WORLDS APART? A COMPARISON OF THE NPD
STRATEGIES OF BIOPHARMACEUTICAL FIRMS IN
EUROPE AND THE US
Working Paper No. 101
September 2008
Tianjiao Xia and Stephen Roper
1
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2
Worlds Apart? A comparison of the NPD strategies of
biopharmaceutical firms in Europe and the US
Tianjiao Xia* and Stephen Roper**
* Centre for Economics and Policy, Institute for Manufacturing, University of Cambridge, CB2 1RX,
Email: tx206@cam.ac.uk.
** Centre for Small and Medium Sized Enterprises, Warwick Business School, The University of
Warwick, Coventry, CV4 7AL, Email: Stephen.Roper@wbs.ac.uk
Corresponding Author: stephen.roper@wbs.ac.uk
September 2008
Abstract
Internationally, the biopharmaceutical industry is characterized by strong competition,
research-intensive and protracted new product development (NPD) processes,
intensive regulation and extensive alliance activity. Based on new comparative survey
data, we compare the NPD strategies of US and European biopharmaceutical firms.
Our data suggests four key empirical findings. First, while levels of R&D intensity
and continuity are broadly similar in the two areas, US firms have notably stronger
patent profiles and are significantly more active in technology licensing than their
European counterparts. Second, product development cycles are significantly longer
in the US than in European firms. Third, the nature of the product pipeline is very
different in the US and Europe, with US firms conducting early stage development of
more compounds than European firms but taking only a similar number to market.
Fourth, we see broadly similar levels of alliance activity in the US and Europe at both
the early and late stages of the NPD process. Our results - suggest a greater
substitution of „market‟ for „hierarchy‟ in the US industry, related perhaps to the
availability and structure of government support in Europe.
Key words: Biopharmaceutical; US; Europe: Comparative analysis
JEL Codes: D21, D7, N60, L65
3
Worlds Apart? A comparison of the NPD strategies of biopharmaceutical firms
in Europe and the US
1. Introduction
Internationally, the biopharmaceutical industry is characterized by strong competition,
research-intensive and protracted new product development processes, intensive
regulation and extensive alliance activity. The policy and economic environments
within which firms operate differ markedly between Europe and the US, however. In
the US, government has been seen as playing an „enabling‟ role in shaping the
industry environment and encouraging entrepreneurship, with intervention limited to
creating conducive framework conditions (Wolter, 2003). In Europe, on the other
hand, policy has tended to adopt a more strategic focus with governments acting as
industry „coordinator‟ through targeted programmes such as the European Framework
programmes. Environmental ddifferences can also be identified in other related policy
measures aimed, for example, at improving skill levels. Although both the Sapir
Report (2003) and Lisbon Agenda (2000) place an emphasis on the necessity of
investment in higher education in Europe; the US spends a higher proportion of GDP
on higher education from public sources than the EU average. With the addition of
very substantial private expenditure this means that the US spends more than double
the EU average on higher education and more than any Member State (Sapir Report,
2003). One often emphasized consequence is that despite the quality of European
science base, commercialization of research is generally seen as most effective in the
US biopharmaceutical industry (Cooke, 2001).
Our analysis here is based on a new comparative survey of the NPD strategies of
biopharmaceutical firms in the US and the major economies of the EU. Our objective
is to examine how environmental differences shape biopharmaceutical firms‟ NPD
and innovation strategies in the US and Europe. Specifically, we consider the markets
which biopharmaceutical firms seek to address, their licensing and R&D activities,
their alliance behaviors and their use of alternative funding sources for NPD. The
comparisons suggest implications for EU policy towards the biopharmaceutical
industry stressing the continued importance of R&D and skills upgrading as well as
the potential gains from more intensive alliance activity.
4
Our study contributes to the existing literature on NPD in the biotechnology and
biopharmaceutical sectors. This stresses the length – six to nine years – of the normal
NPD process as drugs progress from the generation of a new idea, through clinical
testing, regulatory approval and commercialisation (Powell and Brantley, 1992). Most
new product ideas never reach the market (Griffin, 1997; Stevens and Burley, 1997),
however, and where they do, the distribution of returns is heavily skewed with most
new products failing and a few blockbuster drugs accruing billion dollars revenues
streams for decades (Rothaermel, 2001). Despite this, the biopharmaceutical sector
retains a strong push toward new product development (Ernst & Young, 2005)
reflecting the highly competitive market environment (D‟Aveni, 1994). For individual
firms, having a higher rate of new product development means a greater likelihood of
achieving and maintaining first mover advantage and access to early stage investment,
external visibility, legitimacy and market share (Deeds and Hills, 1996; Lieberman
and Montgomery, 1988). This is particular true in a sector like biopharmaceuticals,
where the effectiveness of patent protection creates a “winner take all” scenario (Hill,
1997). The expense and risk involved in NPD activity in biopharmaceuticals, however,
encourages intensive alliance activity (Ernst & Young, 2003; Hagedoorn, 1993;
Rothaermel, 2001) involving both exploratory and exploitative partnerships licensing
(Miller, 2004) or knowledge seeking (Dosi, 1982; Mowery and Rosenberg, 1989;
Rosenberg, 1982)1.
