The Role of Incumbent Firms and Universities as Drivers of Innovation: Evidence from the Comparison of the Markets for Anti-cancer and AIDS-treatment Drugs

Abstract

In this paper, I compare the dynamics of two different markets within the pharmaceutical industry: anti-cancer and AIDS-treatment drugs. The anti-cancer drug market was born in 1949 and had been in operation for decades prior to 1983, when the biotechnology revolution first disrupted it. In contrast, the market for AIDS-treatment drugs was born around 1985, during the biotechnology revolution. This implies that incumbents with respect to the biotechnology revolution can only be found in the former market. Based on field interviews, data on patented molecules from the Derwent World Patent Index collection 1994-2004, and data on drugs entering clinical trials from the Pharmaprojects database 1989-2004, I examine the differences in innovative output (measured in drug molecules per firm) among firms competing in each market. Preliminary results indicate that average productivity is higher in the anti-cancer drug market than in the market for AIDS-treatment drugs, but only for the early stages of R&D. At the point of approval, the markets exhibit equal rates. The reverse is true for differences across technological regimes: the differences are not significant in early stages but are significant later on. Lastly, differences in per-firm productivity are always significant across firm profiles (with incumbents always sustaining the highest rate) whereas total proportion of production of innovations is always led by the group of de novo firms. Universities do not lead in total proportion of innovations generated, nor do they play a significant role as co-assignees of other organizations in the generation of patented molecules. Although this paper offers only tentative initial analyses, with further work necessary to implement feedback from participants of the Sloan Industry Studies meeting, it has clear potential to contribute to understanding the role that large incumbents and universities play in shaping the dynamics of innovation.