this
dependence, innovative companies were established
only in countries with robust academic systems,
research schools Geison, 1981. and other institutions, which had attained excellence in many of these
disciplines Section 4..
3.5.1.2. Goernment legislation
The pharmaceutical industry is the most closely
regulated manufacturing sector because of the significance of medicines for public health, and of public
health insurance systems, which are in most countries the industrys most important customers. Regulation of companies business practices, pricing of
medicines by Government Agencies, measures to
protect domestic markets, patent legislation, wartime
measures to ensure availability of drugs, regulations
for the testing and approval of new drugs, and
AWelfare StateB legislation have contributed in a
positive or negative way to the growth and competitiveness of national pharmaceutical industries.
3.5.1.3. Societal needs
The perception of and sensitivity towards societal
needs is influenced by a nations history, culture,
values and political system of government. Public
medical and medicinal research laboratories, public
funding of medicinal R & D and of national health
insurance systems created competitive advantages
for national pharmaceutical industries by enhancing
innovation, strengthening demand and making it independent of the effects of business cycles.
3.5.1.4. Market demand
A strong domestic market can create competitive
advantages for national industries Porter, 1990. but
in the pharmaceutical industry this happened only in
the case of the American industry. The Japanese and
French marketssecond and third in sizehad a

571

rather negative effect on the competitivity of their


pharmaceutical industries because, due to protectionist government measures, the companies were led to
concentrate on the development of imitative
medicines for home consumption rather than of original drugs for the world markets. Access to foreign
markets was essential not only for small countries
like Switzerland, the Netherlands, Denmark, Belgium and Sweden but also for the most populous
because the ability of pharmaceutical companies to
compete worldwide is indispensable. Penetration of
overseas markets was affected, in turn, by geography, traditional bilateral and multilateral relations
and alliances, even by language.
3.5.1.5. Raw materials
Abundance, access and, sometimes, scarcity of
raw materials have enhanced the competitive advantage of national industries even before the advent of
the industrial revolution. In the case of the pharmaceutical industry, access to sources of tropical medicinal plants 1800s. and coal tar derived organic
chemicals 1880s. created competitive advantages
for the French, British and German industries.
3.5.1.6. Competition, R & D-intensie companies and
CTTs
In a competitive environment largely determined
by the performance of private companies, the competitive advantage of national R & D-intensive industries should be sought primarily in the qualities and
characteristics of these companies. Most national
pharmaceutical industries are composed of hundreds
of companies but those among them, which showed
strong competitive advantages, owe that to a handful
of large R & D-intensive companies, which have introduced the great majority of new medicines Table
4..
Driving forces, which are influenced by the national environment, create opportunities for RIs that
can, and are, seized by national companies. However, the locus of an RI does not necessarily create a
competitive national advantage as were the cases of
mauveine in dyestuffs, bakelite in plastics, the transistor, colour TV, video recorder, CD player in
electronics, Prontosil and penicillin in antibacterial
medicines, Phenergan in antihistamines, chlorpromazine in CNS drugs. In all these cases, a swift transfer

572

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

of the technology across national boundaries took


place even before the expiration of the original
patents, usually by the innovating companies licensing their overseas competitors, or by government
intervention as was the case with penicillin and the
transistor.
As shown earlier, the temporary advantage gained
by the introduction of a commercially successful
radical innovation RIrMS. is extended over much
longer periods of time if companies pursue their
efforts and establish CTTs. Financial and technological constraints limit the number of CTTs that any
one company can develop however big, prosperous
and creative. Thus, national industries gain competitive advantages when composed of many R & Dintensive companies whose CTTs, put together, cover
most of the technologies and markets of the sector.
This was the case of the German pharmaceutical
industry between 1880 and 1930 and of the American pharmaceutical industry since the 1940s.
3.5.2. The declining influence of national policies on
the driing forces for TI
From the 1880s, when they were established, to
the 1990s, the competitive setting of R & D-intensive
pharmaceutical companies went through three distinct phases.
During the first phase 18801950., they operated
within a national framework of rules and policies
even when their export markets were significant.
Protectionist policies at the turn of the century
Thompson, 1977., the First World War, the economic recession of the 1920s, the depression of the
early 1930s and the preparations for the Second
World War led governments to raise barriers to
international trade, curtail imports and apply policies
of national autarky. Transfer of technology across
national frontiers was very limited and companies
seldom licensed their products and processes to third
parties. Thus, the driving forces for TI were strongly
influenced by the national environment and the companies, which attained excellence during that phase
did so because of the advantages of their home
country. All the large R & D-intensive pharmaceutical companies of today were established during that
period.
In the second phase 19501980., peacetime economic growth and liberalized world trade created a

new competitive environment based on both international agreements and national rules. R & D-intensive
companies became multinational but kept the operations they considered vitalincluding their R & D
departmentsin the home country. Transfer of technology accelerated because of the multinational character of the large companies, the easy movement of
researchers across national frontiers and the
widespread licensing of technologies. Thus, the competitive environment was shaped by both national
and international rules and practices, which also
affected the intensity of the driving forces for TI.
In the third phase 1980 ., the globalization of
financial markets and the expansion of international
trade led to the globalization of the large R & Dintensive companies by direct investments overseas
or by mergers and acquisitions of foreign companies.
Thus, the competitive setting of the pharmaceutical
industry is shaped today by large global companies
operating in the framework of international regulations aimed largely at liberalizing trade. Thus the
effects of national policies on the intensities of the
driving forces for TI became marginal. And yet, a
handful of national pharmaceutical industries still
enjoy substantial competitive advantages because of
their highly competent companies, which consolidated their position in the world markets by research
intensity, CTTs, and corporate growth by mergers
and acquisitions of foreign companies, rendering extremely difficult the entry of new competitors.
4. Historical development of innovation in the
pharmaceutical industry
In previous papers Achilladelis, 1993;
Achilladelis et al., 1987., we have stressed the significance of historical evidence in supporting or
negating findings and conclusions about the dynamics of TI arrived at by quantitative analysis of
inputroutput indicators. This is particularly important for a study that has a time horizon of two
centuries. This section describes the interplay and
synergies of the driving forces for TI that caused the
emergence of five successive generations of medicinal technologies and their role in influencing the rate
of technical change and in creating competitive advantages for some national industries. For a detailed
historical account, see Achilladelis 1999..

