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Open innovation: A real option to restore value to the biopharmaceutical R&D

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  • Lo Nigro, Giovanna
  • Morreale, Azzurra
  • Enea, Gianluca

Abstract

The pharmaceutical landscape has changed, and new business models, based on alliances, are increasingly being adopted in this industry. Biotechnology advances have pushed this development, and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed: these are the premises for a quick spread of the open innovation (OI) paradigm in this industry. R&D portfolio selection needs R&D project evaluation, and Real Options Analysis (ROA) is acknowledged as a powerful tool to evaluate uncertain projects that have an intrinsic flexibility. The present research aims to foster the use of ROA in the OI field in order to encourage firms to undertake this innovation model; to achieve this goal the authors propose a closed-form model that is easy to implement, to evaluate the OI initiative for selecting an optimal R&D portfolio. The study wants to support managers in optimal R&D portfolio construction in terms of choosing the most promising products, the means by which the related project has to be undertaken (in an open or closed manner; i.e. licensing-in or not) and the self-financing policy. The proposed model can be easily implemented into a spreadsheet, and the inputs needed to run it are usually requested to evaluate projects using the most used net-present-value-based methods. Moreover, some parameters of the model allow strategic aspects to be considered: for example the nature of the project (core/non-core), the impending project phase, and the risk-sharing opportunity.

Suggested Citation

  • Lo Nigro, Giovanna & Morreale, Azzurra & Enea, Gianluca, 2014. "Open innovation: A real option to restore value to the biopharmaceutical R&D," International Journal of Production Economics, Elsevier, vol. 149(C), pages 183-193.
    • Handle: RePEc:eee:proeco:v:149:y:2014:i:c:p:183-193
    DOI: 10.1016/j.ijpe.2013.02.004
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    2. Di Paola, Nadia & Russo Spena, Tiziana, 2019. "What drives biopharmaceutical firms' exploratory openness? A comparative process tracing approach to the analysis of R&D microfoundations," Journal of Business Research, Elsevier, vol. 97(C), pages 94-103.
    3. Lindomar Subtil Oliveira & Márcia E. Soares Echeveste & Marcelo Nogueira Cortimiglia & Aline C. Gularte, 2019. "Open Innovation in Regional Innovation Systems: Assessment of Critical Success Factors for Implementation in SMEs," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(4), pages 1597-1619, December.
    4. Ming Che & Hongmei Wu & Yujia Li, 2023. "Do Fluctuations in Environmental Regulations Inhibit Investment: Evidence from China," IJERPH, MDPI, vol. 20(3), pages 1-15, January.
    5. Gorupec Natalia & Brehmer Nataliia & Tiberius Victor & Kraus Sascha, 2022. "Tackling uncertain future scenarios with real options: A review and research framework," The Irish Journal of Management, Sciendo, vol. 41(1), pages 69-88, July.
    6. Hassanzadeh, Farhad & Modarres, Mohammad & Nemati, Hamid R. & Amoako-Gyampah, Kwasi, 2014. "A robust R&D project portfolio optimization model for pharmaceutical contract research organizations," International Journal of Production Economics, Elsevier, vol. 158(C), pages 18-27.
    7. Giovanna Lo Nigro & Azzurra Morreale & Lorenzo Abbate, 2016. "An Open Innovation Decision Support System to Select a Biopharmaceutical R&D Portfolio," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 37(6), pages 392-406, September.
    8. Brandão, Luiz E. & Fernandes, Gláucia & Dyer, James S., 2018. "Valuing multistage investment projects in the pharmaceutical industry," European Journal of Operational Research, Elsevier, vol. 271(2), pages 720-732.
    9. Purdy, Lauren & Eslami, Hadi & Eshghi, Kamran & Rod, Michel, 2023. "Technology sourcing and the dark side of open innovation: Evidence from the biopharmaceutical sector," Technovation, Elsevier, vol. 119(C).
    10. Lo Nigro, Giovanna, 2016. "The effect of early or late R&D inbound alliance on innovation," Journal of Business Research, Elsevier, vol. 69(5), pages 1791-1795.
    11. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
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    14. Chuan-Chuan Ko & Tyrone T. Lin & Fu-Min Zeng & Chien-Yu Liu, 2018. "Optimum Technology Product Life Cycle Technology Innovation Investment-Using Compound Binomial Options," Risks, MDPI, vol. 6(3), pages 1-14, September.

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