The changing structure of the pharmaceutical industry

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.