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

4.1. The first generation of medicines (18201880)


The first Along-waveB was formed by the clustering of two TTs Table 3, Fig. 2..
4.1.1. Scientific adance and raw materials
The innovations of the first generation were a
consequence of the Chemical Revolution introduced
by Antoine Lavoisier and the French School of
Chemistry at the end of the 18th century Guerlac,
1975.. The adoption of experimental methods in
chemistry made possible a. the isolation and purification of the Aactive principlesB of medicinal plants
e.g., morphine, quinine, curare, belladonna. whose
medicinal properties were known since antiquity or
the Renaissance; and b. the synthesis or isolation
from plants or coal tar of simple organic chemicals,
which were found to possess medicinal properties
e.g., ether as anaesthetic, chloroform as hypnotic,
carbolic acid as antiseptic, salicylic acid as antipyretic. Mann, 1984..
The isolation of Aactive principlesB in pure form
allowed physicians and physiologists to study systematically their physiological effects and gave rise
to the new scientific discipline of pharmacology.
Francois Magendie, Claude Bernard of the College
de France, Rudolf Buccheim of the University of
Dorpat Tartu. in Estonia, and Oswald Schmiedeberg
of the University of Strasbourg were the leaders in
this new discipline Holmstedt and Liljestrand, 1963..
4.1.2. Innoating institutions, market demand and
competition
Medicines of the first generation were discovered
by physicians turned chemists and academic researchers at a time when early capitalist, largely
mercantilistic, economies prevailed Table 10..
Apothecaries, the pharmaceutical companies of that
early period, were mercantilistic importexport enterprises, which traded in medicinal inorganic chemicals and tropical, subtropical or indigenous medicinal
plant products Sneader, 1985. and as such they did
not employ scientists able to follow the leads made
by academics. Mass production processes and machines were not yet invented, e.g., pill-making machines, so that medicines were formulated, prepared
and dispensed by physicians and druggists in small
quantities at a time. Chemical companies, on the

573

Table 10
Geographical distribution of innovations, 18001880 first generation.
No.

Country

1
2
3
4
5
6
7

FRANCE
UK
GERMANY
USA
SWITZERLAND
BRAZIL
NETHERLANDS
TOTAL

Innovations
Academic Industrial Total

14
13
10
3
2
2
1
46

28.
28.
26.
8.
4.
4.
2.
100.

0
1
3
1
0
0
0
4

14
14
13
4
2
2
1
50

other hand, were, up to the 1860s, manufactures of


inorganic chemicals alkalis, acids. sold in bulk to
the textile, soap and glass industries. A few inventors
became entrepreneurs: Joseph Pelletier and Joseph
Caventou who isolated quinine from cinchona bark
established their own manufacture north of Paris;
Georg Merck, an apothecary in Darmstadt who isolated the alkaloid papaverine, began the manufacture
of many alkaloids in pure form; and E.R. Squibb in
New York established a manufacture of medical
grade ether based on a process he developed
Liebenau, 1987.. As the rather simple technologies
diffused, some apothecaries added ApureB medicines
to their long lists of plant, animal and mineral powders, syrups and diverse concoctions.
Market demand and competition were weak driving forces for TI during this period as shown by the
small number of innovations. The introduction of
nearly all the innovations by academics and the
absence of IIs indicate the limited role played by
industrial companies Table 10..
4.1.3. The geography of innoation
France was the leading country in medicinal research and innovation having introduced the Chemical Revolution and the experimental method in the
physical and life sciences and modernized its institutions of learning Table 10.. The German States were
quick to adopt these advances and by the middle of
the century took the lead in chemistry and pharmacology Mann, 1984.. British apothecaries led in
the lucrative trade of medicinal plants and showed
no interest in the new scientific developments Mat-

574

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

theus, 1962., British and American physicians contributing to the early innovations as individuals
Haagensen et al., 1943..
4.2. The second generation of medicines (18801930)
The second Along waveB was formed by the
clustering of five TTs Table 3, Fig. 3..
4.2.1. Societal needs
Overcrowding, poverty, malnutrition, lack of running water and public sanitation facilities in the
expanding cities of the industrial revolution Porter,
1997. caused the spread of deadly contagious illnesses, such as smallpox, typhoid fever, tuberculosis,
cholera and diphtheria. Antiquated, filthy and overcrowded hospitals became sources of infections causing very high mortality rates among patients during
and after surgery. Endemic debilitating diseases in
colonial Africa, Asia and Latin America, such as
sleeping sickness, malaria, plague, schistosomatiosis,
spread among indigenous populations and European
settlers and impeded the exploitation of their natural
resources. These acute societal needs drew the attention of physicians, academic researchers, governments and industry to the discovery of medicines,
which could control and cure these diseases Boyd,
1950..
4.2.2. Scientific adance
Most of these societal needs existed at least since
the 1840s when European governments took measures for improving the environment by building
public sanitation facilities but scientific knowledge
was not available for the prevention or therapy of
these diseases. This became possible around the
1870s following the application for that purpose of
historical advances in scientific instruments the
achromatic microscope., organic chemistry synthesis and structure determination., pharmacology identification and evaluation of medicinal properties of
chemicals., physiology the theory of the cell., bacteriology identification of disease carrying microorganisms., and chemotherapy systematic tests of
chemicals on infected animals..
4.2.3. Innoating institutions, market demand and
competition
As in the first generation, most of the medicinal
discoveries were made by physicians and academic

researchers in universities and teaching hospitals but


their development and commercialization were undertaken in many cases by two new institutions: a.
Public medicalrmedicinal research laboratories established by European and American governments in
response to the pressing societal needs and, in particular, for the discovery, manufacture and distribution
of the life saving sera and vaccines e.g., Pasteur
Institute, Lister Institute, Rockefeller Institute, Berlin
Institute for Contagious Diseases, Kitasato Institute.;
b. German dyestuffs companies, especially Bayer
and Hoechst, which, having developed strong inhouse R & D capabilities in organic chemistry
Baumler, 1968; Verg, 1988., saw an opportunity in
applying their expertise to a commercially promising
new sector Behnisch, 1986.. To this end, they established close links with academic institutions and
public medical research laboratories Table 11.. Their
example was imitated at the turn of the century by
the Swiss dyestuffs companies Ciba and Sandoz and
the pharmaceutical company Hoffman LaRoche
Roche. Riedl, 1990., and by the French chemical
companies Poulenc Freres
and Etablissements du
`
Rhone
Robson, 1990.. The entry of these research
conscious companies led to the establishment of the
modern pharmaceutical industry and introduced market demand and competition as effective driving
forces for innovation. This is shown by the introduction of both RIs and IIs since the 1890s most of
which were academic discoveries developed by
chemical companies Fig. 3..
The invention of pill-making machines and industrial manufacturing processes helped transform many
apothecaries into manufacturing apothecaries, which
organized marketing, distribution and sales departments to reach and sell their prepackaged pills,
powders and syrups under registered trademarks to a
widening clientele of drugstores and hospitals rather
than directly to the consumer. By the 1910s, and
especially during the Great War, when German drugs
became sparse, manufacturing apothecaries began to
invest in inhouse R & D and produce sera, vaccines
and synthetic medicines e.g., Burroughs-Wellcome,
Parke-Davis, Abbott, Lilly, E. Merck, K. Mulford..
Thus, most large pharmaceutical companies of today
were established during the second generation but
competition remained weak because of their small
number and the domineering position of Bayer and

No.

