Nathalie de Marcellis-Warin, PhD Neil Hamzaoui Atelier CIRANO – Ecole Polytechnique de Montréal

1. Perception des risques liés aux collaborations et partenariats dans les PME de biotechnologie : premiers résultats de l’enquête menée au Québec The perception of risks related to the participation in alliances and partnerships in BiotechsSMEs:preliminary results of the Quebec survey Nathalie de Marcellis-Warin, PhD Neil Hamzaoui Atelier CIRANO – Ecole Polytechnique de Montréal 19 septembre 2008

2. Literature review The Biotechnology Industry • Knowledge-based industry • Based on commercialization of intellectual knowledge (Oliver, 1994) • Costly products related to high R&D expenditure • Highly competitive environment • Frequent technological changes • 532 firms in Canada in 2005 (83% are SMEs) • Uncertain environment • Intellectual property and secret issues on critical technologies (North, 1990 ; Bessy et Brousseau, 1997) • Stringent regulation : most products require clearance from legal authorities (Health Canada or the Food and Drugs Administration (FDA) in the USA) • Results are impossible to predict, product development cycle takes 7 years on average

3. Introduction • The biotechnology industry features a seemingly inexhaustible incidence of inter-organizational relationships (firms, universities, research centers, hospitals etc.) • Small and medium size biotech firms (SMEBs) collaborate with universities and established firms (Stuartet al., 2007) • Some SMEBs do not collaborate (source : Enquête de Statistique Canada de 2003 and 2005, showing a ratio of partnerships per firm < 1) • Oliver (2002) shows that for young SMEBs, the inability to form partnerships is assiociated with organizational death Why do not SMEBs collaborate ?

4. Literature review SMEBs’ collaborations • Upstream : build or maintain close links with universities (Audrestch et Stephan, 1996 ; Zucker et al. 1998) • Scientists transfer their knowledge and notoriety into companies (Arora et Gambardella, 1990 ; Liebeskind et al. 1996). • A broad proportion of the drugs on the market today with biotechnological origins have emanated from license agreements for scientific discoveries made in universities (Edwards et al., 2003). • The diversity and quality of the academic connections of a firm positively influences the chances of forming revenue-generating collaborations with downstream partners (Stuart et al., 2007). • Downstream : mostly transfer the output to established life science firms • License agreements and commercialization/distribution collaborations for final products (Pisano, 1991 ; Robinson et Stuart, 2007).

5. Literature review SMEBs’ collaborations • SMEBs act as intermediaries in tripartite vertical alliance chains. (Stuart et al., 2007) Access to resources (knowledge, assets, capital, distribution networks etc.) (Pisano, 1991 ; Maheux, 2005) SMEBs

6. Literature review Why don’t they collaborate? 1) Several factors, independent from managers’ will, can keep a firm from forming partnerships • It may be hard to find a partner that meets the firm’s needs / goals • Other organizations can refuse to collaborate Reasons may be : • Biotechnology product line or portfolio limited in scope, • Further product development or proof of concept required, • Insufficient number of patents, • No star scientist on the scientific team (Audrestch et Stephan, 1996 ; Zucker et Darby, 1996 ; Niosi, 2003). • Etc.

7. Literature review Why don’t they collaborate? 2) The decision to collaborate is perceived as risky by managers (March et Shapira, 1987 ; Nooteboom et al., 1997 ; Williamson, 1981) • Example : • The firms key-knowledge is transferred intentionally and unconsciously to partner organizations, who can take advantage of it opportunistically (Kale et al., 2000 ; Simonin, 1999)  Knowledge leakage risk • Ambiguous clauses in contracts can lead to contentious situations, or make managers feel threatened about their firm’s interests (Brousseau, 2000 ; Hart et Moore, 1988)  Conflict risk

8. Literature review Risks and Collaboration Two main risk types are related to partnerships (Das et Teng, 1996) • Performance risk (achievement of strategic objectives) • Technology related, market related, policy related or political factors can threaten and compromise the achievement of strategic objectives (Chakravarty, 1985 ; St-Pierre, 1999). • Every organization has to tackle with that type of risk • Relational risk • Uncertainty related to the latent ambiguity about the behavior and intentions of partners (Nooteboom et al., 1997). • This uncertainty generates risks that are related to the very existence of a relationship between two or more organizations.

9. Objective of this research Why do some SMEBs decide not / refuse to collaborate?

10. Methodology • Exploratory research • Semi-directed interviews with 10 top-level managers of SMEBs in Quebec (Canada) • Formulation of propositions that will help us to better understand the antecedents of the decisions not to collaborate • A survey among biotechnology companies in Quebec (with BioQuebec annual survey )

11. Results of the exploratory research Proposition 1 1-a :SMEB managers perceive partnerships as risky situations. 1-b :SMEB managers identify different types of risks related to partnerships.

12. Results of the exploratory research Proposition 2 Some risks are perceived as obstacle to the decision to collaborate. Proposition 3 The way in which the risks are perceived depends on situational variables relating to the individual and to the entity to which he or she belongs.

