INNOVATION MODELS IN THE BIOPHARMACEUTICAL SECTOR - Innovation in the Biopharmaceutical Industry - page 11

CONTINUOUS
RE-INVESTMENT

PATENTS

INVENTIONS

RISK

DEVELOPMENT
OF INVENTIONS
INTO SALEABLE
PRODUCTS

SALES
INCOME
& PROFIT

INVESTORS

REWARD RISK

RISK

COMMERCIALISE
PRODUCTS INTO
MARKETS

TRADEMARKS
BRANDS

Fig. 3. The “investment-innovation” cycle.

This model places the modern integrated company at the centre of a cycle of
“risk-taking” investment decisions. Such risk-taking, if successful, culminates in
revenues and profits that can, in part, be distributed to reward investors and in part
reinvested in further R&D activities. This model also shows that achieving a sound
patent position is a critical step.
Despite the current interest in “public-private” partnership models for pharma-
ceutical innovation, the output of innovative products over the past 50 years has
been almost exclusively generated by large multinational pharmaceutical compa-
nies. This is not to suggest that the model is immutable. Currently, there is a growing
concern regarding the decline in productivity of established companies (Charles
River Associates, 2004). The growing cadre of bioscience-based new entrants may
successfully lead the way to the adoption of more efficient business models for
accessing international markets. Corporate strategies determine the level of a com-
pany's overall investment in R&D, and the allocation of resources across technolo-
gies and therapeutic classes. In recent years, investment in inter-company alliances
and contract research beyond the traditional boundaries of a company has grown
substantially, both in an attempt to sustain revenue streams and profitability, and
to ensure long-term stability of the corporate platform on which innovation occurs.
Such alliances also influence the share price of publicly listed companies, as the
commercial potential of product pipelines becomes increasingly influential in the
comparative valuations of companies (Adkins et al. , 2003).

R&D investment and portfolio models
R&D strategy defines the disease areas where investments will be made and the
proportion of total expenditure that will go to each of these areas. These strategic