The biotech industry as a whole is classified into five distinct segments: biopharma, bioservices, agricultural biotechnology, industrial biotechnology and bioinformatics, with biopharmaceuticals dominating. This sector has a dualistic structure with large firms on the one end and SMEs on the other. This is particularly true about the pharmaceutical firms . in this set up, SMEs have to continuously invest in R&D and drive their products and technologies further up the value chain. Sustaining the increased level of R&D investment requires cash from public markets, private equity and venture capital or technology licensing. Firms must extract maximum value from their resources by focusing on core competencies and leveraging external expertise to complement in-house capabilities. Costs of operations are major factors and biotechs must be alive to opportunities to maximize return on their limited resources, whilst ensuring that development adds value, is of a sustained high quality and is aligned with their long-term growth strategy. Biotech MNCs are exploring alternative strategies to reduce the cost base of discovery and development, cut time to product launch and tap into new markets and are exploring offshore opportunities in emerging markets in Asia, particularly India and China, to outsource R&D, clinical trials and manufacturing in a bid to gain a competitive advantage.
Indeed, it has been estimated that for every 100 biotechnology research ideas, only one is likely to have any commercial potential at all (Harding and Lissenburgh, 2000).
The Term Paper on Corporate Governance Firms Market Investors
The Initiative for Policy Dialogue Corporate Governance Task Force Meeting September 25, 2003 Columbia University New York, NY Notes taken by Tomasz Michalski. Bolton: What is corporate governance? This is what I picked up from the NYT on Monday. It's not very encouraging for us. (shows slide) Here's our attempt to organize a few thoughts. What are the key issues for corporate governance in ...
In a case study of two major biotechnology firms in the US, it was found that individual level collaboration between firm scientists and university scientists on scientific publications was frequent and very diverse, in that it involved several different universities (Liebeskind et al., 1996).
Firms preferred informal work contracts with individual scientists rather than formal agreements with the universities.
Modern biotechnology has offered new and improved products to agriculture, utilizing genetic transformation techniques to produce customized high yield weather resistant crops. It may be too expensive for the biotechnology firms to establish their own research and development establishments as every player hurries to benefit from new products, they are impelled to seek collaboration with the knowledge base institutions. Industry merger and acquisition (M&A) activity rose sharply in the 1990s, peaking in 1996; for instance, Monsanto alone formed thirty significant research alliances and initiated sixteen separate acquisitions. A consequence of this M&A activity was consolidation and an increase in industry concentration, although somewhat offset by entry of new firms into the industry.
In the period 1995-98 there were 25 major acquisitions and alliances, which alone were worth $17 billion. Out of them three major mergers were worth $13 billion. In this game of mergers Monsanto emerged as the biggest player. It acquired some of the largest firms in this US commodity markets and has got acquisition of important patents. For instance, DeKalb has 11 per cent of US commodity market with lots of important patents. Similarly, Delta & Pineland is the largest US company for cotton seeds.
Monsanto has also acquired international seed operations of Cargill for $1.4 billion. Cargill specialized in seeds of corn, sunflower, rapeseed, soybean, alfalfa, sorghum, wheat and hybrid rice in 51 countries. Unilever owned Plant Breeding International Cambridge Ltd. (PBIC), earlier a public research institute has also been brought by Monsanto. PBIC largely focuses on cereal varieties and potato. Among the mergers, one finds creations of Novartis as a major step towards tapping of synergies in the biotechnology business.
The Term Paper on Hp Compaq Merger
The world’s largest corporate Information Technology merger began in September 2001 when HP announced that they would acquire Compaq in an all stock purchase valued at $25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder and regulatory approval with the end result being one company. The new HP has annual sales of approximately $90 billion which is comparable to ...
Ciba and Sandoz have merged their pesticide and seed business of $5 billion to take form of Novartis. Similarly, the impose of the merger of Hoechst and Rhone Poulenc to form Aventis was to achieve better operational efficiency. Aventis now has an R&D budget of $3 billion and annual sales of $20 billion, all over the world.
Southern California’s venture capital investments totaled $ 482.5 million for the second quarter of 2006, mostly in biotech related companies, according to data compiles by the SoCalTech.com email newsletter.
