The Changing Structure Of The Pharmaceutical Industry

Iain Cockburn


Rising research and development (R&D) expenditures by pharmaceutical companies are, in part, a consequence of changing industry structure, particularly the rise of the biotechnology sector. The creation of a market for biomedical science and increased vertical competition within the industry are likely to spur innovation and raise productivity, but they also could induce socially wasteful spending and weaken academic science. With innovation increasingly dependent on financially vulnerable firms and complex contractual arrangements, R&D investment might be becoming more sensitive to price controls or other cost containment measures. Resources burned up in the vertical struggle for profits in the industry, or wastefully overinvested in unviable enterprises, might be a significant offset to those saved through superior research tools and competitive pressure to be efficient. Of course, these extra costs could be worth incurring if the technological opportunities opened up by recent scientific advances are realized.