Large firms and smaller entrepreneurial firms play different roles in business and society and can often produce the best results by partnering with each other rather than acting as adversaries. The pharmaceutical industry is an excellent example of how this works.
It is well-known that barriers to entry in the pharmaceutical industry are high. The average new product takes between 10 and 15 years from discovery to commercial sale. The process of discovering, testing, obtaining approval, manufacturing, and marketing a new drug is long and expensive. How, then, do biotech start-ups make it? The answer is that few biotech firms actually take their products to market. Here’s how it works.
Biotech firms specialize in discovering and patenting new drugs—it’s what they’re good at. In most cases, however, they have neither the money nor the know-how to bring the products to market. In contrast, the large drug companies, such as Johnson & Johnson, Pfizer, and Merck, specialize in developing and marketing drugs and providing information to doctors about them. It’s what they are good at. But these companies typically don’t have the depth of scientific talent and the entrepreneurial zeal that the small biotech firms do. These two types of firms need one another to be as successful as possible.
Often, but not always, what happens is this. The biotech firms discover and patent new drugs, and the larger drug companies develop them and bring them to market.
Biotech firms earn money through this arrangement by licensing or selling their patent-protected discoveries to the larger companies or by partnering with them in some revenue-sharing way. The large drug companies make money by selling the products to consumers.
The most compelling partnership arrangements are those that help entrepreneurial firms focus on what they do best, which is typically innovation, and that allow them to tap into their partners’ complementary strengths and resources.

Questions for Critical Thinking
1. In your opinion, what factors in the business environment encourage firms to partner to compete?
2. What risks do small firms face when partnering with large, successful companies? What risks do large companies take when they rely on small firms as a source of innovation?
3. How might government policies affect partnering actions between small and large firms in the pharmaceutical industry?
4. If you worked for an entrepreneurial venture, what would you want to know about a large firm before recommending that your firm form a partnership with that large, established company?