Research Expenditures and the Discovery of New Drugs

Abstract

This paper examines technical change in the ethical pharmaceutical industry. A Poisson specification is used to estimate a productivity relationship between research expenditures and drug discoveries, thus taking into account the integer nature of the data. The result s of estimations using panel data indicate that there is a positive c orrelation between a firm's research and development intensity and it s probability of discovering a new drug. Firm size, however, does not significantly affect the marginal productivity of research expenditu res. Finally, the estimates show that an increase in regulatory strin gency decreases the expected number of new drug discoveries. Copyright 1987 by Blackwell Publishing Ltd.