Essays on the pharmaceutical industry
Date
2014
Authors
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Journal ISSN
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Publisher
University of Delaware
Abstract
Essay 1: Strategic buying to keep competition in the market. I introduce a two-period dynamic model where a retailer transacts with two firms which produce a homogeneous product with different marginal costs. In this model, the firm with higher marginal cost would exit the market if price is below marginal cost. If the weak firm exits, the buyer faces a monopolist in the second period. To prevent this outcome, the buyer may intentionally purchase from the weak firm to keep it in the market. This behavior is called strategic buying. I analyze the conditions under which strategic buying will occur and responses of each firm to this strategic buying. Essay 2: Empirical study: the effects of announcements during the drug approval process on the stock valuation of the corresponding pharmaceutical firms. The purpose of this essay is to investigate which announcements during the new drug approval process impact the valuation of the related pharmaceutical company's stock using an event-study method over the period from 2004 to 2011. The results reveal extension of FDA review deadline, issuance of a complete response letter from the FDA, and approval of the first-time generics have negative influence on the stock price; public disclosure of advisory committee recommendation and approval of a new drug have significant positive impact on the related firm's stock returns; submission of a new drug application (NDA), acceptance of a NDA by FDA, resubmission of a NDA and approval of new indication have no significant impact on the stock returns. Firm's leverage and profitability mitigate the influence of a single event, regardless of whether it is good or bad, on the stock returns; institutional ownership percentage decreases the impact of a good event on the stock value but has no significant relation to the impact of a bad event; firm size, diversification, R&D intensity and growth opportunity have no significant influence on abnormal returns associated with the FDA approval process.