Dusting Off the Old Ones : Drug Licensing to Startups, Innovation Success and Efficiency

This paper investigates whether startups bring efficiency to product innovation relative to larger firms. Using comprehensive drug development data, we examine the innovation of drug projects licensed from large firms to startups. We find that these licensed projects are more likely to be developed and approved relative to comparable projects originated by larger firms but never licensed, or licensed between large firms. Relative to the other (never-licensed) projects in the licensor’s portfolio, out-licensed projects are older, more likely to use new technology, and target a new market with longer development times and lower revenues. We also find that startups are more likely to in-license projects that target existing markets but use new technology. Our findings underscore the importance of entrepreneurial firms in complementing the ‘shelved’ innovation of large firms and improving their efficiency