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Measuring the efficiency of large pharmaceutical companies: an industry analysis

Author

Listed:
  • Fernando Gascón

    (University of Oviedo)

  • Jesús Lozano

    (University of Oviedo)

  • Borja Ponte

    (University of Oviedo)

  • David Fuente

    (University of Oviedo)

Abstract

This paper evaluates the relative efficiency of a sample of 37 large pharmaceutical laboratories in the period 2008–2013 using a data envelopment analysis (DEA) approach. We describe in detail the procedure followed to select and construct relevant inputs and outputs that characterize the production and innovation activity of these pharmaceutical firms. Models are estimated with financial information from Datastream, including R&D investment, and the number of new drugs authorized by the European Medicines Agency (EMA) and the US Food and Drug Administration (FDA) considering the time effect. The relative performances of these firms—taking into consideration the strategic importance of R&D—suggest that the pharmaceutical industry is a highly competitive sector given that there are many laboratories at the efficient frontier and many inefficient laboratories close to this border. Additionally, we use data from S&P Capital IQ to analyze 2071 financial transactions announced by our sample of laboratories as an alternative way to gain access to new drugs, and we link these transactions with R&D investment and DEA efficiency. We find that efficient laboratories make on average more financial transactions, and the relative size of each transaction is larger. However, pharmaceutical companies that simultaneously are more efficient and invest more internally in R&D announce smaller transactions relative to total assets.

Suggested Citation

  • Fernando Gascón & Jesús Lozano & Borja Ponte & David Fuente, 2017. "Measuring the efficiency of large pharmaceutical companies: an industry analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(5), pages 587-608, June.
    • Handle: RePEc:spr:eujhec:v:18:y:2017:i:5:d:10.1007_s10198-016-0812-3
    DOI: 10.1007/s10198-016-0812-3
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    Cited by:

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    2. Varun Mahajan & D. K. Nauriyal & S. P. Singh, 2020. "Domestic market competitiveness of Indian drug and pharmaceutical industry," Review of Managerial Science, Springer, vol. 14(3), pages 519-559, June.
    3. Sorin-George Toma & Stefan Catana, 2021. "Big Pharma, Big Business," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 677-683, August.
    4. Fang Chen Kao & Minh‐Hieu Le, 2022. "Effects of corporate social responsibility on pharmaceutical multinational enterprises performance: Research and development and business efficiency perspectives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3419-3434, December.

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    More about this item

    Keywords

    Pharmaceutical laboratories; New chemical entities; Business performance; R&D; Market for technology; Non-parametric efficiency; DEA;
    All these keywords.

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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