Relationship between R&D Efforts and Firm Value in the Pharmaceutical Industry

Besides spending on research and development (R&D), performance in terms of new drug application (NDA) and patent approval has been a key surrogate marker of R&D efforts of pharmaceutical firms. The results show that Korean firms are more responsive to patent approval, whereas non-Korean firms are more responsive to NDA approval. Although many recently approved patents of Korean firms are related to innovative discovery of novel drug candidates, the commercial value of NDA approvals accomplished by non-Korean firms is remarkably high. The annual quantitative accomplishment of NDA approval is small, considering the long development process. However, its commercial value is big and the drug receives worldwide acceptance. This is the reason why investors react positively to NDA approval news of non-Korean firms. The findings in this study imply that it would be advantageous for both Korean and non-Korean firms to persist with their R&D efforts, in accordance with their respective strategy. This would help in maintaining and upgrading their firm value as well as in developing new drivers of potential growth for corporate sustainability management, besides managing the financial capacity through firm-specific execution. KCI Citation Count: 3