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Kellogg on Biotech

Analysis of the Risks Embedded in Asymmetrical Alliances in the Pharmaceutical Industry

John Hughes KSM '05, Edna Lazar KSM '05, and Guilherme Maradei KSM '05

Asymmetrical alliances are particularly interesting due to the imbalance of power between the partners, sometimes leading to the acquisition of the smaller firm by its larger partner. The pharmaceutical sector has a natural tendency for deals between very large and very small companies. In this fast-paced, technology-driven industry, small biotechnology companies have proliferated rapidly in the last decade, leveraging the fact that research for new biotechnology-based drugs does not require large infrastructure. Recently thebiotech firms have been responsible for a large portion of the research and development in the industry, attracting the interest of the large pharmaceutical companies. Through the so-called “pharma-biotech” alliances, pharmaceutical giants have found a way to supplement their drug development pipelines, whereas small biotech firms have been able to multiply the potential of their discoveries, leveraging the pharmaceutical companies’ regulatory experience and marketing strength.

Nevertheless, the differences between large pharma companies and smaller biotech firms pose significant threats to the success of deals.

This paper analyzes the dynamics of asymmetrical alliances in the health industry sector, where deals between large pharmaceutical companies and small biotechnology firms have become extremely common.

©2007 Kellogg School of Management, Northwestern University