Productivity in Pharmaceutical Biotechnology R&D: The Role of Experience and Alliances

40 Pages Posted: 11 Apr 2003 Last revised: 28 Nov 2014

See all articles by Patricia M. Danzon

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Nuno Sousa Pereira

University of Pennsylvania - The Wharton School; Universidade do Porto

Date Written: April 2003

Abstract

Using data on over 900 firms for the period 1988-2000, we estimate the effect on phase-specific biotech and pharmaceutical R&D success rates of a firm's overall experience, its experience in the relevant therapeutic category; the diversification of its experience, and alliances with large and small firms. We find that success probabilities vary substantially across therapeutic categories and are negatively correlated with mean sales by category, which is consistent with a model of dynamic, competitive entry. Returns to experience are statistically significant but economically small for the relatively straightforward phase 1 trials. We find evidence of large, positive, and diminishing returns to a firm's overall experience (across all therapeutic categories) for the larger and more complex late-stage trials that focus on a drug's efficacy. There is some evidence that a drug is more likely to complete phase 2 if developed by firms with considerable therapeutic category-specific experience and by firms whose experience is focused rather than broad (diseconomies of scope). Our results confirm that products developed in an alliance tend to have a higher probability of success, at least for the more complex phase 2 and phase 3 trials, and particularly if the licensee is a large firm.

Suggested Citation

Danzon, Patricia M. and Nicholson, Sean and Sousa Pereira, Nuno, Productivity in Pharmaceutical Biotechnology R&D: The Role of Experience and Alliances (April 2003). NBER Working Paper No. w9615. Available at SSRN: https://ssrn.com/abstract=394723

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sean Nicholson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-254-6498 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nuno Sousa Pereira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-893-8682 (Phone)

Universidade do Porto ( email )

Rua Dr. Roberto Frias
4200-464 Porto
Portugal

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