That’s a 15.4 percent increase from the $ 418 million logged in the like period a year earlier and a 69.8 percent increase from the first quarter of 2005.
In the first quarter, before PhotoStamps returned to the market, the plain-vanilla office product led to net income of $ 1.5 million, compared with a loss of $ 4.5 million in the two year period. Revenues jumped to $ 11.8 million from $ 7.6 million. ( Potkewiz, 2005)
For large pharmaceutical firms, escalating drug development costs are a result of new regulations necessitating longer and comprehensive clinical trials, high R&D costs related to capital investment in high-through put technologies and additional discovery tools.
The challenges for smaller biotechs relate to access to limited funding and a restricted ability to invest beyond their core competencies. As such, a flourishing contract outsourcing market has evolved, allowing collaboration with dedicated service providers at various stages of drug discovery and development.
Collaboration as a Global Phenomenon
In pure competition, information between organizations is isolated, R&D does not produce speedy centralized results On the other hand, knowledge resources are nourished collectively by and for the alliance organizations, they all benefit from shared resources. In such partnerships benevolence can be observed in the collaborative exchanges.
Figure. Biotechnology and seed company mergers and accessions by agricultural biotechnology companies, 1990-2000
The Term Paper on Cost-Salvage Value/Total units of production
Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines’ second year depreciation under the units of production method: Answer: $16,900 ...
From “ Structural Change in the Biotechnology and Seed Industrial Complex: Theory and Evidence” by N. Kalaitzandonakes and M. Hayenga with authors ‘updates, presented at the NE-165 conference “ Transition in Agbiotech: Economics of Strategy and Policy”, Washington, DC, June 24-25, 1999.
Drivers of collaboration
Tied together by cost and, to a lesser extent, time to market the following factors drive firms to outsource R&D, manufacturing, sales and informatics:
• Conversion of fixed costs into variable costs
• Insufficient numbers of employees
• Acceleration of speed to market
• Easier termination of poor projects
• Lack of capacity
• Access to knowledge and skills
• Access to technology
• Increased burden and complexity of regulation
• Global nature of modern drug development
Economic reason for collaboration
The merger between two biotech firms will occur only if the present value of the combined entity is greater than the total of individual entities before merger i.e.
PV(AB)> PV(A) + PV(B)
In other words the net present value of the merger must be positive i.e.
NPV= PV of Benefits – PV of Costs
If firm A is acquiring firm B, then PV of benefits = PV(AB)- PV(A) + PV(B)
And, PV of Costs = Cash paid by A to B – PV(B)
Diffusion of Innovation as a reason for collaboration
The application of an intellectual framework will help to clarify key issues in complex business partnerships in the technical, knowledge-intensive industries of biotechnology and pharmaceuticals. The framework will expose crucial drivers and barriers for collaboration and facilitate comparisons of the various types of biopharmaceutical collaborations. A model of the diffusion of innovation and product lifecycle curve described by Everett Rogers is applied here.
The model describes innovation diffusion as an S-curve, where an innovation is communicated through channels over time among members of a social system. Innovators and early adopters are the first to take up an innovation, which is then rapidly diffused through an early majority, before levelling out with adoption by the late majority (Figure 4).
The Essay on Lifetime Employment Workers Firms Company
To manage the flow of human resources within organizations, some large and prestigious Japanese firms have adopted the policy of "lifetime employment" (Fisher et al, 1990). There have never been any official rules concerning implementation of lifetime employment, but there has been a convention of long-term employment among the large corporations. It is based on the concept that if an employee ...
Initially proposed to describe innovation adoption, it also represents the marketing product lifecycle curve and has been modified to represent the specific challenges of high-tech markets and is nonetheless a valuable framework to apply to biopharmaceutical collaborations, which themselves represent an innovation in business practice in a high-tech industry.
Diffusion research promotes understanding of technological and social determinism and shows the essentially social nature of the adoption of new ideas. Innovation is defined as an idea, practice or object perceived as new by an individual or other unit of adoption. Diffusion is defined as the spread of new ideas that necessarily represent high degrees of uncertainty to the individuals involved. Innovation diffusion is therefore a process of uncertainty reduction where perceptions count in understanding human behavior change.
