- Bioentrepreneurship in Germany (2005)
- The purpose of this thesis, which is entitled 'Bioentrepreneurship in Germany', is to study important issues of entrepreneurship research in the specific context of the biotechnology industry. The thesis consists of five empirical studies which cover such diverse topics as financing strategies, M&As, strategic alliances, crisis management, and venture capital (VC) portfolio strategies. In the first study I analyse the development of the German biotechnology industry during the hostile financing environment in the years 2002 – 2004. I employ the theoretical perspectives of population ecology and evolutionary economics and investigate adaptation processes outside and within the biotech firms. External adaptation takes places through an increasing number of insolvencies and a decreasing number of foundations of VC-backed bioventures. The industry, however, experienced a much weaker consolidation than assumed by industry experts. Drawing on in-depth case studies of bioventures which successfully adapted to the hostile environment, I show that downsizing, changing the business model towards more service orientation, partnering of product candidates in strategic alliances, and entering into mergers and acquisitions (M&As) with other firms are successful strategies to survive in times of hostile financing environments. In the second study I draw on a comparative case study approach to illustrate motives, benefits, and problems which may arise when two entrepreneurial biotech firms decide to merge. I identify several M&A motives specific to the bioentrepreneurial context such as the integration of the partners’ technologies, the desire to gain a critical mass of projects, and the access to the partner’s networks and experienced management team. Among the main benefits are an enhanced visibility for investors, an extension of the venture’s product pipeline, and the possibility to escape a hostile financing environment through an international M&A. Problems may already arise before the M&A deal because of the inability to find the right partner and the opposition of shareholders. Problems that may occur during post-merger integration include the incompatibility of the partners’ technologies and the difficulty to control financial issues in a subsidiary abroad. The scope of the third study is to investigate the motivation of biotech managers to seek new alliances with other firms. I draw on data from a conjoint experiment with 51 German biotech managers and find that their decision to look for a new alliance depends on the capabilities, governance, and context of their firms. The decision is complex since these factors interact. For example, managers take into account that sufficient liquidity is necessary to further develop product candidates acquired through alliance formation. On the other hand, high liquidity of their companies allows the managers to survive in times of a hostile financing environment without seeking further alliances. These results show that an over commitment to alliances is not necessarily due to limited rationality and hubris of managers but appears to be a rational attempt to make the best of bad circumstances in case of low liquidity and the threat to the venture’s survival. The forth study illustrates how a bioentrepreneurial venture can successfully escape a technology breakdown crisis. An exploratory case study of a German biotech firm which successfully managed this situation demonstrates that an aggressive business development and project acquisition strategy consisting of in-house technology development, in-licensing activities, and M&As may enable a bioventure to build up a new technological basis. If a technological breakdown is detected, financial resources should be concentrated on corroborating the findings in order to ensure a maximum of liquidity for acquisition of the new technology. Entering into an M&A with another company may help to raise further capital from VC investors. Knowledge related to the new technology may be integrated in the firm by employing key technology developers and entering into long-term collaborations with the organisations where the projects are acquired from. Quick acceptance of staff turnover and concentration on hiring of new personnel are further elements of a successful crisis management process. In the final empirical study I introduce a theoretical framework for an analysis of risk distribution within life science portfolios. This framework is based on practitioner-oriented literature and interviews with VC managers. Drawing on a comparative case study approach, I apply this framework to the life science portfolios of seven VC firms and identify two archetypical portfolio strategies. VCs invest either with a focus on risky drug development firms and distribute those broadly among markets and technologies, or they diversify their drug development sub-portfolio less but invest more in less risky business areas. Thus, specialisation on the industry level is probably the optimum for VCs to reduce their investment risk by building up specific knowledge and reputation. Additional interview data show that portfolio diversification is also influenced by the VCs’ inability to create the desired deal flow or the necessity to follow technological trends. In summary, the results of this thesis extend the literature on bioentrepreneurship research in several areas and provide new insights for scholars and practitioners.
- Bioentrepreneurship in Germany : industry development, M&As, strategic alliances, crisis management, and venture capital financing (2006)
- How do venture capitalists spread risk by diversification within specialised life science portfolios? (2006)