Pathways to biomedical tipping points: Vertical, horizontal or other?

Abstract

Breakthrough innovations in biomedical technologies such as treatments, devices and diagnostics are increasingly addressing complex medical needs and yielding significant scientific progress. The pathways to their commercial success, however, are poorly understood. In contrast to recent calls for a return to vertical integration, we suggest that relying on strong and unique horizontal relationships among biomedical organizations is more likely to shape technology convergence and increase success rates in achieving a ‘tipping point’ or critical mass to address unmet medical needs, build new intellectual property and extend profitable growth from served markets.

INTRODUCTION

How do breakthrough biomedical innovations emerge in response to significant unmet medical needs to complex diseases? How do such innovations progress to widespread commercialization and thus, reach a broad market and achieve profitability? Are the lessons from other technology sectors relevant to biomedical technologies? Although a substantial body of empirical research on technological convergence in the information technology (IT) and digital industries has resulted in findings that provide insights into such questions,^{1, 2} the path to achieving critical mass and thus successful commercialization in the biomedical industry (for example, therapeutics, devices, diagnostics), which promises to be the ‘largest industry in the world’,³ is poorly understood.⁴

Recently, a prominent industry expert stated that biomedical business models were fundamentally flawed and that a new vertical industry ‘anatomy’ was needed to ensure sustainability and reach profitability.⁵ Although we agree with those who make the case that the business models for commercializing digital and IT are not well suited for the biosciences, we disagree with those who argue for a return to vertical integration and sequential development. In our view, to successfully solve intractable and highly complex medical problems, such as cancer and chronic diseases, different approaches are necessary.

This article challenges the assumption that vertical business models are best suited for attaining profits in the biomedical industry sector. Rather, by comparing commercialization pathways of specific biomedical technologies to those undertaken in other technology-based industries, we find that three factors are key to technology commercialization in the biomedical industry: the strength of inter-organizational relationships formed in a specific industry, the uniqueness of such relationships and the commercialization pathway, or timeline, within that industry. In the biomedical field, intellectual property exclusivity and long regulatory approval time horizons require commercialization to unfold in stages over decades as opposed to proceeding in a linear or parallel fashion over much shorter periods of time as seen in other technology sectors. As a result, successful biomedical commercialization will involve independent development of complementary technologies by multiple independent firms, while simultaneously allowing for their eventual horizontal integration.⁶

We begin with a brief overview of the general technology commercialization process, first introducing the role played by inter-organizational relationships and then discussing a range of potential commercialization pathways. Next, we briefly examine the history of specific commercialization examples in both the PC and the digital industries, identifying the type and importance of inter-organizational relationships in each, as well as their commercialization timelines. We then introduce an example of technology commercialization in the biomedical industry, drawing on the case of the wound healing sector, and compare and contrast the biomedical process with the PC and digital examples. In the discussion and conclusions section, we develop a more general way of thinking about commercialization pathways and argue that for each unique industry, the pathway must fit the technology context. Interestingly, while a variety of horizontal combinations are consistent with this model, none of the technologies seem to benefit from vertical combinations. We conclude by reviewing the implications of our findings for the management of biomedical commercialization and risk.

TECHNOLOGY COMMERCIALIZATION PATHWAYS

Technological breakthroughs may be generally viewed as a broad, arching process of scientific discovery and paradigm shifts, often characterized by convergence into a standard.⁷ Once such breakthroughs take place the next step is achieving a critical mass, or tipping point, of broad user acceptance in order to successfully commercialize the technology and to reach profitability. Over the past decade, a number of technology commercialization pathways for specific industries have been proposed. A prominent one suggests that in complex industries, such as digital, success requires creative horizontal combinations that build on complementary technologies.⁷ A contrasting view argues that the only way to overcome the inherent riskiness associated with complex industries, such as biomedical, is for organizations to create new, vertically integrated ‘anatomies’ by consolidating the entire commercialization process, including research, regulatory, financing, manufacturing and marketing, within the boundaries of a single firm.⁵ A third approach advocates for a sequential process of technology convergence where smaller, more nimble ‘colonizers’ invent technologies and then larger, more established ‘consolidators’ commercialize them.^{8, 9}

To date, no dominant model has been embraced either by researchers or recognized by practitioners as the most effective way to commercialize technology in the biomedical sector. We believe that this is so because the way technology convergence takes place differs across industries based on a range of factors, and thus success can be attained via different routes. As such, we propose an approach to understanding commercialization success across a wide range of industries by employing two main dimensions: inter-organizational relationships and commercialization timelines. Building on these concepts, we develop a contingency framework that identifies the factors critical to successful commercialization across industries. We do so by first looking at examples from the PC and digital industries, then examining whether the same pathways fit the biomedical sector.

