Element contents
Series: Elements in Corporate Governance
Innovation versus Financialization in the US Pharmaceutical Industry
Published online by Cambridge University Press: 27 October 2025
Summary
Mandated by the Inflation Reduction Act of 2022, the US government is negotiating with pharmaceutical companies over the 'maximum fair price' of ten drugs widely used by Medicare patients. The pharmaceutical companies contend that a 'fair' price is a 'value-based price' that enables their shareholders to capture the value the drug creates for society and warn that lowering drug prices will reduce investments in new drugs. This Element responds to these arguments by showing that pharmaceutical companies (a) should have their drug prices regulated, given scale economies in supplying drugs and price inelasticity of drug demand; (b) use their profits from unregulated drug prices to distribute cash dividends and stock buybacks to shareholders; (c) do not typically rely upon investment by shareholders to fund drug innovation; and (d) benefit from 'collective and cumulative learning' in foundational and translational research that is antecedent and external to their investments in clinical research.
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- Series: Elements in Corporate GovernanceOnline ISBN: 9781009708012Publisher: Cambridge University PressPrint publication: 20 November 2025
References
Primary Sources
Calado, Cecília. “Bridging the Gap between Target-Based and Phenotypic-Based Drug Discovery.” Expert Opinion on Drug Discovery 19, 7, 2024: 789–798.CrossRefGoogle Scholar
Heestermans, Marco, Géraldine Poenou, Hind Hamzeh-Cognasse, Fabrice Cognasse, and Laurent Bertoletti. “Anticoagulants: A Short History, Their Mechanism of Action, Pharmacology, and Indications.” Cells 11, 20, 2022: 3214. https://doi.org/10.3390/cells11203214.CrossRefGoogle Scholar
Li, , Laughing Gas, Viagra, and Lipitor.Google Scholar
Swinney, David. “Phenotypic Drug Discovery: History, Evolution, Future.” In Phenotypic Drug Discovery, edited by Isherwood, Beverley and Augustin, Angelique, The Royal Society of Chemistry, 2020: 1–19.Google ScholarPubMed
Swinney, David, and Anthony, Jason. “How Were New Medicines Discovered?” Nature Reviews Drug Discovery 10, 7, 2011: 507–519.CrossRefGoogle ScholarPubMed
Vincent, Fabien, Nueda, Arsenio, Lee, Jonathan, et al. “Phenotypic Drug Discovery: Recent Successes, Lessons Learned and New Directions.” Nature Reviews Drug Discovery 21, 12, 2022: 899–914.Google ScholarPubMed
Gossert, Alvar, and Jahnke, Wolfgang. “NMR in Drug Discovery: A Practical Guide to Identification and Validation of Ligands Interacting with Biological Macromolecules.” Progress in Nuclear Magnetic Resonance Spectroscopy 97, 2016: 82–125.CrossRefGoogle ScholarPubMed
Stockman, Brian. “NMR Spectroscopy as a Tool for Structure-Based Drug Design.” Progress in Nuclear Magnetic Resonance Spectroscopy 33, 2, August 31, 1998: 109–151.CrossRefGoogle Scholar
Brown, Frank K., Sherer, Edward C., Johnson, Scott A., Holloway, M. Katharine, and Sherborne, Bradley S.. “The Evolution of Drug Design at Merck Research Laboratories.” Journal of Computer-Aided Molecular Design 31, 3, 2017: 255–266.CrossRefGoogle ScholarPubMed
Leelananda, Sumudu, and Lindert, Steffen. “Computational Methods in Drug Discovery.” Beilstein Journal of Organic Chemistry 12, 2016: 2694–2718.CrossRefGoogle ScholarPubMed
