Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 45

This divergence in the empirical fi ndings can be indicative of differential patterns
in scope effects depending on capacity-related organizational characteristics such as
fi rm size. Smaller fi rms may need to focus on fewer therapeutic areas as their
limited resources can stymie effective diversifi cation. For them, specialization and
narrow focus could be the most effective strategies. Large fi rms, however, can afford
to develop expertise in multiple categories as their greater resources enable more
successful diversifi cation.
Still, even the largest and the best-funded pharmaceutical fi rms do not invest in all
therapeutic categories (Henderson and Cockburn 1996 ). Instead, most seem to prefer
to invest heavily in a few large programs, while also sustaining some involvement in
various small programs. Finding the right balance in the research program portfolio
and judiciously allocating the R&D budget across the right mix of diverse projects
can be crucial for successful drug discoveries attained in the most effi cient way.
In sum, discovery and development programs initiated within more diverse
investigation portfolios can enhance the effi ciency of the innovation process and
increase the likelihood of getting FDA approval. The odds are stacked in favor of
large pharmaceutical fi rms that can afford to maintain diverse portfolios and take
advantage of the accrued benefi ts. Still, fi rm size is inherently scalable; organiza-
tional structures can be changed. Identifying possible regimes of size-related impact
and detailing other boundary conditions that can modulate the process of drug inno-
vation and enhance its effi ciency would be a fertile ground for R&D portfolio opti-
mization. Besides, fi rm reorganizations through mergers, acquisitions, spin-offs,
and split-offs are frequent in this industry. They provide natural experimentation
settings for examining various confi gurations of fi rm governance and size. Future
research can elucidate their effects on innovation in fi ner detail.

2.3.2 The Changing Landscape in the Pharmaceutical

Industry

2.3.2.1 Times of Transition for Big Pharma

The pharmaceutical industry is science-driven and technology-dependent in the
extreme. For decades, the discovery of the next blockbuster drug (a drug likely to reach
global sales of more than $1 billion) was seen as the golden grail at the end of the tortu-
ous process of drug innovation. Creating novel drugs was deemed mostly the preroga-
tive of large pharmaceutical fi rms as they were the ones best equipped to succeed.
The pressure to be fi rst-to-market with a drug that offers unique value to millions
of consumers has led to the so-called blockbuster mentality. It has propelled many a
quest for drugs that can address widespread disorders and diseases, generate sky-
high profi ts for the originating fi rm, cement its position as a market leader, and
establish its reputation of a trailblazer and formidable rival. The appeal of creating
a sustainable, lucrative, world-renowned franchise out of a single drug molecule has
been too strong to resist.