European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending
AbstractEU countries closely regulate pharmaceutical prices whereas the U.S. does not. This paper shows how price constraints affect the profitability, stock returns, and R&D spending of EU and U.S. firms. Compared to EU firms, U.S. firms are more profitable, earn higher stock returns, and spend more on research and development (R&D). Some differences have increased over time. In 1986, EU pharmaceutical R&D exceeded U.S. R&D by about 24 percent, but by 2004, EU R&D trailed U.S. R&D by about 15 percent. During these 19 years, U.S. R&D spending grew at a real annual compound rate of 8.8 percent, while EU R&D spending grew at a real 5.4 percent rate. Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.
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Date of creation: Nov 2006
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Find related papers by JEL classification:
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- K2 - Law and Economics - - Regulation and Business Law
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-18 (All new papers)
- NEP-COM-2006-11-18 (Industrial Competition)
- NEP-EEC-2006-11-18 (European Economics)
- NEP-INO-2006-11-18 (Innovation)
- NEP-LAW-2006-11-18 (Law & Economics)
- NEP-REG-2006-11-18 (Regulation)
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