Profitability and drug discovery
Enes Işık and
Industrial and Corporate Change, 2022, vol. 31, issue 4, 891-904
Pharmaceutical firms are highly profitable due to high markups enabled by high drug prices. This is justified by the argument that high profits provide incentives for innovation and help fund high research and development (R&D) costs. We investigate the link between past profitability and drug discovery for large publicly-listed pharmaceutical firms between 1980 and 2018. Our sample includes 118 firms with 2534 firm-year observations and in terms of sales corresponds to 55% of the global spending on drugs. By merging three data sets on firm financials, new patent applications, and new drug approvals, we show that pharmaceutical firms’ markups and profitability are consistently higher than average nonfinancial firm profitability, with secularly increasing trends since 1980. Whereas R&D spending has also increased, the number of new drug approvals has not increased at the same pace and the productivity of R&D spending has been declining. In statistical analysis, we fail to identify any strong positive relationship between profitability and new drug discovery. Results are broadly in line with the earlier findings of research on the pharmaceutical industry and provide a contribution to the discussion on the link between profitability and innovation as well as on formulating policies for increasing drug innovation and ensuring the provision of essential drugs while keeping their costs low.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:oup:indcch:v:31:y:2022:i:4:p:891-904.
Ordering information: This journal article can be ordered from
Access Statistics for this article
Industrial and Corporate Change is currently edited by Josef Chytry
More articles in Industrial and Corporate Change from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().