A lesson from Japan: Research and development efficiency is a key element of pharmaceutical industry consolidation process

• Published in: Drug Discoveries & Therapeutics Vol. 8; no. 1; pp. 57 - 63
• Main Authors: Shimura, Hirohisa, Masuda, Sachiko, Kimura, Hiromichi
• Format: Journal Article
• Language: English
• Published: Japan International Research and Cooperation Association for Bio & Socio-Sciences Advancement 01.02.2014
• Subjects: Biomedical Research - economics; Biomedical Research - organization & administration; Biomedical Research - trends; data envelopment analysis; Drug Discovery - economics; Drug Discovery - organization & administration; Drug Discovery - trends; Drug Industry - economics; Drug Industry - organization & administration; Drug Industry - trends; Efficiency; Efficiency, Organizational; industry consolidation; Japan; Japanese pharmaceutical industry; R&D productivity; Research Support as Topic - organization & administration; Time Factors; Japan
• ISSN: 1881-7831; 1881-784X
• DOI: 10.5582/ddt.8.57

Scholarly attention to pharmaceutical companies' ability to sustain research and development (R&D) productivity has increased as they increasingly handle business challenges. Furthermore, the deterioration of R&D productivity has long been considered a major cause of mergers and acquisitions (M&As). This study attempts to investigate quantitatively the possible causes of the deterioration and the relationship between the deterioration and M&As by examining the Japanese pharmaceutical industry. Japan from 1980 to 1997 is an ideal case because of the availability of official data, but more importantly the significant changes in its business environment at the time. Using the Malmquist Index and data envelopment analysis, we measured the deterioration of R&D productivity from 1980 to 1997 based on a sample of 15 Japanese companies. Two lessons can be learned from Japan's case. First, to sustain R&D productivity over the long term, companies should use licensing activities and focus on the dominant therapeutic franchises. Second, if a company fails significantly to catch up with the benchmark, it is likely to pursue an M&A or seek an alternative way to improve R&D productivity. These findings appear similar to the current situation of the global pharmaceutical industry, although Japan pursued more licensing activities than M&A to improve R&D productivity.