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Effects of profit-reducing policies on firm survival, financial performance, and new drug introductions in the research-based pharmaceutical industry

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Author Info
Darren Filson (Claremont Graduate University, 160 E. Tenth Street, Claremont, CA 91711, USA)
Neal Masia (Pfizer Inc, New York, NY, USA)

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Abstract

We introduce a computational model of the evolution of a value-maximizing research-based pharmaceutical firm and parameterize it using estimates of R&D costs, profit distributions, and candidate attrition rates. We use the model to estimate how the probability of surviving and covering the costs of R&D depends on R&D scale and the policy regime. In the model, even small reductions in profitability have substantial impacts on firm success and innovation, but the effects may not be visible to consumers for many years. Smaller and newer firms are most vulnerable to reductions in the rewards for innovation. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1344
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 28 (2007)
Issue (Month): 4-5 ()
Pages: 329-351
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Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:329-351

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Filson, Darren & Gretz, Richard T., 2004. "Strategic innovation and technology adoption in an evolving industry," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 89-121, January. [Downloadable!] (restricted)
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  3. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March. [Downloadable!] (restricted)
  4. Cockburn, Iain M. & Henderson, Rebecca M., 2001. "Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research," Journal of Health Economics, Elsevier, vol. 20(6), pages 1033-1057, November. [Downloadable!] (restricted)
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