The role of firm characteristics in pharmaceutical product launches

This paper examines the determinants of new pharmaceutical launches since 1980 in the G7 nations using discrete-time hazard models. Despite the obvious incentive to amortize the large sunk costs of drug development over many markets, entry occurs in only 4 % of the opportunities. The results indicate that firm characteristics, such as domestic status and experience in the local market, are important in explaining product launches in addition to market characteristics. Also, the interaction between the innovating firm and target country is a critical component of profitability. New drugs are 1.5 times more likely to be launched in markets that share a border or a language of a drug company’s country of headquarters, even for multinational firms. The effect of competition depends on the characteristics of both the potential entrant and the incumbents: domestic entrants prefer to compete with domestic incumbents. Although this is an industry with the potential for ubiquitous licensing and low transportation costs, the specific match quality between the innovating firm and market conditions remains an important determinant of entry