merger of Cetus, one of the earliest biotech firms, with Chiron, another "large" NBF. Finally, the value of Centocor's stock dropped by 25 percent after the FDA questioned data on its new septic shock drug. Thereafter, Centocor signed an agreement with Eli Lilly, which hopes to use its expertise in development and FDA regulation, as well as its commercialization capabilities, to revamp Centocor's compound.23

A very important question, suggested by the conceptualization of the process as one of division of labor, and one that has not yet been asked in the literature, has to do with the creative destruction of competencies implicit in the downward integration of NBFs. Given that some of the most innovative NBFs, such as Amgen and Biogen, are converting themselves into full-fledged pharmaceutical companies, it would be useful to ask whether the process is inevitable and (a related question) whether it is socially efficient. In other words, even if private incentives point toward integration, one must ask whether these represent the benefits that authors such as Florida and Kenney have pointed toward, or whether these are responses to market imperfections that are widely known but whose ramifications may not be well understood. The answer to the question will have important implications for policy. For instance, strengthening the definition and enforcement of intellectual property rights may slow down or even stop the process of downward integration. At this stage we shall pose it as an important and interesting question for further research.


In this essay we have examined the changing patterns of collaborative alliances in biotechnology. Based on some previous studies on the topic, we discussed how innovation in biotechnology is the outcome of systematic interactions between universities, NBFs, and large pharmaceutical firms. We characterized the different strategies of external linkages from the viewpoint of large firms, and found that they were mutually complementary in that they target distinct but synergistic objectives of the firm. The division of innovative labor that we have studied is taking place in the context of a noticeable increase in the use of general and abstract knowledge in innovation. The breadth of applicability of universal principles offers the possibility of subdivision of the innovation process


In this context, it is interesting to note that, while Centocor and the other biotech firms mentioned above seek partnerships for resources and expertise downstream, Eli Lilly is moving in the other direction. It has recently taken serious steps to combat its "not invented here" syndrome. As explicitly declared by its top managers, Lilly seeks extensive alliances with partners that can supply new ideas and products to be pumped into its pipeline. In the early 1990s, Lilly signed a number of such alliances with small/medium research-intensive companies in fields such as molecular design of drugs (Agouron), serotonin-based drugs (Synoptic Pharma), and trauma infections (Business Week, 1992).

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