Location of innovation for pharmaceutical firms: A modeling framework, database and exploratory analysis

This is an exploratory paper regarding the relationship between location of R&D activity with innovation and firm performance measures at the firm level for ethical drugs in the pharmaceutical industry. This paper presents a theoretical modeling framework that integrates a knowledge production function with knowledge accumulation model and location theory based on a cross-area literature review. Evidence from regression analysis suggest that demand-pull, technology-push and benefits appropriation rationales explain firm differences in innovative activity measured as patents, and that patents are a function of firm size, research and development expenditures levels and knowledge stock of location for certain continents, countries and states. Data and location maps for detailed R&D activity for six pharmaceutical firms (436 lab and alliance entities) show heterogeneous networks of research, development and commercialization activities comprised of agglomeration and global fragmentation patterns. Research is often fragmented from development activities though located in industry clusters, suggesting that the theory of comparative advantage affects the R&D location decision of multinational enterprises producing intermediate knowledge goods through vertical investment. Qualitative research provides a contextual understanding of firm and country factors for three firms and multiple nations, where three heterogeneous firm R&D location patterns are identified, each enabling knowledge mobility and cross-border patenting and research teams.; This paper contributes to the literature in several ways. I use an original and more comprehensive database of eighty-seven firms within a single industry than other research. I study the network topology of firm headquarters, R&D laboratory sites and alliance headquarters locations across multiple countries (beyond uni-lateral or bi-lateral studies of location). I propose a new, integrated model for the study of R&D location. I extend fragmentation theory from its traditional focus on the intermediate inputs for a production function to those of the innovation (R&D) function, proposing firm and country factors and new sources of externalities that may affect the R&D location decision. Recommendations to management are made and future work is identified.