1
2
3
4
5
6
7
8
9

Country

GERMANY
USA
UK
FRANCE
SWITZERLAND
CANADA
SWEDEN
ITALY
INDIA
TOTAL

Innovations

RIs

MSs

Academic

Industrial

Total

Academic

Industrial

Total

Academic

Industrial

Total

20
6
4
5
2
2
1
1
1
42

62
24
8
3
6
0
0
0
0
103

82
30
12
8
8
2
1
1
1
145

56.
20.
8.
5.
5.
2.
1.
1.
1.
100.

8
0
0
4
0
1
1
0
1
15

27
8
3
5
1
1
1
0
1
40

35
8
3
5
1
1
1
0
1
55

64.
14.
6.
9.
2.
2.
2.
0.
2.
100.

4
3
0
3
0
2
0
1
0
13

21
9
3
1
4
0
0
0
0
38

25
12
3
4
4
2
0
1
0
51

50.
24.
6.
8.
8.
4.
0.
2.
0.
100.

RIs: radical innovations; MSs: market successful innovations.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Table 11
Innovative performance of national pharmaceutical industries in the period 18801930 second generation.

575

576

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Hoechst: the top twenty companies introduced 99%


of all industrial innovations Table 12..

4.2.4. Goernment legislation and the geography of


innoation
Germany introduced all five TTs of this Along
waveB and was the undisputed leader in medicinal
innovation Table 12.. All the driving forces for
innovation were exceptionally strong: her universities led in organic chemistry, pharmacology and
bacteriology; she produced a wealth of coal tar
chemicals, which served as raw materials for synthetic medicines; both domestic and overseas market
demand was very strong on account of her large
population and a near world monopoly in modern
drugs; competition was strong among her few research-intensive companies; societal needs were acute
in a country that was among the leaders of the
industrial revolution in the 19th century; and last,
apart from the establishment of medicinal research
laboratories and Bismarks AsocialB legislation of the
mid 1880s, the German patent law of 1876 applied to
synthetic drugs and proved a key factor for the
prominence of the German industry up to the 1930s.
Monopoly creation in medicines was considered to
be unethical by other European countries, e.g., the
French patent law of 1844 specifically excluded
medicines.
In the USA, the 1902 Licensing Act and the 1906
Pure Foods and Drugs Act, weeded out many drugs
whose claims were unsubstantiated, forced companies to organize inhouse quality control laboratories
and, indirectly, caused the merger of smaller companies to attain the size that allowed them to improve
their scientific capabilities. The 1917, Trading with
the Enemy Act, permitted the manufacture of German patented medicines. Finally, New Deal legislation in the 1930s, which culminated with the 1938,
Food, Drug and Cosmetic Act, separated prescription
from OTC drugs. The requirement of safety data
from clinical tests before approval by the FDA of
prescription medicines, forced pharmaceutical companies to expand their research function. This legislation helped accelerate the progress of the American
companies in the interwar years Table 11. and put
them on the way to the leadership of the industry
Liebenau, 1987..

The absence of patent protection for drugs and


antiquated regulatory legislation delayed the development of the French pharmaceutical industry. This
legislation can be traced back to the 1803 Loi de
Germinal, which gave pharmacists and drugstores a
monopoly in the preparation of medicines Robson,
1990.. After 1919, when industrial companies began
producing prepackaged drugs, the requirements of
this law, which was not abolished, restricted the
scale of manufacturing operations and led to the
establishment of numerous, usually family owned,
small and narrowly specialized companies with inadequate means for R & D and innovation. Only
Rhone-Poulenc
and Institut Merrieux were able to

take advantage of the historical discoveries of the


Pasteur Institute and emerged as strong competitors
during the third Along waveB.
4.3. The third generation of pharmaceuticals (1930
1960)
The third Along waveB was formed by the clustering of six TTs Table 3, Fig. 4..
4.3.1. Scientific adance
Scientific advances that made possible the discovery, development and clinical use of these medicines
were in organic chemical syntheses, natural products
chemistryas vitamins, corticosteroids, sex hormones and antibiotics are all natural products; spectroscopic methods for composition and structure determination requiring very small samples e.g., infrared, ultra-violet and nuclear magnetic resonance
spectroscopy, X-ray crystallography and paper chromatography.; and the development of screening
methods using biological, microbiological, animal
and tissue tests for the evaluation of physiological,
medicinal and antibacterial properties.
Universities and research schools specialized in
these disciplines in many European countries and the
USA and by their close cooperation with pharmaceutical companies helped accelerate the rate of technical change and influenced the geography of innovation, e.g., the Zurich Polytechnic ETH. in Switzerland; the universities of London, Cambridge, Oxford
and the Medical Research Council Laboratory
MRCL. in the UK; the universities of Wisconsin,
Illinois and Chicago, Johns Hopkins, Harvard,

Table 12
Top twenty innovative pharmaceutical companies of each successive drug generation 18801990.
No. Second generation

Fourth generation

Fifth generation up to 1990 .

INNVS RIs

MSs

Company

INNVS RIs

MSs

Company

INNVS RIs

MSs

Company

INNVS RIs

MSs

BAYER GE .
HOECHST GE .
B-W UK .
ABBOTT US .
P-D US .

25
19
8
8
6

11
8
3
0
3

11
8
3
2
3

48
33
30
27
27

19
17
12
14
11

14
18
8
12
10

MERCK US .
LILLY US .
JANSSEN BE .
ROCHE SW .
HOECHST GE .