The remainder of the paper is organised as follows. Section 2 examines the
development of the biopharmaceutical industry in the US and Europe, emphasising
the early development of the US sector and contrasts between firms‟ operating
environments in the two areas. Section 3 describes our company survey and profiles
the group of respondents in the US and Europe. In the US our survey provides
representative coverage of the national biopharmaceutical industry. In Europe our
survey covers three countries: the UK, France and Germany. Section 4 focuses on
NPD activity in the respondent firms profiling the product development pipeline and
pattern of alliance activity. Finally, Section 5 summarises the key empirical contrasts
1
The literature on exploratory and exploitative relationships is extensive. See, for example, George et
al, 2002; Mohan and Rao, 2005; Streiffer, 2006; Quintana-Garcı´a and Benavides-Velasco, 2004;
Maurer and Ebers, 2006; Whitehead, 2003; Calabrese and Baum, 2000; Rothaermel and Deeds, 2004;
2006; Gilsing and Nooteboom, 2006; Fosfuri and Tribó, 2006; Azzone and Dalla Pozza, 2003; AmirAslani and Negassi, 2006.
5
we identify and, in the light of these, considers the validity of current European policy
frameworks.
2. Development of the biopharmaceutical sector
It is widely acknowledged that the US leads the way in the global biopharmaceutical
industry. It outperforms all other countries with more companies, greater funds for
R&D, faster regulatory approval for new products, and a more efficient public market
(Ernst & Young, 2001). US biopharmaceutical firms are also world leaders in
biopharmaceutical research and commercialisation (Shan, 1990; Shan and Song,
1997), and the industry is closer to profitability than at any time in its history (Ernst
and Young, 2006).
The origins of the biopharmaceutical industry in the US date to the late 1970s and the
discovery of the recombinant DNA technique by Cohen and Boyer in 1973 at
Stanford and the University of California at San Francisco (UCSF) and Kohler and
Milstein‟s discovery of monoclonal antibodies at Cambridge (UK) in 1975. Building
on these and related breakthroughs the drivers of development of the US
biotechnology industry have been well summarized by Prevezer (2001). First, she
argues for the importance of US government funding for the medical science base has
been substantially more generous but less directive than that in Europe. Second, she
stresses the importance of institutional features of the US academia-industry
environment. Specifically, she argues, it was possible for US academics to establish
companies whilst retaining their academic positions, encouraging knowledge flows
and rapid commercialization. Third, she argues, that the US financial system has been
more conducive to the creation of new companies through access to venture capital
specializing in high technology, the ability to use stock markets to raise capital, and
the ability to access to people able to forge links between scientists and entrepreneurs.
Finally, she argues there is a greater willingness in the US than in Europe for
incumbent companies to form alliances with smaller start-ups.
Although the first European biopharmaceutical firms also date to the mid-1970s, the
European biopharmaceutical industry has expanded most rapidly since the mid-
6
1990s2. National development trajectories within Europe have also varied, however,
with the development of the sector in Germany and France, countries which
historically have not enjoyed venture capital industries, postdating that in the UK3.
Perhaps as a consequence of its more recent development the European
biopharmaceutical industry is characterized by smaller firms than that in the US,
although this may also reflect the sector‟s wider operating environment. Compared to
the US, for example, European companies have been said to have weaker links to the
science base and be disadvantaged by relative weak technology transformation
mechanisms and technology intermediaries such as technology transfer officers
(TTOs) and legal obstacles to the creation of university spin-off companies4. Even
where new intermediary institutions have been established in Europe – science and
technology parks, for example – doubts remain about the extent to which they have
stimulated increased technology transfer and effective commercialization (OwenSmith et al., 2002).
In addition, contrasts between funding opportunities in the US and Europe mean that
levels of public funding (Orsenigo, 1989; Kenney, 1986; Sharp, 1985; Prevezer, 2001;
Wright et al., 2006), and venture capital investment in Europe remain below those in
the US, particularly at the crucial early stages of company development (Fazeli, 2005;
Ernst and Young, 2005; Critical I, 2006). In part this may reflect a more conservative
attitude in the European financing system which favours established companies rather
than new ventures (NEDO, 1991; Dimsdale and Prevezer, 1994; Owen-Smith et al,
2002).
2
See Ernst & Young, 1995; 1996; 1997b; 1998; 1999; 2000; 2001; Critical I, 2006.
In these countries changes in legislation, and the launch of intensive national competition for new
public sector investment in biotechnology during the mid 1990s, created new financing opportunities
for start-ups; whereas in the UK, the existing stronger capital market made it easier to fund higher-risk
“radically innovative” companies (Casper and Whitley, 2004).
