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Biopharmaceutical strategic alliances: Interorganizational dynamics and factors influencing FDA regulatory outcomes
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Biopharmaceutical strategic alliances: Interorganizational dynamics and factors influencing FDA regulatory outcomes
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BIOPHARMACEUTICAL STRATEGIC ALLIANCES:
INTERORGANIZATIONAL DYNAMICS AND FACTORS
INFLUENCING FDA REGULATORY OUTCOMES
Copyright 2000
by
Ami K. Doshi
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(PUBLIC ADMINISTRATION)
December 2000
Ami Doshi
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UMI Number: 3018073
Copyright 2000 by
Doshi, Ami Kishor
All rights reserved.
_ ___ ®
UMI
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UNIVERSITY OF SOUTHERN CALIFORNIA
THE GRADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES. CALIFORNIA 90089
This dissertation, written by
Ami Doshi
under the direction of k^F....... Dissertation
Committee, and approved by all its members,
has been presented to and accepted by The
Graduate School in partial fulfillment of re
quirements for the degree of
DOCTOR OF PHILOSOPHY
Dean of Graduate Studies
Date f 2000
irperson
DI9SSRTATIO
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DEDICATION
This dissertation is dedicated to my family:
Sarla P. Shah, and Sudha & Kishor Doshi
I know that Grandma’s spirit is watching and enjoying this moment with me. I miss her
presence dearly and hope that, wherever she is, she can feel my deep affection and
gratitude for her unwavering belief in me.
By the example of their own actions throughout my life, my parents have taught me the
meaning of unconditional and proactive love. Amidst the entire range of personal and
other life happenings that came my way since 1992, they gave me the special gift of this
love every day of each year that it took to complete this project. I am profoundly grateful
for their desire to share in my little triumphs, helping to maintain equanimity amidst
irrational and completely unnecessary burdens of the process, and gently retrieving me
whenever I succumbed to the occasional depths that come with the territory. I couldn’t
have made it through without them. Mom and Dad are my biggest fans, wisest counsel,
and truest friends. It is my great honor to be their daughter.
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ACKNOWLEDGMENTS
It is said that, in venturing the doctoral experience, the journey is what makes the
destination sublime. My journey was helped by a number of individuals to whom I
would like to extend my sincere appreciation.
Special thanks are due to Dr. Peter Robertson, the Chair of my committee. I have
learned a great deal from working with him across research and teaching projects, and the
level of intellectual curiosity and rigor he demanded of himself set a high standard early
on for my own performance. Peter believed in my capabilities from the start and, as a
teacher and mentor, understood what motivated me and accordingly kept the learning
curve steep. At the same time, it has been a pleasure building a friendship with Peter that
is genuine and comfortable.
I would also like to express my appreciation for the efforts of my other committee
members, Dr. Elizabeth Graddy and Dr. Michael Nichol. Their review of the chapters
and guidance added considerably to the quality of the final product. In addition, two
other faculty members provided a special contribution to my personal and academic
growth during the graduate process. Through their actions, Dr. Shui Yan Tang and Dr.
Terry Cooper have consistently demonstrated what it means to care about students. They
are remarkable mentors, and I feel very fortunate to have had opportunities to work with
them and benefit from their insights and support. The only form of gratitude I can offer
is the commitment to replicate their special style of mentoring and invest my time to help
someone succeed when the opportunity presents itself in the future.
iii
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In that same spirit, I can’t imagine what the program would have been like
without the warm friendship, affection, and wicked humor of Iris Baxter and Charlie
Lane. The three of us experienced it all together from the beginning, shared in each
other’s life soap operas, made sure we each stayed focused on the goal, and played hard
and often to celebrate each milestone crossed. Although we have yet to live in the same
city at the same time, Lindsey Bloor took the time and made the emotional investment to
live the Ph.D. process with me. She embodies that special combination of friendship and
family, and I am so grateful to have been able to share my life experiences and
confidences with her these past 19 years.
Without the quiet, yet persistent support of June Muranaka, I would still be in a
daze over the odd administrative requirements and would never have submitted my
dissertation on time or correctly edited. I owe June so much for looking out for me all
these years and showing the kind of benevolence and personal concern that is typically
rare in academic settings.
Finally, I would like to extend a heartfelt thanks to my colleagues at the Ewing
Marion Kauffman Foundation. Every imaginable accommodation was made during the
first six months of my working with them, so that I would be able to transition smoothly
into my new role and also sustain the writing momentum needed to stay on track for
completing the Ph.D.
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CONTENTS
Dedication ii
Acknowledgments iii
List of Figures and Tables vi
Abstract vii
Chapter 1 - Introduction 1
Chapter 2 - Theoretical Framework 22
Chapter 3 - Study Design 74
Chapter 4 - Analysis of Findings 96
Chapter 5 - Discussion 132
Bibliography 154
Appendix A 175
List of hypotheses
Appendix B 177
Participant cover letter and survey
Appendix C 185
FDA interview question guide
Appendix D 187
Alpha Incorporated case study interviews, discussion question outline
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LIST OF FIGURES AND TABLES
Figure 1 24
Proposed Integrative Model of Interorganizational Collaboration
Figure 2 134
Revised Integrative Model of Interorganizational Collaboration
Table 1 189
Identification, measurement, and reliabilities of variables
Table 2 196
Univariate statistics and Pearson correlations among variables
Table 3a-c 197
Results of predicted regression analyses
Table 4 200
Tolerances for independent variables
Table 5 201
Summary matrix of significant results by methodology
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ABSTRACT
By building on existing models of interorganizational relationships, the research
presented in this study aims to provide an integration and assessment of antecedents and
outcomes of collaborative arrangements in order to extend our understanding of these
relationships in the context of a regulated environment. Based on relevant theory, a
model was proposed that identified factors necessary for collaboration (broadly defined
as incentive to collaborate, and partner firm's capability), as well as those boundary-
spanning activities between alliance partners that improve the quality of the alliance. The
model also hypothesized that the level of alliance quality, organizational-level boundary
spanning activities and strategic regulatory management activities were positively
associated with an increased quality of formal and informal interactions with FDA, and
an increased ability to comply with FDA product quality and consumer safety standards.
The proposed causal model and hypotheses that relate these variables were tested
on a population of new biotechnology firms with alliance experience, supplemented with
additional perspectives gained from interviews with select FDA officials, and a case
study of a mature new biopharmaceutical firm. Multiple regression and factor analysis
were the primary methods used to evaluate the survey data. For each of the sixteen
proposed relationships between variables, survey, interview and case study findings were
analyzed in an integrative fashion to illustrate the quantitative and qualitative significance
of that linkage.
The findings from the data suggest the following. First, boundary spanning
activities between alliance partners, and partner structural support and trustworthiness are
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positively associated with higher quality collaboration between new and established
biopharmaceutical firms. Second, boundary spanning activities between the alliance and
FDA, and compliance and influence strategies for regulatory management were
positively associated with an increased quality of formal and informal interactions with
FDA. Interestingly, and contrary to the hypothesized relationship, alliance quality
between new and established firms was negatively associated with an increased quality of
formal and informal interactions with FDA. Finally, compliance strategies for regulatory
management were positively associated with an increased ability to comply with FDA
product quality and consumer protection standards.
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Chapter 1
INTRODUCTION
While the norm of previous generations of organizations has been to consolidate
resources and activities under a single, hierarchical umbrella, increased market
competition and developments in technology and information have prompted the
adoption of alternate forms by many organizations. Specifically, as Galbraith and Lawler
(1993) point out, executives are realizing that it is not possible for their organizations to
perform every function well, even though they must do so if they desire to remain
competitive. Thus, they are engaging in collaborative arrangements in order to broaden
access to information and resources that are critical to financial success and competitive
advantage.
While the interorganizational relationship (IOR) literature has provided valuable
insights into specific facets of collaboration, there has been little synthesis of the various
frameworks leading to a more encompassing understanding of this type of arrangement,
especially as it operates in a regulated environment. By building on existing models of
IORs, the research presented in this study aims to provide an integration and assessment
of antecedents and outcomes of collaborative arrangements in order to extend our
understanding of these relationships in the context of a regulated environment. Many
new biotechnology firms (NBFs) have now accumulated experience in alliances with
established biopharmaceutical firms (BPFs) over the last two decades. Accordingly, it is
the set of observations about alliance formation and activities between NBFs and BPFs
that can inform our understanding of how collaborations founded on goals associated
with new drug/product development (a) increase quality of formal and informal
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communications with FDA, and (b) also facilitate more effective interactions between
parties for conveying product safety and efficacy standards. For while the industry has a
fundamental interest in ensuring a long and prosperous future for itself and the health
care system, there exists an equally weighty responsibility to remain vigilant of its actions
vis-a-vis the health professions, the governmental body that protects the public's health,
and society.
1.1 The Nature of Biopharmaceutical Network Relationships. The outcome of
these novel, collaborative arrangements is what Miles and Snow (1986) have referred to
as a network organization -- a system of independent units that join together for collective
benefit. Pfeffer and Salancik (1978) have pointed out that problems of interdependence
and uncertainty can be solved through increased coordination and thus, increased control
over the activities of each of the participants. Auster (1990) suggests that organizations
form networks in order to diversify cost and risk, and co-opt or block competition while
gaining access to new customers, products, distribution channels, resources, and
technologies. There are many different forms of relationships along the continuum
between pure market transactions at one extreme, and full acquisition at the other. What
form of relationship will prove optimal depends on many factors, including patent issues
(as in high tech fields) and industry entry barriers.
The tightly regulated biopharmaceutical industry, in particular, has benefited
greatly from the prevalence of cooperative and interdependent relationships between
entrepreneurial fledglings, research organizations, large diversified corporations, venture
capital and other financial institutions. The term "biotechnology" implies not an industry,
but rather an amalgam of technologies rooted in the more traditional disciplines of
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molecular biology/genetics, immunology and biochemistry. "The biopharmaceutical
industry", then, refers to that population of firms involved in the discovery, development,
and commercialization of biotechnology-derived products — including biotechnology
firms and established companies in the pharmaceutical, chemical, food and other
industries. Applications have been not only in the arena of human therapeutics, but also
in agriculture, animal health care, environmental cleanup/bioremediation, and energy
(e.g., biomass conversion) (Rossi & Teisberg, 1993). Throughout, alliances have become
central to this field, and entrepreneurial companies lacking the resources or expertise to
obtain approval for their innovative products and bring them to market have found value
in teaming up with an established corporation. Corporate collaborations not only provide
start-up firms with needed skills and credibility, but may also provide a broad indication
of their competitive strength -- which can then be used as a bargaining tool to increase or
justify a valuation in the context of a forthcoming public offering (Bingham, 1993).
What characterizes successful arrangements in this arena include general factors such as
compatible strategic goals between collaboration partners, trust, an ability to
communicate effectively, and a willingness to engage in an ongoing relationship.
1.1.1 The Learning Component. A reality of this industry is the not unusual
scenario for several firms to have approval applications submitted to the FDA, for nearly
identical products, at approximately the same time. Since the firm that is able to receive
approval first gains immediate market share advantages, the ability to mobilize resources
and knowledge necessary to facilitate the approval process becomes a critical factor for
success. Accordingly, these firms have incentive to establish a more cooperative working
relationship with the other entities in their environment in order to capture the necessary
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competencies and secure a more successful product outcome. In the search for ways to
acquire missing skills, alliances become a viable alternative. Robertson et al. (1995)
point out that as potential IOR participants come to recognize the extent of their
interdependence, they also perceive more positive benefits from collaboration (Gray,
1985; Powell, 1990). Collaboration with firms having complementary abilities provides
the venue for securing a sustainable advantage, with the added benefit of reduced effort
and resources required to build those skills in-house (Bowman & Kogut, 1995). Like
other forms of organizational assets, firm competencies are developed over time through
a series of managerial decisions that facilitate a constant input of new knowledge through
specific learning opportunities (Bogner & Thomas, 1996). The ability of an organization
to recognize the value of new, outside information, assimilate it, and apply it toward
commercial ends is an important determinant of that firm's innovative capabilities (Cohen
& Levinthal, 1990). A significant component of the benefits of collaboration involves
learning, which can be viewed as a type of informational updating by which decision
makers develop an understanding of the association between organizational actions and
outcomes (Virany, Tushman & Romanelli, 1992). A firm’s total set of assets, or resource
base, then, is comprised of not only the more traditional conceptualizations of tangible
worth, but also existing knowledge and skills developed from learning (Penrose, 1959;
Wemerfelt, 1984; Barney, 1991; Bogner & Thomas, 1996).
The notion of learning holds true not only for the collaborating firms seeking
product approval, but also for the FDA itself, since the agency continues to face problems
in their reviewing methods and quality of decision-making processes. The U.S. Food &
Drug Administration derives its authority from The Federal Food, Drug, and Cosmetic
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(FD&C) Act, which authorizes the FDA to inspect all facilities at which foods, drugs,
devices, biologies, or cosmetics are manufactured or warehoused (Buska & Rumore,
1992). The concept of inspections was introduced for the first time by the passage of the
FD&C Act of 1938, which authorized factory inspections. The 1962 Kefauver-Harris
Drug Amendments to the FD&C Act subsequently extended the FDA’s inspection
authority over establishments in which prescription drugs are manufactured, processed,
packed, or held to include records, files, papers, controls, and facilities (Buska &
Rumore, 1992). Changes in the 1970s by then Commissioner Charles Edwards saw the
birth of program Centers (Michels, 1992) and elucidation of enforcement policy in cases
involving gross negligence or danger-to-health situations (Chesemore, 1992).
Following the confirmation of Dr. David Kessler as Commissioner of FDA in
October 1990, FDA’s enforcement activities and responsibilities underwent a significant
revitalization. His vision of the Agency created broad-based implications for operations
within and outside the organization, focusing on initiatives to address the serious
problems exposed following the (then ongoing) generic drug scandals of the early 1990s.
Some FDA veterans and politicians have asserted that the changes were procedural rather
than philosophical (Chesemore, 1992). However, during his often controversial tenure as
Commissioner, Kessler made sweeping changes in FDA’s management structure, drew
boundaries in the area of deceptive drug advertising and otherwise sharpened FDA’s
regulatory teeth to protect the public’s health with a determination unlike that of his
predecessors.
Beginning in the mid-1990s, an alliance of Republicans, Democrats, and powerful
pharmaceutical industry lobbyists put pressure on legislators to enact rules that would
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force the FDA to act more quickly in approving new drugs (Willman, 1998). AIDS
activist groups such as ACT-UP similarly put pressure on the FDA to allow experimental
use of certain, non-approved drugs, since the existing approval process timeline was too
lengthy for many suffering from complications of AIDS. Pressures were mounting on
both companies (to expedite development times for new therapies) and the FDA (to
reduce new drug approval times). According to the Tufts Center for Drug Development,
one of the factors contributing to more lengthy development times for new drugs was an
increasing burden of added FDA regulatory guidance and data requirements, such as the
request for demographic analyses of clinical data (Kaitin, 1997). A parallel issue,
however, centered on the disparity between the increasing legislative burden by the
agency and resources allocated to the FDA (Shulman, Hewitt, & Manocchia, 1995). In
1991, the Edwards Committee submitted a report to the Secretary of Health and Human
Services detailing the results of their examination of FDA’s mission, the impact of
science and technology on agency operations, and how the FDA’s energies and resources
might be used more effectively. A follow-up assessment one year later of the Edwards
Committee recommendations found no indication of increased independence for the
agency; and that neither the Congress nor the administration had properly addressed the
growing imbalance between FDA responsibilities and resources (Shulman, Hewitt, &
Manocchia, 1995).
1.1.2 Efficiency vs. Safety. The first of a series of measures to improve FDA's
efficiency was the passing of the Biotechnology Competitiveness Act in 1994, which
called for greater federal prioritization of biotechnology issues and coordination among
government agencies. The proposed combined review process of FDA and the National
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Institutes of Health (NIH), also in 1994, was meant to bring about significant
improvement in the efficiency of protocol review and simplification of procedures for the
industry. Furthermore, user fees paid by drug firms have enabled the FDA to allocate
more resources to the approval process and reduce approval times (McGlynn, 1996). The
FDA Modernization Act was passed in late 1997, to enable the agency to extend the 1992
Prescription Drug User Fee Act (PDUFA) and otherwise streamline its operations. Under
PDUFA, the industry paid $327 million during 1993-1997 -- funds which were used to
hire 600 additional reviewers, improve the drug approval process, and make other, related
improvements in the agency's operations (PhRMA website: Industry Profile 1998).
Additionally, the Modernization Act was designed to enact many of the FDA initiatives
undertaken by Vice President Gore's Reinventing Government program, including:
measures to bring the regulation of biological products in line with those for drugs by
eliminating the need for the Establishment License Application; streamlining the product
approval processes for drugs and biologies manufacturing changes; and accelerating
review of important new drug and device therapies (Los Angeles Times. 11/22/97, page
A18).
However, there was a price for the increased efficiency. As it is, the industry
functions in an environment of rising R&D costs, growing public distrust concerning its
integrity and objectives, and intense national scrutiny of prescription drug prices (Kaitin,
Manocchia, Seibring, & Lasagna, 1994). In December 1998, the FDA's new product
review procedures came under serious scrutiny after at least 33 deaths were attributed to
the use of Rezulin, a drug for the treatment of diabetes. Submitted for review by Warner-
Lambert, Rezulin was given "fast-track” status (expedited approval for drugs that meet
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unmet medical needs for patients with serious or life-threatening conditions) on account
of its unique and beneficial benefits and was approved by the FDA after six months, in
January 1997. While such a short review time should have accorded kudos to the agency,
many details that have emerged about the decision-making process and industry
maneuverings have instead cast a shadow on the accelerated approval process adopted
earlier this decade. As Dr. Laurence Landow, a former FDA reviewer for new drug
applications, stated in a 12/6/98 Los Angeles Times article, "They're trying to please
everyone at the same time, and you can't do that when you're dealing with public health."
The intent of bringing ready access of novel therapeutics to desperate patients may have
had noble elements; but, with the speed and large number of approvals has also come,
within the last 16 months, the withdrawal of five drugs by FDA because of safety
concerns (including the painkiller Duract, diet drug Redux, and heart medication Posicor;
Public Citizen Health Research Group. August 1998, 4:8). A survey and report released
by the Public Citizen Health Research Group of doctors who work for the FDA accused
the agency of lowering its standards for safety and efficacy, working too hastily and
approving drugs that should never have been allowed on the market (Grady, 1998).
Returning to the Rezulin issue, another Los Angeles Times piece (12/6/98) detailed
several disturbing findings. First, a veteran FDA medical officer (Dr. Gueriguian)
assigned to review Rezulin recommended rejecting the drug after he discerned its
potential danger to liver function. Warner-Lambert officials apparently complained of
Gueriguian's "behavior", and his superiors subsequently removed him from his position
as reviewer of Rezulin and other Warner-Lambert products. Two FDA officials who
took over at that point were skeptical about the safety of Rezulin for patients as well,
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particularly after the first patient deaths from the drug surfaced in 1997. Of the two
officials, one of them subsequently recanted his comments and backed Rezulin's
approval, supposedly following resistance from Warner-Lambert representatives
(Willman, 1998).
I.1J The Dynamics of Interorganizational Relationships. Safety concerns and
policy changes reflective of constituency demands have fed an increasing awareness of
the mutual dependence between the public and private sectors of the health care market,
and the fact that a symbiotic relationship is emerging between government and the
biopharmaceutical industry (James, 1977). The degree to which this dependence is
constructive depends on the ability of firms (and the perception of their ability) to react to
government. Likewise, in monitoring the industry's activities, government can view
alliances as a vehicle for channeling disparate intellectual and other competencies and
fostering inter-alliance competitiveness, efficiency, and improved quality of therapies
developed (Bogner & Thomas, 1996). Because of demanding environmental and
institutional pressures, there is an increasing necessity for novel relationship bridges that
ensure a range of economic and social benefits.
Complex environments require players to communicate more effectively across
organizational boundaries. A highly competitive arena requires that organizations
implement a resource-gathering strategy that stretches beyond internal capabilities. That
is, the environment necessitates a focus on developing existing strengths, while also
nurturing ties to externally derived knowledge. Liebeskind, Oliver, Zucker, and Brewer
(1996) found that boundary spanning social networks play a significant role in
organizational learning. Specifically, networks extended the scope of organizational
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learning by gaining knowledge from a large number of other institutions; they also
contributed to the integration of knowledge, insofar as collaborative research was
integrated directly into organizational routines. Quinn (1992) points out that combining
knowledge skills from within and outside the firm, and then matching that portfolio to
new expected market environments, is becoming the value-added trait in industries such
as pharmaceuticals. Organizations thus engage in individual- and organizational-level
boundary spanning activities in order to increase knowledge and retain an active learning
orientation. This occurs through the acquisition of new or better personnel with needed
technical skills, and through sharing of knowledge about interpretation and enforcement
of regulations/guidelines. It would seem, then, that "successful" firms will utilize a
broader range of boundary spanning mechanisms to support this endeavor. For instance,
ex-FDA regulators are increasingly willing to provide friendly advice to drug makers
about developing a manufacturing system in accordance with Good Manufacturing
Practice (GMP) standards. In 1996, the FDA announced a program that sends
investigators into a plant by invitation for an unofficial inspection (dubbed a "nice audit")
prior to the final one required for a product approval. Presumably, greater interaction
identifies and clears up problem areas during the undocumented visit, which then
decreases product delays later in the process (Deger, 1996).
Based on relevant theory, I propose a model that identifies factors necessary for
collaboration (broadly defined as incentive to collaborate, and partner firm's capability),
as well as intra-alliance and alliance-FDA boundary-spanning activities (BSA) that
improve the quality of the alliance and assure positive and safety-oriented regulatory
outcomes. In addition to the role of BSA, another key feature of the model is the role of
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strategic regulatory management activities (SRMA) by collaboration partners as a factor
for enhancing the performance of the NBF-BPF collaboration. As defined by Oliver
(1996), these are comprised of two types of strategies -- compliance and influence -- for
coping with institutional pressures. The model thus also predicts that boundary spanning
activities between the NBF-BPF alliance and FDA, and NBF strategic regulatory
management activities are positively associated with improved regulatory outcomes
(defined as increased quality of communications with FDA, and increased ability to
comply with FDA product quality and consumer protection standards). Through a
triangulation of quantitative and qualitative methodologies, this integrative model is
applied to the biopharmaceutical industry to broaden our understanding of the
relationship dynamics associated with new biotechnology firms and established
pharmaceutical entities.
The following section provides a more detailed description of the evolution of the
biopharmaceutical industry and the management issues associated with its present day
scope.
1.2 The State of the Industry. The maturation of the biopharmaceutical industry
has been fueled by the proliferation of NBFs that are developing cutting-edge products
for targeting some of the most insidious diseases. As of mid-1998, more than 300
biotechnology drugs were in development, of which approximately half were for the
treatment of various forms of cancer (4/11/98, Los Angeles Times, page D2). Beginning
with breakthroughs in the 1970s, a new series of highly elegant and precise techniques
for working at the DNA level catapulted the creativity factor in the methodologies and
possibilities of scientific research. Early R&D tools during the first two decades included
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recombinant DNA technology (e.g., "DNA cutting and pasting") and gene cloning, the
use of monoclonal antibodies, and DNA sequencing and synthesis. By the start of the
1990s, the science behind synthesized human growth hormone, genetically engineered
vaccines, and transgenic mice (Watson, Tooze, & Kurtz, 1983) was part of the core
knowledge base of academic and industry researchers entering the field. More recently,
the focus has shifted to new and highly sought-after technologies such as genomics and
combinatorial chemistry - all of which are used to discover genes, decode their
composition, and establish connections between genes, the proteins they code for, and the
diseases that manifest from malfunctioning of the gene-protein association (Ernst &
Young, 1997). In terms of regulatory approval for these innovative products, the FDA
ruled that all recombinant DNA medicines were to be treated as new drugs, and thus
would be subject to the full approval process (Williamson & Leonard-Barton, 1992).
Existing industries such as chemicals and pharmaceuticals were initially not
equipped with biotechnology knowledge, but demanding social (especially the push for
new AIDS and cancer therapies) and market pressures motivated them to redirect their
attention to long-term contracts or joint ventures with NBFs. By 1989, most of the
largest chemical and pharmaceutical companies had begun doing biotechnology research
-- through the cultivation of in-house research (e.g., Monsanto, Hoffman La Roche,
DuPont), the acquisition of biotechnology firms (e.g., Eli Lilly’ s acquisition of Hybritech,
and Bristol-Myers of Genetic Systems), or by forming alliances with start-ups (e.g..
Chiron formed relationships with Merck, Lucky and Ciba-Geigy; and joint ventures
between Wellcome and Genetics Institute, Ares-Serono and CellTech, and Repligen
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Corporation and Merck) (Connolly & Rhea, 1987; Williamson & Leonard-Barton, 1992;
Pisano, 1994; Kane & Lemer, 1994; Knoop, Yoshino, & Jeannet, 1996).
The biotechnology realm poses a unique number and type of strategic and
operational challenges. Unlike more traditional industries in which the product
development cycle is relatively predictable, biotechnology processing includes variables
relating to the technical and economical viability of producing the product; regulatory
issues connected with clinical testing; and complex patent scenarios - all of which can
change several times over the course of a project (Connolly & Rhea, 1987). Production
of genetically engineered pharmaceuticals on an industrial scale is highly complex and
expensive, and a new drug requires approval for the substance, production process, and
production site (Knoop, Yoshino, & Jeannet, 1996). Consequently, with the alliance
arrangement, both parties benefit in their ability to capture the necessary capabilities for
competing effectively: established firms (BPFs) gain valuable biotechnology expertise,
and NBFs complete their set of assets with access to markets, technology, regulatory
expertise, product testing, scale-up/production, marketing and distribution capabilities
(Bingham, 1993).
1.2.1 Costs and Benefits of Collaboration. It is true that alliances with NBFs
allow BPFs to bundle their products for specific disease indications and market niches
(Ernst &Young, 1997). At the same time, however, collaboration between firms implies
a tradeoff between acquiring capabilities and yielding control - e.g., over strategic
decisions, use of technologies positioning in the market, etc. Shared control also requires
greater costs and time for managing the business venture, since decisions and
responsibilities will typically have to be negotiated (Gomes-Casseres, 1993). According
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to Ernst & Young's 1996 study of the industry, an increasingly broad array of corporate
partnering programs has become available for biotechnology deals. Specifically, biotech
companies and pharmaceutical firms are forming and managing multiple relationships to
meet a variety of strategic goals, and a variety of partnering models are emerging: the old
royalty-based model (RIPCO); the fully-integrated development organization (FIDO); the
fully-integrated drug discovery and development organization (FIDDO); the "just in
time" development house (JITCO); and various boutique forms (Ernst & Young, 1996).
Despite reduced autonomy and prospects for profit, NBFs nonetheless find the
arrangement to be worthwhile overall: knowledge is exchanged for money/venture
capital, special know-how, access to markets, production capacity and extensive sales
organizations, access to markets with high entry barriers, regulatory expertise and
contacts with governments, ability to bear risk, and delayed/reduced probability of
bankruptcy, merger, or acquisition (Barley, Freeman, & Hybels, 1992; Gomes-Casseres,
1993; Bingham, 1993; Knoop, Yoshino & Jeannet, 1996). NBFs also have gained from
the vast array of regulatory-related experience housed within BPFs, since years of dealing
with the FDA have enriched BPFs' repertoire of knowledge for navigating through new
product approval processes.
As an illustration, in 1985 Genetics Institute was a primarily R&D genetics
engineering company, with state-of-the-art research and pilot production facilities, and a
workforce of a little over 200. They had three manufacturing options in order to remain
competitive (Connolly & Rhea, 1987): Genetics Institute could build their own plant,
enter into an agreement for the outside manufacture of their products with one of their
client companies, or form a joint venture with an established pharmaceutical
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firm/manufacturer. While acknowledging that joint ventures require a tremendous
amount of effort and could be crippled by conflicting priorities, Genetics Institute
decided that to form a joint venture with Wellcome was the best option. It was true that
affiliations with a giant such as Wellcome had the attendant issues of a certain lack of
control and the danger of being absorbed by the larger partner. Yet, collaborative
relationships provide the irresistible opportunity package: ability to combine products and
technologies and allow for a distribution of the monetary risks; joint ventures offer
significant economies of scale, both in terms of financial commitment and operating costs
(Connolly & Rhea, 1987).
1.2.2 The Value of Alliances. One alternative avenue for multiplying their
collective talents in such a volatile environment has been for BPFs to ally with other big
pharma houses and create multi-billion dollar enterprises. According to McGlynn
(1996), BPFs are, for the most part, simply responding to market constraints: capitation is
creating an increased demand for new drugs in reaction to managed care restraints, and
therapeutic substitution and generics have removed the profit incentive from what are
referred to as "me-too" drug development strategies, which were previously the backbone
of the drug industry success stories (McGlynn, 1996). In 1989, SmithKline Beckman and
Beecham PLC merged, combining SmithKline's marketing strengths with Beecham's
drug development expertise. Soon thereafter, Bristol-Meyers merged with Squibb
(O'Regan, Brand, Bamford, & Emmons, 1994). More recently, Astra AB and Zeneca
Group PLC merged at the end of 1998; the merger between Hoechst AG and Rhone-
Poulenc took place in 1999; and Sanofi has agreed to buy France's third-ranked
Synthelabo SA (www.biospace.com). Yet, given an ever-increasing public demand for
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novel medicines, large pharmaceutical houses remain vulnerable to the competitive
pressures associated with biotechnology innovations and have a very real dependence on
outside relationships to keep their product portfolio full. Interestingly, the combined
strengths of BPFs have created an increased financial capacity for partnering with
biotechnology companies and a very real need to increase market share through the
acquisition of new products/processes.
1.2.3 Industrial Organization Contributions. Innovations that optimize the
drug development process and hasten movement along the approval timeline have
incalculable value. Not surprisingly, it is often the BPFs that house the necessary
knowledge to accomplish this, drawing from employee expertise in the basic science,
management and engineering/operations research disciplines. Wyeth-Lederle Vaccines
and Pediatrics, for instance, developed a business process quality management system
that streamlines the transfer of new processes from development to manufacturing — a
segment of the overall development process that can be a rate-limiting step in the
sequence of events leading to product approval (Gerson et al., 1998). Schilling and Hill
(1998) found that successful firms such as Proctor & Gamble are those that define their
strategic objectives and find creative ways to manage new product development goals in
the context of their current resources and competencies. Among others, the authors
describe two specific tools that are used by successful firms for innovation management
in R&D-intensive environments: The Stage-Gate process, and Computer Aided
Manufacturing (CAM). Comprised of six development stages, Stage-Gate is a method
for managing the new product development process so as to increase the likelihood of
launching new products quickly and successfully: (1) idea generation, (2) preliminary
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investment, (3) business case preparation, (4) product development, (5) product testing,
and (6) product introduction. Similarly, CAM technology allows for automated changes
between product variations, as well as more variety, flexibility and customization in the
design or manufacturing process. As Schilling and Hill (1998) point out,
"...interfunctional communication and cooperation is necessary to both compress cycle
time and achieve a good fit between product attributes and customer requirements"
(1998:74).
