Pharmaceutical Innovation with Project Co-Opetition
*Names in bold indicate Presenter
In this paper, I characterize the agency problem in pharmaceutical innovation with a motivational incomplete contract model, and test whether project co-opetition can mitigate the inefficiency. Empirically, I use the project-level data from PharmaProject during 1989-2004. Firm-specific product choices and Phase-specific survival rates are documented for big pharma and small biotech, in terms of new products’ degree of innovation vs lucrativeness. I construct non-parametric innovation index based on drugs’ world development status, relative difficulties across therapeutic categories, and bio-similarity; and define lucrativeness based on sales data and market shares. I define co-opetition as the different project integration status: whether a drug is developed with full ownership, in a joint venture, or being acquired. Using both parametric and non-parametric logit regression of drug’s therapeutic-specific survival rates on firm characteristics and across co-opetition status, I demonstrate reduced-form evidence of heterogeneous impact of co-opetition on pharmaceutical companies' innovation behavior across firm types and degree of innovation. I further estimate a dynamic optimization problem for managers’ pre-clinical drug portfolio choice, anticipating potential co-opetition in later stage. I will try counterfactual policy analysis on certain firm-specific regulations or therapeutic-specific subsidies (e.g., subsidize antibiotic development vs. cultivating global joint venture), to explore the potential welfare improvement in drug development intervention through a market channel.