Business Organization of R&D Activities in Big Pharma Companies

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As an organization grows in size and scale it is generally observed that it reaps economies of scale and improves its bottom line. In fact some organizations resorted to growth option with the sole objective of reaping such economies of scale. An exception to the principle of economies of scale has been presented recently in the R&D activities of large sized pharmaceutical companies where a large and growing size did not result in economies of scale and forced the concerned corporates to restructure their R&D operations.


Glaxo Smith Kline (GSK) has the strongest pipeline in pharmaceutical industry the globe over. This pipeline is achieved when out of millions of compounds screened about 250 make it to pre-clinical testing, 10 make it to clinical testing and only one gets approved for patient use. With these astronomical trial efforts involved, R&D activity needs to be brisk and fast at all stages to keep the pipeline growing. GSK's recent robust performance is threatened substantially by this very patent and pipeline uncertainties. Therefore the period 2004-06 will require the company to devise methods to emerge out of these uncertainties as competition mounts pressure throughout this period. In order to resolve its diseconomies of scale on formal innovation(each commercially released drug is equivalent to an innovation), GSK has restructured the company's R&D functions into strategic business units, styled Centre of Excellence for Drug Discovery(CEDD), breaking from an organic and holistic structure in order to hasten process of innovation. ...
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