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Innovation, R&D productivity, and global market share in the pharmaceutical industry
Abstract
In this paper, we estimate two empirical models using a pooled, cross-section sample of international pharmaceutical firms for the period 1987 to 1989. The first model tests the relationship between R&D productivity and a vector of firm-specific characteristics. The second model tests the determinants of global market share. The empirical analysis reveals three findings. First, we find evidence that there are diminishing returns in the pharmaceutical R&D process. Second, we find that firm size has a positive effect on average R&D productivity and a positive impact on the marginal R&D productivity for plausible R&D staff sizes. And third, we find evidence that R&D productivity and the number of sales employees have a positive effect on the firm's global market share.
... Shimura investigated the relationship between the decrease in R&D productivity calculated by DEA and M&A, and found that companies with a lower R&D efficiency score were more likely to engage in M&A [73]. The mapping of R&D productivity can visualize enterprise productivity and help to monitor industry productivity in addition to improving it [73]. ...
... Shimura investigated the relationship between the decrease in R&D productivity calculated by DEA and M&A, and found that companies with a lower R&D efficiency score were more likely to engage in M&A [73]. The mapping of R&D productivity can visualize enterprise productivity and help to monitor industry productivity in addition to improving it [73]. Owing to the decline in R&D productivity and changes in the business environment, it was possible to observe that the management teams are continuously practicing measures to improve R&D productivity [73]. ...
... The mapping of R&D productivity can visualize enterprise productivity and help to monitor industry productivity in addition to improving it [73]. Owing to the decline in R&D productivity and changes in the business environment, it was possible to observe that the management teams are continuously practicing measures to improve R&D productivity [73]. ...
... The R&D variable is represented by the percentage of R&D expenditures relative to the output of the firm. The percentage of R&D expenditure as a measure of R&D activities is also used in several previous R&D studies, such as research by Alexander et al. [33]; Harris and Trainor [27]; Vossen [11]; Lundin et al. [31]; and Voinea [13]. ...
This research investigates the relation between research and development (R&D) expenditure and the industrial concentration in the Indonesian manufacturing industry. Pooled least square dummy variable is applied to estimate the relation between the two variables. This research uses firm-level data taken from the survey of the manufacturing industry sourced from the Indonesian Bureau of Central Statistics. This research makes contributions in calculating the percentage of R&D expenditure using the recent data and freshly estimating the relation between R&D and industrial concentration in the industry. This research finds that the percentage of R&D expenditure is relatively low in the industry. There is also a declining trend in the percentage of the R&D expenditure from the period 1994–1995 to 2017. The higher industrial concentration increases the percentage of R&D expenditure. This research also finds that R&D expenditure can be higher in the firms with market power.
... Чињеница да расправа о применљивости СПП парадигме не јењава седам деценија по њеном објављивању, говори у прилог њеном значају и актуелности. У овом делу дисертације ће се, уважавајући логику, механизам и закључке СПП парадигме, 8 указати на могуће правце даљег теоријског и практичног бављења овом проблематиком. Са намером да се направи корак напред у односу на теоријски оквир СПП парадигме, повешће се дискусија у контексту њене апликативности у анализи реалних тржишних стања, и начинима на који се она може спровести. ...
The subject of the scientific research is the integration of the theoretical fundaments and econometric modeling of the chain related conditions of competition, market share, and profitability of business entities. The spectrum of possible impacts and connections between individual elements follows the logic of the Structure–Conduct– Performance paradigm and the New Empirical Industrial Organization. While discussing the context of the reverse impact among the mentioned elements, the dissertation highlights the arguments that indicate that causality is valid in both directions.
One of the main goals of the doctoral dissertation is to provide insight into the significance, determinants and consequences of the process of the market structure change, as well as to determine the validity of the selected microeconomic concepts for measuring market concentration, market power and profit maximization models in the modern market structures. In this regard, a new approach to analyzing and measuring the conditions of competition in the relevant markets has been promoted. One of the specific goals is the systematization and the improvement of the theoretical and empirical results in this field. Taking into account the development trends and economic consequences of the transformation process of the market structures, certain factors that lead or could lead to intensification, limitation, prevention or distortion of competition conditions in modern markets
have been identified. The dissertation provides a possible theoretical explanation that the market share is the result of behavior and strategic positioning of economic actors. Consulting the available literature, the dissertation suggests possible development directions of the theoretical concepts. The first direction relates to the application of simulations based on calibrated economic models of competition, while the another, the alternative approach, to the econometric formulation and model estimation, which determines the quantitative relationship between the variables that define the conditions of competition, market behavior and business performance.