4
On technology transfer offices see: Lockett and Wright, 2005; Lockett et al., 2003; Clarysse et al.,
2007; Prevezer, 2001; Vavakova, 2001. On university spin-outs see: Senker and Sharp, 1997; Wright et
al., 2006; Vohora et al., 2004; Lockett and Wright, 2005; Lockett et al., 2003.
3
7
3. Data Sources
The objective of our survey was to obtain information on the NPD strategies of
representative groups of biopharmaceutical firms from the US and three major
European economies (i.e. France, Germany and the UK)5. Separate exercises were
undertaken to define target populations for the company survey in Europe and the US.
In the US, we obtained information on firms in the broader biotechnology sector from
the Bioscan industry directory (see also Deeds and Hill, 1996; Powell, et. al, 1996;
Rothaermel and Deeds, 2004; Shan et al., 1994; Zollo, et. al, 2002). For the European
economies the target group was based on data provided by BiotechnologyEurope.com which is the most comprehensive list of firms in the European
biotechnology industry6. Once comprehensive lists of biotechnology firms had been
identified we reviewed each firm‟s product profile and verified their inclusion in our
final target list of biopharmaceutical firms. We excluded service firms (e.g.
consultancies, technology transfer organisations, incubator centres, investors in
biotechnology companies) as well as organisations that were active in the biopharmaceutical sector but which were not formal legal entities. This resulted in a US
target group of 999 biopharmecuetical firms with 1099 in Europe (343 English firms,
247 French companies and 509 Germany companies). Once the target groups of
biopharmecuetical firms had been identified each company was approached by
telephone to confirm contact details, explain the purpose of this research, and
encourage their participation in the study.
Survey design was informed by inductive interviews with six R&D managers from
five English biopharmaceutical firms. These interviews which lasted 40-90 minutes
each helped to clarify key concepts and verify the transparency of metrics for
absorptive capacity, alliance participation, etc. Further verification of the
questionnaire design was provided by a pilot postal survey covering 75 Irish
biopharmaceutical companies to pre-test the initial design for the English language
questionnaire. Following some minor changes to the English language questionnaire,
5
Together these economies account for around 50 percent of the entire population of biotechnology
firms in Europe, with a distribution of 17 per cent in the UK, 11 per cent in France, and 22 per cent in
Germany (Ernst & Young, 2006).
6
In particular, the number of companies contained in this directory is close to the number of firms
reported in the 2005 benchmark study by Ernst & Young.
8
French and German versions were developed. In each case questionnaires were crosstranslated by two different translators and any differences in meaning resolved.
The main survey was administered to the final target list of 2,173 US and European
biopharmaceutical firms between June and October 2006. An initial mail shot
including freepost response envelope, was followed-up after two weeks by telephone
and a further mailing. Finally, we obtained useful responses from 349
biopharmaceutical firms, an overall response rate of 16.1 per cent. Individual country
response rates were: US, 14.4 per cent, Europe 17.5 per cent (UK 23.9 per cent,
France 14.2 per cent, Germany 14.0 per cent).
In general, our survey suggests US biopharmaceutical firms are larger and older than
their European counterparts reflecting the greater maturity of the US industry (Ernest
& Young, 2003; Critical I, 2006). The average age of our US respondent firms is 15.9
years, with an average number of 65 employees, 87.0 per cent of whom have a degree
or higher qualification. By contrast, a typical European respondent biopharmaceutical
firm is 12.1 years old and has 35 employees of whom 66.9 percent possess a degree or
higher qualification (Table 1)7. R&D intensity, measured as R&D expenditure as a
proportion of sales, is higher in a typical US respondent firm reflecting other evidence
that the average level of R&D investment by US biopharmaceutical firms was larger
than that for European firms (Ernst & Young, 1997a; 1997b; Mowery and Nelson,
1999). Around a quarter of biopharmaceutical firms in the US and Europe are
university spin-outs, with a significantly larger proportion of European firms being
commercial spin-outs (27.3 per cent) than in the US (13.8 per cent) (Table 1). Finally
it is clear that our US respondents are engaged in more diverse activities and are
addressing a wider range of customers than our European respondents (Table 2). US
firms are more inclined to be selling in a global market place while European firms,
on the other hand, focus much more on regional and external markets (see also Ernst
& Young, 2005). Significant differences were also evident in the type of customers
firms were dealing with: EU firms were more likely to be selling to other companies
7
These firm-level characteristics reflect the longer history of the US
biopharmaceutical firms, which is supported by the empirical studies which focus on
the comparative advantage of the US in biotechnology and the official industry
statistics published by Ernst & Young (1997a; 1997b).
9
than US firms; while US firms were more likely to be selling to end-users such as
hospitals, doctors or individual patients (Table 2).
Finally, it is notable that around half of firms in the sample both in the US and Europe
had received venture capital funding (Table 2). Reflecting the earlier discussion of the
involvement of government in the biopharmaceutical industry a significantly higher
proportion of European firms received government support compared to the US
(Wolter, 2003), while US firms were more likely to have received support from other
commercial sources (Fazeli, 2004, 2005; Bains, 2006; Cooke, 2001; Critical I, 2006).
