On the Stage Division Mechanism in Pharmaceutical Development Processes

This paper contributes to the understanding of a recent trend taking place in the pharmaceutical industry, whereby large companies develop a meaningful number of alliances with smaller firms, to share stages of drug development processes. Small firms tend to operate in earlier stages and intuitively, this may suggest that this is because they are more efficient, or more willing, than larger firms to take such early risk. In exchange, larger firms would afford the higher development costs of later phases. In this article we argue that the intuition appears correct if large companies have enough resources to develop in-house all potentially interesting projects, but not necessarily so when they are resource constrained.