Pharmaceutical challenges

What are the key determinants of R&D productivity in the pharmaceutical industry?

Nektarios Oraiopoulos, Don Drakeman, Stefan Scholtes

Econometric analysis on data tracked for every significant new drug under development from preclinical and clinical phases, to launched or discontinued status (over 40,000 drugs spanning the past 30 years) is being used to identify the determinants of successful drug development measured not only by the probability of reaching launch but also by the overall drug profitability. Some of the key causal variables that we examine are the past experience of the focal firm with respect to the specific therapeutic area and whether the drug was developed in-house or under a collaborative effort with a biotech company.

While the effect of past experience is significant, its magnitude varies significantly across the different therapeutic areas. Considering the R&D productivity has been on steady decline in the industry for the past few years, understanding the drivers of successful drug development is more crucial than ever. Our research could shed light on a number of decisions regarding whether to develop a drug in-house or though a collaborative effort, and if so, whom should the company collaborate with and under what contractual terms.