4. New Product Development
4.1 Product development pipeline
We have already noted the relatively lengthy NPD process in the bio-pharmaceutical
sector and this is confirmed by our survey data (Table 3). Albeit with substantial
variability, US firms reported an average NPD development time (from idea to initial
sales) of 6.2 years compared to 4.3 years in Europe. Dividing the NPD process into
different phases also suggests marked differences between NPD activity in the two
areas. Overall, perhaps reflecting the larger average size of US biopharmaceutical
firms they have 16.9 products in development compared to only 8.4 in Europe. Of
these, an average of 6.5 were in the early stages of development (covering target to hit,
hit to lead and lead to programme sanction) compared to 3.3 in Europe. More
products were in the second stage of development (covering lead opt., pre-clinical
development, and clinical phase I and phase II trials) in both Europe (4.6) and the US
(9.7), with US firms again having a significantly greater number in development
(Table 3). There was no significant difference, however, between the number of
products which EU and US firms have either in the final stage of development
(covering Phase III trials and regulatory approval) or already on the market (Table 3).
Assuming that the profile presented in Table 3 is broadly representative, the
suggestion here is that attrition in the product pipeline in the US biopharmaceutical
sector is considerably more marked than that in Europe. This is consistent with some
other evidence which suggests that US manufacturing firms in general tend to have a
10
product development pipeline in which a wider range of prospects are initially
considered than in Europe but a more aggressive filtering process prior to market
introduction (Roper et al., 2008). It may also reflect the greater availability of
commercial funding in the US which allows a larger proportion of target compounds
to be evaluated than in Europe (e.g. BioWorld Phase III Quaterly Report, 2005; Ernst
& Young, 2005; 2006; Yeoh and Roth, 1999), albeit with what seems a lower rate of
progression to market. Another possibility – perhaps reflected in the stronger patent
portfolios of US biopharmaceutical firms (Table 1) – is that US firms are pursuing
more risky or radical developments than their European counterparts which might
have a greater attrition rate during the NPD process. Some support for this proposition
is suggested by the factors which EU and US firms highlighted as the key success
factors in the NPD process: US firms placed more emphasis on their awareness of
leading edge R&D; while European firms tended instead to emphasise the
effectiveness of development partnerships (Table 4)8. Other factors (internal
communication, employee skills and project management) were seen as equally
important by US and European firms in determining the success of their product
development activities.
Another important determinant of firms‟ innovation performance, especially in the
case of the US, is R&D intensity (Hall and Bagchi-Sen, 2001; 2007). A number of
empirical studies have suggested, however, that it is the frequency but not the
intensity of R&D activities which determines the performance of firms‟ innovation
activities, in particular in Europe (Coombs and Deeds, 2000; Acs and Audretsch,
1989; Scherer, 1980; Xia and Roper, 2008). In our survey, internal R&D was seen by
equal proportions of firms in the US and Europe as key to the success of their NPD
activities (Table 4), reflecting EU and US firms very similar R&D intensities and
pattern of continuity of R&D (Table 3).
More interesting distinctions emerge in terms of licensing behaviour which, as
previous studies have suggested (Recombinant Capital, 2005), is notably more
intensive in the US biopharmaceutical industry (Table 4). Previous studies have
emphasised the potential role of licensing as a means of accessing external
8
Interestingly, however, 32.6 per cent of US firms highlighted the „lack of partners‟ as a constraint on
their R&D activities, significantly below the EU proportion (21.4 per cent).
11
technological assets, as a means of extending firms commercialisation capabilities
(Teece, 1994; Kollmer and Dowling, 2004), and as a way in which firms aim to
establish their technology as a de facto standard (Arora and Fosfuri, 2003; Fosfuri et
al., 2006). In our data, US biopharmaceutical firms are much more strongly engaged
in licensing activity than those in Europe, with around half of US firms both engaged
in licensing-in and licensing-out compared to around a third of EU firms (Table 3).
This may reflect the stronger patent portfolios of US firms, but may also reflect a
different and more market oriented approach to NPD activities than in Europe where
firms place an increasing emphasis on collaborative alliance-based NPD. For example
in Europe firms have an average of 2.6 early stage alliances compared to 3.0 in the
much larger US firms, with an essentially similar pattern evident in later-stage,
exploitative alliances (EU 2.0, US 2.2) (Tables 5 and 6). These differences in alliance
behaviour are discussed in more detail in the next section.
