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Background: The National Drug Price Negotiation (NDPN) is a key policy in China for controlling healthcare costs and improving drug accessibility. However, its impact on pharmaceutical firms' innovation remains controversial, with limited empirical evidence on micro-level mechanisms. Methods: Using panel data of Chinese A-share listed pharmaceutical companies from 2010 to 2024, we constructed a multi-period difference-in-differences (DID) model to empirically analyze the causal effects, transmission mechanisms, and heterogeneity of negotiation access on pharmaceutical firms' innovation activities. Identification robustness was enhanced through a series of robustness tests including parallel trend tests, placebo tests, and a combination of Propensity Score Matching and Differences-in-Differences (PSM-DID). Results: Negotiation access significantly stimulated firms' innovation investment. Mechanism tests indicated the effect was driven by the external signal transmission channel, through enhanced capital market valuation and government subsidies, while the internal resource release channel was not effectively realized, as reductions in marketing intensity did not significantly increase innovation investment. Heterogeneity analysis showed stronger effects in large firms and those with greater market power, but with attenuated effects for firms negotiating shortly after drug launch. Further analysis revealed a structural divergence between strategic and substantive innovation: non-invention patent quantity increased without quality improvement, whereas invention patent quality improved despite insignificant changes in quantity. Conclusions: NDPN positively promotes innovation but with structural heterogeneity. Policies should maintain a value-oriented negotiation mechanism, ensure smooth external signal transmission, facilitate internal resource reallocation, support weaker firms and early-stage products, improve clinical access to achieve dual goals of "ensuring coverage" and "promoting innovation."
Xu et al. (Mon,) studied this question.