... This paper uses the number of the patents applied in a current year as a measure of R&D effectiveness. However, Alexander, Flynn and Linkins (1995) suggest to use number of compounds in the firm's R&D pipeline as a measure of R&D effectiveness rather than the patents applied. R&D pipeline refers to all the chemical compounds that have been tested during the full research cycle. ...
One of the challenges for the Big Pharma is finding the golden line in the tradeoff between innovation and pricing. This paper investigates the relationship between R&D expenditures, patents and gross profits, based on US pharmaceutical industry panel data. The initial hypothesis states that there is a positive relationship between the R&D expenditures, patents applied in a current year and the company's profitability measured in terms of gross profits. The study concludes that there is a significant positive relationship between the R&D spending and the number of the applied patents in a current year. However, the relationship between the patents applied and the profitability has proved to be negative. The incline in the total assets and sales volume leads to the increasing profitability, whereas the size of the firm measured by the number of employees has an opposite negative effect. Results are relevant to the ongoing discussions regarding the fairness of pharmaceutical industry pricing, since it provides an evidence on the relationship between R&D expenditures, patents and gross profits.
... Innovation in pharmaceutical companies has been extensively examined with regard to specific research areas (Alexander et al. 1995;Chiesa 1996;Jungmittag et al. 2000;DiMasi et al. 2003;Hara 2006;Gassmann et al. 2008;Magazzini et al. 2009). ...
In the global pharmaceutical market, innovation and imitation processes play a key role in companies’ development policies. Through the analysis of the main pharmaceutical companies (originator and generic pharmaceutical companies), this paper aims to identify features that qualify companies themselves, with a particular focus on new product R&D processes.
... In his later work however, he claimed that the major source of innovation were large corporations [45], which had also been observed in the early empirical literature [46]. For the pharmaceutical industry results are mixed: Some authors observed decreasing returns to R&D investments [47][48][49]. Others suggest significant returns to size in pharmaceutical research [50]. ...
Objectives: Many European countries regulate the markets for prescription drugs in order to cope with rising
health expenditures. On the other hand, regulation distorts incentives to invest in pharmaceutical R&D. This study aims at empirically assessing the impact of regulation on pharmaceutical R&D expenditures.
Methods: We analyze a sample of 20 leading pharmaceutical companies between 2000 and 2008. The share of sales in Europe serves as a proxy for the degree of pharmaceutical regulation. We control for other firm specific determinants of R&D such as cash flow, company size, leverage ratio, growth rate, and Tobin’s q.
Results: Our results suggest a nonlinear relationship between European sales ratio and R&D intensity. Beyond a threshold of 33% of sales generated in Europe, a higher presence in Europe is associated with lower R&D investments.
Conclusion: The results can be interpreted as further evidence of the deteriorating effect of regulation on firm’s incentives to invest in R&D.
... We have chosen to standardize R&D expenditure by the employees 1998-2004. in R&D division since this measure reflects the overall resources that personnel in R&D use to develop new products and processes (see Alexander, Flynn, and Linkins 1995). This variable expresses productivity better than others: we may expect that firms investing more in R&D expenditure per R&D employee should be more productive. ...
Starting from the failure of the R&D-patents traditional relationship, when time-series and/or within industry dimensions are included in the empirical analysis, the present work tries to contribute to the empirical literature from two directions. Firstly, it performs a Granger causality test based on the theoretical presumption of a reverse patents→R&D link as an explanation for the failure of the traditional relationship. Secondly, assuming the reverse patents-R&D causality, we test and interpret the lag structure of such a relationship which shows the effective patent life that firms can expect within the two Schumpeterian patterns of innovations they belong to. In the light of the effective patent life, we offer a further explanation of innovation persistence which overturns the findings of the existing literature on persistence.
This chapter aims at providing an understanding of the research and devlop-ment (R&D) process in the pharmaceutical industry, by exploring the methodological challenges and approaches in the assessment of the determinants of innovation in the pharmaceutical industry. It (i) discusses possible methodological approaches to model occurrence of events; (ii) describes in detail competing risks duration models as the best methodological option in light of the nature of pharmaceutical R&D processes and data; (iii) concludes with an estimation strategy and overview of potential covariates that have been found to correlate with the likelihood of failure of R&D pharmaceutical projects.
