Innovation and Change in Pharmaceutical Industry

Achilladelis and Antonakis conducted a historical study of the dynamics and tendencies of technological innovation in the pharmaceutical industry. From this standpoint, pursuing increase in market share, major pharma companies undertake mergers and acquisitions. As the majority of specialists points out, particularly mergers and acquisitions are considered to be essential ways to obtain innovation capabilities and assuming control levers of any major technological changes within biotech industry. For instance, in the beginning of 90s, Swiss pharmaceutical giant Hoffmann-La Roche after creating a complex network of licensing and research agreements, embraced a new strategy that quickly moved the firm more deeply into the biotech field. In effect, Roche decided to transplant a generalized biotech capability through acquisition. It began by buying equity stakes in the biotechs with which it was collaborating, a relatively common element in the large firm/small firm alliances in this industry. But next, it broke the mold by purchasing a controlling (60%) share of the most successful of the biotech startups, Genentech. Meanwhile, the Swiss firm was spending between $130 and $140 million a year on its in-house capabilities in the new field.

By the mid-1990s, it was becoming apparent that various kinds of collaborative arrangements between biotechs and pharmaceutical companies would continue to be an important feature of the current long cycle of innovation in this industry. As Glaxo’s director of corporate development explained, “No emerging or established pharmaceutical company is large enough, or smart enough to meet all of its knowledge needs in isolation.” The front across which change was taking place in the biomedical sciences was so broad that even the largest pharmaceutical firms could no longer bring in-house all of the research capabilities they needed. Indeed, the "knowledge needs" were so pressing that they had given rise to a new subdiscipline, "bioinformatics," that combined genomic information with computer technology in order to make data more widely available to scientists.

One of the peculiar trends regarding innovation in pharmaceutical industry is that R&D represents a major determinant of company’s competitiveness. Simultaneously, large pharmaceutical firms transfer their R&D activities to so-called dedicated biotechnology firms, because they usually have higher innovative capabilities.