Using science to innovate : explaining productivity in the pharmaceutical industry innovation activities

Scientific and technological (S&T) advances underpin opportunities for innovation in the pharmaceutical industry. Government-funded research institutions and firms perform biomedical research to generate S&T advances and enable pharmaceutical innovation. Previous research found that the number of new drugs approved by the US Food and Drug Administration (FDA) has stagnated. The observed stagnation has been interpreted as a decline in the return on research investments. The apparent decline in productivity may be due to the increasing technological difficulty of using S&T advances to develop new drugs and the organizational complexity of incorporating S&T advances generated by government-funded research institutions and firms to develop a new drug. I apply theories of organizational learning to examine how the use of S&T advances to develop new drugs affects the productivity of drug development activities, measured as the time taken to complete early stage pre-clinical research and late stage clinical development activities. I have constructed a novel data set that maps the production and utilization of S&T advances in three phases of market-oriented drug development. By measuring productivity at the project level, I am able to model productivity as the time taken to complete a R&D project as a function of three factors: (1) the technological characteristics of the drug; (2) the use of components generated by other entities; and (3) the research capabilities of the innovating firm. These models enable me to identify technological and organizational factors that affect the efficiency with which S&T advances are transformed into new drugs. Analyses indicate that different technological and organizational factors affect the productivity of pre-clinical research and clinical development. While the time taken to complete a pre-clinical research project is largely determined by the complexity and innovativeness of the drug, the time taken to complete clinical development is a function of the firm's R&D previous experience. The time taken to complete the entire drug development project is determined by the complexity of pre-clinical research and the firm's R&D capabilities. The results are discussed in detail along with policy implications.