Managing Innovation and Change: Case of Pharmaceutical Industry

In contemporary context, the pharmaceutical and biotechnology sectors are characterised by a high level of competition and innovation. Some fifteen or twenty years ago biotechnology, which was heavily depended on advances in molecular biology, and pharmaceuticals, which was predominantly based on microbiology and chemistry, were widely recognized as separate industries. However, now biotechnology and pharmaceutical companies are significantly interconnected and are evolving into complex systems, representing particular innovation networks.

The transformation from an old to a new biotechnology industry has been attained through the support of financial investors at the end of the 1970s. Business vision of biotech industry has been changed. Investors expected that alike antibiotics that provided treatment for infections, genetic methods would be able to cure genetic diseases. For instance, in 1979 Syntex Corporation provided serious financial support for some academic researches. However, most of the pharmaceutical firms adopted a narrow-front strategy, first building capabilities associated with specific products that they had in market or had targeted for research and development. A few companies bypassed this stage and attempted to acquire general biotech capabilities very quickly, usually through acquisition. Whichever strategy they implemented, the pharmaceutical companies had to manage their way through a transition that was sometimes painful for their existing personnel in R&D and in other parts of the organization. There were "transition costs”. These costs help explain the preference for an incremental transition, as do the relationships between biotech and the pharmaceutical firms' existing product lines and capabilities.

However, according to Ostro and Esposito the role of investment in biotechnology was continuously shifting from financing scientific ventures towards funding young and ambitious companies pursuing their stock potential. During 1990s pharmaceutical and biotech industry were characterized with multidisciplinary knowledge development and innovation that has been derived from robotics, mechanics, computer industry, and of course biology and chemistry. Logically, large pharmaceutical companies started developing extensive collaborations in research and innovations.

As pharmaceutical companies developed subsequent generations of drugs, some large multinational corporations concentrated on product innovation and designed strategies based on high levels of R&D expenditures, horizontal diversification and vertical concentration. As pointed out by the researchers, all the major technological advancements of the last century have been attained via in-house capabilities. This trend significantly contributes to the continuous concentration effect experienced by large pharmaceutical firms.