Research and Development Pharmaceutical

Research and Development Pharmaceutical

Abstract:

The past couple of decades have noticed huge advances in a lot of the scientific, managerial and technological areas that must likely to increase the effectiveness of drug research and development (R&D). The pharmaceutical industry is considered to be the third largest financier of R&D for overlooked illnesses. Additionally, as an associate in global health, this industry works with the world health organization (WHO) and a number of other partners to put capacity-building efforts into practice, chiefly in underdeveloped countries. However, the pharmaceutical industry is suffering from increasing strain from a variety of issues, including growing costs and failing productivity of pharmaceutical R&D. Though, it has carried out certain consolidation in the industry to make operating funds available for better R&D spending. The longest and most expensive part of the pharmaceutical R&D process is phase 3 clinical trials. This paper draws upon a publically available database, ClinicalTrials.gov, to examine whether larger pharmaceutical companies are able to estimate phase 3 completion times more accurately than smaller companies, and whether these larger companies are able to complete clinical trials more quickly.
The research will draw hypotheses from a review of medical, organizational and management literature. In particular, I will establish where organizational size has led to improved performance, especially in the area of R&D.

Statement of Problem

It is broadly claimed that research to determine and synthesize new pharmaceuticals involves high costs as well as high risks. The elevated R&D costs affect several decisions and discussions of the policy regarding how to decrease worldwide health inequalities, how much companies can manage to pay for the underdeveloped countries, and how to carry out phase 3 completion using innovative design and incentives.

The larger pharmaceutical companies are found to assess completion times of the phase 3 more precisely as compared to the smaller companies. Pharmaceutical markets, nevertheless, are enormously complex in several respects. For this reason, this paper will evaluates whether larger firms are more successful or smaller in achieving phase 3 completion and more R&D.

Literature Review

There is a relationship between the size of the company and research yield in the pharmaceutical industry. Henderson and Cockburn (1996) conducted a research to determine whether larger firms prove to be more productive or the smaller one for research and development (R&D).  According to them, the relationship between the company size and its pioneering performance participate in a chief role in the evaluation of industry innovation, infrastructure, and the transaction between dynamic and static effectiveness. They used comprehensive data created at the level of the single research program acquired from the ten chief pharmaceutical companies that normally carried out research. The result of their study demonstrated that there were marked yield, though, owing to the size of companies, yet these yields as such were less from the economies of scale. The main advantage of the large scale companies, they found were their ability to understand returns to extent: to maintain an effectively varied assortment of research projects, and to gather and utilize external and internal overflows of knowledge. They also found that in the pharmaceutical industry big companies emerge to enjoy a benefit in conducting a research. Also, they concluded that the better performance runs from economies of scope same like it runs from economies of scale per se (Henderson and Cockburn 1996).

Cockburn and Henderson (2001) determined the size of the pharmaceutical company with respect to the R&D. This study was based on 10 companies and their clinical research data. They found a strong connection between the range of development efforts by the firms and the success chance of separate projects; however, they didn’t find any outcome of scale per se.  Cockburn and Henderson (2001) also discovered a better performance in the drug development by the companies that were strong and larger.  It was also noted that such companies might seem to be motivated by returns to scope instead of returns to scale.

Likewise, the relation between the firm size and R&D has been studied by a number of researchers. Revilla and Fernández (2012) suggested a contingent approach where the existing technological system of each firm influenced the association between R&D and size. Different aspects of the technological system were formulated using Spanish manufacturing firms as a sample. The result of this study demonstrated that R&D and size linkage is dependent on a technological system. According to them firms which are smaller, they enjoy low level of technological regimes and low acquaintance cumulativeness as compared to larger firms, whose not only performance is innovative but also they perform better within limited supplies and maintain the relationships with consumers and suppliers well.

Though, this study was favoring the larger firms, there are several studies showing the fact that small firms can produce more patents for each R&D dollar in comparison to large firms. A study by Kim, Lee and Marschke (2004) focused on the two industries namely, semiconductor and pharmaceutical industries, that were plentiful producers of homogenous innovations. According to them smaller firms understand the improvement venture, and offer an established and dominant engine for making the living standards better in developed economies. However, the researchers of this study found that patents for every R&D dollar decreases with the size of the firm for both of semiconductor and pharmaceutical industries. In the semiconductor industry, patents for each inventor was found to be increased with size while in case of pharmaceutical industry, the researchers didn’t find any no relationship between the patents number created per inventor and size of the firm (Kim, Lee and Marschke 2004).

It can be said that large firms with a lot of products may be superior since it can better able to utilize unexpected innovations.

DiMasi (2014) used private and public data sources to demonstrate the significant characteristic of R&D performance and to approximate clinical approval chances and clinical phase transition for fifty biggest pharmaceutical companies by three size groups.  This study results also were in the favor of smaller firms, which showed higher rate of success by driving the small-molecule drugs.

The question of interest, whether the research efforts by the larger pharmaceutical companies more fruitful or that of the smaller one, is still doubtful. Some of the studies favor larger pharmaceutical firms while other smaller. In this regard and by using detailed data of the ten main research-based pharmaceutical companies were studied by Henderson and Cockburn (1997) again.  They again found larger companies and their research efforts to be more productive than that of the smaller ones. They found larger firms more attracted because in their opinion, when there is no such market functioning for for innovation, in this situation only larger firms are able to afford a fixed costs over a larger sales for research.  Large firms enjoy benefits in the financial marketplaces over small companies: to such an extent that they are capable to lessen problems of unfavorable assortment and moral risk in increasing capital.  They are actually in better position to finance uncertain projects. According to Henderson and Cockburn (1997) larger firms can make use of complementarities within the company to boost the output of research.

References 

Henderson, R., & Cockburn, I. (1996). Scale, scope, and spillovers: the determinants of research productivity in drug discovery. The Rand journal of economics, 32-59.

Cockburn, I. M., & Henderson, R. M. (2001). Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research. Journal of Health Economics, 20(6), 1033-1057.

Agrawal, A. K., Cockburn, I. M., Galasso, A., & Oettl, A. (2012). Why are some regions more innovative than others? The role of firm size diversity.

Bruegmann, E. Pharmaceutical Mergers and the Organization and Productivity of Innovation.

Kim, J., Lee, S. J., & Marschke, G. (2004). Relation of firm size to R&D productivity. Unpublished working paper, 04-05.

Honjo, Q. C. Z. Y. R&D Efficiency and Firm Size in the Japanese Pharmaceutical Industry.

Revilla, A. J., & Fernández, Z. (2012). The relation between firm size and R&D productivity in different technological regimes. Technovation, 32(11), 609-623.

Lee, C. Y., & Sung, T. (2005). Schumpeter's legacy: A new perspective on the relationship between firm size and R&D. Research Policy, 34(6), 914-931.

Kafouros, M., Wang, C., & Lodorfos, G. (2009). The impact of R&D strategy and firm size on the returns to innovation. International Journal of Entrepreneurship and Small Business, 8(4), 550-566.

Corsino, M., Espa, G., & Micciolo, R. (2008). R&D, firm size, and product innovation dynamics.

Lejarraga, J., & Martinez-Ros, E. (2014). Size, R&D productivity and Decision Styles. Small Business Economics, 42(3), 643-662.

Henderson, R., & Cockburn, I. (1997). Firm size and research productivity in drug discovery. La Sant’e: Trajectories D’avenir, INSEE, Paris.