The Role of Science in Drug Development Decisions

Abstract

The number of new drug launches in the pharmaceutical industry has not kept pace with soaring R&D expenditures. A potential target for increased efficiency that has so far received little attention is the extreme selectivity in the early stages of drug development, as the vast majority of patented drug candidates do not enter clinical trials. We analyze whether the likelihood of take-up in clinical development is affected by the basic and applied scientific base of patented drug candidates – and who was responsible for that scientific research. We study whether a drug candidate enters clinical trials and whether the patent owner or another firm leads such development. In the latter cases, the drug candidate is handed over to another firm through the market for technology. We hypothesize that both basic and applied research underlying a drug candidate are important for take-up, but that internally conducted basic research would predominantly be associated with internal take-up due to the associated stronger barriers to knowledge transfer across firm boundaries. Examining 18,360 drug candidates patented by 140 pharmaceutical firms we find qualified support for these hypotheses. We also confirm that drug candidates grounded in in-house basic research exhibit a higher success rate in clinical development, underlining the importance of a ‘rational drug design’ approach that explicitly builds on scientific research. Our findings highlight the potential downside of pervasive organizational specialization in either (basic) scientific research or clinical development in the life sciences.