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The Financing Threshold Effect on Success and Failure of Biomedical and Pharmaceutical Start-Ups

Author

Listed:
  • Edward B. Roberts

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

  • Oscar Hauptman

    (Graduate School of Business Administration, Harvard University, Boston, Massachusetts 02163)

Abstract

The theories of technological innovation are examined in the context of the formation and growth of biomedical and pharmaceutical firms. Analyses are based on detailed data gathered from 26 firms, founded between 1968 and 1975 in Massachusetts, supplemented by a three-member expert panel evaluation of the risk associated with use of each firm's products. A positive relationship was established between the level of technological sophistication of the firm and the risk associated with use of its products. Consequently, technological advancement of the firm has not necessarily resulted in high economic performance, in part because of the high demands put upon the firm's resources and time by the U.S. Food and Drug Administration approval process. The study indicates that the initial financial inputs have a threshold effect on subsequent economic performance of biomedical and pharmaceutical new firms. In the sample studied, unless these inputs reached the $850,000 to $1,000,000 mark (in 1970--1975 dollars), technological innovation was negatively mediated by the risk associated with the use of firm's products and by the FDA quality control procedures. Consequently, attempts at technological innovativeness are unfortunately detrimental to the economic performance of underfinanced new firms in the biomedical and pharmaceutical industry.

Suggested Citation

  • Edward B. Roberts & Oscar Hauptman, 1987. "The Financing Threshold Effect on Success and Failure of Biomedical and Pharmaceutical Start-Ups," Management Science, INFORMS, vol. 33(3), pages 381-394, March.
    • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:3:p:381-394
    DOI: 10.1287/mnsc.33.3.381
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    Citations

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    Cited by:

    1. Zahra, Shaker A., 1996. "Technology strategy and new venture performance: A study of corporate-sponsored and independent biotechnology ventures," Journal of Business Venturing, Elsevier, vol. 11(4), pages 289-321, July.
    2. Evans Opoku-Mensah & Yuming Yin & Bismark Addai, 2021. "Do Mature Firms Gain Higher Economic Value from R&D Investment?," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 211-223, June.
    3. Xin, Jenny Y. & Yeung, Andy C.L. & Cheng, T.C.E., 2010. "First to market: Is technological innovation in new product development profitable in health care industries?," International Journal of Production Economics, Elsevier, vol. 127(1), pages 129-135, September.
    4. Tunyi, Abongeh A. & Agyei-Boapeah, Henry & Areneke, Geofry & Agyemang, Jacob, 2019. "Internal capabilities, national governance and performance in African firms," Research in International Business and Finance, Elsevier, vol. 50(C), pages 18-37.
    5. Shan, Peng & Song, Michael & Ju, Xiaofeng, 2016. "Entrepreneurial orientation and performance: Is innovation speed a missing link?," Journal of Business Research, Elsevier, vol. 69(2), pages 683-690.
    6. Roberts, Edward Baer., 1987. "Technological innovation and medical devices," Working papers 1930-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Shivalik Singh & M H Bala Subrahmanya, 2022. "The financial requirements of tech startups over its lifecycle in Bangalore: An analysis of why and how do they differ?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4123-4141, October.
    8. Shrader, Rodney C. & Simon, Mark, 1997. "Corporate versus independent new ventures: Resource, strategy, and performance differences," Journal of Business Venturing, Elsevier, vol. 12(1), pages 47-66, January.
    9. Murray, Fiona, 2004. "The role of academic inventors in entrepreneurial firms: sharing the laboratory life," Research Policy, Elsevier, vol. 33(4), pages 643-659, May.
    10. Rafiq, Shuddhasattwa & Salim, Ruhul & Smyth, Russell, 2016. "The moderating role of firm age in the relationship between R&D expenditure and financial performance: Evidence from Chinese and US mining firms," Economic Modelling, Elsevier, vol. 56(C), pages 122-132.

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