Complementarity and external linkages: the strategies of large firms in biotechnology

Abstract

Introduction Chapter 3 discussed the growing importance of division of labor in pharmaceutical research and innovation. It argued that, with greater scientific intensity of pharmaceutical research, relevant knowledge for innovation can be articulated in more general and abstract forms, and hence it can be transferred more easily between organizations. This encourages division of labor among agents specializing in different segments of the drug innovation cycle. This chapter presents empirical tests of the rising division of labor in drug innovation using data for eighty-one large US, European, and Japanese chemical and pharmaceutical corporations active in biotechnology. The analysis focuses on the linkages of large corporations with universities (and, more generally, non-profit scientific institutions), and the so-called new biotechnology firms (henceforth NBFs). There are four main types of external linkage of large firms in biotechnology: joint ventures and agreements with other firms; research agreements with universities; minority participations in NBFs; and acquisition of NBFs. This chapter tests whether these four strategies are complementary to one another – i.e., given any two of them, undertaking more of one raises the pay-off of the other. It also tests whether greater in-house scientific and technological capabilities of large companies in biotechnology (as measured by company patents) raise the marginal value of external linkages. Both hypotheses have direct relevance to the rise of a division of labor in drug innovation.