Estimating R&D Returns In Health Care Industry

Purpose: This paper provides an empirical evaluation of R&D returns for a series of global companies who lead in innovation within the health care industry. Methodology: The estimation procedure bases on two specifications: the parametric production function setting, and finite distributed lag model (FDL). Findings: Using the most recent data on R&D investment by health care equipment and services along pharmaceuticals and biotechnology companies, we confirm the positive albeit mitigated impact of R&D efforts on performance indicators (levels of sales). Moreover, we comment on the current phenomena observed in health care industry and offer a policy view for ongoing and future challenges in the sector. Added value: Since there is a dearth of recent empirical evidence on R&D returns in the broad health industry, this paper offers the evaluation of economic incentives for companies to invest in R&D. These incentives embrace the induced increase in sales and profits levels. The authors participate in a public debate concerning the optimal levels of R&D rewards required to sustain the innovation within the sector.