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Rushed Innovation: Evidence from Drug Licensing

Manuel Hermosilla ()
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Manuel Hermosilla: Carey Business School, Johns Hopkins University, Baltimore, Maryland 21202

Management Science, 2021, vol. 67, issue 1, 257-278

Abstract: We study the drug licensing behavior (acquisition of rights for developing drugs) of large pharmaceutical firms in the aftermath of large negative shocks to their pipelines, phase 3 failures (P3Fs). We find that P3Fs lead to increased licensing within a year of the event. This result is significant, because one year is a short window given the usual timelines—licensing is a lengthy process that requires extensive planning and careful execution. Supported by a series of additional results, we interpret this finding as a reflection of rushed firm behavior. Correspondingly, our main finding is that drugs licensed in these circumstances (within a year of a P3F event) underperform in subsequent development: they are significantly less likely to reach the market compared with others licensed in normal conditions. Further analysis suggests that this underperformance may stem from the influence of rush on activities taking place in the “last mile” of the licensing process and could hinge on the quality of the agreements that firms converge to during contract negotiations.

Keywords: rush; new product development; new technology; innovation; pharmaceuticals; pharmaceutical productivity; drug licensing; causal inference (search for similar items in EconPapers)
Date: 2021
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