Firm level profitability determinants in Indian drugs and pharmaceutical industry

Abstract

PurposeThis paper aims to analyze the firm level determinants of profitability of Indian drug and pharmaceutical industry which is known for historically weak R&D initiatives.Design/methodology/approachThe change in the economic environment brought out by the Trade-Related Intellectual Property Rights (TRIPS) compliance, this industry was found to have fast adjusted to a new working environment by substantially modifying its strategies. This study aims at using inflation-adjusted panel data for a period 2000-2013 and applies the fixed effects regression model with cluster standard errors.FindingsThe study has found that export intensity, A&M intensity, firm’s market power and stronger patent regime dummy have exercised positive influence on profitability. The negative and statistically significant influence of R&D intensity and raw material import intensity points to the need for firms to adopt suitable investment strategies.Research limitations/implicationsThe study suggests that firms are required to pay far more attention to optimize their operating expenditures, advertisement and marketing expenditures and improve their export orientation, as part of the long-term strategy.Originality/valueThis study uses a recent data-set to analyze the firm level profitability determinants in the Indian pharmaceutical industry and captures the effect of change in profitability pre and post-TRIPS.