Firm Boundaries, Technological Relevance, and the Rate of Project Development

This paper examines how a development project's relation to the developing firm and its technological knowledge base influences the rate at which products succeed or fail. I propose that projects originating from outside the firm will have a higher rate of successful development, but the effect is enhanced when the collaborative project is technologically relevant to a firm's knowledge base. In addition, I test the idea that projects will have a slower rate of success when projects are either highly or lowly relevant to a firm's existing technology base. Finally, I examine the rate of development for failed projects and propose that factors that promote faster development will paradoxically slow the rate of failure for these projects. Using project data of 2,114 drug development projects from 1980 to 2003, I find that the hazard of succeeding is higher when drugs are developed in alliance between firms and especially so when these in-licensed projects are closer to its technological knowledge base. However, alliances are also shown to extend the development period for failed drugs, implying that strategies of buying promising drug candidates can result in higher costs.