Missing Novelty in Drug Development
<jats:title>Abstract</jats:title> <jats:p>We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical innovation. We introduce a new measure of drug novelty based on chemical similarity and show that firms face a risk-reward trade-off...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Oxford University Press (OUP)
2022
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| Online Access: | https://hdl.handle.net/1721.1/144199 |
| _version_ | 1811097094307446784 |
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| author | Krieger, Joshua Li, Danielle Papanikolaou, Dimitris |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Krieger, Joshua Li, Danielle Papanikolaou, Dimitris |
| author_sort | Krieger, Joshua |
| collection | MIT |
| description | <jats:title>Abstract</jats:title>
<jats:p>We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical innovation. We introduce a new measure of drug novelty based on chemical similarity and show that firms face a risk-reward trade-off: novel drug candidates are less likely to obtain FDA approval but are based on more valuable patents. Consistent with a simple model of costly external finance, we show that a positive shock to firms’ net worth leads firms to develop more novel drugs. This suggests that even large firms may behave as though they are risk averse, reducing their willingness to investment in potentially valuable radical innovation.</jats:p> |
| first_indexed | 2024-09-23T16:54:14Z |
| format | Article |
| id | mit-1721.1/144199 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T16:54:14Z |
| publishDate | 2022 |
| publisher | Oxford University Press (OUP) |
| record_format | dspace |
| spelling | mit-1721.1/1441992023-08-11T18:28:57Z Missing Novelty in Drug Development Krieger, Joshua Li, Danielle Papanikolaou, Dimitris Sloan School of Management <jats:title>Abstract</jats:title> <jats:p>We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical innovation. We introduce a new measure of drug novelty based on chemical similarity and show that firms face a risk-reward trade-off: novel drug candidates are less likely to obtain FDA approval but are based on more valuable patents. Consistent with a simple model of costly external finance, we show that a positive shock to firms’ net worth leads firms to develop more novel drugs. This suggests that even large firms may behave as though they are risk averse, reducing their willingness to investment in potentially valuable radical innovation.</jats:p> 2022-08-03T17:29:31Z 2022-08-03T17:29:31Z 2022 2022-08-03T16:46:01Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/144199 Krieger, Joshua, Li, Danielle and Papanikolaou, Dimitris. 2022. "Missing Novelty in Drug Development." Review of Financial Studies, 35 (2). en 10.1093/RFS/HHAB024 Review of Financial Studies Creative Commons Attribution 4.0 International license https://creativecommons.org/licenses/by/4.0/ application/pdf Oxford University Press (OUP) Oxford University Press |
| spellingShingle | Krieger, Joshua Li, Danielle Papanikolaou, Dimitris Missing Novelty in Drug Development |
| title | Missing Novelty in Drug Development |
| title_full | Missing Novelty in Drug Development |
| title_fullStr | Missing Novelty in Drug Development |
| title_full_unstemmed | Missing Novelty in Drug Development |
| title_short | Missing Novelty in Drug Development |
| title_sort | missing novelty in drug development |
| url | https://hdl.handle.net/1721.1/144199 |
| work_keys_str_mv | AT kriegerjoshua missingnoveltyindrugdevelopment AT lidanielle missingnoveltyindrugdevelopment AT papanikolaoudimitris missingnoveltyindrugdevelopment |