Pharmaceutical Industry: Definitions
Many persons have an idea that one cannot be in business and lead an upright life, whereas the truth is that no one succeeds in business to any great extent, who misleads or misrepresents.
–John Wanamaker
A company is an organic, living, breathing thing, not just an income sheet and balance sheet. You have to lead it with that in mind.
–Carleton S. Fiorina, former Chief Executive Officer of Hewlett-Packard.
It is possible to define the pharmaceutical industry as the collection of companies that discover, develop, manufacture, and market drugs for human use, but this definition is insufficient for several purposes. Although there is a core group of companies that are research based and fulfill all four of these criteria, many others only meet one, two, or three of the four criteria. For example, some companies only manufacture drugs and would be considered as part of the pharmaceutical industry, and some generic companies purchase their products and only market them and are also considered as part of the pharmaceutical industry. In addition, there are many companies that do not directly carry out any of the four functions but facilitate drug development by interacting with companies and providing important services.
There are many examples of this kind of activity. Contract research organizations provide a broad menu of medical, statistical, and other services to pharmaceutical companies. Other companies specialize in recruitment services, providing electronic tools (e.g., for teaching purposes), or a myriad of other specialized services. Consultants are available to provide almost all possible services to the pharmaceutical industry. Market research firms, advertising agencies, and a large number of other organizations also provide a wide variety of data or services. All of these service organizations, individuals, and groups may be considered as part of a broadly defined national or international pharmaceutical industry, although many of these vendors/contractors also provide data or services to other industries as well and would not be generally thought of as being part of the pharmaceutical industry, particularly not the core group of companies that perform one or more of the four basic activities.
Governments that wish to stimulate growth within their national pharmaceutical industry or, alternatively, to tax certain companies want to understand the various categories of companies within this industry. Whether a government legislature decides to define the national pharmaceutical industry in a narrow restricted way or in a broad inclusive way depends on the viewpoint of the legislators and those who influence them.
HOW IS A NATIONAL PHARMACEUTICAL INDUSTRY DEFINED?
A country trying to protect or stimulate growth in its industry will find that defining its national pharmaceutical industry is a complex process. To illustrate this point, six different categories
of companies are described from the perspective of a developed country.
of companies are described from the perspective of a developed country.
Uninational pharmaceutical companies with sales activities that only occur within the country
Multinational pharmaceutical companies with a single corporate headquarters that is located within the country
Multinational pharmaceutical companies with corporate headquarters located in another country, but with relatively large research and development and sales activities within the country
Multinational pharmaceutical companies with corporate headquarters in another country and with a relatively large manufacturing plant or technical development laboratory and sales activity within the country; however, no major research and development group exists within the country
Multinational pharmaceutical companies with corporate headquarters in another country and only relatively small operations for technical development, research, or manufacturing, in addition to sales activity, within the country
Multinational pharmaceutical companies with only sales activities within the country. Sales activities could be extremely large or small within that country.
From an economic perspective, companies in categories 1 through 4 should be included as part of the nation’s industry; they contribute in a significant manner to that country’s tax base and employment. From a strict ownership perspective, however, only companies in categories 1 and 2 would qualify as part of the nation’s industry. Several other factors further complicate this analysis. Any company with headquarters in a foreign country could be partially, or even more than 50%, owned by citizens or corporations in the country of interest. For example, from the US perspective, an American multinational pharmaceutical company could be owned by a Swiss, German, or French multinational company (e.g., a bank or holding company) that may even operate a different business. The opposite situation, in which an American (nonpharmaceutical) company owns a foreign multinational pharmaceutical company, is of particular interest to the definitional issue from the US perspective. If the foreign company (owned by an American company) is a category 3 to 6 pharmaceutical organization in the United States, it could be considered as part of the American pharmaceutical industry.
