The Timing of Codevelopment Alliances in New Product Development Processes: Returns for Upstream and Downstream Partners

Abstract

Upstream biotech firms (i.e., upstream partners) and downstream pharmaceutical firms (i.e., downstream partners) often form alliances to cope with performance uncertainty and to exploit product specificity in new product development. Although the performance implications of such alliances have been investigated, research has not offered insight into how the timing of such codevelopment alliances influences partner returns. The authors develop and test predictions that timing changes the costs and benefits accruing to upstream and downstream partners and that the effect of timing is influenced by a set of alliance, firm, and market conditions. An event study of 276 codevelopment agreements between biotech and pharmaceutical firms during 1998–2010 reveals that alliance governance structure, partner technological capability, and the competitiveness of market environments change the abnormal returns achieved by partners entering these relationships in important ways.