30
28
28
25
24

14
8
4
4
4

15
10
5
7
6

ROCHE SW .
HOECHST GE .
MERCK US .
B-W UK .
BRISTOL US .

24
18
16
14
13

4
2
7
2
2

4
2
10
2
3

25
62% .
4
4
1
1
1
36
90% .
0
0
1
0
0
1
1
0
1
0
40
100% .

27
69% .
4
0
0
1
1
85% .

CIBA-GEIGY SW .
MERCK US .
ROCHE SW .
LEDERLE US .
RHONErM and B
FR .
Subtotal top 5

73
47% .
6
8
6
5
4
102
66% .
8
4
6
3
3
0
3
3
3
7
142
91% .

62
36% .
7
6
11
5
7
98
57% .
6
8
7
9
4
4
5
3
2
4
150
88% .

Subtotal top 5

34
25% .
8
5
3
6
5
61
45% .
2
4
2
1
3
2
4
2
6
6
92
70% .

43
30% .
8
7
6
4
4
72
50% .
0
4
6
3
4
0
4
6
0
4
102
71% .

Subtotal top 5

17
21% .
3
0
5
3
3
31
38% .
8
3
2
2
0
3
3
1
2
1
56
68% .

21
31% .
4
3
4
0
2
34
51% .
6
2
1
4
2
1
1
1
1
1
54
81% .

Subtotal top 5

66
64% .
6 LILLY US .
5
7 SCHERING AG GE . 4
8 von HEYDEN GE . 4
9 RHONE FR .
3
10 E.MERCK GE .
3
Subtotal top 10
85
83% .
11 ROCHE SW .
3
12 KNOLL GE .
3
13 KALLE GE .
2
14 CIBA SW .
2
15 Dr.BYKE US .
2
16 ARMOUR US .
1
17 SANDOZ SW .
1
18 MULFORD US .
1
19 ZIMMER GE .
1
20 BOEHRINGER GE . 1
TOTAL TOP 20
102
99% .

165
33% .
P-D US .
21
B-W UK .
20
BAYER GE .
19
UPJOHN US .
19
PFIZER US .
18
Subtotal top 10
262
52% .
1
LILLY US.
15
0
SCHERING US .
14
1
SQUIBB US .
13
2
SKF US .
13
0
ICI UK .
13
1
STERLING US .
13
1
HOECHST GE .
12
1
ABBOTT US .
12
0
GLAXO UK .
11
0
SCHERING AG GE . 10
39
TOTAL TOP 20
388
100% .
78% .

135
20% .
CIBA-GEIGY SW . 23
PFIZER US.
22
P-D US .
22
BRISTOL US .
19
UPJOHN US .
18
Subtotal top 10
239
36% .
SANDOZ SW .
14
BAYER GE .
13
AHP US .
13
STERLING US .
15
SKF US .
14
RHONE FR .
14
GLAXO UK .
13
BOEHRINGER GE . 13
ABBOTT US .
13
ICI UK .
12
TOTAL TOP 20
381
57% .

85
22% .
SANDOZ SW .
12
JANSSEN BE .
12
LILLY US .
10
SCHERING US .
10
BEHRING GE .
9
Subtotal top 10
138
36% .
GENENTECH US . 8
MERRIEUX FR . 8
BEECHAM UK . 8
GLAXO UK .
8
P-D US .
8
UPJOHN US .
7
PFIZER US .
7
AHP US .
7
BAYER GE .
6
MERRELL
6
TOTAL TOP 20
211
56% .

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

1
2
3
4
5

Third generation

Company

RIs: radical innovations; MSs: market successful innovations.

577

578

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Columbia and Washington of St. Louis and the


Mayo Clinic of the University of Rochester in the
USA; the Karolinska Institute and the University of
Stockholm in Sweden; the University of Toronto in
Canada; the University of Amsterdam in the Netherlands. Despite the strong contribution of academic
institutions in the discovery of new drugs, it should
be noted that in contrast to previous generations,
only 16 out of a total of 535 innovations 3%. were
introduced by them Table 13.. This important development resulted from the companies R & D intensity, their effective cooperation with academic institutions and the importance of marketing and sales in
the post war competitive environment.
4.3.2. Societal needs and goernment legislation
During the Second World War, governments actively supported innovation and the production of
medicines to provide for the needs of the armed
forces and their civilian population. This was particularly the case of the USA where the Federal Governments research projects on penicillin, corticosteroids
and antimalarials catalysed Hare, 1970. the transformation of many manufacturing apothecaries, e.g.,
Upjohn, Lilly, Sharp & Dohme, Parke-Davis, SKF,
Abbott, and proprietary products manufactures, e.g.,
Bristol-Myers, Warner-Lambert, American Home
Products, Johnson & Johnson, into research-intensive
pharmaceutical companies. The cooperative projects
contributed to the fast diffusion of these technologies
among participating companies so that by the end of
the 1950s, the American industry comprised more
than fifteen R & D-intensive companies, i.e., three to
four times as many as other national industries Tables 12 and 13..
The British Government mindful of the hardship
caused by the lack of critical medicines during the
First World War, e.g., tetanus vaccine, of German
superiority in chemotherapy, and of the low R & D
level in British companies, established in 1941 the
Therapeutic Research Corporation TRC. with the
participation of Boots, May and Baker, the British
Drug Homes BDH., ICI, Burroughs-Wellcome,
Glaxo, and the MRCL, to fund and coordinate
medicinal research in universities and to pool manufacturing facilities for new products DavenportHines and Slinn, 1992.. The TRC contributed to the
manufacture of penicillin and the development of

antimalarials and, especially, to the commitment of


the participating companies in research. In 1948, the
British Government established the National Research and Development Corporation NRDC. for
the development of British inventions and discoveries that the private sector would not support. The
NRDC played a key role in the development of the
cephalosporins 19551964..
During the early post-war period, governments in
many countries followed the example set by Britains
Labour Government and passed AWelfare StateB legislation a central feature of which was the establishment of national health care systems, which, by
providing complete or partial reimbursement of the
cost of medical prescriptions, widened and guaranteed the markets of the pharmaceutical industry McNalty, 1950; Foot, 1973.. Reimbursements ranged
from 100% in Britain and Switzerland, 90% in Japan,
6580% in most European countries, to 10% in the
USA.
4.3.3. Market demand
From the end of the War to the late 1950s, the
American market was by far the most significant
because of the physical destruction of manufacturing
plants and the economic consequences of the War in
Europe and Japan. This gave a strong incentive for
innovation to the American companies, but also to
the Swiss Companies, which had established subsidiaries in the USA and operated as American companies.
A major development during the third Along
waveB, which, together with research intensity, has
characterized since the pharmaceutical industry, was
the adoption of intensive marketing methods aimed
at physicians, hospitals and drugstores. This came
about as a result of competition among American
companies, which was sharpened because of the
increase in their numbers and the accelerated diffusion of the wartime technologies, which facilitated
patent circumvention by molecular manipulation
leading to the commercialization of numerous
medicines with comparable therapeutic efficacies.
There were 535 new medicines introduced by 73
companies compared to just 103 and 21 companies
in the previous period Tables 12, 13.. To defend
their markets, companies began to sell their products
under both the generic chemical. and a trade name

