Dataset Information

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

ABSTRACT:

Background

A trade-off exists between affordability of pharmaceutical products today and incentives for firms to provide new and better drugs in the future; an activity that prior studies suggest correlates with profitability, which in turn depends on price regulation.

Objective

In this paper we re-examined the relationship between price regulation and pharmaceutical research and development (R&D) intensity, and explored the role of profitability and cash flow in mediating this relation using the latest available data from 2000 to 2017 for the 10 most innovative pharmaceutical companies.

Methods

Following a framework similar to a previous study, we exploited stylized facts about sales volumes in Europe and USA, which give rise to variation in exposure to price regulation. Using ordinary least squares fixed effects models, we assess whether price regulation is related to R&D investment through cash flow effects and profitability.

Results

While exposure to price regulation (measured by relative market share in EU/USA) is related negatively to R&D intensity, and this result is driven by price regulation being negatively related to cash flow and profitability, the results were not significant when firm fixed effects were added to the regression models. Modeling firm dynamics showed that cash flow and profitability of European- and US-based firms responded differently to exposure to price regulation. Thus, firm specific effects play an important role in explaining the negative relationship between price regulation and R&D intensity. These results were robust to the inclusion of different time-varying firm level variables.

Conclusion

The findings suggest that investment decisions of firms are most likely driven by long-run inter-firm differences, and that firm effects strongly determine firm strategies in terms of R&D investment.

SUBMITTER: Shaikh M

PROVIDER: S-EPMC7902591 | biostudies-literature | 2021 Mar

REPOSITORIES: biostudies-literature

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Publications

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

Shaikh Mujaheed M Del Giudice Pietro P Kourouklis Dimitrios D

Applied health economics and health policy 20210301 2

<h4>Background</h4>A trade-off exists between affordability of pharmaceutical products today and incentives for firms to provide new and better drugs in the future; an activity that prior studies suggest correlates with profitability, which in turn depends on price regulation.<h4>Objective</h4>In this paper we re-examined the relationship between price regulation and pharmaceutical research and development (R&D) intensity, and explored the role of profitability and cash flow in mediating this re ...[more]

PMID: 32666383

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Project description:BackgroundAs part of the initiatives to increase price transparency for consumers, pharmaceutical industry in Malaysia have been encouraged to declare the wholesale and recommended retail prices (RRP) of medicines to the Pharmaceutical Service Department (PSD) yearly. However, the relationship between the voluntary price reporting practices and consumers' retail medicine price is unknown. Therefore, this study aims to evaluate the effect of the voluntary price reporting practice of pharmaceutical industry on retail medicine prices, factors that may affect consumer medicine prices in Malaysia's private healthcare sector, and the retail medicine pricing trend over 2011-2015.MethodsA yearly correlation test for a 5-year period was performed to investigate the association between the wholesale and RRP medicine prices declared by the pharmaceutical industry from 2011 to 2015 on the one hand and the consumer wholesale and retail medicine price database on the other hand. The median price ratio (MPR) was calculated by comparing the consumer retail medicine price to its international reference price. The Krukal Wallis test was used to analyse the pricing trend throughout the 5-year period, and factors that might elevate the MPR above 2.5 were modelled using binary logistic regression.ResultsA total of 2527 medicine price data were analysed. There was a strong significant association between medicine prices declared to the PSD and the retail medicine prices in every year of the 5-year period. Moreover, there was no significant increase in retail medicine prices throughout the 5-year period. The medicine types, retail location, type of manufacturer, medicinal indications, declared wholesale and RRPs significantly influenced the consumer MPRs that where > 2.5.ConclusionThe declared medicine price was found to have a significant association with the consumer retail medicine price. Thus, it may be a useful reference for consumers purchasing medicines in private healthcare settings. However, the government of Malaysia must develop strategies to increase medicine price transparency for price-control mechanisms in the private healthcare sector.

Dataset Information

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

Background

Objective

Methods

Results

Conclusion

Publications

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

Similar Datasets

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