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Prof Nicola Dimitri, University of Siena

January 19 2009


Seminar Room 1.06
ESRC Innogen Centre
Edinburgh University
Old Surgeons' Hall
High School Yards

Time: 3.30-5pm

All welcome, no need to book

Organised by:

Innogen, Edinburgh University


This paper is a contribution to the understanding of a recent trend that is taking place in the pharmaceutical industry, whereby large companies stipulate an increasing number of alliances with smaller firms, to share stages of drug development processes. In such alliances small, biotech, firms tend to operate in early stages and the intuition may suggest that this is because they are more efficient, or more willing, than larger firms to take such initial risks. In exchange, larger firms would take up project afterwards, when the risk of failure has decreased, affording the higher development costs of later, clinical and commercialization, phases.  Based on a simple model, with risk neutral firms, in the paper we scrutinize this basic intuition and argue that it appears correct if large companies have enough resources, to develop in-house all potentially interesting projects. Indeed, in this case, allocating the early stage of a drug development process to a small company is only due to its higher ability in doing it, or to a more optimistic attitude towards the possibility of successful discovery. However, when large companies are resource constrained, namely they do not have enough resources to develop fully in-house all potentially interesting projects, alliances may take place even if large companies were more suitable than smaller firms in developing the initial stages of a project. Indeed, under appropriate conditions on early stages success probabilities, large companies may find it more attractive to take up a plurality of projects in their later stages, rather than developing end-to-end only a subset of such projects.,8158,en.t4.html