Cooperation in R & D through a Network, an 'Organizational Gamble'? an Empirical Analysis of Rhône Poulenc Rorer-Gencell

Technology Analysis and Strategic Management

Volumn 10, Issue 4, 1998, Pages 511-527

  Staropoli, Garine ^a,b  

^a Centre d'Etude Atomique   (France)

^b 10G 112 Lioulcvard de l'Hôpital ^*  (France)

Author keywords

[No Author keywords available]

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EID: 0010456916     PISSN: 09537325     EISSN: None     Source Type: Journal    
DOI: 10.1080/09537329808524331     Document Type: Article

References (70)

1. Arthur Lcvinson Ph.D., CEO Gcncnlcch, in Biotcch 96, Annual Report: Ernst & Young LLP, 1996.
2. OECD, Biotechnology: International Trends and Perspective (Paris, OECD, 1982).
3. An institutional arrangement is an arrangement between economic units that governs the ways in which these units can cooperate and/or compete. It ... [can] provide a structure within which its members can cooperate ... or [it can] provide a mechanism that can aficct a change in laws or property rights'. L. Davis & D. North, Institutional Change and American Economic Growth (Cambridge, Cambridge University Press, 1971)).
4. K. Brockhoff, A.K. Gupta & C. Rotcring, 'Interfirm Cooperations in Germany', Technovation, 11, 4, 1991, pp. 219-229; DJ. Tccce, 'Competition, Cooperation and Innovation', Journal of Economic Behavior and Organisation, 18, 1992, pp. 1-25.
5. O.E. Williamson, 'Comparing Economic Organisations: The Analysis of Discrete Structural Analysis', Administrative Science Quarterly, 36, 2, 1991, pp. 269-296.
6. MJ. Peck, 'Joint R & D: The Case of Microelectronics and Computer Technology Corporation', Research Policy, 15, 1986, pp. 219-231.
7. C. Mcnard, 'La nature de l'innovation organisationnelle-cléments de reflexion-', Revue d'Économie Industrielle, Hors Série, 1994, pp. 173-192.
8. W.W. Powcll, K.K. Koput & L. Smith-Doerr, 'Intcr-Organisational Collaboration and the Locus of Innovation: Network of learning in Biotechnology', Administrative Sciences Quarterly, 41, 1996, pp. 116-145; V. Walsh, J. Niosi & P. Mustar, 'Small-firm formation in Biotechnology: A Comparison of France, Britain and Canada', Technonation, 15, 5, 1995, pp. 00-00; W. Shan, G. Walker & B.. Kogut, 'Interfirm Cooperation and Startup Innovation in the Biotechnology Industry', Strategic Management Journal, 15, 1994, pp. 387-394.
9. These companies take ownership of an idea and convert it into a commercially valuable product or service. The start ups have to cooperate with larger companies especially pharmaceutical companies which find a way to outsource R & D.
10. They pursue all stages R&D, manufacturing, sales and marketing. Only three companies have succeeded in such an integration: Amgcn, Gcnentcch and Genzymc.
11. These companies supply equipment, material (also genetic materials, vectors, etc.) or services.
12. BrockslofTrf al., op. dl., Ref. 4; Tecce, op. dl., Ref. 4.
13. These major scientific disciplines and technologies are advances in cellular and molecular biology, the advent of combinatorial chemistry, the development ofhigh-throughput and ultrahigh-throughput screening, and data acquisition and processing system to handle the ever increasing stream of information from biology, screening, and chemistry.
14. Powcll, et ai, op. cit., Ref. 8.
15. Gene therapy is considered to have started in 1990 when the team of NIH researchers got permission from Recombinant DNA Advisory Committee (RAG) to insert normal ADA-producing gene (an enzyme crucial to the immune system) into a young patient's white blood cells. At the end of 1996 there were 15 countries working on gene therapy with clinical trials representing 10G6 patients treated under 216 protocols.
16. Diseases for which the number of patients is very small and R & D is very expensive.
17. cf. Rapport de l'Académie des Sciences, 'La brcvctabilitc du genome, No. 32, Février 1995.
18. Bio Futur, 163, 1997, pp. 28-35.
