The development of firm size and innovativeness in the pharmaceutical industry between 1989 and 2010

Within the last decades, there have been many technological and regulatory changes in the pharmaceutical industry. Some of these developments facilitate the innovative activities of large firms, while others foster small firms. It is therefore surprising that the implications of these changes in the pharmaceutical industry have not often been studied empirically. We contribute to the question of firm size and innovativeness in the pharmaceutical industry in presenting a brief review of the literature on innovative activities with a focus on the relation of different firm sizes in the pharmaceutical industry and present own empirical findings. Our results with project data from a broad range of firms show that the innovative activities of small firms measured by the share of their projects on all research projects have been rising strongly between 1989 and 2010. Further, the share of small firms on new drugs has been constantly increasing in this period. On the other hand, project success rates are lowest for small firms, while the rate of projects already discontinued in the preclinical phase is highest for them. We discuss these results and find that the reasons behind these developments are crucial to understand the innovative performance of the industry within the last 20 years.