INNOVATION MODELS IN THE BIOPHARMACEUTICAL SECTOR - Innovation in the Biopharmaceutical Industry - page 10

to market of the first product in a new class is followed by a number of other prod-
ucts offering alternative therapeutic and side effect profiles. The resulting market
includes a competitive class of products that have a range of variable attributes. For
patients, however, the third, fourth or fifth class entrant may offer a better balance
of therapeutic benefits to side-effect risks than the first.
A number of options exist for using these terms correctly. For example, the first
product in a new class to market might be called the “radical” innovation while
all those following are labelled “incremental” innovations. Alternatively, the term
“radical” might be used to describe the class as a whole, reflecting the collective
effort of the range of players involved in the process, and all the products would
be referred to as “incremental” alternatives. The term “radical” is thus reserved for
the process, while the term “incremental” is used for individual products. A third,
ex-poste option is to label the clinical consensus view of the best in the class as the
“radical” innovation.
Such niceties of terminology are not merely of academic interest. These distinc-
tions play a critical role in shaping the policies of large state purchasers who use such
classifications to determine whether or not they will reimburse a new product and
at what price. Products designated as “incremental” innovations might not be ade-
quately reimbursed, and hence have little or no chance of achieving significant sales
revenues.
A more extreme approach to classification is to label products as either “break-
through” or “me-too”. This approach labels the first product to market as the “break-
through” and all later entrants as “me-too's” (Morgan et al. , 2005). Such a crude
approach to classification would appear to be inconsistent with the substantial body
of evidence which demonstrates that this is not the case. Studies by Wells (1988),
Kettler (1998), Gelijns (1998), and most recently Di Masi and Paquette (2004) show
that later members of a product class frequently are acknowledged by clinicians as
the best all-round product in the class. R&D on these products provides a platform
for more diverse innovations, such as extended indications, new treatments for other
diseases, and more effective formulations.
The way these distinctions are used in markets to determine rewards for innova-
tors sends important signals to the managers who set priorities in R&D.
Business, Portfolio and Product Lifecycle Models
Business models and corporate strategy
Redwood (1987) drew attention to the growing intensity of competition in R&D and
international product class markets. He introduced the concept of the “investment-
innovation cycle” — a simplified version of which is shown in Fig. 3.