# The impact of the consistency evaluation policy of generic drugs on the integration of innovation chain and industrial chain in the pharmaceutical manufacturing industry

## TL;DR

This study examines how a Chinese policy on generic drug quality affects the integration of innovation and industrial processes in pharmaceutical companies.

## Contribution

The study evaluates the impact of China's Consistency Evaluation Policy on pharmaceutical innovation and industrial chain integration using a DID approach.

## Key findings

- The policy significantly promotes integration of innovation and industrial chains in pharmaceutical enterprises.
- The effect is mediated through increased government subsidies and higher market concentration.
- The policy's impact is stronger in firms with higher total factor productivity and larger market demand.

## Abstract

The Consistency Evaluation Policy of Generic Drugs is a major quality-oriented regulatory reform in China’s pharmaceutical manufacturing industry. Whether and how this policy facilitates the integration of the innovation chain and the industrial chain at the enterprise level remains insufficiently examined. This study evaluates the policy effect and investigates potential mechanisms.

This study used panel data on A-share listed pharmaceutical enterprises from 2013 to 2023. Enterprises were treated as the micro-level carriers of both the innovation chain and the industrial chain, and a enterprise-level index was constructed to measure their integration. A difference-in-differences (DID) design was employed to estimate the impact of the Consistency Evaluation Policy of Generic Drugs. Mechanism analyses focused on government subsidies and market concentration, and heterogeneity was assessed by market demand and total factor productivity (TFP).

The Consistency Evaluation Policy of Generic Drugs significantly promoted the integration of the innovation chain and the industrial chain. Mechanism tests suggested that the effect operated through two channels: increased government subsidies and higher market concentration. The positive effect was stronger among enterprises facing larger market demand. Moreover, the effect was significant for enterprises with higher TFP, while it was not statistically significant for enterprises with lower TFP.

These findings suggest that policy implementation can be strengthened by (1) improving the depth and precision of the Consistency Evaluation Policy of Generic Drugs, (2) enhancing the targeting of government subsidies and supporting an appropriate degree of industry concentration where warranted, and (3) adopting differentiated guidance to stimulate enterprise vitality through multiple measures.