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

trademark. giving medicines the character of proprietary products. To this end, they established large
specialized marketingrsales departments that developed elaborate, highly specialized marketing methods. The importanceand costof marketing grew
exponentially with the internationalization and, later,
the globalization of the markets and the entry of
European and Japanese companies, which also
adopted these practices.
4.3.4. CTTs, competition and geography of innoation
During the third Along waveB the structure of the
pharmaceutical industry took the shape that characterized it at least until the 1980s. The American
replaced the German industry as world leader Table
13.. Between 1930 and 1960, all the driving forces
for TI were exceptionally strong in the USA. With
the exception of the sulphonamides and antihistamines, American companies either introduced or
were major contributors in the TTs of this period.
Many of them created strong CTTs by which they
prolonged their competitive advantages up to the
1960s and beyond Table 5.. The German industry
declined because all driving forces were weakened:
as a consequence of the War, she lost many of her
overseas markets; research laboratories and manufacturing plants were destroyed; academic research
slowed down; her patents became common property
as they were included in the reparations to the Allies.
However, the decline started even before the War:
among the TTs of the third Along waveB, German
companies contributed only the sulphonamides because they were under the spell of their CTTs of the
previous generation. This is manifested by their major innovations of the 1930s1940s, which were
antiprotozoal drugs, hypnotics and analgesics, i.e.,
technologies initiated at the turn of the century.
The Swiss industry enjoyed advantages comparable to those of the American industry having escaped
from the destruction of the War and because of their
subsidiaries in the USA. CTTs were initiated by
Roche vitamins., Ciba corticosteroids, antihypertensives., Geigy antihistamines.. The British industry, which up to the 1930s was composed of many
manufacturing apothecaries and proprietary manufacturers unable to take advantage of the discoveries
made by British universities, began to change under

579

the prodding of the Government during and after the


War: ICI established a pharmaceutical division in
1935 and worked on sulphonamides and antimalarials Reader, 1978.; May and Baker, owned by
Rhone-Poulenc
since 1927, became a leader in

sulphonamides Lesch, 1997.; Glaxo pursued its work


on vitamins began in 1929 and became a leader in
antibiotics Davenport-Hines and Slinn, 1992. and
B-W, the only research-intensive British company at
the time, made important contributions in a score of
sectors other than those of the TTs of the third
generation, including antihypertensives Hill and
Bernbridge, 1986.. The French industry continued to
suffer from the fossilized legislative framework.
Rhone-Poulenc
made outstanding contributions in

cooperation with the Pasteur Institute but by licensing them to American and Swiss companies failed to
fully exploit them commercially. They were protagonists in sulphonamides, discovered the antihistamines
Ennis and Lorenz, 1984., and, in 1952, introduced
chlorpromazine, the first neurolepticrsedative that
revolutionized the treatment of mental illness Thuillier, 1980..
Tables 12 and 13 show the dramatic changes in
innovation and the structure of the pharmaceutical
industry brought about by the third generation of
drugs in terms of numbers of competing companies,
innovations, RIs and MSs. The top five national
industries accounted for 76% of innovating companies and more than 90% of innovations, RIs and
MSs.
The Japanese pharmaceutical industry shows a
poor innovation record at least until the 1980s, which
can be attributed to the interplay of the driving
forces for innovation. In the 1950s, the Japanese
Government adopted measures to create a strong
national industry by strengthening the domestic drug
market and protecting it against foreign competition
Yoshikawa, 1989; Reich, 1990; Anonymous, 1996..
Prices of drugs were set at levels higher than those in
Europe, a universal health insurance system was
legislated, which required very small copayments on
the part of the insured 10%. that, coupled to a
tradition of Japanese physicians to overprescribe
drugs, led to the Japanese becoming second only to
the American drug market US$ 26 billion against
US$ 32 billion.. Barriers were raised against the
operation of foreign companies in Japan forcing

580

No.

Country

Innovating companies Innovations


No.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

USA
SWITZERLAND
GERMANY
UK
FRANCE
TOP FIVE
BELGIUM
NETHERLANDS
SWEDEN
AUSTRIA
JAPAN
DANEMARK
INDIA
ITALY
AUSTRALIA
EGYPT
SPAIN
TOTAL

32
3
8
9
4
56
3
2
4
2
1
2
0
2
0
0
1
73

%
44 .
4 .
11 .
12 .
5 .
76 .

100 .

RIs

Academic

Industrial

Total

3
1
2
2
1
9
0
0
0
0
2
1
2
0
1
1
0
16

267
86
54
52
30
489
8
7
6
3
1
2
0
2
0
0
1
519

270
87
56
54
31
498
8
7
6
3
3
3
2
2
1
1
1
535

RIs: radical innovations; MSs: market successful innovations.

%
50 .
16 .
10 .
10 .
6 .
92 .

100 .

MSs

Academic

Industrial

Total

1
1
0
1
0
3
0
0
0
0
1
1
1
0
1
1
0
8

82
33
19
15
11
160
1
3
2
0
0
0
0
0
0
0
0
166

83
34
19
16
11
163
1
3
2
0
1
1
1
0
1
1
0
174

%
48 .
20 .
11 .
9 .
6 .
94 .

100 .

Academic

Industrial

Total

1
0
0
1
0
2
0
0
0
0
0
0
0
0
1
0
0
3

99
22
23
13
11
168
1
3
2
0
0
0
0
0
0
0
0
174

100
22
23
14
11
170
1
3
2
0
0
0
0
0
1
0
0
177

%
56 .
12 .
12 .
8 .
6 .
94 .

100 .

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

Table 13
Innovative performance of national pharmaceutical industries in the period 19301960 third generation .