Still, the process of discovering and developing a new drug is unquestionably
long and complex, requiring three phases of human clinical trials to assess the basic
safety and efficacy of the drug (Pisano, 1994). According to Pisano, Phase III trials alone
could cost between $30-$ 100 million. Citing findings from the Pharmaceutical Research
and Manufacturer's Association, Fitzmartin (1998) states that in the 1990s, the average
time to develop a drug and carry it through to approval has been approximately 15 years,
at a cost of $360 million. A popular characterization describes that of the roughly 10,000
new medicines created in the laboratory, approximately one thousand graduate to the
animal testing phase, ten prove promising enough to be tested in human clinical trials,
and one or two will survive final regulatory review and receive approval for marketing
(Pharmaceutical Manufacturers’ Association website: value brochure). Even at that
point, countless examples exist of drugs that have failed at the final stages of review, due
to concerns over product safety and/or efficacy (e.g., the inability of Johnson & Johnson
to establish the safety or benefit of Antocin, a drug intended to stave off labor in
premature pregnancies, to an FDA advisory panel; Los Angeles Times. 4/21/98). The
FDA's testing hurdles weed out the most unsafe and/or ineffective drugs and thus are
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deemed as the most rigorous body of requirements in the world. Accordingly, the
following section describes the basic elements of the FDA regulatory process for new
drug approval in the United States.
1J The FDA New Drug Approval Process. The research, development, and
regulatory approval of a biopharmaceutical product is a continuous yet lengthy process
involving drug discovery, laboratory development, animal studies, clinical trials, and
regulatory registration (Chow & Pong, 1998). While most governments require new
pharmaceutical products to undergo extensive clinical testing before they can be
marketed widely, such a protracted process is necessary to assure the safety and
effectiveness of the drug. FDA requirements are considered the most rigorous in the
world, and to fulfill them, all new drug products (or previously approved drugs being
modified for a different therapeutic application) must undergo three phases of clinical
trials. An overview of the new drug approval process in the U.S. is as follows (Rossi &
Tiesberg, 1993):
Preclinical Testing (2-3 years): A compound that demonstrates potential is tested in the
laboratory and in animals to assess its safety and to analyze its biological effects. If a
compound proved safe and showed the expected biological effects, the firm then files an
Investigational New Drug (IND) notice with the FDA. If the FDA does not object within
30 days, the company can go forward and conduct clinical testing using the new
compound. Legally, the IND is an exemption to the law preventing shipment of a new
drug for interstate commerce. Consequently, drug companies that file an IND have the
option of conducting clinical investigations of products across the United States (Chow &
Pong, 1998).
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Clinical Testing (6 years): For approval of a new drug, the FDA requires that at least
two well-controlled clinical studies be conducted in humans to substantively demonstrate
evidence of the drug's effectiveness and safety. Typically, a standard clinical
development program is comprised of Phases I, II, and III clinical trials, and the
traditional IND and New Drug Application (NDA) approval process for a new drug
product will generally take 8-10 years with an average cost of $300 million (Chow &
Pong, 1998). Kessler and Feiden (1995; in Chow & Pong, 1998) indicated that, on
average, the FDA receives around 100 original NDAs each year.
Phase I Trials (approximately 1 year) - Phase I trials assess basic safety and
determine the pharmacological properties of the drug product. During these trials, the
drug is administered to a small group (typically 20 or more; Rossi & Tiesberg, 1993) of
healthy volunteers and any adverse reactions (such as fevers, dizziness or nausea) are
noted (for some very serious diseases, Phase I trials are performed on afflicted patients)
(Pisano, 1994). Barring any serious side effects, the product moves on to Phase II trials -
- on average, 70% of all INDs move on to Phase II human trials.
Phase II Trials (approximately 2 years) -- The Phase II trials are designed to
evaluate the effectiveness and proper dosage (Pisano, 1994) of the drug, as well as to
isolate side effects. Tests are usually conducted with several hundred (volunteer)
patients, some of whom receive the IND, while the remainder receive a placebo.
Approximately one-third of all INDs survives both the first and second phases of clinical
testing.
Phase III Trials (3+ years) - Phase III clinical trials assess the product's efficacy
with a relatively large sample of patients on a statistically rigorous basis. These trials
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help to determine long-term side effects and provide information of the effectiveness of a
range of doses administered to a mix of patients (Rossi & Tiesberg, 1993). Typically,
these trials involve multiple hospitals and could require anywhere from two to five years
to complete. Because of the large number of patients, doctors, and hospitals involved,
this stage is by far the most expensive - for example, the costs of manufacturing the
drug, administering it to patients, monitoring results, analyzing data, and preparing the
requisite regulatory paperwork could run between $30-$ 100 million (Pisano, 1994). For
regulatory reasons, it is also imperative to manufacture the product with the same process
that will be used when the product is marketed commercially. Any change in
manufacturing would mean repeating human clinical trials to prove that the deviation did
not alter the product's safety and efficacy.
FDA Review (2-3 years): Upon completion of the Phase III trials, firms are required to
file a New Drug Application (NDA) or a Product License Application (PLA) with the
FDA and submit documentation of all relevant data for review. The FDA has created a
special advisory committee for each NDA or PLA, the function of which is to make the
final recommendation as to whether or not the drug should be released for commercial
sale (Rossi & Tiesberg, 1993). Finally, post-marketing safety monitoring continues even
after approval.
1.4 Overview. Given the preceding discussion about the history, motivations,
and constraints in the biopharmaceutical industry specifically, this study seeks to inform
our understanding of the strategic and regulatory dynamics associated with this
collaborative setting. More specifically, by building on existing models of IORs, the
research presented herein explores the causal relationships between (1) new
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biopharmaceutical firms’ incentives and the BPF’s capability to collaborate, (2) the
quality of the alliance relationship between new biopharmaceutical firms and established
pharmaceutical firms, (3) intra-alliance and alliance-FDA boundary spanning activities,
(4) strategic regulatory management activities, and (5) improved regulatory outcomes, as
determined by increased quality of formal and informal interactions between parties, and
increased ability to comply with FDA product efficacy and consumer safety standards. A
series of theoretical foundations that inform an integrative model consistent with this
objective are specified in Chapter 2, and the hypotheses and methodology used for testing
the model are discussed in Chapter 3.
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Chapter 2
CONCEPTUAL FRAMEWORK
In light of the tremendous growth and rapid maturation of the high technology
sector over the last decade, the topic of alliances and networks has been a source of
interest across multiple disciplines ~ ranging from economics and psychology to
organization theory (Oliver, 1991) and strategic management (Smith, Carroll, & Ashford,
1995). Interorganizational relationships, especially strategic alliances between industry
entities, represent a means for managing uncertainty, sharing knowledge, and accessing
valuable resources more readily and efficiently. Most of what organizations seek to
achieve is often (and appropriately) engaged in alone. But, while collaboration is not a
universal solution for addressing the range of organizational issues, there are situations in
which working alone is insufficient to attain the desired outcomes. Thus, the purpose of
this study is to build on existing models of interorganizational collaboration dynamics
and extend our understanding of the boundary spanning and strategic regulatory
management aspects of these relationships in the context of a regulated environment.
Chapter 2 provides the theoretical foundations for this endeavor and is organized
into four sections. The first section presents the theoretical framework and the constructs
by which the interorganizational relationship (IOR) dynamics will be examined in this
study. The second section presents a select review of six theoretical perspectives that
inform interorganizational relationships generally, and firm behavior in regulated
environments specifically. The third section of this chapter focuses on the particular
elements of the model. In particular, it addresses the determinants of collaborative
behavior; the importance of evaluating IOR quality as an intervening variable between
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collaboration determinants and regulatory outcomes; analyses of both intra-alliance and
alliance-FDA boundary spanning activities; an explanation of the role of strategic
regulatory management activities in IOR dynamics; and a discussion of the manner in
which strategic collaborative relationships bring about improved outcomes for regulated
firms and the FDA. The final section provides an overview of the conceptual framework
and the elements therein.
2.1 Summary of Proposed Model and Constructs. By building on existing
models of interorganizational collaboration determinants, this research project examines
IOR characteristics in the biopharmaceutical industry and attempts to extend our
understanding of these relationships in the context of a regulated environment. A more
complete understanding of these factors may allow greater competitive capabilities and
improve the quality of decision-making processes -- not only for the collaborating firms
seeking product approval, but also for the FDA itself.
Based on relevant theory, I propose a model (represented in Figure 1) that
identifies factors necessary for collaboration (broadly defined as incentive to collaborate,
and partner firm's capability), as well as those boundary spanning activities between
alliance partners that improve the quality of the alliance. The model also predicts that
boundary spanning activities between a new biopharmaceutical firm (NBF) and an
established pharmaceutical firm (BPF) alliance and FDA, and NBF strategic regulatory
management activities are positively associated with improved regulatory outcomes.
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Figure I - Proposed Integrative ModeI o f Interorganizational Collaboration
Incentives to
Collaborate
(INCa) Lack of External
NBF Financial Resources
(INCb) Lack of In-House
NBF Non-Financial Resources
(INCc) Need to Improve
Reputation with FDA, Peers
Partner Finn's
Capability
(CAPa) BPF Technical Expertise
(CAPb) BPF Strategic Alliance Experience
(CAPc) BPF Structural Support
(CAPd) BPF Trustworthiness
Boundary Spanning
Activities Between
Alliance Partners (BSAP)
Boundary Spanning
Activities Between the
Alliance and FDA (BSAF)
Quality of the
NBF-BPF
Strategic Alliance
(QUAL)
Improved
Regulatory
Outcomes
- "A .
(REGa) Increased Quality of
formal and informal
interactions with FDA
(REGb) Increased ability to comply with 4
FDA product quality & consumer
► protection standards ^
NBF Strategic Regulatory
Management Activities
(SRMAa) Compliance Strategies-
(SRMAb) Influence Strategies —
K >
The proposed model is built upon a number of theoretical assertions regarding the
collaborative behavior of organizations in competitive environments. The next section
will provide a contextual framework for the model by briefly discussing collaboration in
organizational settings.
2.2 The Basis of Collaboration. Increased industrial sophistication and
development has brought with it eroding industry boundaries, changing consumer
preferences, new technologies, and new government regulations (Kraatz, 1998). As Gray
points out (in Huxham, 1996), collaboration offers a viable countermeasure to
environmental turbulence by building a collective capacity to respond to the attendant
conditions. Accordingly, it is in the context of collaboration that organizations come to
appreciate their interdependence, collectively problem-solve, increase their store of
responses to problems, and bring about greater reciprocity, efficiency and stability among
themselves.
As such, multiple theoretical perspectives inform our understanding of how
collaborative relationships form and survive. Ring and Van de Ven (1994) and Zajac and
Olsen (1993) are among those that have provided more systemic explanations for the
dynamics of cooperative relationships. Ring and Van de Ven suggest a series of factors
that facilitate the evolution or dissolution of cooperative relationships over time, since
participants constantly evaluate their decision to remain cooperative. Zajac and Olsen
forward a model in which relationships are composed of three stages (initializing,
processing, and reconfiguration) that feed back to earlier stages.
In her conceptualization, Kanter (1994) focuses on structural, process and skill
mechanisms that characterize successful collaborations. Specifically, such partnerships
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are characterized by five levels of integration: strategic (involving continuous contact
among top leaders), tactical (coordination between middle managers to develop plans for
joint activities, as well as for sharing of critical knowledge), operational (institution of
procedures that allow for timely access to information, people, or resources in order for
organizational members to fulfill their responsibilities), interpersonal (building extensive
and dense network ties), and cultural (presence of communication skills and cultural
awareness between partners, in order to bridge differences).
Likewise, Gray (1985) suggests a framework for classifying collaborations along
two dimensions: factors that motivate parties to collaborate and the type of outcome
expected. She suggests that participants are typically motivated by either a shared vision
or desire to resolve a conflict; and outcomes may involve an exchange of information or
formation of an agreement among the parties. According to these dimensions, then, Gray
describes four types of collaboration: appreciative planning (exchanging information in
order to advance a shared vision), dialogues forum (for finding solutions to multi-party
conflicts), collective strategies (reaching agreement about implementation of a shared
vision), and negotiated settlements (solutions to conflicts among the parties).
Embedded within all of these general frameworks, however, are key assumptions
that are rooted in the organization theory, behavior, and economics literatures. The
subsequent sections delve into these traditions more specifically: game-theoretic
perspectives, the transaction cost paradigm, resource-based view, organizational learning,
and organizational networks. In addition, this section also addresses the theoretical
foundations associated with regulation.
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2.2.1 Game Theoretic Perspectives. Within the economics tradition, game
theoretic approaches have provided a conceptual lens for understanding cooperative
activity in a highly competitive environment (Axelrod, 1984; Cable & Shane, 1997; Doz,
1988; Gibbons, 1997; Gulati, 1995a; Khanna, Gulati, & Nohria, 1995; Lado, Boyd, &
Hanlon, 1997; McDonald, 1975; Parkhe, 1993). Essentially, game theory explains how
firms devise and pursue strategic actions that allow them to optimize payoffs (or avoid
costs) associated with interfirm relationships. Gibbons (1997) explains that in the context
of interactions over time, threats and promises about future behavior may influence
current behavior. Because repeated games capture the fact of life that cooperation is
fundamentally prone to defection, they have been applied more broadly than any other
game-theoretic model. In certain circumstances, defection can be met with punishment,
in which case a potential defector necessarily weighs the present value of continued
cooperation against the short-term gain from defection followed by the long-term loss
from punishment. If the players are willing to forgo short-term gains, then cooperation
can occur in an equilibrium of the repeated game when it cannot in the one-shot game
(Gibbons, 1997; McDonald, 1975).
Recent research in game theory has suggested that some cooperative structures
are more likely than others to be associated with high opportunity to cheat; high
behavioral uncertainty; and poor stability, longevity and performance (Parkhe, 1993).
The incentive to cheat in cooperative ventures occurs because each partner finds it
advantageous to maximize his own gains at the expense of the cooperative effort. A
significant obstacle to cooperation within alliances includes firms' vulnerability to
partners' opportunistic behavior. Parkhe points out that opportunistic behavior is rational
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at an individual level, but yields a "collectively sub optimal outcome". A partner may
either free-ride by limiting its contributions to an alliance, or simply behave
opportunistically (Gulati, 1995a). This incentive creates high instability and a situation
akin to the game of Prisoner’s Dilemma. In that variant of game theory, each player is
concerned with dividing a fixed economic pie in such a way as to maximize his self-
interest. The assumptions are that players have no knowledge of each other's history of
interaction in similar games, and that neither player is allowed to communicate his
intentions/strategies before the game. In a one-period, 2-player game, a competitive
strategy yields higher payoffs than a cooperative strategy (Lado, Boyd, & Hanlon, 1997).
As a consequence, in order to control the partners' opportunistic behavior, detailed
contracts with explicit deterrents have to be written, involving sizable writing and
monitoring expenses.
However, in the tit-for-tat strategy (a repeated/multi-period game), one player
starts by cooperating with his counterpart, then responds symmetrically to the strategic
moves of the other player (Lado, Boyd, & Hanlon, 1997). Axelrod (1984) states that this
is a superior strategy since it emphasizes the norms of niceness (i.e., initiating
cooperation), clarity in communicating the rules of the game and the consequences of a
player's moves, retaliation against an uncalled-for defection by a player, and forgiveness
for occasional acts of opportunism. Niceness and forgiveness elicit cooperation and trust,
while retaliation and clarity ensure against the hazards of opportunism that a non-
cooperative player might inflict on the cooperative player. Along similar lines, Lado,
Boyd, and Hanlon (1997) propose the concept of syncretic rent-seeking behavior to
explain how firms generate economic rents and achieve superior, long-term performance
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through simultaneous competition and cooperation. By addressing the social and
economic outcomes of interfirm relationships, Lado et al. (1997) integrate game theory,
resource-based theory, and socioeconomics in their development of a strategic
management framework for the syncretic model. Through their managers and other
boundary spanners, firms seek competitive and collaborative advantages simultaneously.
They allocate strategic resources to gain these advantages on the basis of bounded
rationality (Simon, 1976) and bounded emotionality ("a mode of organizing in which
nurturance, caring, community, supportiveness, and interrelatedness are fused with
individual responsibility to shape organizational experiences" - Mumby & Putnam,
1992:474).
While game theory does indeed provide a clean characterization of the motives
and incentives present across a spectrum of relationships, the transaction cost model
discussed below likewise serves as a useful guide for understanding exchange dynamics,
particularly for that subset of exchanges called strategic alliances.
2.2.2 Transaction Cost Paradigm. Viewing cooperative endeavors from the
standpoint of exchange governance structures, transaction cost analysis provides a
perspective that combines open and rational systems assumptions and has had a great
impact on the study of interfirm collaboration (Scott, 1992; Williamson, 1985).
Historically, traditional economic theory saw the market as the most efficient
organizational form for negotiating transactions, whereas neoclassical economics viewed
hierarchical and vertically integrated systems as an efficient — albeit equally self-
interested (Monge & Contractor, 1998) — alternative to markets (Coase, 1937). More
recently, the network organization concept has emerged as a viable alternative to both
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markets and vertically integrated forms, and analyses by organizational scholars have
suggested that these systems constitute a new and different mechanism through which to
carry out collective activity (Powell, 1990). Although the network form will be discussed
in greater detail below, it is important to first provide an understanding here of the
classical explications of economic activity that inform network theory and ultimately, the
motivations and dynamics of the interorganizational relationships of interest in this study.
Because parties to an exchange must protect themselves from the opportunistic
hazards associated therein (Shelansky & Klein, 1995), various forms of external controls
must be created to establish and secure the transaction (Scott, 1992). An optimal
institutional arrangement is one that carries the lowest transactional costs for completion
of the exchange. Organizations thus seek to reduce costs by making a choice between
markets or hierarchies (Williamson, 1975); vertical integration becomes the favored form
when the administration costs of production in a hierarchical arrangement are lower than
the transaction costs of acquiring goods or services in the market (Monge & Contractor,
1998).
Shelansky & Klein (1995) describe governance structure types as existing along a
continuum. At one end is the pure market form of exchanges in which prices provide the
basis for maximizing profit opportunities, and participants make and revise their
decisions as information is revealed through prices. Acquisition of goods or services in
the market avoids the production costs (e.g., those emanating from the coordination of
activities in-house, with respect to learning, organizing and managing production (Coase,
1937; Williamson, 1975)) and administration costs associated with a hierarchical
arrangement and are accordingly favored when transaction costs (e.g., the writing and
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enforcement of a contract) are low and production costs are high (Monge & Contractor,
1998). Further along the spectrum are combined ownership forms and various hybrid
arrangements, which are efficient in situations where specialized assets are at risk. Gulati
(1995) states that alliances are the preferred form when exchange transaction costs are
moderate, yet not high enough to support vertical integration. Moreover, because
strategic alliances combine elements of internalization and market exchanges, contracts
are often incomplete and activities are subsequently governed through joint coordination.
Finally, the fully integrated firm lies in polar opposition to the pure market structure, and
transacting parties are assembled within an ownership and control umbrella (Shelansky &
Klein, 1995). Internalization (e.g., mergers, acquisitions) minimize transaction and
production costs (Argyres & Liebeskind, 1999), and thus this form is preferred in
situations where transaction costs of exchanges are high.
However, fundamental behaviors guide how firms select governance structures:
opportunism, bounded rationality (Granovetter, 1985; Scott, 1992), and risk neutrality
(Chiles & McMackin, 1996; Williamson, 1985). While acknowledging the assumptions
inherent in these behaviors is relatively straightforward in the context of simple
agreements, the dynamics change when factors such as environmental complexity, asset
specificity (Beije, 1996; Shelansky & Klein, 1995), and individual unreliability enter the
picture. For individuals to be willing to enter into exchanges, they must feel confident
that their interests are safeguarded. Although Williamson (1975) gives only limited
credit to the role of social influences/norms for moderating the opportunistic effects of
market behavior (Granovetter, 1985), the transaction cost conceptualization has been
broadened by others to include this dimension (Chiles & McMackin, 1996). The fear of
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opportunism plays a central role in the structuring of strategic alliances - not because all
actors behave opportunistically all of the time, but rather because it is difficult to sieve
out those who do behave opportunistically from the general set of actors who do not
(Parkhe, 1993). Hence the value of a strategically nurtured reputation for trustworthiness
and cooperation. Hill (1990:503) notes that the probability of opportunistic behavior may
be mitigated by selection mechanisms that favor actors whose range of behaviors are
biased toward cooperation and delete those that are “habitually opportunistic”.
In a different vein, many have emphasized that economic action is embedded in a
social context (Chiles & McMackin, 1996; Granovetter, 1985), and that networks of
associations between actors provide informational cues about the likely behavior of
others in the network (Gulati, 1998). The embeddedness argument emphasizes the role
of personal interactions in building trust, and Granovetter (1985) further makes note of
the acknowledgement by economists that an incentive not to cheat is the cost associated
with damage to one’s reputation. Whereas Williamson (1975) advocates the
hierarchically integrated form for constraining opportunism in economic activity,
Granovetter counters this with evidence that, even for complex transactions, (1) a high
level of order exists in market-level transactions, (2) a correspondingly high level of
disorder exists in the firm, and (3) the reasons for these two disparate outcomes are, in
contrast to Williamson’s prediction, dependent more on the network of intra- and inter
organizational relationships than on the structural form within which the exchanges take
place. As will be discussed later, extensions of informal mechanisms for reinforcing
reputation could include more formal vehicles such as trade associations (Hill, 1990).
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2.2.3 Resource-Based View. In contrast to the transaction cost perspective -
which focuses on minimizing exchange-related costs — the resource-based rationale
emphasizes maximizing the value of a firm through a synthesis of available, valued
resources. Because this perspective suggests that critical firm resources are typically
imperfectly mobile (e.g., the significant and/or impossible costs associated with moving
resources from one firm to another - examples are firm’s reputation and intangible
knowledge), and imperfectly replicable and substitutable (e.g., referring to barriers in
obtaining similar resources elsewhere), exchanging and accumulating resources thus
becomes a strategic priority (Barney, 1991; Pfeffer & Salancik; 1978; Rumelt, 1974).
Literature relating to the scope of the firm (i.e., Reve, 1990; Teece, 1980) shows that
growth need not necessarily be "fully owned" or hierarchical - it can also be achieved
through alliances, or a union of complementary, specialized assets. Eisenhardt and
Schoonhoven’s (1996) study found that alliances are more likely to be formed when
participating firms are either strategically vulnerable (e.g., in need of resources) or in
strong social positions (e.g., they possess valuable resources that can be shared). Hennart
(1988) and Teece (1987) provide additional support for why alliances are favored over
complete integration. Hennart points out that whenever the needed assets are public
goods, it is more expensive to replicate rather than to acquire them. And, according to
Teece, complete integration of all complementary assets requires large expenses. An
alliance form is thus desirable, since it allows the sharing and transferring of those
resources with other firms that are not easily acquired through market exchanges or other
organizational arrangements. Galbraith and Lawler (1993) give the examples of
Genentech and Cetus, both of which at one time operated as what they term "functional
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specialists". In other words, they concentrated on a particular skill/function and chose to
belong to a network instead of following an economies of scale strategy.
An understanding of resource classifications in the context of strategic alliances is
a bit spare, but a few theorists have attempted to bring order to the vast array of types.
Miller and Shamsie (1996) provide a general categorization: property-based and
knowledge-based resources, where property-based resources refer to legal properties
owned by firms (e.g., financial capital, patents); and knowledge-based resources refer to a
firm’s intangible assets and skills that are not typically protected (e.g., know-how that
isn’t covered by patents). Das and Teng (1998a) provide another sorting of resources
brought to an alliance by partners: financial, technological (product-specific expertise,
such as would be found in NBFs), physical (raw materials, components, and distribution
channels provided by a firm), and managerial (firm-specific competence in areas such as
planning, operations, marketing and human resource management). Unlike the others,
however, they factor in the extra dimension of risk and hypothesize the interactive effects
of resource and risk under specific conditions. While the above formulations address
important typologies that are critical for understanding the resource-sharing dynamics in
alliances, it is important to note that they fail to include factors related to
reputation/legitimacy and those that are necessary for sustaining collaborative activities,
such as: strategic alliance experience; non-financial capabilities for sustaining
collaborative arrangements (e.g., rules for governing collaboration activities; presence of
advisory groups for discussing the requirements for effective collaboration and making
decisions regarding necessary actions); training and development in collaboration skills;
and trustworthiness.
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2.2.4 Organizational Learning. In what D’Aveni (1994) has termed a
hypercompetitive environment, appreciation of the complexities of knowledge
acquisition and integration is a prime focus of organizations wishing to maintain a
sustainable competitive advantage (Inkpen, 1998; Lane & Lubatkin, 1998). For an
organization to leam effectively connotes the ability to benefit from not only its own, but
other organizations' experiences, so as to increase its likelihood of survival in the
environment. The traditional notion of learning has various conceptual roots, including
theories of evolution and survival strategies (Aldrich, 1979; Hannan & Freeman, 1977;
Singh, 1990; Virany, Tushman & Romanelli, 1992), open system theory (Bertalanffy,
1956, in Scott, 1992) and the resource-based view of firms (Kogut, 1988). In this latter
view, alliance formation is characterized as based on firm resources such as knowledge
and technology. Specifically, firms choose to create alliances either to acquire each
other’s organizational know-how, or to maintain one’s know-how while benefiting from
the other’s resources.
The literature is replete with examples of the various factors that inhibit learning,
such as poor/non-visionary leadership and management; highly structured organizational
infrastructures (including communication networks that breed information asymmetries
and satisficing behaviors/outcomes); dysfunctional group processes (e.g., groupthink
(Janis, 1971) and Abilene Paradox (Harvey, 1988)) which stunt or altogether demolish
effective group outcomes; and long-term group configurations. At the same time,
however, the last decade has seen a great deal of activity for understanding the general
factors thought to facilitate learning, which extend their benefits to interorganizational
contexts. We can conceptualize these into three categories. The first involves the
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presence of a leadership, management, and organizational culture that values adaptability
(Fiol & Lyles, 1985; Senge, 1990). Second, structural processes that are designed around
adaptability and flexibility also serve to encourage learning processes. The merits of a
flatter organization and/or matrix setup have been described extensively in the literature
(Gardner, 1990; Gersick, 1988; Gist, Locke, & Taylor, 1987; Simon, 1991).
Finally, perhaps the most intriguing of the antecedents for effective learning has
to do with the ability of an organization to monitor its environment. To the extent that an
organization is able to read survival cues outside its boundaries, it is able to mobilize
itself, do what is necessary to remain a contender for resources/market share, and also
stay innovative — all of this is worthless, however, if the information received is either
inaccurate or untimely. Argyris (1993) defines significant learning in organizations as
the ability to detect and correct errors. Specifically, a distinction is made between single
loop and double-loop learning: single-loop produces behavioral changes that are adaptive
in a particular situation, but do not produce significant value changes, whereas double
loop produces a values change from which behavioral changes flow.
Cohen and Levinthal (1990) forward the notion of absorptive capacity, which is
the ability of an organization to recognize the value of new, outside information,
assimilate it, and apply it toward commercial ends. Because absorptive capacity is
dependent on a direct interface with the environment as well as on the transfers of
knowledge across and within subunits, the structure of communication across various
boundaries becomes a useful means of understanding a firm's sources of absorptive
capacity. Cohen and Levinthal state that an organization's absorptive capacity is not a
function of any single individual, but rather is dependent on "the links across a mosaic of
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individual capabilities" (p. 133). Therefore, the role of boundary spanners in an
organization becomes pivotal to successful learning and, ultimately, the development of
innovative capabilities. Because of the unique nature of their job functions, they are in a
particularly good position to deal with situations of role conflict and stress. As such,
boundary spanners are particularly valuable for helping an organization transition through
changes brought on by environmental requirements. Presumably, organizations rich in
absorptive capacity abilities would be in a better position to learn from other
organizations' experiences, thereby adjusting survival strategies more optimally.
Generally, individuals interact in order to understand and successfully navigate
through the complexities of their environment. To the extent that such interaction is
helpful and has utility, the interaction grows into a relationship over time. According to
the social network lens, the intersection of relationships defines an individual's role, an
organizations' niche in the environment, or a player’ s position in the social structure
(Brass, 1995). This perspective will be more fully developed in the next section.
2.2.5 Organizational Networks. Over the course of this century, four major
organizational forms have emerged in response to differing transaction requirements
(Miles & Snow, 1986, 1992 - in Monge & Contractor, 1998): the traditional functional
form, the divisional/multidivisional form, the matrix form, and since the last decade, the
network form. Social network theory assumes that actors are embedded within a web (or
network) of interrelationships with other actors (Brass, 1995). It views such relationships
as exchanges that create interdependencies resting on the "entangling" of expectations,
reputations, and mutual interests (Larson, 1992), with the additional caveat that shared
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norms of trustworthy behavior are a prerequisite for exchanges to take place (Liebeskind,
Oliver, Zucker, & Brewer, 1996).
Brass (1995) points out that while social network analysis has been labeled as
atheoretical, it is perhaps more accurate to state that a single social network theory does
not exist. Network analysis has, in fact, been applied to a variety of theories (see Brass,
1995; Galaskiewicz, 1985; Smith, Carroll & Ashford, 1995). In a recent review of the
theoretical mechanisms to explain the emergence, maintenance and dissolution of
communication networks in organizational research, Monge and Contractor (1998)
categorized network theory according to ten families of theories: theories of self-interest
(social capital theory and transaction cost economics); theories of mutual self-interest and
collective action; exchange and dependency theories (social exchange, resource
dependency, and network organizational forms); contagion theories (social information
processing, social cognitive theory, institutional theory, structural theory of action);
cognitive theories (semantic networks, knowledge structures, cognitive social structures,
cognitive consistency); theories of homophily (social comparison theory, social identity
theory); theories of proximity (physical and electronic propinquity); uncertainty reduction
and contingency theories; social support theories; and evolutionary theories. Although
only a select few of these theories are relevant for discussion here, it is nonetheless
helpful to note that the network theory field is, in many ways, an encompassing set of
frameworks that allow for seemingly disparate perspectives on organizations to be
unified.
