Development of Personalized Medicine Applications: a Knowledge-Based View

Low drug efficacy and the occurrence of Adverse Drug Reactions (ADR) in patients present significant hurdles to current drug paradigm (Lazarou et al., 1998; Spear et al., 2001) and increase the hurdle for the development of novel therapeutics (DiMasi et al., 2003; Paul et al., 2010; Pammolli et al., 2011). As a society, we find it increasingly harder to accept issues concerning the safety and efficacy of novel medicines (Woodcock & Woosley, 2008), which were often developed using a trial and error approach. In addition, the pharmaceutical industry is facing a high risk of failure in the development process, lengthy development cycles, huge investments and a declining R&D-productivity due to diseconomies of scope in R&D (Danzon et al., 2005) and an increase of investments in more risky therapeutic areas (Pammolli et al., 2011). Recent advancements in molecular biology have yielded a number of medicines whereby knowing a patient's molecular or genetic make-up (also called a biomarker) enables clinical practitioners to determine the best-fitting treatment for that specific patient. This practice is referred to as Personalized Medicine (PM). As such, PM - the tailoring of medical treatment to the patient's individual characteristics - harbours the potential to transform the health care industry in critical areas such as research and development (R&D), market access and health care provision (Abrahams, 2005; Davis, 2009; Sawyers, 2008; Trosman, 2010).

We identified two important research gaps in the literature on PM. First, existing literature on personalized medicine mainly analyzes factors influencing PM development and commercialization that are external to the firm such as payer coverage, regulation and market access. Little attention is paid to some of the main strategic aspects surrounding the development of personalized medicine applications. This points to a gap in the PM research given the importance of R&D strategy in the strategic management literature, especially with the resource based view on the firm. This view which regards firms as a bundle of tangible and intangible resources that are combined to direct and implement a firm's strategy (Barney, 1991). Second, the need to review and, if necessary, adapt the theoretical frameworks on collaborations in the drug development industry exists as this industry is moving towards the implementation of the PM paradigm. Indeed, in the literature, inter-organizational collaborations are widely regarded to be part of the solution to the R&D productivity crisis threatening the long-term viability of the industry. This indicates This paper addresses these research gaps by investigating how and why drug developing companies access and integrate the (external) knowledge necessary for the development of personalized medicine applications. The research question is formulated as follows: What influences the propensity of drug developing companies to engage in strategic alliances when developing personalized medicine applications?

The aim of this conceptual paper is to build a theoretical framework on the strategic aspects surrounding the development of PM applications by the pharmaceutical industry. Answering this research question would allow for existing PM application developing companies to identify interesting therapeutic areas, market segments or biomarkers. Answering the research question allows organisations wishing to enter or to expand their activities into the field of PM to build partnering roadmaps or identify interesting PM application development projects. In this paper, we explore the link between knowledge, intellectual property protection and future competition during the development of a novel PM application. Building on this literature, we use six expert interviews and several case studies, to develop our propositions and to construct our theoretical framework. It is proposed that PM application development projects can be categorized along two dimensions: (1) the PM application developing company's knowledge base on molecular diagnostics; and (2) the level of appropriability on the biomarker, i.e. its degree of intellectual property (IP) protection and novelty.

As such, four options in R&D development programs are available to PM developing organizations. The nature of these options strategies, whether or not collaborative projects shouls be stardted and their evolution over time are taken into account. Applying the model to the case of PM development partly explains tendency towards proprietary development and the constant consolidation within the pharmaceutical industry, due to the apparently unstoppable commoditization of technologies and biomarkers and the build up of necessary knowledge. Thus regarded as dominant vs. the diseconomies of scope? This model explains why the market for PM is dominated by large companies and why new entrants are scarce.

First, we discuss PM and its impact on the R&D strategies of pharmaceutical companies. Second, we present a comprehensive literature review on the role of strategic alliances in the pharmaceutical industry, the knowledge-based view on the firm and on the appropriability regime theory. In the third section, we clarify the research question, build the propositions and present the framework. Section four reports on the conclusions of the paper. The final section formulates a number of policy and management recommendations.