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A Breath of Fresh Air? Firm Type, Scale, Scope and Selection Effects in Drug Development

Ashish Arora (), Alfonso Gambardella, Laura Magazzini () and Fabio Pammolli ()
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Alfonso Gambardella: KITeS, Bocconi Univerity - Milan - Italy

No 3, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: This paper compares the innovation performance of established pharmaceutical firms and biotech companies, controlling for differences in the scale and scope of research. We develop a structural model to analyze more than 3,000 drug R&D projects advanced to pre-clinical and clinical trials in the U.S. between 1980 and 1994. Key to our approach is careful attention to the issue of selection. Firms choose which compounds to advance into clinical trials. This choice depends not only on the technical promise of the compound, but also on commercial considerations such as the expected profitability of the market or concerns about product cannibalization. After controlling for selection, we find that (a) even after controlling for scale and scope in research, established pharmaceutical firms are more innovative than newly entered biotech firms; (b) older biotech firms display selection behaviors and innovation performances similar to established pharmaceutical firms; and (c) compounds licensed during preclinical trials are as likely to succeed as internal compounds of the licensor, which is inconsistent with the lemons hypothesis in technology markets.

Keywords: firm capabilities; drug development process; market for technology. (search for similar items in EconPapers)
Date: 2009-03, Revised 2009-03
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Journal Article: A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development (2009) Downloads
Working Paper: A Breath of Fresh Air? Firm types, scale, scope and selection effects in drug development (2007) Downloads
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