Pollack, Andrew. “Technology: Supercomputers track human genome.” New York Times, August 28, 2000.Google Scholar
Blundell, , “Protein Crystallography and Drug Discovery: Recollections of Knowledge Exchange between Academia and Industry.”Google Scholar
Blundell, Tom. “A Personal History of Using Crystals and Crystallography to Understand Biology and Advanced Drug Discovery.” Crystals 10, 8, 2020: 676.CrossRefGoogle Scholar
Jaskolski, Mariusz, Dauter, Zbigniew, and Wlodawer, Alexander. “A Brief History of Macromolecular Crystallography, Illustrated by a Family Tree and Its Nobel Fruits.” The FEBS Journal 281, 18, 2014: 3985–4009.Google ScholarPubMed
Kenney, Martin. Biotechnology: The University-Industrial Complex. Yale University Press, 1986.Google Scholar
Petsko, “Dawn of Structural Biology.”Google Scholar
Zheng, et al., “X-Ray Crystallography.”Google Scholar
Zarros, et al., “The Recent History of Tumour Necrosis Factor (TNF).”Google Scholar
Bliss, , The Discovery of Insulin.Google Scholar
Cordes, , Hallelujah Moments.Google Scholar
Stern, Scott. “Incentives and Focus in University and Industrial Research: The Case of Synthetic Insulin.” In Sources of Medical Technology: Universities and Industry, edited by Rosenberg, Nathan, Gelijns, Annetine, and Dawkins, Holly, National Academy Press, 1995: 157–187.Google Scholar
Nar, , “The Role of Structural Information.”Google Scholar
Hughes, Genentech.Google Scholar
Li, , Laughing Gas, Viagra, and Lipitor.Google Scholar
Nordisk, Novo. “Insulin 100 Years.”Google Scholar
Stern, , “Incentives and Focus in University and Industrial Research.”Google Scholar
Cordes, , Hallelujah Moments.Google Scholar
Beitelshees, Amber, Leslie, Bruce, and Taylor, Simeon. “Sodium–Glucose Cotransporter 2 Inhibitors: A Case Study in Translational Research.” Diabetes 68, 6, 2019: 1109–1120.CrossRefGoogle ScholarPubMed
Cordes, , Hallelujah Moments.Google Scholar
Wright, Ernest, Loo, Donald, and Hirayama, Bruce. “Biology of Human Sodium Glucose Transporters.” Physiological Reviews 91, 2, 2011: 733–794.CrossRefGoogle ScholarPubMed
Beutler, Bruce. “TNF (and Its Relatives).” Parkland Memorial Hospital, Internal Medicine Grand Rounds, September 26, 1996.Google Scholar
Katz, Robert. “Remembering Etanercept & the Advent of the Biologic Era.” The Rheumatologist, February 2020.Google Scholar
Love, James. “Federal Support for Research (Enbrel) Etanercept, Evidence from CRISP and Clinicaltrials.Gov.” Knowledge Ecology International, November 2, 2009.Google Scholar
Van Loo, Geert, and Bertrand, Mathieu. “Death by TNF: A Road to Inflammation.” Nature Reviews Immunology 23, 5, 2023: 289–303.CrossRefGoogle ScholarPubMed
Wallach, David. “The Tumor Necrosis Factor Family: Family Conventions and Private Idiosyncrasies.” Cold Spring Harbor Perspectives in Biology 10, 10, 2018: a028431.CrossRefGoogle ScholarPubMed
Weinreb, , “The Israel inspired revolution in arthritis treatment.”Google Scholar
Zarros, et al., “The Recent History of Tumour Necrosis Factor (TNF).”Google Scholar
Trinchieri, Giorgio. “Interleukin-12 and the Regulation of Innate Resistance and Adaptive Immunity.” Nature Reviews Immunology 3, 2, 2003: 133–146.CrossRefGoogle ScholarPubMed
Jie, Li. Blockbuster Drugs: The Rise and Fall of the Pharmaceutical Industry. Oxford University Press, 2014.Google Scholar
Nar, , “The Role of Structural Information in the Discovery of Direct Thrombin and Factor Xa Inhibitors.”Google Scholar
