Munich Personal RePEc Archive

Biopharmaceutical R&D outsourcing: Short-term gain for long-term pain?

Billette de Villemeur, Etienne and Scannell, Jack and Versaevel, Bruno (2021): Biopharmaceutical R&D outsourcing: Short-term gain for long-term pain?

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Abstract

From the perspective of pharmaceutical companies, R&D outsourcing offers a range of benefits. For example, costs that were otherwise fixed can become variable, and firms can gain rapid access to a large set of new technologies. Recent theoretical work has added to the list by connecting R&D activities characterized by economies of scope and knowledge spillovers -- those that are likely to have the biggest effect on industry economics and social welfare – to the ability of large drug companies to capture a disproportionate share of economic value from, and transfer a disproportionate share of financial risk to, small new technology providers. The low profitability and high risk associated with the provision of such outsourced R&D activities reduce incentives to invest in new for-profit ventures that specialize in the most promising early-stage projects. We hypothesize that the short- to medium-term efficiency gains from R&D outsourcing may, therefore, be offset by slower innovation in the long run.

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