Many definitions of network forms have been developed to capture the nature of
the unique dynamics of cooperation. Networks have been generally characterized as
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clusters of firms engaging in long-term, strategic exchanges that are coordinated by
market mechanisms (Dubini & Aldrich, 1991; Gerlach & Lincoln, 1992; Granovetter,
1995; Miles & Snow, 1992). Alter and Hage (1993), for example, define
interorganizational networks as unbounded or bounded clusters of organizations that are
nonhierarchical collectives of legally separate units. Here, transactions occur neither
through discrete exchanges nor by administrative fiat, but through networks of
individuals engaged in reciprocal, preferential, mutually supportive actions. The basic
assumption is that one party is dependent on resources controlled by another, and that
there are gains to be had by the pooling of resources - e.g., the parties agree to forego the
right to pursue their own interests at the expense of others (Powell, 1990). Sanctions are
typically normative rather than legai (Powell, 1990), and these relationships often involve
some form of intended or unintended connection, such as trust or friendship, which then
provides both opportunities and constraints (Brass, 1995). Repeated interaction leads to
social structure, which can be thus defined as relatively stable patterns of behavior,
interaction, and interpretation. These patterns become institutionalized over time and
adopt the status of predictable, socially shared regularities (Barley, 1990; Powell, 1990).
Perrow (1986) offers one useful method for characterizing the network environment.
Specifically, channels of information, resources, dependencies, etc. link the components
of the organizational web, with distinctions drawn between tightly coupled (changes in
any one player have ramifications for the others), loosely coupled (interdependencies are
not as strong), and non-coupled groupings within the larger network. In this view,
dynamics at the organizational level are incompletely understood without the larger
understanding of the encompassing network/environment. Powell (1990) identifies three
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components of networks: (1) know how, or the exchange of distinctive competencies
(knowledge or skills), (2) demand for speed, since networks are more common in
situations requiring an ability to innovate and translate ideas into products quickly, and
(3) trust - participant reputation signals reliability, and the desire for continued
participation discourages opportunism.
Because networks of organizations have been forwarded as an arrangement that
more optimally addresses the problems associated with transactions, there has been a
growing interest in integrating both the transaction costs and social network perspectives.
As it is, exchange theory was being used by some network analysts to make sense of
social interactions (Cook & Whitmeyer, 1992), and others (such as Collins (1988) and
Mitchell (1974), as described by Cook & Whitmeyer, 1992) have pointed out the natural
connection between networks and market/exchange theories. Jones, Hesterly, and
Borgatti (1997) forward a framework that allows identification of the conditions under
which network relations come about, as well as the social mechanisms which facilitate
coordination and safeguard specific exchanges in rapidly changing markets. Building on
the transaction cost economics assumptions and Powell's (1990) work, Jones et al. (1997)
introduce four conditions (environmental/demand uncertainty, asset-specific exchanges,
task complexity under intense time pressure, and frequent exchanges among parties
comprising the network) necessary for network governance to emerge and thrive -- where
network governance involves a broad set of autonomous organizations involved in
creating products/services based on socially binding contracts. Because no one effect
brings about conditions conducive to network governance, they suggest it is the
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interaction of these conditions that allows network governance to serve as a superior
organizational form compared to markets and hierarchies.
One of the more fruitful areas of research in network theory has been in
conjunction with the study of self-interest as a catalyst for social action (Monge &
Contractor, 1998). This has given rise to two, derivative theories pertaining to network
issues: transaction cost economics and social capital. While literature associated with the
former has been discussed previously, it is useful for us to explore the extent to which
partners are able to act with more certainty about their future as a result of closer
interactions, deepening interdependence, and the building of social capital (Bradach &
Eccles, 1989; Browning, Beyer, & Shetler, 1995; Chiles & McMackin, 1996; Das &
Teng, 1998b; Gambetta, 1988; Gulati, 1995; Korsgaard, Schweiger & Sapienza, 1995;
Kramer & Tyler, 1996; Lampel & Mezias, 1996; Larson, 1992; McAllister, 1995;
Nahapiet & Ghoshal, 1998; Nooteboom, Berger, & Noorderhaven, 1997; Powell, 1990;
Tsai & Ghoshal, 1998; Walker, Kogut, & Shan, 1997). Walker et al. (1997) are among
many who present the notion of social capital as a resource that helps the development of
norms for acceptable behavior and the diffusion of information about behavior. Culling
the various perspectives in the literature, Nahapiet and Ghoshal (1998) define social
capital as ‘ "the sum of the actual and potential resources embedded within, available
through, and derived from the network of relationships possessed by an individual or
social unit," (1998: 243). The basic premise underlying social capital theory (Nahapiet &
Ghoshal, 1998; Tsai & Ghoshal, 1998) is that relationship networks serve as a valuable
resource for the management of social interactions. Participants are provided with a
collectively-based endorsement of sorts that confers social status/reputation benefits --
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which is of particular value in those networks having restricted membership (e.g., high
entry barriers) (Nahapiet & Ghoshal, 1998). Given the issue of organizational advantage,
Nahapiet and Ghoshal (1998) suggest that social capital facilitates the creation of new
intellectual capital, and that it is because of their more dense social capital that firms
might have an advantage over markets in creating and exchanging intellectual capital.
At an interorganizational level, Walker, Kogut and Shan (1997) compared social
capital theory and Burt’s theory of structural holes to explain network formation in the
biotechnology industry.1 A central premise in the study was that social capital influences
the way in which a network develops, since social capital constrains a firm’s partner(s) to
behave more cooperatively. In the case of start-ups, the authors found that firms chose to
increase social capital rather than exploit structural holes - presumably because of the
mutual dependency and extensive nature of network relationships in the biotechnology
industry. Because the social context in which a transaction takes place influences the
long-range outcomes of that transaction (Burt, 1998; Granovetter, 1985), self-interested
behavior in this arena would exact damage on structural stability (Walker, Kogut & Shan,
1997).
Forming the basis for social capital and structural holes is the notion of
embeddedness, which states that economic action does not take place in an empty social
1 Structural holes are those places within the network of relations where people are not
connected; such holes thus provide further opportunities for social capital investment
(Burt, 1998; Monge & Contractor, 1998). Individuals who fill structural holes and link
members in non-redundant ways (Burt, 1992; Contractor, Whitbred, Fonti, Hyatt,
O’Keefe & Jones, 1998; Walker, Kogut & Shan, 1997) consequently generate indirect
ties and bring new information to those they connect. It is argued that entrepreneurial
individuals in the group strategically link others by filling structural holes and thereby
augment their own structural positioning, since they are able to control the information
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context, but instead is embedded within social networks of relationships (Burt, 1998;
Granovetter, 1985; Gulati, 1995a, 1998). In an explication of the extent to which
economic action is embedded in social relations, Granovetter (1985) critiques previous
work in economics and sociology which he categorizes as either “oversocialized” or
“undersocialized.” The oversocialized view depicts man as “overwhelmingly sensitive to
the opinions of others and hence obedient to the dictates of consensually developed
systems of norms and values, internalized through socialization, so that obedience is not
perceived as a burden” (1985:483). In contrast to the oversocialized view, the
undersocialized view ignores any role of social structure in economic action; neoclassical
economics maintains that actors are guided only by self-interest, and in competitive
markets, buyers and sellers are anonymous price takers. Ties that are structurally
embedded can exemplify very different characteristics than those that are not (Powell,
1990). Specifically, embedded ties foster greater frequency of information exchange
between network members, which can influence the success of the alliance, the
performance of firms participating in them (Gulati, 1998), and provide information about
the reliability and capabilities of current and potential partners (Gulati, 1995a). Monge
and Fulk (1998) point out that organizations are embedded in entire external networks,
which include suppliers, customers, and governmental agencies. The connections among
organizations not only impact the flow of information between competitors but also
create the basis for exclusive partnerships and barriers to entry (Monge & Fulk, 1998).
Because all organizations are, at some level and to varying degrees, institutionally
embedded, the effect of legal constraints on organizational relationships serves to
that flows between members (Burt, 1980; Monge & Contractor, 1998; Contractor,
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segment the environment and create unique opportunities for specialization and economic
survival. In order to control private-sector, economic decisions for the public good,
government agencies develop and implement regulations (Oliver, 1996). The next
section, then, presents the theoretical bases for understanding the regulatory/policy
environment in which IORs operate.
2.2.6 Regulation. The intent of economic regulation is to intervene on behalf of
the public interest to correct issues brought about by market failure (Graddy, 1991) and
perceptions about what constitutes a social problem (Oliver, 1996). Whereas policy tools
such as grants-in-aid, loan guarantees and tax expenditures provide financial advantages,
regulatory programs operate by imposing restrictions (Salamon, 1989). In contrast to
economic regulation, which is concerned with issues such as pricing patterns, entry and
exit, and economic output, the goal of social regulation is to enforce responsible behavior
upon those entities that are not necessarily motivated to act responsibly (Bardach, 1989).
Operationally, this culminates in a body of activity in which government adopts standards
of societally desirable behavior; enforcement auditors monitor (and deter) deviations
from the prescribed rules; and a set of sanctions exist for persons or organizations who
deviate from the regulations to an unacceptable degree (Bardach, 1989; Noll, 1985;
Weimar & Vining, 1992). At the federal level, examples of oversight include inspection
of workplaces by the Occupational Safety and Health Administration (OSHA),
monitoring of fraudulent activities in the stock market by the Securities and Exchange
Commission (SEC), and the screening of foods, drugs and devices by Food and Drug
Administration (FDA).
Whitbred, Fonti, Hyatt, O’Keefe & Jones, 1998).
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Over the years, a spectrum of conceptual models have been offered for
understanding the policy making process. An initial set of models (institutional, systems,
group process, and net-benefits) provided valuable insight about the dynamics of
decision-making, yet were seen to fall short of capturing the unique needs associated with
environmental (Fiorino, 1995) and other public safety-oriented policy making. The
public interest view, for instance, suggests that regulators are motivated to develop policy
in response to pressure from interest groups interested in securing their own benefits. For
instance, Graddy's (1991) analysis of five different occupations regulated by state
governments showed that public interest, legislative, and interest group variables were
significant determinants for bringing about occupational regulation. Noll (1985) suggests
that for the public interest theory to be viable for explaining regulatory behavior, it must
include a model of how an agency comes to perceive the public interest; and it must also
identify the source of an agency's motivation to pursue that objective with some level of
efficiency. In his discussion of the management of political processes, Heyman (1987)
argues that strategy at any one level of government does not fully determine activity at
lower levels. In other words, to the extent that bureaucrats are able to effectively carry
out the activities that are of concern to legislators, interest groups, and the public at large,
there exists a fair amount of discretion regarding the means for maintaining support from
supporters. Graddy (1991) describes the manner in which providers, consumers, and
competitors demonstrate their demands by giving political and financial support to
legislators. She points out that all interest groups are not equal to the legislators, but
collectively they do significantly contribute to the interest group demand variable that
influences whether or not regulation takes place.
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Alternatively, economic theory forwards the notion that bureaus are co-opted by
business interests, either because the agency was intended to serve that client (cartel), or
because agencies are gradually vulnerable to being taken over by some special interest,
and regulation is used for industry's benefit through direct subsidies and control over
entry, prices, and the rules that determine substitutes (Noll, 1985; Stigler, 1971).
Adherents of this view contend that businesses and regulators exchange favors (i.e.,
votes, political contributions) for favorable regulation that maximizes each party's self-
interest (Oliver, 1996). Because regulatory agencies often lack the expertise to determine
sufficient and appropriate quality standards, they can be subject to whimsical political
environments that undervalue some errors and overvalue others (Weimar & Vining,
1992).
Originally introduced by Joskow (1974), the underlying premise of the external
signals perspective (Noll, 1985; Olson, 1995) is that agencies strive to serve the public
interest but have difficulty identifying it, because the public interest is such an elusive
concept. As a result, regulatory agencies seek positive feedback from outside groups and
strive to minimize “hassles” (e.g., complaints about agency decisions or behavior, which
could result in congressional oversight/investigations, etc. that often disrupt agency
operations). The goal here is to build a base of support that would shield the agency from
quickly changing political priorities and help it maintain its autonomy (Olson, 1995).
Oliver (1996:6) shares the belief that existing work has focused on the
"propensity of business to behave as a unified class to undermine regulatory objectives".
She consequently presents a firm-level view on business-govemment interactions to
explain the determinants and incentives that bring about firms' regulatory management
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strategies. Specifically, Oliver (1996) suggests two strategies for managing regulation:
compliance strategies (firm-level actions designed to conform to regulatory requirements
and expectations) and influence strategies (firm-, group, or industry-level actions for
manipulating regulation and increasing the alignment between regulation and firm
interests). These suggested factors for a successful regulatory management strategy are
discussed more elaborately below.
To summarize, the aforementioned perspectives form the foundation for
examining the general issues associated with simultaneously competitive and
collaborative partnerships. However, as we move to more specific aspects of the
analysis, it becomes important to identify and organize into categories particular factors
that bring about the emergence of interorganizational collaborative relationships and
allow for their sustenance.
2.3 An Integrative Model of Interorganizational Collaboration. A highly
competitive arena such as biotechnology necessitates a resource-gathering strategy that
stretches beyond internal capabilities. That is, the resource-gathering strategy focuses on
developing existing strengths, while also nurturing ties to externally derived knowledge
(Bogner & Thomas, 1996; Connor & Prahalad, 1996). In this case, knowledge includes
skills for coping with regulation. In order to increase core capabilities for regulatory
advantage (and thus, first-mover competitive advantages), collaborating organizations
engage in (1) individual- and organizational-level boundary spanning activities and (2)
regulatory compliance and influence activities (Oliver, 1996). These activities include
the acquisition of new or better personnel with unique strategic management skills, and
the sharing of knowledge about interpretation and enforcement of regulations/guidelines.
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Presumably, "successful" firms will utilize a broader range of boundary spanning and
strategic regulatory management mechanisms to support this endeavor.
The proposed model focuses on five types of relationships. One type includes the
role of two sets of antecedents (NBF’s incentive and BPF partner’s capability to
collaborate) in influencing the quality of NBF-BPF collaborative relationships. The
second describes the effect of collaborative relationship quality on improved regulatory
outcomes. The third relationship explores the effects of boundary spanning activities
between alliance partners. Finally, the fourth and fifth relationships examine,
respectively, the effects of (I) boundary spanning activities between the alliance and
FDA and (2) strategic regulatory management activities on improving regulatory
outcomes. The proposed model is provided in Figure 1, and detailed descriptions of the
constructs comprising the model are provided in the following sections.
2J.1 Specific Determinants of Collaborative Behavior. The
interorganizational relationship/alliance literature identifies a wide range of factors
believed to be important as determinants of collaboration or as conditions that facilitate
its emergence and maintenance. A central theme is that privately held knowledge is a
basic source of advantage in competition. Robertson (1998) points out that as potential
interorganizational relationship participants come to recognize the extent of their
interdependence, they also perceive more positive benefits from collaboration (Gray,
1985; Powell, 1990). The underlying assumption in interfirm alliances is that
organizations will be willing to collaborate with others only when there is some
perceived advantage to doing so (Wood & Gray, 1991). In addition to assets such as
social capital, collaboration might increase an organization's legitimacy and ability to use
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its resources more efficiently (Oliver, 1991), or gain fast access to information and
enhance its efficiency and reliability (Powell, 1990). Khanna, Gulati, and Nohria (1995)
have suggested that firms are often disappointed with their alliances because they fail to
recognize the existence (or magnitude) of the asymmetric incentives to invest resources,
which is a result of simultaneously competitive and cooperative motivations. Most
alliances lie between these extremes, with both private/competitive and
common/cooperative benefits, and firms exhibit behavior patterns that are an amalgam of
those associated with the extremes. According to Khanna, Gulati, and Nohria, successful
interfirm cooperation thus may be characterized by the following: (1) initiation of a
mutually beneficial relationship, brought about by favorable estimations of future payoffs
from mutual cooperation and resulting in the commitment of some tangible,
nonrecoverable investments on both sides, and (2) a fading fear of opportunism, as the
partners build a cooperative history and mutual trust develops between them (Parkhe,
1993).
The highly competitive biopharmaceutical industry is developing and expanding
quickly in so many new therapeutic arenas, that even large firms are experiencing
difficulty in supporting parallel research activities. Rather than investing in and
supporting multiple R&D teams in-house, biotechnology firms and large pharmaceutical
houses are instead building alliances as a way of limiting risk. To the extent that firms
can make external competencies their own through alliance formations, they lessen
asymmetries in their knowledge bases and thereby gain competitive advantage over other
firms. Thus, interorganizational collaboration is an outcome of a firm's search for
resources and capabilities that enable them to choose, develop, and implement value-
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enhancing strategies. To enhance understanding and provide a context for the various
perspectives in the literature, it is therefore useful to organize these perspectives into
categories that correspond to two main prerequisites that are necessary for organizations
and their members to collaborate: incentives to collaborate, and partner firm’s capability.
Incentives to Collaborate. Cooperative relationships have at their core a set of issues
(i.e., mutual gain, interdependence, and vulnerability) that are distinctly different from
those that characterize strictly competitive, zero-sum interfirm interactions (Parkhe,
1993). Unique resources and knowledge allow firms to generate economic rents, which
leads to sustained competitive advantage (Barney, 1991; Cyert et al., 1993). Three
categories of the Incentives to Collaborate variable are hypothesized to improve the
quality of alliance relationship between partners, namely, (a) a lack of easily accessible,
external financial resources for the NBF, (b) a lack of in-house, non-financial resources
(i.e., technology, equipment, skilled personnel, etc.) for the NBF to vertically integrate
from R&D through distribution, and (c) the need for the NBF to improve its reputation
with peer firms and the FDA.
First, since organizations must acquire sufficient resources from their
environment to survive, an organization is dependent upon another actor to the extent that
the latter controls a resource that is important to the survival of the organization (Aldrich,
1979; Heide, 1994; Pfeffer & Salancik, 1978). This dependence creates uncertainty for
the organization, which it will often attempt to reduce. Thus, the resource-based view
focuses on the antecedents of rent-seeking behaviors (defined as the search for resources
and capabilities that enable an organization to develop, choose, and implement value-
enhancing strategies and gain above-normal economic returns; Lado et al., 1997). This
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perspective is driven by two assumptions (Barney, 1991): (1) firms have heterogeneous
resource profiles, and (2) those resources are not perfectly mobile across firms.
Organizations thus find themselves strategically interdependent and seek out ties with
those partners who can help them gain access to key resources and reduce uncertainty
(Auster, 1990; Chisolm, 1989; Gulati, 1995; Van de Ven & Walker, 1984). Eisenhardt &
Schoonhoven (1996) found that firms in vulnerable strategic positions (e.g., in need of
resources) were more likely to enter new alliances. Insofar as a firm is able to read
survival cues outside of its boundaries, it is able to mobilize itself and do whatever is
necessary to remain a contender for resources and/or market share and also remain
innovative. However, this process is effective only if the information received is accurate
and timely. Thus, the extent to which partners are able to realize their objectives depends
on their absorptive capacities (Cohen & Levinthal, 1990), the collaborative strategies
they utilize, and the managerial mechanism governing the alliance (Kumar & Nti, 1998).
Further consideration of the reasons why organizations enter collaborative
arrangements is based on the fact that an organization can assume a number of stances
vis-a-vis organizations with whom it interacts. For example, several theorists (Das &
Teng, 1996; Oliver, 1990; Schmidt & Kochan, 1977) have distinguished between
asymmetrical and symmetrical/reciprocal exchanges. In the former, one organization is
more motivated than another to collaborate, but it has enough power to induce the other
one to interact. In reciprocal exchanges, organizations perceive mutual benefits and they
interact to maximize joint benefits. Because the need to be treated fairly is an important
motive in any cooperative arrangement (Das & Teng, 1996; Ring & Van de Ven, 1994), a
fair reward system is essential to reinforcing mutual trust and lessening opportunistic
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behaviors that could mar the relationship's success. Biotechnology startups and their
established firm partners have complementary resources that are jointly necessary for
product development and commercialization; the relationships are consequently based on
a kind of mutual dependence that may prevent either startups or established firms from
gaining control over the other.
Ultimately, reputation matters (Fombrun & Shanley, 1990), particularly in
competitive arenas. The elusive “good name” is shaped by potential partners’ record of
trustworthiness in prior associations, and social contexts such as networks provide the
setting for reputational effects (Rousseau, Sitkin, Burt, & Camerer, 1998). Firms need to
know about the reliability and reputation of potential partners - since, in addition to
access to tangible resources, other determinants of cooperative relationships can motivate
organizations to collaborate. These have been clustered as psychological and structural
factors (Mumighan, 1994). The former includes similarity in partners' values, the
perceived status and legitimacy of partners, and the perception that the cooperative
relationship procedures are just (Das & Teng, 1997; Ouchi, 1980; Ring & Van de Ven,
1994). Larson’s (1992) study of entrepreneurial firms demonstrated that trust, shared
reciprocity norms, close personal relations and reputation influenced the mechanism and
partner choice for exchanges. Structural determinants include factors such as the number
of partners in a relationship, the social context in which cooperation takes place, and the
extent of prior social ties as related to perceived reliability and predictability (Parkhe,
1993; Zucker, 1986). Drawing from resource dependence, game theoretic, and
organizational learning perspectives of alliance behavior, Saxton (1997) integrated
partner and relationship characteristics in order to study their effects on alliance
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outcomes. Specifically, partner reputation, degree of shared decision making, and
strategic similarities between partners were positively associated with alliance success.
Partner Finn’s Capability. In addition to both tangible and intangible incentive
structures, effective collaboration requires that participants have the requisite abilities to
engage in collaborative activity; Cummings (1984) included it as one of four primary
determinants to interorganizational collaboration. In particular, he addresses the level
and utilization of participating organizations' knowledge, skills, and resources applied to
the shared problem. If a comprehensive set of stakeholders with high levels of task
relevant knowledge and skills are included, the system of relationships is then more likely
to have the ability to collaborate effectively to accomplish its task. Thus, four factors
comprising the Partner Firm’ s Capability variable are hypothesized to increase the
likelihood of a higher quality of alliance relationship between partners. These BPF
capabilities are subdivided into the following: (a) technical expertise, (b) strategic
alliance experience, (c) structural support (i.e., rules for governing collaboration activities
and training and development in collaboration skills), and (d) trustworthiness.
First, as described previously, the importance of complementary technical
expertise is paramount for collaboration in this industry. NBFs are largely self-sufficient
in terms of intellectual/R&D capital, but the technical expertise involved in scale-up and
moving through the various stages of product development often eludes them. Thus, the
premise is that NBFs seek BPF partners that possess such technical knowledge in
exchange for access to NBFs’ R&D resources.
Second, in a network study of 225 biotechnology firms, Powell, Koput and Smith-
Doerr (1996) address prior interaction as a central factor for interorganizational learning
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and survival in this industry. They found that biotechnology firms that had collaboration
experience tended to collaborate more often and exhibit greater collaboration capabilities.
Larson (1992) showed that organizations are inclined to engage in repeated alliances with
one another; dependencies tended to create further dependencies. Powell and Brantley
(1992) have argued that alliances involving actors in biotechnology research are
beneficial, in that they help to build experience with cooperative activity. They argue
that such experience can lead to the formation of internal routines for maximizing future
collaborations. And, as Cohen and Levinthal (1990) note, building internal competence
makes it possible for organizations to recognize, incorporate, and build on new
knowledge in the future. In the context of the biotechnology industry, established firms
look for confirmations of a startup's potential in the capital market before entering into an
agreement with it (Shan, Walker & Kogut, 1994). For them, a potential partner’s
experience in cooperating with other firms is represented as the number of relationships it
has established -- the more relationships a firm has, the more it should know about how
to manage them, and thus the less costly it should be to form new relationships. A BPF’s
level of collaborative know-how is an important asset (Simonin, 1997), since good future
collaborative performance is largely determined by a firm's ability to learn from the
success and failure of their experiences and apply these lessons to new collaborations. In
his study of the biotechnology industry, Pisano found that "knowledge about a particular
partner and how to collaborate with that partner represents important relationship-specific
capital" (1989: 116, in Jones, Hesterly, & Borgatti, 1997). Without the development of
collaborative know-how, experience with collaborations alone does not contribute to the
achievement of benefits (Simonin, 1997).
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Third, successful interorganizational collaboration requires mechanisms that
enable participants to coordinate their activities (Chisolm, 1989). Robertson et al. (1997)
identify categories of mechanisms that enable participants to engage in collaborative
behavior, pointing out that the coordinating mechanisms available determine the extent to
which participants are able to engage in collaborative behavior. A mechanism whereby
participants from the collaborating organizations are able to discuss the requirements for
effective collaboration and make decisions regarding necessary actions is an important
element to the capacity to collaborate. This can take the form of a composite group
(Schopler, 1987), such as a task force, advisory committee, or coordinating council, the
members of which are representatives from the collaborating organizations (Lawless &
Moore, 1989). Coe (1988) argues that success of a collaborative effort is more likely
when stakeholders are provided with the opportunity to participate in decision-making
processes. Thus, activities such as conferences or other regular meetings can provide
formal arenas in which coordination can take place, and they can also bring about
informal relationships among the participants that subsequently strengthen coordinative
capacity (Chisolm, 1989). In the context of partnerships between small and larger firms,
Doz (1988) describes the importance of board-level governance relationships, which are
complemented by joint steering committees and research boards that allow the partner
companies to more frequently coordinate operational-level activities. Finally, contracts
and rules for governing collaborative activities comprise another category of mechanisms
that enable participants to engage in collaborative behavior (Mandell, 1990). These
include formal, binding contracts (Lawless & Moore, 1989; Ring & Van de Ven, 1994),
as well as rules that are embedded in informal conventions and norms (Chisolm, 1989).
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To the extent that appropriate knowledge and skills are required, then, BPF
training and development activities that facilitate the acquisition of these abilities are a
fourth important determinant of successful alliances. Organizations participating in
collaborative arrangements need to insure that their members — individually or
collectively -- have the opportunity to acquire the necessary knowledge and skills.
Assigning responsibilities for collaborative efforts without providing adequate
preparation or training can result in frustration and undesirable coping strategies (Meyers,
1993).
Finally, given conditions of risk and interdependence (Inkpen & Currall, 1998),
Rousseau et al. (1998) suggest that trust may be what they call a “meso” concept - in
other words, one which combines psychological process factors with macro institutional
arrangements. This combination can take on various forms in different relationships,
spanning the range from emotional responses (based on interpersonal ties) to more
calculated evaluations of perceived costs and benefits. In their review of the trust
literature, Rousseau et al. (1998) provide a useful, broad definition of trust: “Trust is a
psychological state comprising the intention to accept vulnerability based upon positive
expectations of the intentions or behavior of another” (1998: 395; see also Mayer, Davis,
& Schoorman, 1995). Along the same line of thinking, Gambetta (1988) and others have
argued that perceived risk in cooperation is mitigated by a sense of trust, and
consequently the personal relationships formed between partners serve as a signal to both
parties about the level and quality of information transfer and the ultimate success of the
collaboration (Cable & Shane, 1997; Granovetter, 1985; Gulati, 1995; Saxton, 1997; Tsai
& Ghoshal, 1998).
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In the specific context of the biotechnology industry, Zucker, Darby, Brewer, and
Peng (1996) and Powell (1996) have provided useful insights into the dynamics of trust.
Zucker et al. (1996) explored the influence of the structure of scientific fields on patterns
of collaboration within those fields. Their study of the biotechnology discipline
demonstrated that when a field highly values intellectual capital, organizational players
are likely to have a greater number of collaborators. Trust is exceedingly important in the
communication of discoveries in biotechnology, due to their high scientific and
commercial value. As the authors point out, the inherent, intense competition creates an
information dilemma with contradictory incentives to communicate new knowledge and
also withhold it. Focusing on the social networks level, Powell (1996) examines the
context within which trust emerges and argues that four types of collaborative networks
exist, each of which represents different pathways to cooperative social relationships,
coupled with a distinct basis for trust: industrial districts, R&D networks, business
groups, and strategic alliances and collaborative manufacturing. Powell’s fourth type of
network is of particular interest for this discussion, since it is linked to mutual
dependencies. Because strategic alliances are short-term agreements designed for
specific purposes, trust is not easily established in this type of setting, and fear and
uncertainty are barriers to information exchange. However, once a collaboration is
successfully initiated, ongoing cooperation with the same partner becomes easier, and
participants may develop reputations as reliable partners (Powell, 1996).
Based on this discussion, we see that trust and social capital are not necessarily
conceptually distinct and, in fact, share features and confer similar benefits. Basically, as
the predictability of behavior is increased in a system, self-seeking opportunism is
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constrained and cooperation is enabled (Walker, Kogut, & Shan, 1997). Lower levels of
constraint are associated with difficulties in finding information about current or potential
partners and therefore impede effective cooperation. Firms with less social capital and/or
perceived trustworthiness are more vulnerable to succumbing to opportunistic behavior
and less able to build an enduring history of effective cooperative behavior with their
partners over time. Firms choosing to partner with this type of organization are thus
required to expend greater time and effort monitoring the relationship. In contrast, the
more of this type of capital that is available to a firm, the fewer resources it needs to
manage existing relationships. Instead, more resources can be allocated for developing
new relationships (Walker et al., 1997). In their analysis of the biotechnology industry
network, Walker et al. (1997) demonstrate that sustained relationships over a long period
of time entail extensive, ongoing interaction over a broad range of technical and
commercial problems. Were partners to behave in a self-interested way during the course
of such a long relationship, a substantial investment in time and effort would be
jeopardized
2J.2 Quality of the Interorganizational Relationship. A high-quality
collaboration in the biopharmaceutical field is one in which the partners perceive the
relationship as rewarding, efficient, and one that accomplishes a variety of research,
financial, regulatory, and other objectives that an individual firm could not have attained
alone. Any number of incentives or partner capabilities alone are inadequate if the
participating parties do not believe that the relationship is worthy of the efforts required
to sustain it.
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Cohen and Levinthal (1990) state the importance of a diverse background as a
means for coping with uncertain knowledge fields. It not only reinforces existing
knowledge but also enables the individual or organization to make novel associations and
linkages. Extending Root-Bemstein's (1989) argument for the importance of what he
terms correlative talents (the skills necessary to translate a problem expressed in one form
into another that is more amenable to problem solving) to an organizational level, we
could say that the study of firm behavior derives as much from their own experience as
from theory. In other words, the manner by which an organization (or pairing of
organizations) perceives cues thus determines what is perceived, and allows the "the tools
of thought that we are able to manipulate set [e.g., guide] the boundaries of what we can
understand and create" (Root-Bemstein, 1989:337-338). In so doing, partnering allows
firms to build a repertoire of knowledge and acquire aptitudes for broad-based problem
solving.
Successful collaborative linkages have several benefits, among which are a
lessening of the effects of environmental uncertainty (Granovetter, 1985; Pfeffer &
Salancik, 1978); insulation from broader environmental pressures (DiMaggio & Powell,
1983) - of which the most drastic consequence of inadequate insulation is organizational
failure (Astley, 1985); and higher and more stable flows of resources, especially in times
of scarcity (Miner, Amburgey, & Steams, 1990). Miner et al. (1990) discuss two forms
of buffering that result from organizational linkages: resource-based buffering and
institutional-based buffering. The former refers to insulation based on access to material
resources, information, or technology. Thus, an organization can be buffered by being
directly allied with another organization that supplies such tangible resources as money,
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people, machines, information, technology, and services. It is possible that resource
buffering provided by interorganizational linkages is especially relevant during periods of
exogenous shocks -- i.e., major changes in technology (Tushman & Anderson, 1986) or
regulatory shifts (Zucker, 1987). Alternatively, institutional-based buffering refers to the
protection gained through legitimacy. It can arise from prior compliance with general
social expectations, professional norms, or government regulations (Aldrich, 1979), as
well as from identification with organizations that already carry high legitimacy
(Galaskiewicz, 1985).