Hendriks, Rudi, Yuvaraj, Saravanan, and Kil, Laurens. “Targeting Bruton’s Tyrosine Kinase in B Cell Malignancies.” Nature Reviews Cancer 14, 4, 2014: 219–232.CrossRefGoogle ScholarPubMed
Love, James. “KEI Notes on the Clinical Studies for Imbruvica (Ibrutinib).” Knowledge Ecology International, 2023.Google Scholar
Schouten, Arianna. “Notes on the Preclinical Development of Imbruvica (Ibrutinib).” Knowledge Ecology International, 2023.Google Scholar
Shaywitz, David. “The Wild Story behind a Promising Experimental Cancer Drug.” Forbes, April 5, 2013.Google Scholar
Vardi, Nathan. For Blood and Money: Billionaires, Biotech, and the Quest for a Blockbuster Drug. Norton, 2023.Google Scholar
Secondary Sources
Calado, Cecília. “Bridging the Gap between Target-Based and Phenotypic-Based Drug Discovery.” Expert Opinion on Drug Discovery 19, 7, 2024: 789–798.CrossRefGoogle Scholar
Heestermans, Marco, Géraldine Poenou, Hind Hamzeh-Cognasse, Fabrice Cognasse, and Laurent Bertoletti. “Anticoagulants: A Short History, Their Mechanism of Action, Pharmacology, and Indications.” Cells 11, 20, 2022: 3214. https://doi.org/10.3390/cells11203214.CrossRefGoogle Scholar
Li, , Laughing Gas, Viagra, and Lipitor.Google Scholar
Swinney, David. “Phenotypic Drug Discovery: History, Evolution, Future.” In Phenotypic Drug Discovery, edited by Isherwood, Beverley and Augustin, Angelique, The Royal Society of Chemistry, 2020: 1–19.Google ScholarPubMed
Swinney, David, and Anthony, Jason. “How Were New Medicines Discovered?” Nature Reviews Drug Discovery 10, 7, 2011: 507–519.CrossRefGoogle ScholarPubMed
Vincent, Fabien, Nueda, Arsenio, Lee, Jonathan, et al. “Phenotypic Drug Discovery: Recent Successes, Lessons Learned and New Directions.” Nature Reviews Drug Discovery 21, 12, 2022: 899–914.Google ScholarPubMed
Gossert, Alvar, and Jahnke, Wolfgang. “NMR in Drug Discovery: A Practical Guide to Identification and Validation of Ligands Interacting with Biological Macromolecules.” Progress in Nuclear Magnetic Resonance Spectroscopy 97, 2016: 82–125.CrossRefGoogle ScholarPubMed
Stockman, Brian. “NMR Spectroscopy as a Tool for Structure-Based Drug Design.” Progress in Nuclear Magnetic Resonance Spectroscopy 33, 2, August 31, 1998: 109–151.CrossRefGoogle Scholar
Brown, Frank K., Sherer, Edward C., Johnson, Scott A., Holloway, M. Katharine, and Sherborne, Bradley S.. “The Evolution of Drug Design at Merck Research Laboratories.” Journal of Computer-Aided Molecular Design 31, 3, 2017: 255–266.CrossRefGoogle ScholarPubMed
Leelananda, Sumudu, and Lindert, Steffen. “Computational Methods in Drug Discovery.” Beilstein Journal of Organic Chemistry 12, 2016: 2694–2718.CrossRefGoogle ScholarPubMed
Pollack, Andrew. “Technology: Supercomputers track human genome.” New York Times, August 28, 2000.Google Scholar
Blundell, , “Protein Crystallography and Drug Discovery: Recollections of Knowledge Exchange between Academia and Industry.”Google Scholar
Blundell, Tom. “A Personal History of Using Crystals and Crystallography to Understand Biology and Advanced Drug Discovery.” Crystals 10, 8, 2020: 676.CrossRefGoogle Scholar
Jaskolski, Mariusz, Dauter, Zbigniew, and Wlodawer, Alexander. “A Brief History of Macromolecular Crystallography, Illustrated by a Family Tree and Its Nobel Fruits.” The FEBS Journal 281, 18, 2014: 3985–4009.Google ScholarPubMed
Kenney, Martin. Biotechnology: The University-Industrial Complex. Yale University Press, 1986.Google Scholar