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

them to license their products to Japanese companies. As a result, 3540% of drugs in Japan were of
foreign origin including the most widely prescribed.
Furthermore, Japans patent law covered only manufacturing processes but not products encouraging
Japanese companies to develop processes for the
manufacture of existing or slightly modified products
rather than developing original drugs that could not
be adequately protected even in their home market.
Thus, the great majority of Japanese innovations
were imitative drugs developed for the lucrative
domestic market rather than for the world markets.
Under these conditions, both Government and companies underinvested in R & D and innovation and
the industry became highly fragmented: there were
more than 1700 companies with the biggest among
them, Takeda, listed 23rd in the world in 1990
Table 9..
4.4. The fourth generation of drugs
The fourth Along waveB was formed by the clustering of five TTs Table 3 and Fig. 5..
4.4.1. Scientific adance
Innovations of the fourthand fifthgenerations
resulted from a marked shift in the scientific basis of
the industry from chemistry and pharmacology to the
life sciences. This was essential because, in contrast
to medicines introduced that far, which consisted of
Amagic bulletsB that destroyed disease carrying intruders e.g., sera, vaccines, antiprotozoal drugs,
antibacterial sulphonamides and antibiotics. and of
physiological or natural products made synthetically
and used for the treatment of diseases caused by
abnormal deficiencies vitamins, hormones, some
corticosteroids., the most important drugs of the
1960s and beyond were used for the treatment of
chronic physiologicalrpathological diseases cardiovascular, central nervous system CNS., cancer..
Their development necessitated the understanding of
the mechanisms of biologicalrphysiological processes at the cellular level. Paramount among them
was the elucidation of the chemical transmission of
nervous impulses to diverse organs by the identification of chemical transmitters and receptors of the
peripheral autonomic system and the CNS Bacq,
1984.. This made possible the synthesis of hundreds
of new drugs and the understanding of the action of

581

older, serendipitously discovered, cardiovascular and


CNS medicines.
4.4.2. Societal needs and goernment legislation
Governments, because of the research intensity
and profitability of pharmaceutical companies, confined their substantial support of medicinal research
to universities and public medical research laboratories, which concentrated on long-term exploratory
projects for cancer, heart, viral, age debilitating and
less common diseases.
Due to the proliferation of new drugs Table 13.,
many of which simply duplicated the properties of
existing products without offering further therapeutic
advantages, of the overheated competition among
companies, and of the Thalidomide incident 1961.,
governments imposed strict regulatory measures for
the conduct of clinical trials, and the approval of new
medicines, which required the provision on the part
of innovating companies of substantial evidence for
the effectiveness and efficacy of candidate drugs.
The 1962 US Congress, Drug Amendments to the
Federal Food, Drug and Cosmetic Act of 1938 U.S.
Congress 1938, 1962. imposed regulatory procedures
for that purpose, which were strongly criticized by
the American industry because of the delay they
introduced in the approval and commercialization of
new drugs Grabowski, 1976; Commanor, 1986.. A
further criticism, namely that this legislation caused
a slowdown in innovation in the USA between 1964
and 1975, is only partially justified by facts as the
American industry faced then a penury of opportunities for innovation see below.. Similar legislation
was adopted in the 1970s by most European countries and turned out to be beneficial for both the
public and the companies as they minimized the
commercialization of ineffective or harmful drugs.
4.4.3. Market demand
During these decades of worldwide strong economic growth, demand for medicines increased
rapidly. The recovery in the economies of Western
Europe and Japan created new, fast-growing markets
while growth in manufacturing industry and nearly
full employment encouraged governments and companies to raise their contributions for health insurance. Pharmaceutical companies grew in size, some
becoming very large with employment reaching

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

582

30,000 or more. European companies made a strong


comeback while most American companies grew not
only by increasing their drug sales by means of
innovation and a systematic expansion in the European markets by the late 1970s, more than 40% of
their sales were made overseas. but also by horizontal diversification by mergers and acquisitions into a
score of related or unrelated businesses Section 3..
The discovery, development, approval and marketing
of new medicines became a costly process so that
large companies with strong cash flows dominated
since the pharmaceutical industry.

technologies Table 12.. Their share of innovations,


RIs and MSs, however, was significantly reduced by
the entry of numerous newcomers, which must have
played a role for the wave of mergers and acquisitions of the 1980s1990s.
For the American companies that thrived on CTTs
of the 1930s1940s, their technologies reached the
stages of maturity or decline while entry in the
technologies of the fourth generation required substantial and costly reorientation of their R & D. A
certain scepticism concerning the future of the industry spread among company managers who turned to
diversification into less R & D-intensive but growing
sectors of proprietary products to ensure growth
Section 3.. The American companies were challenged by many European firms, which, by the early
1960s, had recovered much of the lost ground and,
as they were not saddled with mature CTTs, introduced most of the TPs of the fourth generation
Table 3.. They did not, however, take full advantage of their discoveries because, with the exception
of the Swiss companies, they had not established
marketingrsales departments in the USA but relied
on licensing them to their American competitors.
Thus, the American industry kept its leadership. The
German industry replaced the Swiss in the second
position. The top five continued to dominate the

4.4.4. CTTs, competition and the geography of innoation


Competition reached its peak during this period as
shown by the commercialization of 672 new
drugscompared to 535 for the third generation
and the substantial increase of innovating companies
from 73 to 126. There was also considerable geographic expansion caused by the entry of many
German, British, French, Japanese and Italian companies as the universal acceptance of the patenting of
medicines removed a key obstacle to innovation
Table 14.. Most of the top companies were the same
but their relative order changed as a consequence of
their success or failure in breaking into the new

Table 14
Innovation performance of national pharmaceutical industries in the period 19601980 fourth generation.
No.

1
2
3
4
5
6
7
8
9
10
11
12
13
14

Country

USA
GERMANY
SWITZERLAND
UK
FRANCE
TOP FIVE
BELGIUM
JAPAN
ITALY
NETHERLANDS
SWEDEN
DANEMARK
HUNGARY
SPAIN
CHECHOSLOVAKIA
TOTAL

Innovating companies

Innovations

RIs

No.

No.

No.

No.

69
14
13
19
4
119
6
3
3
1
3
2
0
0
0
137

50.
10.
10.
14.
3.
87.
4.
2.
2.
1.
2.
2.

100.