19. In France, RPR and Transgenc (start-up created in 1980, currently owned by BioMcricux Alliance rc-oricntcd towards gene therapy since 1991) arc the leading companies that have chosen gene therapy as the main research area (SI 20 million per year of R &D budget for RPR and S24 million per year of R & D budget for Transgcne).
20. K.S. Brown, 'Major Pharmaceutical Companies Infuse Needed Capital Into Gene Therapy Research', The Scientist, 9, 22, 13 November 1995.
21. Tecce, op. cit., Réf. 4.
22. However, vertical integration is often seen as a final issue of an R&D cooperation between pharmaceutical Company and start ups (W.W. Powcll, 'Hybrid Organisational Arrangements: New Forms or Transitional Development?, California Management Review, 3, 1, 1987, pp. 67-87; G.P. Pisano, 'The Governance of Innovation: Vertical Integration and Collaborative Arrangements in the Biotechnology Industry', Research Policy, 20, 1991, pp. 237-249). Sec also F. Tapon, 'A Transaction Costs Analysis of Innovations in the Organization of Pharmaceutical R & D', Journal of Economic Behavior and Organization, 12, 1989, pp. 197-213.
23. C. Menard, 'Lc pilotage des formes organisationnellcs hybrides', Reçue Economique, Vol. 48, No. 3, pp. 741-750, Mai, 1997.
24. E. Brousseau, P. Gcoffron & O. Weinstein, 'Diversité des relations entre entreprises et variété des modes d'intcrmédiation: une analyse des contrats et institutions assurant la coordination entre firmes", Rapport final d'un recherche commandité par le Commissariat Général du Plan, 1996.
25. J. Hagcdoom, 'Strategic Technology Partnering During the 1980s: Trends, Networks and Corporate Patterns in Non-core Technologies', Research Polity, 24, 1995, pp. 207-231; Powell, op. cit., Réf. 22; Pisano, op. cit., Réf. 22.
26. "Strategic alliances arc constellation of bilateral and possibly multilateral contracts and understandings among firms, typically to develop and commercialize new technologies. These may well constitute a new organizational form" (Teecc, op. cit., Ref. 4). This intcrfirm agreement that can reasonably be assumed to "affect the long term product market positioning of at least one partner" (Hagcdoorn, op. cit., Réf. 25.
27. The terms 'network' and 'consortia' arc both used. The strategic management literature refers in priority to the term 'consortia' in all cases (Ernst & Young's Annual Reports, 1995, 1996) while economists reserve this term for the national or European rcsearcli programmes such as 'Diversity Biotechnology Consortium" (DBG) or Airbus in the aircraft industry and refer in the other cases to 'network'. Rhône Poulenc Rorcr and Pfizer refer to their partnership structure as a 'network' (Rhône Poulenc Rorcr and Pfizer's Annual Reports 1995, 1996).
28. A. Persidis & A. Pcrsidis, Mature Biotechnology, 14, December 1996, pp. 1657-1660.
29. In: V. Houlder, 'Prescription for Cutting Costs', Financial Times, 12 January 1998.
30. G. De Brcsson & F. Amcse, 'Networks of Innovators: A Review and Introduction to the Issue', Research Policy, 20, 1991, pp. 363-379.
31. This skepticism can partly be explained by the communication policy of the companies that have chosen such an organization. They have deliberately chosen not to communicate on their structure beside the usual public information; no amount concerning investments, no contract duration, no public presentation of the partnership etc.
32. Immunosol (CA), Myco (MA), AEA Technology (Oxfordshire), Oxford Asymmetry (Abingdon).
33. H.B. Thorelli, 'Networks: Between Markets and Hierarchies', Strategic Management Journal, 7, 1986, pp. 37-51.
34. Powell el al, op. cit., Réf. 8.
35. M. Gallon, P. Iarédo & P. Mustar, 'Réseaux tcchnicaux économiques et analyse des effets structuraux', in: La gestion stratégique de la recherche et de la technologie L'évaluation des programmes, Economica, 1995; H. Penan, "R & D Strategy in a Tcchno-cconomic Network: Alzhcimcr's Disease Therapeutic Strategies', Research Policy, 25, 1996, pp. 337-358.
36. C. Freeman, 'Networks of Innovators: A Synthesis of Research Issues', Research Policy, 24, 1995, pp. 499-514.
37. G. Paché & C. Paraponaris, 'L'Entreprise en Réseau; Que Sais-je?' No. 2704, PUF, 1993.