Company Total Parent Patents Subsidiary Patents Subsidiary % of Total
Dow 234 11 223 95
Dupont 565 109 456 81
Monsanto 674 294 380 56
BASF 228 89 139 61
Bayer 516 158 358 69
Syngenta 425 142 283 67
Total Big Six 2642 803 1839 70
Total US private sector agbiotech patents 8245 6406 1839 29
Table: US agricultural biotechnology utility patents in private sector, 1976-2000
Note: Data from USDA/ERS/ABIP
The above table represents that a series of merger and acquisition in agriculture biotechnology substantially enhanced the number of patents of the parent companies’ total number of patents . The subsidiary patents contributed nearly all 95% of the firm’s agricultural biotechnology patents of Dow Agroscience.
When DuPont announced the acquisition of Pioneer Hi-Bred, the cumulative deviation of the stock return of Pioneer Hi-Bred increased significantly. Although the cumulative deviation of holding DuPont decreased, the decrease was smaller than the increase in
the cumulative deviation of Pioneer shares. The decreased cumulative deviation might suggest that financial markets believed DuPont overpaid for its stake in Pioneer, perhaps parallel to the winners curse phenomenon, which explains why some auctions result in
The Term Paper on Xbox Kinect Innovation Analysis
This innovation, originally developed by Microsoft under the codename of Project Natal, was finally released under the Kinect name on November 4, 2010 and entered the Guinness World Record Book by being the fastest-selling customer electronics device . Even though it was initially designed for video games, it now applies to real-world uses. Kinect is a motion-sensing system based around a depth ...
overbidding. However, the positive aggregate return for the companies suggests a prediction that the profitability of the combined firms would exceed that of the two firms operated separately presumably the entire rationale for the acquisition.
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When a small firm takes on a partner, it faces risks and costs that can sometimes outweigh the advantages of the alliance. Among those costs are the risk of losing its independence, of being appropriated by its competitor and of being taken over by a partner, which through the transactions will have an inside view of the quality of the firm’s work, its ideas or the products it has developed (Oliver, 1994).
Conversely, large companies tend to prefer allying themselves with firms that have already demonstrated their credibility (through patents for example) and innovation capability (by diversifying the products they have in the pipeline).
The Biotechnology Use and Development Survey–1999 shows that small companies thatformed alliances had, on average, half less patents than medium sized firms and 9 times less than large firms. Because they are new, small firms constitute a risk and a responsibility for their partners. (Singh et al., 1986).
Alliance in Developing Countries
Case Study : Monsanto in India
The following study suggests how, through alliance with the local partners, the company could overcome the difficulties it could have faced from the regulations authorities, political and social outfits, and local farmers.
When company started off at its own, the farmers’ group KRRS (Karnataka Rajya Ryota Sangha) in Karnataka for example led a campaign in November 1998 to “Cremate Monsanto”, burning the company’s field trial sites in the state.
A former employee of Pioneer, for example, said although the company entered India in 1974, they spent ‘15 years stumbling around trying to understand the laws’. To remedy this they sought a joint venture with a company in Chennai, in a 50/50 ownership deal. ( Newell 2003 page 7)
As early as 1990, Monsanto sought approval for the commercial release of its Bt cotton variety. This was rejected in 1993 on the basis that the technology transfer fees were too high. In 1995 Mayhco, the long established seed company headed by Dr Barwale, was granted permission to import 100g of transgenic cotton seed as part of an agreement with Monsanto. To consolidate it’s position in the market, in 1998 Monsanto bought a 26 per cent stake in MAHYCO (Maharastra Hybrid Seed Company) creating Mayhco-Monsanto Biotech India Ltd (MMB).
The Term Paper on Small Firm Financing Company Companies Market
Financing a small firm can be achieved in three ways. The most preferable but at the same time the least likely is self financing from retained earnings, otherwise, the firm will have to resort to either one of the two following financial markets. Debt capital and equity capital (which strictly speaking is the same as retained earnings, both having their advantages and disadvantages. Only after ...
On the research side, Monsanto has sought to build bridges and create legitimacy for its activities through collaborations with public sector institutes.
