INNOVATION MODELS IN THE BIOPHARMACEUTICAL SECTOR - Innovation in the Biopharmaceutical Industry - page 21

of the R&D based industry. They may also selectively damage new medium-sized,
R&D-based European companies.
Epstein (2006) has recently drawn attention to the risk which over regulation
poses to biopharmaceutical innovation in the US context.
In their Report for the European Commission, Pammolli et al. (2002) note that
the contrast between the US experience and Europe's failure to generate competitive
market structures has meant that innovative productivity in Europe is lagging further
behind the US.
The growing scale of R&D expenditure has led to the development of more
sophisticated models designed to optimise the allocation of expenditures across
projects. Henderson and Cockburn (1996) drew attention to the positive correla-
tion in the US between the productivity of R&D in the 1990s, and the intensive
competition which is partly attributed to knowledge spillovers.
In the 1990s, the most significant constraint on industry appropriation of value
has been the spread of cheap generics across world markets, which has reduced the
area under the revenue curve in life cycle models (see Fig. 4). This process, which
began in the US, has undoubtedly been a powerful driver of consolidation within
the industry through merger and acquisition, which still continues even today. The
upsurge in mergers and acquisitions reflects an increasing lack of confidence that
R&D productivity can be restored, or that it can be compensated for by internal
efficiency improvements across the business as a whole.
Within the R&D context, this trend reflects the uncertainties concerning whether
the new bioscience wave of inventions can be translated fast enough into profitable
innovations to sustain cash flows. In Europe, these uncertainties are compounded by
the growing anxiety that multiple crises in healthcare funding will further constrain
the funding of innovative treatments.
The Post-2000 Pharmaceutical Innovation Model
The dominant paradigm in the organisational development of the pharmaceutical
industry in the second half of the 20th century was the evolution of the “big pharma”,
global “super tanker” model, which leveraged two core competences: the ability to
do R&D in an increasingly efficient, integrated, “machine like” manner; and the
“global marketing reach”, designed to achieve effective diffusion. At the front end
of the R&D process, external interfaces were often limited to a few universities at a
national level. Similarly, although clinical trials must by definition be external, they
are also often limited to national centres, as well as a few others in key world markets.
Market approval dossier production and submissions were done on a sequential
basis.