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A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development

Pammolli, Fabio and Arora, Ashish and Gambardella, Alfonso and Magazzini, Laura A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development. Management Science, 55 (10). pp. 1638-1653. ISSN 0025-1909 (2009)

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This paper compares the innovation performance of established pharmaceutical firms and biotech companies, controlling for differences in the scale and scope of research. We develop a structural model to analyze more than 3,000 drug research and development projects advanced to preclinical and clinical trials in the United States between 1980 and 1994. Key to our approach is careful attention to the issue of selection. Firms choose which compounds to advance into clinical trials. This choice depends not only on the technical promise of the compound, but also on commercial considerations such as the expected profitability of the market or concerns about product cannibalization. After controlling for selection, we find that (a) even after controlling for scale and scope in research, established pharmaceutical firms are more innovative than newly entered biotech firms; (b) older biotech firms display selection behaviors and innovation performances similar to established pharmaceutical firms; and (c) compounds licensed during preclinical trials are as likely to succeed as internal compounds of the licensor, which is inconsistent with the "lemons" hypothesis in technology markets.

Item Type: Article
Identification Number: 10.1287/mnsc.1090.1055
Uncontrolled Keywords: firm capabilities; drug development process; market for technology
Subjects: H Social Sciences > HD Industries. Land use. Labor
R Medicine > R Medicine (General)
Research Area: Economics and Institutional Change
Depositing User: Users 2 not found.
Date Deposited: 30 Jun 2011 14:27
Last Modified: 31 Aug 2011 14:40
URI: http://eprints.imtlucca.it/id/eprint/636

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