Important Issues in Pharmaceutical Industry

Many of the strongest European pharmaceutical firms adopted this strategy, seeking to develop their own capabilities across a relatively narrow front while working with biotech startups. The small, university-linked biotechs were at first almost entirely an American phenomenon, and this gave the large U.S. pharmaceutical companies an initial advantage, as did the federal government's support for basic research in molecular genetics. But soon, European governments were attempting to close the widening biotech gap, hoping that government support would make up for the venture capital that was not available to their potential innovators.

One of the interesting international hybrids was Biogen, a startup that was built on American science and that quickly expanded through licensing arrangements with several leading pharmaceutical firms. Biogen soon had operations in Germany, Switzerland, and Belgium. Schering-Plough, an American pharmaceutical company, collaborated with Biogen in the race to capture the anticipated global markets for interferon. To enhance and protect its access to Biogen's products and processes, Schering-Plough in the end bought a substantial equity position in Biogen, a practice that became increasingly popular in pharmaceuticals. The situation with Biogen and Schering-Plough illustrates the finding of study conducted by Lerner and Merger (1998), which identified 25 critical control rights in biotechnology innovation alliances, in particular those regarding alliance management (manufacturing, clinical trials), the control of intellectual property, determination of alliance scope, equity in R&D companies, seats in companies’ boards.

From standpoint of human resource management, innovation in pharmaceutical industry in the light of all accompanied trends inevitably leads to outsourcing of labor (not associated with acquisitions or mergers). During 1999-2004, pharmaceutical firms increased the extent to which they outsourced R&D significantly. Developing economies of India, China and Singapore now play active roles in the industry, creating not only lower-cost sources of assistance but also potential future rivals for the large pharmaceutical companies. From the strategic point of view, any company’s planning effort must answer the question of how this trend toward outsourcing will impact the industry in future.