There is a general agreement that the most notable scientific breakthroughs result from research and development involving a wide range of disciplines. This phenomenon, a direct consequence of the ever-increasing degree of knowledge specialization, has pushed organizations to develop and adopt practices that increase a firm's likelihood of identifying, capturing and combining the relevant knowledge from various scientific disciplines to accelerate the pace of technological innovation.^{10, 11} Achieving technological breakthroughs, however, is a necessary but not sufficient condition to creating a sustainable business model. In order to successfully commercialize such breakthroughs, firms must achieve a critical mass, or ‘tipping point’, the inflection point beyond which the rate of adoption increases dramatically. It has been said that an event or a phenomenon has had its tipping point when it has reached ‘the moment of critical mass, the threshold, the boiling point’¹² and its dynamics unfold under a different trajectory thereafter. Our research suggests that reaching such a tipping point – the point in time when a firm has captured sufficient market share to become a commercial success – entails distinctive combinations of both the strength and uniqueness of a firm's inter-organizational relationships, as well as a commercialization pathway or timeline.

Social networks theory highlights the important role that these first two dimensions play in the commercialization process. Although initially developed at the level of interpersonal interaction, social networks theory has since been widely relied on to gain a better, more fine-grained, understanding of inter-organizational dynamics. One of its basic tenets is that the strength of a relationship between social actors, characterized by the frequency of their interaction and the level of resource commitment to the relationship, aids technological innovation.¹³ In addition, unique relationships that bridge key social groups and knowledge gaps that other competitors do not possess, termed as ‘structural holes’, have also been shown to be a source of competitive advantage.^{14, 15}

An important extension of network theory is the concept of business ecosystems,¹⁶ a perspective that builds on the idea of increasing returns.¹⁷ In increasing returns environments, technological convergence is created by ‘network externalities’ such as complementary products and services that accompany the creation of a technological standard, which in turn creates increasing returns to scale. In such cases, it is not necessarily the firms with the highest quality technologies that succeed, but rather the firms that are able to maintain significant influence over rich industry ecosystems (in which complementary products are produced in high numbers), by developing and maintaining key inter-organizational relationships. These strong, uni-directional relationships allow the most powerful players to dominate and influence the evolution of their ecosystems. Because of the power they yield and their ability to shape an industry standard, ecosystem leaders may not need to form strong relationships with other players within the ecosystem, although the ability to create unique linkages can be key to long-term competitive dominance. Such firms may end up with de facto monopolies, and the customer ‘lock-in’ (for example, operating systems, communication protocols, brand loyalty); the resulting either real or perceived switching costs may sustain these monopolies over time. In the three sections that follow, we examine the interplay of inter-organizational relationships, as well as commercialization timelines, using examples from three distinct industries: PC, digital and biomedical.

TECHNOLOGY PATHWAYS IN THE PC INDUSTRY

The case of Microsoft's Internet Explorer serves as an example of the interconnection and importance of network alliances in the convergence and commercialization of the PC browser industry. Based on what came to be known as the ‘Wintel’ operating system platform, an informal but powerful relationship between Microsoft and Intel, Microsoft was able to develop a myriad of relatively unique and powerful but ‘weak’ relationships (in the sense that Microsoft did not own, or in most cases even have legally binding contracts) with complimentary alliance partners in areas such as application software, videogames, peripheral devices and graphics software. In addition, Microsoft's relationships with original equipment manufacturers (OEM) such as IBM, Dell and Hewlett-Packard were powerful, one-way and unique, but also weak. These relationships allowed Microsoft to relatively quickly achieve more than 90 per cent dominance of the global operating system market which, in turn, led to Microsoft's near-monopoly control of the PC office suite with Word, Excel and PowerPoint. Furthermore, by combining the Internet Explorer browser with their Windows operating system, Microsoft was able to leverage the inter-organizational relationships and its near-monopoly power in the operating system market to attain over 90 per cent of the web browser market.¹⁸ Thus, compared with the operating systems-based ecosystems of other firms, such as Apple or Unix-based companies, Microsoft capitalized on the uniqueness and power of their inter-organizational relationships to reach rapid convergence to a standard and used an increasing returns model to secure its dominant position in the PC software industry that has been largely maintained since launching its first operating system in 1983.