79
17
17
15
2
130
7
1
1
2
2
0
0
0
0
143

31
22
3
14
18
88
4
13
9
3
2
3
2
1
1
126

%
24.
17.
3.
11.
14.
70.

100.

RIs: radical innovations; MSs: market successful innovations.

292
88
65
64
46
555
36
25
20
15
10
7
2
1
1
672

%
43.
13.
10.
10.
7.
82.
5.
4.
3.
2.

100.

MSs
%
55.
12.
12.
11.
1.
91.
5.

100.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

industry although other countries industries, notably


those of Japan, Belgium, the Netherlands, Italy and
Sweden raised their share of innovating companies,
innovations, RIs and MSs Table 14..
The improved performance of the Japanese industry was caused by important changes of the regulatory framework introduced in the mid 1970s. To
control the rise of medical expenditures as the economy was slowing down, the Japanese Government
slashed prices by 44% while allowing higher prices
for new drugs and, under pressure from the USA,
relaxed the protective measures against the entry of
foreign firms Yoshikawa, 1989; Reich, 1990.. As
some companies began to introduce original drugs,
the patent law was extended to cover both process
and product. Japanese companies were forced to
compete in the world markets, increased their R & D
expenditures, launched new products abroadalbeit
mostly IIslicensed products and established joint
ventures with foreign companies and initiated a strong
drive for the development of biotechnology.
4.5. The fifth generation of drugs
The fifth Along waveB, which has not yet run its
full course, was formed by the clustering of six TTs
Table 3, Fig. 6. of which biotechnology may revolutionize the industry.
4.5.1. Scientific adance
The major characteristic of the technologies of the
1980s and beyond was the completion of the shift
from organic chemistry, pharmacology and the systematic screening of molecules with promising structures, to the life sciences: physiology, biology, biochemistry, biophysics, enzymology and molecular
biology. The identification and elucidation of the
mechanisms of action of numerous physiological
transmitters and of synthetic medicines, the identification and structure determination of drug receptors
and active sites of enzymes, and computer imaging
technologies, allowed for the design of medicines
with high specificity and replaced, to a considerable
extent, the systematic screening of candidate drugs.
A major advance, whose influence began to be felt in
the 1980s1990s, was the discovery and application
of biotechnology processes recombinant DNA and
monoclonal antibodies. in the production of physio-

583

logical proteins used in therapy or diagnosis of many


diseases, particularly cancer, viral and age debilitating diseases for which relatively little progress was
made that far. Research schools in biotechnology
were formed in universities, particularly in California
and Massachusetts but also in Britain, France and
Germany. Some of their leaders became entrepreneurs and established small biotechnology firms
to develop and commercialize their discoveries.
4.5.2. Societal needs and goernment legislation
Widespread unemployment, the aging of the population and policies adopted for the contraction of
the public sector in Europe and the USA, led to the
curtailment of public support for health care insurance, i.e., to a reversal of a trend that had began 150
years ago. To keep their expenditures within the
limits set by decreasing budgets, public and private
health care agencies advocate the use of cheaper
drugs and, especially, generic drugs rather than expensive new ones, use their buying power as major
clients to obtain lower prices from companies, and
raise the contributions of the insured. Under these
conditions, many people and especially the unemployed cannot afford health insurance while in Eastern Europe, Asia, Africa and Latin America, large
segments of the population cannot afford to buy
medicines at all. Diseases that were nearly eradicated, such as tuberculosis, diphtheria, cholera,
meningitis and malaria, made a comeback among the
poor in both industrialized and third world countries.
Societal needs became less significant as a driving
force for innovation.
4.5.3. Market demand, competition and geography of
innoation
The strong innovation record of the 1950s, 1960s
and 1970s caused the technological and market maturity of some of the major sectors of pharmaceuticals, such as antihypertensives, analgesicsrantipyretics, antibacterials and CNS medicines, for which
numerous effective drugs became available in the
1980s1990s as generics and nonprescription drugs
OTC.. Companies directed their research to cardiovascular, age debilitating, cancer and viral diseases,
which represent the sharpest current needs and the
strongest potential markets. This situation of maturity of a significant segment of the pharmaceutical

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

584

industry while another showed revolutionary advance led companies, on one hand, to integrate vertically into generics and OTCs and, on the other hand,
to maintain a strong commitment to R & D and innovation.
The delocalization in the 1980s of many technologically mature, low profitability, manufacturing
sectors to third world countries, created a strong flow
of capital towards research-intensive sectors. Pharmaceutical companies, because of their strong innovative record, the promise held by the revolutionary
advances in the life sciences and their vastly improved profitability caused by the introduction of
AblockbusterB drugs, attracted the keen interest of
investors so that the prices of their stocks reached
unprecedented levels. As the manufacture of pharmaceuticals alone guaranteed both corporate growth and
high profitability, companies divested their nonpharmaceutical businesses and invested the proceeds in
mergers and acquisitions within the health care sector including generics manufactures and drug distributors James, 1990.. The formation of very large,
vertically integrated global companies led to an unprecedented concentration of the industry and the
reduction in the number of competing firms, a char-

acteristic of industrial sectors whose technologies


and markets approach maturity Fig. 10.. On the
other hand, venture capital, which became available
to academic research teams, led to the formation of
hundreds of small biotechnology firms. This was the
first time in the 20th century that a new technology
was introduced by newcomers rather than by the
large innovative pharmaceutical companies. To avoid
a Schumpeterean Acreative destructionB, pharmaceutical companies either formed joint ventures or acquired some of the most successful biotechnology
firms. By applying their immense financial and technical resources to the development and marketing of
the biotech firms discoveries, they entered into a
process of assimilation of the new technology, which
is still in progress Galambos and Sturchio, 1998..
The Japanese industry made significant progress
and overtook France in the fifth position Table 15..
The American industry kept its position at the top
particularly because of the leadership of American
universities in biotechnology, but many European
companies by their innovations, mergers and acquisitions of American companies, expanded their markets worldwide and competed at a par with the large
American companies. Thus, by the 1990s, pharma-

Table 15
Innovation performance of national pharmaceutical industries in the period 1980 1993 fifth generation.
No.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Country

USA
GERMANY
SWITZERLAND
UK
JAPAN
TOP FIVE
FRANCE
BELGIUM
ITALY
SWEDEN
DANEMARK
NETHERLANDS
SPAIN
HUNGARY
YUGOSLAVIA
AUSTRIA
TOTAL

Innovating companies

Innovations

No.

No.

