Timing and payoff of patent purchases: the role of firm size and composition

While large pharmaceutical companies continue to dominate drug development and patent acquisition, their timing of drug patent acquisition and subsequent payoffs remain poorly understood. We analysed the effects of firm characteristics on the timing of patent purchases, with a unique data set constructed using publicly available data provided by the United States Patent and Trademark Office (USPTO). We focused on the role of firm size and composition in affecting the timing of patent purchases and the subsequent payoff; particularly, how firms’ R&D intensity and overall scale affect purchasing decisions and commercial success of the drugs. The quantitative results show that, on average, firms with larger scale and stronger R&D departments are more likely to purchase drug patents later; furthermore, a strong R&D department contributes positively to drug sales and market shares through a better selection process of patents. The economics intuition is that firms with a larger scale and greater emphasis on R&D investment have advantages in producing in-house innovation, so they tend to be more selective when buying from outsources. This results in buying patents later and better subsequent commercial performance on the drugs that firms purchased.