Petsko, “Dawn of Structural Biology.”Google Scholar
Zheng, et al., “X-Ray Crystallography.”Google Scholar
Calado, Cecília. “Bridging the Gap between Target-Based and Phenotypic-Based Drug Discovery.” Expert Opinion on Drug Discovery 19, 7, 2024: 789–798.CrossRefGoogle Scholar
Heestermans, Marco, Géraldine Poenou, Hind Hamzeh-Cognasse, Fabrice Cognasse, and Laurent Bertoletti. “Anticoagulants: A Short History, Their Mechanism of Action, Pharmacology, and Indications.” Cells 11, 20, 2022: 3214. https://doi.org/10.3390/cells11203214.CrossRefGoogle Scholar
Li, , Laughing Gas, Viagra, and Lipitor.Google Scholar
Swinney, David. “Phenotypic Drug Discovery: History, Evolution, Future.” In Phenotypic Drug Discovery, edited by Isherwood, Beverley and Augustin, Angelique, The Royal Society of Chemistry, 2020: 1–19.Google ScholarPubMed
Swinney, David, and Anthony, Jason. “How Were New Medicines Discovered?” Nature Reviews Drug Discovery 10, 7, 2011: 507–519.CrossRefGoogle ScholarPubMed
Vincent, Fabien, Nueda, Arsenio, Lee, Jonathan, et al. “Phenotypic Drug Discovery: Recent Successes, Lessons Learned and New Directions.” Nature Reviews Drug Discovery 21, 12, 2022: 899–914.Google ScholarPubMed
Gossert, Alvar, and Jahnke, Wolfgang. “NMR in Drug Discovery: A Practical Guide to Identification and Validation of Ligands Interacting with Biological Macromolecules.” Progress in Nuclear Magnetic Resonance Spectroscopy 97, 2016: 82–125.CrossRefGoogle ScholarPubMed
Stockman, Brian. “NMR Spectroscopy as a Tool for Structure-Based Drug Design.” Progress in Nuclear Magnetic Resonance Spectroscopy 33, 2, August 31, 1998: 109–151.CrossRefGoogle Scholar
Brown, Frank K., Sherer, Edward C., Johnson, Scott A., Holloway, M. Katharine, and Sherborne, Bradley S.. “The Evolution of Drug Design at Merck Research Laboratories.” Journal of Computer-Aided Molecular Design 31, 3, 2017: 255–266.CrossRefGoogle ScholarPubMed
Leelananda, Sumudu, and Lindert, Steffen. “Computational Methods in Drug Discovery.” Beilstein Journal of Organic Chemistry 12, 2016: 2694–2718.CrossRefGoogle ScholarPubMed
Pollack, Andrew. “Technology: Supercomputers track human genome.” New York Times, August 28, 2000.Google Scholar
Blundell, , “Protein Crystallography and Drug Discovery: Recollections of Knowledge Exchange between Academia and Industry.”Google Scholar
Blundell, Tom. “A Personal History of Using Crystals and Crystallography to Understand Biology and Advanced Drug Discovery.” Crystals 10, 8, 2020: 676.CrossRefGoogle Scholar
Jaskolski, Mariusz, Dauter, Zbigniew, and Wlodawer, Alexander. “A Brief History of Macromolecular Crystallography, Illustrated by a Family Tree and Its Nobel Fruits.” The FEBS Journal 281, 18, 2014: 3985–4009.Google ScholarPubMed
Kenney, Martin. Biotechnology: The University-Industrial Complex. Yale University Press, 1986.Google Scholar
Petsko, “Dawn of Structural Biology.”Google Scholar
Zheng, et al., “X-Ray Crystallography.”Google Scholar
Zarros, et al., “The Recent History of Tumour Necrosis Factor (TNF).”Google Scholar
Bliss, , The Discovery of Insulin.Google Scholar
Cordes, , Hallelujah Moments.Google Scholar
Stern, Scott. “Incentives and Focus in University and Industrial Research: The Case of Synthetic Insulin.” In Sources of Medical Technology: Universities and Industry, edited by Rosenberg, Nathan, Gelijns, Annetine, and Dawkins, Holly, National Academy Press, 1995: 157–187.Google Scholar
