Abstract
The economics of innovation suggests that three issues are relevant in the discussion of research and development in the pharmaceutical industry. The first is the inappropriability of scientific and technological knowledge. In the pharmaceutical and biotechnological research in particular, the distance from basic research to development research is small, making the spillover from universities to the industry particularly important. As a consequence, an argument is often made that basic medical and biotechnological research should be publicly supported and the university-industry research collaboration should be fostered. The second is the importance of demand as a factor for innovation. The Japanese pharmaceutical market has a peculiar demand structure because of the government pricing policy, the national health insurance scheme, the doctors' tendency to maximize revenue from dispensation of drugs, and the imperfectness of information. It is likely that such peculiarity has been biasing the R&D of drug companies. The third is the possibility of economies of scale and of scope in R&D. Although the majority of past studies have been rather doubtful about the presence of such economies in pharmaceutical research, a recent study using detailed data of major American and European drug makers suggests that economies of scope may arise from pursuing research projects in a number of therapeutic classes.
This paper examines these three issues in detail and discusses the current problems in the pharmaceutical research in Japan.
