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Although surgery has remained an important aspect of medical treatments, other key advances such as the development of inoculations and vaccines to provide resistance to diseases, drugs such as sulphonamides and antibiotics such as penicillin have provided new forms of medical care. Since the 1920s, drug-based solutions have provided the basis for the evolution of a global pharmaceutical industry. However, the high price of drugs and the monopoly gained through patents have driven up the costs of the healthcare (Muller et al. 2004).

Pharmaceutical firms face strong pressures to develop medicines for a global market and exploit economies of scale (Pisano 2006). Fleming and Sorenson (2004) noted, however, that the growing interdependence of previously discrete technologies creates difficulties for any single firm wishing to stand alone in the industry Thus R&D alliances play a critical role in this industry, in which alliance-based teams race towards the creation and commercialisation of similar end products and a winner-takes- all situation may often exist (Powell et al. 1996).

Biotechnology has enabled pharmaceutical firms to move from a random approach to a rational design approach, in which new drugs are developed from scientific theories regarding the origins and evolution of diseases. The latter approach means that pharmaceutical firms must rely on science more than ever before (Cockburn et al. 2000).

This new technology represents an important area of medical innovation as an alternative to reliance upon drugs developed by the major pharmaceutical firms. Biotechnology involves the use of living systems and organisms to develop or make products. Application fields of biotechnology are as diverse as healthcare, chemistry, material science, agriculture and environmental protection. In the USA alone there now exists over one million biotechnology companies, most of which are extremely small and hence are perceived as an important path through which to challenge the semimonopoly position of the major pharmaceutical companies (Shaista et al. 2006).

In recent years advances in biotechnology have led to new and diverse sciences such as genomics, recombinant gene techniques and applied immunology, and the development of new pharmaceutical therapies and diagnostic tests. The technology is based on biological/ biotechnology concepts to harness cellular and biomolecular processes to develop technologies and products that deliver new forms of medical treatment. Over the past three decades biotechnology has emerged as a vital global indus?try associated with a sustained flow of innovations dramatically improving human health (Gans and Stern 2004).

Until the early 1980s, the prevailing belief was that no new company could compete with the pharmaceutical industry giants because of the enormous costs of developing the necessary R&D infrastructure (Gassmann et al. 2004). However biotech firms have not only challenged the traditional pharmaceutical companies as the discoverers and developers of new products but also have built credibility in novel areas such as cell biology, molecular genetics and drug delivery. Biotechnology companies operate amid uncertainty and rapid change. Fuchs and Krauss (2003) posited that biotech firms are unique for a number of reasons. Firstly, they are strongly science based, more nimble and less risk averse than pharmaceutical companies with innovation within these firms often far more radical (Gans and Stern). Secondly, biotech companies represent a source of tacit knowledge with the exploitation of knowledge requiring intense science-based interactions (Fuchs and Krauss). Alliances with other biotech firms, university research centres and pharmaceutical companies are the norm in the industry, providing biotech with faster access to capital and knowledge, enabling companies to react more quickly and flexibly to new developments and offering better protection for IP rights (Liebeskind et al. 1995). However the timeline between establishing the company and product launch is usually very long. On average, the entire biotech process, from scientific discovery to commercialisation, can take up to 15 years. This reality exposes entrepreneurs to a plethora of critical and time-sensitive decisions. As a consequence failure rates among biotech firms are relatively high.

Gassman et al. concluded that typically there are five different stages in the creation of a new biotech product: basic research, innovation and invention, early stage technology development, product development, and production and marketing. The importance of basic research looms very high in the early stages of development and diminishes during later stages. During the pre-discovery stage most available funds are dedicated to R&D activities. Absence of a commercial product at this stage can create problems in attracting private investors for ongoing research and development. Hence the bulk of funding tends to be from governments. The chances of securing financing from venture capitalists, angel investors and corporate venture funds are much higher in the post-discovery phase when a tangible product proposition becomes available.

Shaista et al. undertook a series of in-depth interviews in Maryland, USA, to gain further understanding of the innovation management issues confronting the biotech industry. They identified a number of paradoxes which included:

  • 1. The harsh reality that innovation is only worth what the market is willing to pay.
  • 2. Survival is a balancing act involving the formation of alliances without revealing trade secrets
  • 3. Maintaining alliances even though in some cases the technology or the relationship proves ineffective.
  • 4. The problems associated with moving from invention to innovation during which the biotech will encounter a whole series of new realities.
  • 5. The lack of capability and experience in converting inventions into commercially viable propositions.
  • 6. The amount of control to be given to investors or government funding agencies in relation to selecting and implementing a viable business strategy.

Shaista et al. also researched the other challenges facing biotech firms as their products moved down the pipeline towards product launch. They concluded that working jointly in alliances was crucial. However, efforts to establish alliances will be accompanied by difficulties. Earlier on in the life cycle, due to the confidential nature of the scientific work, biotech companies may be unable to spark the interest of prospective partners in their idea. Furthermore alliances do not necessarily bring in synergistic benefits to both partners and sometimes incompatible goals of the partners can create problems. Scientists-turned entrepreneurs also may lack commercialisation knowledge, and being ill prepared to convert invention into innovation can resulting in major delays.

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