Winning Over Social and Political Outfits
Besides the PR benefits that the firm derives from such collaborations, alliances with groups such as TERI also serve other politically important functions. TERI has hosted a number of “stakeholder dialogues” on biotechnology and bio-safety issues bringing together a select number of researchers, NGOs such as Gene campaign, and firms such as Monsanto and Syngenta to produce recommendations for government advocating clarity on approval procedures and reduced approval times.
Local Advantage
A.R. Modi from Oriental Biotech in Bangalore noted ‘our strategic advantage is that we know the agricultural system and have the political contacts . . . [as well as] 1,500 growers loyal to us that will accept any crops we give them’.
It simply implies that our understanding of collaboration and competition in knowledge-intensive industries, such as biotechnology, can be enhanced by applying a method of
observation allowing us to reveal the spectrum of relational forms that co-exist in
many network-based knowledge relations.
The Other Side
Despite the alleged advantages of collaboration, another stream of literature has questioned the advantages of networks. On this front, Osborn and Hagedoorn (1997,
p. 270) question the efficiency of transferring and absorbing tacit knowledge among
collaborating organizations. Further, firms in alliances may lose some of their interest in developing certain competencies and technologies (Hamel, Doz, & Prahalad, 1989), or they may reduce their revenues as a result of profit-sharing (Shan, 1990).
Risk is also associated with the incomplete nature of contractual arrangements and the resulting risk of opportunistic exploitation by partners (Das, Sen, & Beal, 1998; Hart, 1995).
Explanations for the failure of alliances vary. Studies based on game theory usearguments of opportunism, tit-for-tat behavior, or the learning-race approach in illustrating how and why alliances fail (Clarke-Hill, Li, & Davies, 2003; Das & Teng, 2000; Gulati, Khanna, & Nohria, 1994; Hamel et al., 1989).
Otherstudies focus on the lack of trust and information feedback that can account for the failure of alliances. (Arino & de la Torre, 1998; Liebeskind & Oliver, 1998; Ring Van de Ven, 1994; Sydow, 1997).
In response to the alliance-embedded complexities listed above, recent studies have
risen to the challenge needed to develop new theoretical perspectives that aim to
capture the paradox of cooperation and competition in alliances, as in Clarke-Hill et al.
(2003), or to map the character of the interorganizational learning dilemma, as in
Larsson, Bengtsson, Henriksson and Sparks (1998).
tudy of Industrial Society
Since the process of development is inevitable, any partnership leads to the sum total benefit of any enterprise. It facilitates both intellectual and business advancement. This is true that in the alliance of unequals, it is the major who wields the power and exercise monopoly. There have been instances of infringement of co-players’ rights and abuse of power position.
The consolidation of power and concentration of ownership in life science means that many farmers in the industrialized world are being forced into ‘bio-serfdom’, as control over farm level management and decision making which crop to grow, which inputs to use, which buyers to sell to is usurped by the multinationals.
Research into the effects of commercial sponsorship on academic judgment in the medical field has shown that the independents judgment of scientists, and with the public trust in scientific opinion, is being seriously compromised by the demands of corporate investors.
The effects of the corporate gifts- extra funding, equipment or materials on life science research- were examined to find that a third of the recipients were expected to give the donor a pre-publication review of any papers deriving from the use of gift was used. ( Campbell et al 1998).
Findings
Alliances are regarded as a crucial but volatile element in the attempt to gain
competitive advantage (Hamel et al., 1989; Larsson et al., 1998; Ring & Van de Ven,
1994).
However, they also entail complexities, dilemmas, and paradoxes in a variety
of forms (Kogut, 1998; Larsson et al., 1998; Clarke-Hill et al., 2003).
Nordo they
always fulfill the functions for which they are designed and may result in failure
(Arino & de la Torre, 1998; Podolny & Page, 1998).
Pisano (2002), argues that ‘‘While many new biotechnology companies had visions of becoming fully integrated pharmaceutical companies, the high costs of drug development forcedvirtually all new entrants to pursue a strategy of collaboration with larger, more
established pharmaceutical companies. Only a handful of new entrants were able to
establish themselves as fully integrated pharmaceutical companies, etc.’’.
However, as mergers and acquisitions seem to increase, we may be seeing evidence of a system consolidation. This consolidation may lead in turn to more exploitation within firms and more competition between them at the price of less inter-firm collaboration on learning.
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