34
14
3
10
20
81
11
3
7
5
3
2
2
1
1
1
117

%
29.
12.
3.
9.
17.
69.
9.
3.
6.
4.
3.

100.

RIs: radical innovations; MSs: market successful innovations.

147
44
45
43
31
310
22
15
12
11
3
2
2
1
1
1
380

RIs
%
39.
12.
12.
11.
8.
82.
6.
4.
3.
3.

100.

No.
52
8
8
6
1
75
3
0
2
1
0
0
0
0
1
0
82

MSs
%
63.
10.
10.
7.
91.
4.

100.

No.
36
5
9
9
1
60
2
3
0
2
0
0
0
0
0
0
67

%
54.
7.
13.
13.
90.
3.

100.

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

ceutical companies became truly global and comparisons among national industries became largely irrelevant.

5. Conclusions
From its establishment in the mid 19th century to
this day, the pharmaceutical industry was one of the
most research-intensive and innovative sectors of
manufacturing. It offers, therefore, an extremely interesting case for a long-term study of the dynamics
of TI.
Our analysis was based on both empirical and
historical evidence and was carried out in the light of
established macroeconomic theory of technical
change. Most of our findings agree with that theory
but there are also discrepancies, some of which may
be attributed to characteristics unique to the pharmaceutical industry. As it is inevitable that other research-intensive sectors have also their own special
characteristics, a set of similar empiricalrhistorical
studies of the handful of research-intensive sectors
will ascertain which factors are industry-specific and
which are innovation generic and will lead to a
deeper understanding of the dynamics of TI.
Our main findings may be summarized as follows.
5.1. Driing forces of TI
Historical and empirical evidence concerning the
timing of introduction of RIs, variations in the rate of
technical change, diffusion of technologies, innovative performance of individual companies, and the
competitive advantage of national pharmaceutical industries, showed that they did not depend only on
scientificrtechnological advances and market demand, but also on societal needs, government legislation, new raw materials, competition among firms,
and the creation of CTTs, all of which have acted as
driving forces for innovation. The intensities of these
driving forces and their synergies varied over time
and thus determined the rate of technical change. As
they were influenced also by national environment,
they were largely responsible for the competitive
advantages of national pharmaceutical industries.

585

5.2. Dynamic effects of RIs


Highly original drugs in composition and therapeutic action catalysed the interaction and accelerated the advance of both science and technology,
created strong demand by opening new markets, and
contributed to the growth of innovating companies
because they were usually more profitable than IIs.
5.3. The diffusion of technologies
Highly original in composition and therapeutic
activity, but also commercially successful RIs, which
offered a robust model for imitation while the scientific and therapeutic principles on which they depended, were not fully elucidated at the time of their
commercialization, functioned as TPs and influenced
the direction and rate of technical change. The distribution over time of innovations related to them and
of companies, which entered the sector by an own
innovation bandwagon effect., profile the TTs they
created.
This process of diffusion by imitation provided
the drive for technological advance and for the development of the most important markets but did not
account for all the innovations of a therapeutic sector. Indeed only about 70% of the innovations of our
sample were found to belong to TTs. Systematic
screening of thousands of chemicals, spinoffs from
other sectors, serendipity, etc., led to important
medicines unrelated to the TTs, which for technical
reasons could not be extensively imitated. Thus, the
diffusion of technologies in the pharmaceutical industry was not as straightforward as presented in
macroeconomic models.
5.4. Clustering of TTs: formation of successie generations (long waes) of pharmaceuticals
Innovation distribution patterns showed that TPs
in a number of therapeutic sectors clustered within
relatively short time intervals, and the TTs they
initiated grew, matured and declined in a parallel
way over time spans ranging from 30 to 80 years.
There were five such clusters initiated in the 1820s,
1880s, 1930s, 1960s and 1980s, which gave rise to
five successive generations of pharmaceuticals. The

586

B. Achilladelis, N. Antonakisr Research Policy 30 (2001) 535588

close succession of these generations, shown by their


overlapping at their ends, accounted for the research
intensity and unique innovative record of the pharmaceutical industry over its 200-year-long history.
Historical evidence shows that apart from revolutionary changes in science and technology, each
generation involved also important changes in the
social, legislative and commercial environment of
the pharmaceutical industry and called for substantial
changes in the structure and business practices of the
pharmaceutical companies, i.e., showed similar characteristics with those of Along wavesB in macroeconomic theory of technical change. Furthermore, the
spans of four of the five generations coincide with
those of the Along wavesB of world economic growth
while that of the 1960s has no counterpart in
macroeconomic theory. Thus the development of the
pharmaceutical industry followed closelybut not
absolutelythe pattern of world economic growth.
5.5. Pharmaceutical companies
Despite the great contributions of academic and
public research laboratories in the physical and life
sciences and in medicine, and in the identification of
the therapeutic properties of many compounds, most
new medicines were introduced by pharmaceutical
companies. There are thousands of pharmaceutical
companies all over the world and yet, more than
70% of the innovations of our sample were introduced by 30 companies. Most of them sustained their
creativity and remained in business for more than a
century despite the upheavals associated with the
succession of generations of technologies, i.e., they
were able to ArideB the long waves and escape the
Schumpeterian destruction associated with them.
Their success depended on the following.
i. The establishment of CTTs by means of which
they created long-term scientificrtechnological and
marketing competitive advantages in selected therapeutic sectors.
ii. Their multiproductwithin and outside the
pharmaceutical industrycharacter attained both by
inhouse R & D and by strategic mergers and acquisitions that moderated their dependence on the vagaries of a narrow range of technologies while ensuring adequate rates of growth and profitability.

iii. The consistent high levels of R & D expenditure. Company data show that the number of innovations and patents. is related to the level of R & D
expenditure. Econometric analysis proved that the
level of R & D expenditure is determined by cash
flow. Large, innovative companies applied strategies
by which they sustained strong cash flowsand
R & D expenditureswhen opportunities for innovation became scarce due to the decline of the technologies by which they had prospered in the past.
5.6. The geography of innoation
Despite the universal need for medicines and the
presence of pharmaceutical companies in most countries, the innovative segment of the industry was
highly concentrated in five countries, namely the
USA, Germany, Switzerland, the UK, and France;
their innovations accounting for about 80% of our
sample. This concentration was caused by the national environment of these countries, which, at least
up to the 1970s, strongly affected the intensities of
most driving forces for innovation, and by the creativity, business acumen and export orientation of
their major companies.

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