Financial effects of pharmaceutical price regulation on R&D spending by EU versus US firms

Pharmacoeconomics. 2010;28(8):615-28. doi: 10.2165/11535580-000000000-00000.

Abstract

EU countries closely regulate pharmaceutical prices, whereas the US does not. This paper shows how price constraints affect the profitability, stock returns and R&D spending of EU and US firms. Compared with EU firms, US firms are more profitable, earn higher stock returns and spend more on R&D. We tested the relationship between price regulation and R&D spending, and estimated the costs of tight EU price regulation. Although results show that EU consumers enjoyed much lower pharmaceutical price inflation, we estimated that price controls cost EU firms 46 fewer new medicines and 1680 fewer research jobs during our 19-year sample period. Had the US used controls similar to those used in the EU, we estimate it would have led to 117 fewer new medicines and 4368 fewer research jobs in the US.

MeSH terms

  • Biomedical Research / economics*
  • Cost Control / legislation & jurisprudence
  • Costs and Cost Analysis / economics
  • Drug Industry / economics*
  • Economics, Pharmaceutical*
  • European Union / economics
  • Fees, Pharmaceutical / legislation & jurisprudence
  • Government Regulation
  • Pharmaceutical Preparations / economics*
  • Pharmaceutical Preparations / supply & distribution
  • United States

Substances

  • Pharmaceutical Preparations