Case Report: Glaxosmithkline Reorganizing Drug Discovery (a)
4. Economies …show more content…
This phenomenon is called “sunk cost effect”; Bayer and GSK were not incentivized to innovate. Both established firms incurred in sunk costs (costs to commit to a particular technology), and they were tending to favor the current technology.
Biotech companies instead were smaller in size with less bureaucracy and an entrepreneur spirit and as soon as the opportunity to innovate arose they displaced the “monopolist” of those big pharmaceutical companies. This is called the “Replacement effect”. The process of discovering and developing new drugs took 10-15 years and required more than $200m in “out of pocket cost”. Biotech firms entered into the pharmaceutical market because they were able to process and produce target drugs much faster.
Bayer decision was to reduce the budget in R&D and to invest in collaboration with Millennium. This results in developing 80 drugs in 18 months.
GSK incumbent to innovate was the idea of improving efficiency. Yamada innovation was made in house and not bought in (as Bayer did). His idea was to restructure the R&D process using six “centers of excellence in drug discovery (CEDD)” each focused