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AIEA Seminar Series

Exploration and the Value of Failed Drugs
  • Danielle Li (Sloan School of Management, MIT)
  • 2021 May 22, 9 AM Taipei/Beijing/HK/Singapore / May 21, 9 PM US EST
  • Alexander Frankel (Univ. of Chicago), Danielle Li (MIT & NBER), Joshua Krieger (Harvard), Dimitris Papanikolaou (Northwestern & NBER)
  • Discussant: Jeff Furman (Boston University)
  • Registration: https://zoom.us/webinar/register/WN_evEFYOhER9-hzcd7aOcaTw
ABSTRACT We introduce a model in which firms have better information about incremental drug candidates, but investments in novel drug candidates generate dynamic knowledge spillovers that improve information about future drugs. Because the value of knowledge spillovers cannot be fully appropriated by the original firm, competition will blunt incentives to invest in novel drugs in particular. To explore these predictions empirically, we use information on chemical structure to link initial drugs with the market outcomes of their molecularly derivative successors. This new measure allows us to observe spillover value associated with drug candidates even when they fail. We show that incorporating the value of follow-on innovation disproportionately increases the measured value of novel drug candidates. This source of value, however, can accrue to rival firms; consequently we find that firms are less likely to invest in novel candidates when more firms work in the same research area.
Danielle Li

Sloan School of Management, MIT

Danielle Li is the Class of 1922 Career Development Professor, and an Associate Professor at the MIT Sloan School of Management, as well as a Faculty Research Fellow at the National Bureau of Economic Research. Her research interests are in economics of innovation and labor economics, with a focus on how organizations evaluate ideas, projects, and people.


Danielle's work has been published in leading academic journals across a range of fields, including the Quarterly Journal of Economics, Science, and Management Science. In addition, her work has been regularly featured in media outlets such as the Economist, New York Times, and Wall Street Journal.

 

She has previously taught at the Harvard Business School and the Kellogg School of Management. She holds an AB in mathematics and the history of science from Harvard College and a PhD in economics from MIT.

Jeffrey Furman

Boston University & NBER

Jeffrey L. Furman is Associate Professor of Strategy & Innovation at Boston University and a Faculty Research Fellow at the National Bureau of Economic Research (NBER). He completed his Ph.D. at MIT-Sloan and holds a B.S. in Economics from the University of Pennsylvania’s Wharton School of Business and a B.A. in Psychology from its College of Arts & Sciences. Furman’s research addresses issues at the intersection of Strategy, International Business, and Innovation. His recent projects examine the strategic management of science-based firms, the impact of institutions on cumulative innovation, and science and innovation policy. Jeff’s research has been accepted for publication in the American Economic Review (AER), the Review of Economics & Statistics, Organization Science, the Journal of Economic Behavior & Organization (JEBO), Research Policy, Industrial & Corporate Change (ICC), and Nature, among others. He has also served on the editorial review boards of the Journal of International Business Studies (JIBS), Strategic Organization! (SO!), Journal of Management, and Industry & Innovation. Jeff is an active member of the Academy of Management (AOM), is a board member of the CCC, and has served as reviewer, presenter, discussant, and session chair at AOM annual meetings and has served as a member of the BPS Division Executive Committee. Furman also co-organizes the NBER’s weekly Productivity Seminar.