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In the contemporary business environment it is critical for a company to develop strategies and react in order to adapt to the rapid change of technology and market needs effectively. Successful business strategies are thus essential for a firm in order to innovate and gain a significant competitive advantage. The development of a successful business strategy for an innovative firm includes not only inventing new technologies but also effectively bringing them to the market and generating profit. This essay focuses on two aspects of a successful innovation strategy: the role of strategic alliances and collaborations and the intellectual property management. The implementation of such strategies by Pfizer is analyzed, followed by examples and a critical appraisal.
The Pfizer case is ideal for study, because it is a world leading pharmaceutical company and has managed to be at the forefront of innovation. Due to the dynamic nature of the business environment, official annual reports and press releases of the company were highly important for this report. Besides, scientific papers were used to the same extent in order to identify the key points of a successful strategy and compare them with the strategy followed by Pfizer. Moreover, there is a wealth of information on Pfizer's alliances and intellectual property protection in the literature, so it was considered appropriate for this study to focus on these two dimensions of a successful strategy. First, a brief description of the company is introduced, followed by literature elements and information about Pfizer's strategy.
Pfizer: Description of the company
Pfizer is a research-based pharmaceutical company that was originally founded as a chemical business by Germans Charles Pfizer and Charles Erhardt in New York and became widely known with the mass production of the antibiotic penicillin. It is the world's largest pharmaceutical company (Mennen, 2007) and operates in more than 80 countries, while their products are available to more than 150 countries worldwide (Pfizer, 2009a). Pfizer consists of three major segments, Pharmaceutical Segment, Consumer Healthcare Segment and Animal Health Segment (Reportsure, 2010). Their portfolio is constantly expanding, aiming to include drugs for diseases like diabetes, HIV, Alzheimer's disease and even cancer (Pfizer, 2007). The company is highly innovative, and this can be summarized in their statement: "The pursuit of innovation is basic to Pfizer's culture. It shapes our strategy, defines our purpose and governs every facet of our operations - from the research and development that leads to pharmaceutical breakthroughs, to the transfer of knowledge to patients and providers, to the way we respond to the changing marketplace." (Pfizer, 2007, as cited in Mennen, 2003).
Role of Alliances and Collaborations in the Innovation Processes
It is particularly important for an innovative company to continuously seek to expand their field of knowledge, exploit new technologies and grow their competitive advantage. There is a wide range of assets and competencies that need to be accessed, in order for a firm to innovate. Since it is impossible for a single company to entirely dominate a knowledge field and possess all the required assets for innovation, it is reasonable to turn to external sources in order to acquire new knowledge (Teece, 1986). Thus, alliances and collaboration strategies, especially by innovative firms, are increasingly common in today's business world. Technology licensing, co-development agreements and joint ventures are some of the inter-firm activities that fall under the category of collaborations (Teece, 1986).
The purpose of strategic alliances differs, depending on the size and the orientation of the companies involved. For example, big pharmaceutical companies like Pfizer usually contribute with financial support and by providing marketing and sales structure, while they acquire innovative technological capabilities from small research-focused companies, either because the internal R&D is not highly productive, or because market requires increasingly sophisticated products (Ohba and Figueiredo, 2007). As mentioned previously, technology licensing is a form of collaboration between firms. It is noteworthy though, that this can be beneficial only if the legal protection framework works efficiently. It should also be noted that there is always the risk that partners will not perform as the company expects, or that partners can even imitate the company and become competitors (Teece, 1986). This leads large companies to to be quite cautious in what capabilities will be made available to their partners. In the case of big pharmaceutical companies like Pfizer, the great majority of the capabilities that are made available within an alliance are drugs that had lost or were on the verge of losing their patent protection (Ohba and Figueiredo, 2007).
Creating alliances is a strategy highly followed by Pfizer. An important proportion of the company's revenues derives not only from selling their products but also through alliance agreements, by co-promoting or licensing products discovered by other companies. Such agreements also require that Pfizer will provide funding to further develop these products. This product category includes drugs like Aricept, Rebif and Sprivia, all discovered and developed by Pfizer's alliance partners and marketed and promoted jointly by the company and the partners. It is noteworthy that over time, revenues from alliances have been significantly increased (Pfizer, 2009a, 2008b, 2007). However, creating alliances and outsourcing cannot be beneficial unless companies have developed their own strong in-house R&D. Pfizer seems to follow that rule; Pfizer Annual Report 2008 mentions that "while a significant portion of R&D is done internally, we will continue to seek to expand our pipeline by entering into agreements with other companies to develop, license or acquire promising compounds, technologies or capabilities. Collaboration, alliance and license agreements and acquisitions allow us to capitalize on these compounds to expand our pipeline of potential future products" (Pfizer, 2009a).