However, a very real problem in alliances revolves around the issue of perceived
fairness in the managerial mechanism governing the alliance (Kumar & Nti, 1998). In a
longitudinal study of two partners in a failed international joint venture, Arino and de la
Torre (1998) found that the partners’ assessments of the efficiency and equity conditions
in their alliance influenced their desire to engage in re-negotiation or modify behaviors in
order to restore balance. Specifically, procedural justice issues were key to cultivating
mutual trust and confidence in the relationship.
Thus, a perception that the alliance provides more or less than the anticipated
level of tangible and intangible benefits (including assurances of fair dealings) defines the
extent to which the NBF can effectively achieve its goals. Insofar as regulatory
legitimacy and success are valued objectives for new biotechnology firms, then,
evaluating relationship quality is important as an intervening variable between
collaboration antecedents and regulatory outcomes.
2.3.3 Boundary Spanning Activities. Boundary spanning activities are those
behaviors that involve interactions across the boundary that separates an organization
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from its environment. In order to manage this organizational "membrane", individuals
engaging in these activities utilize their gatekeeper power, exercise discretion, and
develop expertise in making decisions that strengthen the likelihood of organizational
survival (Aldrich & Herker, 1977; Brass, 1984; Thompson, 1967). Boundary spanning
units are important in strategic decision-making because of their ability to recognize and
deal with trends or changes in the environment — an important characteristic of complex
organizations that wish to survive (Aldrich & Herker, 1977; Kochan, 1975; Leifer &
Delbecq, 1978; Thompson, 1967). Jemison's (1984) empirical study provided further
support for the importance of boundary spanning roles in the strategic decision-making
process.
Heterogeneous, rapidly changing, and resource-scarce environments provide ideal
conditions for what boundary role personnel do best. The amount and quality of
boundary interactions (and thus environmental adaptability) are a function of the
permeability of the firm's boundaries to human and other sources of information (Brown,
1966). Accordingly, boundary roles serve an information processing function by
simultaneously filtering and facilitating the flow of information in ways that are
organizationally advantageous and prevent system overload (Aldrich and Herker, 1977).
The way in which a firm determines the kind and amount of information allowed in can
be seen as a type of coding process. To the extent that a particular coding scheme reflects
the norms and values of an organization, individuals who accept membership into that
organization will presumably become a part of and accept the firm's coding process
(Tushman & Katz, 1980). Discord in language and cognitive orientation increase
communication difficulties, however, and communications across boundaries without
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knowledge about the other's coding system can lead to distortions and inaccurate
understanding of the information (Brown, 1966; Tushman & Katz, 1980).
In the context of a competitive R&D environment, Brown and Utterback (1985)
analyzed the relationship between perceptions of uncertainty and patterns of
communication. They found that technical members who saw the world (i.e.,
competitors, customers/clients, technology, and regulations) outside their firm as more
uncertain were found to engage in pronounced (but not necessarily formal or well-
defined) gatekeeping behaviors. In other words, they sought greater contact with sources
of information external to their organizations. This state of uncertainty has several
possible solutions. In situations of perceived “information vacuum”, managers look for
direction outside of their organizational boundaries and may turn to solutions and
business standards that have been institutionalized in their professional circles
(Galaskiewicz & Wasserman, 1989). Decision-makers can acquire this knowledge in
graduate school, professional/trade association meetings, training sessions, and through
academic and trade publications. Helgeson (1994) discusses the value of competitive
intelligence (Cl) as a mechanism for deducing the truth about a competitor's methods and
strategies. A Cl professional collects information from outward signs (on-line sources,
trade journals, competitor-produced information, public records, personal interaction) and
attends conferences where sensitive information is often inadvertently divulged.
Furthermore, as managers change jobs and move from one organization to another, they
add these learned problem-solving skills to their repertoire.
Through interactions with others across the boundary that separates their
organization from the environment, managers gather information to make decisions on
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how to relate to peer organizations and achieve organizational goals (Galaskiewicz &
Wasserman, 1989). To the extent that firms are able to utilize boundary spanning
mechanisms to reinforce feelings of external trust and reliability, it follows that a stronger
commitment to avoiding opportunistic tendencies, weathering periods of difficulty, and
otherwise making a partnership successful is likely. Lawless and Moore (1989) point out
the advantages of broad access information systems as a capacitative mechanism for
facilitating collaboration. In addition to a formal information system, collaboration is
facilitated by channels of communication that enable multiple lateral information flows
which permeate organizational boundaries at several levels (Weiner, 1990).
Communication channels can be generated in a number of ways: for example, through the
involvement of staff from one organization in meetings with their counterparts in other
organizations, and naturally occurring movement by people (e.g., through job changes or
exchanges of personnel from a few weeks’ to a few years’ duration) among the
organizations involved in the network (Chisolm, 1989; Doz, 1988). As Doz (1988)
points out, the involvement and/or movement of staff to enable lateral information flows
is especially beneficial in the area of technical management.
Another way to deal with the difficulties of communicating across differentiated
boundaries is for managers to model their organizations after other organizations in their
field. Galaskiewicz and Wasserman (1989) develop an argument based on DiMaggio and
Powell's (1983) premise that, under conditions of uncertainty, organization decision
makers will mimic the behavior of other organizations in their environment. By seeing
how their organizational peers cope with conditions similar to their own, decision-makers
can better gauge what constitutes an appropriate response for their own situation.
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Galaskiewicz and Wasserman point out that while an organization may mimic those it
perceives as successful, decision-makers are actually more likely to mimic those who are
familiar and trusted. In many instances, the basis for this trust comes about from
networks of boundary spanning personnel. Here, network ties between boundary
spanning personnel operating in various segments of the environment are a mechanism
for spreading ideas and innovations throughout an organizational field. Their strong links
to both the internal and external environments allow them to gather, understand, and
subsequently translate this information into terms that have utility for their local
colleagues. Aldrich and Herker (1977) describe the benefits of employees linked
together on the basis of social liking or friendship. Friendships can provide access to
information and people; provide the foundation for coalitions and alliances; and may be
instrumental in obtaining information or rewards. Interpersonal networks in highly
competitive organizational arenas are important mechanisms to sort out trustworthy
information (Granovetter, 1985), and managers field information gathered through
extraorganizational, interpersonal networks to make decisions on how to relate to other
organizations in their environment and achieve organizational goals (Galaskiewicz &
Wasserman, 1989).
The attainment of alliance goals within the biopharmaceutical industry - in this
case, improved regulatory outcomes - is likely to be positively associated with the
governing of the amounts and types of knowledge flowing between the alliance and the
FDA. The boundary spanning and strategic alliance literatures do not address the unique
set of activities characterizing the boundary relations between organizations and the
agency regulating their activities. However, officials at FDA and industry executives
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agree that constant formal and informal communication with the agency can stave off
enforcement action. Further, satisfactory investigational outcomes are in large part due to
frequent, effective talks with FDA personnel and regular oral or written reports of
remedial efforts (Washington Drue Letter. 1/6/96). As such, both types of boundary
spanning activities are measured: boundary spanning activities between the NBF and
BPF alliance partners, and boundary spanning activities between the NBF-BPF alliance
and FDA.
2.3.4 Strategic Regulatory Management Activities. In a highly competitive
industry, firms employ a variety of strategic mechanisms to align their resources and
capabilities with the environment. The development and maintenance of this strategy is a
key determinant of the continued success of the organization, and individuals within
organizations engage in some degree of interaction with the environment in order to
perform strategic functions effectively. Strategic decisions are seen as those that
significantly affect the future success and destiny of the organization by assuring that it is
adequately responsive to environmental requirements (Jemison, 1984).
The costs of compliance and effects of regulation on business outcomes bear
heavily on smaller and younger firms (Dean & Brown, 1995). Because of this reality,
firms are motivated to employ regulatory strategies that raise entry barriers, preserve
autonomy and monopoly powers, and reduce the threat of rivals and product substitutes
(Oliver, 1996). As such, strategic regulatory management activities are the set of
responses to government regulation that are planned and enacted by firms in order to
maximize competitive advantage, social legitimacy, and economic returns from
regulatory intervention and public policy outcomes (Oliver, 1996). We could expect,
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then, that the effective implementation of strategic regulatory management activities by a
new biotechnology firm is positively associated with improved regulatory outcomes.
Organizational decision-makers attempting to make rational (i.e., fully informed)
decisions, however, often find themselves instead in the position of doing so in a state of
information asymmetry (Galaskiewicz & Wasserman, 1989; Simon, 1985). A long
history of institutional theory research has provided insights regarding the interplay
between institutional environments and organizational actions (Scott, 1995). Two
general camps have evolved from these discussions: one subscribes to processes of
conformity as a response mechanism to institutionalization (DiMaggio & Powell, 1983;
Meyer & Rowan, 1977), while the other explores the circumstances under which
organizations contest or exercise strategic choice in coping with institutional pressures
(Child, 1972; Goodstein, 1994; Oliver, 1991,1996).
Along this latter line of thinking, several theorists have argued that a focus on
conformity limits analysis of other strategic responses utilized by organizations. The
costs of compliance with regulations -- especially those that are focused on product
quality and safety, as in the biopharmaceutical industry -- can be substantial for both
small and large firms (Dean & Brown, 1995; Oliver, 1996). At the same time, the effects
of regulation on business outcomes can vary greatly, with smaller and younger firms
tending to experience a heavier burden (Dean & Brown, 1995). Consequently, issues of
eligibility for resources and competitive advantage through political support (Schuler,
1996) provide the economic and social impetus for firms to apply regulatory management
strategies. Effective implementation of strategic regulatory management activities is
expected to increase competitive advantage and social legitimacy.
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Accordingly, Oliver (1991, 1996) has addressed a key aspect of the institutional
environment and presented an analysis of business-govemment relations that assumes
responsiveness is a strategic choice and incorporates a series of strategies for coping with
institutional forces. In particular, she describes two conditions that serve as the
motivation for firms to employ strategic regulatory management measures: institutional
pressures and firm heterogeneity. Institutional pressures encourage mechanisms for
reducing the costs of regulatory compliance and increasing the benefits of legitimacy
(Suchman, 1995). Because firms within the same industry are affected by and respond to
regulation in significantly different ways (Oliver, 1996), firm heterogeneity creates the
need for strategies that raise entry barriers and rivals' costs, maintain monopoly power,
and acquire preferential taxes and subsidies (Dean & Brown, 1995; Oliver, 1996;
Schuler, 1996).
Oliver (1996) thus provides a strategic regulatory management framework for
understanding the mechanisms utilized by firms to cope with institutional pressures.
Specifically, she proposes that firms engage in two types of strategies - compliance
strategies and influence strategies — in order to manage their regulatory environment.
Three assumptions inform this view: (1) firms' efforts to comply with regulation may be
as strategically useful as efforts to influence regulation; (2) strategic regulatory
management may serve various purposes ranging from the achievement of social
objectives and legitimacy, to competency development, reduced competition, and
increased market share; and (3) firms may engage in multiple strategies simultaneously,
with each designed to address different aspects of the environment.
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Compliance. Compliance strategies have two aspects. The first concerns the intent to
obtain first-mover advantages by incorporating new processes/technologies in
anticipation of regulations that are to be imposed on the industry in the near future, as
well as through the hiring of experts with inside knowledge of public policy
developments. The other aspect concerns enhancing existing core capabilities by
aligning operations with regulatory requirements. In the process, firms have an
opportunity to gain competitive advantage by setting higher standards with their own,
stricter product quality codes. Existing regulations then become modified according to
this new standard, and rival firms must quickly invest efforts to meet the new, minimum
requirements.
In an analysis of executive succession as an important mechanism for
organization learning and thus organization adaptation, Virany, Tushman and
Romanelli’s (1992) results demonstrated that in turbulent environments, successful
organizations were those that timed their successions in anticipation of, as opposed to in
response to, environmental change. This is somewhat reminiscent of D'Aveni's (1994)
conception of hypercompetition, in which the emphasis is on using the emergent set of
advantages, or dynamic strategic interactions, to aggressively neutralize the competitor’s
previous advantage by making it obsolete, irrelevant, or non-unique. In this view, the key
is to employ a strategy of disrupting the norm to create a series of
unsustainable/temporary advantages within and across arenas of competition.
Influence. Influence strategies, in contrast, are designed to employ firm- and alliance-
level actions to increase the alignment between regulation and firm/alliance interests
(Oliver, 1996). Firm-level actions can take the form of contributions to political action
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committees and the development of governmental relations offices. Collective-level
influence strategies (i.e., political involvement in trade associations) confer benefits in
situations where firm and industry interests converge. Oliver (1996) cites a study by
Zeithaml, Keim, and Baysinger (1988) of U.S. corporations from a variety of industries,
the results of which found that contributions to political action committees, development
of governmental relations offices, and constituency building programs were the most
common, while advocacy or issue advertising was the least common approach.
In response to pressures for deregulation from the biopharmaceutical industry, for
instance, the House and Senate proposed a series of measures in 1996 that were intended
to ease FDA oversight of drugs, medical devices, and food additives (Los Angeles Times.
7/8/96 and 7/22/96). Among the bills' goals were privatization of drug manufacturing
and testing, as well as tighter deadlines for FDA approvals of new drugs and devices. In
certain instances, if the FDA missed a deadline, the product could be approved by
default. These measures were drafted after FDA had already instituted removal of two
requirements (submission of the Establishment License Application, and submission of
Lot Release samples) that had previously slowed the approval and marketing of biologies
products (Venture Capital Journal. 1996). Ultimately, the Agency instituted further self-
correcting measures, including faster product approval times. In 1997, the FDA reported
that 431 generic (the highest total this decade) and 121 new drugs were approved,
including 39 that had an active ingredient that had not been previously marketed in the
U.S. (Los Angeles Times. 1/19/98). The assertive and highly political presence of
industry-level organizations such as the Biotechnology Industry Organization (BIO)
provided a constant source of collective influence.
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A further example of how this strategy is operationalized can be seen in the types
of counsel provided to the biopharmaceutical industry by law firms having units
specializing in FDA regulatory issues. The prosecution of C.R. Bard, Inc. senior
executives in 1996 for clinical testing of an approved (but modified) device on humans
without first obtaining FDA approval of an Investigational Device Exemption served as a
notice of the Agency's willingness to prosecute not only responsible corporate decision
makers, but also a broad array of company managers. In the aftermath, the advice to
firms was unequivocal: corporations would be better served in the future by taking
aggressive preventative measures and turning to management personnel and consultants
who (1) are well-trained in FDA laws and regulation, (2) have knowledge of FDA's
history, (3) have a positive reputation with FDA, and (4) have good working relationships
with the necessary FDA personnel (Hoffmeister & Shupack, 1996).
2.3.5 Improved Regulatory Outcomes. While Saxton (1997) and McAllister
(1995) have examined performance as an outcome of successful alliances, and others
have looked at individual satisfaction variables, an integrated view of the interfirm and
business-govemment dynamics associated with improved regulatory outcomes has not
been explored. To the extent that regulatory success is a valued outcome, shared
knowledge about how agency decisions are made is of paramount importance and allows
firms to develop strategies that maximize positive feedback. Given the
biopharmaceutical context of this study, Improved Regulatory Outcomes is defined by
two variables: (a) increased frequency of formal and informal interactions with FDA,
and (b) increased ability to comply with FDA product quality and consumer protection
standards.
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For NBFs that struggle to understand the complexities of FDA requirements,
increasing their repertoire of knowledge about how agency approvals are granted is of
paramount importance. The ability to fulfill the battery of requirements requires more
than scientific, clinical and manufacturing expertise. Rather, if an NBF hopes to expand
operations and develop products that are subject to FDA approval, it is in their interest to
ally themselves with firms who can not only complement their capabilities, but also
demonstrate by example how best to interact with FDA personnel. In partnering with
well-reputed and otherwise successful BPFs, NBFs cultivate the bases for their own
legitimacy with the FDA. Alliances thus allow NBFs to acquire strategic skills that
refine the quality of their interactions with FDA regarding compliance in all arenas of
regulated activity.
Within the biopharmaceutical arena, FDA oversight is of two types - namely, that
associated with product approval, and surveillance relating to the agency mission for
assuring consumer safety and health (i.e., routine Good Manufacturing Practice audits of
firms' entire operations; consumer complaint follow-up inspections; labeling fraud and
other marketing/distribution-related investigations, such as for Syntex Corp. in the early
1990s; etc.). During the past decade, political pressure from industry groups resulted in
the enactment of several measures designed to “improve” the new drug approval process.
The Biotechnology Competitiveness Act of 1994, for instance, called for greater federal
prioritization of biotechnology issues and coordination among government agencies
(McGlynn, 1996). The most significant development, however, was the FDA
Modernization Act of 1997. It was a major legislation that focused on reforming the
regulation of food, drugs/medical products, and cosmetics. In addition to re-authorizing
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the Prescription Drug User Fee Act of 1992 for another five years, the Modernization Act
enacted many of the FDA initiatives undertaken by Vice President Gore's Reinventing
Government program (Los Angeles Times. 11/22/97).
The experience that comes from negotiating this complex environment and set of
rules is largely intangible, but more easily transferred in the context of collaborative
arrangements between firms and other managerial mechanisms that encourage greater
interactions between firms and the FDA. Because the current quality of communication
between industry and government is not bringing about outcomes that are in the interests
of all stakeholders (including the public) involved, the new laws to "modernize" FDA
are, on their own, insufficient for ensuring that the products developed, manufactured,
and reviewed are indeed safe for use.
2.4 Overview of the Conceptual Framework. The model proposed in this study
provides a framework for better understanding the interorganizational relationship
dynamics for organizations operating in a regulated environment. Alliances have the
distinction of possessing contrasting characteristics: they are an efficient vehicle for
transaction cost minimization, very difficult to manage, and yet a progressively popular
form (Khanna, 1998). The integrative model presented here attempts to unite these
mosaic qualities and provide a theoretical map detailing the mechanisms by which
successful organizations navigate in an environment with high entry barriers and costly
institutional pressures.
Because the biopharmaceutical industry serves as the setting for the study, the
conceptualization provided assumes that improved regulatory outcomes are defined vis-a-
vis the alliance organizations developing new drug products, as well as in terms of the
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safety of the processes by which they are manufactured and approved. This arena is
indeed one of high investments, hopes, and stakes, and the balance for efficiency and
maintaining public health is often difficult to maintain in the face of alluring financial
returns. It is important to note that the unique combination of new biotechnology firms
and established pharmaceutical firms is of interest here, since the complementarity of
assets and learning experienced by start-up firms provide the setting for understanding
the motivations and inner workings of alliance behavior. However, while its primary
focus is on this specific type of relationship, the model incorporates various theoretical
streams into a singular, coherent fabric to strengthen our understanding of network
relationship characteristics and the effects of an institutional environment simultaneously.
Accordingly, the proposed model evaluates the interorganizational process at two
levels: between alliance partners, and between alliances and the U.S. Food & Drug
Administration. The intra-alliance quality dimension is proposed to be a function of three
sets of independent variables, two of which address motivating factors for collaboration,
and a third variable which examines the interfirm boundary spanning behaviors that
facilitate exchange. Improved regulatory outcomes are proposed to be a function of
alliances perceived as being of higher quality by their participants. They are also
hypothesized to be dependent on boundary spanning and strategic regulatory
management measures that, broadly, facilitate communication between alliances and the
FDA and the approval of new drug products that are safe and effective. The next chapter
elaborates on the predicted relationships between the study’s variables and presents the
specific methods by which they were evaluated.
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Chapter 3
STUDY DESIGN
3.1 Summary of the Framework. The proposed model provides an integrative
framework that identifies factors necessary for collaboration (broadly defined as
incentive to collaborate, and partner firm's capability), as well as those boundary-
spanning activities between alliance partners that improve the quality of the alliance. It
was also predicted that boundary-spanning activities between the NBF-BPF alliance and
FDA, and NBF strategic regulatory management activities are positively associated with
two specific, improved regulatory outcomes: Increased quality of formal and informal
communications with FDA, and increased ability to comply with FDA product quality
and consumer protection standards. Appendix A provides a list of the hypothesized
relationships in this study. Accordingly, this chapter develops the rationale for and
provides information on the study design, test subjects, and data collection and analysis
methods employed for evaluating the model.
3.2 Overview of the Study Design. This research combines both qualitative and
quantitative methods of social inquiry. As King, Keohane, and Verba (1994) suggest,
quantitative research uses numbers to measure phenomena, whereas qualitative research
does not rely on numerical measurement. With increasing frequency, researchers are
combining multiple methods to increase the information obtained from participants so as
to provide a more holistic view of their experiences and reality (Begley, 1996). This
process, otherwise known as triangulation (Isaac & Michael, 1990; Jick, 1979), is useful
for comparing findings from different settings since it allows divergent results to enrich
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explanation (Begley, 1996; Shih, 1998). Because many of the interorganizational
phenomena examined in this study are difficult to quantify, data triangulation thus
increases the reliability of the findings and provides a means for better understanding the
world of the people studied (Begley, 1996; Jick, 1979; Shih, 1998; Waysman & Savaya,
1997).
Triangulation was first used in a surveying context by Campbell and Fiske in
1959; the term was associated with measurements taken from three or more different
points in order to identify a particular area more accurately (Begley, 1996). Data
triangulation, then, describes the use of multiple data sources, all with a similar focus,
which are subsequently used to obtain differing views about a setting in order to validate
the findings (Begley, 1996; Isaac & Michael, 1990; Jick, 1979; Mitchell, 1986; Shih,
1998). As such, Begley (1996) describes Denzin’s (1989) characterizations of
methodological triangulation: within-method and across-method. Within-method
triangulation involves combining two or more similar data collection strategies in the
same study to measure the same variable (Kimchi et al., 1991). Across-method
triangulation - the approach taken in this study - involves combining strategies from two
or more research methods in one study. This is typically interpreted as the use of both
qualitative and quantitative methods in order to achieve convergent validity (Begley,
1996). In addition, methodological triangulation may occur either simultaneously or
sequentially (Field & Morse, 1985, cited in Begley, 1996). With simultaneous
triangulation, qualitative and quantitative methods are used together, and the findings
complement one another at the conclusion of the study.
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The aim of multiple methods is to contribute to our knowledge about a particular
subject or area. Therefore, a survey methodology was complemented with FDA
interviews and a case example of a specific biopharmaceutical firm’s experience with
BPF collaborative relationships. The methodologies were employed in combination in
order to gain the benefits of each, minimize their individual weaknesses, and ultimately
provide a more textured picture of the relationships hypothesized in this study.
3.3 Survey Methodology. By specifying a priori and subsequently revising the
relationships between variables, the study design followed an exploratory approach to
assessing the model. Accordingly, a questionnaire methodology was employed in this
portion of the study to test the associations comprising the model presented in Figure 1 .
3.3.1 Identification of the Population. A series of criteria for identifying the
viable population of new biopharmaceutical firms was employed. Only those firms
possessing the following characteristics were chosen: (1) fewer than 3,000 employees, (2)
net income of less than $100 million, (3) engaged in the development of drug products
(as opposed to biologies or medical devices/diagnostics) that are subject to the
regulations specified by FDA’s Center for Drug Evaluation & Research (CDER), (4)
successful product development beyond the R&D phase and into the manufacturing stage
for at least one drug product, (5) are presently, or were previously engaged in R&D,
manufacturing, marketing, and/or licensing agreements with an established
biopharmaceutical firm, and (6) not a subsidiary of, or otherwise co-owned by an
established pharmaceutical firm. Potential firms and respondents were identified from
several sources: 1997 UCSD CONNECT Directory; the www.biospace.com website;
1996 Directory of Corporate Affiliations; The Biotechnology Directory, 10th Edition
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(1994); Emst & Young’s 1995, 1996, 1997, and 1998 Annual Reports on the
biotechnology industry; and the researcher’s personal files. Given the fluid nature of
startup activity and survival as a whole, and the absence of an exhaustive database that
captured the ongoing acquisition activities within the industry, the new
biopharmaceutical population was identified using the aforementioned sources. The
selection criteria and information from these sources yielded 82 viable firms.
From this grouping, 242 specifically identified executives (two to four from each
company) were selected as potential respondents. As described in company literature,
web sites, and/or confirmation by telephone, respondents’ formal organizational roles
indicated a working knowledge of their firm’s alliance and regulatory oversight-related
activities. Since the study participants were guaranteed anonymity, their names and
positions are not disclosed. However, the examination was restricted to subjects with top
executive and other executive (vice president, director) positions in business
development, product development, and regulatory affairs. Further, because firms
frequently engage in multiple, joint arrangements simultaneously, respondents were
asked to complete the survey with only one collaborative relationship in mind that led to
(or is close to) an approval of a jointly-developed new drug. In this way, an effort was
made to draw from a singular experience and minimize the effects of a “blended”
characterization of each respondent’s impressions.
3.3.2 Instrument Design and Measures. A 61-item survey instrument was
constructed in order to collect data with multiple items for each variable dimension. A
portion of these questions was adapted from existing, previously validated scales.
Specifically, the measures for interorganizational trust were adapted from an instrument
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developed by Zaheer, McEvily and Perrone (1998); and several measures for boundary
spanning activities were adapted from Robertson (1995). The researcher developed the
remaining questions. Items were designed to measure the opinions of NBF executives,
regarding the extent to which management and strategic factors shaped their ability to
engage in productive interorganizational relationships with a BPF and FDA. Fifteen
questions were negatively worded in the instrument and subsequently reverse-scaled at
the analysis stage. Four additional questions obtained information about the NBF’s
number of patents, type of alliance that was the basis for the survey responses, and
location sites for product development and clinical trials. These questions were not used
for the analyses in this study. Information regarding the control variable (NBF size, as
defined by number of full time employees) was obtained from the secondary sources
listed above. To minimize response bias due to order effects, scale items were randomly
arranged.
Efforts to derive a parsimonious model and subsequent decisions regarding scale
modifications were guided by factor analysis. Factor analysis served a valuable purpose
in helping to identify and confirm the operationalization of measurement constructs (Kim
& Mueller, 1978, http://www.regent.edu/acad/schcom/phd/703/factor.htm). Accordingly,
a factor analysis was conducted on all usable survey items, utilizing Principal Component
Analysis extraction and Varimax rotation methods. Based on the results, measurement
scales originally created to reflect theoretical constructs were adjusted to reflect the
dimensions underlying the factors.
Thirty nine surveys (e.g., 28.7 percent of those respondents who communicated
with the researcher, and 16.1 percent of the total surveys distributed) representing 29
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companies (e.g., 35.4 percent of the viable firms identified for this study) were included
in the analysis. Table 1 provides a complete summary of the model’s constructs,
dimensions, survey questions corresponding to measurement of each dimension, and the
Cronbach alpha coefficients indicating scale reliability. As Bohmstedt and Knoke (1988,
p. 14) define it, “Reliability refers to the degree to which different operations of the same
concept yield the same results.” Several of the reliability coefficient values attained here
might be viewed with skepticism, since alpha values approaching 1 (indicating higher
intemal-consistency reliability) are desirable. However, a compelling argument by
Nunnally (1967, p.226) states that, “In the early stages of research on predictor tests or
hypothesized measures of a construct, one saves time and energy by working with
instruments that have only modest reliability, for which purpose reliabilities of .60 or .50
will suffice.” Each variable’s scale was evaluated for internal consistency, and final
decisions regarding scale modifications were guided by the results of factor and
reliability analyses. Where possible (e.g., maintaining at least two questions for each
scale) particular items were deleted to strengthen alpha values for the final set of scales to
greater than 0.50.
Incentives to Collaborate. Of the three scales employed to measure this the
dimensions of this construct, the reliability coefficient for “The need to establish a
positive reputation with peer firms and the FDA” was unacceptable (alpha = -0.17). This
dimension’s scale was defined by two questions at the outset, and thus it was not possible
to positively alter the reliability through the deletion of questions. However, because of
the exploratory nature of this study, this dimension was retained for all analyses. “The
lack of external NBF financial resources” was measured with two questions and had a
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reliability coefficient of 0.61. “The lack of in-house NBF non-financial resources”
dimension was measured by three questions, resulting in an alpha value of 0.87.
Partner Firm’s Capabilities. This construct was initially measured by five
constructs that were derived based on the extant literature: BPF technical expertise, BPF
strategic alliance experience, BPF non-financial capabilities for collaboration, BPF
training & development in collaboration skills, and BPF trustworthiness. As a result of
factor analysis findings, however, it was determined that several of the items defining
non-financial capabilities for collaboration and training & development in collaboration
skills aggregated together readily to form a scale. Consequently, those four questions
(out of a possible seven) represented by a single component were combined into a new,
composite variable that replaced the previous two variables: BPF structural support.
“BPF structural support” was thus defined by four items, with an alpha value of 0.53.
“Strategic alliance experience” was comprised of three questions, with alpha = 0.62.
Finally, the “Trustworthiness” dimension, originally defined by five questions and an
alpha value of -0.40, was subsequently refined to three questions and an alpha value of
0.84. “Technical expertise” was defined by two questions and had an alpha value of
0.74.
Boundary Spanning Activities between Alliance Partners. The alpha value for
this construct was modified from 0.50 to 0.63. Two of the original five questions were
reverse- scored, and it was the deletion of these items that brought the reliability of this
scale within a more desirable range.
Quality of the Strategic Alliance. As a result of the factor analysis procedure, this
scale was broadened to include an additional item that was originally conceptualized to
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define a regulatory outcome variable. Specifically, it was determined that an additional
question concerned with the amount of time required for FDA approval aggregated with
the other items defining this scale. Consequently, the “Quality of the Strategic Alliance”
scale was defined by four questions (of which two were reverse-scored), with an alpha
value of 0.53.
Boundary Spanning Activities between the Alliance and FDA. The internal
consistency reliability of this construct went from 0.29 to 0.56 following the removal of
two questions.
Strategic Regulatory Management Activities. This construct was measured by
two dimensions: “Compliance strategies” (measured by five questions, alpha = 0.69) and
“Influence strategies” (measured by three questions, alpha = 0.53). The alpha values for
both dimensions were within the acceptable range, thus the dimensions were not altered
prior to use in the analyses.
Increased Quality of Formal and Informal Interactions with FDA. This construct
was initially characterized by six questions, with alpha = 0.46. Removal of the two
reverse-scored questions yielded a more desirable alpha value of 0.79.
Increased Ability to Comply with FDA Product Quality and Consumer Protection
Standards. This construct (alpha = 0.63) was measured with three questions, all of which
were retained.
