1. Name: Bipin KC
Student no: M00525615
Module code: MGT2440
International Operations and Innovation Management
Module Leader: Hsing-Fen lee
Title: Network and Alliance in Biotechnology

2. Impacting almost every aspect of human life with superlative discoveries leading to an
increase in the lifespan and quality of human life through an engine of economic growth and
development (Ranade; 2008). Moreover a source for the greatest amount of wealth for
investors, biotech has been the greatest volume of public debate in the 21st century
(Ranade; 2008). Companies that use living organisms, molecular or cellular techniques to
provide chemicals, food and services in order to meet human needs and the industries they
operated are called “BIOTECH” industries (Bractic; 2014). As a part of the biotechnology
industries, these companies are engaged in manufacturing and developing of large
molecules medicines that are similar or identical to body proteins (Bractic; 2014). Firstly,
this essay will be describing the biotechnology industry and sub-sectors involved with in it.
Secondly it will explore the significance of network and alliances in biotech firms by
highlighting why and how the biotechnology firms collaborate with external partners? Lastly,
the essay will be summing up the argument to have a conclusion.
Biotechnology is a development of a technology and products that harnesses cellular and
bio molecular leading improvement on one’s life and health of the planet as a whole. The
use of biotechnology takes us back to 6,000 years to make useful food products, such as
bread and cheese, and to preserve dairy products (biotechnology, 2015). Furthermore
biotechnology industry can be broadly segmented into three sectors. A study by Bur rill
(2007) states that biotechnology comprises sectors, such as healthcare, agriculture and
industrial bio technology (cited by Sytch, 2008). The modernization of these sub-sectors
through modification of microorganisms, plants and farmed animals for improved food
production by improving breeding’s in plants and animals has resulted in creation of large
and highly profitable industrial outlet simultaneously, providing great value to society
(Ranade; 2008).
Coming to industrial biotechnology, where commercial application takes place using cells or
parts of cells like enzymes for industrial production process, which includes consumer goods,
bioenergy and biomaterials. Moreover, due to the advancement in this sector there has
been successful application for the generation of innovative and valuable products, which

3. were impossible to produce using traditional chemical synthesis (Festel; 2014). One of these
applications has resulted in the development of industries, which will be posing
economically, and environmentally sustainable development process like chemical
industries (Festel; 2014).
Simultaneously, coming to Health/medical biotech which can be arguably stated as the most
important sector in biotechnology sector as demonstrated by Ranade’s (2008) that “Medical
biotech has been by far the most influential, beneficial, and controversial field of biotech”.
Rapid advancement in molecular biology resulted bio scientists to pursue a remarkable
achievement in controlling the biological process. These discoveries has helped to improve
the lifespan and quality of human life (Ranade; 2008). However Bratic (2014) states that
“Incorrect assumptions involving drug development costs, anticipated revenues, or risk can
have significant impact on any valuation”, which shows the process of drug development
has been extremely expensive and risky. Moreover it requires building strong foundation for
drug discovery which is difficult to achieve since the skilled employees and sucessful
products often move to one of the established drug development hubs (Friedman; 2014).
Bratic (2014) argues that biopharma industries encompasses various risk factors and hurdles
before commercializing successful drugs, which has hinted that it might be inevitable for
small biopharma industries to develop and sell their drugs on their own.
A study by Ernst and Young (1998) shows that 70% of United States biotech firms were
involved in strategic alliance (cited by Sytch, 2008). Furthermore it might be due to the lack
of in-house expertise and efficiencies that pharma and biotech industries has experienced
an outsourcing phenomenon (Ranade; 2008). One of the main reason for biotechnology
firms going in collaboration in order to share their costs and risks of innovation as there is
high risk of uncertainty in the market (Stych; 2008) which can be shown as in 2010 the
average return on research and development in pharmaceutical industry were less than
nine percentage (Bractic; 2014). Similarly Tanox, a young biotech company was chronically
short of cash and it looked over for corporate partner and merged alongside with Ciba-Geigy
and another Swiss company in 1996 to become Novartis (Hamilton; 205). Eisenhardt and
Schoonhoven (1996) studies have demonstrated that there is certain degree of flexibility
and ease in the burden of resources on jointly developing new product with an alliance
partner than going solo (cited in Sytch; 2008). This might be because the flexibility and lack

