OUT-LICENSING IN MARKETS WITH ASYMMETRIC INFORMATION: THE CASE OF THE PHARMACEUTICAL INDUSTRY

Gerrit Reepmeyer (), Oliver Gassmann () and Frauke Rüther ()
Additional contact information
Gerrit Reepmeyer: University of St. Gallen, Institute of Technology Management, Switzerland
Oliver Gassmann: University of St. Gallen, Institute of Technology Management, Switzerland
Frauke Rüther: University of St. Gallen, Institute of Technology Management, Switzerland

International Journal of Innovation Management (ijim), 2011, vol. 15, issue 04, 755-795

Abstract: Few large pharmaceutical companies have recently discovered out-licensing of terminated R&D results as a way to recoup some of the significant investments made in R&D and to improve R&D productivity. Our empirical investigation reveals that the licensing partners are preferably young, small and highly specialized companies. This reverses the traditional logic of out-licensing. While out-licensing is usually done because of downstream concerns, our analysis shows that the company which owns the necessary assets for further development (the large pharmaceutical company) sells the license to a firm (the small partner company) which has — at the time of deal closure — no track record to prove its ability to successfully develop the compound.As the lack of a track record does not allow the pharmaceutical company to distinguish between the partner firms based on their development capabilities, these out-licensing deals are characterized by an asymmetric distribution of information. The application of the theory of adverse selection allows deriving managerial recommendations along three dimensions of the out-licensing deal: product coverage, price setting and performance presumption. By making changes along these dimensions, R&D managers are able to reduce the information asymmetry and approximate an equilibrium in the out-licensing market.

Keywords: Out-licensing; research & development; pharmaceutical industry; asymmetric information; adverse selection (search for similar items in EconPapers)
Date: 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1363919611003313
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijimxx:v:15:y:2011:i:04:n:s1363919611003313

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1363919611003313

Access Statistics for this article

International Journal of Innovation Management (ijim) is currently edited by Joe Tidd

More articles in International Journal of Innovation Management (ijim) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().