Firm boundaries, performance and the selection of partners: Evidence from pharmaceutical and biotech alliances
The importance of the decisions regarding firms' boundaries and the establishment of strategic alliances is evidenced by an extensive literature that has addressed the problem both from the economic and the organizational perspectives. In this dissertation, I build on this literature to analyze different intertwined issues related to the decision to form strategic alliances within the context of the pharmaceutical industry. I consider the several phases of the FDA regulatory approval process as separate markets with systematic differences that lead to alternative matching equilibria between firms looking to outlicense and to inlicense compounds. My goals were to estimate the true impact of partnerships on the likelihood of success and to understand how the specific characteristics of the partnerships take on different roles in each one of the phases of clinical development, where the intrinsic levels of risk and uncertainty decrease as the innovation gets closer to being launched in the market. I implement several selection models to analyze firms' decisions to establish partnerships, their choice of partner, and how that impacts alliance performance. My findings support the hypotheses that the higher the level of uncertainty and asymmetry of information, the more important prior relational activities between the two partners become, while complementary resources become less relevant. I also find evidence of sustainable competitive advantages in the development of clinical indications, particularly in the latter phases of clinical development. Finally, I conclude that the true impact of alliances is underestimated. This seems to be a result of firms accepting to inlicensing compounds with less promising unobservable characteristics, when liquidity in capital markets increases, enabling the innovators to develop on their own their best discoveries.