As mentioned above, Pfizer's strategy strongly encourages strategies and collaborations; their strategic alliances portfolio includes acquisitions, licensing of specific substances and drugs, joint ventures and collaborations with universities. To begin with, Pfizer has acquired many smaller companies in order to enhance their drug portfolio and increase their competencies. The biggest acquisition was the one of the company's rival, Wyeth: Pfizer paid $68 billion for this merger aiming to combine forces and create a pharmaceutical behemoth (New York Times, 2009). Other significant acquisitions were those of Warner-Lambert in 2000, and Pharmacia in 2003, while there are forthcoming mergers with King Pharma and FoldRx Pharmaceuticals (Pfizer, 2009, Berkot, 2010, FoldRx, 2010). A recent example of drug licensing is the alliance between Pfizer and Ensemble Discovery in 2010: Pfizer provides research funding and has the right to develop and commercialise any product that will arise from this alliance, while Ensemble Discovery will work on their own drug discovery platforms, receiving royalties based on sales of the drugs emerging from this collaboration (The Medical News, 2010). Collaborations with universities include, amongst others, those with Washington University and University of Buffalo, with Pfizer providing research funding and giving universities' scientists access to a large amount of the company's research data, and having access to research done by the universities. Lastly, Pfizer will join forces with another pharmaceutical giant, GlaxoSmithKline to create a new specialist HIV company; this combination is expected to serve both companies strategically (GlaxoSmithKline, 2009). It is obvious that Pfizer, having a successful background in pharmaceutical industry, with a strong R&D department and a plethora of competencies, can use alliances effectively in order to further extend the company's leadership in the market and remain at the forefront of developments.
Intellectual Property Strategy
The term Intellectual Property (IP) refers to whatever is created by the mind, from inventions to artistic works and from names to symbols and designs (Wipo, 2007). There is a variety of measures that can be taken to ensure that IP is protected efficiently, including patents, copyrights and registered designs and trademarks.
The IP protection measure most widely used by large pharmaceutical companies is patents, although this type of protection is usually expensive and inefficient for most of the other industries (Tidd and Bessant, 2009). Patents are exclusive rights for an invention, granted to their owners for a certain period of time and preventing the invention from being commercially made, used, distributed or used without the consent of their owners. They are territorial rights, and can be sold or licensed (Wipo, 2007).
The outcomes of innovation depend highly on the measures of appropriability a company takes, and the innovative company's ability to gain profit is affected by the efficiency of the IP protection mechanisms (Teece, 1986b). Pfizer considers IP protection as a critical matter, as it creates the necessary incentives for biomedical research and hence is crucial for innovation and competitiveness. Investment in drug research is extremely risky: even after years of research, it is very difficult for a compound to enter the market and become available to patients. The ability of the company to make big risky investments and to employ world-class scientists depends on their ability to ensure effective IP protection measures (Pfizer, 2008).
As of today, Pfizer owns or licenses a number of US and foreign patents, that cover pharmaceutical or other products, formulations, manufacturing processes and other chemical compounds used in manufacturing (Pfizer, 2009b). The most important patent rights are currently those for the drugs Aricept, Lipitor and Xalatan, with patent expiration years 2010-2011. A patent expiration, as well as the loss of the patent protection of a product resulting from a legal dispute can favor generic products, having a significantly negative impact on the sales of the original product very soon. However, the company can still exploit the benefits of the patent, by using manufacturing trade secrets, patents on uses for products or patents on other processes related to the original drugs (Pfizer, 2009b).
An important aspect regarding patents is that they provide a "safe" and measurable structure when developing and transferring technologies within alliances and collaborations (Pharmaceutical Executive, 2010). Appart from this, ensuring patent protection is important to every aspect of Pfizer's management structure. As company's VP, Roy Waldron, says: "the remit is much broader than in the past, where patent staff interacted primarily with R&D. Our mission is to position IP as a strategic support to the business - a tool to make our commercial practices more innovative and useful to the customer. Our people are now "embedded" in each of the business units, working closely with many functions as part of the management team" (Pharmaceutical Executive, 2010).
Pfizer follows the World Trade Organization Agreement on Trade Related Aspects of Intellectual Property (WTO-TRIPS) that sets the framework in which participant countries should modify their IP laws to offer strong protection for pharmaceutical patents by 2005. However, many countries' delay in improving their IP protection system, causes limitations on Pfizer's operation and development in them. WTO-TRIPS's intention to strengthen the global IP protection of US based pharmaceutical companies is not, though, universally accepted: John Rawls, and other philosophers have expressed their concerns whether pharmaceutical companies' pursuit of profit is more important than basic human rights, such as the right to health. According to them, the monopoly rights created by IP could preclude the right to health, particularly for residents of developing or underdeveloped areas (Gewertz and Amado, 2004, Faunce, 2006). Conversely, Pfizer disagrees, indicating that this is not about a "monopoly" but about creating incentives for research, and that this could help small and medium sized enterprises based in developing countries "providing the stability that leads to compound growth rates and the competitive scale required for SMEs to become global players" (Pharmaceutical Executive, 2010). There is no doubt that Pfizer can handle the IP protection issue with skill, moving forward while maintaining their innovative character, even if sometimes this may seems morally objectionable.
Pfizer is a truly innovative company with many years of experience and leadership in the pharmaceutical industry and seems to follow a successful management strategy. Creating strategic alliances and collaborations helps the company maintain and expand their competencies, while having strong IP protection mechanisms supports research and enhances the innovative nature of the firm. The company's successful background shows that Pfizer can cope with any changes in the industry environment constituting a clear example of a company following the "rules" of successful innovation strategy, yet adjusting them depending on the circumstances and coming out winners.
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