Microsoft's pathway of convergence to critical mass is best depicted as sequential. First, the company built the operating system and office software, and only then it leveraged its dominance to succeed in the browser market. In the span of less than 10 years and in the process of development of the operating system and the browser, Microsoft cultivated and maintained a rich network of organizational arrangements that proved to be critical links in the sequence. From the emergence of the operating system to their ubiquitous browser, the emergence of a rich network of organizational arrangements added the critical link in the sequence. In addition, because of the initial lack of regulation of the computer industry, regulatory issues did not come into play until Microsoft's dominance in these markets was well established. Figure 1 depicts key relationships in the Microsoft's software network.

Figure 1

Network relationships in the PC operating system ecosystem.

Technology pathways based on a single dominant platform, such as Microsoft's operating system, Office suite and browser software, tend to either build on the existing knowledge within their own boundaries or to rely on the ability to obtain the necessary knowledge without having to invest in strong or unique alliance relationships. However, when multiple complementary technologies require convergence, as is the case in the digital industry, the process is more complex.

TECHNOLOGY PATHWAYS IN THE DIGITAL INDUSTRY

Some argue that, compared to the PC sector, convergence in complex industries such as digital technology takes place in a non-linear fashion and requires horizontal technology combinations.² Discontinuities within the digital industry have resulted from timing differences in technological advances and regulatory changes, as well as from corporate inertia. Such barriers to convergence towards an industry standard have created the need for firms to seek stronger, unique and more powerful relationships, often through creative alliances and/or acquisitions, in order to quickly obtain the knowledge they require to compete successfully.

The three major industry forces driving the technology convergence and critical mass in the digital industry are electronics, telecommunications and digital content. Most of today's dominant firms in the sector, for instance Sony, Time Warner, AT&T and Apple, have initially developed core competencies in one of these three. As a result, they had to look outside of their firm boundaries to secure the necessary knowledge in order to move quickly toward digital convergence rather than rely on internal development. For example, Apple has licensed content from large music industry firms in order to populate its iTunes application, whereas Sony purchased BMG to gain similar access to music content. Additionally, in this industry, technologies tend to develop and commercialize simultaneously and are later combined into separate but similar competing systems. Because of this pathway, the digital industry landscape looks quite different from that of the PC operating software industry, with several large firms dominating the market that resemble each other in size and focus (that is, oligopolies).

When we compare examples of technology commercialization in the digital industry to that in the PC software industry, we see several key differences in terms of inter-organizational relationships, as well as the time and method required for technologies to converge. First, in the PC industry, links to complementary products and technologies are external (that is, not legal alliances or acquisitions), relatively powerful and unique – while we could characterize the links in the digital industry examples as internal, powerful and unique. Second, in the PC industry, external alliances to investment capital may not be required, whereas in the digital industry, which must purchase or form binding contracts with network partners, external capital suppliers play a critical role. Third, the PC software industry converged around one main dominant player that managed linkages within a powerful ecosystem network, whereas the digital industry contains multiple dominant firms that gradually internalized complementary core technologies within their boundaries through horizontal acquisitions and alliances. Although the pace of digital convergence has varied widely compared to the relatively rapid and linear convergence pathway in PC operating systems, the boundaries of the three initially discrete industries (that is, electronics, telecommunications and digital content) have begun to blur over time, resulting in separate and larger but increasingly similar and parallel ecosystems competing for market shares. Figure 2 illustrates the configuration of networks and technological development sequencing that is similar across a range of dominant competitors in the digital industry using Sony as an example.

Figure 2

Network relationships in the digital industry ecosystem.

