Patents and R&D Expenditure Effects on Equity Returns in Pharmaceutical Industry

14 Pages Posted: 19 May 2014 Last revised: 29 Aug 2015

Martina Feyzrakhmanova

Trinity College (Dublin) - Faculty of Business, Economic and Social Studies

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

Date Written: May 18, 2014

Abstract

As costs of pharmaceutical R&D soar and productivity falls, the role of research pipelines in firm valuations is changing. To date, surprisingly little work has been done on the effects of R&D pipeline performance the duration of R&D these effects on equity returns, while controlling for coincident factors, such as legacy patents and presence of blockbusters. Using 1996-2013 data for nine largest pharmaceutical companies in the world, this paper assesses the role of the above factors on returns to pharma companies equity. We show significant positive link between changes in the number of blockbusters on patent six months prior and returns in excess of pharmaceutical equity index. The number of patents granted by USPTO in a quarter is also a significant factor. On the other hand, we find that increases in R&D expenditure in large-cap pharma companies are viewed negatively by investors in the short term.

Keywords: blockbusters, patents, pharmaceutical industry, equity returns, R&D spending, factor analysis

JEL Classification: G12, G32

Suggested Citation

Feyzrakhmanova, Martina and Gurdgiev, Constantin, Patents and R&D Expenditure Effects on Equity Returns in Pharmaceutical Industry (May 18, 2014). Applied Economics Letters, Vol. 22, No. 18, 2015. Available at SSRN: https://ssrn.com/abstract=2438461 or http://dx.doi.org/10.2139/ssrn.2438461

Martina Feyzrakhmanova

Trinity College (Dublin) - Faculty of Business, Economic and Social Studies ( email )

Ireland

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

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