The large number of biopharmaceutical mergers and acquisitions (M&A) that occurred over the past decade has generated questions about whether the industry is consolidating around too-few players, negatively impacting both the number of medicines developed and overall innovation. However, closer examination of the level of biopharmaceutical consolidation shows that the industry was more fragmented in 2015 than it was in 2003 by prescription drug sales. The trend towards increasing fragmentation is also observed across noncommercial and independent metrics over the same time period. The number and size of M&A deals has masked an active and competitive marketplace in which market growth and the number of companies entering the market exceeded the apparent reduction in the number of players caused by acquisitions.
'It is an innovative book in a variety of ways. Only a small amount of literature of the social studies of technology has dealt with innovation in pharmaceuticals. In part, this is because pharmaceutical companies are naturally wary of allowing outside researchers too close to their innovation processes: it is an information-sensitive business. So one of the great strengths of Hara's book is the access he has achieved. It is also innovative in its consideration of the pharmaceutical industry in Japan, but such is the dearth of material of this kind on pharmaceuticals that even the discussion of the UK cases is largely novel.' - Donald MacKenzie, University of Edinburgh, UK. Innovation in the Pharmaceutical Industry traces the discovery and development of drugs in Japan and the UK both historically and sociologically. It includes sixteen case studies of major pharmaceutical developments in the twentieth century, encompassing, amongst others, beta-blockers, beta-stimulants, inhaled steroids and histamine H2-antagonists.
The entry of new competitors operates as a balancing force against high levels of industrial concentration and the abuse of dominant position by firms with large market shares. This paper's goal is to examine theoretically the impact of Research & Development investments on new firm entry. While dominant economic theory supports that large R&D investments are a prerequisite for technological change and economic growth, so that large incumbent firms are considered to have an advantage against new, typically smaller firms, theoretical and empirical research has shown that this may not be the case. Small firms' contribution in innovation and economic development is far greater than expected.
Relevant factors that influence the research productivity
of pharmaceutical firms are discussed in
this paper. On the basis of data from the USA,
many authors find evidence that publications in
scientific literature lead to the development of a
so-called »absorptive capacity«, which in turn
increases a firm’s research productivity. However,
no significant relation between publications and
patents was found using data of 14 European
firms. The results reflect institutional differences
in the labor market and underline the fact that
one must be careful with the application of US
management concepts to other environments.
The present study examines the factors affecting the market share of the dominant firm in long-distance telecommunications, AT&T. A theoretical model is specified which includes competing long-distance rates (e.g., those of MCI and U.S. Sprint), price-cap regulation and advertising expenditures as determinants of the dominant firm's market share. Using intercity long-distance carrier charges for 1984–1994, this study points out the importance of AT&T's own rate structure, those of its major competitors, and government regulations in determining AT&T's market share over time.
The distribution of consumer incomes is a key factor in determining the structure of a vertically differentiated industry when consumer's willingness to pay depends on her income. This paper computes the Shaked and Sutton (1982) model for a lognormal distribution of consumer incomes to investigate the effect of inequality on firms' entry, product quality, and pricing decisions. The main findings are that greater inequality in consumer incomes leads to the entry of more firms and results in more intense quality competition among the entrants. More intense quality competition raises the average quality of products in the market as firms compete for the shrinking share of higher-income consumers. With zero costs of quality improvements and an upper bound on the top quality or when costs of quality are fixed and rise sufficiently fast, greater heterogeneity of consumer incomes also reduces firms' incentives to differentiate their products. Competition between more similar products tends to reduce their prices. However, when income inequality is very high, the top quality producer chooses to serve only the rich segment of the market and charges a higher price. The conclusion is that income inequality has important implications for the degree of product differentiation, price level, industry concentration, and consumer welfare.
This thoroughly accessible textbook shows students how microeconomic theory can be used and applied to major issues of public policy. In this way, it will improve their understanding of both microeconomic theory and policy and also develop their ability to critically assess them. Clem Tisdell and Keith Hartley have expanded upon their previous successful work on microeconomics. As a result, this new book is considerably updated with substantial chapter revisions, as well as new chapters dealing with business management, ownership, environmental issues, public choice, defence, conflict and terrorism.
INNOVATION in the U.S. ethical drug industry in recent years has been characterized by a number of adverse developments. In particular, there has been a sharp decline in the rate of new product introductions and the incentive for engaging in research and development (R & D) activity has been negatively influenced by rapid increases in the costs and risks of developing new products. While there is little debate about the existence of these adverse trends, there is considerable controversy about the factors producing them. Briefly, we list below five hypotheses that have been discussed as explanations for the declining rate of innovation
The research and development costs of 93 randomly selected new chemical entities (NCEs) were obtained from a survey of 12 U.S.-owned pharmaceutical firms. These data were used to estimate the pre-tax average cost of new drug development. The costs of abandoned NCEs were linked to the costs of NCEs that obtained marketing approval. For base case parameter values, the estimated out-of-pocket cost per approved NCE is 231 million (1987 dollars).