Thus far, we have examined the commercialization pathway patterns for several firms in the PC operating software and the digital industries, respectively. We now turn to the central question of this article – whether these approaches are up to the task of explaining technological convergence and commercialization in the biomedical industry. Our answer, as outlined in the following section, is both yes and no. Although inter-organizational relationships play a role in creating critical market mass in all three industries, the biomedical industry differs from most other technology-based industries in several fundamental ways. Unlike the PC example, biomedical technologies do not quickly converge to a single, common standard. Rather, completely distinct technologies may be used over time to treat a common disease in complementary ways, often in an additive fashion. For instance, radiation, chemotherapy and surgery, which represent distinct technologies and disciplines, may all be used on the same breast cancer patient in the course of a treatment.

Furthermore, unlike either the PC or the digital example, the biomedical industry's regulatory framework requires that individual drugs and devices be shown to be safe and effective before considering their combined effects, thereby requiring the initial isolated development of each specific technology and, accordingly, a sequential versus simultaneous process. In the following section, we trace the history of convergence in a specific biomedical segment, the wound healing industry, to illustrate the differences in inter-organizational relationships, development sequence and horizontal knowledge acquisition, suggesting that successful biomedical commercialization follows a different pathway than either the PC or digital examples. Biomedical pathways, to our knowledge, have not been explored as extensively as those in other industries; here, we attempt to address this need by providing an in-depth case study of the wound healing industry.

TECHNOLOGY PATHWAYS IN THE BIOMEDICAL INDUSTRY: THE CASE OF THE WOUND HEALING INDUSTRY

The worldwide wound care market was US$4.7 billion in 2007, with the largest market in the United States at $2.5 billion with a 10 per cent growth rate. Interestingly, the path that led to this point has been far from linear. Because of low barriers to entry in traditional products and limited innovation, the wound care market has been highly fractionated since the 1940s. Consequently, the majority of wound healing companies have had low-to-moderate pricing power because most products have not conducted clinical trials demonstrating statistically significant efficacy advantages.^{19, 20} However, relatively recently, premium products have emerged to meet the demands required by the US Food and Drug Administration (FDA) to show efficacy in treating difficult indications such as diabetic ulcers and severe burns. As a result of these demands, advanced technology segments are growing faster (>10–15 per cent) compared to traditional market segments (−2 per cent). Yet to date, only one firm, Kinetic Concepts, Inc. (KCI), has been able to combine three separate existing innovations into a breakthrough product system in terms of patient value and achieve a dominant market leadership position.²¹

Innovation in the wound healing market has evolved in three distinct phases between World War I and current standards of patient care. In the first, or the emergent phase, a broad range of technology platforms were independently developed across various disciplines (for example, chemistry, biology and engineering). Many of the ‘best practices’ in wound healing date back to ancient times, when approaches relied on cleansing the wound, applying a dressing to prevent infection, and bandaging the wound or removing pressure to prevent re-injury. In the nineteenth century, infection control, war and industrialization brought several breakthroughs in wound healing. Chief among those are: the development of sterile surgical procedures; the germ theory of disease; the treatment of surgical gauze and wound dressings with carbolic acid (phenol) and iodine to decrease surgical mortality rates; and the use of penicillin to treat infections. Despite these improvements and a large number of clinical trials, there were relatively few significant advances in patient outcomes versus traditional products between the 1950s and the late twentieth century.

In the second phase, during the 1980s and 1990s, three separate technologies became prominent: new generation antimicrobials, extracellular matrices (ECM), and negative pressure wound therapy (NPWT). Antimicrobials are drugs such as antibiotics and antivirals that either kill or slow the growth of microbes that cause infections. New generations of antimicrobials have emerged, dominated by silver-based dressings, as alternatives to antibiotics and the challenge of resistance from repeated drug exposure. Silver dressings have been found to accelerate healing, reduce the cost of NPWT, lower infections and reduce dressings from sticking to the wound.²²