4.2 Alliances in NPD
Within firms‟ NPD activities alliances can play a number of different roles potentially
allowing firms to accelerate innovative activities (Hall and Bagchi-Sen, 2007;
Audretsch, 2001; Bagchi-Sen et al., 2004; Baptista and Swann, 1998; Terziovski and
Morgan, 2006), or share risks, and knowledge (Amir-Aslani and Negassi, 2006; Boer
et al., 2001; Oliver, 1997). Rothaermel and Deeds (2004) suggest a distinction
between exploratory, or early stage, and late stage, exploitative, alliances. This
distinction depends both on differences in the context in which the alliance takes
place – i.e. the stage of development (Hall and Bagchi-Sen, 2007) - and the functional
content of the alliance activity itself (Nooteboom, 2000). Exploratory alliances
involve primarily collaborative research-based activities, i.e. basic research, drug
discovery and development etc. and will be concentrated in the early stages of the
NPD process (Hall and Bagchi-Sen, 2007). Exploitation alliances, on the other hand,
generally have a strong commercial orientation, and focus on production-based
innovation activities or strategies (Hall and Bagchi-Sen, 2007) in the late stage of the
NPD process, i.e. clinical trials, FDA regulatory process, marketing and sales, etc. A
key aim of such alliances is the synergistic combination of organizations‟ commercial
competencies (Rothaermel and Deeds, 2004; Teece, 1986). Such relationships are
typified by alliances between smaller firms focused on drug discovery and established
pharmaceutical firms with extensive marketing and sales presence.
12
Earlier studies have pointed to intensive alliance activity among US biotechnology
companies (Recombinant Capital, 2005) although our data suggest no significant
difference in the number of exploratory alliances of each US and EU firm or intensity
(frequency of contact) of firms‟ alliance activity (Table 5)9. We see more significant
differences in the type of partners with which firms engage in each area, perhaps
reflecting differences in the content of alliances as suggested by
(Nooteboom, 2000). US respondents in particular were more likely to engage in early
stage alliances with both small firms and university or academic institutions than
firms in Europe (Table 5). This is suggestive both of the willingness of US
biopharmaceutical firms to partner with smaller companies as well as the closer
integration of basic science and clinical development of the US biopharmaceutical
industry (Owen-Smith et al, 2002) than in Europe (de Looze et al, 2001; Lemarie et
al, 2000; Sharp, 1995; Orsenigo, 1989). This said, we see a broadly similar set of
motivations for US and EU firms‟ participation in early stage alliances dominated by
increasing the speed of NPD activity and, in the EU, by firms‟ desire to improve their
financial and market credibility (Table 5). Other significant differences in firms‟
motivation to engage in early stage alliances emphasise European firms‟ desire to
share risk and access external project funding. This latter distinction, in particular,
may reflect both naturally occurring alliance activity as well as the impact of
European R&D schemes such as the Framework programmes designed to support
collaborative R&D.
Later stage, exploitative, alliance activity is also almost equally common among US
and European firms even given the difference in firm size (Table 6). Here, again we
find that US firms are more likely than those in Europe to be collaborating with small
firms along with a greater likelihood that US firms will have late stage alliances with
larger firms, patent agents and marketing and distribution companies. We also see
9
Significant differences also existed within Europe. UK firms have the most alliances
of any country included in the survey target group. A typical UK respondent
biopharmaceutical company averages 5.1 alliances in total with 2.3 exploratory
alliances and 2.8 exploitation alliances.
13
some evidence that US and EU firms tend to operationalise late stage alliances in
different ways. In particular, EU firms were significantly more likely to be involving
staff in joint development teams with alliance partners than their US counterparts
(Table 6). This may reflect the most common motivation for such late stage alliance
activity among EU firms – the acquisition of complementary knowledge – something
which was also one of the most common motivations for late stage alliance activity in
the US (Table 6). Interestingly, we also see evidence that a key motivation for late
stage alliance activity in both the US and Europe was market access. For US firms
such alliances may provide access to overseas market, while for European companies
the emphasis is on access to different national markets either in the EU or elsewhere.
5. Conclusions
Our objective in this paper has been to contrast the NPD strategies of US and
European biopharmaceutical firms, or more precisely firms in the UK, France, and
Germany. As previous studies have suggested, however, the market and operational
context in which these strategies are being developed are rather different (Cooke,
2001; Prevezer 2001) and this is reflected in our survey data. We find that the US
biopharmaceutical industry is characterized by firms which are substantially larger
than those in the European industry although of broadly similar age. This is reflected
in greater market reach on the part of US firms, their more diverse development
activities and customer types. In terms of external support, European firms are more
likely to have received financial support from government, while US firms are more
likely to have received funding from other commercial sources. Previous analyses
have also stressed the stronger commercialization capability of the US industry,
particularly in terms of firms‟ partnerships with academic institutions. Our evidence
supports this contention with a significantly higher proportion of US firms (80.5 per
cent) having early stage alliances with universities than in Europe (71.5 per cent,
Table 5).
Our survey evidence suggests four key empirical findings. First, while levels of R&D
intensity and continuity are broadly similar in the two areas, US firms have notably
stronger patent profiles and are significantly more active in technology licensing than
firms in Europe. Second, product development cycles are significantly longer in the
14
US than in Europe. Third, the nature of the product pipeline is very different in the US
and Europe, with US firms conducting early stage development of more compounds
than European firms but taking only a similar number to market. This might simply
reflect greater attrition in the NPD process in the US, but may also reflect a focus on
initial development and then licensing out of technology as an NPD strategy. Fourth,
we see broadly similar levels of alliance activity in the US and Europe, which is
somewhat surprising given the larger average size of US firms. The implication is that
US firms are placing more emphasis on market mechanisms – i.e. licensing - for
knowledge exploitation than firms in Europe. On the other hand firms in Europe are –
given their average size – more likely to be using more collaborative alliances to
enhance their exploitation capability.