The definition of a national pharmaceutical industry is affected by issues of control and time, in addition to ownership. Control relates to whether the foreign-based company controls most important decisions within the American subsidiary or whether the subsidiary has at least a semiautonomous position to influence its own direction. Examples of both situations are common in the United States. A subsidiary with more autonomy could play an active role in advancing causes and interests of the American pharmaceutical industry. A tightly controlled US subsidiary (from its parent headquarters) might not have this opportunity. The length of time a company has been operating in the United States and the degree to which it is integrated into the American pharmaceutical industry (i.e., has it joined some or all major trade associations, and does it participate in pharmacopolitics as an active partner with other American companies?) help determine that company’s status and position in the US pharmaceutical industry.
A nation’s pharmaceutical industry is defined according to the perspective(s) of the group making the definition, and this depends on the purpose(s) for which the definition is used. For example, the US International Trade Commission (1991) issued a document in which it defined the US pharmaceutical industry in a relatively narrow way: “The US industry is defined in this book as all producers in the United States, including subsidiaries of foreign-based firms” (italics added). Their restrictive definition was most likely chosen because the International Trade Commission’s study on international competitiveness was based on a request from the US Senate Finance Committee to study three advanced technology manufacturing industries in the United States.
INCLUSION OF NONCOMPANY ORGANIZATIONS WITHIN THE DEFINITION AND SCOPE OF THE PHARMACEUTICAL INDUSTRY
Trade Associations
The definition of an industry should not, in the author’s opinion, be strictly limited to those companies within it but should also include groups, companies, and individuals hired to represent the overall collection of companies. Given this definition, all pharmaceutical trade associations with primarily pharmaceutical companies as members (i.e., companies that discover, develop, market, or manufacture drugs) are part of the pharmaceutical industry. But what about trade associations that have a substantial number of members from other industries (e.g., chemical or cosmetics or communication networks) as well? Should they be considered part of the industry? It seems reasonable that associations should be considered as part of the pharmaceutical industry if a majority of their members are pharmaceutical companies. If trade associations have as part of their mission the promotion, protection, or representation of the interests of the pharmaceutical company members, then they should generally be considered part of the industry. The major functions of trade associations and their interactions with the pharmaceutical industry are described later in this text.
Professional Societies, Associations, or Foundations
The same principle applies to these groups as for trade associations—that is, if a group’s members are primarily from individual pharmaceutical companies and the group’s mission is to support the pharmaceutical industry and its interests, even in a philanthropic way, then it should be considered as part of the industry.
Individuals and Groups Hired by the Industry to Represent Them
Groups or individuals hired by the industry as their representatives should be considered as part of the industry. After those individuals’ contracts expire, they would no longer be considered as part of the industry. A gray area is occupied by individuals who simultaneously maintain contracts within and outside of the industry. If at least 50% (or another percentage) of their time or salary is involved with pharmaceutical companies, then they should be considered as part of the industry.
It is important to define the term hire in this context of who is part of the industry. Does it include an honorarium given
for a talk? Although the answer to this question is generally no, it does represent a gray area, and these people are often viewed as industry representatives (or at least spokesmen if not actual representatives). The main area where this becomes an issue is in the area of conflict of interest, and addressing this question has become a widely debated topic, with issues such as who can be a member of the Food and Drug Administration’s Advisory Committees and how much of a consultation fee precludes that person from being a member to vote on a New Drug Application by the company involved or even one of their competitors. Journal editors are now requiring much more information on stock and other financial ties of all authors on a paper so that readers can evaluate this factor in terms of the data presented and interpretations made.
for a talk? Although the answer to this question is generally no, it does represent a gray area, and these people are often viewed as industry representatives (or at least spokesmen if not actual representatives). The main area where this becomes an issue is in the area of conflict of interest, and addressing this question has become a widely debated topic, with issues such as who can be a member of the Food and Drug Administration’s Advisory Committees and how much of a consultation fee precludes that person from being a member to vote on a New Drug Application by the company involved or even one of their competitors. Journal editors are now requiring much more information on stock and other financial ties of all authors on a paper so that readers can evaluate this factor in terms of the data presented and interpretations made.
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