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The Management of New Product Introductions in the Pharmaceutical Industry

How well are pharmaceutical firms able to manage new product introductions given a complex innovation environment and long time horizons? This paper demonstrates the importance that downstream complementary assets play in the innovation process, providing for the first time theory and evidence on the timing of firms’ new product introductions. We employ novel pharmaceutical-firm data, including a combination of actual new product introductions, their associated product sales data, and information about firms’ research pipelines and patents to analyze the timing of pharmaceutical firms’ new product introductions. By demonstrating that this timing is substantially explained by the loss of FDA-sanctioned market exclusivity on a current product, we provide primary evidence that firms are effectively managing their long and complex innovation processes. We also examine the determinants of firms’ demonstrated ability to hit these targets, and find evidence that minimizing the “adjustment costs” associated with mismatched specialized complementary assets plays a primary role in explaining the behavior of firms. JEL classifications: L11, O30, O32