Biotech Strategic Alliances in Law and Entrepreneurship

Abstract

One set of underexplored issues in the entrepreneurship literature is at what point entrepreneurial firms grow become the acquisition targets of larger firms in the same industry versus situations where such entrepreneurial firms develop contractual relations with such larger firms and what role law has in this process. The basic problem for an entrepreneurial firm is that such a firm lacks capital, distribution networks, an effective sales force or knowledge of manufacturing to reap the gains of its innovations. In a world short of acquisition, vertical contractual relations provide an entrepreneur the ability to create new opportunities that the entrepreneurial firm on its own may not be able to capture. Consequently, entrepreneurial firms look to larger and more established firms for “strategic alliances” to fill these gaps.

This chapter examines entrepreneurial behavior and the impact of law and contracting on business strategy as a distinct contribution to the field of law and entrepreneurship. However, it combines strands from a number of existing literatures. Within the scholarship of innovation, a growing body of work suggests that the dynamics of vertical relations involving technology and innovation between larger and entrepreneurial firms incorporates both incomplete contracting and relational contracting literatures. Yet, much of the law, strategic management and finance literatures on entrepreneurship focus on optimizing business plans, employment agreements, financing agreements or dynamic contracting strategies for the founders or venture capitalists. The literature does not focus as much on writing contracts between upstream larger firms and downstream entrepreneurial firms.

This chapter analyses contracting surrounding an alliance between an entrepreneurial start up firm and its larger alliance partner. First, it sets out what an alliance is and the motivations for both the larger and smaller firm to enter into an alliance. As these alliances take on a contractual form, an understanding of different issues that emerge in contracting help to shape the dynamics of the alliance. In doing so, this chapter builds off of and synthesizes what as a growing literature across a number of disciplinary fields – finance, management, economics and law. Finally, this chapter sets out certain specific contractual terms that emerge as key elements in the alliance relationship and why these terms matter. This is the first work that examines legal issues in specific contractual terms for biotech related entrepreneurship and alliances. The chapter summarizes that additional work is needed to understand the specific dynamics of these contractual terms over time both through case studies and large n quantitative work.

Keywords: entrepreneurship, law, start ups, biotech, contracting, jvs, alliances

JEL Classification: l26, K21, K22