Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms
47 Pages Posted: 19 Nov 2004
There are 2 versions of this paper
Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms
Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms
Date Written: November 2004
Abstract
This paper compares the clinical trial strategies and performance of large, established ("mature") biopharmaceutical firms to those of smaller ("early stage") firms that have not yet successfully developed a drug. We study a sample of 235 cancer drug candidates that entered clinical trials during the period 1990-2002 and were sponsored by public firms. Early stage firms are more likely than mature firms to advance drug candidates from Phase I to Phase II clinical trials. However, early stage firms have much less promising clinical results in their Phase II trials and their Phase II drug candidates are also less likely to advance to Phase III and to receive Food and Drug Administration approval. This pattern is more pronounced for early stage firms with large cash reserves. The evidence points to an agency problem between shareholders and managers of single-product early stage firms who are reluctant to abandon development of their only viable drug candidates. By contrast, the managers of mature firms with multiple products in development are more willing to drop unpromising drug candidates. The findings appear to be consistent with the benefits of internal capital markets identified by Stein (1997).
Keywords: Internal capital markets, resource allocation, drug development, financial resources
JEL Classification: G30, G31, G32, L1, L22, L23, L65, M13, 032
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Do Equity Financing Cycles Matter?: Evidence from Biotechnology Alliances
By Alexander Tsai and Josh Lerner
-
Do Equity Financing Cycles Matter? Evidence from Biotechnology Alliances
By Alexander Tsai and Josh Lerner
-
By Ilan Guedj and David S. Scharfstein
-
Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality
By Sean Nicholson, Patricia M. Danzon, ...
-
Financial Contracting in Biotech Strategic Alliances
By David T. Robinson and Toby Stuart
-
Contractibility and the Design of Research Agreements
By Ulrike Malmendier and Josh Lerner
-
Contractibility and the Design of Research Agreements
By Ulrike Malmendier and Josh Lerner
-
Productivity in Pharmaceutical Biotechnology R&D: The Role of Experience and Alliances
By Patricia M. Danzon, Sean Nicholson, ...
-
The Allocation of Control Rights in Pharmaceutical Alliances