Knowledge and productivity in the pharmaceutical industry

Pharmaceutical firms perform R&D to develop and maintain core knowledge and capabilities. They use foundational knowledge to identify and evaluate relevant scientific advances and integrate those advances with existing knowledge and capabilities throughout the innovation pipeline. If core scientific knowledge and technical capabilities are used in this manner to increase innovative productivity by decreasing the use of other inputs, conventional measures of productivity based solely on outputs, per unit time, are likely to be inaccurate. We analyze productivity by examining development time and controlling for knowledge inputs. This approach measures the effect of core knowledge generated through pre-clinical laboratory R&D on development time in later stages of clinical development. We use patents and citations to model the use of technical knowledge generated through pre-clinical laboratory research in subsequent clinical development activities. Our results indicate that internally generated knowledge and patents, which builds on the existing scientific base are associated with shorter development times.