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Science and profit: Essays on the biotechnology industry.

Kumaramangalam, Kartik (2006) Science and profit: Essays on the biotechnology industry. PhD thesis, London School of Economics and Political Science.

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Abstract

Following the opening three chapters, which survey the literature related to knowledge, economic growth and firm behavior, I focus on the biotechnology industry to understand how firms translate basic scientific ideas into profitable ventures. I find that this industry is characterized by two unique stylized facts: first, firms publish the results of their scientific research openly in peer reviewed journals, and two, they collaborate with universities quite intensively. I explore the private-public nature of biotechnology innovation in three separate papers. In my first paper, I find that collaborative research with academics improves research quality for biotechnology firms. My results indicated that biotechnology firms seek alliances with high status academics with established research reputations so as to gain publication in highly ranked journals which is one measure of research quality. One of the major policy implications of my paper was that support for public science should be strengthened and collaboration across the private-public divide should also be encouraged. However, collaboration should not be conflated with co-option or appropriation of roles, i.e., the public sector should not be encouraged to emulate private sector functions. A strong independent public science nexus is crucial for private biotech firms, otherwise valuable signals of research quality may be compromised (as we shall see below). The results of my first paper elicited another important question - namely, why should firms publish the results of their research openly in the first place. I address this question in my second paper, by developing an open-science framework of innovation which argues that while R&D expenditures reveal the commitment of a firm's resources to innovation and patents record the completion of R&D activity, a firm's stock of scientific papers signals the quality of its innovative efforts. In biotechnology, quality of research is a valuable signal and publishing peer-reviewed articles allows firms to convince investors and potential collaborators of the worth of their ideas. This proposition is tested using unique data of U.K. biotechnology firms during the years 1988-2000. The findings indicate that research publications bring real financial gains to biotechnology firms and that, on average, publishing fourteen scientific papers in academic journals has approximately the same impact on a firm's market value as obtaining a single patent. Furthermore, papers which are highly cited, particularly by pharmaceutical firms, have a greater impact on market value. In a third theoretical paper. I show that biotechnology patents can be treated as credence goods - goods/services that require expert opinion to determine quality -- insofar as the market for biotechnology patents is characterized by an asymmetry of information between buyers and sellers. This informational asymmetry is a result of uncertainty associated with biotechnology patents. The chief causes of uncertainty are the legal substance of the patent document itself, the technological and commercial uncertainty associated with patent value and variable quality in screening new innovations at the patent office when granting patents. Despite these limitations, firms continue to patent in increasing numbers. Thus, the market has evolved mechanisms to more accurately ascertain "true" patent value. These mechanisms, that I label, credence verifiers, include publishing scientific papers in peer reviewed journals and the practice of clubbing patents in patent portfolios. Studying how the market ascertains the value of patents has implications for the theory and reality of patenting behavior; and by conceptualizing biotechnology patents as credence goods, this paper makes an interdisciplinary contribution (combining law and economics) to understanding the incentives that drive innovation.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Economics, General
Sets: Collections > ProQuest Etheses
URI: http://etheses.lse.ac.uk/id/eprint/2787

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