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The stock market response to changing drug patent legislation: The case of compulsory licensing in Canada
Author(s) -
Shapiro Daniel M.,
Switzer Lorne N.
Publication year - 1993
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090140305
Subject(s) - business , multinational corporation , appropriation , hindsight bias , pharmaceutical industry , stock (firearms) , subsidiary , legislation , revocation , stock exchange , finance , law , medicine , psychology , mechanical engineering , linguistics , philosophy , overhead (engineering) , political science , computer science , engineering , pharmacology , cognitive psychology , operating system
Between 1969 and 1987 pharmaceutical companies holding patents in Canada were subject to immediate compulsory licensing. This study evaluates the stock market response to both the imposition of immediate compulsory licensing in 1969 as well as its subsequent revocation in 1987. Since the affected companies were multinational enterprises, we analyse the movement of share prices on the New York Stock Exchange. The results indicate that patent protection is viewed positively by the stock market, but only when measured with hindsight (in 1987). Our results are consistent with other studies that suggest that patent protection does allow the appropriation of gains from knowledge by firms in the pharmaceutical industry. Thus, pharmaceutical companies would benefit from international agreements to provide more stringent levels of patent protection.