Nar, , “The Role of Structural Information.”Google Scholar
Zarros, et al., “The Recent History of Tumour Necrosis Factor (TNF).”Google Scholar
Bliss, , The Discovery of Insulin.Google Scholar
Cordes, , Hallelujah Moments.Google Scholar
Stern, Scott. “Incentives and Focus in University and Industrial Research: The Case of Synthetic Insulin.” In Sources of Medical Technology: Universities and Industry, edited by Rosenberg, Nathan, Gelijns, Annetine, and Dawkins, Holly, National Academy Press, 1995: 157–187.Google Scholar
Nar, , “The Role of Structural Information.”Google Scholar
Hughes, Genentech.Google Scholar
Li, , Laughing Gas, Viagra, and Lipitor.Google Scholar
Nordisk, Novo. “Insulin 100 Years.”Google Scholar
Stern, , “Incentives and Focus in University and Industrial Research.”Google Scholar
Cordes, , Hallelujah Moments.Google Scholar
Beitelshees, Amber, Leslie, Bruce, and Taylor, Simeon. “Sodium–Glucose Cotransporter 2 Inhibitors: A Case Study in Translational Research.” Diabetes 68, 6, 2019: 1109–1120.CrossRefGoogle ScholarPubMed
Cordes, , Hallelujah Moments.Google Scholar
Wright, Ernest, Loo, Donald, and Hirayama, Bruce. “Biology of Human Sodium Glucose Transporters.” Physiological Reviews 91, 2, 2011: 733–794.CrossRefGoogle ScholarPubMed
Beutler, Bruce. “TNF (and Its Relatives).” Parkland Memorial Hospital, Internal Medicine Grand Rounds, September 26, 1996.Google Scholar
Katz, Robert. “Remembering Etanercept & the Advent of the Biologic Era.” The Rheumatologist, February 2020.Google Scholar
Love, James. “Federal Support for Research (Enbrel) Etanercept, Evidence from CRISP and Clinicaltrials.Gov.” Knowledge Ecology International, November 2, 2009.Google Scholar
Van Loo, Geert, and Bertrand, Mathieu. “Death by TNF: A Road to Inflammation.” Nature Reviews Immunology 23, 5, 2023: 289–303.CrossRefGoogle ScholarPubMed
Wallach, David. “The Tumor Necrosis Factor Family: Family Conventions and Private Idiosyncrasies.” Cold Spring Harbor Perspectives in Biology 10, 10, 2018: a028431.CrossRefGoogle ScholarPubMed
Weinreb, , “The Israel inspired revolution in arthritis treatment.”Google Scholar
Zarros, et al., “The Recent History of Tumour Necrosis Factor (TNF).”Google Scholar
Trinchieri, Giorgio. “Interleukin-12 and the Regulation of Innate Resistance and Adaptive Immunity.” Nature Reviews Immunology 3, 2, 2003: 133–146.CrossRefGoogle ScholarPubMed
Jie, Li. Blockbuster Drugs: The Rise and Fall of the Pharmaceutical Industry. Oxford University Press, 2014.Google Scholar
Nar, , “The Role of Structural Information in the Discovery of Direct Thrombin and Factor Xa Inhibitors.”Google Scholar
Hendriks, Rudi, Yuvaraj, Saravanan, and Kil, Laurens. “Targeting Bruton’s Tyrosine Kinase in B Cell Malignancies.” Nature Reviews Cancer 14, 4, 2014: 219–232.CrossRefGoogle ScholarPubMed
Love, James. “KEI Notes on the Clinical Studies for Imbruvica (Ibrutinib).” Knowledge Ecology International, 2023.Google Scholar
Schouten, Arianna. “Notes on the Preclinical Development of Imbruvica (Ibrutinib).” Knowledge Ecology International, 2023.Google Scholar
Shaywitz, David. “The Wild Story behind a Promising Experimental Cancer Drug.” Forbes, April 5, 2013.Google Scholar
Vardi, Nathan. For Blood and Money: Billionaires, Biotech, and the Quest for a Blockbuster Drug. Norton, 2023.Google Scholar
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