Alliances in the biotech biz

The line between transactions within the firm and those outside the firm gets more blurred every year.  Where once it might have been a fairly simple question whether to do something in-house or buy from someone else, the modern trend is toward more and more interdependence.  In a new paper, The Exit Structure of Strategic Alliances (forthcoming in the Illinois Law Review) Gordon Smith (left) examines strategic alliances in the biotech field, where a great deal of innovation is under way.  Here’s the abstract:

Today, many biotechnology firms use strategic alliances to contract with other companies.  This article contends that the governance structure of these alliances – specifically, the “contractual board” – provides an integrated restraint on opportunism.  While an alliance agreement’s exit structure could provide a check on opportunism by allowing the parties to exit at will, such exit provisions also can be used opportunistically.  Most alliance agreements, therefore, provide for contractual “lock in” of the alliance partners, with only limited means of exit.  Lock in, of course, raises its own concerns, and the contractual board – which typically is composed of representatives from each alliance partner, each wielding equal power – addresses these concerns about opportunism via the potential for deadlock.

For those of you who also do Business Associations along with your Contracts courses, note that Gordon is one of the lead bloggers on the excellent Conglomerate blog.