This study examines the relationships between firm size, R&D costs and output in the pharmaceutical industry. Porject-level data from a survey of 12 US-owned pharmaceutical firms on drug development costs, development phase lengths and failure rates are used to determine estimates of the R&D cost of new drug development by firm size. Firms in the sampel are grouped into three size categories, according to their pharmaceutical sales at the beginning of the study period. The R&D cost per new drug approved in the US is shown to decrease with firm size, while sales per new drug approved are shown to increase markedly with firm size. Sales distributions are highly skewed and suggest that firms need to search for blockbuster drugs with above-average returns. The results are consistent with substantial economies of scale in pharmaceutical R&D, particularly at the discovery and preclinical development phases.
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Paper provided by Duke University, Department of Economics in its series Working Papers with number
95-16.
Length: Date of creation: 1995 Date of revision: Publication status: Published in INTERNATIONAL JOURNAL OF THE ECONOMICS OF BUSINESS, vol. 2, 1995, pages 201-219 Handle: RePEc:duk:dukeec:95-16
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Find related papers by JEL classification: L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
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