Biomedical Engineering Reference
In-Depth Information
entry of small specialized fi rms is common, mergers and acquisitions are a familiar
fi xture, and the occasional spin-offs of divisions into autonomous ventures are no
surprise either. Pharmaceutical innovation is no longer a stand-alone activity under-
taken by individual fi rms in total isolation.
An increasing practice of technology transfers and know-how diffusion across
fi rms builds upon the positive momentum created by the openness of fundamental
science. In addition to staying alert to the intellectual output of public sector institu-
tions, fi rms seek to lower the total costs of new drug creation and shorten the time
to market through strategic alliances and licensing agreements. Calculated knowl-
edge exchanges introduce system effi ciencies by exploiting synergies between vari-
ous assets and resources held or developed by the individual fi rms. Sharing
know-how can facilitate and accelerate the innovation process and would explain
the ever-increasing number of licensing deals, partnerships, and strategic alliances
among pharmaceutical fi rms. Besides, the industry remains prone to occasional
consolidations through mergers and acquisitions. The persistence of such tenden-
cies indicates that economies of scale and scope may be too valuable to forgo despite
the benefi ts of specialization.
There is evidence that drugs developed in a partnership are signifi cantly more
likely to succeed in Phase 2 and 3 of clinical trials. In a sample dominated by small-
and medium-size fi rms, Danzon et al. (
2005
) fi nd that interfi rm cooperation in Phase
3 of clinical trials produces a 15 % greater probability of approval compared to
independent efforts. These odds may actually be old news to the industry as indi-
cated by current business practices, which show that compared to large pharmaceu-
tical fi rms, biotech fi rms are less likely to take drug candidates to clinical trials on
their own (Arora et al.
2007
).
Large pharmaceutical fi rms are in a position to enjoy the vast awareness, credi-
bility, and the brand equity that small fi rms fi nd lacking. Owing to their sizable
budgets and greater scale of operations, large fi rms are poised to have easier access
to capital. They are also more likely to possess the necessary marketing resources
small fi rms may fi nd hard to acquire. Also, inimitable assets like a steadfast reputa-
tion for process rigor and product quality might turn out to be critical for sustaining
a competitive edge in crowded therapy markets. Such intangible assets could be
more easily accruable to large fi rms because of their vast drug portfolios and long
track records of market presence and innovation.
Although they tend to operate on a smaller scale, the intellectual output of bio-
tech fi rms has made them as signifi cant to the US pharmaceutical industry as pow-
erhouses like Merck, Pfi zer, or Eli Lilly. However, biotech fi rms in general may not
have the resources to maintain a diverse project portfolio and would often lack the
downstream assets to take new drugs to market. Many seem inclined to specialize in
advanced research, the outputs of which are licensed out to others. One implication
of this practice is the lack of public visibility for their achievements, which may
become a strategic deterrent in case of future plans for market entry.
Still, for all the entrepreneurial drive and agility of biotech fi rms, a narrow focus
and concentration of efforts in a few therapeutic areas could be both more effective
and more effi cient given their limited resources. It is the combination of their
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