Dear students, faculty and staff,
Nazarbayev University Graduate School of Business invites you to Research Seminar “When Should Biopharmaceutical Rivals Form an R&D Alliance?” by Cai Cexun, Assistant Professor of National University of Singapore Business School.
WHEN: Wednesday, May 8, 16:30 – 17:30
WHERE: Block C3 (GSB/GSPP Building), 3rd floor
ABSTRACT: The biopharmaceutical industry is a sizable sub-segment of the pharmaceuticals industry, with a growth rate roughly twice that of conventional pharmaceuticals. Biopharmaceutical firms, when developing products for new markets, have to decide between forming an R&D alliance with a potential rival versus competing on R&D. When do such alliances make sense for firms? And for regulators seeking innovation, do such alliances improve consumer welfare? Using a blend of game-theory and archival data, our key findings are as follows. First, R&D costs in an alliance, relative to in-house costs, are an important driver of the alliance decision: an alliance is theoretically preferred by a firm with relatively higher in-house costs, and we demonstrate this to be empirically valid in our data. Second, we show how asymmetry in in-house R&D costs can theoretically hamper the formation of an R&D alliance, and we demonstrate empirically that asymmetries for R&D biopharma alliances are relatively smaller than asymmetries for non-R&D biopharma alliances. Third, and most strikingly, we show a sizable theoretical region of the parameter space in which firms would pursue an R&D alliance even though it would lower the chances of a successful drug becoming available to consumers – a clear loss of ex ante consumer welfare that regulators should be concerned with. These results provide a novel theoretical and empirical analysis of the biopharmaceutical industry for regulators, firms, and researchers.