4. of pressure may nurture the innovative capabilities of an individual leading to an increase in
the efficiency as a whole. Additionally biotech firms might seek alliance with established
rivals in order to avoid competition with them or blocking other potential competitor (Sytch;
2008). This can be shown when collaboration between Genentech and Novartis in the
production of “TNX-901” (a peanut allergic drug) successfully blocked a third independent
company from moving ahead (Hamilton; 2005).
Evidences has shown that many biotechnology firms are unable to execute a full product
development cycle due to the lack of resources and this makes them to seek for contractual
agreement (Sytch; 2008). “Pharma players are well equipped to conduct clinical trials and
work with FDA to obtain product approval” (Ranade; 2008; p.10) which seems lacking in
biotech industry. In reference to Tanox who was one of the partners of Genentech and
Novartis had to fight a legal battle which lasted five years and costs $100 million in legal
fight, later was compelled to sign a settlement with its partners to start testing Xolair,
another peanut allergy drug (Hamilton; 2005). Similarly, Biotech industry neither have
required sales and marketing expertise nor tremendous financial muscle which is must for
passing all phases of laboratory and clinical development and successful commercialization
of product (Ranade; 2008). Thus, biotechnology companies in general lack in these
capabilities and have to seek for potential partners.
It might be inevitable to just look at, what takes or drives these firm’s to collaborate with
external partners instead of finding out how do they choose their partners or the process
that underlies in between the biotech firms and large companies that motivate them to
negotiate apart from the calculative driver’s. Coming to the process of choosing the external
partners; homophily, tendency of individuals to associate and bond with similar others has
been regarded as one of the factor that might fosters mutual trust and likelihood of the
partnership (Sytch; 2008). Similarly a study by Baldi, Stern and Dukerich (2007) have found
that if the founders of biotech firms have graduated or work at same educational
institutions or workplace then firms are likely to collaborate between them (Sytch; 2008).
Furthermore this can also be argued in reference to the development and
commercialization of exenatide, a drug for diabetes patients. Here, “Lilly have been
fortunate that Mr. Thompson who was Lilly’s vice-president of business development and
Mr. Cook Amily’s chief executive were old friends who has worked for twenty- eight years

5. together” (Abboud; 2005). However a study by Stern and Dukerich (2007) demonstrated
that if firms are founded by pronounced scientist having strong publication records then
there is likely chances for commercial partners to be more attracted in the early phase of
drug development ( cited in Sytch, 2008). Therefore, these factors have contributed in the
process of forming strategic alliances.
Since large drugs companies cannot discover the compounds for new drugs as soon as they
lose protection from patent, so they collaborate with biotechnology companies. But there is
always a dilemma here, as most of the time large companies will be seeking for the full
control or authority throughout the development of drug (Abboud; 2005). Their strong
brand name, reputation and abundance resources may lead them to be in a superior role in
relation to the biotech industries. In one hand the large companies have dozens of drugs in
development, so they need to divide their time and resources is equal proportion where as
in the other hand, the biotech company are dependent on a single drug to make their
fortune (Abboud; 2005). This can be also referred in the case of Elli, Lli and Amylin case,
where Amylin did not trusted its partners in the production of injection because of the
Johnson & Johnson split up, where they were terminated from the agreement at the late
stage leaving three hundred employees redundant (Abboud; 2005).
In conclusion, regardless of the fact that Biotech companies lacks in necessary resources and
capabilities the big drug companies are aware that engaging actively in alliance formation
have increased the rate of innovation, product development and commercialization (Sytch;
2008). Nevertheless, these components have increased productivity of the whole medical,
agriculture and industrial sector as a whole.

6. REFERENCES
Abboud, L. 2005, How Eli Lilly's monster deal faced extinction-but survived; as big drug
companies turn to alliances, one venture on diabetes shows perils, Dow Jones & Company,
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Bratic, W., Blok, J.R. & Gostola, M.M. 2014, "Valuation of early-stage companies in the
biotechnology industry", Journal of Commercial Biotechnology, vol. 20, no. 2, pp. 51-58.
Festel, G. & Rittershaus, P. 2014, "Fostering technology transfer in industrial biotechnology
by academic spin-offs", Journal of Commercial Biotechnology, vol.20, no. 2.
Friedman, Y. 2014, "Building biotechnology in India--drugs are not the answer", Journal of
Commercial Biotechnology, vol. 20, no. 2, pp . 3.
Hamilton, D.P. 2005, How Genentech, Novartis, stifled a promising drug; biotech firm tried
to pursue peanut-allergy injection, but contract got in way, Dow Jones & Company, Inc.
Karamanos, A.G. 2012, "Leveraging micro‐ and macro‐structures of embeddedness in
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7. Sytch, M. and Bubenzer, P., (2008) Research on strategic alliances in biotechnology: an
assessment and review, Handbook of Bioentrepreneurship, pp.105-131
www.bio.org/ (2015), What is Biotechnology?, Available at:
http://www.bio.org/articles/what-biotechnology, [Accessed on 20 Dec 2015]