Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 44

Economies of scope in drug development . Economies of scope can be expected in
drug development too as it relies on a wide range of diverse skills—from clinical
pharmacology to biostatistics and metabolic chemistry. The participation of scien-
tists and technicians whose focus is to determine the best way to manufacture and
deliver the new compound (e.g., process chemists, operations engineers, or packag-
ing experts) is also required at this stage (Cockburn and Henderson 2001b ). Hence,
enhanced productivity can be attained if the fi rm has developed diverse yet syner-
gistic competencies, has installed the needed infrastructure (systems, technology,
equipment, software), has invested in inimitable resources shared across the fi rm's
various programs (specialized centers and units, expert knowledge, physician net-
works, sales contacts), and has established the right coordination mechanisms to
effi ciently manage a multitude of research activities and processes.
Just as with drug discovery, a diversifi ed research portfolio can reduce the varia-
tion in fi rm's procedures and outcomes and, through learning and experience effects,
increase the likelihood of successfully completing clinical trials. For example, a
fi rm might learn to better recognize projects that, based on initial test results, signal
low probability of conversion into successful drugs, and terminate or modify them
early in the process to save time and costs. Experience gained through numerous
NDA fi lings may prompt the fi rm to institute organizational changes to facilitate the
navigation of the FDA approval process. In result, key routines can be optimized
and streamlined, while the high standards and rigorous procedures required by the
FDA can be carried out expertly and more effi ciently.
The advantages of a solid track record of successful innovation outcomes can
in turn translate into steady cash fl ows and help the fi rm attain better visibility and
credibility, bolstering its position in the market. The acquired market power and
enhanced professional clout can make the fi rm more attractive for strategic alli-
ances and partnerships, which can essentially perpetuate its advantageous
position.
The empirical evidence largely supports the presence of economies of scale and
economies of scope in drug discovery (DiMasi et al. 1995 ; Henderson and Cockburn
1996 ). However, there is some ambiguity regarding measurable scale and scope
effects in drug development. Economies of scale effects in drug development have
remained elusive. One possible explanation is that fi rms have only recently started
to enact coordinated project management practices to facilitate smooth transfers
of tacit knowledge across dispersed research sites. With the greater deployment of
such practices, data will become available to better test the premise of economies of
scale through coordinated project management.
Performance advantages associated with economies of scope in drug develop-
ment have been found in Cockburn and Henderson ( 2001b ). The analysis of Sorescu
et al. ( 2003 ) also supports these fi ndings. Specifi cally, Sorescu et al. ( 2003 ) demon-
strate that maintaining a greater scope of products (measured by the entropy in the
product portfolio) enhances the value of radical innovations launched by a fi rm. In
contrast, Danzon et al. ( 2005 ) fi nd that more focused fi rms are more likely to reach
successful completion of Phase 3 clinical trials. They explain their result with dis-
economies of scope .