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Commercialization Strategies of Research Providers and their Realization in the Negotiation Process – An Exploratory Analysis

This paper shows the results of investigating what are the most common business practices in the commercialization of discoveries and technologies in the biotechnology sector, the allocation of control rights as a result of the negotiation process, the factors impacting the bargaining position of the companies during the negotiations, and the perception of risks by the business practitioners. For this purpose, qualitative methods were applied. First, the extant theoretical literature was reviewed as part of the secondary research and the definition of the research framework for the primary research. Secondly, as primary research, in-depth semistructure interviews were conducted to eight business practitioners in the biotechnology and pharmaceutical field to contrast the findings of previous literature with their opinions. Overall, the findings are that the most common commercialization strategies of small biotech companies are licensing agreements and partnership and alliances with larger companies especially in the pharmaceutical industry, driven first by the lack of resources and complementarities of the small firm, and a trend of the large companies to search outside their walls for new technologies to fill their pipelines. In the allocation of control rights, a large company usually tries to retain the rights to manage clinical trials, manufacture and market the product asking for exclusivity in certain markets. The right to sublicense will be retained by the large company, while the right to terminate contract or alliance is commonly included in the contract as a possibility for both parties in the agreement. The owner of the technology will normally try to partner with a company that has no intention to shelve the project. The original owner of a technology will commonly keep the right to ownership of that technology, whereas the ownership of subsequent developments inside an alliance will vary depending on each case. With respect to the bargaining power, the interviewers remarked that the financial power of the firms, the value and level of breakthrough of the technology; the number Commercialization Strategies of Research Providers and their Realization in the Negotiation Process  of potential licensees; the pressure of patent cost; the lack of complementary assets; and negotiation skills are some of the factors impacting the bargaining position of the firms. Concerning the perceived risks when collaborating with other companies, the business practitioners show concerns when one of the parties involved might potentially: shelve the project or declare it out of strategic focus; use disclosed information to infringe, invent around or become a potential competitor; profit in an unequal and advantageous manner; invest without desired results. Some practices recommended to mitigate these risks are to have well written contracts -with openness to renegotiate-, to build a strong alliance management team and to conduct a robust due diligence by both parties previous to sign any collaboration agreement. As a recommendation for future research, it is suggested investigating further on the factors influencing the selection of commercialization strategies by small biotech and large pharmaceutical companies, and the factors affecting the bargaining power in an negotiation. Commercialization Strategies of Research Providers and their Realization in the Negotiation Process    i  TABLE OF CONTENTS INTRODUCTION   1  Problem Statement  2  Structure of the Thesis  3  METHODOLOGY   4  Secondary Research  4  Primary Research  5  Limitations of the Research  6  LITERATURE REVIEW  7  Background  7  Configuration of a New Value Chain  9  Commercialization Strategies  12  Business models and type of companies  13  Collaboration forms  15  Form of Transactions and their Risks  19  Control Rights  21  Bargaining Power  24  ANALISYS AND DISCUSSION OF PRIMARY FINDINGS   26  Commercialization Strategies  26  Licensing strategy  29  R&D partnerships and alliances  30  Control Rights  32  Right to manage clinical trials  33  Right to process development and manufacture final product  34  Right to market universally  35  Right to market product alone (Exclusivity)  36  Right to sublicense  37  Right to terminate contract or alliance  37  Right to shelve the project  38  Right of ownership of the technology and its subsequent improvements  39  Right to patent litigation  40  Right to delay publications  41  Bargaining Power  41  Financial power  42  Value and level of breakthrough of the technology  42  Number of potential licensees  44  Pressure of patent cost  45  Time to market and opportunity cost  45  Lack of complementary assets  46  Small number of research suppliers and specialization  47  Expertise and market knowledge (market power)  47  Negotiation skills  48  Final thoughts about bargaining power  48  Risks  49  Risk of collaboration becoming out of strategic focus or shelve of project by the large company  49  Use of small firm’s disclosed information by the large company to infringe, invent around or become a potential competitor  50  Profitability risk  50  Risk of project failure or investing without desired results  51  Strategies to Mitigate or Reduce Risks  51  Commercialization Strategies of Research Providers and their Realization in the Negotiation Process    ii  Well written contracts  51  Openness to renegotiation  52  Alliance management  52  Robust due diligence  53  CONCLUSIONS AND FURTHER RESEARCH  57  Further Research  59  LIST OF REFERENCES   60  APPENDICES   67 