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Have Pharmaceutical R&D Project Success Rates Decreased? A Critical Review and New Empirical Results

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  • Martin Backfisch

    () (Baden-Wuerttemberg Cooperative State University Center for Advanced Studies and Philipps-Universität Marburg)

Abstract

In the context of the ongoing debate about an innovation crisis in the pharmaceutical industry, we study the success rates of pharmaceutical R&D projects as a measure of innovative productivity. The empirical literature suggests success rates have been decreasing during recent decades. We critically review this literature and only find few studies with a focus on the development of success rates over time. Further, the empirical analysis of success rates imposes difficulties with respect to methodological aspects like data censoring, the definition of success, and the range of firms included in the samples. These difficulties are generally not discussed by the literature. We therefore discuss these issues when critically reviewing the empirical studies and complement this discussion with own empirical results. While most other studies use samples containing a small number of firms and cover just a short time period, we use a broad sample containing firms of different sizes over an observation period of more than 20 years (1989-2010). Descriptive results suggest a declining success rate of pharmaceutical projects during recent years. Correcting for censored observations shows there has been a stabilization of success rates, but at a lower level than before. The main underlying reason for a lower success rate is the start of many more projects in more recent time periods. Results from hazard rate models even suggest there has only been a temporary drop in the success rate for projects between 1995 and 2002.

Suggested Citation

  • Martin Backfisch, 2017. "Have Pharmaceutical R&D Project Success Rates Decreased? A Critical Review and New Empirical Results," MAGKS Papers on Economics 201746, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201746
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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2017/46-2017_backfisch.pdf
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    References listed on IDEAS

    as
    1. Comanor, William S. & Scherer, F.M., 2013. "Mergers and innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 32(1), pages 106-113.
    2. Fabio Pammolli & Massimo Riccaboni & Laura Magazzini, 2010. "The productivity crisis in pharmaceutical R&D," Working Papers 06/2010, University of Verona, Department of Economics.
    3. Danzon, Patricia M. & Nicholson, Sean & Pereira, Nuno Sousa, 2005. "Productivity in pharmaceutical-biotechnology R&D: the role of experience and alliances," Journal of Health Economics, Elsevier, vol. 24(2), pages 317-339, March.
    4. Ashish Arora & Alfonso Gambardella & Laura Magazzini & Fabio Pammolli, 2009. "A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development," Management Science, INFORMS, vol. 55(10), pages 1638-1653, October.
    5. Karan Girotra & Christian Terwiesch & Karl T. Ulrich, 2007. "Valuing R& D Projects in a Portfolio: Evidence from the Pharmaceutical Industry," Management Science, INFORMS, vol. 53(9), pages 1452-1466, September.
    6. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
    7. Joseph Dimasi & Henry Grabowski & John Vernon, 1995. "R&D Costs, Innovative Output and Firm Size in the Pharmaceutical Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 2(2), pages 201-219.
    8. Christopher Paul Adams & Van Vu Brantner, 2010. "Spending on new drug development," Health Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 130-141, February.
    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, vol. 20(6), pages 1033-1057, November.
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    More about this item

    Keywords

    pharmaceutical R&D; drug development; innovation; success rates;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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