In conceptual terms, our results suggest a stronger focus on „market‟ rather than
hierarchy in the NPD process in the US biopharmaceutical industry. In this view,
„closed‟ NPD models, represent „traditional hierarchy‟ where the NPD process is
managerially controlled from start to finish (Zenger, 2002). At the other extreme
would be an open innovation approach (Chesbrough, 2003) where inter-firm linkages
are entirely governed by market (i.e. contractual) mechanisms. In both the European
and US biopharmaceutical industries we see elements of both models – a quasimarket approach – although the extent to which hierarchy has been replaced by
market mechanisms clearly differs. The balance between licensing, a market
mechanism, and alliances, predominantly a hierarchic mechanism, is central here. In
the US, licensing activity is significantly more common, with around a half of firms
engaging in licensing technology both into and out of the firm compared to around a
third in Europe. On the other hand, we see similar levels of both early stage and late
stage alliance activity in the US and Europe (Tables 5 and 6). The implication is that
the extent to which „market‟ has replaced „hierarchy‟ in the NPD process in the US
industry is greater than that in Europe.
An interesting question is the role which government intervention in the
biopharmaceutical sector has had on the adoption of market mechanisms in the
European industry. Our data suggests, for example, that a significantly larger
proportion of firms in the European sector (65.8 per cent) had received government
funding than in the US (46.7 per cent) and, despite firm size differences, that alliance
15
activity was equally common in the two areas. Two influences may be important here.
First, the greater availability of direct government funding for firms in Europe may be
reducing the necessity for firms to seek alternative – market based – revenue streams.
Secondly, it may be that the collaboration requirements of EU support measures such
as the Framework Programmes are encouraging hierachic – collaborative –
relationships between firms rather than relationships based on market mechanisms. In
either case, it is clear that licensing represents a much more significant form of
knowledge sharing and exploitation for US rather than European firms, and represents
an under-developed aspect of the European sector.
Our survey data provides some insight into the nature of the rather different NPD
strategies of US and European biopharmaceutical firms. Understanding „why‟ these
differences emerge is likely to require both in-depth qualitative analysis as well as
more structured econometric analysis. Interest here is likely to centre on the role of
firm capabilities – absorptive capacity – in explaining firms‟ ability to identify and
exploit new knowledge through external market agreements or collaborative alliances.
Our data also suggest some interesting contrasts between the European countries
reflecting their institutional structures but also their comparative patterns of
development. This too represents an interesting topic for future research.
16
Table 1: Company Background
All Firms (n=349) Europe (n=205)
US (n=144)
Mean
S.D.
Mean
S.D.
R&D intensity (% per firm)
13.6
47.0
68.8
33.8
43.2
12.41
84.04
0.28
86.15
0.34
12.1
35.0
66.9
20.2
41.7
11.53
68.01
0.29
54.78
0.34
Ownership
Independent company (% of firms)
University spin-out (% of firms)
Commercial spin-out (% of firms)
83.5
27.1
21.7
0.37
0.45
0.41
80.3
24.2
27.3
0.40
0.43
0.45
88.1
31.2
13.8
0.33
0.46
0.35
Funding Sources
Venture capital companies ( % of firms)
Government** ( % of firms)
Other commercial sources *** ( % of firms)
47.1
57.7
39.9
0.50
47.0
65.8
29.9
0.50
47.2
46.7
53.3
0.50
Firm Characteristics
Firm age (year)
No. of employees (per firm)
Employee skills (% per firm)
Number of patents (mean per firm)
0.50
0.49
0.48
0.46
Mean
S.D.
15.9
13.3
65.0 101.25
71.4
0.26
53.1 114.63
45.1
0.34
0.50
0.50
Notes and sources: Survey responses are weighted to give representative results for
the US and Europe (UK, Germany and France). Significant mean differences between
the US and Europe are denoted as follows: ˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
<0.001. Data from authors‟ survey.
17
Table 2: Market Focus
All Firms (n=349)
Europe (n=205)
US (n=144)
Mean
S.D.
Mean
S.D.
Mean
S.D.
