I'm running into an issue with the latest iTunes 12 release (12.7.0.166) where on one iPhone I'm able to drag and drop an .IPA onto the device listed and it installs on the device fine. However, with the other iPhone I follow the same process and it doesn't seem to want to work or highlight the device when the .IPA is hovered over it.
Any ideas why this would work on one device, but not the other? Is there a setting maybe I'm missing somewhere on one of the devices?
I had the same problem with two iPhones (One running 9.3.5 and 10.3.3).
The first thing I did was make sure both phones had Manually Manage Music and Videos checked (Under Summary -> Options). (Didn't have a direct effect but may help?)
I then updated the phone with 9.3.5 to the latest iOS (10.3.3) and I was then able to install it on both phones using the method you mentioned.
If you can't update a phone on an older iOS then you can re-install older versions of iTunes here: https://support.apple.com/downloads/itunes (Although this is a work around imho)