also serve a more explicit objective of the large firms. Given the short distance between science and commercialization in biotechnology, an agreement with a university can provide the large firm with the option of licensing any new discovery of that research center (within the scope defined by the agreement). This is an advantage for a firm that can rapidly translate those new discoveries into commercializable products.
Minority participation in the capital stock of small biotech start-up firms is a means of monitoring the internal research activities of the NBFs. By acquiring part of the capital stock of an NBF, the large companies may also hope to establish a "preferential" linkage with that company, which may be useful to preempt rivals in the commercialization of relevant discoveries made by the NBF. Moreover, in keeping with the theoretical predictions of Williamson (1985), such investments may be useful in averting problems of moral hazard by serving as tokens of good faith. In 1986, for instance, American Home Products bought 13.5 percent of the shares of California Biotechnology, and in that same year the two companies entered into formal arrangements in the fields of cardiovascular drugs, veterinary therapeutics, and drug delivery systems. Other examples of this sort include the cases of Abbott and Amgen, American Cyanamid and Cytogen, Johnson & Johnson and Cytogen, and SmithKline-Beecham and Amgen. Similarly, British Biotechnology obtained its start-up capital in 1986 from a consortium that included SmithKline Beecham, and later the two entered into a joint venture for a line of anti-arthritic therapies based upon matrix metallo-proteinex inhibitors developed by British Biotechnology.
As far as acquisitions are concerned, there seem to exist two different—and somewhat contrary—motives for acquiring a small biotech company. On the one hand, large companies that have substantial in-house capabilities, longer experience in biotechnology, and more active involvement in the field aim at acquiring NBFs specialized in particular areas of biotechnology research. The experience and in-house expertise of the large companies enables them to evaluate more accurately the likely contributions of the set of specialized resources that are being acquired. On the other hand, the direct acquisition of a biotechnology firm may also represent a way of "catching up" for late entrants.10
These remarks suggest that each of the four types of external linkages targets a separate goal of the large firms, and thus they are mutually complementary.
Compare the acquisitions in 1986 of Hybritech by Eli Lilly and of Genetics System and Oncogen by Bristol Myers. Eli Lilly is one of the most research-intensive pharmaceutical companies worldwide, and was an early entrant in biotechnology research. It sought to complement its generalized expertise in biotechnology with know-how in monoclonal antibodies, wherein Hybritech had specialized capabilities. Bristol-Myers has strong marketing capabilities, but it is less research-intensive. Through acquisitions, it sought generalized expertise in the new area of biotechnology. See Gambardella (1992 and 1995).