Results from the Shapiro-Wilk test determined that not all the variables within the
model were normally distributed. While this hampers the evaluative power of the
multiple regression findings, the exploratory and triangulated nature of this study provide
additional perspectives that compensate for the small survey sample size and associated
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distribution effects. Table 2 provides the univariate statistics and correlation matrix for
the variables comprising the integrative model of interorganizational collaboration. The
correlation matrix indicates that, of the 91 possible relationships identified in the table,
thirty-five percent (32 relationships) were significant at either the .05 or .01 level.
3 3 3 Instrument Pre-Test. The questionnaire instrument was pre-tested on two
individuals affiliated with the biopharmaceutical industry. Following e-mail
conversations in which the subjects gave their consent to participate in a pre-test, the
employees were faxed a survey and cover letter signed by the researcher, which
explained the purpose of the study, directions for completing the survey questions, and
the researcher’s e-mail and phone contact information. Upon completion of the
questionnaire, the employees were asked for their feedback regarding question clarity and
applicability, in addition to other suggestions as to how the instrument might be
improved. Consistent with information provided in the cover letter, the researcher
reiterated assurances that their comments and responses would remain confidential. No
suggestions for changes were recommended by the pre-test subjects, however, and the
instrument was subsequently administered to the population of respondents. Because the
instrument remained unchanged after the pre-test, the subjects’ responses were included
in the eventual pool of viable survey responses.
33.4 Survey Data Collection. The data collection protocol proceeded along four
phases of contact and was adapted from the Dillman Total Design Method (Miller, 1991).
As with the pre-test setting, a one-page cover letter signed by the researcher was included
in each questionnaire package (Appendix B), explaining the purpose of the study,
directions for completing the survey questions, and the researcher’s contact information.
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Each survey and return envelope was coded with a 5 digit identification number to
maintain participant confidentiality and to track the presence and patterns of responses:
the first and fifth digits were dummy numbers, with the middle three digits corresponding
to respondents 1 through 242. For example, respondent 33 was assigned the code
“90333”. Respondents were requested to complete the questionnaire and return it in the
stamped and addressed envelope that was provided to them. The data collection schedule
proceeded as follows:
■ Stage 1 : Survey packages (cover letter, survey, stamped return envelope) were mailed
to 242 individuals.
■ Stage 2: Approximately three weeks later, reminder cards were sent to all potential
respondents who had not replied after the initial mailing.
■ Stage 3: Approximately 4 weeks later, multiple phone call attempts and/or e-mail
messages were initiated to all respondents who had not yet returned the survey.
Depending on the content of the conversation, the researcher faxed or mailed a new
cover letter and survey to respondents.
• Stage 4: Approximately six weeks after the last attempt was made to contact
respondents by phone or e-mail, new survey packages were mailed to the remaining
respondents who had not provided any verbal, written, or survey response up to that
point.
Remuneration for their time to complete the questionnaire was not offered to
respondents. While there is some justification for providing monetary or other tangible
incentives to increase response rates (Fowler, 1993), there is the compelling argument
that the use of incentives “buys” responses from individuals who otherwise might not
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respond (Bourque & Fielder, 1995). These incentivized respondents are presumed to thus
pay little or no attention to the import of the study when completing the questionnaire,
choosing to simply answer for the sake of responding. Miller (1991) has further noted
that an “altruistic appeal" (1991, p. 154) brings about better results than the notion that
the respondent may receive something of personal value for participation.
Of the original 242 questionnaires distributed, a total of 136 respondents (e.g.,
56.2 percent of the total population), representing 35 of the viable 82 NBFs, either
completed the survey or otherwise had communication with the researcher regarding
reasons for nonparticipation. Non-participants cited three categories of reasons for
choosing not to reply to the survey instrument: (1) Merger/acquisition/buyout, or
liquidation = 33, (2) Corporate restructuring or otherwise moved to a new position = 41,
and (3) Did not have time to participate and/or too busy with lawsuits = 21. Two of the
41 returned surveys were deemed unusable due to significant portions of the instrument
(e.g., questions ultimately used in the analyses) not being completed. Thus, 39 surveys
(e.g., 28.7 percent of those respondents who communicated with the researcher, and 16.1
percent of the total surveys distributed) representing 29 companies (e.g., 35.4 percent of
the viable firms identified for this study) were included in the analysis.
3.3.5 Survey Data Analysis. To review, the dependent variables for this study
are as follows: (1) increased quality of formal and informal communications with FDA,
and (2) increased ability to comply with FDA product quality and consumer protection
standards. The study’s mediating variable is the quality of the NBF-BPF strategic
alliance, and two additional sets of factors (boundary spanning activities between the
NBF-BPF alliance and FDA, and strategic regulatory management activities: compliance
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and influence strategies) are predicted to be positively associated with the three
regulatory outcome variables. As noted by Baron and Kenny (1986), mediating variables
explain how or why certain effects are observed in causal models. As such, they explain
the relation between an independent variable and the outcome variable (Baron & Kenny,
1986). As defined in the hypothesized model, the perceived quality of the collaboration
(vis-a-vis NBFs) implies that motivations or partner capabilities alone are inadequate if
the participating parties do not believe that the arrangement is rewarding and otherwise
worthy of the efforts required to sustain it. The independent variables, then, identify
three theoretical families of factors that facilitate the creation and sustenance of high
quality collaborative relationships between NBFs and BPFs. These are comprised of:
■ Three categories of incentives to collaborate (a lack of easily accessible, external
financial resources for the NBF; a lack of in-house, non-financial resources for the
NBF to vertically integrate from R&D through distribution; and the need for the NBF
to improve its reputation with peer firms and the FDA);
■ Four categories of BPF partner firm capabilities (technical expertise; strategic alliance
experience; structural support; and trustworthiness); and
■ Boundary spanning activities between alliance partners.
Based on the elaboration of the variables comprising the hypothesized model in this
study, the causal relationships among variables were tested using multiple regression
analysis. As such, the 3 equations associated with exploring viable relationships and
subsequently refining the model are as follows:
(1) Quality of the Strategic Alliance = a + b,(Lack of external NBF financial resources)
+ b2 (Lack of in-house NBF non-financial resources) + b3 (The need for the NBF to
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improve its reputation with peer firms and the FDA) + b4 (BPF Technical expertise) +
b5 (BPF Strategic alliance experience) + b6 (BPF Structural support) + b7 (BPF
Trustworthiness) + bg (Boundary Spanning Activities between Alliance Partners) + e
(2) Increased quality of formal and informal interactions with FDA = a + bi (Quality of
the strategic alliance) + ^(Boundary spanning activities between the alliance & FDA)
+ b3(Strategic regulatory management activities: Compliance strategies) +
b4 (Strategic regulatory management activities: Influence strategies) + e
(3) Increased ability to comply with FDA product quality & consumer protection
standards = a + bi (Quality of the strategic alliance) + b2(Boundary spanning activities
between the alliance & FDA) + b3(Strategic regulatory management activities:
Compliance strategies) + b4(Strategic regulatory management activities: Influence
strategies) + e
The Statistical Package for the Social Sciences (SPSS) computer software was used to
create the database for storing the survey responses, refine variable aggregations through
factor analysis, transform variables as necessary, assess resultant scale reliabilities,
provide correlations between variables, and determine the significance of relationships
through multiple regression analyses.
The analysis was used to validate a causal model of the influence of behavioral
and strategic variables on collaborative relationship quality and improved regulatory
outcomes. As will be discussed further in Chapter 4, the signs of the beta coefficients
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obtained from these regression equations indicate the direction of the relationships among
variables and thus whether or not the predictions were supported.
3.4 Interview Study Design. In order to enrich and extend our understanding of
interorganizational relationships in a regulated setting, this study employed an interview
methodology with a sample comprised of current and former FDA employees. As
described previously, the goal in combining multiple methods is to provide contrasting
“parts of the story” that add depth to our understanding of the relationships proposed in
this study. Whereas the survey questions were developed to measure specific variables
identified in the model, interview questions were aimed at gaining unique information
from the FDA perspective, thereby providing a complementary lens with which to view
the general research questions underlying this research.
3.4.1 Selection of the Interview Sample. In both qualitative and quantitative
research, random selection of subjects for study may not be possible (King, Keohane &
Verba, 1994). Thus, the interview sample was comprised of five current and former FDA
officials who have a breadth of knowledge about industry-FDA relations, if not direct
experience in negotiating policy aspects of such interactions. The interview subjects
selected have the following job titles: Acting Regional Director; Director of
Investigations; Director of Regulatory Compliance at a biotechnology firm, formerly with
FDA; FDA Supervisory Investigator; and former FDA deputy commissioner for policy.
Once again, in the interest of confidentiality, specific names or FDA/company office
locations are not provided.
3.4.2 Development of the Lines of Inquiry. In striving to create coherence
between separate pieces of a multi-method study, a natural emphasis is on providing
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structure and integration across the various methods. With that view, one approach for
achieving coherence is through the development of diachronic story lines that describe
phases of development or change, focus on an event and its impacts, or provide
explanation (Weiss, 1994). Diachronic reports tell stories in which events occur as time
goes on. Weiss (1994) characterizes this type of story line as an attempt to provide
“accounting schemes” and notes that they are not theories for describing reality. Rather,
they are useful in their power to organize what emerges from interviews and give proper
weight to the issues. In the context of the regulated setting described here, diachronic
story lines are utilized to complement and provide a richer context for the NBF-based
survey findings. Specifically, they provide explanations from the FDA perspective on the
nature of the mechanisms and events that facilitate or impede time-to-approval for New
Drug Applications, increase interactions between FDA and firms, and increase the ability
of firms to comply with FDA product quality and consumer protection standards.
Consideration was given to generating an interview guide for this aspect of the
study, comprised of a list of the areas to be covered in the interviews, as well as particular
questions where appropriate (Weiss, 1994). Closed-ended questions are considered
extremely valuable to facilitate comparison across cases. However, open-ended
questions have the advantage of allowing respondents the freedom to reply in a manner
which is potentially more candid and illuminating of their specific experiences.
Moreover, such questions are particularly helpful and appropriate in an area characterized
by relatively scant empirical research and theoretical development (Fowler, 1993). This
is especially true in the case of this study, which examines collaboration dynamics within
an institutionally constrained environment and evaluates the success of interactions in
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terms of learning that is beneficial to public and private interests. Thus, the interview
guide that provided the basis for discussing interorganizational and management
dynamics of the FDA-industry relationship with the interview subjects is provided in
Appendix C.
3.4.3 Interview Data Collection. The core issues guiding this study were
explained to the interviewees, and they were asked questions developed by the researcher
to ascertain their knowledge and experiences in the context of interorganizational
relationships and interactions between industry and FDA. The researcher emphasized to
the respondents that what was needed was a full and accurate report of detailed
experiences, concrete material, observations, and so on, rather than context-dependent
characterizations (Weiss, 1994). Given the range of the respondents’ current or former
responsibilities within the FDA, interviewees were accorded a fair amount of latitude in
terms of the structure and direction of their responses.
Depending on the location of the subjects, sessions were conducted either in-
person or over the telephone. In-person interviews were tape-recorded and subsequently
transcribed, whereas the researcher took notes during the telephone interviews.
3.4.4 Interview Data Evaluation. Responses from all the interviews were coded
by the researcher according to the following categories for classifying responses. The
categories were derived from the operationalized measures tested in the survey portion of
the study and subsequently adapted to capitalize on the unique nature of FDA
respondents’ agency experience.
■ Observations about NBF and BPF roles in alliance/firm meetings with FDA regarding
the ability of NBF to communicate issues freely,
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■ Low, medium, or high levels of FDA participation in ad hoc or regularly scheduled
meetings with firm representatives to explore compliance-related issues prior to a
new product approval,
■ Communication between FDA and industry regarding drug product safety standards
and public health issues,
■ FDA constraints (e.g., perceived “courting” of industry) in achieving the goal of
education about drug product safety standards and/or public health issues,
■ Biopharmaceutical industry constraints (e.g., perceived “backing down” by industry
peers or interest groups that are interested in “educating” FDA) in achieving the goal
of education about drug product safety standards and/or public health issues,
• Organizational or policy changes that would facilitate communication with industry
and their compliance with Good Manufacturing Practices and expectations for
ensuring consumer safety,
■ Perceived industry implementation of the following for competitive advantage:
unique quality codes, manufacturing techniques, management practices; hiring
regulatory consultants/experts, ex-FDA personnel, and
■ Perceived industry implementation of the following for regulatory advantage or
influencing policy: maintaining in-house governmental relations departments,
membership in industry organizations, seeking support from other biopharmaceutical
firms when faced with legal/IP difficulties.
Given the above coding categories, interview responses were linked to the concepts
underlying the core model of the study. The interview data were then subjected to three
additional, analytic processes: sorting of excerpts from the cases based on coding
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categories, local integration (e.g., summary and interpretation of the excerpts), and
inclusive integration (e.g., the organization of findings from individual conceptual areas
into a coherent sequence) (Weiss, 1994). Specific statements by each interview subject
were identified and grouped with other responses substantively congruent with the
underlying meaning of the proposed conceptual categories, according to the researcher’s
judgment. Findings from the interviews were consequently viewed in tandem with the
survey results and case study, thereby generating a complementary and more accurate
picture of the population and relationships studied.
3.5 The Case Study. The third element comprising the multiple-method
approach to this study design is the construction of what Labovitz and Hagedom (1971)
refer to as a “one-shot case study” (p. 41). The main focus of this approach is to describe
a sample or unit, rather than to test hypotheses. Labovitz and Hagedom (1971) point to
investigations of a large business enterprise or a community organization as examples of
this approach. The one-shot case study form of research has significant advantages,
particularly if the unit selected for observation is representative of the population from
which it is derived (King, Keohane & Verba, 1994). Thus, although the unit for
observation may be one (as in the case of a single organization), it is possible to use
numerous information-gathering techniques and subsequently generate a large-n of
observations. King, Keohane and Verba (1994) argue that this approach of creating a
large-n of observations from a single community is less biased and more efficient than a
multi-community case study.
3.5.1 Selection of the Case. Here, the unit for observation was Alpha
Incorporated, an alias for a medium-sized biopharmaceutical company that has extensive
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experience partnering (with mixed success) with a multitude of large and small scientific
firms. At the same time, Alpha — either on its own or in conjunction with a partner ~ has
weathered an array of regulatory issues with the FDA. Throughout periods of growth and
success, however, Alpha has remained an independently owned entity, and many newer
firms are watching Alpha’s strategic choices as they model their own paths in similar
fashion. For this reason, as well as the fact that Alpha’s product development
innovations, alliance and regulatory history are well known in the industry, Alpha was
selected as the unit for observation for the research presented here. Although a single
case study alone is insufficient to demonstrate and evaluate the specific dynamics of
interorganizational relationships, it is through the use of a triangulated study design that
we are able to provide a rich characterization of this organizational setting that combines
the strengths of both explanatory and exploratory approaches.
3.5.2 Measures, Data Collection, and Evaluation. As Weiss (1994) points out,
no single source of evidence has a complete advantage over the others. However, the use
of documentation, archival records, and interviews form a complementary set of data that
facilitates the process of triangulation, or in other words, the development of converging
lines of inquiry (Weiss, 1994). An analysis of case study methods by Yin, Bateman, and
Moore (1983) found that those case studies using multiple sources of evidence were
characterized to be of higher overall quality than those relying on a single source of
information (Weiss, 1994).
Semi-structured interviews with two employees of Alpha Inc. provided valuable,
specific insights into the decision-making nuances that shaped many of the firm’s
dealings with FDA and partners. Although the names of interview subjects are not
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provided, their general job titles are as follows: Senior Vice President of Operations, and
Director of Quality Assurance. The transcripts of these interviews constituted one body
of data for the project, and responses from the interviews were coded by the researcher
according to the following categories for classifying responses. As with the FDA
interviews, the categories were derived from the operationalized measures tested in the
survey portion of the study and subsequently adapted to capture the unique nature of
Alpha Inc.’s strategic alliance and FDA relationship experiences. The specific interview
questions are provided in Appendix D.
■ Circumstances that characterized alliances that were positive for Alpha Inc.,
■ Circumstances that characterized alliances that were less than positive for Alpha Inc.,
■ Alpha Inc. behaviors that contributed to making successful alliances work,
■ Alpha Inc. behaviors that contributed to making unsuccessful alliances dissolve,
• Partner-firm behaviors that contributed to making successful alliances work,
• Partner-firm behaviors that contributed to making unsuccessful alliances dissolve,
• Evolution of Alpha Inc.’s relationship with the FDA Center for Drug Evaluation and
Research,
■ Evolution of Alpha Inc.’s relationship with the local FDA District Office,
■ Communication between FDA and the biopharmaceutical industry regarding drug
product safety standards and public health issues,
■ Organizational or policy changes that would facilitate communication with the
biopharmaceutical industry regarding compliance with FDA expectations for good
manufacturing practices and high product quality standards,
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• Organizational or policy changes that would facilitate communication with the
biopharmaceutical industry regarding compliance with FDA expectations for ensuring
consumer protection,
■ Mechanisms for facilitating an improved relationship with FDA in the area of
maintaining product safety standards, and
• Perceived biopharmaceutical industry constraints in maintaining product safety
standards.
Given the subjective nature of the interviews with Alpha executives, efforts were
made to ensure that some meaningful evaluations could be made with the subtleties that
emerged from this qualitative data. An important source of information came in the form
of an existing case study, which detailed portions of a relationship between Alpha (a
NBF) and a large pharmaceutical company. Once again, in order to abide by the
contractual agreement with Alpha representatives to collect data of a sensitive nature, the
case study author and title are not provided. Finally, a third source of material for the
current case study came from archival sources. These included Alpha Inc.’s annual
reports, press releases, and other firm-generated documentation; and historical and
regulatory information available through public internet sites, newspaper and magazine
articles. To facilitate comparison of response categories across the survey, FDA
interviews, and case study elements of the methodology and summarize the relevant
findings, the case evidence is presented in the next chapter first in summary form and
subsequently where relevant for evaluation of each hypothesis.
The analytic strategy for the case study followed an explanation-building logic;
namely, analysis of the data by building an explanation about the case that reflects
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theoretically significant propositions (Yin, 1994). For example, the causal links may
reflect critical insights into social science theory. The gradual building of an explanation
of phenomena involves examination of the case study evidence, revision of theoretical
positions, and a reevaluation of the evidence from a new perspective. As Yin (1994)
points out, the iteratively analyzed propositions, if correct, can then lead to major
contributions to theory building. Because this study’s design incorporates three
methodological lenses, the intent is to provide a unique and particularly insightful
contribution to understanding collaboration in an institutionally constrained environment.
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Chapter 4
ANALYSIS OF FINDINGS
This chapter provides the results of the analyses used to assess the theoretical and
empirical fit of the hypotheses specified by the integrative model of interorganizational
collaboration presented in Chapter 2. The study aims to provide an assessment of
antecedents and outcomes of collaborative arrangements in order to extend our
understanding of IORs in the context of a regulated environment. First, the hypothesized
model (represented in Figure 1) identifies factors necessary for collaboration (broadly
defined as incentive to collaborate, and partner firm's capability), as well as those
boundary spanning activities between alliance partners that improve the quality of the
alliance. The model also predicts that boundary spanning activities between a new
biopharmaceutical firm (NBF) and an established pharmaceutical firm (BPF) alliance and
FDA, and NBF strategic regulatory management activities are positively associated with
improved regulatory outcomes. The collective set of observations about collaboration and
activities between new biopharmaceutical firm-established pharmaceutical firm alliances
and the FDA informs our understanding of how this particular type of collaboration (a)
increases quality of communications with FDA, and (b) facilitates more effective
interactions between parties for conveying product safety and efficacy standards.
What follows are five sections relevant to the analysis and presentation of results
associated with this research. Given that Chapter 3 addressed the steps taken to evaluate
the survey data and its accuracy, the first section of this chapter provides an overview of
the regression findings associated with the quantitative portion of the study design. The
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second section presents the case study story as a means of setting the stage for subsequent
analyses of the data. Because survey, interview and single case study designs were
utilized to evaluate the hypotheses, results will be presented in the third section of the
chapter according to the sixteen hypotheses specified in Appendix A. For each proposed
relationship between variables, survey, interview and case study data findings will be
provided where applicable to illustrate the quantitative and qualitative significance of that
relationship. At the outset, however, the following two sections detail the significant
findings for the particular method utilized, so as to highlight the contribution of each data
collection procedure used in this study.
4.1 Summary of Quantitative Analyses. Prior to proceeding with analysis of
the survey data generated for this study, it was important to evaluate this data in terms of
potential problems related to a small sample size, missing data, and attendant issues
stemming from the design and use of original scales for assessing relationships between
hypothesized variable constructs. The collection and treatment of these data posed
unique challenges for generating viable data for evaluation. The rationale informing the
decisions behind the generation of the refined data set for analysis is provided in Chapter
3. In interpreting the findings, however, care must be taken in assessing the information
supplied. A relatively small number of subjects provided quantitative answers to the
questions posed. This was neither surprising nor unexpected; the biopharmaceutical
industry is an arena that is in flux, and many of the companies approached were in a state
of product development and capital fragility. Accordingly, some of the data presented
here should be viewed only insofar as it indicates trends and tendencies. Where numbers
are small, care has been taken not to interpret the data beyond what the numbers permit.
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Table 2 presents the univariate statistics and correlation matrices. The presence
of multicollinearity among the independent variables is indicated by tolerances which
approach zero. Tables 3a-c provide the results of multiple regression analyses for the
relationships postulated in the model. It is worth noting that all three regression
equations passed the F-test (df = 10, 5, 5 respectively). Table 4 summarizes the
tolerances (calculated as 1 minus R squared) for the independent variables. The
tolerances range from 0.46 to 0.83, thus indicating no evidence of problematic
collinearity among the 12 variables. Of the eight factors hypothesized to influence the
quality of an NBF-BPF strategic alliance, one was found to be statistically significant:
BPF structural support.
Of the four factors hypothesized to increase the quality of interactions with the
FDA, survey findings determined that only boundary spanning activity between the
alliance and FDA was significantly associated with this outcome. None of the proposed
relationships involving predictors of increased ability to comply with FDA product
quality and consumer protection standards were found to be statistically significant.
4.2 Summary of FDA Interviews. Although the sample of subjects was small
(five), their observations regarding various segments of the proposed model provided a
necessary and complementary view of some of the dynamics affecting relationships
within the agency itself, as well as with the biopharmaceutical industry. As with the case
study interview subjects, confidentiality was assured and every effort was made to collect
information in ways that did not drive responses in directions that confirmed the
predicted relationships between variables. While the offer was extended for interview
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subjects to review the transcripts and verify the accuracy of their statements, all five
subjects declined.
Although sixteen relationships were proposed in the model, the FDA interview
subjects’ expertise provided greatest insight in the examination of those relationships
involving factors influencing increased quality of interactions with FDA and an increased
ability for NBFs to comply with FDA product quality and consumer protection standards.
As such, FDA interview responses provide support for the role of boundary spanning
activities with FDA as a mechanism for positively affecting the quality of interactions
with FDA. The responses also provided support for the positive association between
compliance and influence strategies and increased quality of interactions with FDA.
There was demonstrated, albeit less extensive, support for the relationship between both
kinds of strategic regulatory management activities and an increased ability to comply
with safety and quality standards, as predicted.
4.3 Case Study Overview of Alpha Incorporated. The history of the firm
identified as Alpha Incorporated represents a set of regulatory knowledge and partnership
experiences with large pharmaceutical firms, as well as peer firms of similar or smaller
size. The following provides a tracing of some of the significant milestones in Alpha’s
general development, and in particular, its learned lessons from a partnership with a large
pharmaceutical firm (identified as “Europharm” for the purposes of this case study). A
portion of the information detailing Alpha’s activities was derived from a published case
study, the name and authors of which cannot be disclosed here. To do so would violate
the condition of anonymity with interview subjects at Alpha.
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Alpha Incorporated (hereafter referred to as “Alpha”) is today one of the most
successful firms in the biopharmaceutical industry. In conjunction with its client
companies, Alpha currently provides over 40 trademarked products and services
worldwide. The firm’s total revenues reached $584 million in 1998, which represents a
greater than 25% increase over the previous year. The firm enjoys a comfortable market
position in their particular areas of therapeutic expertise, as well as a hard-earned,
effective relationship with FDA.
4.3.1 The Biopharmaceutical Market. The worldwide pharmaceutical market in
the mid to late-1970s was characterized by disparate outcomes. The United States had
the largest market, and financial performance of the leading companies was well above
the global average percentage. At the same time, however, critical new discoveries,
which had heretofore driven the product development engine, were becoming scarce.
The drug development process was becoming more lengthy and expensive, with the
average R&D expenditures per new drug by a major pharmaceutical company ranging
from $25 to $80 million (Cunningham, 1988). Revitalized FDA regulations around the
same timeframe also served to slow the process and introduced greater controls over drug
approvals and manufacturing. Most of the top pharmaceutical firms depended on in-
house innovation to support growth, as opposed to relying on process and marketing
strengths to produce “me-too” products quickly and less expensively. Small firms had
the advantage of innovative capacity, but were typically forced to seek partners and
licensees to offset weighty development costs.
In the marketing realm, doctors were the only knowledgeable elements within the
health care chain and thus the crucial factor in ensuring the success of new drugs. First-
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mover advantages were significant, and iate arrivals sought to differentiate themselves
with different dosage forms, or by asserting a wider rage of applications. It was only
later in the 1980s and 1990s that many more firms would develop a niche capability
called “enhancement” as a novel strategy for preserving capital (Mack, 1996).
Enhancement involves inventing and marketing drug delivery methods and other
technologies that “breathe new life” into established and generic drug products. Instead
of investing resources in technology discovery, enhancement companies transform a
well-understood drug in a traditional dosage form (such as a pill) that requires
administration several times a day. The formulation is then changed so that the drug can
be administered continuously. By improving on the bioavailability of existing,
acceptable drugs through new product delivery systems, enhancement companies enjoy a
rare security and save years of development time for new drugs. In this scenario,
biopharmaceutical companies license their technologies to traditional drug firms for a
percentage of profits on the enhanced products, since the drug companies carry most of
the manufacturing and marketing costs. However, because the delivery mechanisms are
new, there are educational (for alliance partners) and regulatory challenges that must be
addressed for proper technology transfer and evaluation. Clinical trials for safety and
efficacy remain as rigorous as for new drug forms requiring FDA approval.
Amidst this changing landscape, Alpha was founded in the late 1960s and quickly
established itself as a pioneer in the development and marketing of novel therapeutic
systems. The top management team at Alpha was headed by a highly well-connected,
charismatic, and mission-driven leader. As Chairman of the Board and CEO, he believed
in bringing the best people on board and was eager to encourage an entrepreneurial spirit
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within the firm. Accordingly, there was strong emphasis placed on idea generation,
without the caveat of a high priority on tight budgetary control. The facilities occupied
by Alpha were modem, well appointed and self-contained, and the setting was conducive
to the promotion of personal contacts among subgroups in the company.
Multidisciplinary teams whose members also belonged to functionally organized
departments typically conducted the research. R&D was considered the core of the
company, yet there was also a parallel focus on product development.
In the mid-1970s, Alpha sought FDA approval and launched three products that
represented significant technical advances over existing systems. All three products
enjoyed a high level of interest in the medical community, although sales volume
numbers were not consistent with expectations and subsequently followed a downward
trend. User resistance to the new technology and higher prices superceded/supplanted the
benefits of less frequent dosage times and fewer side effects. Separate sales forces were
unable to spread their costs over the range of products, and both marketing and operating
expenses created a cash-flow crisis by the late 1970s. Alpha’s capital reserves were
depleted and company stock was selling at half of their 1976 prices. In an effort to
recapture the company’s credibility in the market, Alpha’s founder approached
numerous, large pharmaceutical firms to explore the possibility of a comprehensive
partnership that would restore a position of security for Alpha. He ultimately made
contact with representatives from Europharm and proposed that they take an equity
position in Alpha in return for licenses to current and future technologies.
43.2 Collaboration with Europharm. The structure, culture, and product lines
of Europharm posed a real contrast to the same at Alpha. Europharm was a diversified
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multinational firm with over 75,000 employees worldwide, and top management derived
from a small circle of same-European-language, established families. Organizationally,
highly specialized experts, many of whom had been with the firm for years, staffed the
R&D division. In contrast to Alpha’s fluid structure, Europharm scientists were
hierarchically grouped according to functional areas, with four levels below the head of
research. Product development similarly moved through a set sequence of departments:
from R&D to medicine, technical operations, and then marketing. The driving
philosophy was to concentrate R&D efforts on a smaller number of disease areas and
build on existing expertise on applications that had proven market potential.
By 1978, Europharm had evaluated the potential value of Alpha and confirmed
that a sizable input of capital and operating funds were necessary to assure Alpha’s
survival. Following lengthy negotiations and an expression by Alpha’s founder that the
partnership with Europharm was the only real means for carrying forward the
development, manufacturing and marketing of Alpha's products, Alpha shareholders
approved the agreement that year. The contract housed five component agreements for
the following: stock purchase, research, manufacturing, domestic marketing, and
international marketing. With 8 out of 11 board members, Europharm controlled Alpha
but agreed to respect the interests of minority shareholders. The research portion of the
contract was the backbone of the collaboration, and both firms made efforts to keep the
managerial superstructure flexible enough to accommodate a free flow of ideas and
information. However, mechanisms for sustaining a healthy liaison were not elaborated
in the contracts, which proved to be a critical oversight as the transfer of technology and
commercialization process from Alpha to Europharm moved forward.
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In the first few years of the collaboration, both firms felt the strain of
misunderstandings brought on by differing conceptions of appropriate timeframes. As
the technology transfer process moved along as scheduled, the number of drugs to be
tested using Alpha’s drug delivery systems slowed. Because the early emphasis had been
on moving viable products through to commercialization, there was a sudden pressure to
focus already-stretched resources on basic systems research. Alpha’s operating losses
were at $5-6 million after three years of collaboration with Europharm, and it quickly
became clear that new research contracts outside of the arrangement with Europharm
were one of the necessary options to bring an infusion of capital. The currently close
association with Europharm (as majority shareholder and licensee of most of the
technology) and confidentiality restrictions on the use of existing technology made it
difficult for Alpha to pursue meaningful contracts with third parties.
What Europharm may have been slow to grasp at the time is that, lacking
operating revenues, biopharmaceutical executives exist in a constant need to raise cash
(Fisher, 1996). Six month timelines are routine for BPFs, whereas the same for NBFs
represents a significant percentage of their financial lifetime. Alpha interview subjects
confirmed that they perceived some of their BPF partners as reluctant to move quickly,
while also acknowledging that they were probably perceived as hasty in their estimation
of projects that were ready for moving forward. BPFs have the storehouse of funds to be
patient and take the required time to pass through all the stages of drug development and
regulatory approval (Fisher, 1996).
Unfortunately, Alpha’s situation in the early 1980s called for immediate, creative
financing. After lengthy negotiations, a new agreement was reached that preserved
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Europharm’s financial interest in Alpha, as well as the autonomy to establish technology
development units without sharing results with Alpha. Alpha achieved its much needed
financial stability and independence to approach other partners, as and how they wished.
