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Pharmaceutical Industry Overview - Introduction


" This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

1. Introduction

A. Purpose of Industry Overview - This overview is designed to provide industry-related information to all Large Business and International (LB&I).   This is the first step in the effort of LB&I to develop a greater level of expertise in the industry or industries to which you will be assigned.   This overview is one of a series of industry specific overviews.  See the Appendix for a complete listing of available overviews.

B. Use of the Intranet and Internet - It is anticipated that an industry web page will be established on the LB&I Intranet site that will contain detailed information involving each industry.  The topics included in this overview will be expanded upon and others will be included.  For example, an up-to-date economic analysis of the industry, current and future trends, and links to many other industry related web sites that can assist you in gaining the needed level of understanding of your industry will be included.   

C.    General History of Industry Specialization Program (ISP)





The Service was restructured in 1952 into a highly decentralized organization consisting of seven regions and 58 districts.  This reorganization was implemented in part to achieve greater sensitivity and responsiveness to pubic needs.  District Directors were given wide latitude and authority in administering the Service's policies, procedures and programs.  While decentralization of the Service proved to be a progressive action, communication between the regions and districts was made more difficult because of their quasi‑autonomy.  Positions taken by the Service on industry issues could differ significantly from one region to another on the same issues.


The Service implemented the Industry Wide Examination Program to concurrently examine the major taxpayers in a given industry, coordinate selected issues common to that industry and to resolve those issues uniformly and consistently among all the industry taxpayers.  Under the direction of project coordinators (usually large case branch chiefs), the industry wide examinations were largely successful in achieving uniform and consistent treatment of issues.  Industry wide examinations were conducted in several industries between 1971 and 1979 and the ability to communicate freely across district and regional lines proved to be invaluable to the success of these examinations.


The Industry wide Examination Program had one major drawback.  Since they existed for only two or three tax years and were then terminated, the program failed to provide continuity.  To correct this situation, a major study group was created in 1977 to review the Service's Coordinated Examination Program.  The study recommended that permanent positions be established for several Industry Specialists and a National Industry Coordinator.  In addition, the study group identified basic industries to which it recommended specialists be assigned.  The duties and responsibilities of the Specialists and the Coordinator were to be much broader than the former Project Coordinators whom they replaced.


The recommendations of the study group were implemented greatly expanding the scope and depth of the Industry wide Examination Program.  The term, Industry Specialization Program, eventually evolved as a name that could encompass the varied concepts of Industry Specialists, National Industry Coordinator, Coordinated Issues, and the many refinements suggested by the study group.

D.  History of Pharmaceutical TA





ISP re-established.


Part-time research team member added.


First Coordinated Issue Paper on Medicaid Rebates Approved by AC Exam


IE added to the team

E.   Industry Specialist Staffing (Technical Advisors in LB&I)


Name of Specialist

Telephone #


Email Address

Lou Milano,



Lena C. Lee




Marjory GIlbert
Industry Counsel




Larry Foster, Appeals




F.  LB&I Industry Staffing

The Industry Specialist is assigned to the Pre-Filing and Technical Guidance Division that is a part of LB&I Headquarters.  Each industry is assigned to one of the five Industry Functional Divisions.  Industry Specialists will be known as technical advisors in LB&I and will be supervised by a Manager, Technical Advisors.  Information relative to the management in the Industry Division that this industry is assigned as well as the Manager: of the Technical Advisor(s) of this industry is as follows:





Sergio Arellano

Industry Director

Downers Grove, IL

Lori Nichols

Director Field Operations -  East

Louisville, KY

Jim Roosey

Director Field Operations - West

Downers Grove, IL

Greg Zielinski

Manager, Technical Advisors

Chesterfield MO

G.   History of Industry





Organic chemistry is the foundation of the pharmaceutical industry.  The European beginnings can be traced, in part to the Rhine Valley and Basel, Switzerland.  In the 19th century the Rhine provided power and water for a booming synthetic dye industry.  From the dye industry evolved chemical businesses with three local companies, Ciba, Geigy and Sandoz along with German companies Bayer and Hoechst blossoming into full fledged drug companies.  In 1896, Fritz Hoffman established another pharmaceutical company named after his and his wife’s family, La Roache. 

