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US biopharmaceutical finance and the sustainability of the biotech business model

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  • Lazonick, William
  • Tulum, Öner

Abstract

In the decade before the 2008 economic crisis, the US biotechnology industry was booming. In a 2006 book, Science Business: The Promise, the Reality, and the Future of Biotech, Gary Pisano implies that, given the 10–20 year time-frame for developing biotech products and the lack of profitability of the industry as a whole, the US biotech boom should not have happened. Yet the biotech industry has received substantial funding from venture-capital firms as well as from established companies through R&D alliances. Why would money from venture capitalists and big pharma flow into an industry in which profits are so hard to come by? The purpose of this article is to work toward a solution of what might be called the “Pisano puzzle”, and in the process to provide a basis for analyzing the industrial and institutional conditions under which the growth of the US biopharmaceutical (BP) industry is sustainable. One part of the answer has been the willingness of stock-market investors to absorb the initial public offerings (IPOs) of a BP venture that has not yet generated a commercial product, and indeed may never do so. The other part of the answer is that the knowledge base that BP companies can tap to develop products comes much more from government investments and spending than from business finance. Indeed, we show that, through stock buybacks and dividends, established corporations in the BP industry have been distributing substantial sums of cash to shareholders that may be at the expense of R&D. We use the framework that we have developed for analyzing the sustainability of the US BP business model to pose a number of key areas for future research and policy, with an emphasis on the implications of the financialization of this business model for the generation of safe and affordable BP drugs as well as the need for a theory of innovative enterprise.

Suggested Citation

  • Lazonick, William & Tulum, Öner, 2011. "US biopharmaceutical finance and the sustainability of the biotech business model," Research Policy, Elsevier, vol. 40(9), pages 1170-1187.
  • Handle: RePEc:eee:respol:v:40:y:2011:i:9:p:1170-1187
    DOI: 10.1016/j.respol.2011.05.021
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    References listed on IDEAS

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    Cited by:

    1. Lehoux, P. & Daudelin, G. & Williams-Jones, B. & Denis, J.-L. & Longo, C., 2014. "How do business model and health technology design influence each other? Insights from a longitudinal case study of three academic spin-offs," Research Policy, Elsevier, vol. 43(6), pages 1025-1038.
    2. Licht, Georg & Crass, Dirk & Eckert, Thomas & Sellenthin, Mark O. & Pfirrmann, Oliver & Heinrich, Stephan & Strohmeyer, Robert & Tonoyan, Vartuhi & Woywode, Michael, 2012. "Ex-post-Evaluierung der Fördermaßnahmen BioChance und BioChancePlus im Rahmen der Systemevaluierung "KMU-innovativ": Begleit- und Wirkungsforschung zur Hightech-Strategie," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 110559.
    3. Kolympiris, Christos & Kalaitzandonakes, Nicholas & Miller, Douglas, 2014. "Public funds and local biotechnology firm creation," Research Policy, Elsevier, vol. 43(1), pages 121-137.
    4. Philippe Gorry & Diego Useche, 2017. "Orphan Drug Designations as Valuable Intangible Assets for IPO Investors in Pharma-Biotech Companies," NBER Chapters,in: Economic Dimensions of Personalized and Precision Medicine National Bureau of Economic Research, Inc.
    5. Olga Bruyaka & Hanko Zeitzmann & Isabelle Chalamon & Richard Wokutch & Pooja Thakur, 2013. "Strategic Corporate Social Responsibility and Orphan Drug Development: Insights from the US and the EU Biopharmaceutical Industry," Journal of Business Ethics, Springer, vol. 117(1), pages 45-65, September.
    6. Mariana Mazzucato, 2015. "From Market Fixing to Market-Creating: A New Framework for Economic Policy," SPRU Working Paper Series 2015-25, SPRU - Science and Technology Policy Research, University of Sussex.
    7. Lehoux, P. & Miller, F.A. & Daudelin, G., 2017. "Converting clinical risks into economic value: The role of expectations and institutions in health technology development," Technological Forecasting and Social Change, Elsevier, vol. 117(C), pages 206-216.
    8. Daniel Haberly & Dariusz Wójcik, 2015. "Regional Blocks and Imperial Legacies: Mapping the Global Offshore FDI Network," Economic Geography, Clark University, vol. 91(3), pages 251-280, July.
    9. Mariana Mazzucato & Gregor Semieniuk, 2016. "Financing Renewable Energy: Who is Financing What and Why it Matters," SPRU Working Paper Series 2016-12, SPRU - Science and Technology Policy Research, University of Sussex.
    10. Giovanni Dosi & Valérie Revest & Alessandro Sapio, 2016. "Financial regimes, financialization patterns and industrial performances : preliminary remarks," Post-Print halshs-01418040, HAL.
    11. William Milberg & Nina Shapiro, 2013. "Implications of the Recent Financial Crisis for Innovation," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2013-2, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    12. repec:eee:tefoso:v:127:y:2018:i:c:p:8-22 is not listed on IDEAS
    13. Lechevalier, Sébastien & Nishimura, Junichi & Storz, Cornelia, 2014. "Diversity in patterns of industry evolution: How an intrapreneurial regime contributed to the emergence of the service robot industry," Research Policy, Elsevier, vol. 43(10), pages 1716-1729.
    14. repec:eee:finmar:v:35:y:2017:i:c:p:84-103 is not listed on IDEAS
    15. Sven Wydra & Timo Leimbach, 2015. "Integration von Industrie- und Innovationspolitik: Beispiele aus den USA und Israel und Ansätze der neuen EU-Industriepolitik," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 84(1), pages 121-134.

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