Commercialization is a crucial phase in the innovation process and its associated costs significantly influence R&D decisions. Yet our understanding of how commercialization costs impact various stages of innovation remains underdeveloped. In this study, I investigate the effects of commercialization costs on early and late stages of the innovation process in a quasi-experimental setting. Specifically, I leverage sudden policy shifts in the US Food and Drug Administration (FDA) that increased commercialization costs for drugs in certain therapeutic areas. Employing a difference-in-differences methodology, I trace the impacts of these elevated costs on discovery and clinical trial advancement of 3,357 drug candidates between 1997 and 2015. My research places emphasis on the contrasting roles that startups and established firms have in innovation. My findings reveal that while commercialization costs diminish the late-stage efforts in commercializing innovations, especially by established firms, they stimulate an environment conducive to early-stage entrepreneurial drug discovery efforts. Furthermore, I find that the disruption that commercialization costs create in markets for technology drives these opposite findings: new discoveries remain without buyers in technology markets, failing to complete their development process as commercialized products.
Contact person: Elisabeth Hofmeister
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