R&D productivity and disruptive innovation

Abstract

The R&D productivity crisis is among the most pressing issues in the drug industry. The increasing costs and stable R&D outputs jeopardise the industry’s economic health, drug innovation, and the accessibility and affordability of medicines. The pharmaceutical R&D productivity problem is expected to be diminished due to biotechnological breakthroughs and the emergence of biotechnology firms. As a result, significant public and private investments and policy measures are aimed at stimulating the development of the biotechnology sector. In addition, firms in the pharmaceutical industry are adopting organisational strategies to mimic biotechnology companies. However, based on previous studies, the measures to stimulate the development of the biotechnology sector are not justified. Empirical evidence on the impact of the biotechnology revolution on pharmaceutical R&D productivity is limited and contradicting. Therefore, it is important for improving pharmaceutical R&D productivity to grasp biotechnology firms’ current and future contributions to R&D productivity. 

This research analysed to what extent disruption of the pharmaceutical industry by biotechnology firms can reduce its R&D productivity decline. First, I assessed the current contribution of biotechnology firms to pharmaceutical R&D productivity. For every drug approved by the FDA between 2008 and 2015, I quantitatively analysed the relationship between biotechnological organisational characteristics and three determinants of R&D productivity: the commercial success, innovativeness and medical importance of the new drug. Second, I examined whether biotechnology firms disrupt the pharmaceuticals market via new-market disruption. I empirically tested for the presence of elements of the concept of new-market disruption using statistical tests.

From this research, I concluded that disruption by biotechnology firms does not and will not reduce the pharmaceutical R&D productivity decline. Instead, the development of new biotechnology firms likely has an adverse impact on R&D productivity. Moreover, new-market disruption in the drug industry is improbable to occur and will not provide the drastic reform the pharmaceutical industry needs to improve its R&D productivity.