U10 : Reading materials and Questions

According to Pisano (2006), the pharmaceutical industry is characterized as a ‘science business’ because:

It requires minimal research investment

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Value lies in knowledge, but transforming knowledge into products is slow and costly

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Production costs are higher than research costs

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It does not rely on patents for protection

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The pharmaceutical ‘blockbuster model’ rests on which pillars?

Vertical integration controlling research to market launch

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Minimal R&D investment

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Patent protection providing approximately 20 years of monopoly

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Open sharing of all research findings

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High failure rates with one success compensating for many failures

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Baldwin and Clark’s concept of ‘modularity’ in the computer industry enables:

Complete vertical integration by single firms

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Distributed innovation where each layer can evolve independently while remaining compatible

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Elimination of all industry standards

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Slower innovation cycles

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The computer industry differs fundamentally from pharmaceuticals because:

It has higher marginal costs per unit

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Software duplication costs nearly zero, enabling rapid iteration and winner-take-all effects

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It requires longer development cycles

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It does not experience network effects

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Lemley and Shapiro’s analysis of ‘patent trolls’ or ‘non-practicing entities’ reveals:

Patents are probabilistic rights with only about 50% chance of being upheld in court

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Patent thickets create obstacles to innovation

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All patent holders are genuine innovators

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The separation of patent ownership from actual production can hinder innovation

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Patent litigation costs are negligible

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Intellectual Ventures’ business model is controversial because:

It produces innovative products at low cost

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It produces nothing but extracts licensing fees from those who do produce

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It shares all patents freely with startups

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It only acquires patents from large corporations

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The shift in pharmaceutical strategy from vertical integration to becoming an ‘orchestrator’ means:

Big Pharma now manufactures everything in-house

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Large firms outsource early research to biotechs and universities, focusing on development

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Universities no longer participate in drug discovery

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Patent protection has been eliminated

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In the computer industry, control and market power shift to firms that:

Manufacture the cheapest components

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Define the interfaces and standards—the 'design rules'

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Avoid all partnerships

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Reject modularity in favor of integration

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Complete the following text with appropriate words or expressions.

Word list (some words may be used multiple times, others not at all):

science business – 2.6 billion – twelve – blockbuster – vertical integration – patent – orchestrator – biotechs – mRNA – modularity – distributed – marginal costs – winner-take-all – network effects – decoupled – patents – patent trolls – patent thickets – assets – horizontal – platform – royalties – monopoly

The pharmaceutical industry exemplifies a Fill in the blank 1 of 19 where value lies in knowledge. Developing a new drug costs approximately Fill in the blank 2 of 19 dollars and takes about Fill in the blank 3 of 19 years. The traditional Fill in the blank 4 of 19 model relied on Fill in the blank 5 of 19 and Fill in the blank 6 of 19 protection to recover investments.

Today, Big Pharma increasingly acts as an Fill in the blank 7 of 19 , outsourcing early research to Fill in the blank 8 of 19 and universities. The Pfizer-BioNTech partnership illustrates this: BioNTech brought Fill in the blank 9 of 19 technology while Pfizer contributed clinical trials and manufacturing capacity.

The computer industry operates differently. Baldwin and Clark show how Fill in the blank 10 of 19 enables Fill in the blank 11 of 19 innovation—each layer evolves independently while remaining compatible. Software has near-zero Fill in the blank 12 of 19 , creating Fill in the blank 13 of 19 effects and natural monopolies through Fill in the blank 14 of 19 .

Intellectual Ventures represents a radical model: innovation Fill in the blank 15 of 19 from production. The company accumulates Fill in the blank 16 of 19 and monetizes them through licensing or litigation. Lemley and Shapiro call these entities Fill in the blank 17 of 19 or ‘non-practicing entities.’ They create Fill in the blank 18 of 19 —dense webs of overlapping rights that obstruct innovation. This raises a fundamental question: should ideas be treated as Fill in the blank 19 of 19 like any other, freely tradeable regardless of production?

Advanced Innovation & entrepreneurship

MODULE 1: CAPITAL, VALUE, AND ORGANIZATION

Alvaro Pina Stranger 04/11/2026

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