Innovaro (NYSE Amex: INV), a comprehensive innovation solution company, and The wRatings Corporation, an independent stock research firm, today announced the results of their quarterly Strategos/wRatings Innovation Index, with the focus of this issue on the pharmaceutical and medical device industry. The study was conducted as a collaborative effort between Innovaro Strategos, a strategic services business of Innovaro, and The wRatings Corporation.

This quarter’s results show the pharmaceutical and medical device industry lags other industries in innovation. This finding is the latest and perhaps most compelling evidence for the demise of the industry’s prevailing blockbuster drug business model.

The biggest investors in research and development, pharmaceutical and medical device companies have not been recognized for innovation. Compared with recent analyses of innovation performance of food & beverage and consumer electronics companies, the industry performed poorly. The average index scores of the top 10 performers is 46 (out of 100), whereas the averages of the top 10 for food & beverage and consumer electronic industries are 76 and 84, respectively.

The Blockbuster Drug Business Model Is Being Challenged

A review of top pharmaceutical and medical device companies shows a collection of companies that have developed and continue to develop wondrous drugs and medical devices, saving and improving the quality of millions of lives. Developments include treatments for HIV, heart failure, hepatitis C, Alzheimer's, Huntington's, cancer and other complex medical conditions. However, as demonstrated by our analysis and echoed by the CBO report indicting the industry has substantially lower R&D productivity than other R&D intensive industries 1, indiscriminately pouring resources into R&D may not be the best route for optimizing shareholder returns.

“Innovation is more than invention,” states Peter Skarzynski, Senior Managing Director of Innovaro Strategos and author of Innovation to the Core (HBSP, 2008). “As the industry faces seismic changes caused by new regulations, demographic shifts, and consumerism, companies that can successfully challenge industry orthodoxies and innovate at the level of the business model have the best chance of thriving.”

“The blockbuster drug model has worked well for pharmaceutical and medical device companies and their investors,” explains Gary A. Williams, CEO and Founder of wRatings. “Going forward, it’s becoming clearer that they will need to apply their creative energy to developing revolutionary business models in addition to inventing revolutionary drugs and devices in order to improve their ranks in innovation.”