THE VERTICAL CHAIN OF RESEARCH-AND-DEVELOPMENT IN THE PHARMACEUTICAL-INDUSTRY

This paper examines the relationship between basic and applied pharmac eutical research. We focus on three stages of research and development (R&D): government-funded basic research; publication in medical journ als; and industry-funded applied R&D. We estimate that a one percent i ncrease 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 p ercent increase in other categories, over seven years. We also find th at 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.