place other assets, such as a marketing and distribution network, that are necessary for successful commercialization of research outcomes. In other words, R&D intensity can serve as a proxy for a "package" of research capabilities and complementary downstream assets. The second variable is the stock of biotechnology patents applied for in the United States. This variable is intended to capture the extent to which a firm has invested in biotechnology-related research in the past years, and therefore its ability to utilize external technological information in that area.13

What publicly available measure can one use for the ability to evaluate? It has been argued that science provides information that helps restrict the search for successful innovations at the downstream, applied R&D stages. Superior scientific capabilities enable the firm to reduce the uncertainty about the outcome of an individual project (David et al., 1988; Nelson, 1961). As noted earlier, Rosenberg (1990) has argued that in-house basic research is useful primarily for being "plugged in" to external information flows. Since a great deal of relevant information in biotechnology is science based, an in-house scientific capability is crucial for evaluating and assessing information originating outside of the firm's boundaries.14 As a measure of in-house scientific capabilities, we used the average number of scientific papers (stock) published by the personnel of the firms divided by total sales.15

In our empirical tests, we found that these measures performed well. The measures of the ability to utilize information are positively related to the number of external linkages, and the measure for scientific capability is negatively related to the number of linkages.16 These results also help us clarify an important point. Our discussion might have unintentionally suggested that within the division of innovative labor in the biotech industry, research is performed by NBFs, while large firms provide only downstream capabilities. This is not true. Large firms perform a great deal of upstream research. In fact, our results suggest that

13  

The use of patents as a measure of the technological strength of pharmaceutical firms is supported by the results reported in Narin et al. (1987).

14  

It should be noted that by "science" we mean abstract knowledge and representations in terms of general and universal categories. The use of such abstraction allows the researcher to delineate and characterize more carefully the set of possible outcomes, eliminate a number of other possibilities, and hence be able to focus upon a smaller set of more carefully designed experiments. Furthermore, information from diverse sources can be better integrated to throw light upon the problem at hand and thereby allow a more informed and accurate judgment about the likelihood of the success of the project. See Arora and Gambardella (1994a and 1992) for further discussion and references.

15  

Halperin and Chakrabarti (1987) found that company scientific publications are highly correlated with the number of elite researchers employed by the firm (more so than patenting by the firms).

16  

In Arora and Gambardella (1994b) we focused only on the agreements of large firms with NBFs, and neglected minority participation and acquisitions. We also examined the agreements with universities and other research institutions. However, alliances with universities did not appear to be related in the same way to the measures, suggesting that alliances with universities are more properly thought of as providing access to knowledge and as a means of building up in-house competencies.



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