PARTNERSHIP AND INNOVATION IN THE LIFE SCIENCES - Innovation in the Biopharmaceutical Industry - page 110

across broad market sectors. Econometric studies (Bottazzi et al. , 2001) show the key
drivers of growth in this industry are innovations which create new therapeutic areas
and markets and incremental therapeutic improvements which increase competition
within existing markets.
In the 1980s, pharmaceutical companies evolved as integrated organisations,
managing key activities along the value chain from research to development, man-
ufacturing, marketing, sales and distribution. This was, in part, because few others
had the knowledge or the capability to manage and assume the risk of developing
new products (Penrose, 1959). In this period, partnerships between pharmaceutical
companies and other organisations tended to be based on arm's length arrangements,
for example, licensing an invention in return for an upfront payment and royalty
on sales. Often, large companies operated a central licensing office to manage such
arrangements.
However, in the 1990s the costs of R&D and risks of investment rapidly increased
because companies were investing in new technologies and responding to higher
regulatory pressures, whilst also having to more rapidly introduce new families
of products with additional therapeutic benefits. As a result, pharmaceutical com-
panies began to search for alternative models to the traditional integrated R&D
approach in order to enhance their innovative capability and reduce the time and
cost of taking new drug targets through the development process. Realising that
valuable ideas can come from inside or outside the company, many firms have
established structures which allow contracting-out elements of their R&D function
to boost R&D productivity (James, 1994; Gambardella et al. , 2000; FDA, 2004). In
this so-called “Discovery and Distribution” model (Taafe, 1996) BioPharma com-
panies became increasingly more sophisticated in developing collaborations with
a range of partners in a particular field or a preferred partner in a specific area.
For example, during the 1990s Celltech Biologics supplied specialist fermentation
technology for the bulk manufacture of therapeutic monoclonal antibodies to many
major pharmaceutical companies (http://www.ucb-group.com/about − ucb/history).
To maintain technological superiority in intensely competitive environments
pharmaceutical companies must continually innovate to develop new products or
to create new markets for their existing products (Lamoreaux and Sokoloff, 1996).
But, as the pace of technological change increases and the scientific knowledge
becomes more widely dispersed, even these research-intensive companies need to
actively acquire new products from external sources to complement their in-house
R&D capability (HITF, 2004). This new model requires new capabilities to shift
from closed innovation with a focus on an internal pipeline of products to open
innovation which draws on new technologies developed by others (Chesbrough,
2003).