The interdependent influence of lobbying and intellectual capital on new drug development

Abstract

Pharmaceutical firms are top lobbying spenders in the United States (US). While the potential benefits of lobbying are recognized in the literature, the criticism against unethical aspects of lobbying warrants pharmaceutical firms to strategize their lobbying activities. Our study addresses the question “How does a pharmaceutical firm's resource allocation decision toward lobbying activities (and other non-market activities) influence that firm's new drug launches and do these non-market activities interact with market activities?” Specifically, we investigate the interaction between lobbying and the intellectual capital (human, structural, and social capital) of firms. We use a formal model to develop our hypotheses, which we test on a sample of the largest US-listed pharmaceutical firms between 1999 and 2021. Our analyses suggest that human and structural capital weaken the effect of lobbying on the firm's rate of new drug launches, whereas a firm's social capital strengthens the relationship between lobbying and the rate of new drug launches.