Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 52

30 % return on investment for research done in the public sector, when measured by
its effects on the private sector (Cockburn and Henderson 2001a ). This estimate is
2.6 times higher than the average return on innovation in this industry, assessed to
be about 11.5 % (Grabowski et al. 2002 ). Positive externalities like open science
and free information exchange help private fi rms overcome the boundaries of spe-
cialization, and make specialization itself more feasible and desirable. Immediate
access to leading edge, publicly funded science bestows a competitive advantage on
large pharmaceutical fi rms, but is particularly vital as a source of new knowledge,
information, and intellectual stimulation for the emerging biotechnology sector
with its small, research-focused private fi rms.
Notably, the open-science model underpinning interorganizational interactions
and cooperation is sustained by a veritable bidirectional fl ow of information. The
collaboration between the public and the private sector can be mutually benefi cial:
private fi rm researchers, too, can contribute practical experience and expertise, as
well as knowledge (applied or experimental), to their counterparts in the public sec-
tor. The vibrant culture of applied science and the specifi c challenges encountered
in drug innovation can stimulate the publication-driven public sector and reenergize
its efforts by suggesting new research directions.
The ongoing shifts in the industry landscape and the increasing prominence of
new types of organizations can be unsettling for large pharmaceutical fi rms which,
because of their considerable resources, networks, and marketing prowess, are used
to having an uncontested advantage in the complex and expensive process of drug
innovation. After all, outspending, outlasting, or displacing poorly funded small
rivals should come easy for them. Vast intangible assets like experience and reputa-
tion, tacit knowledge, contact networks, or proprietary know-how from years of
intensive and diverse research should have been suffi cient to sustain their domi-
nance as the leaders in innovation productivity. Their capacity for economies of
scale and scope should be indispensable as effi ciency gains can be enormous in this
highly research-intensive industry. And yet, the emergence of a specialized market
for biotechnology, in conjunction with the multitudes of agile and inventive small
fi rms drawn to it, has fostered vertical disintegration in the pharmaceutical
industry.
The exigencies of rapidly changing modern technologies stemming from the life
sciences may prompt large fi rms, too, to carve out specialized niches for them-
selves. Recent specialization tendencies, added to the constant pressures to perform
on and beyond the ever-shifting frontiers of science, have increased the value of
network externalities and the need for more open information exchanges. What
remains to be seen is whether large pharmaceutical fi rms, accustomed to being
ambidextrous in drug innovation, might shift gears and opt for effi ciencies through
tighter research focus, exploitation of existing assets, and aggressive pursuit of part-
nerships, so that they start scaling back on the range of scientifi c and technological
areas they invest in.
Specialization by therapeutic area, disease pathway, target molecule, drug candi-
date molecule, method of drug synthesis, or even by patients' pharmacogenomic
profi le seems to be the way of the future for pharmaceutical fi rms. Such streamlining