Pharmaceutical industry Summary

  • Last updated on November 10, 2022

The United States leads the world in pharmaceutical research, spending more money than any other industry; in 2007, $58.5 billion was committed to the search for new medicines and vaccines. The U.S. pharmaceutical industry is also one of the nation’s most profitable industries and earns almost half of the entire world’s industry revenues.

The U.S. pharmaceutical industry was thrust into world prominence in 1941, when Great Britain–devastated by World War II–sought help from the United States in the production of penicillin, which had been discovered by Alexander Fleming several years earlier. The manufacturing and distribution processes had to be developed and deployed quickly if they were to benefit the many soldiers in Europe with infected wounds. Fermentation was completed at a U.S. agricultural station by 1943, and the Merck, Pfizer, and Squibb pharmaceutical companies collaborated to produce huge amounts of the “miracle drug.” Meanwhile, Abbott, Lily, Merck, and Frederick Stearns were producing large amounts of Atabrine to treat malaria. Merck was also leading the way in the production of streptomycin, a curative for tuberculosis, and of the new remedy for pernicious anemia, vitamin B12.Pharmaceutical industry

A worker mixes powders for pharmaceutical products at the Parke, Davis, and Company in Detroit, Michigan, in 1943.

(Library of Congress)

During the 1950’s, new technology and instruments were developed, and the pharmaceutical industry continued to develop antibiotics. Many new medicines were developed, including cortisone, more potent tuberculosis medication, anesthetics, tranquilizers, and Thorazine (chorpromazine), an antipsychotic drug. Government funding for scientific research was prominent, especially following the launch of the Soviet satellite Sputnik in 1957. The discovery of polio vaccine by Jonas Salk, and its modification by Albert Sabin, resulted in the marketing of both injected and oral vaccines. The discovery of the structure of deoxyribonucleic acid (DNA) and of the structure of proteins and their functions thrust the industry toward biotechnological medicine. Those discoveries and continuing study of cells, proteins, and DNA provided more possibilities for drug development.

The 1960’s brought forth a proliferation of new drugs to a society that was forever changed by them. The first contraceptive pill was marketed in 1960, and it was followed by the first in-vitro fertilization. Besides experimenting with women’s reproductive systems, scientists had developed tranquilizers aimed at reducing tension. Following the success of Librium (chordizepoxide, an anxiety drug), Valium (diazepam), marketed in 1963 by Roche, soon became the most popular and the most prescribed of the sedatives, tranquilizers, and stimulants available during the 1960’s. The production of high-blood pressure medication escalated, and studies of blood proteins resulted in a huge spike in the sale of plasma products.

Also during the 1960’s, a European morning sickness pill for pregnant women, thalidomide, Safety, consumer;pharmaceutical industrycaused severe birth defects. Though the drug was not marketed in the United States, the uproar over the drug caused concern about the safety of drugs in general and prompted renewed U.S. regulation of pharmaceutical companies. In 1962, Congress amended the 1938 Food, Drug, and Cosmetic Act of 1938Food, Drug, and Cosmetic Act, which banned dangerous drugs and required drug testing for safety, including a stipulation that drugs must be subjected to defined clinical trials before being marketed.


During the 1970’s, the pharmaceutical industry expanded, renewing efforts to find a cure for cancer. The 1980’s posed new complications and problems for the industry. The emphasis placed on treating acquired immunodeficiency syndrome (AIDS) and heart disease resulted in rising costs and some reshuffling within the industry. Some larger companies “partnered” with smaller ones that were in danger of going under, with benefits to both.

Pharmaceutical research and development requires enormous investments to guide any potential new drug on its journeys from a discovered compound through all phases of its development and testing to become a new medication. As the total cost of developing a successful drug includes that of abortive and failed attempts along the way, it has been estimated to exceed $1 billion for the period of development. PatentsPatents secured by the developing company to protect its investment give it the sole right to market the medication for a specified purpose for up to twenty years. After that, other companies can produce cheaper, generic versions of the brand-name medication.

Efforts to offset enormous pharmaceutical costs during the 1980’s involved the rise of Health Maintenance Organizations (HMOs), which emphasized disease prevention. Armed with the potential risk factors of individuals for certain diseases, health organizations focused on the lifestyle choices made by individuals that placed them at risk. The risk of having heart disease, lung and colon cancers, and AIDS all could be influenced by lifestyle choices. The idea of individual responsibility for one’s health was highly controversial.

In 1983, Congress passed the Orphan Drug Act of 1983Orphan Drug Act, which required drug companies to develop drugs for illnesses afflicting fewer than 200,000 individuals. In return, pharmaceutical companies reaped advantages of guaranteed sole rights in the marketing of those medications for a period of seven years, along with huge tax credits to mitigate the costs of development. One of the drugs to emerge from this measure was Azidothymidine (AZT), a medication to slow the growth of AIDS. Initially intended for cancer, AZT had proven ineffective against that disease.

Support for speeding up the approval process for AZT gained ground, but the Food and Drug Administration (FDA), remembering the 1960 thalidomide scandal and fearing the dangers of AZT, insisted on a full period of testing. Eventually, public outcry, protests, and a quick testing period led to the production of AZT by the end of the decade. In 1984, Congress passed the Drug Price Competition and Patent Term Restoration Act of 1984Drug Price Competition and Patent Term Restoration Act, which lengthened the duration of some medical patents and exempted drugs that were the equivalent of those already approved from the clinical trial process, thereby facilitating the proliferation of generic drugs.


During the 1990’s, consolidation within the pharmaceutical industry brought about mergers between many biotechnical companies that experimented with living cells and genetics. Also, the restructuring of the FDA, under pressure from consumer demand and protests, resulted in a loosening of its grip on pharmaceutical regulations. In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003Medicare Prescription Drug, Improvement, and Modernization Act (MMA) to provide medication for the disabled and the elderly–a plan that should increase the revenues of drug companies by billions of dollars.

Further Reading
  • Angell, Marcia. The Truth About the Drug Companies: How They Deceive Us and What to Do About It. New York: Random House, 2004. Blistering attack on drug companies as corrupt organizations that lie about exorbitant costs for research and development to justify high prescription prices. Angell claims their costs really come from marketing, much of which is in the form of bribes for doctors.
  • Carroll, Jamuna, ed. The Pharmaceutical Industry. Detroit, Mich.: Greenhaven, 2009. An examination of the industry that focuses on drug research and development.
  • Ng, Rick. Drugs: From Discovery to Approval. Wilmington, Del.: Wiley-Liss, 2004. Detailed account of the lengthy process of drug development.
  • Shorter, Edward. The Health Century. New York: Doubleday, 1987. This companion volume to a Public Broadcasting Service documentary details the history of vertical health interventions in the twentieth century. Provides insights into the business and the inside politics of the pharmaceutical industry.
  • Vogel, Ronald J. Pharmaceutical Economics and Public Policy. New York: Pharmaceutical Products, 2007. This book, published by an industry publisher, analyzes the cost of developing, manufacturing, and marketing products, and how that is affected by public policy regarding safety, insurance, and patents.

Chemical industries


Drug trafficking

Federal Trade Commission

Food and Drug Administration


Health care industry

Medicare and Medicaid

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