By the mid-1980s, Alpha had successfully established research contracts with more than
a dozen firms and refocused its research and technological strengths. In light of this
favorable outcome and the eventual success with which both firms went on to attain
individual eminence with jointly-developed products, many have considered the
Europharm-Alpha collaboration to be a financial success for both parties.
43.3 Alpha’s Post-Europharm Growth and Relationship with FDA.
Equipped with a new confidence and partnering expertise, Alpha went on to form
strategic relationships with a variety of companies following the conclusion of the
Europharm agreement. Simultaneous projects that were moving quickly through
development cycles introduced a new factor for success: a good relationship with FDA
and an understanding of drug manufacturing regulations. In their early days, Alpha did
not have much need for interaction with the Center for Drug Evaluation & Research
(CDER) or local FDA District Office. As with so many firms during that time, the drug
industry’s opinion about compliance inspections was that “the District Office just showed
up once every number of years and walked through your plant and smiled and left. So
you didn’t need a lot of interactions if you... knew that whomever was coming was the
‘white glove person’ that liked to look on top of air handlers, and so you’d clean there,
and if it was somebody who was looking for labeling, you’d put all the labels on.”
Against such a backdrop, Alpha acknowledges that in the 1970s through the late 1980s
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they did not invest great resources in building operational systems that could withstand a
higher level of regulatory rigor.
Following the generic drug scandal (which involved bribery of FDA personnel by
generic drug manufacturers seeking approvals for their products) and appointing of Dr.
David Kessler as Commissioner of FDA, the agency underwent a (relatively) rapid and
penetrating transformation that reflected new enforcement goals and strategies in the first
part of the 1990s. Alpha and other companies took note of the change, but few
comprehended the extent to which Kessler intended to redefine what regulatory oversight
really connoted. Alpha was among those not “paying attention” to the evolution of FDA
policy, and it was not long before FDA was utilizing increasingly powerful enforcement
tools to demonstrate that Alpha’s ongoing negligence - willful or otherwise - would not
be tolerated. Adjusting to a major internal management shift and problems with the
performance with one of their products at approximately the same time, Alpha
recognized that business would have to be conducted differently. Various Alpha product
lines suffered during this learning process of the early 1990s, either due to poor levels of
compliance on the part of suppliers/partners or Alpha’s own, slow realization of the
systems that needed to be put in place to “get ahead of, instead of always battling the
regulatory guidelines coming down the pipeline.”
However, Alpha began to make internal changes in earnest by 1994, and within a
few years thereafter, enjoyed a special place at FDA’s table of trusted firms. The firm
now boasts a broad portfolio of products and alliances, as well as organizational, quality,
and manufacturing systems that set the trend in their industry. The discussion for each
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hypothesis below describes the firm’s evolution to this state in greater detail, while also
integrating interview and survey findings as appropriate.
4.4 Evaluation of Hypotheses. Drawing on all three methods (survey,
interview, and case study), the findings below provide an integrated assessment of the
postulated relationships in Figure 1 and Appendix A. It should be noted at the outset that
not all hypotheses have evidence from each of the three sources of data. Each hypothesis
was evaluated based on two criteria: the number of respondents providing evidence
affirming the proposed relationship, and the quality/depth of the information provided by
those respondents. Table 5 provides a matrix summary of the significant relationships by
methodology.
Hypothesis la: A lack of easily accessible, external financial resources for the NBF
is positively associated with a higher quality of alliance between an NBF and BPF.
This hypothesis was not supported by the data. Although the perception of FDA
representatives is that financing pressures are significant enough to drive startup firms to
partner with resource-rich companies, NBF survey respondents did not find this to be an
important factor influencing the quality of alliance with a BPF. There was a non
significant relationship to Quality of the Alliance, even though the direction was as
predicted. Mixed support of this finding is found in the fact that Alpha was already well
financed and functioned primarily as a research organization in its early years. The
company raised over $70 million in capital during the first seven years, of which
approximately 15% derived from companies interested in distributing Alpha products or
in Alpha research contracts. 50% came from private placements, while the remaining
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percentage came from publicly offered stock. However, when this arrangement proved
untenable by the 1980s, Alpha did indeed seek partnership with Europharm, with an
express intent to alleviate its immediate financing dilemma.
Hypothesis lb: A lack of in-house, non-financial resources for the NBF to vertically
integrate from R&D through distribution is positively associated with a higher
quality of alliance between an NBF and BPF.
The data indicated a lack of support for this hypothesis. FDA field experience has
generally been that smaller firms are generally unable to capture on their own the
requisite level of manufacturing, quality control/stability study, and
packaging/distribution equipment and space needed to perform the functions associated
with scale-up from clinical manufacturing to distribution. However, NBF survey
respondents determined that the lack of in-house, non-financial resources to vertically
integrate from R&D through distribution was not associated with a higher quality of
alliance with a BPF. Alpha interview responses similarly did not lend significance to this
determinant as a factor that improves the quality of a NBF-BPF alliance.
Hypothesis lc: The need for the NBF to improve its reputation with peer firms and
the FDA is positively associated with a higher quality of alliance between an NBF
and BPF.
The survey, interview, and case study findings did not lend support to this
hypothesis. In the case of Alpha, its pre-existing, good reputation in the industry and
with FDA afforded greater benefit than any secondary effects through an alliance with a
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BPF. NBF survey responses were consistent with this finding, and the relationship
between a need for the NBF to improve its reputation with peer firms and the FDA and a
higher quality of alliance with a BPF was not determined to be significant, although it
was in the predicted direction.
Large pharmaceutical firms have not always been able to provide positive
reputational effects, due to the fact that they often had dismal relations with the FDA and
ran afoul of FDA’s “regulatory basics” (Dickinson’s FDA, 9/1/93, pp. 8-10). Large firms
were made examples of by FDA as they flagrantly tested regulatory boundaries,
particularly after Kessler assumed the role of Commissioner. For example, Syntex was
penalized in 1992 with a protracted investigation and then injunction for its misleading
labeling practices with Naprosyn. Warner-Lambert, Eli Lilly, Merck, Wyeth-Ayerst, and
Schering-Plough have also paid a heavy price for poor vigilance over their own
manufacturing practices. In the 1992-1993 period, Warner-Lambert had fourteen of its
drugs recalled, and both Warner-Lambert and Eli Lilly were subject to consent decrees
(Dickinson’s FDA, 9/1/93, pp. 8-10; Dickinson’s FDA, 10/15/93, p. 3). After scathingly
devastating findings by FDA’s then-expert, Henry Avallone, in the Mid-Atlantic Region
in the early 1990s, Lilly instituted radical changes to revamp its internal business
processes and quality assurance systems in order to be in compliance with FDA’s new
drug Pre-Approval Inspection (PAI) program (Hynes, Justice, Rodriguez, Taylor, &
Chiasson, 1998). Avallone’s systematic appraisal of the practices necessary to ensure
safe clinical and large-scale manufacturing operations set the standard for field
enforcement under the PAI program.
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Smaller firms such as Alpha, meanwhile, were well aware of the trends and made
use of FDA’s Regional Small Business Representatives (SBR) and any existing good
relations with officials to correct faulty systems before an Avallone-like investigation
was initiated. Voluntary “friendly audits” at NBFs by the SBR unearthed potentially
damaging procedures, which would then lead to open and constructive dialogues about
problems. An FDA interview subject recalled regular interactions with typically small to
mid-size NBFs to achieve voluntary compliance from a non-regulatory perspective.
Companies that sought his advice would request an appointment, “get naked” and talk
about whatever problems they were having to understand the requirements and/or attain
compliance. Firms understood that the SBR was there to help them, and that their
discussions would remain confidential. Thus, to the extent that an SBR could spend time
with them, firms were essentially able to correct problems and be in a good position when
it came time for an FDA inspection. Furthermore, Alpha’s BPF partners were among
those scrutinized and then severely penalized by FDA for gross negligence in maintaining
product quality and safety systems. The trickle-down effect of such scrutiny embroiled
Alpha into investigations about false statements made to FDA and possible fraud. Alpha
thus took great pains to cooperate with FDA officials and otherwise clear its name. With
such FDA and NBF-originated mechanisms such as friendly audits in place that provided
direct relations with FDA personnel with influence, NBFs have little incentive to seek
such access via a BPF partner.
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Hypothesis 2a: Partner firm (BPF) technical expertise is positively associated with a
higher quality of alliance between an NBF and BPF.
Based on weak case study interview data, this hypothesis was not supported.
Many of the technologies driving the biopharmaceutical industry utilize manufacturing
steps and know-how that draw upon those found in several industries. Alpha interview
subjects noted that because technology transfer can be fraught with intellectual property
and quality control (e.g., assuring consistency of the process/technology that is
transferred) concerns, partnering with a firm that houses such capabilities seems a more
promising avenue for reaching mutual goals. However, respondents’ comments did not
suggest a strong correspondence between the presence of technical expertise and higher
alliance quality, and survey findings did not support this hypothesis.
Hypothesis 2b: Partner firm (BPF) strategic alliance experience is positively
associated with a higher quality of alliance between an NBF and BPF.
The weak case study data did not support this hypothesis. Alpha representatives
merely pointed out that partnering decisions were based on a variety of complementarity
factors, and the fact that a potential BPF partner was experienced in sustaining alliances
(and thus possessed a good reputation in the industry) was useful in their assessment.
Survey responses did not indicate support for this proposed relationship.
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Hypothesis 2c: Partner firm (BPF) structural support capabilities (i.e., rules for
governing collaboration activities, and training and development in collaboration
skills) are positively associated with a higher quality of alliance between an NBF and
BPF.
This hypothesis was strongly supported by the survey (beta = .45, p < .01) and
Alpha case study data. The variable testing this hypothesis speaks to the governance of
collaborative activities, and training and development in collaboration skills. Alpha
interview subjects spoke to this effect, stating that capabilities for sustaining collaborative
arrangements are comprised of clear communications, well understood goals and
objectives, role clarity, and having the ability to interact and work with colleagues across
levels. Conversely, shared responsibility, differing risk profiles, and no mechanism to
resolve differences sets the stage for discord.
An example occurred in the context of Alpha’s disagreement with a BPF partner
over the specification of acceptable values for a product attribute. The product failed to
fall within the accepted specification range, and the question arose as to the consequential
relationship between the specification and the product’s performance. Because no
managerial or contractual understanding was in place, there was no mechanism for
clarifying which party had the ultimate decision making authority in such matters.
Alpha’s experience in situations like this has been to find ways to survive the stalling of
the partnership. As an example, the program associated with the out-of-specification
product would fall outside of its timeframe or monetary resource allocation; and the BPF
partner subsequently decides the resources are better spent elsewhere and cancels the
program.
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Alpha has learned that effective project management skills are crucial to
sustaining collaboration. Their own project teams are comprised of members from both
parties participating in a collaboration. They have found value in identifying a
responsible party that takes appropriate action to bring things back on track when faced
with divergence. Alpha also believes deeply in viewing alliances as relationships that
must be built, managed and nurtured, such that any crisis can be handled and dissipated
within that relationship context. They have come to understand that when one cannot (or
should not) dictate outcomes, it is important to exercise influence to try and drive the
process in productive directions. Influence comes from knowing the direction, having the
necessary data or information to provide the rationale for that direction, conveying that
information in the language that the other party understands, and then having a trust built
up so that the partner can accept the other’s guidance and direction as viable. At the
same time, Alpha has, over time, recognized the need to be flexible, agile, and otherwise
willing to change quickly and talk a “language” that can be understood by the other party
when circumstances necessitate it.
Potential partners have come to see that Alpha can not only deliver a technology,
but also a strategy and culture to accompany it. Alpha has taken great care to collect
people who have similar values, with the result being that the organization has developed
a set of behaviors that industry peers have observed and attempted to model. Their most
successful collaborations (approximately 20-30% of the total) have been with partners
that have invested a great deal of time and energy in seeing Alpha’s strengths and
acknowledging that there is unique expertise housed therein. Partners who were secure
and self-confident in their own basis for excellence demonstrated the proper behaviors
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and recognized that the alliance was “founded more on complementary strengths than on
filling in the gap.”
Hypothesis 2d: Partner firm (BPF) trustworthiness is positively associated with a
higher quality of alliance between an NBF and BPF.
Alpha interview responses found strong support for the role of BPF
trustworthiness in creating a higher quality of alliance, as postulated.
Despite Alpha's insistence on updates for joint projects, Europharm was
uncomfortable with the technology transfer stipulations of the research agreement that
allowed Alpha access to the other’s knowledge. The fear was that, irrespective of
confidentiality clauses, Alpha would use this knowledge in projects with pharmaceutical
competitors. It was true that Alpha’s financial condition necessitated seeking third party
contracts. However, tension grew as conflict of interest issues emerged from both sides:
alliance review committees complained that Alpha’s proposals were too general to be
useful, while Alpha maintained that any further detail would release confidential
information on competitors that would be unethically useful to Europharm. Overall, the
feeling was that Europharm was not doing enough to help Alpha improve its financial
state.
Alpha’s deteriorating financial position necessitated some form of resolution
about the terms of the relationship with Europharm. After extensive negotiations, a
restructuring of the collaboration yielded a seemingly friendly outcome that was
beneficial to both parties. However, in the years following the new agreement, articles
appeared in various publications insinuating that Europharm had done well to release its
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burdensome subsidiary that had little to offer. Although no actual identities of the
sources were established, the stories exerted significant strain on the working relationship
of the two firms over the next several months. Alpha was especially affected, since
Europharm competitors were now the potential source of partners for research contracts;
assertions that Alpha was a poor partner choice undermined their ability to form
relationships outside of Europharm readily.
Hypothesis 3: Boundary spanning activities between the NBF and BPF partner
firms are positively associated with a higher quality of that alliance.
Although the survey findings do not support this hypothesis, Alpha’s experience
with Europharm and subsequent partners suggests substantial support for this hypothesis.
One reason for the demise of the effectiveness of the Alpha-Europharm collaboration was
the breakdown of communication and information exchange as the partnership
progressed. At the outset of the agreement in 1978, both parties cooperated at the
operational level with enthusiasm and candor. However, initial terms laid out during the
contract phase and project management during the first two years set in motion norms
that undermined the collaboration over the long-term. In particular, both firms agreed to
maintain an “arms-length” relationship in order to allow Alpha freedom of action; Alpha
was to be able to continue to operate as before, with Europharm’s role being that of a
large research contract client. To their collective credit, both firms realized at the outset
that the arms-length arrangement could manifest in communication problems and that
significant attention would have to be paid to liaison efforts. Unfortunately, however, the
collaboration contract only detailed the decision and control structures. This approach to
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constructing collaborative relationships draws attention to the importance of confirming
commitment from company employees prior to embarking on such collaboration
ventures. As described by an Alpha interview subject, “Somebody goes and signs the
deal, but it’s not clearly communicated in a way that everybody understands why we
signed this deal, what we are going to get from the deal, what we want you to put in
terms of resources and time and energy... It’s a deal that gets dumped in your lap instead
of something you buy and say, ‘Oh, wow, now I can see why we’re doing this..
For instance, no Alpha-Europharm joint research teams were established, and in-
person contacts between Europharm sponsors and Alpha project leaders outside of
biannual research conferences were rare. Scientific exchanges at those biannual
conferences were very open, and Alpha provided quarterly progress reports with
extensive technical details to Europharm sponsors. Europharm apparently experienced a
feeling of overwhelm from the volume of materials presented and became concerned that
Alpha was spending too much time writing reports. Europharm requested that the reports
be condensed to essential items only. In reaction, Alpha began providing two-page
progress summaries only, and minor problems and clarifications of ambiguities were
settled over the telephone. Conference calls were infrequent, and other than carbon
copies of key documents, there was little communication between the organizations.
Scientific liaison desks served primarily as information “clearing houses”, and those
running them did not make extra efforts to seek information that was not volunteered.
Key decision-makers thus spent large amounts of time soliciting the information needed
to assess the commercial value of projects and promote them internally. Predictably,
both Alpha and Europharm began to feel out of touch.
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Production problems at Europharm prompted frustration from Alpha, who
believed that certain stages of work should have been done at their own facilities, as
opposed to reinventing the technology at Europharm. Such technical and other
coordination issues necessitated the formation of a board to handle international
coordination, although the minutes from their meetings were not sent to Alpha.
Hypothesis 4a: The quality of alliance between an NBF and a BPF is positively
associated with increased quality of formal and informal interactions with FDA.
The combined data do not lend support for this hypothesis. Survey findings did,
however, yield a surprising and significant, negative coefficient for this proposed
relationship (beta = -.32, p < .05), which requires further explanation.
Two FDA subjects spoke to the importance of the stability of behaviors exhibited
by partners in the presence of FDA. The nature of firms’ “presentation” of themselves
could either undermine or strengthen FDA's belief that systems and communications
between the collaborating firms seeking approval are “in control”. In the context of on
site audits at a firm, for example, one interview subject described numerous instances (at
least 1/3 of the time) in which top executives from multiple departments or partner firms
would begin to argue with one another in the presence of the FDA investigator
conducting the inspection. “It is so silly that firms have not yet understood the
importance of putting the best foot forward, or even maintaining a united front when we
are there.”
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Alpha representatives maintained that their own efforts (as opposed to those of
their partners) to cultivate a relationship with FDA is what prompted increased
communications with the agency and resultant open relationship.
Hypothesis 4b: The quality of alliance between an NBF and a BPF is positively
associated with an increased ability to comply with FDA product quality and/or
consumer protection standards.
Survey, interview, and case study results did not demonstrate support for this
proposed relationship. Differing “histories” with FDA and conceptions of compliance
seem to color the way in which BPF partners exhibit the willingness to develop whatever
means are necessary to ensure product quality and comply with consumer protection
standards.
Hypothesis 5a: Boundary spanning activities between the NBF-BPF alliance and
the FDA are positively associated with increased quality of formal and informal
interactions with FDA.
FDA interview, case study, and survey results demonstrated a significant, positive
association for the relationship hypothesized here (beta = 0.51, p < .01). FDA and Alpha
interview subjects indicated broadly that regular interactions with FDA during the
product application review process is beneficial and decreases the likelihood of delays
and misunderstandings. Alpha and Europharm’s joint success in the marketplace despite
organizational struggles speaks to this, but firm representatives were also quick to point
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out that they have learned to go above and beyond what is normally found in behaviors of
alliance partners in the area of developing a relationship of trust and reliability with FDA.
FDA interview subjects all expressed optimism by the increased level of dialogue
between FDA and industry over the last several years. One of the most critical aspects of
the interactions between biopharmaceutical firms and the FDA is the quality of
communications between individuals involved in new drug approval application reviews
and/or on-site audits. The process is fraught with possible areas for breakdown, and thus
great finesse is required to ensure that information is exchanged with accuracy, clarity,
and speed (Price-Waterhouse LLP & CONNECT, 1997). Changes in communication
have made viable the idea of “triage”: matching resources to places where they are
needed.
As alluded to above, whereas this hypothesis assumes the alliance as a single
entity, Alpha found that increased interactions with FDA was best achieved not when it
was involved in an alliance, but when it established ties with FDA on its own. .After
complacent behavior through the 1980s and numerous regulatory violations. Alpha
finally realized in 1990 that an implicit trust with FDA had been breached. It was clear
that effort would be required to rebuild trust and faith that they would follow through on
commitments from that point onwards. Alpha made an abrupt culture shift and learned to
share data quickly and more openly, talk in FDA’s “language”, and otherwise negotiate
through the crisis that was upon them. A key factor that facilitated this reconstruction of
the relationship was the basic trust accorded to Alpha by FDA; Alpha interview subjects
expressed appreciation at FDA’s willingness to provide constructive and, ultimately,
positive feedback and recognition for the progress being made. At the same time,
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however, some “gun-slinging” behaviors by FDA representatives hampered the rate at
which change could occur, but Alpha was dedicated to creating an alignment of
expectations between the two parties.
As a result, Alpha feels that they and FDA are “all on the same team” since the
last three to five years. Even though the District Office management has changed during
that time, Alpha’s reputation of providing critical updates with honesty has stayed
constant amidst FDA personnel shifts. There is now a level of comfort and certainty such
that Alpha can approach FDA at any time and with any level of frequency with news of a
problem or issue, describe their method for attending to the problem, and have the
confidence that FDA will operate as a partner and provide constructive input for making
sure all regulatory and safety concerns are addressed.
Oftentimes firms meet with FDA following the issuance of observations at an on
site inspection (FDA-483) to more fully discuss their proposed corrective action. At
other times, meetings are held simply for the sake of introducing themselves, particularly
if there has been a change of ownership or a major change in or discontinuation of
product lines. FDA interview subjects noted that this has been a significant trend over
the last four to five years, especially with startup companies that have completed Phase 3
trials and are ready to build a pilot plant. In such cases, FDA has been requested to look
at blueprints before renovations to an existing building commence, for instance. Some
FDA Districts have created a mechanism for firms to express their views outside the
context of official meetings. Dubbed PAIR (Partners In Regulation), a group comprised
of representatives from individual companies and district management (three branch
directors and the district director) will meet to discuss any problems and suggestions for
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change. Occasionally, the PAIR meetings become a forum for complaints about
individual investigators or the way in which an investigation is proceeding. However,
FDA interview subjects pointed out that this was an entirely appropriate area for
discussion, since the meetings are designed to voice rights, as anonymously as possible.
Alpha has made use of their good relationship with FDA to regularly inform FDA
of new R&D developments that are likely to evolve into product lines. Alpha’s belief is
that fostering a good relationship allows frequent contact, which in turn makes an
education process about new technologies routine and diminishes the probability of last
minute negotiations and/or “caijacking-like actions” that can turn a product development
cycle on its head. The importance of ongoing education, and not just when the firm
needs FDA to grasp new ideas quickly, is paramount and facilitates FDA’s trust that they
are “not being led over a cliff’. Alpha understands that FDA has resource constraints,
but is also well aware that drug approval reviews are initiated long before a firm is
officially informed that the process has begun. Accordingly, “if there’s opportunity to
have dialogue in that formulating stage, you can provide more different information,
[and] may have a chance to show or persuade with a slightly longer timeframe, [thereby]
more interaction during the early review.”
Hypothesis 5b: Boundary spanning activities between the NBF-BPF alliance and
the FDA are positively associated with an increased ability to comply with FDA
product quality and consumer protection standards.
Survey, case study and FDA interview data did not lend support for this proposed
relationship.
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One FDA interview subject commented that the biopharmaceutical industry is
very tight-lipped. In his view, FDA has tried every possibility to help industry
understand the regulations, issues, and any other questions that have arisen from studies
such as that conducted by CONNECT (examples of outreach efforts by FDA include
“grassroots” and BIOCOM meetings). But, at such planned events, industry
representatives “don’t utter a peep” and seem very reluctant to state what they want. If
anything, they give the standard feedback about the types of training they would like -
thus, FDA perceives that industry does not require specialized training/help beyond what
is already available.
At the same time that Alpha and other firms were transforming their practices in
the mid-1990s, FDA was unveiling grassroots regulatory partnership meetings with
industry and implementing policy reforms to bring consistency and predictability to their
actions. For many years there had been a prevailing sense in the biopharmaceutical
industry that companies that complain about unfair treatment in product reviews suffered
retaliation through other, deferred consequences as a result of their having come forward.
As part of a series of actions to secure companies’ freedom to “vigorously challenge
agency positions and requirements, and to freely voice their views to the agency, the
press, the public, and the Congress” (Dickinson’s FDA Review, July 1995, pages 3-4),
Commissioner Kessler wrote a memo on 6/29/95 to all FDA employees, warning them
against engaging in retaliatory or unfair actions against regulated industry. In it, he went
on to state, “Fear of retaliation among those we regulate may chill scientific, legal and
policy discourse, depriving the agency of information crucial to sound judgments and
decisions,” (Dickinson’s FDA Review, July 1995, pages 3-4).
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In addition, certain FDA regional biotechnology teams initiated a program for
offering “friendly” inspectional advice and performing mock inspections as a service to
new/inexperienced firms. Because of the inherent conflict of interest embedded within
such a program, industry agreed that if the team discovers a major problem, they would
put on their regulatory hat and issue a notice of inspection as a conclusion of the friendly
visit. With good reason, many firms were reluctant to take advantage of a friendly audit,
but those that did avail themselves of such an audit opportunity appreciated the advice
that came with the inspection walk-through. However, the program did not receive broad
support within FDA and was cancelled. Investigators can still perform a pre-operational
site visit, but they cannot enter the facility and actually observe the manufacturing of a
product outside the context of a regulatory inspection. FDA interview subjects that
discussed this “nice visit” program expressed concern about firms entering into Phase 3
clinical trials, as well as their contract manufacturers (which are often small pilot plants
that are producing clinical supplies) without ever having been subject to any kind of
inspection, and thus exposing thousands of subjects to their products. One subject
commented that he is “always shocked at what [he] see[s]. Fundamental GMP [Good
Manufacturing Practices] is violated and basic systems are not validated, and so... it’s
almost a can of worms.” Despite the recognition by field personnel of the value of
intervention prior to the new drug pre-approval inspection, FDA headquarters chose not
to re-staff the dissolved team/program; it “ just kind of died a quiet death.”
From another perspective, regardless of the terminology of “alliance” or
“buyout”, the presence of a BPF eventually changes everything about the way an NBF
operates. FDA interview subjects felt that it is a great disservice to the NBF (and
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ultimately, the BPF involved in the alliance) whenever the BPF steps in and insists on
“participating” in discussions between FDA and their NBF counterpart. The within-FDA
FDA-industry, and within-industry relationships require trust, so that industry knows
there is confidentiality. NBFs seem to be less willing to make a decision once they are
bought out (even if they once had been expeditious in making decisions and changes),
since ideas must be approved by several layers before changes can be made. The
perception is that being bought out or engaged in an alliance with a BPF thus necessarily
slows down decision-making. Further, the path to ruin is a situation in which BPF
policies override NBF policies and/or routines. Oftentimes, BPFs are big, lumbering
entities that don’t know much about R&D issues, or lack the agility to quickly resolve
issues as the NBF had prior to involvement with the BPF. According to the FDA
interview subject, strategic alliances are not at all beneficial to NBFs from a regulatory
perspective. The situation would not be as critical if the NBF were allowed to retain its
own policies, but the outcome is dangerous if the NBF abdicates its sense of
responsibility following an alliance or buyout.
An example was given in which an NBF was involved in an alliance with a BPF
located approximately 60 miles away from the NBF site. The NBF was still independent,
but had a contract-like arrangement with the BPF for a certain product(s). The FDA
interview subject was invited by the NBF to discuss problems they were having, and they
requested that their meeting be kept confidential from the BPF. The NBF was assured
that such meetings were always confidential, and thus the first half of the day was spent
candidly sharing details and openly discussing the ways in which to solve the NBF’s
problems. However, at some point at the outset of the meeting, the BPF heard that FDA
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was at the NBF site. By mid-day, representatives from the BPF arrived at the NBF and
insisted on being present for the remainder of the meeting. Predictably, the dynamics,
content and open nature of the morning session of the meeting were then lost, and the rest
of the day was spent discussing minor issues.
Hypothesis 6al: Compliance strategies by the NBF are positively associated with
increased quality of interactions with FDA.
Although regression results were not significant, FDA interview and case study
findings provided support for this hypothesis.
FDA interview subjects pointed out the importance of firms communicating their
unique manufacturing techniques to FDA as one of many mechanisms to increase
meaningful contact, foster mutual education about particular manufacturing and
regulatory requirements that might accompany the innovation, and thereby gain some
level of competitive (knowledge) advantage. Like Alpha has done, some firms have
initiated regular visits to District Offices to discuss new product lines, specific
mechanism(s) involved in delivering the drug dosage form to the body, and/or new
facilities under construction. FDA subjects also spoke to the extensive use of regulatory
consultants and experts, as well as the hiring of ex-FDA investigators, reviewers, or
management as additional means to increase opportunities for contact with FDA. The
“insider FDA mindset” is very valuable to companies, as are the already-established,
informal contacts between colleagues that previously traveled in the same network. In
fact, Alpha utilizes the regulatory consulting services of a firm founded by a former FDA
District Director and staffed by former FDA drug investigators. The Philadelphia and
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New Jersey District Offices were the first to lose large segments of the staff to industry
several years ago; recently, there has been a large exodus of FDA personnel in west-coast
offices to industry. One FDA interview subject expressed concern that so many firms are
developing “virtual capacity” (e.g., the hiring of short-term consultants that resolve
immediate issues) instead of building relationship capabilities in-house. The concern
would be that outsiders bridging the gap between firms and FDA may not be loyal to the
product or company, and thus the incentive to do the “right thing” (e.g., Hypothesis H6a3
below) is not founded on stable assumptions.
Hypothesis 6a2: Compliance strategies by the NBF are positively associated with an
increased ability to comply with FDA product quality and/or consumer protection
standards.
FDA interview and case study findings supported this hypothesis. In terms of the
role of hiring ex-FDA personnel in increasing ability to comply with quality and safety
standards, FDA interview subjects described processes employed by firms that have
undergone a rapid loss and then hiring of new personnel. In one case, the firm's new
personnel conducted an internal audit, discovered significant problems and voluntarily
reported it to FDA. However, before FDA could even conduct a follow-up audit of their
own, the firm had hired a former FDA employee to perform an audit. Fortunately, the
outside auditor (former FDA employee) informed the firm of the severity of the problem
at hand and advised them to “tell FDA, lay everything on the table.”
Alpha interview subjects confirmed the value of certain kinds of conversations
with FDA investigators that connoted a sense of partnership. Namely, the goal was not
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one of punishment, but rather to reinforce positive behaviors and motivate Alpha
management to close the gap between their current and desired level of compliance.
According to Alpha representatives, this is particularly valuable when one views the
continuum of issues that exist for startup through large-pharma firms. Smaller firms have
less at stake from a consumer protection standpoint, because the amount of total assets
that could be lost is not that large. The consumer protection element is “going to live or
die” on whether there is a product; thus the goals and directions at this stage are different.
Alternatively, as a firm progresses and/or becomes larger, those priorities and directions
shift and come to revolve around personal liability litigation.
Alpha experienced the transition along this continuum when it was about to
launch one of the first big products of a new portfolio. FDA came in and threatened to
shut the firm down because of repeated compliance violations in the mid-1990s. A
tremendous amount of what was projected to be their income stream was tied up in that
portfolio, and so FDA was able to get Alpha’s attention more easily and quickly. This
“shock”, as it were, brought about not only fundamental changes in Alpha’s operation,
but also the start of a significant culture shift that was costly in terms of resources, time
and money. Maintaining the state they have attained, however, has been easy. The firm
conducts a series of noon-time talks called “Keeping Current with GMPs”, in which
employees from within the firm discuss pertinent topics, such as “Interpreting the Latest
483s [Notice of Adverse Findings, administered by FDA at the conclusion of an on-site
inspection]”, “How to Set Specifications”, and the most highly attended topic of “What
FDA Inspections Are Like”.
