Biotechnology Commercialization Strategies: Risk and Return in Interfirm Cooperation

Abstract

The management and exploitation of biotechnological product innovation have proven to be more difficult than initially expected because the number of currently marketed biotechnological products is far from sufficient to counter deficits in pharmaceutical innovation. This study provides insight into the role of governance structures in interfirm cooperation and their effects on biotechnological product innovation and company success. Most of the existing literature regarding alliances and mergers and acquisitions (M&A) examines their effects on technology recipients' innovation performance. Here, the effects of alliances and M&A on both the innovation success and financial performance of technology suppliers (i.e., sources) are examined. Drawing from a sample of 220 human therapeutic biotechnology and biopharmaceutical firms over a period of 32 years (1980–2011), an analysis of the effects of biotechnology clusters, strategic alliances, and acquisitions is provided. This study reveals the existence of a risk‐return trade‐off for strategic alliances between biotech companies and larger, more established firms. Increased biotech company involvement in product development alliances decreases risk by increasing the likelihood of future product introductions. The trade‐off, however, is that biotech companies earn lower returns when their products are developed through such alliances. A similar risk‐return trade‐off effect is found for clusters. However, acquisitions generally affect both product introductions and product returns in a negative way. These findings have strategic implications not only for managing the development of biotechnological product innovations and technology platforms but also for commercialization strategies with respect to interfirm cooperation and risk reduction.

Investigating the Current Business Model Innovation Trends in the Biotechnology Industry

“…This is valid for such firms in general. The personnel to conduct research is a significant asset, since it will generate the future patents (Fernald, Pennings, & Claassen, 2015). To enhance circularity, the patents under development can come from discarded research of other firms or from repurposing existing molecules.…”

How Central Is Too Central? Organizing Interorganizational Collaboration Networks for Breakthrough Innovation

“…Alliances are not discrete arrangements; firms possess a portfolio of interlinked alliances (Wassmer, ), which together form an alliance network (Gilsing and Nooteboom, ; Gilsing et al, ; Powell et al, ; Vanhaverbeke et al, ). This is defined as the “focal firm's egocentric network (i.e., all of its direct ties with partner firms; Baum, Calabrese, and Silverman, ; Ozcan and Eisenhardt, ; Wassmer, )” (Fernald et al, , p. 5).…”

“…Recent alliance literature suggests, however, that, rather than discrete arrangements, alliances should be understood as building blocks of interorganizational collaboration networks (e.g., Fernald, Pennings, and Claasen, ; Gilsing and Nooteboom, ; Gilsing, Nooteboom, Vanhaverbeke, Duysters, and van den Oord, ; Powell, Koput, and Smith‐Doerr, ; Vanhaverbeke, Gilsing, and Duysters, ) . Social network research shows that the more central an organization is in the network, the greater the information and knowledge that it is able to reap from the network (Kilduff and Brass, ).…”

Technological cooperation network in biotechnology

“…In this respect, it is worth emphasizing that there is indeed a gain in strategic competitiveness by using collaboration, but there is a limit to that gain, and companies must be careful when establishing partnerships to avoid an excessive number of alliances that could undermine their innovative capacities, rather than help them (Fernald et al, 2015). Among the collaborations with greater sharing of patent ownership, we highlight the Federal University of Viçosa (UFV) with FAPEMIG (Research Support Agency of the State of Minas Gerais), and USP with FAPESP (Research Support Agency of the State of São Paulo), and these collaborations yielded five patents to each institution.…”

“…Chen and Lin (2016) concluded that biotechnology companies should maintain partnerships with universities to increase their innovation capabilities and improve the marketing of new products. After examining potential trading strategies for biotechnology products, Fernald et al (2015) mention three types of collaborations used in this sector:…”