The Nature and the Extent of the Market for Technology in Biopharmaceuticals
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.
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- Joshua S. Gans & David H. Hsu & Scott Stern, 2000.
"When Does Start-Up Innovation Spur the Gale of Creative Destruction?,"
NBER Working Papers
7851, National Bureau of Economic Research, Inc.
- 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.
- Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
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