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Alpha found that an understanding of quality and safety standards was best
achieved not when it was involved in an alliance, but when it established ties with FDA
on its own. Problems with FDA investigations and lawsuits related to compromised
patient safety because of out-of-specification drug levels in a product delivery system
wreaked havoc with Alpha’s resources and reputation. A new Alpha management and
associated code of rules regarding FDA-Alpha relations brought into creation a number
of initiatives and procedures for quality and safety that was exemplary.
Alpha representatives stated that they have embraced a culture shift that
welcomes regulation, insofar as it is good for them, their business and their mission. The
FDA approval process is an integral part of product development and impacts the cost
and speed of innovation; accordingly, Alpha has recognized that longer times of approval
translate directly into higher costs. As described by an interview subject, “We must form
a true partnership to get the job done. We owe that to the patients we serve, ... and to
ourselves. We DO have mothers that take these products, and so our objectives aren’t so
wildly out of whack.”
Hypothesis 6bl: Influence strategies by the NBF are positively associated with
increased quality of interactions with FDA.
Overall, the case study and FDA interview data results suggest support for this
hypothesis. FDA and Alpha interview subjects pointed out that virtually all companies
maintain in-house governmental relations units/departments (typically called Regulatory
Affairs) for channeling all FDA-related communications and, importantly, establishing a
sense of continuity and trust with FDA representatives. Further, Alpha representatives
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commented that, through membership in trade associations such as the Pharmaceutical
Manufacturers’ Association (PharMA), they and other firms have been able to provide
suggestions and information to CDER about ways to improve the efficiency of the
approval process. FDA interview subjects noted that, in certain regions, most firms will
belong to at least one or two large industry associations (e.g., Orange County Regulatory
Association, Parenteral Drug Association, Biotechnology Industry Organization, etc.). In
the San Francisco Bay Area, for instance, firms belong to myriad, small groups. In
Seattle or the East Coast, by contrast, most firms belong to large entities such as
Pharmaceutical Manufacturers’ Association. They also utilize forums attended by
industry and FDA representatives, in which opportunities arise (what one interview
subject called “bump interactions”: bumping into someone at a big meeting and making
use of the fortuitous situation) to discuss firm-specific issues with key people.
Hypothesis 6b2: Influence strategies by the NBF are positively associated with an
increased ability to comply with FDA product quality and/or consumer protection
standards.
This proposed hypothesis was not supported. However, since FDA interviews
suggested limited support, some explanation of their comments is in order.
As one FDA interview subject elaborated, one of the many benefits of industry
involvement in trade associations is the constant and timely exposure to key FDA
decision makers and policy enforcers, and regulatory initiatives. His view was that, as
long as the FDA performs oversight activities, firms are going to be afraid of it to some
extent and will never see FDA as true partners. The interview subject’s Regional
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Director often talks of a “regulatory tool kit”, which includes various tactics. If a firm is
made aware of a product problem that might present a health hazard, and yet does not
elect to recall the products, FDA is able to call upon its authority and seize the products.
One of the more powerful (and feared) tools utilized by FDA is called the
Application Integrity Policy (AIP), and it can be devastating to a small company. In
essence, the AIP is a system for reinstating a firm that has “fallen out of favor” by either
making false statements in an application or demonstrating a consistent pattern
(unintentional or otherwise) of inconsistencies in a drug application. As a result of the
generic drug scandal, FDA realized it was too short-staffed to extend “cleanup” resources
with every firm that cheated on applications. Consequently, the notion came about to put
the burden on firms to rescue themselves. Reviews of all current applications for AIP
firms are automatically put on hold. If it is determined that any of their applications are
tainted with false statements, the firm essentially must withdraw the applications and re
file them. AIP firms also must write a corrective action plan and seek FDA approval.
Firms that find themselves in this situation must pay all costs, in addition to the intangible
penalty of seeing their name posted on the web version of the AIP List. While the entire
process is immensely expensive for firms, it has proven to be an effective deterrent to the
temptation of violative activity. Furthermore, through membership in trade associations,
firms have learned from their industry peers and FDA contacts about how best to quickly
resolve, if not avoid, such AIP actions.
4.5 Summary of Findings. In total, combinations of survey, interview, and/or
case study data supported eight of the sixteen original hypotheses. Two of these
predicted relationships were supported more significantly by the quantity and quality of
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the data informing each linkage: (1) the positive association between BPF structural
support and higher quality NBF-BPF alliance (supported by survey and case study data),
and (2) the positive association between alliance-FDA boundary spanning activities and
perceived increased quality of formal and informal interactions with FDA (supported by
survey and FDA interview data). Five additional relationships found relatively less
extensive, but meaningful support in the qualitative results. Namely, BPF trustworthiness
and boundary spanning between alliance partners positively affected the quality of
alliance; and strategic regulatory management activities exerted positive influence in the
quality of interactions with FDA, as well as the ability to comply with FDA quality and
safety standards.
Further discussion regarding the implications of these collective findings is
provided in the concluding chapter.
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Chapter 5
DISCUSSION
This purpose of this study was to broaden our understanding of the theoretical and
associated operational relationships that reflect the various factors influencing the quality
of collaborations between new and established biopharmaceutical firms and outcomes
vis-a-vis the FDA. As such, a conceptually integrated model of interorganizational
collaboration was developed and tested with a triangulated methodology that allowed for
the observation of behavioral and organizational effects on proposed linkages. Higher
quality alliances were suggested to be a function of NBF financial and non-financial
incentives to collaborate, BPF tangible and intangible capabilities for collaboration, and
boundary spanning activities between the partners. These alliances were, in turn,
predicted to be one of two categories of factors affecting quality of formal and informal
interactions with FDA, and the ability to comply with FDA product quality and consumer
protection standards. Boundary spanning activities between the alliance partners and
FDA, as well as strategic regulatory management activities were the other two sets of
factors hypothesized to influence FDA-related outcomes.
The first section of this chapter provides an evaluation of the multi-method results
pertaining to the research hypotheses, justification for the final re-specified model, and
conclusions drawn with respect to the outcomes of the predicted and observed
relationships among the model’s variables. Practical implications for managers and
contributions to the existing literature are discussed in the second section, while the third
section examines limitations of this study and potential areas for future research.
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5.1 Summary of Findings. Based on the results of the quantitative and
qualitative testing methods, a graphical representation of the revised set of significant
linkages is presented in Figure 2. These relationships are summarized as follows:
(1) Boundary spanning activities between alliance partners, BPF structural support, and
BPF trustworthiness were positively associated with a higher quality of alliance between
established and new biopharmaceutical firms.
(2) Boundary spanning activities between the BPF-NBF alliance and FDA, and NBF
compliance and influence strategies for regulatory management were positively
associated with an increased quality of formal and informal interactions with FDA.
(3) Contrary to the hypothesis, NBF-BPF alliance quality was negatively associated with
an increased quality of formal and informal interactions with FDA.
(4) NBF compliance strategies for regulatory management were positively associated
with an increased ability to comply with FDA product quality and consumer protection
standards.
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Figure 2 - Revised Integrative Model of Interorganizational Collaboration
Boundary Spanning
Activities Between the
Alliance and FDA (BSAF)
Boundary Spanning Activities Between
Alliance Partners (BSAP)
BPF Structural
Support (CAPc)
BPF Trustworthiness (CAPe)
(beta =
Quality of the
NBF-BPF
Strategic Alliance
(QUAL)
-.32, p<.05) Increased Quality of Formal
and Informal Interactions with4
FDA (REGb)
Increased Ability to Comply
with FDA Product Quality &
Consumer Protection Standards
(REGc)
> =
relationship supported by case study data only
- • = relationship supported by FDA interview and case study data
— ► = relationship supported by survey, case study,
and, where applicable, FDA interview data
NBF Strategic Regulatory Management
Activities: Compliance Strategies (SRMAa)
NBF Strategic Regulatory Management
Activities: Influence Strategies (SRMAb)
(5) The model developed and tested in this study provides the means to evaluate the
hypotheses in a manner that consolidates complementary perspectives. As indicated
earlier, engaging in boundary spanning activities and possessing non-financial resources
that promote greater cooperation were predicted to enhance the quality of an alliance,
consistent with interorganizational relationship perspectives relating to collaborative
capabilities. The results of the survey and case study findings strongly support this
proposition. Both case study and survey data lent significant justification for the role of
governance mechanisms and training and development in collaboration skills. Case study
interview subjects, meanwhile, provided compelling evidence for the importance of
boundary spanning activities and partner trustworthiness in positively affecting the
quality of a relationship between NBF and BPF collaborators. To the extent that BPFs
are perceived as dependable partners, the fear of opportunistic behavior diminishes,
thereby facilitating the ease with which the NBF counterpart engages in cooperative
activity and information/resource exchange. This is particularly important when factors
such as environmental complexity, asset specificity (Beije, 1996; Shelansky & Klein,
1995), and individual unreliability must be considered, as they would be in the
biopharmaceutical realm. In such situations, individuals must feel confident that their
interests are safeguarded in order to be willing to enter into exchanges. The concern
centered around opportunistic behavior is central in the formation of strategic alliances -
not because all actors behave opportunistically all of the time, but rather because it is
difficult to sieve out those who do behave opportunistically from the general set of actors
who do not (Parkhe, 1993). Gambetta (1988) and others have argued that perceived risk
in cooperation is mitigated by a sense of trust. Consequently, the personal relationships
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formed between partners serve as a signal to both parties about the level and quality of
information transfer and the ultimate success of the collaboration (Cable & Shane, 1997;
Granovetter, 1985; Gulati, 1995; Saxton, 1997; Tsai & Ghoshal, 1998). Hence the value
of a deliberately nurtured reputation for trustworthiness and cooperation.
The addition of structural support capabilities in the BPF and boundary spanning
activities between collaborating parties brings additional “tools” to the table and
increases the likelihood that the alliance would be able to weather turbulence emanating
from miscommunication and the presence of critical environmental cues. As Meyers
(1993) points out, assigning responsibilities for collaborative efforts without providing
adequate preparation or training can result in frustration and undesirable coping
strategies. Further, to the extent that an organization is able to read survival cues outside
its boundaries, it is able to mobilize itself, do what is necessary to remain a contender for
resources/market share, and also stay innovative. This assumes, however, that the
information received is accurate and timely. The ability of an organization to recognize
the value of new, outside information, assimilate it, and apply it toward commercial ends
(Cohen & Levinthal, 1990) is critical to this outcome. Therefore, the role of boundary
spanners in an organization is pivotal to successful learning and, ultimately, the
development of innovative capabilities.
In fact, Hutt, Stafford, Walker, and Reingen (2000) performed a triangulated
study of the social network dynamics in strategic alliances. The team studied an alliance
between two Fortune 500 firms in three phases: in-depth interviews with managers from
both firms, survey, and a case study of the two financial service firms. Although the
relationship studied was focused on the network of connections within an alliance,
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several of Hutt et al.’s findings resonate with those of this study: boundary spanning
activities and trust emerged as critical factors for conflict resolution and the basis of an
informal understanding that clarified the commitments made by both parties. Similarly,
Storck and Hill (2000) chronicle the formation of a strategic community at Xerox
Corporation, identifying six principles critical to the success of the “microcosm” that
lived and operated independently, yet within Xerox - much like the Alpha-Europharm
collaboration team that resided within each firm. One of these principles was an
interaction format that promotes open communication and fosters trust. Stork and Hill
also identify the importance of non-financial capabilities, such as the incorporation of
knowledge-sharing practices that facilitate reflection on acquired learning, and creating a
role for facilitators to encourage openness and commitment to the community.
Interestingly, the hypotheses addressing incentives to collaborate were not
supported by the data. Although the lack of financial and non-financial resources, and
the need to establish a positive reputation are known to be important motivators in the
strategic alliance literature (Powell, Koput, & Smith-Doerr, 1996; Saxton, 1997), what
emerged through formal data collection and informal conversations with respondents
suggests otherwise. Specifically, survey and interview subjects indicated that there is
currently an availability of angel financing (which has eased the traditional venture
capital (VC) bottleneck and removed the associated VC firm stipulations for control over
the NBF top management team and plan for going public), access to a skilled work force
and technology for vertical integration, and a greater ability to establish — on their own —
good standing among peers and with the FDA. As such, NBFs may have found avenues
other than collaboration for accomplishing these particular goals.
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Survey, case study, and FDA interview data provided powerful support for the
role of boundary spanning activity between the alliance and FDA for increasing the
quality of formal and informal interactions with FDA. Boundary spanning units are
important in strategic decision-making because of their ability to recognize and deal with
trends or changes in the environment - an important characteristic of complex
organizations competing to survive (Aldrich & Herker, 1977; Kochan, 1975; Leifer &
Delbecq, 1978; Thompson, 1967). Given the delicate nature of the content exchanged
between industry and FDA counterparts, it is reasonable to expect that the basis for trust
might come about from networks of boundary spanning personnel (such as regulatory
affairs professionals in the biopharmaceutical industry, and FDA Small Business
Representatives). Interpersonal networks in highly competitive organizational arenas are
important mechanisms to sort out trustworthy information (Granovetter, 1985), and
managers field information gathered through extraorganizational, interpersonal networks
to make decisions on how to relate to other organizations in their environment and
accomplish organizational goals (Galaskiewicz & Wasserman, 1989).
The FDA interview and case study data also supported the influence of NBF
compliance and influence regulatory management strategies on an increased quality of
formal and informal interactions with FDA. Graddy (1991) points out that all interest
groups are not equal to the legislators, but collectively they do significantly contribute to
the interest group demand variable that influences whether or not regulation takes place.
It is also important here to recall Oliver’s (1996) statement of three assumptions that
inform the proposition that firms engage in compliance and influence strategies in order
to manage their regulatory environment. These are: (1) firms' efforts to comply with
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regulation may be as tactically useful as efforts to influence regulation; (2) strategic
regulatory management may serve various purposes, ranging from the achievement of
social objectives and legitimacy to competency development, reduced competition, and
increased market share; and (3) firms may engage in multiple strategies simultaneously,
with each designed to address different aspects of the environment. As such, it is
plausible that NBFs’ attempt to create an in-house capability (e.g., through the hiring of
former FDA officials and/or experts with knowledge of regulatory policy developments)
for an “insider’s view” of public policy processes. To the extent that firms could also
influence those processes through collective-level activities, it is reasonable that such
actions would foster a better understanding of FDA constraints and upcoming
enforcement initiatives. The converse would also be true: to the extent that NBFs strive
to employ regulatory management strategies for increasing competitive advantage and
legitimacy, they necessarily make their own decision-making processes more transparent
to FDA. Coupled with boundary spanning activities, then, such regulatory management
strategies could serve to demystify bureaucratic/corporate routines and allow all parties to
communicate efficiently toward the most effective path(s) for problem resolution.
As noted in Chapter 4, survey findings yielded a surprising and significant,
negative coefficient for the proposed relationship between alliance quality and quality of
interactions between the alliance and FDA. It could be that as alliance partners come to
understand how best to work together and bring about optimal product
development/marketing outcomes, there is some level of compromise and subsuming of
one company’s style by that of the other. Differences in the partners’ culture and norms
might lead to conflicting views on how best to “deal” with FDA. This tension may serve
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to degrade the quality of the alliance, which could then create mixed signals and a
diminishing ability to cultivate quality interactions with FDA. Alpha representatives
maintained, in fact, that their own efforts (as opposed to those of their partners) to
cultivate a relationship with FDA is what prompted increased communications with the
agency and resultant open relationship.
Finally, FDA interview and case study results supported the predicted, positive
association between NBF compliance regulatory management strategies and an increased
ability to comply with FDA product quality and consumer protection standards. The data
suggest that a sense of partnership between FDA and industry as well as a culture that
welcomes regulation emerge as byproducts of activities intended to obtain first-mover
advantages and enhance existing core capabilities by aligning operations with regulatory
requirements. It is logical to conclude that to the extent NBFs are successful in this
endeavor, they are able to not only comply, but also anticipate proposed regulations and
ensure compliance with product quality and safety standards.
5.2 Implications. In a broad sense, the study developed here unites several
streams of thinking: one involving interorganizational relationships and another
associated with public-private interactions. The findings presented here extend our
theoretical understanding of collaboration and also have actionable implications for
managers. In particular, this research draws attention to the need for establishing a
network of communications among actors in order to represent interests and formulate
effective and innovative policies. The importance of boundary spanning activities
emerges as a critical factor in facilitating cooperative endeavors, and it is in this context
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that we can focus our discussion first on interorganizational communication and then on
the role of such communication as an enabler of organizational learning.
Successful collaboration depends upon the simultaneous interaction of several
conditions at appropriate phases in the process (Gray, 1985). An inability to achieve the
appropriate conditions during each phase may be the best source of explanations to date
for why collaborative efforts fail. Dyer and Singh (1998), in fact, have suggested that a
firm’s critical resources may span firm boundaries and be embedded in interfirm routines
and processes. In practice, this has ramifications for firms that would otherwise seek to
protect their own resources, as opposed to systematically sharing their know-how. By
engaging in practices that foster commitment to the allied unit and demonstrating through
action that collaboration is in their self-interest, partners can begin to build the social ties
necessary for quality collaboration.
Cultivating interpersonal relationships between members of partner organizations
unites key stakeholders and creates opportunities for interaction and information
exchange. Managers must emphasize the importance of explicating their intentions and
agendas with honesty and openness, thereby engendering a culture of trust and
willingness to problem solve effectively. Accordingly, communication patterns that give
rise to a web of interactions within and between organizations can be broadly described
according to their “vertical” and “lateral” (which include communications between the
organization(s) and the environment) characteristics. In terms of the former, the
hierarchical nature of downward communication flow in and between some organizations
and the often “filtering” effect of managerial directives unfortunately distorts the original,
individual intent of a message, and the outcome can serve to reinforce stereotypes and
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negative perceptions about the message source (Zalkind & Costello, 1962). Similarly,
despite a superior’s desire to understand a subordinate’s concerns, the same filters that
impede downward flow of information in hierarchical structures often impede truthful
conveyance of employees' true feelings and suggestions upward. This was a prevalent
issue in Alpha’s relationship with Europharm, since Alpha personnel were not familiar
with the highly bureaucratic norms for communication and information exchange in
Europharm.
One of the fundamental functions of an effective collaborating organization, then,
is to ensure effective two-way communication through creation of an environment that
reflects that priority, with the intent of removing any filters and minimizing noise
(Gardner, 1990). To the extent that collaborators are able to establish a connection
through face-to-face communication, many of the negative effects of structurally inherent
filters and the possibility of stereotypes and/or projected side effects associated with
inadequate organizational communication can be lessened, if not made obsolete.
Structural support capabilities within each firm would also promote channels of
communication and sustain the relationship; examples include rules for governing
collaboration activities and training and development in collaboration skills (Robertson &
Doshi, 1996). Given that most employees engage in collaborative activities on top of the
remainder of their work requirements, it is important that staff have sufficient expertise
and authority to do the additional work (Meyers, 1993). To the extent that appropriate
knowledge and skills are required, training and development activities that facilitate the
acquisition of these abilities are paramount. Areas for training personnel involved in
collaborative activities might include negotiation and listening skills, conflict resolution
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techniques, team building, and strategic planning. Because of the potential for differing
perceptions of roles, rights, and responsibilities, all such aspects and guidance regarding
management of the collaboration must be elucidated at the outset of the relationship.
Lateral and outward communications, while sharing several likenesses with
upward and downward phenomena, have their own set of characteristics that require
special skills on the part of collaborators. Cohen and Levinthal (1990) provide a
perspective on learning and change that is framed in terms of an organization's ability to
communicate across and between organizational levels and boundaries. Especially in
more technologically oriented organizations, boundaries between work groups are fluid
and permeable. This can be a source of strength and creativity (through properly
channeled conflict), or alternatively, great difficulty. An organization's ability to survive
in demanding environments requires a finely tuned communication network within a
collaborative arrangement, as well as with external players. Boundary spanners, by
nature of their professional roles and individual characteristics that make them amenable
to such work, are adept at monitoring and interpreting external cues that potentially have
impact for an organization’s strategic decision making and direction-setting activities. To
the extent that managers from collaborating organizations take care to incorporate
boundary spanners as an integral part of the relationship-building and sustaining
strategies, then collaborating entities will be in a better position to focus on outcomes
attainment.
Establishing productive communication between partners poses unique
constraints, but also opportunities for learning and ultimately, impact. Agencies such as
the FDA have made remarkable progress over the last decade in reassessing priorities and
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reallocating resources to where they are most effective. Still, the disparity between the
public and private sectors in their capability to formally embrace collaborative practices
remains large. Perhaps one of the most difficult tasks facing leaders of public
organizations is the problem of cultural status quo: employees feel comfortable with the
way things are, and this complacency generates barriers to change (Gore, 1993). The
reinventing government movement is one attempt to bring entrepreneurial practices of the
business sector into public organizations (Osborne & Gaebler, 1992). Osborne and
Gaebler’s suggestions for change are heavily influenced by TQM principles and include
suggestions for more flexibility and innovativeness, greater decentralization, and
increased awareness of customer needs. In order for innovation and learning to take root,
however, the use of a common organizational language and governance rules that unite
different groups/subcultures, as well as training in respecting other cultures (by learning
this common language), is important for sustaining the relationship (Schein, 1992).
A central aspect of positively intervening in an organizational culture is the ability
to enhance and foster organizational learning. The role of the leader-executive in guiding
learning is pivotal in organizations where top management/policy makers call for change
but are not involved with the mechanics of learning and, thus, changing. To the extent
that a leader is able to inspire and cope with change, efforts to modify learning processes
are enhanced. For instance, a triggering event might cause the organization to look for
transformation, which starts the learning cycle. Top managers are often not sensitive to
the presence of such learning cues, however, and critical events that serve as valuable
opportunities for enriching organizational memory and the repertoire of coping strategies
are instead brushed aside. This disregard could send the message that the organization is
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not particularly interested in fundamental improvements. An effective alliance partner
instead fosters a culture of communication by giving importance to and maximizing the
“teachable moment” afforded by the critical event.
Insofar as government managers are able to generate a shared sense of mission in
the context of a larger institutional environment, there is yet the possibility for
transforming public organizations to be more effective alliance partners. Yet there is
much more managers can do to bring about such change, beyond the identification and
pursuit of the goals of an organizational mission. Specifically, managers should also
become accustomed to working collaboratively not only with other agency executives,
but also with other institutional players, such as other levels of government, the
legislature, and clients. The success of a collaborative effort is more likely when
stakeholders are provided with the opportunity to participate in decision-making
processes. To the extent that stakeholders are included in decision making, it is likely
that public managers will be able to elicit greater commitment to a particular set of
goals/missions. Likewise, formation of interfirm work groups that participate in regular
planning and monitoring of a collaborative effort can solidify a sense of ownership and
ongoing commitment between partners. Hence, even activities like conferences or other
regular meetings can provide formal arenas in which coordination can take place, and
they can also give rise to informal relationships among participants that strengthen
coordinative capacity (Chisholm, 1989). The importance of increased citizen
participation as a means of bringing about greater contentment and trust in the
government should also be emphasized, along with improved feedback mechanisms
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regarding program effectiveness and timeliness that are afforded by their inclusion in the
overall process.
While the above discussion focuses on recommendations for enhancing the
development and quality of linkages among collaborating firms, there is also the need for
policymakers to consider an expanded set of organizational and policy tools that would
foster ties and a level of trust that would support an accelerated rate of innovation,
productivity (Fountain, 1998), and in the arena discussed here, the continuing attainment
of agency goals for ensuring public health. Accordingly, even though informal exchange
practices are becoming more common, governmental organizations should actively
provide incentives and information to promote the use of networks and consortia that
connect firms with universities, national research laboratories, and government
partnership programs (Fountain, 1998). Development and maintenance of effective
alliances involving a broad institutional base are increasingly recognized as an important
avenue for addressing critical issues pertaining to the public interest.
5J Limitations of the Study and Future Directions. Every research endeavor
seeking to measure subjective dimensions of organizational behavior has its constraints.
Although the study developed and presented here suggests several contributions with
regard to the theoretical and practical aspects of interorganizational collaboration, there
are certainly qualifications to the scope of viable generalizations. Methodologically, the
empirical testing of the model and accurate interpretation of findings were affected by
small sample sizes and a sub-optimal response rate for the quantitative portion of the
study. The scale modifications resulting from factor analysis (as described in Chapter 3)
demonstrate that the variable classifications were somewhat tenuous — an artifact of the
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small sample size, no doubt. Further, the research could have been strengthened by the
identification of a greater number of NBF respondents having knowledge of alliances,
irrespective of their official job title, and administration of surveys and/or interviews of
established biopharmaceutical firm representatives. Incorporating such varied
respondents would have balanced the perspectives ascertained, and conclusions reached
might have applied differentially to various sets of collaboration partners.
In addition, reliance upon the survey perceptions of NBF regulatory/business
development professionals for understanding alliance dynamics potentially evoked a bias
towards only positive alliance experiences. Numerous respondents indicated to the
researcher that they were eager to relate their poor experience in the context of the
questionnaire (and were comfortable doing so given the anonymous nature of the data
collection procedure). However, in light of the survey administration design, many
respondents may have responded according to a default, positive collaboration
recollection in the absence of specific instructions to provide responses representing both
positive and negative alliance experiences.
Because the industry is changing so rapidly and the nature of viable arrangement
types is evolving equally quickly, conducting this study longitudinally would provide the
type of data for assessing long-range effects and trends. The examination of an
alliance/network over a longer period of time might uncover effects found by Pennings
and Harianto (1992) in the banking industry, and then Deeds and Hill (1996) in the
biotechnology industry. In particular, both sets of researchers found a U-shaped
relationship between the number of alliances in which a firm is engaged and the rate of
new product development. In this view, strategic alliances initially represent a viable
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mechanism for firms to gain access to the complementary assets required to increase their
rate of new product development. What the studies demonstrated, however, is that
participation in a critically high number of alliances creates the possibility of diminishing
and ultimately, negative returns. Deeds and Hill (1996) found 25 alliances to be the
number at which what they term “malperformance” sets into motion.
While this inquiry extends our awareness of the effects of an institutionally
constrained environment on alliance formation and the nature of the relationships
between partners and with the FDA, there are associated issues beyond those already
described that are worthy of attention. From the perspective of model development, for
instance, additional research needs to be conducted in order to identify other potential
determinants of interorganizational collaboration. In the present study, the NBF’s
perceived lack of available external financial resources and internal non-financial
resources, and the need to improve their reputation with industry peers and the FDA, did
not exert significant effects in the predicted relationships involving quality of the
alliance. Accordingly, other factors should be identified and appraised for their power to
elucidate collaboration mechanisms. In particular, future research would benefit from a
lens which explores and appreciates simultaneously cooperative and competitive
behavior by collaborating parties. Das and Teng (1999), for instance, highlight the
inherent risks associated with engaging in alliances, given that success is often unrelated
to an individual partner’s efforts. In their view, managing the collaboration requires an
ability to maintain sufficient cooperation and a certain level of competition, since private
interests are unavoidable. They thus view cooperative and competitive practices in an
alliance as dynamic and permanent conditions, contending that the relational (risk of
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unsatisfactory interorganizational cooperation) and performance (all other factors
adversely affecting alliance performance) risks inherent to alliances must be factored
when managing the relationship.
This research sought to characterize the nature of associations that exist within a
network through a triangulation of methods. As described in Chapter 3, this approach
was useful for understanding attribute data by comparing findings from different settings
and allowing divergent results to enrich explanation (Begley, 1996; Shih, 1998).
However, further research in this arena would benefit from the utilization of network
analysis to examine the relational component of behavioral and organizational dynamics
within a public-private context. To the extent that a network analysis methodology could
identify the contacts, ties, and linkage characteristics between players, a more systems-
oriented model can be developed to complement extant findings and enrich our current
understanding of collaboration.
Based on the significant role of partner trustworthiness in determining alliance
quality in this study, we see that trust and social capital are not necessarily conceptually
distinct and, in fact, share features and confer similar benefits. Walker, Kogut, and Shan
(1997) found those firms with less social capital and/or perceived trustworthiness were
more vulnerable to succumbing to opportunistic behavior and less able to build an
enduring history of effective cooperative behavior with their partners over time. Firms
choosing to partner with this type of organization are thus required to expend greater time
and effort monitoring the relationship. In contrast, the more of this type of capital that is
available to a firm, the fewer resources it needs to manage existing relationships. As
such, one of the more fruitful areas for future study lies in the application of social capital
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theory to our understanding of interorganizational relationships in institutionally
constrained environments, in which there is an ever-present incentive to act
opportunistically. Specifically citing the biotechnology industry in the United States,
Fountain (1998) has spoken to this effect, arguing that social capital is a necessary
enabler of effective public-private partnerships and of a new, more collaborative style of
innovation policy.
More broadly, it is reasonable to pose the question of how our understanding of
social capital theory can inform and advance social responsibility in the context of
regulatory issues. The data have shown here that the biopharmaceutical industry is well
aware that their participation in and attention to relationship building can and/or will
bring about change. Researchers have yet to apply efforts to discern the mechanisms for
fostering an environment that enables industry and governmental agencies to see the
immediate benefits of participation in associations that reinforce socially productive
action. A logical direction for future study, then, would be to understand the
organizational and policy mechanisms that allow a focus on learning, collaborative
decision-making, fostering linkages, and developing a level of trust that would support
accelerated innovation, productivity, and a consistent safeguarding of the public health.
5.4 Concluding Remarks. A wide variety of institutional arrangements -- joint
ventures, associations, promotional networks — are being used to coordinate activities
across organizational boundaries. New mechanisms for integrating and controlling
different sectors of the economy are emerging, and it is the systemic network (e.g.,
clusters of organizations that make decisions jointly and integrate their efforts to produce
a product or service) that may offer the greatest competitive advantages in a global
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economy (Alter & Hage, 1993). Such networks adjust more rapidly to changing
technologies and market conditions, facilitate development of new products and services
in a shorter time period, and concomitantly provide a greater number of creative
solutions. As such, many companies are evolving structures that are smaller,
decentralized, and based on strategies of cooperation and horizontal relationships.
While the extant interorganizational relationship literature has provided valuable
insights into specific determinants of collaboration, there has been little synthesis of the
various frameworks leading to a more encompassing understanding of this type of
arrangement and its denouement. Safety concerns and policy changes that reflect
constituency demands have bolstered an awareness of the mutual dependence, if not
symbiotic relationship, between the public and private sectors of the biopharmaceuticals
market. The degree to which this dependence is constructive, however, depends on the
ability of firms (and the perception of their ability) to react to government, and vice
versa. Through an integration of relevant theoretical perspectives, this exploratory study
advanced a parsimonious model to characterize certain dimensions of interorganizational
relationships in a regulated environment.
