The relationship between a firm's patent quality and its market value — The case of US pharmaceutical industry

Abstract

This study examined the relationships between corporate market value and four patent quality indicators – relative patent position (RPP), revealed technology advantage (RTA), Herfindahl–Hirschman Index of patents (HHI of patents), and patent citations – in the US pharmaceutical industry. The results showed that RPP and patent citations were positively associated with corporate market value, but HHI of patents was negatively associated with it, while RTA was not significantly related to it. Thus, if pharmaceutical companies want to enhance their market value, they should increase their leading positions in their most important technological fields, cultivate more diversity of technological capabilities, and raise innovative value of their patents. In addition, this study found that market value of pharmaceutical companies with high patent counts was higher than that of pharmaceutical companies with low patent counts, and suggested that pharmaceutical companies with low patent counts should increase RPP in their most technological fields, decrease HHI of patents, or raise patent citations to further enhance their market value. Furthermore, this study developed a classification for the pharmaceutical companies to divide them into four types, and provided some suggestions to them.