13. The survey on SMEBs’ partnerships Variables (1/2) • Measure of risk perception • 1 construct corresponding to performance risk • 11 constructs, each corresponding to a relational risk dimension • Control the impact of each type of risk on decision-making concerning collaborations

14. The survey on SMEBs’ partnerships Variables (2/2) • Characteristics of the firm • Take the company’s context into account. • Collaboration strategies and decisions depend on the development stage of a company through its life cycle (Oliver, 2001) • Understand the situation of the manager. • Control variables • Results from Statistics Canada’s survey on Biotechnology Use in Canada suggest parameters that influence the formation of partnerships (Lonmo et McNiven, 2007) • Biotechnology sector; size of the company ; spin-off etc.

15. A survey among SMEBs in Quebec • We began with Québec, Canada. • In 2005, 181 biotech firms in Québec (Lonmo et McNiven, 2007). • Assembling a list of firms from repertories of industrial associations such as BioteCanada and BioQuébec. • We collaborate with BioQuébec, a biotechnology and life science industry association representing more than 175 member companies and R&D centers in Quebec. 44 respondents

16. The survey 1) Questions related to general information 2) Questions related to partnerships 3) Questions related to risks

17. The survey • Types of risks: • Risk of non-achievement of the goals • Risk of asymmetry in negotiations • Risk of asymmetry in operations • Risk of inhibition • Risk of irreversibility • Risk of conflict • Risk of leak of knowledge • Risk of incompatibility • Risk of opportunistic behaviour • Risk of absorption • For ach type of risk we measured with a 7 point scale [1=Very low, 7=Very high] • The level of risk perceived (is a risk associated to partnerships?) • The importance of a risk as an obstacle to the decision to collaborate (when a risk is perceived as high, is it considered as an obstacle to collaboration?)

18. Results of the survey • Sample :

19. Results of the survey Is a risk associated to partnerships? HIGHER LOWER

20. Results of the survey When a risk is perceived as high, is it considered as an obstacle to collaboration? HIGHER LOWER

21. Preliminary results • Proposition 1a, 1b, validated: • SMEB managers perceive partnerships as risky situations. • SMEB managers identify different types of risks related to partnerships. • Proposition 2, validated: • Some risks are perceived as obstacle to the decision to collaborate

22. Control variables • Does the way risks are perceived or their influence on the decision to collaborate depend or not on situational variables specific to a manager’s organization? • Age • Spin off • Experience of previous partnerships • Membership in networks

23. Age differences among companies?

24. Age differences among companies? Level of perceived risk : • Managers of firms that are less than 10 years old perceive a higher risk of non-achievement of goals • Managers of firms that are more than 10 years old perceive a higher : • Risk of opportunistic behaviour • Risk of absorption Importance of obstacles: • Managers of firms that are less than 10 years old consider that the following risks are stronger obstacles: • Risk of asymmetry in operations • Risk of inhibition • Risk of incompatibility • Risk of leak of knowledge • Risk of non-achievement of the goals

25. Differences depending on the origin (spin-off) of a company ? Level of perceivedrisk : • Managers of firmsthatare not spin-offsperceive a higher risk of : • Risk of asymmetry in operations • Risk of inhibition • Risk of opportunisticbehaviour • Risk of absorption Importance of obstacles : • Managers of firmsthatare not spin-offsconsider that the following risks are stronger obstacles : • Risk of asymmetry in negotiations • Risk of asymmetry in operations • Risk of inhibition • Risk of irreversibility • Risk of conflict • Risk of absorption

26. Differences related to development level? Level of perceivedrisk : • Managers fromfirmsin R&D and preclinical tests stagesperceive a lower risk of absorption than managers from companies in clinical tests phases or commercialization phases. • Managers from firms in clinical tests stagesperceive a higher risk ofopportunistic behaviour than managers from companies in earlier (R&D and preclinical) and later stages (commercialization). (Critical phase) Importance of obstacles : • No differences among obstacles

27. Differences related to the past partnerships experiences? Level of perceivedrisk : • Managers of firmsthatneverparticipated in collaborationsperceive : • a higher risk of leak of knowledge • a lower risk of inhibition Importance of obstacles : • Managers fofcompaniesthatneverparticipated in collaborationsconsider that the following risks are stronger obstacles: • Risk of asymmetry in negotiations • Risk of asymmetry in operations • Risk of irreversibility • Risk of incompatibility Experience tends to lowerlevels of risk perceptions, and tends to lower the importance of obstacles (for quoted items)

28. Differences related to the membership in networks / associations? Level of perceived risk : • Managers from firms declaring they are part of networksperceive a lower risk of incompatibility Importance of obstacles : • Managers from firms declaring they are part of networks consider that the risk of conflict is a lower obstacle

29. Conclusion • Proposition 3 has been validated (differences related to situational variables) • Managers must identify the types of risk that are specific to their organization in order to control the obstacles to collaboration. • Allows to help firms in their seek for a partner (by telling them how to act in order to decrease the risk perception of their potential partners) !