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

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  • Billette de Villemeur, Etienne
  • Scannell, Jack
  • Versaevel, Bruno

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.

Suggested Citation

  • Billette de Villemeur, Etienne & Scannell, Jack & Versaevel, Bruno, 2021. "Biopharmaceutical R&D outsourcing: Short-term gain for long-term pain?," MPRA Paper 108233, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:108233
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    More about this item

    Keywords

    research; development; biotechnology; pharmaceuticals; externalities;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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