The evolution of firm growth dynamics in the US Pharmaceutical Industry

The paper studies the dynamics of firm growth and the firm size distribution in the pharmaceutical industry from 1950 to 2003. Growth dynamics are studied in the context of how the size composition of firms changes, how innovation patterns (patents) change, and how location leads to growth differentials among US firms. It is found that the growth advantage of small pharmaceutical firms increases after the 1980s as small firms become more active in patenting and their patenting activities becomemore 'persistent'. Location is found to affect growth differences only for the most innovative firms (i.e. for non innovative firms, location does not matter). For this group of firms, California firms which are much smaller in size, yet more active and persistent in patenting are found to grow significantly faster than their counterparts in the New York-New Jersey-Connecticut Tri-State region. The bimodal shape of the firm size distribution is found to emerge towards the end of the 1970s precisely when a new division of labor between large and small firms sets in. Implications of location dynamics for firm growth and the nongaussian behavior of the size distribution are highlighted.