Innovation and Discovery in the Ethical Pharmaceutical Industry

  • Edwin Mansfield
  • John Rapoport
  • Jerome Schnee
  • Samuel Wagner
  • Michael Hamburger


In this chapter, we focus attention on the process of innovation and discovery in one of the most dynamic and research-intensive industries in the American economy—the ethical drug industry. A pharmaceutical innovation is the first application of a pharmaceutical discovery. The distinction between an innovation and a discovery is important in the ethical pharmaceutical industry because the medical benefits of a pharmaceutical discovery cannot be fully realized until the drug is actually produced and distributed to the medical profession.1 Fortunately, it is not too difficult to identify the innovator—the firm that was first to introduce a certain new drug to the market. What is more difficult is to trace an innovation back to its sources.


Small Firm Large Firm Product Category Foreign Firm Sales Level 
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  1. 1.
    The history of penicillin is ample proof that a major medical advance has little medical or economic significance until it is actually applied. The benefits of Fleming’s 1929 discovery were not realized until the widespread use of penicillin during World War II. The history of penicillin has been recorded in considerable detail in several sources. For a condensed description, see J. Jewkes, D. Sawers, and R. Stillerman, The Sources of Invention (New York: W. W. Norton, 1970), pp. 23–25 and 338–339.Google Scholar
  2. More extensive accounts are provided in L. J. Ludovici, Fleming-Discoverer of Penicillin (London: Andrew Dates, Ltd., 1952);Google Scholar
  3. Ruth Fox, “A Science Milestone-Sir Alexander Fleming and the Story of Penicillin,” Science Digest (September 1953);Google Scholar
  4. Alexander Fleming, Penicillin-Its Practical Application, second ed. (London, 1946).Google Scholar
  5. 2.
    See J. Enos, “Invention and Innovation in the Petroleum Refining Industry,” in The Rate and Direction of Inventive Activity (Princeton, N.J.: Princeton University Press, 1962).Google Scholar
  6. 3.
    The American Medical Association Commission on the Cost of Medical Care, The Cost of Medical Care, Vol. III, (Chicago: American Medical Association, 1964).Google Scholar
  7. 16.
    For example, see Joseph Schumpeter, Business Cycles (New York: McGraw-Hill, 1939).Google Scholar
  8. 17.
    For further discussion of these views, see John Kenneth Galbraith, American Capitalism (Boston: Houghton Mifflin, 1952);Google Scholar
  9. A. Kaplan, Big Enterprise in a Competitive System (Washington, D.C.: The Brookings Institution, 1954);Google Scholar
  10. Edwin Mansfield, The Economics of Technological Change (New York: W. W. Norton, 1968).Google Scholar
  11. 18.
    E. Mason, “Schumpeter on Monopoly and the Large Firm,” Review of Economics and Statistics (May, 1951).Google Scholar
  12. 20.
    Primary sources of sales data were F-D-C Reports; J. F. Bohmfalk, “Markets for Pharmaceuticals,” Chemical and Engineering News (November 30, 1963), p. 5012;Google Scholar
  13. Arthur D. Little, Inc., “The Technology Behind Investment” (Cambridge, Mass., 1952).Google Scholar
  14. Sales data was also obtained from the following unpublished MBA theses written at the University of Pennsylvania: B. L. Brussock, “An Investment Analysis of the Ethical Drug Industry, 1946–1955” (1957);Google Scholar
  15. J. J. Hughes, Jr., “The Pharmaceutical Industry, 1953–1957” (1959)Google Scholar
  16. P. Capen, “An Economic Analysis of the Pharmaceutical Industry” (1959).Google Scholar

Copyright information

© W. W. Norton & Company, Inc. 1971

Authors and Affiliations

  • Edwin Mansfield
    • 1
  • John Rapoport
    • 2
  • Jerome Schnee
    • 3
  • Samuel Wagner
    • 4
  • Michael Hamburger
    • 5
  1. 1.Wharton SchoolUniversity of PennsylvaniaUSA
  2. 2.Mount Holyoke CollegeUSA
  3. 3.Columbia UniversityUSA
  4. 4.Temple UniversityUSA
  5. 5.Federal Reserve Bank of New YorkUSA

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