Development activities
Basic research and drug discovery *** (% of firms)
Pre-clinical development *** (% of firms)
Clinical development Phase I *** (% of firms)
Clinical development Phase II *** (% of firms)
Clinical development Phase III *** (% of firms)
Manufacture* (% of firms)
Regulatory support *** (% of firms)
Marketing and Sales* (% of firms)
54.8
47.0
34.8
28.1
19.2
51.6
38.0
47.5
0.50
0.50
0.48
0.45
0.39
0.50
0.49
0.50
46.3
37.3
22.9
18.4
11.0
46.8
21.4
52.2
0.50
0.48
0.42
0.39
0.31
0.50
0.41
0.50
66.7
60.4
51.4
41.7
30.8
58.3
61.1
41.0
0.47
0.49
0.50
0.49
0.46
0.49
0.49
0.49
Geographical Markets
Regional market (% of firms)
Foreign market (% of firms)
External market (% of firms)
Regional market only (% of firms)
Foreign market only (% of firms)
External market only (% of firms)
Covering all markets** (% of firms)
Regional and Foreign markets** (% of firms)
Foreign and External markets (% of firms)
Regional and External markets (% of firms)
76.1
47.3
32.1
31.5
4.3
3.2
25.8
16.3
0.6
2.0
0.43
0.50
0.47
0.47
0.20
0.17
0.44
0.37
0.08
0.14
74.5
47.1
26.8
29.8
4.9
2.4
20.5
21.0
0.5
2.9
0.44
0.50
0.44
0.46
0.22
0.15
0.40
0.41
0.07
0.17
78.3
47.6
39.6
34.0
3.5
4.2
33.3
9.7
0.7
0.7
0.41
0.50
0.49
0.48
0.18
0.20
0.47
0.30
0.08
0.08
Customer type
Hospitals˜ ( % of firms)
Doctors*** ( % of firms)
Other healthcare professionals** ( % of firms)
Other companies** ( % of firms)
Individual Patients** ( % of firms)
Others ( % of firms)
29.0
18.5
21.1
71.8
9.7
32.0
0.45
0.39
0.41
0.45
0.30
0.47
25.6
7.4
14.8
78.3
5.9
33.0
0.44
0.26
0.36
0.41
0.24
0.47
34.1
34.8
30.4
62.3
15.2
30.4
0.48
0.48
0.46
0.49
0.36
0.46
Notes and sources: Survey responses are weighted to give representative results for
the US and Europe (UK, Germany and France). Significant mean differences between
the US and Europe are denoted as follows: ˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
<0.001. Data from authors‟ survey.
18
Table 3: New Product Development Activities
All Firms (n=349) Europe (n=205)
Mean
S.D.
Mean
S.D.
US (n=144)
Mean
S.D.
R&D intensity (%)
R&D Continuity (% of firms)
44.5
86.9
0.37
0.34
42.7
86.0
0.34
0.35
46.8
88.1
0.41
0.33
Licensing
License in* ( % of firms)
License out** ( % of firms)
License in only ( % of firms)
License out only ( % of firms)
License in & out** ( % of firms)
65.0
52.2
25.0
12.2
39.9
0.48
0.50
0.43
0.33
0.48
59.6
44.7
26.8
11.8
32.6
0.49
0.50
0.44
0.32
0.47
72.2
62.4
22.6
12.8
49.6
0.45
0.49
0.42
0.34
0.50
Length of NPD cycle** (years)
5.1
5.55
4.3
3.34
6.2
7.51
New product pipeline
No. of new product ideas in basic discovery***
No. of products in the early stage development˜
No of products in the late stage development
4.8
6.9
0.6
13.99
14.84
1.25
3.3
4.6
0.5
5.70
6.42
1.06
6.5
9.7
0.7
19.80
20.68
1.45
13.5
68.71
11.4
60.88
16.0
77.21
No. of products on the market (per firm)
Notes and sources: Survey responses are weighted to give representative results for the
US and Europe (UK, Germany and France). Significant mean differences between the
US and Europe are denoted as follows:
<0.001. Data from authors‟ survey.
˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
19
Table 4: Key Success Factors in New Product Development
All Firms
Europe
US
(n=349)
(n=205)
(n=144)
Mean S.D. Mean S.D. Mean S.D.
Internal R&D (% of firms)
Good Internal Communication (% of firms)
Good Project Management (% of firms)
Awareness of Leading Edge Research** ( % of firms)
Effective Partnerships* ( % of firms)
Employees' Skills ( % of firms)
84.3
87.9
82.6
68.1
68.4
90.7
0.37
0.32
0.38
0.47
0.46
0.29
84.3
89.7
84.8
62.1
73.5
90.2
0.37
0.30
0.37
0.49
0.43
0.29
84.2
85.5
79.7
76.1
61.6
91.2
0.37
0.35
0.40
0.43
0.49
0.28
Notes and sources: Survey responses are weighted to give representative results for
the US and Europe (UK, Germany and France). Significant mean differences between
the US and Europe are denoted as follows: ˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
<0.001. Data from authors‟ survey.
20
Table 5: Early Stage Alliance Activity
All Firms
(n=349)
Mean
S.D.
EUROPE
(n=205)
Mean
S.D.
US
(n=144)
Mean
S.D.
