Pharmaceutical R&D Spending and Threats of Price Regulation
46 Pages Posted: 18 Mar 2008
Date Written: March 16, 2008
Do threats of pharmaceutical price regulation affect subsequent R&D spending? This study uses the Clinton Administration's Health Security Act (HSA) of 1993 as a natural experiment to study this issue. We link events surrounding the HSA to pharmaceutical stock price changes and then examine the cross-sectional relation between firms' stock price changes and their subsequent unexpected R&D spending changes. Results show that the HSA had significant negative effects on stock prices and firm-level R&D spending. Conservatively, the HSA reduced R&D spending by about $1 billion, even though it never became law.
Keywords: Research and Development, Pharmaceuticals, Price Controls
JEL Classification: O3, G38
Suggested Citation: Suggested Citation