This document summarizes a study on triggers for disruption in the dominant logic and business model of the pharmaceutical industry. The study used expert interviews and case studies of bioinformatics companies attempting to disrupt the industry. The dominant logic of the industry focuses on product development through networks and alliances controlled by large firms. Emerging business models from bioinformatics companies represent a seed for evolving this logic. The study found that technological discontinuities can trigger disruption when they enable new business models, rather than just new technologies. Business model innovations may challenge the dominant industry logic as much as technological changes alone.

1. Challenging a Dominant Industry Logic: Technological Discontinuities and Disruptive Business Models in the Drug IndustrySabatier V.1, Kennard A.2, Mangematin V.11 Grenoble Ecole de Management, France2GenostarR&D Management workshopManaging R&D, Technology and Innovation in the Process IndustriesGrenoble Ecole de Management Center for Innovation, Technology and Entrepreneurship (CITE)5 May 2011

2. 1. Introduction2. Theoreticalfoundations3. The drugindustry: dominant logic and business model4. Results: Triggers for industry disruption5. Discussion and conclusion

3. Relevance of the research1. IntroductionThirtyyearsafter the emergence of biotechnology, the overalllogif of the drugindustry has not reallychanged, neither the waycompanies do business, nor the ways in whichdiseases are prevented or cured. A gap in the theory : industry life cycle theoriescannotexplainwhatis happening in the drugindustry. Biotechnology + Bioinformatics + Nanobiotechnology = several waves of technological discontinuities2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

4. Research questionWhen a mature industryisdestabilized by technologicaldiscontinuities, what triggers the disruption of its dominant logic, and how do suchlogics change? 1. Introduction2. TheoreticalfoundationsThe aim of this article is to understand the engines that drive industry logic evolution and to propose a complement to current theories – which consider technological discontinuities as the main trigger for the evolution of the industry logics – with the concept of business model innovation. 3. The drugindustry4. Results5. Discussion

5. 1. Introduction2. Theoreticalfoundations3. The drugindustry: dominant logic and business model4. Results: Triggers for industry disruption5. Discussion and conclusion

6. The dominant logic of an industry1. IntroductionThe dominant logic of an industry refers to how firms «conceptualize and make critical resource allocation decisions - be it in technologies, product development, distribution, advertising, or in human resource management» (Prahalad and Bettis 1986). A vision of value creation and value capture shared by the actors of the industry. 2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

7. Business modelsFrom strategy to the business models of the firm (Casadesus-Masanell, 2010)A focus on the value proposition delivered to customers : Business models are the manner by which an enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profits (Teece 2010). The renewal and transformation of business models depends on concrete leadership actions including anticipating the future of the industry (Doz et al., 2010). 1. Introduction2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

8. Technological and business discontinuitiesAgarwal and Tripsas (Agarwal et al., 2008) distinguished three stages of evolution – emergence/growth, shake out and maturity – and identified the technological changes that drive firm performance and trigger industry evolution at each stage.Other triggers – beyond technological discontinuities – are needed to drive evolution in the drug industry, and we suggest that it is when discontinuities trigger business model innovations that the industry’s logic evolves.1. Introduction2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

9. 1. Introduction2. Theoreticalfoundations3. The drugindustry: dominant logic and business model4. Results: Triggers for industry disruption5. Discussion and conclusion

10. Methodology1. IntroductionThe expert study(22 experts)The dominant logic of the drugindustry2. Theoreticalfoundations3. The drugindustryHow companiestry to disrupt the dominant logic7 case studies(bioinformaticscompanies)4. Results5. Discussion

11. Describing the dominant logic of the drugindustry1. IntroductionValue propositions: The pharmaceutical industry is based on product discovery, development and commercialization.Networks and alliances: Networks and alliances have become much more extensively used in the drug industry since the emergence of biotechnology companies. Large (hub) firms control these networks. Value chain: The stability of the value chain is strong because of the fragmentation of the innovative work, the power of intellectual property rights, and the regulations exerted by governmental agencies. 2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

12. Emerging business models as a seed of industrylogicsevolution

13. 1. Introduction2. Theoreticalfoundations3. The drugindustry: dominant logic and business model4. Results: Triggers for industry disruption5. Discussion and conclusion

14. Triggers for industry disruption1. Introduction2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

15. Triggers for industry disruption1. Introduction2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

16. Triggers for industry disruption1. Introduction2. Theoreticalfoundations3. The drugindustry4. Results5. Discussion

17. 1. Introduction2. Theoreticalfoundations3. The drugindustry: dominant logic and business model4. Results: Triggers for industry disruption5. Discussion and conclusion

18. Some points of discussionEntering an industrywithtechnologicaldiscontinuities, Control of complementaryassets, Appropriation modes and technologicaldiscontinuities, The power of large diversifying entrants1. Introduction2. Theoreticalfoundations3. The drugindustryTechnology is not the only force regulating the industry life cycle;business models innovation can also challenge the dominant logic of an industry. 4. Results5. Discussion

19. Thankyou for your attentionValérie Sabatier, Adrienne Kennard, Vincent Mangematinvalerie.sabatier@grenoble-em.com, vincent.mangematin@grenoble-em.comAcknowledgements: We acknowledge the financial support of ANR (ANR-07-NANO-026-01) and of the FP7 European project FRIDA (FP7-SSH-2007-1). The authors would like to thank the participants of the MCOI seminar (www.grenoble-innovation.eu) and Tristan Rousselle for their helpful comments . Usual caveats apply.