Counting chickens before the eggs hatch

Associating new product development portfolios with shareholder expectations in the pharmaceutical sector

Rajdeep Grewal, Anindita Chakravarty, Min Ding, John C. Liechty

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

Drug development is the lifeblood of pharmaceutical firms and a critical source of innovation in the healthcare industry. Pharmaceutical firms maintain their competitiveness by continuously developing and introducing new drugs, which requires an efficient new drug portfolio management process. However, the current literature does not elaborate on strategies pertaining to these new drug (product) portfolios (i.e., portfolios of drugs under development), nor does it provide the means with which to understand the future cash flow-generating potential of these portfolio strategies. To address this problem, we propose a set of generic descriptors of new drug portfolio strategies (i.e., portfolio breadth, portfolio depth, blockbuster strategy, and stages of the drug development process) and relate these descriptors to Tobin's q, a forward-looking measure of shareholder expectations. The results of a latent class regression analysis show that shareholder expectations of firms with broad new drug portfolios and potential blockbusters are positive. For most firms, shareholders focus on the final stage of the drug development process and deemphasize portfolio depth. In contrast, for a minority of mostly small firms, shareholders seem to value the earlier stages of the drug development process and stress portfolio depth.

Original languageEnglish (US)
Pages (from-to)261-272
Number of pages12
JournalInternational Journal of Research in Marketing
Volume25
Issue number4
DOIs
StatePublished - Dec 1 2008

Fingerprint

Pharmaceuticals
Egg
New product development
Chicken
Shareholders
Drugs
Drug development
Development process
Portfolio strategy
Management process
Sources of innovation
Cash flow
Product portfolio
Small firms
Industry
Latent class
Underdevelopment
Healthcare
Tobin's Q
Minorities

All Science Journal Classification (ASJC) codes

  • Marketing

Cite this

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abstract = "Drug development is the lifeblood of pharmaceutical firms and a critical source of innovation in the healthcare industry. Pharmaceutical firms maintain their competitiveness by continuously developing and introducing new drugs, which requires an efficient new drug portfolio management process. However, the current literature does not elaborate on strategies pertaining to these new drug (product) portfolios (i.e., portfolios of drugs under development), nor does it provide the means with which to understand the future cash flow-generating potential of these portfolio strategies. To address this problem, we propose a set of generic descriptors of new drug portfolio strategies (i.e., portfolio breadth, portfolio depth, blockbuster strategy, and stages of the drug development process) and relate these descriptors to Tobin's q, a forward-looking measure of shareholder expectations. The results of a latent class regression analysis show that shareholder expectations of firms with broad new drug portfolios and potential blockbusters are positive. For most firms, shareholders focus on the final stage of the drug development process and deemphasize portfolio depth. In contrast, for a minority of mostly small firms, shareholders seem to value the earlier stages of the drug development process and stress portfolio depth.",
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AB - Drug development is the lifeblood of pharmaceutical firms and a critical source of innovation in the healthcare industry. Pharmaceutical firms maintain their competitiveness by continuously developing and introducing new drugs, which requires an efficient new drug portfolio management process. However, the current literature does not elaborate on strategies pertaining to these new drug (product) portfolios (i.e., portfolios of drugs under development), nor does it provide the means with which to understand the future cash flow-generating potential of these portfolio strategies. To address this problem, we propose a set of generic descriptors of new drug portfolio strategies (i.e., portfolio breadth, portfolio depth, blockbuster strategy, and stages of the drug development process) and relate these descriptors to Tobin's q, a forward-looking measure of shareholder expectations. The results of a latent class regression analysis show that shareholder expectations of firms with broad new drug portfolios and potential blockbusters are positive. For most firms, shareholders focus on the final stage of the drug development process and deemphasize portfolio depth. In contrast, for a minority of mostly small firms, shareholders seem to value the earlier stages of the drug development process and stress portfolio depth.

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