Open innovation: A real option to restore valueto the biopharmaceutical R&D

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35 Citations (Scopus)

Abstract

The pharmaceutical landscape has changed, and new business models, based on alliances, areincreasingly being adopted in this industry. Biotechnology advances have pushed this development,and pooling complementary resources coming from incumbents and newcomers is a key skill tosucceed: these are the premises for a quick spread of the open innovation (OI) paradigm in thisindustry. R&D portfolio selection needs R&D project evaluation, and Real Options Analysis (ROA) isacknowledged as a powerful tool to evaluate uncertain projects that have an intrinsic flexibility. Thepresent research aims to foster the use of ROA in the OI field in order to encourage firms to undertakethis innovation model; to achieve this goal the authors propose a closed-form model that is easy toimplement, to evaluate the OI initiative for selecting an optimal R&D portfolio. The study wants tosupport managers in optimal R&D portfolio construction in terms of choosing the most promisingproducts, the means by which the related project has to be undertaken (in an open or closed manner;i.e. licensing-in or not) and the self-financing policy. The proposed model can be easily implementedinto a spreadsheet, and the inputs needed to run it are usually requested to evaluate projects using themost used net-present-value-based methods. Moreover, some parameters of the model allow strategicaspects to be considered: for example the nature of the project (core/non-core), the impending projectphase, and the risk-sharing opportunity.The results of the developed numerical example show that the selected portfolio is well balanced interms of development stages, core/non-core therapeutic areas and, licensing-in (an inbound openinnovation solution), is preferred in the case of products at their early stages of development
Original languageEnglish
Number of pages11
JournalInternational Journal of Production Economics
Volume149
Publication statusPublished - 2014

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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