Abstract

This article discusses effects of governmental legislative amendment for regulation and innovation of pharmaceutical industries in the U.S. It describes that since the 1962 amendments to the Federal Food and Drug Act, the U.S. pharmaceutical firms, based on their experiences, provide an insightful case study of the effects of government regulation upon a research-intensive industry. Since then, the annual number of new drug products has declined by more than 50 percent. As a result of this slowdown in innovation, the U.S. drug industry is undergoing a marked transformation. In addition to reduced new product output, this transformation includes sharp increases in research and development costs and risks, declining profitability, a leveling off of Research and Development investment, growing emphasis on foreign research and development by U.S. firms, and a concentration of innovation in fewer and larger firms. The controversy surrounding current drug regulatory practices concerns gains and losses due to current government controls.