Financial Contracting in Biotech Strategic Alliances

Columbia University Working Paper

52 Pages Posted: 2 Oct 2002

See all articles by David T. Robinson

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Toby Stuart

University of California, Berkeley - Haas School of Business; Harvard University - Entrepreneurial Management Unit

Date Written: August 31, 2002

Abstract

We conduct a detailed analysis of 125 strategic alliance contracts, all of which concern early-stage, genomics-based research at small, biotechnology R&D companies. Staged investment is ubiquitous, but solutions to agency problems vary. The cycle of equity participation in alliances resembles what we observe in venture capital contracts: they involve convertible equity and sometimes contain anti-dilution provisions, warrants, and board seats. Contracts contain explicit provisions linking equity participation to subsequent IPOs and contain clauses designed to insulate both parties from multi-tasking problems. Contrary to the standard assumptions of static contract theory, contracts often specify provisions that are unobservable or difficult to verify.

Keywords: Strategic Alliances, Venture Capital, Incomplete Contracts

JEL Classification: G3, L1, L2

Suggested Citation

Robinson, David T. and Stuart, Toby E., Financial Contracting in Biotech Strategic Alliances (August 31, 2002). Columbia University Working Paper. Available at SSRN: https://ssrn.com/abstract=327881 or http://dx.doi.org/10.2139/ssrn.327881

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Toby E. Stuart

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

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