The dissemination of research agreements between pharmaceutical and biotechnology companies is enigmatic, as it is difficult to identify the exact nature of research activities. One of the major concerns of corporate finance is that research and development companies use their funds to subsidize other projects or to replace one project with another. We are developing a model based on the theory of corporate ownership, which allows researchers from research and development companies to perform several tasks. If the research activities are not compatible, we show that it is optimal for the financing company to obtain the right of option to terminate the research contract while preserving ownership rights over the project that has been denounced. This right will encourage researchers at the biotechnology company not to deviate from the proposed research activities. The contract prevents the opportunistic exercise of this right of termination by conditioning payments in the event of termination of the contract. We are testing the model empirically with a new dataset on 584 biotech research contracts. We find that the transfer of termination and ownership rights to the financing company takes place in difficult contractual environments where the parties are unable to identify the lead-product candidate. We use other empirical tests to distinguish the explanation of property rights from alternative stories based on uncertainty and asymmetrical information about project quality or research capabilities. 1050 Massachusetts AvenueCambridge, MA 02138United States Financial Contracting in Biotech Strategic Alliances . Harvard Business School – Financial Unit; Harvard University – Entrepreneurial Management Unit; National Bureau of Economic Research (NBER) 545 Student Services Building, #19002220 Piedmont AvenueBerkeley, CA 94720United States Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality . Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms HOME PAGE: Harvard Business School: Entrepreneurial Management Unit Working Paper Series Subscribe to this free review for more articles on the subject.

Productivity in the research and development of pharmaceutical biotechnology: The role of experience and alliances . . University of California, Berkeley – Department of Economics; University of California, Berkeley – Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Research (CEPR); Institute for Labour Research (IZA) . IO: Corporate Structure, Purpose, Organization – Contracting eJournal . Are Equity Financing Cycles Matter?: Evidence from Biotechnology Alliances Boston, MA 02163United States617-495-6065 (Phone)617-496-7357 (Fax) Contractibility and the Design of Research Agreements . The Allocation of Control Rights in Pharmaceutical Alliances 549 Evans Hall #3880Berkeley, CA 94720-3880United States (510) 642-8724 (Phone) (510) 642-6615 (Fax).


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