Rushed Innovation: Evidence from Drug Licensing

Forthcoming, Management Science

60 Pages Posted: 1 Jun 2019 Last revised: 23 Oct 2019

See all articles by Manuel Hermosilla

Manuel Hermosilla

Johns Hopkins University - Carey Business School

Date Written: October 22, 2019

Abstract

We study the drug licensing behavior (acquisition of rights for developing drugs) of large pharmaceutical firms in the aftermath of large negative shocks to their pipelines, Phase 3 failures (P3Fs). We find that P3Fs lead to increased licensing within a year of the event. This result is significant because one year is a short window given the usual timelines---licensing is a lengthy process that requires extensive planning and careful execution. Supported by a series of additional results, we interpret this finding as a reflection of rushed firm behavior. Correspondingly, our main finding is that drugs licensed in these circumstances (within a year of a P3F event) underperform in subsequent development: they are significantly less likely to reach the market compared to others licensed in normal conditions. Further analysis suggests that this underperformance may stem from the influence of rush on activities taking place in the "last mile" of the licensing process, and could hinge on the quality of the agreements that firms converge on during negotiation.

Keywords: rush, new product development, new technology, innovation, pharmaceuticals, pharmaceutical productivity, drug licensing, causal inference

Suggested Citation

Hermosilla, Manuel, Rushed Innovation: Evidence from Drug Licensing (October 22, 2019). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3383737 or http://dx.doi.org/10.2139/ssrn.3383737

Manuel Hermosilla (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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