Biotechnology Commercialization Strategies: Risk and Return in Interfirm Cooperation

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