The allocation of control rights in pharmaceutical alliances

This paper uses alliances in the biopharmaceutical industry to test contractual theories of the firm. I find that the allocation of control rights between pharmaceutical and biotechnology firms is sensitive to the bargaining position of both parties. Pharmaceutical firms engaging in more costly, later stage alliances tend, on average, to relinquish more rights. Additionally, biotechnology firms entering their first alliance tend, on average, to relinquish more rights. Finally, I explore if and when alliances begin to impact pharmaceutical firm shareholder value. Overall, my findings indicate the importance of considering both parties to a contract when studying contractual design.