Shareholder returns and the exploration–exploitation dilemma: R&D announcements by biotechnology firms

Abstract

We explore a financial returns dimension of the exploration-exploitation dilemma. Using 1277 R&D announcements by 178 listed bio-pharmaceutical firms, we examine whether investors are myopic along the continuum of exploration (patenting and preclinical trials) to exploitation (human clinical trials and NDA). We find that investors respond positively at every stage, but there are differences between small and large firms. For small firms exploration is favored, provided it is focused. For large firms, there is value in both exploration and exploitation. Projects which are part of an alliance are no more likely to generate abnormal returns. Policy implications are discussed.

Resource security: Competition for global resources, strategic intent, and governments as owners

“…More recently, the exploration vs exploitation framework has been extended to resources other than knowledge (Lavie, Stettner, & Tushman, 2010). As shown in Table 1, the framework can be applied to a wide variety of settings including product-based industries (Hoang & Rothaermel, 2010;McNamara & Baden-Fuller, 2007), retail banking and insurance (Flier, van den Bosch, & Volberda, 2003;Volberda et al, 2001), investment Exploring for petroleum on land that is made available for exploration for the first time, on awarded land where no exploration activity has occurred, or in areas where discoveries have previously been made, but have not been developed and put into production Operation of fields in geographic areas where petroleum has been found and are currently in production, or in geographic areas that were once producing, but operation of these fields has previously ceased and has since been revitalized banking and venture funding (McNamara & BadenFuller, 2007), professional service firms (Groysberg & Lee, 2009), and theaters (Voss, Sirdeshmukh, & Voss, 2008), among others. In general, there is a "higher level of risk inherent in exploratory activities, which require significant investments with uncertain payoffs," whereas exploitation involves payoffs from "existing or minimally modified competencies" that can happen only "following successful exploration" (Voss et al, 2008: 147).…”

Alliance Experience and Governance Flexibility

“…Public target or client firm were coded with two indicator variables, respectively, set to 1 if the target and/or client firm were public (Rothaermel and Deeds 2006). We followed Rothaermel and Deeds (2004) and McNamara and Baden-Fuller (2007) in coding the stage of the innovation process at which the alliance was initiated from 1 to 8 (1 discovery, 2 lead molecule, 3 preclinical, 4 formulation, 5 phase 1, 6 phase 2, 7 phase 3, and 8: Biologics License agreement/New Drug Application filing and FDA approval), since different stages involve different task characteristics and may affect relative bargaining power (Adegbesan and Higgins 2011). Lastly, we also included indicator variables for alliance formation year (Sampson 2007).…”

Building exploration and exploitation in the high-tech industry: The role of relationship learning

“…This will enable new exploitative configurations, resulting in possibilities for improving or increasing the scope of innovations derived from the combined dyadic capabilities in the relationship learning [42]. Thus, integrated exploitative innovation systems among organizations enable technological problems to be identified and create an open forum for the exchange of technological expertise in situations of asymmetrical power [43]. Opportunities for applying technological expertise will be enhanced through the development of relationship-specific technology and learning about combining technological capabilities.…”