The economic literature on sequential innovations acknowledges that the successful firm earns a monopoly position only until the next innovation arrives. Such a dynamic process - which Schumpeter (1942, p. 83) labeled "creative destruction" - implies that leadership on the market by one firm is only a matter of time, since a new innovating firm will sooner or later displace the former incumbent. In the pharmaceutical industry, this sort of reasoning, which connects to the so-called Arrow effect, conflicts with empirical evidence on leading companies experiencing long lasting high market shares. Since these companies operate at the leading edge of technology by accounting for most of the research done, we believe that at least for the pharmaceutical industry there are elements of the R&D process neglected by the literature on innovation which may question the validity of the Arrow effect. We therefore model the behavior of pharmaceutical firm by introducing the role of clinical trials in shaping R&D decisions.