A shift to external alliances for product development in the pharmaceutical industry

Abstract

For a number of years, pharmaceutical companies have been departing from a tradition of strict vertical integration, looking to external sources for at least some of their novel technology and products. The aim of this study was to determine whether (1) this is a long term, industry‐wide trend, or (2) merely a temporary or local response to acquire the technical capabilities of the biotechnology revolution of the 1970's, after which, with the new generation of technology in‐house, they will revert to primarily in‐house innovation. Analysis of secondary data on a representative sample of the fifteen largest drug companies in the United States, the United Kingdom, Germany and Switzerland indicated that between 1977 and 1987, these pharmaceutical companies increased their external R&D alliances nearly six‐fold on average. A large and growing proportion of pharmaceutical companies’ R&D alliances are formed with biotechnology firms which have proprietary technology, due to financial and innovative pressures. Far from being temporary, this resort to external sources of technology in the pharmaceutical industry follows the trends of the wider industrial world towards functional specialization. Thus, biotechnology companies are increasingly taking on the role of suppliers of innovation.

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