This paper compares the clinical trial strategies and performance of large, established ("mature") biopharmaceutical firms to those of smaller ("early stage") firms that have not yet successfully developed a drug. We study a sample of 235 cancer drug candidates that entered clinical trials during the period 1990-2002 and were sponsored by public firms. Early stage firms are more likely than mature firms to advance drug candidates from Phase I to Phase II clinical trials. However, early stage firms have much less promising clinical results in their Phase II trials and their Phase II drug candidates are also less likely to advance to Phase III and to receive Food and Drug Administration approval. This pattern is more pronounced for early stage firms with large cash reserves. The evidence points to an agency problem between shareholders and managers of single-product early stage firms who are reluctant to abandon development of their only viable drug candidates. By contrast, the managers of mature firms with multiple products in development are more willing to drop unpromising drug candidates. The findings appear to be consistent with the benefits of internal capital markets identified by Stein (1997).
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10933.
Length: Date of creation: Nov 2004 Date of revision: Handle: RePEc:nbr:nberwo:10933
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Find related papers by JEL classification: G3 - Financial Economics - - Corporate Finance and Governance L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
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Hvide, Hans K. & Kristiansen, Eirik G., 2006.
"Management of Knowledge Workers,"
Discussion Papers
2006/7, Department of Finance and Management Science, Norwegian School of Economics and Business Administration.
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