Collaboration in Development of New Drugs

Zhili Tian, Haresh Gurnani and Yi Xu

Production and Operations Management, 2021, vol. 30, issue 11, 3943-3966

Abstract: The development of a new drug is costly and uncertain. As such, pharmaceutical firms often collaborate to develop new drugs. We examine the conditions under which firms should collaborate rather than compete in new drug development. We model the collaboration vs. competition decision problem for two firms using a game‐theoretic model and derive the collaboration conditions. Our study demonstrates that development cost and uncertainties in drug treatment efficacy and safety and patient enrollment drive the collaboration or competition decision for firms. We establish conditions based on probabilities of success of drug development, cost rates, and potential market shares under which the firms should collaborate, and show that there exist scenarios under which the firms actually collaborate on the lower efficacy drug. As such, firms need to take into consideration various factors such as the probability of success, the potential market share, and the development cost of each competing drug when determining whether to collaborate or compete in developing new drugs. Finally, we apply our analytical model to illustrate a case study involving collaboration between Bristol‐Myers Squibb and Pfizer.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/poms.13377

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:30:y:2021:i:11:p:3943-3966

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().