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The Nature and the Extent of the Market for Technology in Biopharmaceuticals

Author

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  • Arora, Ashish
  • Gambardella, Alfonso
  • Pammolli, Fabio
  • Riccaboni, Massimo

Abstract

This paper explored an unusually comprehensive dataset of more than 2,000 drug R&D projects all over the world during the 1990s. This enabled us to characterise several features of the innovation process in pharmaceuticals, particularly the different role and comparative R&D performance of the large established drug companies vis-à-vis smaller high-tech specialist firms - the so-called New Biotechnology Firms (NBFs). Our results can be summarised as follows: a)The NBFs are largely an American phenomenon. More than half of the drug R&D projects originated in the US are by NBFs, while almost 90% of the drug R&D projects originated in Europe are from established pharmaceutical firms; b)Collaborative R&D projects are consistently more likely to occur in the US than in Europe. However, in-house projects are a significant majority of the drug R&D projects that entered the clinical stages. c)The established pharmaceutical companies have comparative advantages with respect to the NBFs in drug development (clinical trials). In drug discovery there is no advantage related to scale. Unlike clinical developments, where the large firms seem to have superior capabilities when compared to the NBFs, in discovery there is no inherent superiority (in terms of ultimate probability of success of the compounds) of either the NBFs or the large firms. d)The NBFs are not specialized in more risky R&D projects. In fact, more risky drug projects (i.e. drugs for which there is no or there are few existing remedies) are more likely to be undertaken by the larger pharmaceutical companies. This suggests that scale, market power, and the ability to moblise large amounts of resources are key factors in enabling the firms to sustain such higher risks. e)Other things being equal, the projects originated by the NBFs are more likely to fail in the earlier clinical stages. This suggests that the NBFs perform a good deal of exploration without incurring the higher costs of failing at later stages.

Suggested Citation

  • Arora, Ashish & Gambardella, Alfonso & Pammolli, Fabio & Riccaboni, Massimo, 2000. "The Nature and the Extent of the Market for Technology in Biopharmaceuticals," MPRA Paper 15977, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:15977
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    References listed on IDEAS

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    1. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
    2. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    3. John Hagedoorn, 1993. "Understanding the rationale of strategic technology partnering: Interorganizational modes of cooperation and sectoral differences," Strategic Management Journal, Wiley Blackwell, vol. 14(5), pages 371-385, July.
    4. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
    5. Gambardella,Alfonso, 1995. "Science and Innovation," Cambridge Books, Cambridge University Press, number 9780521451185.
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    Citations

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    Cited by:

    1. Jason Owen-Smith & Massimo Riccaboni & Fabio Pammolli & Walter W. Powell, 2002. "A Comparison of U.S. and European University-Industry Relations in the Life Sciences," Management Science, INFORMS, vol. 48(1), pages 24-43, January.
    2. Gianluca Baio & Laura Magazzini & Claudia Oglialoro & Fabio Pammolli & Massimo Riccaboni, 2005. "Medical Devices: Competitiveness and Impact on Public Health Expenditure," Working Papers CERM 05-2005, Competitività, Regole, Mercati (CERM).
    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. Paul H. Jensen & Alfons Palangkaraya & Elizabeth Webster, 2013. "Trust, Incomplete Contracts and the Market for Technology," Melbourne Institute Working Paper Series wp2013n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    5. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
    6. Christel Lane & Jocelyn Probert, 2007. "The External Sourcing of Technological Knowledge by US Pharmaceutical Companies: Strategic Goals and Inter-organizational Relationships," Industry and Innovation, Taylor & Francis Journals, vol. 14(1), pages 5-25.
    7. Pammolli, Fabio & Riccaboni, Massimo, 2004. "Market Structure and Drug Innovation," MPRA Paper 16212, University Library of Munich, Germany.
    8. Emmanuel Duguet & Stéphanie Monjon, 2004. "Is innovation persistent at the firm Level. An econometric examination comparing the propensity score and regression methods," Cahiers de la Maison des Sciences Economiques v04075, Université Panthéon-Sorbonne (Paris 1).

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    More about this item

    Keywords

    Innovation; Markets for technology; Biopharmaceutical Industry; R&D Collaboration;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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