Relationship between R&D Efforts and Firm Value in the Pharmaceutical Industry

Abstract

Besides R&D spending, performance in terms of NDA and patent approval has been a key surrogate marker of R&D efforts of pharmaceutical firms. The results show that Korean firms are more responsive to patent approval, whereas non-Korean firms are more responsive to NDA approval. Although many recently approved patents of Korean firms are related to innovative discovery of novel drug candidates, the commercial value of NDA approvals accomplished by non-Korean firms is remarkably high. The annual quantitative accomplishment of NDA approval is small, considering the long development process. However, its commercial value is quite big and the drug receives worldwide acceptance. This is the reason that investors react quite positively to NDA approval news of non-Korean firms. The findings in this study imply that it would be advantageous for both Korean and non-Korean firms to persist with their R&D efforts, in accordance to their respective strategy. This would help in maintaining and upgrading their firm value as well as developing new drivers of potential growth for corporate sustainability management, besides managing the financial capacity well through firm-specific execution.