Dr. Simon Wakeman (European School of Management and Technology)

Program

• Date: 17.10.2007
• Time: 12:00 - 13.30
• Location: INNO-tec, Kaulbachstr. 45, Room 202 (institute library)

Patent Rights and Biotech Commercialization Strategy: The Effect of Patent Protection on the Timing of Alliance Entry

The importance of patent protection for profiting from innovation in the biopharmaceutical industry is well established. However, the effect of patent protection on the commercialization strategy of start-up biotech firms is less clear. This paper analyzes how a start-up biotech firm’s patent rights affect if and when it enters into an alliance with a pharmaceutical firm. The existing literature presents conflicting predictions of how obtaining patent rights affects alliance entry. The literature on markets for technology argues that obtaining patents increases the firm’s protection during pre-contractual negotiations, hence increasing the likelihood of alliance entry. However, research in finance suggests that obtaining patents also increases the ability to access outside funding, which in turn enables the firm to delay entry into an alliance with a pharmaceutical firm. Using a unique dataset of patenting and licensing information on 650 U.S. biotech firms founded over the period 1976-2002, I estimate the effect of a firm’s patent protection on the hazard of it entering into an alliance with a pharmaceutical firm. I find that while the likelihood of a firm entering into an alliance increases with the firm’s patent filings, it decreases as those patents issue. This result is robust to different methods of dating the patent filing, as well as to weighting the patent count by both the number of forward citations and a more general index of patent quality. This suggests that, while filing patents over the technology enables the biotech firm to transact with a pharmaceutical firm, the issue of those patents increases the biotech firm’s outside options and hence enables it to delay the timing of alliance entry until the optimal stage in the commercialization process.

• Date: 19.10.2007
• Time: 11:00 - 12.30
• Location: INNO-tec, Kaulbachstr. 45, Room 202 (institute library)

"A Dynamic Approach to Technology Commercialization Strategy: Evidence from Biotechnology"

A major decision for a start-up technology-based firm is how to access the complementary assets necessary to profit from an innovation. The early literature (Teece, 1986) presented this decision as a choice between selling out to an established firm which possesses the requisite assets and entering into a joint commercialization alliance. More recently, Gans, Hsu & Stern (2002) contrasted these “cooperative” modes against the situation where the firm acquires the requisite resources and commercializes the innovation itself, presenting the decision as a choice as whether to cooperate or compete. However, there is substantial body of evidence that firms alternate and integrate competitive and cooperative strategies in order to build a position of sustainable competitive advantage (Brandenburger & Nalebuff, 1996). This paper analyzes the arrangements used by a set of start-up biotech firms seeking to commercialize technology in the pharmaceutical industry. While the predominant commercialization mode is to enter into an alliance with a pharmaceutical firm, in recent years it has become common for biotech firms to retain the rights to participate in the marketing and distribution of the product alongside the pharmaceutical firm (known as co-promotion rights). The analysis suggests that the choice of co-promotion arrangement as part of an overall firm strategy of integrating downstream into the product market. I find that firms are more likely to retain co-promotion rights when they are more specialized in the disease field of the alliance. Moreover, firms which retain co-promotion rights in a given alliance are more likely to be involved in marketing and distribution of products in subsequent alliances. Together these results demonstrate that the choice of commercialization mode for an individual innovation is only one element in the firm’s overall strategy, and that start-up firms may engage in cooperative arrangements as part of an overall strategy of acquiring the capabilities necessary to compete in the downstream market.

References

Brandenburger, A. M. & Nalebuff, B. J. (1996). Co-Opetition: A Revolution Mindset That Combines Competition and Cooperation. New York: Doubleday.

Gans, J. S., Hsu, D. H., & Stern, S. (2002). When Does Start-Up Innovation Spur the Gale of Creative Destruction? RAND Journal of Economics, 33(4): 571.

Teece, D. J. (1986). Profiting from technological innovation. Research Policy, 15(6): 285-305.