Study of the time lag effect of patent impact on profitability of U.S. Pharmaceutical Industry from innovation to profit

Abstract

This study intends to stretch the extent of the successful innovation process from a novel conception not only to its adoption to the market , but also to its launch for profit from innovation, and focus on probing into the deferred results of patent impacts of the American pharmacy industry and their profitability at the firm level. We find there are obvious relationships between the indexes of patent impact and profitability such as ROE and EPS. Moreover, our empirical research finds there is a time lag of 4 years between the indexes of patent impact and ROE, and 5 years of time lag with EPS. We consider the time lag in the pharmaceutical industry is longer than the results of other industries in the previous study, and suggest that investors regard scientific measures of the quality and quantity of inventive output as useful indicators of the economic profitability tied to patenting impact. The sample of firms for this study are drawn from Compustat database, from which we screened 255 listed companies and only had 72 to 80 complete samples left eventually. We searched every company of the USA's patent database and sum up the patent materials for nine years from 1994 to 2002.