The Impact of R&D Cooperations on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry∗

Our study devotes special attention to the fact that R&D cooperations in the pharmaceutical industry are formed at different stages throughout the drug development process. We study how the timing to engage in R&D cooperations in the pharmaceutical industry impacts firms performance in technology and product markets. Using a comprehensive dataset on the pharmaceutical industry, and estimating a heterogeneous treatment effects model (Heckman et al., 2006) our results show that R&D cooperations formed at the early stages increase the number of R&D projects and the number of drugs launched on the product market. Most interestingly, late stage R&D cooperations significantly reduce the number of drugs launched on the market, even though they increase firms’ activity in the technology markets. This result highlights the fact that firms re-optimize their drug development portfolio to avoid wasteful duplication and to avoid cannibalizing the sales of the jointly developed drug in R&D cooperations. Consequently, late stage R&D cooperations significantly reduce the number of drugs launched on the market. This finding describes a potential harm to product market competition and consumer welfare and eventually raises potential antitrust concerns. JEL: L24, L25, L65, D22.