Because the study is fundamentally exploratory, the resultant model is engaging at
various levels. Methodologically, the modeling effort and resultant framework are
appealing because they reflect the use of multiple approaches to examine a complex
network of associations. A broad assessment of the interorganizational relationship of
interest was conducted by surveys of NBFs, using a newly developed instrument to gauge
both alliance and regulatory objectives. This was complemented by an in-depth case
study of a mature NBF, as well as interviews of FDA officials familiar with many of the
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lesser-publicized facts and actions that guide the delicate relationship between the
biopharmaceutical industry and FDA. Although none of the three data collection
mechanisms provided substantive sample sizes on their own, the value lies in the richness
and contextual details that emerged from the confluence of approaches. Few studies in
organization theory/behavior have embraced triangulation as a methodological norm. As
Staw (1992:136) explains, “all of us in organizational research nod approvingly when
multiple methods are extolled,” despite the fact that most researchers typically rely on a
single methodology only.
The resultant model also represents a conceptually integrative approach to model
development and empirical assessment (of behavioral and organizational effects on
proposed linkages) in order to broaden the scope of our understanding of alliances at
large. As described at various stages throughout this exposition, the field of inquiry
focusing on interorganizational relationships is as yet an incomplete map. Conclusions
derived here serve as a preliminary guide for realigning research agendas that reflect the
more compelling areas emerging from this study. Eight of the sixteen originally
hypothesized paths are retained in the re-specified model presented here and are thereby
supported by findings in the literature. The study also addresses previously unanswered
questions in the literature in terms of our understanding of small firm individual and
collaboration behavior in highly competitive and institutionally constrained
environments. Whereas the organization theory/strategy/management literature has
defined “core competence” in terms of technical expertise or strategic goals (e.g.,
Thomas, Pollack, & Gorman, 1999), findings from this study support the role of social
and/or non-financial capabilities that define collaborative success. Further, as pointed out
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by Khanna (1998), the extant literature has not yet identified the sequence of events
commencing pursuant to the initiation of an alliance; he suggests case studies as an
avenue for understanding how alliances unfold. The revised model thus seeks to address
this gap in a particular industry setting, with the intention of identifying patterns that can
be generalized to our understanding of interfirm relationships.
The exploration of alliance dynamics and public-private interactions in the study
of collaboration within an institutionally constrained environment provides a rich area for
future inquiry. The findings derived here can be used to advance our theoretical and
applied knowledge about the considerations underlying the success of firms and agencies
collaborating with one another. Modeling a conceptually integrative set of factors
supporting interorganizational relationships is an important, empirical contribution to the
organization theory and public management disciplines, and the hope is that the larger
body of knowledge encompassing organizational effectiveness and change will benefit
from these observations.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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APPENDICES
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APPENDIX A
List of Hypotheses
* "NBF" = new biotechnology firm
* "BPF" = established biopharmaceutical firm
HI a: A lack of easily accessible, external financial resources for the NBF is positively
associated with a higher quality of alliance between an NBF and BPF.
Hlb: A lack of in-house, non-financial resources for the NBF to vertically integrate
from R&D through distribution is positively associated with a higher quality of
alliance between an NBF and BPF.
Hlc: The need for the NBF to improve its reputation with peer firms and the FDA is
positively associated with a higher quality of alliance between an NBF and BPF.
H2a: Partner firm (BPF) technical expertise is positively associated with a higher
quality of alliance between an NBF and BPF.
H2b: Partner firm (BPF) strategic alliance experience is positively associated with a
higher quality of alliance between an NBF and BPF.
H2c: Partner firm (BPF) structural support capabilities (i.e., rules for governing
collaboration activities, and training and development in collaboration skills) are
positively associated with a higher quality of alliance between an NBF and BPF.
H2d: Partner firm (BPF) trustworthiness is positively associated with a higher quality
of alliance between an NBF and BPF.
H3: Boundary spanning activities between the NBF and BPF partner firms are
positively associated with a higher quality of that alliance.
H4a: The quality of alliance between an NBF and a BPF is positively associated with
increased quality of formal and informal interactions with FDA.
H4b: The quality of alliance between an NBF and a BPF is positively associated with
an increased ability to comply with FDA product quality and/or consumer
protection standards.
H5a: Boundary spanning activities between the NBF-BPF alliance and the FDA are
positively associated with increased quality of interactions with FDA.
H5b: Boundary spanning activities between the NBF-BPF alliance and the FDA are
positively associated with an increased ability to comply with FDA product
quality and/or consumer protection standards.
175
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APPENDIX A (continued)
List of Hypotheses
H6al: Compliance strategies by the NBF are positively associated with increased quality
of interactions with FDA.
H6a2: Compliance strategies by the NBF are positively associated with an increased
ability to comply with FDA product quality and/or consumer protection standards.
H6bl: Influence strategies by the NBF are positively associated with increased quality of
interactions with FDA.
H6b2: Influence strategies by the NBF are positively associated with an increased ability
to comply with FDA product quality and/or consumer protection standards.
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APPENDIX B
Dear (Name of survey participant):
I am conducting a research project that will be the basis for my Ph.D. dissertation
at the University of Southern California. This research project requires participants to fill
out a questionnaire asking their opinions regarding various aspects of their firm’s
experience in collaborative activities with other biopharmaceutical firms.
The results of this large-scale study may have positive, downstream benefits to
you and your colleagues in the industry. In particular, the results will help to advance our
understanding of the dynamics of strategic alliances, and their role in bringing about
improved firm efficiency for product application submissions and shorter-times-to-
approval. I am particularly interested in obtaining your responses because your
experience in developing successful strategies for survival in a regulated environment
will contribute significantly toward solving some of the problems faced by management
in the biopharmaceutical industry. The data collected will be used to generate a report (a
copy of which will be sent to you and to FDA's Center for Drug Evaluation and
Research) to propel and facilitate FDA policy changes that will ultimately benefit the
biopharmaceutical industry.
Participation in the study is voluntary; however, if you choose not to participate,
the benefit of your knowledge will be lost, and the accuracy of the study will be lowered.
Consequently, your responses are important!
On the following pages you will find several different kinds of questions about
your firm and about the relationship with your alliance partner firm. Specific instructions
are given at the start of each section. Please read them carefully. It should take no more
than IS minutes to complete the entire questionnaire.
The questions are designed to obtain your perceptions of your firm's alliance with
another biopharmaceutical firm. There are no right or wrong answers. There are no trick
questions.
Your individual answers will be kept completely confidential. Please answer
each item as honestly and frankly as possible. The data generated from this study will
not be used by your, or any other firm for any purpose. Upon completion of the
questionnaire, please return it to me in the stamped envelope provided.
Thank you for your cooperation!
Sincerely,
Ami Doshi
Ph.D. Candidate
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Interorganizational Collaboration Survey
l
Thank you for taking the time to complete this survey. Please answer in terms of one
previous strategic alliance with a large pharma firm and respond to the questions in terms
of that particular alliance only. The questionnaire is designed to understand the
organizational dynamics throughout an alliance relationship, so it is very important that
your answers reflect the experiences of one, specific collaboration.
It is not necessary to indicate the name of the partner or alliance that is the basis for your
responses. All responses will be kept strictly confidential.
1. Please circle the term(s) that best describes the type of strategic alliance that will be
the basis of your answers in the rest of this survey.
(1) R&D Alliance (4) Manufacturing Agreement
(2) Joint Venture (5) Marketing/Distribution Agreement
(3) Licensing Agreement (6) Other___________________
2. In approximately how many prior strategic alliances has your firm's alliance partner
been a participant? ______
3. How many of those prior alliances were with other, new biotechnology firms?
4. How many patents are owned by your firm? ____
5. In what city and state did product development primarily take place?
6. In what city and state were clinical trial protocols coordinated or managed?
7. Please circle the choice which reflects the status of your joint submission:
(a) The submission was approved by the FDA
(b) The submission is currently under review by the FDA
(c) The submission was not approved by the FDA
(d) Other (please describe)
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Interorganizational Collaboration Survey
]
8. How long did you estimate the approval process would take (from the point of initial
NDA submission to final FDA approval) and how long did it actually take?
Estimated number of months:____
Actual number of months:____
To what extent do you feel the following statements are true? Using the following scale
to indicate your response, please circle the number which most accurately describes your
opinion:
1 2 3 4 5 6 7
Not At All Not Very To A Lesser Somewhat A Fair Very Much Completely
Much Degree Amount
1. Prior to forming the alliance, my firm had an adequate level of
financial resources to fund research projects. 1 2 3 4 5 6 7
2. My firm had a higher frequency of meetings with FDA personnel
after forming the alliance than we did before. 1 2 3 4 5 6 7
3. Our partner firm developed board-level relationships when they
collaborated with us. 1 2 3 4 5 6 7
4. Since joining the alliance, my firm better understands the steps we
need to take to comply with FDA expectations for high product
quality standards. 1 2 3 4 5 6 7
5. Since joining the alliance, my firm better understands the steps we
need to take to comply with FDA expectations for good
manufacturing practices. 1 2 3 4 5 6 7
6. My firm has all the necessary personnel for performing R&D,
manufacturing and distribution in-house. 1 2 3 4 5 6 7
7. Our partner firm followed informal rules that guided their interactions
with us in collaborative activities. 1 2 3 4 5 6 7
8. Since joining the alliance, my firm has reduced confidence that
FDA personnel understand our position or views. 1 2 3 4 5 6 7
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Intcronpmizational Collaboration Survey
9. Prior to forming the alliance, my firm did not have adequate financial
resources in-house to accomplish our objectives. 1 2 3 4 5 6 7
10. My firm does not need to enhance its reputation with
the FDA. 1 2 3 4 5 6 7
11. Our partner firm did not provide teamwork skills development training
opportunities to their members who were involved in alliance-
related work. 1 2 3 4 5 6 7
12. My firm does not have the necessary, physical facilities for
performing R&D, manufacturing and distribution
in-house. 1 2 3 4 5 6 7
13. Our partner firm has sufficient alliance experience to be an effective
participant in collaborative activities with us. 1 2 3 4 5 6 7
14. My firm's alliance partner has employees who possess technical/
research knowledge that is useful for us. 1 2 3 4 5 6 7
To what extent do you feel the following statements are true? Using the following scale
to indicate your response, please circle the number which most accurately describes your
opinion:
1 2 3 4 5 6 7
Not At All Not Very To A Lesser Somewhat A Fair Vety Much Completely
Much Degree Amount
15. Our partner firm did not devote adequate resources to preparing their
members for collaboration-related responsibilities. 1 2 3 4 5 6 7
16. Since joining the alliance, members of my firm are now more likely
to contact FDA personnel with questions. 1 2 3 4 5 6 7
17. My firm has all the necessary equipment/technology for performing
R&D, manufacturing and distribution in-house. 1 2 3 4 5 6 7
180
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Interorganizational Collaboration Survey
18. We have a well-established name among our industry
peers. 1 2 3 4 5 6 7
19. Since joining the alliance, my firm feels a greater commitment
to problem-solving with FDA personnel. 1 2 3 4 5 6 7
20. My firm's alliance partner has equipment/technology that is
useful for us. 1 2 3 4 5 6 7
21. Our partner firm did not maintain written agreements that specified
the terms and conditions of their alliance with us. 1 2 3 4 5 6 7
22. Since joining the alliance, my firm's dealings with FDA
personnel are more open and honest. 1 2 3 4 5 6 7
23. Our partner firm advocated the use of a joint steering committee
when they formed the alliance with us. 1 2 3 4 5 6 7
24. My firm has more fear of judgment by FDA personnel after
forming the alliance than we did before. 1 2 3 4 5 6 7
25. Our partner firm provided leadership development training
opportunities to their members who were involved in
alliance-related work. 1 2 3 4 5 6 7
26. Joining the alliance did not help my firm communicate more
effectively with the FDA about their expectations for ensuring
consumer protection with our products. 1 2 3 4 5 6 7
27. The time required to obtain FDA approval of the product developed
with our alliance partner was less than the amount of time
my firm expected it would take. 1 2 3 4 5 6 7
181
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Interorganizational Collaboration Survey
For each item below, please circle the number that most accurately describes your
opinion. Use the following scale to indicate your response:
1 2 3 4 5 6 7
Completely Disagree Slightly Neither Agree Slightly Agree Completely
Disagree Disagree nor Disagree Agree Agree
1. Our partner firm has always been evenhanded in its negotiations
with U S. 1 2 3 4 5 6 7
2. It is not a common practice for alliance representatives to meet
with FDA representatives. 1 2 3 4 5 6 7
3. In carrying out my job responsibilities, I often talk (either in
person or over the phone) with people who are employed
at our alliance-partner firm. 1 2 3 4 5 6 7
4. Ad hoc meetings are frequently held with people from our
partner firm. 1 2 3 4 5 6 7
5. Alliance representatives schedule regular (e.g., weekly, monthly)
update meetings with FDA representatives. 1 2 3 4 5 6 7
5. Being in an alliance has afforded my firm access to financial
resources that might have been unavailable
otherwise. 1 2 3 4 5 6 7
6. In general, this alliance was not an effective
partnership. 1 2 3 4 5 6 7
8. Our partner firm may use opportunities that arise to profit at
our expense. 1 2 3 4 5 6 7
9. Being in an alliance has facilitated FDA review of our product
application to an extent that might not have been possible
if we had proceeded alone. 1 2 3 4 5 6 7
10. Based on past experience, we cannot with complete confidence
rely on our partner firm to keep promises made
to US. 1 2 3 4 5 6 7
182
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Interorgminrtional Collaboration Survey
11. Members of my firm do not interact informally with people
from our partner organization. 1 2 3 4 5 6 7
12. Our partner firm is trustworthy. 1 2 3 4 5 6 7
13. People from my firm schedule regular (e.g., weekly, monthly)
update meetings with members of our partner firm. 1 2 3 4 5 6 7
14. Members from the alliance explored all compliance-related issues
with the FDA by phone, letter, and/or e-mail prior to a new
product approval submission. 1 2 3 4 5 6 7
15. Engaging in interorganizational collaboration was not a good
method for attaining FDA product approval. 12 3 4 5 6 7
For each item below, please circle the number that most accurately describes your
opinion. Use the following scale to indicate your response:
1 2 3 4 5 6 7
Completely Disagree Slightly Neither Agree Slightly Agree Completely
Disagree Disagree nor Disagree Agree Agree
16. Alliance representatives frequently hold ad hoc meetings with
FDA representatives. 12 3 4 5 6 7
17. We are hesitant to transact with our partner firm when the
agreements are vague. 1 2 3 4 5 6 7
18. It is not a common practice for members of my firm to meet
with representatives from our partner organization. 1 2 3 4 5 6 7
183
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Intel-organizational Collaboration Survey
To what extent have you implemented the following to gain a competitive advantage over
other firms developing FDA regulated products in the same therapeutic area (e.g., by
facilitating FDA evaluations of facilities and products; bringing about FDA/legislative
reform; understanding changes in FDA regulations; seeking tax, intellectual property or
other legal protection)? Using the following scale to indicate your response, please circle
the number which most accurately describes your opinion:
1 2 3 4 5 6 7
Not At All Not Very To A Lesser Somewhat A Fair Very Much Completely
Much Degree Amount
1. We have implemented unique quality codes. 1 2 3 4 5 6 7
2. We have in-house governmental relations units or
departments. 1 2 3 4 5 6 7
3. We belong to industry organizations (e.g., CONNECT,
Biotechnology Industry Organization, Pharmaceutical
Manufacturers' Association). 1 2 3 4 5 6 7
3. We have implemented unique manufacturing
techniques. 1 2 3 4 5 6 7
5. We have hired regulatory consultants or experts. 1 2 3 4 5 6 7
6. We have joined other biopharmaceutical firms that were also
experiencing intellectual property or other
legal difficulties. 1 2 3 4 5 6 7
7. We have implemented unique management practices. 1 2 3 4 5 6 7
8. We have hired ex-FDA investigators, reviewers or
management. 1 2 3 4 5 6 7
THANK YOU VERY MUCH FOR YOUR COOPERATION
* Your responses will be kept confidential. No personally identifiable information is to
be used in this survey. The questionnaire is only coded to keep track of who responds to
the survey. Please return the completed survey in the attached, stamped envelope.
184
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APPENDIX C
FDA Interview Question Guide
■ General questions about respondent’s position and experience.
1. What is/was your (current or former) job title and role within the Agency?
2. To what extent and in what capacity have you interacted with firms in the
biopharmaceutical industry? (e.g., the number of years that you have had each
type of responsibility with respect to overseeing the biopharmaceutical
industry’s activities)
3. Have you had experience in dealing with biopharmaceutical firms that are
engaged in strategic alliances with large, pharma firms? If so, have you had
interactions with representatives from those pharma partners in the context of
your oversight of the relatively smaller, biopharmaceutical firm?
• Current state of relations between FDA’s District/Region/Headquarters with the
biopharmaceutical industry.
1. Based on your experiences in the years that you have been with the Agency,
what is your opinion of the areas in which FDA can facilitate communication
with firms regarding drug product safety standards/public health issues?
2. Has it been your experience to participate in ad hoc or regularly scheduled
(e.g., weekly, monthly) update meetings with firm representatives to explore
compliance-related issues prior to a new product (or facility) approval? Have
you participated in phone, letter, or e-mail discussions with firms to explore
such issues?
3. What do you perceive to be FDA’s constraints (if any) in achieving the goal of
drug product safety standards/public health issues? (e.g., any actual or
perceived limits on the number, length, and content of interactions that are
considered appropriate)
4. Do you have any specific suggestions for organizational or policy changes
that might facilitate communication with industry and compliance in the areas
of:
a. Compliance with FDA expectations for good manufacturing practices
and high product quality standards, and
b. Ensuring consumer protection?
185
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APPENDIX C (continued)
FDA Interview Question Guide
5. In terms of ways in which the biopharmaceutical industry can facilitate an
improved relationship with FDA in the area of maintaining product safety
standards,
a. What are your thoughts on this matter, and
b. What do you feel might be firms’ constraints (if any) in this area?
6. From what you have seen and/or experienced through your responsibilities at
the FDA, what is your sense about the extent to which the biopharmaceutical
industry implements any of the following for the purposes of competitive
advantage?
a. Implementing unique quality codes
b. Implementing unique manufacturing techniques
c. Implementing unique management practices
d. Hiring regulatory consultants or experts
e. Hiring ex-FDA investigators, reviewers, or management
7. From what you have seen and/or experienced through your responsibilities at
the FDA, what is your sense about the extent to which the biopharmaceutical
industry implements any of the following for the purposes of regulatory
advantage and/or influencing policy?
a. Maintaining in-house governmental relations units or departments,
b. Membership in industry organizations (e.g., CONNECT, BIO,
Pharmaceutical Manufacturers’ Association),
c. When faced with intellectual property or other legal difficulties,
joining other biopharmaceutical firms that were also experiencing the
same.
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APPENDIX D
Alpha Incorporated Case Study Interviews
Discussion Question Outline
■ What is your job title and role within the firm?
■ To what extent do you think Alpha has implemented any of the following?
a. Unique quality codes
b. Unique manufacturing techniques
c. Unique management practices
d. Hiring regulatory consultants or experts
e. Hiring ex-FDA investigators, reviewers, or management
■ Please describe the various memberships Alpha holds in trade associations, and the
benefits (if any) conferred accordingly?
• With respect to the various types of alliances that the firm has engaged in,
1. Please describe the unique circumstances that characterized those alliances
that were a positive experience for the firm.
2. Please describe the unique circumstances that characterized alliances that
were less than positive for the firm.
3. What firm behaviors do you think contributed to making successful alliances
work? Partner behaviors?
4. What firm behaviors do you think might have contributed to making
unsuccessful alliances dissolve? Parmer behaviors?
■ Current state of relations between FDA and the firm
1. Please describe the general evolution of the firm’s relationship with (a) FDA
Centers (e.g., CDER), and (b) FDA’s local District Office.
2. What is your opinion of the areas in which FDA can facilitate communication
with the firm regarding drug product safety standards/public health issues?
187
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APPENDIX D (continued)
Alpha Incorporated Case Study Interviews
Discussion Question Outline
■ Do you have any specific suggestions for organizational or policy changes that might
facilitate communication with industry and compliance in the areas of:
a. Compliance with FDA expectations for good manufacturing practices
and high product quality standards, and
b. Ensuring consumer protection?
■ Regarding the ways in which the biopharm industry can facilitate an improved
relationship with FDA in the area of maintaining product safety standards,
a. What are your thoughts on this matter, and
b. What do you feel might be firms’ constraints (if any) in this area?
188
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Incentives to
Collaborate
1 . Lack of external
NBF financial
resources
(INCa, alpha = 0.61)
2. Lack of in-house
NBF non-financial
resources
(INCb, alpha = 0.87)
3. The need to
establish a positive
reputation with peer
firms and the FDA
(INCc, alpha = -.17)
■ Prior to forming the alliance, my firm had an adequate level of
financial resources to fund research projects.
■ Prior to forming the alliance, my firm did not have adequate
financial resources in-house to accomplish our objectives.
(Reverse-scored)
• My firm has all the necessary' personnel for performing R&D,
manufacturing and distribution in-house.
■ My firm does not have the necessary, physical facilities for
performing R&D, manufacturing and distribution in-house.
(Reverse-scored)
■ My firm has all the necessary equipment/technology for
performing R&D, manufacturing and distribution in-house.
■ My firm does not need to enhance its reputation with the FDA.
(Reverse-scored)
■ We have a well-established name among our industry peers.
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Partner Finn’s
Capability
1. BPF Technical
expertise
(CAPa, alpha = 0.74)
2. BPF Strategic
alliance experience
(CAPb, alpha = 0.62)
3. BPF Structural
support
(CAPc, alpha = 0.53)
■ My firm's alliance partner has employees who possess
technical/research knowledge that is useful for us.
■ My firm’ s alliance partner has equipment/technology that is useful
for us.
■ In approximately how many prior strategic alliances has your
firm's alliance partner been a participant?
• How many of those prior alliances were with other, new
biotechnology firms?
■ Our partner firm has sufficient alliance experience to be an
effective participant in collaborative activities with us.
• Our partner firm developed board-level relationships when they
collaborated with us.
■ Our partner firm provided leadership development training
opportunities to their members who were involved in alliance-
related work.
©
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Partner Firm’s
Capability contd.
3. BPF Structural
support contd.
(CAPc, alpha = 0.53)
4. BPF
Trustworthiness
(CAPd, alpha = 0.84)
■ Our partner firm did not devote adequate resources to preparing
their members for collaboration-related responsibilities. (Reverse-
scored)
■ Our partner firm did not provide teamwork skills development
training opportunities to their members who were involved in
alliance-related work. (Reverse-scored)
■ Our partner firm has always been evenhanded in its negotiations
with us.
■ Based on past experience, we cannot with complete confidence
rely on our partner firm to keep promises made to us. (Reverse
scored)
■ Our partner firm is trustworthy.
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Boundary Spanning
Activities Between
Alliance Partners
(BSAP, alpha = 0.63)
■ In carrying out my job responsibilities, I often talk (either in
person or over the phone) with people who are employed at our
alliance-partner firm.
■ People from my firm schedule regular (e.g., weekly, monthly)
update meetings with members of our partner firm.
■ Ad hoc meetings are frequently held with people from our partner
firm.
Construct Dimension Survey Questions
Boundary Spanning
Activities Between
the Alliance and
FDA
(BSAF, alpha = 0.56) • Alliance representatives frequently hold ad hoc meetings with FDA
representatives.
■ Alliance representatives schedule regular (e.g., weekly, monthly)
update meetings with FDA representatives.
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Quality of the
NBF-BPF Strategic
Alliance
(QUAL, alpha = 0.53) In general, this alliance was not an effective partnership. (Reverse
scored)
Being in an alliance has facilitated FDA review of our product
application to an extent that might not have been possible if we
had proceeded alone.
The time required to obtain FDA approval of the product
developed with our alliance partner was less than the amount of
time my firm expected it would take.
Engaging in interorganizational collaboration was not a good
method for attaining FDA product approval. (Reverse-scored)
S O
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Strategic
Regulatory
Management
Activities
1. Compliance
strategies
(SRMAa, alpha = 0.69)
1. Influence strategies
(SRMAb, alpha = 0.53)
• We have implemented unique quality codes.
■ We have implemented unique manufacturing techniques.
■ We have implemented unique management practices.
■ We have hired ex-FDA investigators, reviewers or management.
■ We have hired regulatory consultants or experts.
■ We belong to industry organizations (e.g., CONNECT,
Biotechnology Industry Organization, Pharmaceutical
Manufacturers' Association).
■ We have joined other biopharmaceutical firms that were also
experiencing intellectual property or other legal difficulties.
■ We have in-house governmental relations units or departments.
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Table 1. Identification, Measurement, and Reliabilities o f Variables
Construct Dimension Survey Questions
Improved
Regulatory
Outcomes
1. Increased quality of
formal and informal
communications
with FDA
(REGb, alpha = 0.79)
2. Increased ability to
comply with FDA
product quality &
consumer protection
standards
(REGc, alpha = 0.63)
• Since joining the alliance, members of my firm are now more
likely to contact FDA personnel with questions.
• My firm had a higher frequency of meetings with FDA personnel
after forming the alliance than we did before.
■ Since joining the alliance, my firm's dealings with FDA personnel
are more open and honest.
■ Since joining the alliance, my firm feels a greater commitment to
problem-solving with FDA personnel.
■ Since joining the alliance, my firm better understands the steps we
need to take to comply with FDA expectations for good
manufacturing practices.
■ Since joining the alliance, my firm better understands the steps we
need to take to comply with FDA expectations for high product
quality standards.
■ Joining the alliance did not help my firm communicate more
effectively with the FDA about their expectations for ensuring
consumer protection with our products. (Reverse scored)
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Table 2. Univariate Statistics and Pearson Correlation Coefficients
N = 39: * Correlation significant at the .05 level; ** Correlation significant at the .01 level
Variable Mean Min/Max s.d. 1 2 3 4 5 6 7 8 9 10 II 12 13
1 . INCa 3.65 1.0/7.0 1.79 1.00
2. INCb 3.24 1.0/7.0 1.91 0.07 1.00
3. INCc 4.44 2.0/7.0 1.23 -0.04 .34* 1.00
4. CAPa 5.47 1.5/7.0 1.36 0.09 -0.09 .33* 1.00
5. CAPb 3.30 1.0/6.3 1.30 0.11 0.09 0.27 .40* 1.00
6. CAPc 3.90 1.0/6.0 1.30 0.09 .32* 0.10 0.24 0.21 1.00
7. CAPd 4.58 1.7/7.0 1.60 .43** -0.08 -0.06 0.16 0.27 .46** 1.00
8. BSAP 5.40 2.0/7.0 1.28 -0.08 -0.03 0.01 .31* -0.20 0.16 0.02 1.00
9. QUAL 3.70 1.8/ 6.5 1.10 0.24 0.11 0.20 .44** .37* .64** .55** 0.24 1.00
10. BSAF 2.30 1.0/5.5 1.30 0.05 .45** .28* 0.09 0.09 .36* -0.03 0.19 .38* 1.00
II.SRMAa 4.40 2.2/6.6 1.36 0.21 .55** 0.26 0.22 0.01 0.28 0.10 0.17 0.15 0.20 1.00
12. SRMAb 3.90 1.0/7.0 1.47 0.15 .47** .39** 0.10 0.23 0.22 0.00 0.08 0.11 .33* .64** 1.00
13. REGa 2.27 1.0/5.3 1.25 -0.17 .31* .35* 0.08 0.06 0.14 -.38** -.22 -0.12 .42** 0.29* .31* 1.00
14. REGb 2.92 1.0/6.0 1.43 -.01 0.24 .45** .30* 0.12 0.27 -0.20 -0.18 0.20 0.29* .31* .35* .62**
0\
14
1.00
Table 3a. Results from Multiple Regression of Quality of NBF-
BPF Alliance on Independent Variables (N - 39)
Variable
(INCa) Lack o f in-house
NBF financial resources
(INCb) Lack o f in-house NBF
non-financial resources
(INCc) NBF need to improve
reputation with FDA, peers
(CAPa) BPF technical expertise
(CAPb) BPF strategic alliance
experience
(CAPc) BPF Structural Support
(CAPd) BPF trustworthiness
(BSAP) Boundary spanning
activities between alliance
partners
(CONTROL) NBF size
Overall R2 = .612
Significance of F: .000
beta Signif. of t
.05 .70
-.12 .48
.07 .62
.19 .27
.14 .34
.45 .007
.22 .19
.12 .40
.15 .36
197
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Table 3b. Results from Multiple Regression of Increased
Quality of formal and Informal Communications with FDA
Independent Variables (N = 39)
Variable
(QUAL) Quality of the
NBF-BPF strategic alliance
(BSAF) Boundary spanning
activities between the alliance
and FDA
(SRMAa) NBF strategic
regulatory management activities:
Compliance strategies
(SRMAb) NBF strategic
regulatory management activities:
Influence strategies
(CONTROL) NBF size
beta Signif. of t
-.32 .04
.51 .004
.25 .21
.07 .71
-.14 .39
Overall R2 = .336
Significance of F: .015
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Table 3c. Results from Multiple Regression of Increased
Ability to Comply with FDA Product Quality & Consumer
Protection Standards on Independent Variables (N = 39)
Variable
(QUAL) Quality o f the
NBF-BPF strategic alliance
(BSAF) Boundary spanning
activities between the alliance
and FDA
(SRMAa) NBF strategic
regulatory management activities:
Compliance strategies
(SRMAb) NBF strategic
regulatory management activities:
Influence strategies
(CONTROL) NBF size
Overall R2 = .280
Significance of F: .046
beta Signif. of t
.14 .40
.23 .19
.22 .27
.26 .21
-.36 .04
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Table 4. Tolerances for Independent Variables
S_\mhol \ a rut M i ' D e s c r i p t i o n I n k ' n i n c e
INCa Lack o f external NBF financial resources 0.69
INCb
Lack o f in-house NBF non-financial
resources 0.51
INCc
NBF need to improve reputation with
FDA, peers 0.62
CAPa BPF technical expertise 0.46
CAPb BPF strategic alliance experience 0.63
CAPc BPF structural support 0.57
CAPd BPF trustworthiness 0.51
BSAP
Boundary spanning activities between
alliance partners 0.69
QUAL Quality o f the NBF - BPF strategic
alliance
0.83
BSAF
Boundary spanning activities between the
NBF - BPF alliance and the FDA 0.75
SRMAa
NBF strategic regulatory management
activities: Compliance strategies 0.55
SRMAb
NBF strategic regulatory management
activities: Influence strategies 0.53
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Asset Metadata
Creator
Doshi, Ami Kishor
(author)
Core Title
Biopharmaceutical strategic alliances: Interorganizational dynamics and factors influencing FDA regulatory outcomes
School
Graduate School
Degree
Doctor of Philosophy
Degree Program
Public Administration
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
business administration, management,Health Sciences, Pharmacy,OAI-PMH Harvest,Political Science, public administration
Language
English
Contributor
Digitized by ProQuest
(provenance)
Advisor
Robertson, Peter J. (
committee chair
), Graddy, Elizabeth (
committee member
), Nichol, Michael (
committee member
)
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