Trading-Off Innovation Speed for Knowledge During Drug Development

We investigate the impact of partnering on innovation speed, and trade-offs to knowledge accumulation. Using data on 20,819 clinical trials for new drug development commenced in the decade 2000-09, we show that while experience accumulated with partners has a greater effect on innovation speed than experience accumulated without partners, using more partners has a negative impact on the time it takes to complete trials. Further, firms that work alone experience shorter trials compared with firms that frequently partner. Yet, firms that work alone are less likely to expand later on into new therapeutic areas, which may limit their long-term capability to innovate. Contrary to extant claims in favor of open innovation, we conclude that firms need to manage the trade-offs between innovation speed, knowledge breadth, and information spillovers when making their decision to use partners in their clinical trials.