Vertical alliance and vertical integration for the inflow of technology and new product development in the pharmaceutical industry

Abstract

Pharmaceutical firms are increasingly seeking vertical alliance (licensing and joint venture) or bridges and vertical integration (merger and acquisition, M&A) or buffers. However, the question remains whether alliance and integration modes of organisation contribute to the clinical trials activities for a new product development. Using data on 250 pharmaceutical firms, this study examines the linkage between the external technology-sourcing modes and an increase in clinical trials activities, advancing new product development. The findings indicate that licensing mode may not be an effective in comparison to joint ventures and M&A modes of the organisation. Comparing the two modes – vertical joint venture (bridges) and vertical integration (buffer) – the former appears to be effective than the latter (M&A) in sourcing external technology acquisition in the pharmaceutical industry. Implications of these findings are addressed in terms of strategy and structure in a broader context.