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Productivity in Pharmaceutical Biotechnology R&D: The Role of Experience and Alliances

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  • Patricia M. Danzon
  • Sean Nicholson
  • Nuno Sousa Pereira

Abstract

Using data on over 900 firms for the period 1988-2000, we estimate the effect on phase-specific biotech and pharmaceutical R&D success rates of a firm's overall experience, its experience in the relevant therapeutic category; the diversification of its experience, and alliances with large and small firms. We find that success probabilities vary substantially across therapeutic categories and are negatively correlated with mean sales by category, which is consistent with a model of dynamic, competitive entry. Returns to experience are statistically significant but economically small for the relatively straightforward phase 1 trials. We find evidence of large, positive, and diminishing returns to a firm's overall experience (across all therapeutic categories) for the larger and more complex late-stage trials that focus on a drug's efficacy. There is some evidence that a drug is more likely to complete phase 2 if developed by firms with considerable therapeutic category-specific experience and by firms whose experience is focused rather than broad (diseconomies of scope). Our results confirm that products developed in an alliance tend to have a higher probability of success, at least for the more complex phase 2 and phase 3 trials, and particularly if the licensee is a large firm.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9615.

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Date of creation: Apr 2003
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Publication status: published as Danzon, Patricia M., Sean Nicholson and Nuno Sousa Pereira. "Productivity In Pharmaceutical-Biotechnology R&D: The Role Of Experience And Alliances," Journal of Health Economics, 2005, v24(2,Mar), 317-339.
Handle: RePEc:nbr:nberwo:9615

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  1. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(2), pages 125-56, June.
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  6. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
  7. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  8. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
  9. 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, Elsevier, vol. 20(6), pages 1033-1057, November.
  10. David Dranove & David Meltzer, 1994. "Do Important Drugs Reach the Market Sooner?," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 402-423, Autumn.
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