TY  - JOUR
AU  - Golec,Joseph H.
AU  - Vernon,John A.
TI  - European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12676
PY  - 2006
Y2  - November 2006
UR  - http://www.nber.org/papers/w12676
L1  - http://www.nber.org/papers/w12676.pdf
N1  - Author contact info:
Joseph Golec
Department of Finance
2100 Hillside Road
Storrs, CT 06269
E-Mail: Joseph.Golec@business.uconn.edu

John Vernon
University of North Carolina at Chapel Hill
Department of Health Policy & Management
1101C McGavran-Greenberg Hall
Chapel Hill, NC 27599-7411
Tel: 919/966-8930
E-Mail: vernon@email.unc.edu
AB  - EU countries closely regulate pharmaceutical prices whereas the U.S. does not. This paper shows how price constraints affect the profitability, stock returns, and R&D spending of EU and U.S. firms. Compared to EU firms, U.S. firms are more profitable, earn higher stock returns, and spend more on research and development (R&D). Some differences have increased over time. In 1986, EU pharmaceutical R&D exceeded U.S. R&D by about 24 percent, but by 2004, EU R&D trailed U.S. R&D by about 15 percent. During these 19 years, U.S. R&D spending grew at a real annual compound rate of 8.8 percent, while EU R&D spending grew at a real 5.4 percent rate. Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.
ER  -