Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 50

genotypes, and ultimately, mass customization in the form of strictly personalized
medications or therapy (Gassmann and Reepmeyer 2005 ). A new generation of block-
busters driven mainly by breakthrough innovation is still likely to emerge, but may
need a more specialized business model (Gilbert et al. 2003 ).
What are the factors that have brought about greater specialization and
decentralization pressures to the previously highly centralized, vertically integrated
industry? The answer might be found in the specifi cs of the drug innovation process,
its inherent modularity, and the “ticking clock” of patent protection and market
exclusivity.
Commercial considerations still reign supreme in the pharmaceutical industry, as
they do in any other high-tech industry. Yet, the considerable uncertainty related to
a drug's future may prevail. An important point of divergence from other industries
is that in the pharmaceutical industry, decisions to terminate projects are rarely
made on economic grounds. Although the direction of R&D efforts may be guided
by stark commercial reasons (e.g., large markets associated with common diseases
or chronic disorders are most attractive for investors in drug innovation), project
outcomes are driven by modern science and technology and remain constrained by
their limitations. Ultimately, the candidate drug's safety and effi cacy are the true
deal-breakers on the route to market in this industry. Nevertheless, no fi rm can fore-
cast or control them too well.
Furthermore, the drug innovation process can be disassembled into distinct
stages with clear inputs, outputs, and objectives, which can be carried out by the
same fi rm (provided it has the necessary resources), or distributed across differ-
ent organizations. The act of invention, which is central to drug discovery, rests
on fundamental knowledge that can be sourced from various organizations or
disseminated as open science. Drug discovery produces a certain biomolecule, a
tangible and fi nished product in its own right. Thus, it can be separated from the
subsequent stages of clinical development, large-scale manufacturing, and com-
mercialization, each one of which is also self-contained, with distinct and well-
defi ned outcomes.
In line with this notion of modularity in the drug innovation process, a naturally
occurring division of organizational focus and research effort has come to the fore-
front. Considerable effi ciencies can be realized if tasks can be divided across differ-
ent fi rm types based on their idiosyncratic competencies and strengths. As timing is
critical under a limited window of patent protection and market exclusivity, arrange-
ments that can streamline and expedite the innovation process, lower its costs, and
diversify the inherent risks become increasingly attractive.
Hence, a multi-tier system of organizations supplementing each other's compe-
tencies might be best equipped to handle the complexities of modern drug innova-
tion both effi ciently and effectively. In fact, it has already emerged. Three
organizational tiers are involved in pharmaceutical innovation: public sector orga-
nizations provide the fundamental science that essentially maps out the landscape
for subsequent innovations, small biotech fi rms serve as a veritable innovation
engine, conducting cutting-edge research and supplying novel biomolecules, while
large pharmaceutical fi rms , ambidextrous and multifunctional, are particularly