38. CSRT, 'Les réseaux, forme de partenariat", Rapport du groupe de travail Europe, Ministère de la recherche, CSRT, Paris, 1993, pp. 61-65.
39. Walsh et al, op. cit., Réf. 8.
40. R.E. Miles & G.G. Snow, 'Causes of Failure in Network Organizations', California Management Review, 1992, pp. 53-73 "Cluster of firms or specialist units coordinated by market mechanisms instead of chains of commands", p. 53); D. Littlcr & D. Wilson, 'Strategic Alliancing in Computerized Business Systems', Technovation, 11, 8, 1991, pp. 457-473; Thorelli, op. cil., Réf. 33 (Thorelli applies the 'generic term" networks 'to a number of in-between forms' (between market and hierarchies). He adds that "it should be emphasized that networks are not the same as 'administered markets', as a network may comprise only a small part of one or several markets". He includes in the 'networking context" different strategic issues as such 'positioning of the firm and its product', joint ventures, mergers and acquisitions, diversification, etc.).
41. CEA, CNRS, INRA, INSERM as official partners and Institut Pasteur.
42. A collaboration is a contract between Rhône Poulenc and a research team on a specific subject.
43. Protodigm is currently developing lazabemide for Alzcimcr's disease, rhuMAb Ami CD 18 for haemorrhagic shock and DMDC for lung and colorectal cancer.
44. For a distinction between 'authority' and 'hierarchy', cf. G. Mcnard, 'Organizations as Coordinating Devices', Mctroeconomica, 45, 3, 1994, pp. 224-247.
45. Ménard, op. cil., Réf. 23.
46. The strategic and institutional positions mainly refer to the access to the final market (marketing and distribution activities). As a matter of fact, pharmaceutical companies arc the only actors accessing the final market by having a significant marketing and distribution activity (except a small number of slart-ups in the US (Amgen and Gencntech). As we will say farther on, this is moreover the case with RPR because RPR-Gcncell focuses on 'a new market' with high potentials: gene therapy. This point is determinant when analyzing strategic issues.
47. O.E. Williamson, Revisiting Legal Realism: The Law, Economics, and Organization Perspective (Oxford, Oxford University Press, 1996), pp. 383-420.
48. P.-B. Joly, S. Lcmarie & V. Mangematin, 'Coordination of Research and Relational Learning: An Empirical Analysis of Contracts between a Public Research Organization and Industry', Contribution to the Conference 'Universities and the Global Knowledge Economy: The Triple-Helix of Univcrsity-Industry-Govcrnmcnt Relations', Amsterdam, 3-6 January 1996. They pose two hypotheses. Hypothesis 4a: "The greater the level of trust between partners, the more exchange will consist of the pooling of non financial resources"; Hypothesis 4b: "A critical division of work is far more probable when relations arc based on trust developed during former cooperation"; "Trust plays a role in close of 30% of the contract", p. 19.
49. RPR's investment through to the end of 1995 reached S300 million, including the SI 13 million equity investment in Applied Immune Science in 1993 (Strategic Alliances in Biotechnology, 2nd cdn (London, Goldman Sachs, 1995).
50. Rhône Poulenc Rorcr Inc. is a publicly traded global pharmaceutical company dedicated to the discovery, development, manufacturing, and marketing of human pharmaceuticals. Approximately two-thirds (67%) of RPR shares are owned by Rhône-Poulenc SA. RPR had reported sales of S5.14 billion in 1995 (S766 million spent in R&D).
51. Arts Biosciences, CNRS (France), Darwin Molecular (Seattle), Duke University, Gcncthon (France), Gcnopoi'etic (Paris), Genctix (New York), Institut Curie (France), Institut Gustave Roussy (Villcjuif), Institut Pasteur Lille, Intra Immune, Introgcn (Houston, TX), Lawrence Berkeley Laboratories (Berkeley, CA), Pasteur Mcricux Connaught (Lyon), St Elizabeth's, Transgcnc (Paris), University of British Columbia, Virogenctics (France). It is very important to notice that these partners arc not all involved in the same way in the partnership. This point is central in the analysis oPRPR-gcnccll.
