Working Paper Series

Has the USA overtaken Europe as the powerhouse of new medicines? If so, is this attributable to a flight of business expenditure in R&D to the USA? This paper answers these questions using a methodology that focuses on R&D productivity and patent quality as key indicators of innovation, accounts for R&D price inflation, and examines the role of both ‘performed ’ R&D and ‘extra-mural ’ R&D. The study provides three new insights: (a) the USA has outperformed Europe in R&D productivity but this is due to Europe’s superior performance in sales and patent quality; (b) government expenditure on R&D and extra-mural R&D stimulate international patent collaboration, and (c) the latter is a crucial determinant of patent quality