No. of exploratory alliances (per firm)
2.78
4.01
2.58
4.18
3.04
3.87
Type of partner
Small firms within the industry** ( % of firms)
Large firms within the industry ( % of firms)
University or academic institutes˜ ( % of firms)
Government research organisation ( % of firms)
Private research institute ( % of firms)
Commercial Lab/R&D enterprises ( % of firms)
72.5
71.3
76.8
57.6
51.3
55.3
0.45
0.45
0.42
0.49
0.50
0.50
63.9
72.2
71.5
53.5
47.9
54.2
0.48
0.45
0.45
0.50
0.50
0.50
78.5
70.7
80.5
60.5
53.7
56.1
0.41
0.46
0.40
0.49
0.50
0.50
62.4
0.49
67.0
0.47
58.3
0.50
51.5
19.3
0.50
0.40
53.2
20.2
0.50
0.40
50.0
18.5
0.50
0.39
64.4
0.48
70.2
0.46
59.3
0.49
55.8
47.2
69.5
49.7
41.8
49.2
31.0
40.1
33.5
53.6
0.50
0.50
0.46
0.50
0.49
0.50
0.46
0.49
0.47
0.50
56.0
44.1
63.7
50.5
44.3
56.0
26.7
46.7
31.5
66.7
0.50
0.50
0.48
0.50
0.50
0.50
0.44
0.50
0.47
0.47
55.8
47.2
69.5
49.7
41.8
49.2
31.0
40.1
33.5
53.6
0.50
0.50
0.44
0.50
0.49
0.50
0.48
0.48
0.48
0.50
Frequency
Monthly or more frequently formal meetings or communication
( % of firms)
Quarterly or more frequently formal meetings or communication
( % of firms)
Engaging partners in management ( % of firms)
Staff working with partners as a "joint development team" ( %
of firms)
Alliance motivation
Access to partners IP ( % of firms)
Flourish new produce range ( % of firms)
Increasing NPD speed ( % of firms)
Access to infrastructure ( % of firms)
Achieve operational flexibility ( % of firms)
Finance, e.g. project-funding* ( % of firms)
Access to large projects ( % of firms)
Spread R&D risks and/or cost of new equipment˜ ( % of firms)
Response to customers ( % of firms)
Improve financial and market credibility** ( % of firms)
Notes and sources: Survey responses are weighted to give representative results for the
US and Europe (UK, Germany and France). Significant mean differences between the
US and Europe are denoted as follows:
<0.001. Data from authors‟ survey.
˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
21
Table 6: Late Stage Alliance Activity
All Firms
(n=349)
Mean S.D.
No. of exploitation alliances (per firm)
Type of partner
Small firms within the industry* ( % of firms)
Large firms within the industry˜ ( % of firms)
Manufacturers outside the industry ( % of firms)
Contract research organisations (CROs) ( % of firms)
Regulatory/patents/IP consultancies˜ ( % of firms)
Marketing/distribution companies* ( % of firms)
PR companies ( % of firms)
Frequency
Monthly or more frequently formal meetings or communication
( % of firms)
Quarterly or more frequently formal meetings or communication
( % of firms)
Engaging partners in management ( % of firms)
Staff working with partners as a "joint development team"***
( % of firms)
Alliance motivation
Complementary knowledge ( % of firms)
Increasing NPD speed ( % of firms)
Operational flexibility˜ ( % of firms)
Finance ( % of firms)
Access to larger projects ( % of firms)
Access to new national markets˜ ( % of firms)
Access to new overseas markets* ( % of firms)
Improve financial and market credibility ( % of firms)
Response to customers ( % of firms)
Europe
(n=205)
Mean S.D.
US
(n=144)
Mean S.D.
2.1
6.47
2.0
5.643
2.2
7.049
80.5
81.4
72.8
80.5
81.1
75.1
75.1
0.40
0.39
0.45
0.40
0.39
0.43
0.43
74.3
77.1
68.1
80.6
76.4
68.1
73.6
0.44
0.42
0.47
0.40
0.43
0.47
0.44
84.9
84.4
76.1
80.5
84.4
80.0
76.1
0.36
0.36
0.43
0.40
0.36
0.40
0.43
56.6
0.50
62.5
0.49
51.3
0.50
52.0
19.7
0.50
0.40
50.0
22.2
0.50
0.42
53.8
17.5
0.50
0.38
58.6
0.49
73.6
0.44
45.0
0.50
73.4
71.8
58.2
49.6
25.6
25.4
53.2
58.2
36.7
0.44
0.45
0.50
0.50
0.44
0.44
0.50
0.50
0.48
76.2
69.8
66.1
50.8
28.6
32.3
41.9
64.5
32.3
0.43
0.46
0.48
0.50
0.46
0.47
0.50
0.48
0.47
70.5
73.8
50.0
48.4
22.4
18.3
64.5
51.7
41.4
0.46
0.44
0.50
0.50
0.42
0.39
0.48
0.50
0.50
Notes and sources: Survey responses are weighted to give representative results for the
US and Europe (UK, Germany and France). Significant mean differences between the
US and Europe are denoted as follows:
<0.001. Data from authors‟ survey.
˜ ρ <0.1;, * ρ <0.05; ** ρ <0.01; *** ρ
22
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