Contenido: Parte I Teoría estadística básica: 1) Introducción a la inferencia estadística; 2) Derivación experimental y distribución de muestreo; 3) Probabilidad y distribuciones de probabilidad; 4) Derivación teórica y distribución de muestreo; 5) Prueba de hipótesis; 6) Estimación. Parte II Teoría econométrica básica: 7) Regresión simple; 8) Violaciones de asunciones básicas; 9) Estimación con datos deficientes; 10) Regresión múltiple; 11) Formulación y estimación de modelos especiales; 12) Modelos de regresión lineal generalizada y sus aplicaciones; 13) Sistemas de ecuaciones simultáneas.
The plan of this paper is as follows: First, we summarize and point out several problems we found with Comanor's study. Section III presents the results from a two-equation model that decomposes the technical change measure into an R and D component and a marketing component. The final section is an analysis of the elasticity of technical change with respect to firm size. The total elasticity is shown to consist of two parts - a "direct" and an "indirect" effect of size. The indirect effect is the effect on technical change of the increase in R and- D inputs (induced by an increase in firm size). In this section we make use also of a maximum likelihood estimation technique developed by Tobin (1958) for cases where the dependent variable is limited, as is the case for our sample
The aggregate demand for ethical pharmaceutical drugs using country-level data for seven countries pooled across an eight-year period is estimated. The regression analysis reveals that the net price paid by consumers has a negative effect on the average number of prescriptions per capita while income has a positive effect. Moreover, the parameter estimates suggest thst the demand is relatively elastic in most countries, and that the income elasticity is greater than one.
This article estimates the highly differential impacts of FDA regulations on pharmaceutical firms of various sizes (where size is measured as scale of R&D expenditures). Estimation is performed using the method of maximum quasi-likelihoods, using productivity trends of the United Kingdom as a control to isolate FDA regulatory effects in the United States. It is shown that smaller U.S. pharmaceutical firms suffered devastating reductions in research productivity because of FDA regulations. In contrast, the largest U.S. pharmaceutical firms apparently benefited from regulation, as sales gains due to reduced competition more than offset their quite moderate declines in research productivity.
This paper estimates the impact of federal regulation of drug quality on research spending by the pharmaceutical industry. The theoretical approach recognizes that the effects of these regulations on research spending depend upon the reactions of R&D decision makers and the information available during project selection. The information available to R&D decision makers in the 1960s suggests that it would have been difficult for them to forecast accurately regulatory effects on research profitability. As better information developed in the late 1960s and early 1970s, however, regulation had a significant effect on research spending. These differences in response are tested econometrically and prove to be empirically significant. The estimates of current regulatory effects on pharmaceutical R&D spending are quite large.
This paper examines technical change in the ethical pharmaceutical industry. A Poisson specification is used to estimate a productivity relationship between research expenditures and drug discoveries, thus taking into account the integer nature of the data. The result s of estimations using panel data indicate that there is a positive c orrelation between a firm's research and development intensity and it s probability of discovering a new drug. Firm size, however, does not significantly affect the marginal productivity of research expenditu res. Finally, the estimates show that an increase in regulatory strin gency decreases the expected number of new drug discoveries. Copyright 1987 by Blackwell Publishing Ltd.
Estimating the Effects of Regulation on Inno-Japan Pharmaceutical Manufacturers Association (various years) Japan Data Book
- Glaxo Holdings
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- H Grabowski
- J Vernon
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Glaxo Holdings, Ptc. (various years) Annual Report, London: Glaxo Holdings, Plc. Grabowski, H., J. Vernon, and L.G. Thomas (1978) 'Estimating the Effects of Regulation on Inno-Japan Pharmaceutical Manufacturers Association (various years) Japan Data Book, Tokyo: Japan Pharmaceutical Manufacturers Association.
Linkins (forthcoming) 'Estimates of the Demand for Ethical Pharma-ceutical Drugs Across Countries and Time
- D Alexander
- J Ftynn
Alexander, D., J. Ftynn, and L. Linkins (forthcoming) 'Estimates of the Demand for Ethical Pharma-ceutical Drugs Across Countries and Time', Applied Economics.
Product Innovation and the Dynamic Elements of Competition in the Ethical Pharmaceutical Industry?
- D Cocks
- D. Cocks
The Effect of U.S. Pharmaceutical Regulation on New Introductions?
- S Wiggins
- S. Wiggins