Early 1900s

The 20th century New Jersey and the surrounding area is the headquarters for many of the premier pharmaceutical companies in the world including, American Home Products, Johnson & Johnson, Warner Lambert,  Merck & Co., Pharmacia-Upjohn, Schering-Plough, BASF, Hoechst, Schering  AG, Hoffman LaRoche, and Novartis.  There are many other medium and small sized biotech, pharmaceutical and chemical companies in the Northeast corridor  from North Carolina to Massachusetts.

New Jersey became the capital of the U.S. pharmaceutical industry back around the turn of the 20th century, George Merck wanted to manufacture the drugs he had been importing from his family’s firm E. Merck in Germany.  His headquarters in New York were too small so he purchased a 150-acre parcel of land in New Jersey near Rahway.  That was the initial move to New Jersey where open space was available.  The State also had lower taxes and access to shipping ports just a short distance from their original New York headquarters.  The exodus began in earnest after WWII. 

Roche moved to New Jersey  in 1929 followed by Ciba –Geigy, Schering, Johnson & Johnson, American Cyanamid, Becton Dickinson

Mid 1900s

In 1950 Sandoz took the plunge to New Jersey.  Hoechst whose original headquarters were in Cincinnati, OH moved in 1974.  In turn the move of these branded companies encouraged generic companies and other chemical companies to take the plunge.  The most recent New Jersey arrivals were Aventis, the merger of Rhone-Polenc and Hoechst, and Pharmaceutical-Upjohn moved from Kalamazoo, MI0.

Late 1900s


New Jersey remains the headquarters for the industry, some companies are moving south.  One of the main destinations is North Carolina, the U.S. headquarters for Glaxo-Wellcome.  They are one of the world’s largest pharmaceutical companies and are currently involved in a proposed merger with SmithKline Beecham.  The biotech industry has found the welcome mat out in several other areas of the country like the Boston/Cambridge area; the San Francisco Bay Area; San Diego, CA; Princeton, NJ; Washington DC metro area as well as Philadelphia and the surrounding suburbs.

Present Day

The biotech industry is just one of the many changes occurring in the search for new cures.  The biggest changes are in research and development as well as marketing.  Much of the reason for the recent mergers is the need to have critical mass and money for research.  Research is where the biggest changes are occurring in this industry.  Where once a researcher was lucky enough to synthesize a few new chemicals entities a year, mass screening can now produce thousands.    

The electrifying discovery of the structure of DNA, by James D. Watson geneticists to tell us what makes each of us individuals.  For pharmaceutical companies it means they will be able to tailor products to our genetic code.  But I am getting ahead of myself.  It took a long time to get here and there were many exciting discoveries critical to the success of the pharmaceutical industry. 

Think back to the days of the wild west where traveling salesmen would sell all types of concoctions as cure-alls.  Some of the cure-all treatments contained cocaine or other highly addictive derivatives.  In the short run these concoctions did make people feel better but.  it usually only lasted long enough for a quick exit from town.  The true frontiersmen learned from the native Indians and their medicine men how to use native plants and herbs.  Tobacco was one of those.

Bayer AG, the German pharmaceutical company is generally credited with the discovery of aspirin.  “The Aspirin Wars” goes behind the scenes of aspirin’s discovery and the legal battles fought to keeps its rights and details the many marketing battles that took place worldwide.  It is believed that aspirin is the highest grossing drug in the world.

Other discoveries include penicillin, polio vaccine, ibuprofen, Tagamet, and Valium.  The need to ensure the quality and safety of the products being sold to the American public. The government passed legislation and later established the Food and Drug Administration.   


Table of Contents | Chapter 2

Page Last Reviewed or Updated: 15-Apr-2015