Another important innovation during this period was the development of biomaterial technologies such as ECM for soft tissue reconstruction. Traditionally, large wounds such as third-degree burns are treated with autografts (using a person's own skin from other unaffected parts of the body). However, autografting causes donor site wounds (for example, average patient requires four donor site wounds to treat a severe burn) and usually results in wound contraction, scar formation, limited joint mobility and poor aesthetic quality. ECM products have been employed as an alternative to synthetic materials for infected mesh removal, traumatic fascia loss, contaminated surgical fields, patients with compromised healing and reinforcement for hernia repair.²³

A third innovation from that period was a medical device known as NPWT. NPWT is the use of sub-atmospheric pressure on blood flow to the wound area, removal of bacteria from the wound site and granulation of tissue formation. The device consists of a pump that generates controlled negative pressure through a foam dressing that can be customized to fit the size and shape of the wound. NPWT is used to address severe and chronic conditions such as large open wounds, surgical wounds, diabetic foot ulcers and open abdominal wounds.²³

The third and convergent phase in the wound healing market, which began around the year 2000, was driven by a dramatic increase in market demand. In addition to a large and growing elderly population, which is associated with chronic pressure sore wounds and other disease-related wounds in developed countries, there is also a growing epidemic of obesity linked to diabetes which is associated with foot ulcers and amputations. Also, there are over 100 million surgical incisions and 1.4 million trauma wounds requiring advanced care annually in the United States alone. Further, of the more than 1.0 million burn injuries recorded each year, about 50 000 require hospitalization, 25 000 experience severe burns, and 4500 burn patients do not survive. Once infected, treatment costs for one surgical infection can quickly reach more than $15 000, whereas MRSA (methicillin-resistant Staphylococcus aureus) infections can cost over $30 000 to treat effectively.¹⁹

The breakthrough convergence was achieved by KCI, which integrated all three of the second stage technologies – NPWT, ECMs and antimicrobials – resulting in a single combined product with over $1 billion in annual revenues and over 80 per cent market share in the NPWT segment (of total 2009 revenues of $1.9 billion). KCI's most successful product is a NPWT device system called VAC^®. From the initial approval in 1995 of the device plus three disposables, VAC has now grown into a multi-product technology platform, including Instill^® approved in 2003 (a tubing system which distributes fluids such as antibiotics, antiseptics and anesthetics) and a specialized canister and Granufoam^® approved in 2005 (foam dressing plus silver changed every 48 hours). KCI then acquired LifeCell, an ECM tissue engineering company, for $1.7 billion (or eight times revenues, suggesting continued high growth expectations). LifeCell's lead product is AlloDerm^®, an acellular human tissue matrix used for third-degree burns, periodontal surgery, and plastic and reconstructive surgery. The acquisition provided KCI with the opportunity to integrate Alloderm into the VAC device and antimicrobial silver pad to offer customers a comprehensive wound care solution.

The wound healing industry provides a compelling example of a stage-based commercialization pathway. In the first stage, a single and often relatively ineffective technology prevails in a fragmented market. In the second stage, a number of innovative yet complementary technologies are developed in parallel over time by a variety of small, independent researchers and related firms. In the third stage, a larger, commercially successful technology firm in the industry with the capabilities and resources to combine multiple complementary technologies prevails, as the market grows and consolidates. In this sense, the industry segment resembles more closely the digital industry, albeit with a longer timeline for development because of regulatory requirements.

The wound healing industry also provides a strong case for the role of differential power of inter-organizational relationships and the ways in which they change over the convergence life cycle. In the fragmented early development phase, most products were designed and marketed independently by small, unconnected firms, with few technological breakthroughs. In the clustered middle phase, technological innovation focused on three complementary technology platforms: antimicrobials, ECMs and NPWT, with groups of independent firms working in each area, but again, unconnected with each other. It was not until the third phase that relationships were solidified by one primary consolidator, KCI, which had patents on what was arguably the most successful of the three components: NPWT. Essentially, in stage one of the convergence process, relationships among researchers were weak, with no firm exercising power over others. As stage two progressed, inter-organizational and researcher relationships were still weak but were now clustering around three primary technology platforms. By stage three, these relationships had become strong, unique and powerful, with one firm consolidating separate technology platforms through integration, alliances and acquisitions. In the third stage, prior user acceptance of individual components and increased convenience of the combination product led to a dramatic increase in market demand. Figure 3 depicts the changes in the wound healing market as a function of medical need and clinical advances, whereas Table 1 summarizes the three stages of technology commercialization in this segment of the biomedical industry.

