Biomedical Engineering Reference
In-Depth Information
Such alliances are intended for the commercialization of science and aim to exploit
complementary competencies residing in different organizations.
23
Many of the earlier studies on strategic alliances in drug innovation have been
largely case-based. The industry is fairly young and volatile, and there is a relative
paucity of tractable measures on the partner selection process, the structure, gover-
nance, and evolution of alliance modes, or the way innovation value is created and
appropriated in such partnerships. Due to space considerations, we briefl y outline
recent empirical fi ndings from the academic literature that relate to alliance-related
decisions. These studies have used large samples to enhance generalizability.
Rough estimates point to biotechnology as the industry with the highest rate
of alliance formation and the one with the highest growth rate in new alliances
(Hagedoorn
1993
). This is hardly surprising given the advantages of strategic alli-
ances as well as their considerable signaling value. For the generally less visible
biotech fi rms, participating in alliances with large pharmaceutical fi rms can be seen
as a tacit endorsement. Such partnerships can bestow special clout on small, rela-
tively unknown ventures.
A study by Stuart et al. (
1999
) demonstrates empirically that alliances can boost
the stock market valuation and expedite the IPO of the biotech partner. In addition,
as shown by Danzon et al. (
2005
), in the late stages of clinical trials a new drug
developed in an alliance has a higher probability of success, especially if one of the
partners is a large pharmaceutical fi rm. A strategic alliance between a biotech fi rm
and a large pharmaceutical fi rm can also be a precursor to the pending acquisition
of the biotech fi rm by its large partner.
However, alliances in the pharmaceutical industry are not limited to biotech-
pharmaceutical dyads and can also occur between peer biotech or peer pharmaceuti-
cal fi rms. Public institutions (e.g., universities) can also partner with biotech or
pharmaceutical fi rms. Many organizations tend to engage in multiple alliances
simultaneously. Tracking all alliances of a fi rm is diffi cult as fi rms are not expected
to disclose their interfi rm arrangements (but may choose to publicize them never-
theless). Also, some agreements could be rather informal (e.g., handshake deals).
The rationale for alliances in the pharmaceutical industry
. The incumbent large
pharmaceutical fi rms, vertically integrated and well-funded, already in command of
considerable sales forces and embedded in vast networks of industry contacts and
23
The onset of extensive interfi rm cooperative arrangements in the pharmaceutical industry in the
early 1980s coincides with the time of its sweeping transition from chemical to biological com-
pounds, which had also triggered the emergence of biotech fi rms in the late 1970s. The confl uence
of several critical factors created favorable conditions that fostered such cooperation: the Supreme
Court passed a decision that live forms could be patented, the Patent and Trademark Act allowed
universities to patent discoveries funded with federal dollars, and the fi rst biotech fi rm, Genentech,
went through a very successful IPO, drawing the industry's attention to the creative potential of
such fi rms (Hoang and Rothaermel
2005
). The trend toward strategic alliances got an extra boost
in the 1990s in the wake of several biotech fi rms' stock market failures that underscored the advan-
tages of partnering with large pharmaceutical fi rms. Around the same time, drastic healthcare
reforms curtailed the growth potential of large pharmaceutical fi rms and sent them scrambling for
faster innovation. This precipitated the need for cooperation on their part.
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