52. These therapeutic targets represent the three principal human pathologies, generating 40% of healthcare expenditures.
53. The actions toward biotechnology arc written in the Loi d'Orientation et de Programmation1982.
54. Research organizations involved in biotechnology arc: CNRS, INSERM, CEA, INRA and Institut Pasteur which is little apart as it is a private foundation, but in practice, it receives the majority of its income and the salaries of its stall" (many of whom arc paid by the CNRS or INSERM) from the State.
55. Université Louis Pasteur (Strasbourg)-Professor Jean-Paul Bchr; Institut Pasteur de Lille-Professor Jean-Charles Fruchart; Lawrence Berkeley laboratory-Dr Edward Rubin; Institut Gustave Roussy-Dr Michel Pcrricaudet; CNRS-Dr Jacques Mallet, Dr Daniel Sherman (Laboratoire Mixte (CNRS/RPR)).
56. The third level concerns start-ups only. Industry leaders Amgen, Genentcch and Chiron have sufficient capital to make alliances and acquisitions similar to the ones made by pharmaceutical companies. RPR is not directly involved in this kind of operation, since it is not a start-up, but is indirectly involved considering that these operations reduce the opportunities for RPR to integrate a start-up.
57. In 1993, Glaxo Holdings startling S14.2 billion deal with Burroughs Welcome pic created the largest world pharmaceutical company.
58. The merger of Ciba and Sandoz led to the creation of Novarlis.
59. Hoechst AG acquired US-based Marion Marrcl Dow for S7.1 billion. The new entity Hoechst Marion Roussel will become the pharmaceutical industry's third largest company after Glaxo Wellcome and Merck.
60. This operation is one of the biggest deals in the pharmaceutical industry. AHP acquired Monsanto for $34.4 billion. This operation will allow AHP to double its R & D budget (S3 billion), to have new medicines and to have access to genetics molecules.
61. In May 1997, Roche reached an agreement with the owners of Corange Holding (Bochringcr Mannheim and DcPuy) to purchase all shares in the company for a price of S 10.2 billion. The closing of the acquisition occurred on 5 March 1998.
62. Acquired by the Institut Mcricux.
63. The fusion of Rorcr with human pharmaceutical activity of Rhône Poulenc has been followed by the creation of Rhône Poulenc Rorcr.
64. In the case of RPR-Gcnccll almost half of the members of the network arc located in the Stales. RPR-Genccll itself is located in Collegcvillc (PA) and Vilry-Alfortville (France) for the research activities.
65. K.S. Brown, op. cit., Réf. 20.
66. Ibid. In an interview, Josef liossart, vice-president of business and marketing development for RPR-Gcnccll declared: "We are creating an infrastructure similar to the electronics business. Sony, for instance, is able to go from TV to video-cassettes because tbcy have got a basic core of technology that they can take in any direction. Our network is the same kind of core. No matter what the gene discovery, we will have the tools to develop the therapy". See Hagedoom, op. at., Ref. 25.
67. financial constraints are probably the main reason leading to the creation of such a network.
68. Transgcne has strategic alliances with the pharmaceutical company Shcring-Plough (licensing agreement for S88 million), Human Genome Science Inc. and Gensct with Abbott, Johnson & Johnson, Synthélabo. The most important operations arc Gcnovo/Biogen (1995), SchcringPlough/Canji (1995), Chiron/Viagen (1993), Boeringcr Mannhcim/GcncMcdicine (1995), Roche (Syntcx)/GencMedccine (1994), Sandoz/SyStcmix (1992), Sandoz/Gcnctic Therapy (1995), Cistron Biotechnology/Genetic Therapy (1992), Glaxo Wellcome/MegaBios (1991), (in Strategic Alliances in Biotechnology, 3rd edn (London, Goldman Sachs, 1996).
69. "The institutional environment is the set of fundamental political, social and legal ground rules that establishes the basis for production, exchange and distribution. Rules governing elections, property rights, and the right of contract arc examples ..." (Davis & North, op. cit., Réf. 3, pp. 6-7).
70. BioFutur, 165, 1997, p. 14.