Partnering strategies in biotech firms : quest for complementary assets or control over IPRs

The goal of this paper is to understand partnering strategies of Dedicated Biotech Firms (DBFs) in order to add some caution to the generalized opinion according to which DBFs largely exploit their valuable knowledge by allying with incumbent pharmaceutical firms. While prior work has focused largely on biotech-pharma alliances, we believe that biotech firms are also engaged in a large number of bio-bio alliances because these alliances are perceived less harmful in terms of control over intellectual property rights (IPRs). Therefore, this paper examines the possible impact of partnering strategies Dedicated Biotech Firms carry out in technology licensing agreements by asking: To what extent do DBFs engage in licensing agreements by collaborating with pharmaceutical firms or preventing them to maintain control over IPRs? We test our hypotheses on a sample of 530 US DBFs and 2,482 technology licensing agreements and 237 EU DBFs and 1143 technology licensing agreements. We found that the number of alliances between biotech companies is higher than that between pharmaceutical and biotech companies. This suggests they, as industry matures, DBFs orchestrate inter-organisational R&D projects through a re-combinative knowledge process avoiding the overwhelming bargain power of pharmaceutical firms. In addition, our findings reveal that small DBFs can alternatively allay with pharmaceutical firms or with other DBFs without decreasing their innovative capability (measured in terms of patenting activity). This suggests that pharmaceutical firms collaborate with DBFs without exerting a too high control over IPRs, and that DBFs can undertake several partnering strategies, depending of their capabilities to retain control over their valuable knowledge. They can also avoid the alliance with pharmaceutical firms focusing on alternative alliances with other DBFs. Therefore, technology licensing agreements can be conceived not only as a way to transfer technology but also as a rent appropriation mechanism that weak partners can manage properly via partner selection in order to protect their core assets through patents. The relative “dominance” of pharmaceutical firms in their alliances with DBFs firms can be detected ex-post, in a second round, once in our data we control the influence of acquisition strategy. The most performing DBFs in terms of patenting activity are likely to be acquired by other pharmaceutical firms. We believe these findings provide new challenges for the management of IPRs and commercialization strategies of technology entrepreneurial ventures