European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending

Joseph H. Golec and John A. Vernon

No 12676, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: EU 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.

JEL-codes: I11 I18 K2 O34 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-com, nep-eec, nep-ino, nep-law and nep-reg
Note: EH LE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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