In the movie business, sequels and remakes have proliferated. How many reboots of Spiderman, Superman, or Batman have been produced? How many sequels of The Fast and the Furious? Of course, some of these franchises have been enormously successful. Pursuing sequels and reboots may be the profit-maximizing move in the short run. However, we might ask the question: Is the "safer" pursuit of sequels and reboots limiting breakthrough innovation? The same type of question might be asked about other types of businesses.
In a new study, Wesley Cohen and his co-authors examined the R&D and product launch strategies at pharmaceutical companies. They studied roughly 60 companies over a 12-year period. They found evidence that companies can get "stuck" pursuing incremental innovation. A Duke Fuqua insights feature story explains:
“If a company pursues clinical studies or trials for a drug in the same narrowly defined therapeutic class as their blockbuster drug, this may signal the company is strategically pursuing the same customer segment with a sequel of the blockbuster drug,” Cohen said. They found a significant blockbuster effect: one billion dollars of additional sales of individual products are associated, on average, with 17% more drug development projects in the same narrowly defined therapeutic class as the original drug. Moreover, one billion dollars of additional sales are associated with 30-80% more drug development projects that employ similar technology as the original drug.
The decision to pursue "sequels" in the pharmaceutical industry may be very logical, much as it may be in the movie business. The question, though, is whether there may be a harmful impact on breakthrough innovation in the long run. Cohen's co-author, Yoko Shibuya says, “In the short term, the optimal strategy might be to focus on your guaranteed customers. But this may mean investing less in new R&D with greater potential upside. Someday, you may regret not having invested in other product lines.”
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