Licensing in Pharma - Value Creation and Appropriation

Abstract: We unify literature on licensing in the pharmaceutical industry and empirically verify pre-established and identify new determinants of value creation and appropriation based on a contemporary data set of licensing deals made between 2015 and 2020. We observe positive returns for licensor and licensee. A return differential indicates value appropriation by the licensor due to scarcity. A positive validation effect occurs for both sides when the alliance partner is large. Aside from firm size, other firm-specific determinants hold little explanatory power. Contractual design considerations can have a significant impact on value creation and appropriation, most evidently when related to validation effects and issues of moral hazard. Determinants based on development phase and therapeutic area of the drug are not generalizable and require further research.