Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research

Drug development performance is examined using data on clinical research projects of 10 pharmaceutical companies. In contrast to previous work on the discovery phase of pharmaceutical R&D we find a strong correlation between the diversity of firms' development efforts and the success probability of individual projects, but no effect of scale per se. Large firms' superior performance in drug development appears to be driven by returns to scope rather than returns to scale. Scope is confounded with firm fixed effects, however, suggesting an important role for inter-firm differences in the organization and management of the development function.