In virtually every industry, there is a considerable lag between the discovery or invention of a new technology and a practical, marketable product based on the technology. This incubation time represents a delay in acceptance by the market, which is traditionally modeled as a sigmoidal adoption curve of early, middle, and late adopters. Slow acceptance of a new technology can be caused by issues of price, immature technology, or simply the human tendency to resist change.
For example, in the case of the Western pharmaceutical market, economic events linked to war served as a catalyst to significantly shorten adoption time.
In the United States, the Civil War (1861–1865) catapulted E.R. Squibb’s nascent laboratory virtually overnight to the status of the US Army’s primary supplier of painkillers and other pharmaceuticals used on wounded soldiers. Spurred on in part by Squibb’s success, the next several decades were marked by a flurry of activity in the US pharmaceutical industry, including the founding of Parke, Davis & Company (1867), Eli Lilly Company (1876), Abbott Alkaloidal Company (1888), and Merck and Company (1891).
Much of the economic success in the pharmaceutical market in the United States and Europe in the mid-to-late 19th century is attributed to the development of pills as alternatives to the elixirs, powders, and loose herbs used until that time. With the introduction of drugs compressed in pill form, the mass production methodologies developed during the industrial revolution could be applied to the production, packaging, and distribution of medicine. Furthermore, pills were readily accepted by the medical community because they delivered standardized, reproducible dosages of drugs. Pills were considered safer and more effective than alternative forms of drug delivery, because the quantity of active ingredients in tea made from loose herbs varied as a function of the freshness of the herb as well as the time the patient spent steeping the tea, for example.
Although the technologies of pill production were developed in Europe, they were initially exploited by firms in the United States. For example, in the first half of the 19th century, the French developed mass production of sugarcoated pills, and the English developed the first tablet compression machine. In addition, a tablet compression machine was developed in the US during the Civil War. However, the pill wasn’t fully utilized until the spurt of market activity in the US following the Civil War. William Warner began producing pills in 1866, and Parke, Davis & Company commercialized the gelatin capsule in 1875.
Paradoxically, Silas Burroughs and Henry Wellcome, who trained in the United States, brought mass-produced pills to Britain in 1880, where they patented their pill production process. Although not as popular as pills for adult patients, salves, ointments, creams, syrups, and injectables also benefited from the mass production and quality control techniques developed during the industrial revolution.
Leading up to World War I, the chemical revolution was in full swing in Germany, where organic chemists used by-products of coal tar to synthesize dyes, such as indigo, that were costly to extract from natural sources. Germany enjoyed a virtual monopoly on the synthetic dye market.
By chance, many of these dyes and their derivatives, proved to be therapeutically useful. As a result, several pharmaceutical companies were started, often as offshoots of large chemical production facilities. Because of Germany’s expertise in the chemical industry, and its close ties with university laboratories, it became the center of pharmaceutical development. However, to attribute the modern pharmaceutical industry to German entrepreneurship would be to ignore the numerous contributions of scientists and entrepreneurs in other countries.
Consider the path of aspirin to the consumer market. Folk medicine had long identified the medicinal qualities of willow bark. However, it took two Italian scientists to identify the active ingredient in the bark in 1826, and a French chemist to purify it in 1829. A Swiss pharmacist extracted the same substance from a plant, which a German chemist identified. The molecular structure of this compound was identified by a French chemistry professor. Another German modified the compound to its present form so that it wouldn’t cause as much stomach upset. By 1899, the synthetic compound became known as aspirin, and in 1900, the German drug company, Bayer, secured patents on the compound.
Bayer’s success was short-lived, however, even though aspirin eventually became the most popular drug of all time. With the start of World War I in 1914, the patents and trademarks of German factories in countries at war with Germany were sequestered. Forced to stop trade with Germany, many of the countries at war with Germany began manufacturing dyes on their own. What’s more, the 1919 Treaty of Versailles forced Germany to provide its former enemies with large quantities of drugs and dyes as part of war reparations. The United States government confiscated and auctioned off all of Bayer’s American assets, including the names “Bayer” and “aspirin” and associated trademarks—which remained outside the German company’s control until it bought them back from SmithKline Beecham in 1994.
Despite major setbacks from the pre-war pharmaceutical boom, by the 1930s, the German pharmaceutical industry was in modest recovery, producing insulin under license from Canadian researchers, and synthesizing sulfa antibiotics from dyes. In addition, German companies such as Hoechst manufactured penicillin on a large scale through the early 1940s and into World War II. The demand for antibiotics increased dramatically during World War II, sparing the lives of many soldiers with wounds that would have been considered lethal in World War I.
The aftermath of World War II also accelerated the development and production of antibiotics for civilian use, and several new pharmaceutical companies sprang up worldwide to fill the growing demand for antibiotics.
Growth was fueled by the brisk demand for second-generation antibiotics, such as streptomycin and neomycin, because of the bacterial resistance that developed in response to the liberal use of penicillin. The biotech startup phenomena of the 1970s, which was centered in the US, sparked further development in the pharmaceutical industry. These biotech companies were technology driven and primarily run by those with little real experience in the pharmaceutical industry, and with little knowledge of the lengthy drug development process and its associated regulatory hurdles. As a result, most of these firms failed. The ones that survived did so through mergers with other startups and by being acquired by established pharmaceutical companies.