Analyses of Direct and Indirect Impacts of a Positive List System on Pharmaceutical R&D Investments

Euna Han, Tae Hyun Kim, Myung Jin Jeung, Eui Kyung Lee

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Background: The South Korean government recently enacted a Positive List System (PLS) as a major change of the national formulary listing system and reimbursed prices for pharmaceutical products. Regardless of the primary goal of the PLS, its implementation might have spillover effects by influencing the pharmaceutical industry's research and development (R&D), potentially leading to a variety of responses by firms in relation to their R&D activities. Objective: We investigated the spillover effect of the PLS on R&D investments of the pharmaceutical industry in Korea through both direct and indirect channels, examining the influence of the PLS on sales profit and cash flow. Methods: Data from 9 years (5 before and 4 after PLS implementation) were drawn from the financial statements of firms whose stocks were exchanged in 2 official stock markets in Korea (526 firms) and additional pharmaceutical firms whose financial performance was officially audited by external reviewers (263 firms). Longitudinal analyses were conducted, using the panel nature of the data to control for permanent unobserved firm heterogeneity. Results: Our results showed that the PLS was directly associated with R&D investments. In contrast, its indirect impacts stemming from the influence on sales profit and cash flow were minimal and statistically nonsignificant. The gross impact of the PLS on R&D investments increased moving further from the enactment year; R&D investments were reduced by 18.3% to 25.8% in 2009-2010 (compared with before PLS implementation) in the firm fixed-effects model. We also found that such negative direct and gross impacts of the PLS on R&D investments were significant only in firms without newly developed chemical entities. Conclusion: Considering the gross negative impact of the PLS on R&D investments of pharmaceutical firms and the heterogeneous response of these firms by the R&D activities, governmental efforts of cost-containment may need to consider the spillover impact of the PLS on pharmaceutical innovation.

Original languageEnglish
Pages (from-to)941-949
Number of pages9
JournalClinical Therapeutics
Volume35
Issue number7
DOIs
Publication statusPublished - 2013 Jul 1

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All Science Journal Classification (ASJC) codes

  • Pharmacology
  • Pharmacology (medical)

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