Table 1 Stages of convergence in the wound healing market

Figure 3

Wound healing market: Technology and product antecedents, emergence and convergence (Size=Relative Revenues).

To determine whether the pathway in the wound healing sector may be representative of other biomedical technologies, we consider several additional examples, representative for the industry (Table 3). One such example is Zevalin^® (ibritumomab tiuxetan), a radiopharmaceutical approved for the treatment of Non-Hodgkins Lymphoma (NHL). In this case, radiation has been used for the clinical treatment of cancers including NHL since the 1920s with useful but limited success because of dose-limiting toxicities (that is, suboptimal dosing of radiation because of patient safety).²⁴ Based on seminal work conducted at Stanford University in the mid-1980s, Idec, a San Diego-based start-up biotechnology company, developed a biopharmaceutical drug known as Rituxan^® (rituximab) based on a monoclonal antibody platform developed to preferentially target NHL cells (avoiding normal cells). After entering into a co-development agreement with Genentech in 1995, Rituxan demonstrated a response rate of 55 per cent in relapsed NHL in clinical trials, subsequently received approval by the US FDA in 1997 and grew to blockbuster sales of $2.8 billion in 2008.^{25, 26, 27, 28}

Next, researchers at Idec combined these two separate technologies by linking radiation isotopes (Yttrium-90) to the Rituxan monoclonal antibody for NHL, thereby effectively combining the therapeutic effect of targeting NHL cells with the delivery of localized radiation to tumor sites. The combining of the two technologies resulted in a synergistic therapeutic effect or a response rate of 83 per cent that led to US FDA approval in 2002. Although Idec developed Zevalin on their own, their initial collaboration agreement with Genentech, who was the global leader in monoclonal antibodies (for example, Herceptin^® (trastuzamab) approved for breast cancer in 1998), provided an important resource and reference in conducting clinical trials and attaining regulatory approval.

Additional examples also support our contention that the stage-based pathway is relatively typical in the biomedical industry, including the development of treatments for cancer (for example, Abraxis’ Abraxane^® use of nanotechnology for controlled drug release of paclitaxel, thereby significantly enhancing the value of an already approved drug for the treatment of ovarian, breast and lung cancer), theranostics (for example, Genomics Health's Oncotype DX^® use of molecular diagnostics not only to confirm disease, but to prospectively guide combination therapeutic selection in breast cancer) and stem cell transplants (for example, Miltenyi Biotech's MAC^® cell separation device which uses a biotechnology drug to grow stem cells which is then combined with magnetic bead engineering to selectively screen targeted healthy cells and eliminate diseased cells, before reinfusing into patients).^{29, 30, 31}

In the case of radiation-loaded monoclonal antibodies such as Zevalin, stage one consisted of general radiation therapy for NHL tumors, a highly fragmented industry with independent, moderately effective solutions and few inter-organizational relationships. In stage two, monoclonal antibodies were discovered to provide safe and targeted therapy, with increased effectiveness. It was not until researchers combined the two independent solutions – targeted drug therapy conjoined with localized radiation – that a more effective treatment was developed. At this point, an alliance partnership with a larger, better capitalized firm with a more proven and established infrastructure for obtaining FDA approval was required to reach wide market distribution and a critical revenue mass in stage three. Once again, weak and non-unique inter-personal and inter-organizational relationships prevailed in phases one and two, with progressively stronger and more unique relationships – in the form of cooperative agreements – winning out in the end. Clearly, the power direction favored Genentech, which, despite coming late to the party, managed to reap a disproportionate share of the profits.

TOWARD A PROCESS FOR IDENTIFYING OPTIMAL COMMERCIALIZATION PATHWAYS

When comparing convergence in the wound healing example with those of Microsoft and the digital industry generally, we find both similarities and differences. First, somewhat unique to the biomedical industry, convergence seems to happen in distinct stages over long periods of time, with a number of breakthrough technologies appearing in the early stage, followed by creative consolidation driven by end users in later stages. As mentioned earlier, one reason for this has to do with the FDA approval process, which requires the efficacy of individual products to be proven before developing combination products. This explains why the wound healing product consolidation process developed over the course of 20–30 years, rather than the 10–15 in digital or the 5–10 in PCs. Although a standard seems to have emerged, it is not around a single technology, like Microsoft's operating system, but rather around a unique combination of technologies with a single marketing and distribution channel in order to more efficiently and effectively meet increased market demand.

