Pharmaceutical regulation in Europe and its impact on corporate R&D

Abstract

ObjectivesMany European countries regulate the markets for prescription drugs in order to cope with rising health expenditures. On the other hand, regulation distorts incentives to invest in pharmaceutical R&D. This study aims at empirically assessing the impact of regulation on pharmaceutical R&D expenditures.MethodsWe analyze a sample of 20 leading pharmaceutical companies between 2000 and 2008. The share of sales in Europe serves as a proxy for the degree of pharmaceutical regulation. We control for other firm specific determinants of R&D such as cash flow, company size, leverage ratio, growth rate, and Tobin’s q.ResultsOur results suggest a nonlinear relationship between European sales ratio and R&D intensity. Beyond a threshold of 33% of sales generated in Europe, a higher presence in Europe is associated with lower R&D investments.ConclusionThe results can be interpreted as further evidence of the deteriorating effect of regulation on firm’s incentives to invest in R&D.

Revisiting the Relationship Between Price Regulation and Pharmaceutical R&D Investment

“…While the share of sales in Europe only slightly increased from 2000 to 2008, they fell sharply from 2008 onwards until 2017. We also observe that European firms sell relatively more in Europe compared with US firms, a stylized fact reported in Vernon [15] and Eger and Mahlich [20].…”

“…While previous research could not effectively exploit within variation in the sample due to limited temporal data [15,20], our 18-year long panel allows for within-firm estimations. Table 3 shows the results of estimations where both firm and year fixed effects are included.…”

“…Similarly, simulation exercises in the USA and EU settings have shown that R&D investment is sensitive to prices and price regulation could lead to a significant reduction in research spending [9,19]. The most recent study by Eger and Mahlich [20] that directly assessed the relationship between R&D expenditure and pharmaceutical price regulation, concluded that pharmaceutical price regulation has a deteriorating effect on R&D investment by firms; specifically, sales beyond 33% generated from the European market lowered R&D investments.…”

“…We revisited the relationship between pharmaceutical price regulation and R&D intensity using a similar framework as in Vernon [15], yet our analysis differs from Vernon and contributes to the existing literature in several ways. First, we used the latest available firm-level data (2000-2017) for the world's top ten pharmaceutical firms; the last known estimates from Eger and Mahlich [20] come from data that are at least a decade old (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008). Given, that the pharmaceutical landscape is continuously evolving in terms of regulatory practices and drug development processes, using latest data and a longer time-series provides new insights.…”

Process modelling, design and technoeconomic Liquid–Liquid Extraction (LLE) optimisation for comparative evaluation of batch vs. continuous pharmaceutical manufacturing of atropine

“…The pharmaceutical industry produces a wide variety of products whose active pharmaceutical ingredients (APIs) often have complex molecular structures, requiring multistep syntheses (Baumann and Baxendale, 2015) and stringent product purities set by regulatory bodies (Eger and Mahlich, 2014). Such requirements imply materially-intensive manufacturing processes, which can also be very wasteful and have low operational asset efficiencies (Henderson et al, 2011;Anderson, 2012).…”