Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 43

associated with successful drug outcomes. Besides, it is no small feat if the pursuit of
unproductive research trajectories can be detected early and avoided in the future.
Mitigating the uncertainties associated with the success or failure of any specifi c
investigational project is another advantage of research efforts that are broad in
scope. With suffi cient project diversifi cation, the individual project risks get attenu-
ated. As this may lower the overall credit risk associated with the fi rm, it can
improve its access to capital.
Abundant and varied research experiences can contribute to effective learning,
and may strengthen the capacity of the fi rm to adopt external know-how. For exam-
ple, experience with diverse projects can foster more discerning capabilities for
evaluating the applicability of emerging technologies, and may ease the process of
integrating those technologies within the fi rm's own technological stock.
A fi rm with a fairly diverse portfolio of research programs is also in a position to
build an extensive compound library, which in itself becomes a valuable proprietary
asset of a certain market value. Large libraries can assist in generating the leads in
drug discovery and, thanks to high-throughput screening, have become much easier
to work with. Meanwhile, smaller fi rms with no extensive libraries of their own may
need access to the information accumulated in existing libraries. In fact, large phar-
maceutical fi rms have started to trade access to their chemical libraries in exchange
for access to new technologies, highlighting the growing signifi cance of a more
open market for information and technology in the pharmaceutical industry
(Thomke and Kuemmerle 2002 ).
Yet, there can be a signifi cant downside to excessive diversifi cation in drug discov-
ery. For example, research has shown that the simultaneous pursuit of too many project
ideas can exert a negative impact on the probability of converting them into success-
fully launched drugs (Chandy et al. 2006 ). Also, with too many leads in discovery, the
suggested economies of scope can be squandered due to heightened coordination and
monitoring costs. Therefore, lest they spread their resources too thin, fi rms might be
better off focusing on a moderate number of promising ideas.
Economies of scale in drug development . Economies of scale in drug development
can arise from expertise that is easily transferable across different therapeutic catego-
ries because of its more fundamental nature (e.g., knowledge in biostatistics, experi-
ence with organizing large-scale clinical trials, or with obtaining regulatory approval
in foreign countries). Increasingly effi cient operations can result from the availability
of such portable expertise. The project-related cost of having it in-house (as opposed
to seeking it outside the fi rm on an as-needed basis) will decline if the company plans
to engage in multiple development projects requiring the same areas of expertise. 13
13 For instance, Hoffmann-La Roche's Pharma division has established a department called
International Project Management. It is entrusted with the coordination of a resource pool of about
50 highly qualifi ed project managers overseeing the fi rm's dispersed R&D sites around the world,
with the purpose of maintaining quality standards and ensuring consistency in procedures
(Gassmann and von Zedtwitz 1998 ). Upon project completion, these project managers can be
immediately reassigned to projects in other locations, thus enacting fast and seamless transfer of
managerial experience, knowledge, and expertise within the fi rm.