Turning to the role of inter-organizational relationships, much like the PC industry, the wound healing industry mobilized around a single dominant player that emerged to consolidate and control the industry ecosystem and lead it towards convergence. Although competitive dynamics in the industry continue to evolve (for example, small and large biomedical firms such as Smith & Nephew, Innovative Therapies, Medela, NovaSpine, Boehringer Ingelheim and ConvaTec have launched NPWT products), it is likely that the single dominant model will prevail, barring unforeseen strategic errors such as mispricing in a highly regulated environment or unforeseen safety issues (for example, Boston Scientific's Taxus Express^® a combination medical device which treats coronary artery disease by balloon angioplasty and delivers a drug restenosis or the narrowing of a blood vessels leading to restricted blood flow. Taxus was recalled in 2004 after balloon-deflation failures resulted in cases of serious injury and mortality).³² This is because of the first mover advantages obtained from intellectual property protection, brand recognition in one important area of technology, and the convenience of dealing with a single, known channel that is familiar to hospitals and other health-care providers.

Much like the digital industry, the wound healing industry leader initially pushed its core NPWT technology forward, as did other firms with complementary technologies. Networks did not form until later in the convergence process, when KCI, which possessed a unique, proprietary technology (VAC), decided to integrate and purchase complementary technologies into the VAC system, thereby consolidating existing products to create a single unified customer solution. Because the consolidator's core competencies were in just one of the three key technologies required for reaching critical market mass, acquisitions and links to outside capital were required in order to effectively bundle technologies outside KCI's core strengths. However, because of its strong intellectual property protection, KCI has thus far been able to protect its unique technology position, thereby preventing other large firms from emulating its horizontal consolidation.

Thus, like the IT operating software industry, wound healing technology has converged to a near monopoly. Yet unlike the IT operating software industry, the commercialization process is characterized by the development of strong, unique relationships resulting from incorporating complementary technologies within its core boundaries. Table 2 summarizes the key similarities and differences across the three examples.

Table 2 Sources of economies in PC, digital technologies, and biomedical convergence models

Taken together, the possible pathways of technology commercialization that follow from different combinations of the inter-organizational dimensions – strength, uniqueness and power – are shown in Figure 4.

Figure 4

A process for determining technology commercialization pathways.

CONCLUSION AND IMPLICATIONS FOR FIRM STRATEGY

Our study examined various ways in which different organizations and industries put networks into use to access knowledge across disciplines, achieve technological convergence and attain commercial success. The framework that emerged seems to map well onto a matrix that includes, but is not limited to, the intersection of the relative strength, uniqueness, and power direction of informal and formal inter-organizational relationships. The range of options for interdisciplinary knowledge acquisition, which includes ‘service collaboration’, ‘deep collaboration’, ‘horizontal acquisition’ and ‘internal development’, all involve different combinations of unique organizational arrangements.^{10, 11}

Our framework suggests that strong relationships tend to be embodied by formal agreements, such as those found in legal contracts. Unique relationships involve proprietary connections, such as those protected by intellectual property rights and involve internalizing that knowledge within the boundaries of the firm through acquisition. The power and direction of network relationships are key to achieving market dominance, thus determining whether one key leader emerges (as in a temporary or long-term monopoly) or multiple firms compete for leadership (as in an oligopoly).

Employing a structured decision process to understand different pathways for technology commercialization, we began with the PC operating system industry, in which convergence was to a single proprietary technology platform (Windows). Because of the strength of Microsoft's (and Intel's) leadership position within the ecosystem, there was no need to seek legal ownership or formal contractual alliances with others in the ecosystem. Instead, Microsoft's network relationships, with the exception of their initial informal but powerful alliance with Intel, were weak and non-unique (for example, multiple, redundant videogames, plug-ins, applications, hardware add-ons and OEMs), which they then were able to leverage to the internet browser and other markets.

