"Pulling the plug”: Time allocation between drug discovery and development projects

Biotechnology and pharmaceutical firms invest billions of dollars in R&D, primarily in new drug discovery. Nonetheless, the industry is facing declining returns on R&D investments. Failure to discontinue less-promising new drug discovery projects is a key driver of this decreased productivity. Hence, firms are scrambling to restructure the new drug discovery process to improve decision-making and to limit the attrition rate to the early stages of drug discovery. Drawing on insights from the explorationexploitation literature, our study addresses this timing problem by using a formal model and empirically testing its implications on how the time to discontinuation of new drug discovery projects are impacted by project- and firm-specific characteristics, so that a firm’s resources can be promptly redeployed to more fruitful endeavors. Our findings, based on an analysis of 1,274 early-stage drug discovery projects worldwide, suggest that the time to discontinuation of early-stage drug discovery projects requires careful consideration of these project- and firm-specific characteristics. These findings hold important implications for the industry, which is undergoing tremendous stress and transformation. The results also contribute to the exploration-exploitation literature by modeling and testing the time-allocation decision between exploratory and exploitative activities.