Innovation in pharma companies: an investigation of R&D and external knowledge acquisition

Jensen, Lillian (2011). Innovation in pharma companies: an investigation of R&D and external knowledge acquisition. PhD thesis The Open University.



The study builds on the theoretical assumptions that extramural knowledge plays a crucial role for innovation and firms have the ability to acquire such knowledge.

Inspired by the rise of biotechnology and big pharma's increasing reliance on internal and external R&D, the first aim of this study is to obtain an in-depth understanding of the distinctive effects the different knowledge acquisition strategies, R&D and collaborations, have on big pharma's innovation and capability building. The second aim recognises a gap in the literature with regards to understanding the practice of absorptive capacity and, building on Zahra and George's (2002) framework, seeks to investigate the key processes that enable a firm to acquire, assimilate, transform and exploit extramural knowledge.

The first aim was achieved through carrying out: a multiple case study on three big pharma companies and a case study on two large scale collaborations (one of which resulted in an acquisition) entered by one of the three big pharma companies to access the field of monoclonal antibodies. The latter provided also the primary context to achieve the second aim.

The investigation into the effects of R&D and collaborations firstly showed that due to the large scope of science and technology that has emerged over the last decade, big pharma has found itself unable to competitively enter into all the relevant areas. Hence, big pharma has increasingly used collaborations to reap small biotech's inventions. Given that big pharma is primarily responsible for the later stages of development, the key role of big pharma's R&D is increasingly becoming to identify, evaluate and develop externally invented candidate drugs; a role highly dependent on R&D investments. Despite their importance for obtaining inventions, the study provided evidence that collaborations have limited impacts on big pharma's learning and capability building.

The new emphasis of big pharma's R&D resembles Cohen and Levinthal's (1990) definition of absorptive capacity and is in line with their theory in that it requires investments in R&D. However, as the compounds are accessed through collaborations, the new emphasis of R&D also seems to fit the realms of relative absorptive capacity. Hence, despite fitting both types of absorptive capacity, the finding that this new emphasis has limited impacts on learning and capability building clearly stands in sharp contrast to both the theories, providing an indication that a new face of absorptive capacity was unveiled. This thesis argues that the new emphasis is a result of a division of labour taking place between big pharma and small biotechs (Arora and Gambardella, 1994).

Though collaborations have limited impacts on capability building, the specific investigation into the practise of absorptive (second aim) found that prior knowledge, champions on both sides of the collaborations, project review meetings and supportive culture have some effect on knowledge acquisition. With regards to the other dimensions, assimilation was seen dependent on internal collaborations between the recently acquired firm and new therapy areas, transformation was obtained by combining big pharma's ability to define niches in the market with the small biotech firms' more specific knowledge, and exploitation was found to require some pre-set measures to evaluate the potential of the new knowledge.

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