On the other hand, digital convergence began with multiple, non-unique complementary technologies (for example, Apple, Sony, ATT). Since technological capabilities were required in all three core industries (that is, content, PC hardware and telecommunications) and because each firm continued to focus internal development largely on their original core technologies, achieving convergence in this case required obtaining complementary technologies through either alliances or acquisitions. These solutions involved large amounts of external capital to form unique and strong legal inter-organizational relationships. Yet, consolidators had to share power in the ecosystem, because several large and relatively similar competitors simultaneously vied for dominance.

Finally, in the wound healing sector, multiple competing technologies were initially developed in parallel, with separate firms focusing on only one aspect of a complex medical problem. It took the firm with the strongest and most unique intellectual property position to consolidate these technologies into a holistic and synergistic solution. When convergence occurred, after many years of research and regulatory approval, KCI emerged with a strong set of inter-organizational relationships (through a mix of licensing, internal development, and their acquisition of LifeCell's Alloderm^®) and a highly unique combined technology. Unlike the digital industry, KCI's power in the ecosystem is strong because it controls the dominant VAC technology thereby positioning them as the integrator and consolidator. Thus, each example illustrates a different economic context, which in turn calls for a different technological commercialization pathway. Specifically, increasing returns theory relates to Microsoft, oligopoly theory to Sony and Apple, and near-monopoly models to the biomedical industry, at least in part because of effective patent exclusivity.

Although the biomedical industry commercialization pathway that we propose is based on a detailed examination of a case from the wound healing sector, we provided examples of other technologies being commercialized in the life sciences (Table 3) which also follow the same path. Thus, it seems reasonable to conclude that the wound healing case is not an outlier, but in fact may be representative of a unique commercialization pathway in the biomedical industry. However, because biomedical and the life sciences cover such a wide range of complex technologies, additional in-depth analyses should be conducted in order to determine the conditions under which this pathway applies and to identify variations.

Table 3 Examples of biomedical convergence

Nonetheless, our findings suggest that for large multinational biomedical firms, developing a core competence of identifying and accelerating parallel convergence may enhance firm-level innovative capacity, build new intellectual property and extend profitable growth from served markets. At least initially and sometimes in the long run, alliances may be preferred to mergers and acquisitions since winners and losers take so long to emerge. Thus, the ability to stay strategically flexible (that is, establishing and jettisoning alliances) and to recombine products among emerging internal and external technologies may be a critical skill in biomedical product pipeline development. This argument is consistent with recent publications in the business press,³³ which suggest that the role of the corporate research lab as idea producer will give way to a more ‘federated’ approach that includes using open models of innovation that source ideas from universities, start-ups, business partners and government labs. Consequently, we put forward a prediction that a broader trend will emerge for corporate labs to become smaller and more tightly focused, while placing increasing emphasis on integration and coordination rather than on basic research and development. The emergence of this trend has been recently acknowledged by Pfizer and Sanofi-Aventis, for example. As Marc Cluzel, senior vice president for research and development at Sanofi-Aventis, noted ‘Tomorrow's research will be carried out through networks … We will be open to knowledge from outside sources, becoming a key partner. We need to reinvent R&D’.^{34, 35}

Furthermore, biomedical market research typically focuses on drugs and their functional substitutes. Engaging users in market research that includes multi-modalities (for example, devices, diagnostics and therapeutics) to monitor emergent patterns and opportunities for convergence may result in enhanced research and development efficiency, opportunity recognition and intellectual property. Such engagement is difficult without a deep, multidisciplinary and patient-centric understanding of the market and applications across the sector, which tends to arise from strong technical knowledge in at least one of the relevant convergent technologies.

In summary, we believe that successful biomedical technology convergence is a function of at least three key factors: (1) the strength, type and power of network relationships, (2) horizontal versus vertical alliances, and (3) time to convergence – which we view as sequential stages. Using examples from the PC, digital and wound healing industries, we suggest that successful firms choose a commercialization pathway that best fits its industry and economic context based on these three factors. The decision framework we offer can be used to better understand how technology commercialization has occurred in the past, as well as possibly to predict how it may progress in the future across a range of industries. As such, it is a useful tool for technology industry managers, charged with guiding their firms’ products to market successfully.