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Eger, Stephan
Mahlich, Jörg C.
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[Journal:] Health Economics Review [ISSN:] 2191-1991 [Volume:] 4 [Year:] 2014 [Issue:] 23 [Pages:] 1-9
Objectives: Many 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. Methods: We 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. Results: Our 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. Conclusion: The results can be interpreted as further evidence of the deteriorating effect of regulation on firm's incentives to invest in R&D.
Pharmaceutical Industry
R&D investments
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