Value Capture in Drug Development Alliances: The Role of Complementary Resources and other R&D Partnerships - Keith Skowronski, University of South Carolina

Event Date: 9 April 2025

Speaker: Keith Skowronski, University of South Carolina

Time: 2pm

Venue: Strathclyde Business School, Cathedral Wing, CW602

Abstract:

To complement internal innovation efforts, firms are increasingly sourcing knowledge and expertise from external sources. Indeed, the last few decades have witnessed a surge in interorganizational research and development (R&D) alliances whereby two or more organizations collaborate to translate technological innovations into commercially viable products. While these external knowledge sourcing relationships can generate value for the parties involved, the upfront specification of how that value will be allocated between the client firm and the R&D firm poses a significant contracting challenge as each firm strives to capture as much of that value as possible. This study joins and advances the literature on R&D alliance contracting by examining how each firm’s key complementary resource (i.e., the client firm’s commercialization experience and the R&D firm’s proprietary knowledge assets) and other R&D alliance partnerships (i.e., client firm’s supply base and R&D firm’s client base) influence contractual provisions that determine value capture: value capture rights and upfront payments. We combine several archival data sources and textual analysis of SEC-filed contracts on a sample of 396 drug development alliances from 1995 to 2020 to examine these relationships. We find that the client’s commercialization experience in the focal disease area contributes to them securing more value capture rights and negotiating a lower upfront payment to the R&D firm. These effects strengthen when collaborating with an R&D partner with a larger client base. We further observe that the R&D firm’s proprietary knowledge assets are associated with it obtaining more value capture rights when dealing with a client with a larger supply base. Finally, the combination of a commercially experienced client and an R&D firm with proprietary knowledge assets leads to the R&D firm retaining more value capture rights. With additional analyses, we establish the robustness of these results and explore possible explanations for the findings. Collectively, our results highlight how complementary resources and other alliance partnerships shape the client’s value capture in R&D alliances, an increasingly critical component of many firms’ innovation strategy.

Published: 8 April 2025