The Economics of John Kenneth Galbraith by Dunn Stephen P

Author:Dunn, Stephen P.
Language: eng
Format: epub
Publisher: Cambridge University Press
Published: 2011-03-20T16:00:00+00:00

How power is used: the pharmaceutical industry

Galbraith’s perspective on the modern firm offers the prospect of a potentially fruitful analysis of the pharmaceutical industry.30 The pharmaceutical industry is characterized by large multinational firms, such as Pfizer, Roche, Novartis, Sanofi-aventis, and Johnson & Johnson (see table 7). These firms have vast technostructures that undertake huge asset-specific investments in drug development over long periods of time, despite considerable uncertainty about future returns. What is more such investment is undertaken with considerable uncertainty about the future evolution of health policy in different countries and different models of clinical and professional governance.

The fully capitalized cost to develop a new drug can be as high as $897 million, according to the Tufts Center for the Study of Drug Development (DiMasi, Hansen, and Grabowski, 2003). On some calculations it can take up to fourteen years from the point of discovery to bring a drug to market. This fourteen-year period consists of a six-year pre-clinical phase (to assess whether the drug is safe enough to test on humans), a six-year clinical phase of human trials, and a two-year review and approval phase. This process involves a great deal of uncertainty and negotiation with national systems of regulation. According to the Pharmaceutical Research and Manufacturers of America, which may somewhat overstate the case, only five of every 5,000 drugs reach the stage of clinical trials. Of these only 21.5 percent are eventually approved (Tufts Center for the Study of Drug Development, 2002).

Given the high cost of modern drug production, it is natural that the pharmaceutical technostructure would seek to influence consumer response and set prices strategically in a way that allows them to recover their costs across different countries (cf. Goozner, 2004). Drug firms would like to ensure that what they produce (at great cost) is ultimately purchased. Thus it is no surprise that promotional spending is a large share of the industry’s total spending, exceeding

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