Licensing exchange—Insights from the biopharmaceutical industry

Abstract

a b s t r a c t a r t i c l e i n f o Article history: First received in 16 August 2007 and was under review for 5 and a half months Area Editor: Aric RindfleischLicensing out technologies is a main source of revenue for dedicated technology firms. While licensing exchange has received very little attention in prior marketing literature, it is economically important and poses particular challenges. One major obstacle for obtaining new licensing deals is the information asymmetry between licensors and licensees. The main premise of this study is that the variation among dedicated technology firms of the number of new licensing deals that they obtain can be explained by their voluntary disclosure of strategic information and their position in the industry's licensing and social networks. An empirical study of the biopharmaceutical industry shows that, while voluntarily disclosing strategic information enables dedicated biotechnology firms to sign more new licensing deals, firms should be careful not to disclose too much information. As to network structure, dedicated biotechnology firms with more central positions in the licensing exchange network obtain more new licensing deals, but again, the effect has an inverted-U shape, indicating a dark side of network centrality. Finally, the study provides evidence that licensing exchange is socially embedded. A central position in the social network of board interlocks leads to more new licensing deals. Dedicated technology firms can use these insights to address practical questions, such as how much strategic information they should reveal, as well as to set long-term directions regarding network position.

Related and unrelated product diversification and collaboration strategies: Comparison between the pharmaceutical and biopharmaceutical industries

“…On the contrary, as expected, biopharmaceutical firms' RPD enhances firm performance, but excessive RPD hampers it. This result aligns with the existing findings on RPD and performance, which suggest a balanced RPD (Filiou & Massini, 2018;Leten et al, 2007;Wuyts & Dutta, 2008). Owing to high product development complexity, developing a new product that is related to a firm's existing offering is a better choice regarding risk management and efficiency enhancement.…”

“…In the biopharmaceutical industry, Wuyts and Dutta (2008) found that an effect on new licensing deals in biotechnology firms eventually assumes an inverted U-shape, even if they move to central positions in the licensing exchange network where the firms can obtain new license deals. When the firms disclose strategic information, more new license agreements can be obtained; however, too much information disclosure could reveal the dark side of network centrality.…”

Who gains and who loses from more information in technology markets? Evidence from the Sunshine Act

“…Such frictions are typically related to the lack of relevant information about the quality of idea sellers and/or of their ideas. For instance, prior work has pointed out the existence of relevant information asymmetries between sellers and buyers about the value of ideas—whose real quality might be better known by inventors than by potential buyers—such that markets for technologies might be afflicted by a “lemons” problem, which reduces the volume of technology transactions (Aghion & Tirole, 1994; Akerlof, 1970; Anton & Yao, 2002; Gallini & Wright, 1990; Pisano, 2006; Wuyts & Dutta, 2008). Other prior research points to contexts in which neither buyers nor sellers know exactly whether a certain idea can be successfully commercialized (Agrawal et al, 2015; Arora & Gambardella, 2010a).…”

“…Several scholars have outlined how uncertainty and lack of information could represent key obstacles to the smooth functioning of markets for technology (Agrawal et al, 2015; Ceccagnoli et al, 2014; Fosfuri & Giarratana, 2010; Gans et al, 2008; Luo, 2014). Previous research points out the existence of situations where there are relevant information asymmetries between sellers and buyers about the value of ideas—whose real quality might be better known by inventors than by potential buyers (Aghion & Tirole, 1994; Akerlof, 1970; Anton & Yao, 2002; Gallini & Wright, 1990; Pisano, 2006; Wuyts & Dutta, 2008)—or in which neither buyers nor sellers know exactly whether a certain idea can be successfully commercialized (Agrawal et al, 2015; Arora & Gambardella, 2010a). Nearly all of this prior work suggests that more information—especially more information about external collaborators and ideas—will be good for any agent transacting in the market and for overall social welfare as more and higher‐quality innovations will be eventually commercialized (Agrawal et al, 2015; Arora et al, 2001; Hegde & Luo, 2018).…”

Lemons, or Squeezed for Resources? Information Symmetry and Asymmetric Resources in Biotechnology

“…The economic, finance and strategic management literature has often identified the information asymmetry that can lead to a Lemons Problem as an important element of transactions involving licensing and technology transfer in high technology industries (Gallini and Wright, 1990; Wuyts and Dutta, 2008), including the biotech industry (Lerner and Merges, 1998; Antelo, 2003; Audretsch and Feldman, 2003; Rothaermel and Deeds, 2004; Pisano, 2006, unpublished manuscript; Mason et al, 2008). The central hypothesis has been that the company originating the product has superior information compared to the in-licensor, and as such it would only seek to out-license drugs of inferior quality while keeping the good ones for internal development.…”