The Vertical Chain of Research and Development in the Pharmaceutical Industry

This paper examines the relationship between basic and applied pharmaceutical research. We focus on three stages of research and development (R & D): government‐funded basic research; publication in medical journals; and industry‐finded applied R&D. We estimate that a one percent increase in basic research in a particular therapeutic category causes a 0.76 percent increase in industry R&D in that category, and a 1.71 percent increase in other categories, mer seven years. We also find that research incentives differ across government, academic and industry researchers. For example, government funding favors diseases that are less prevalent and more debilitating than industry funding.