Collaboration in Development of New Drugs

42 Pages Posted: 12 Dec 2019 Last revised: 12 Jun 2020

See all articles by Zhili Tian

Zhili Tian

Coastal Carolina University - E. Craig Wall College of Business Administration

Haresh Gurnani

Wake Forest University School of Business

Yi Xu

University of Maryland - Decision and Information Technologies Department

Date Written: June 1, 2020

Abstract

The development of a new drug is costly and uncertain. As such, pharmaceutical firms often collaborate to
develop new drugs. We examine the conditions under which firms should collaborate rather than compete
in new drug development in this paper. We model the collaboration versus competition decision problem for
two firms using a game-theoretic model and drive the collaboration conditions. Our research demonstrates
that development cost and uncertainties in drug treatment efficacy and safety and patient enrollment, which
results in uncertain FDA approval, revenue, and market exclusivity periods, drive the collaboration or
competition decision for firms. We establish conditions based on probability of success of drug development,
cost rates, and market potential under which the firms should collaborate, and show that there exist scenarios
under which the firms would actually collaborate on the lower efficacy drug. As such, firms need to carefully
take into consideration various factors such as the probability of success, the potential market share, and the
development cost of each competing drug when determining whether to collaborate or compete in developing
new drugs. Finally, we apply our analytical model to illustrate a case study involving collaboration between
Bristol-Myers Squib and Pfizer.

Keywords: New Drug Development, New Drug Development Management, Clinical Trial, R&D Investment, Collaboration in Drug Development

Suggested Citation

Tian, Zhili and Gurnani, Haresh and Xu, Yi, Collaboration in Development of New Drugs (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=3487023 or http://dx.doi.org/10.2139/ssrn.3487023

Zhili Tian (Contact Author)

Coastal Carolina University - E. Craig Wall College of Business Administration ( email )

Conway, SC
United States

Haresh Gurnani

Wake Forest University School of Business ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

HOME PAGE: http://business.wfu.edu/directory/haresh-gurnani/ Haresh Gurnani

Yi Xu

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

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