Impact of H1N1, H7N9, ASFV, dengue virus and COVID-19 on pharmaceutical manufacturing firms' R&D investments and economic consequences: Evidence from China

Objective: To determine the impact of major disease epidemics on pharmaceutical manufacturing firms' Research & Development (R&D) investments and economic consequences. Methods: The sample consists of 1 582 firm-year observations from 2009 to 2022 in China, of which, 26.6% of pharmaceutical companies are involved in the diagnosis and treatment of prevalent diseases. Linear models using R&D investments, patent applications, operating performances and stock returns as dependent variables are constructed separately to examine the response of pharmaceutical companies to disease epidemics and the resulting economic consequences. Results: The prevalence of five major diseases led to a 17.5% increase in the amount of R&D investment and an 87.8% rise in the ratio of R&D investment to total assets by disease-related pharmaceutical companies, compared to unrelated pharmaceutical companies. Further evidence indicated that the patent applications for disease-related firms increased by 44.3% relative to unrelated firms after the epidemics. Though the impacts of the epidemics on firms' operating performances were insignificant in the short term, a major disease epidemic was associated with an increase in stock returns of 67.4% and 44.6%, respectively, as measured by the capital asset pricing model and Fama-French five-factor model. Additional analysis revealed that the impacts of the epidemics on R&D investments and patent applications were more pronounced for non-state-owned enterprises than state-owned enterprises. Conclusions: This study demonstrates that disease-related pharmaceutical firms respond to the disease epidemics through increasing R&D investment. More patent applications and higher market value are the main gains from the firms' increased investments in R&D following the epidemic, rather than the improvements of short-term operating performances.