Governing research and development in the pharmaceutical industry - a literature study

Sammanfattning: In the past years there have been a number of media reports of large drug companies having trouble with getting new drugs to the market, and a number of big selling drugs are nearing the end date of the original patent, opening up to competition from generic drug makers. This paper takes a closer look at the incentives to make large investments in pharmaceutical development from the perspective of corporate governance. The author concludes that business characteristics such as the size of investment, lead time to marketable product and the inherent risk level of pharmaceutical research and development will impact agency conflicts. The author finds little evidence indicating that the pharmaceutical firm’s response to corporate governance mechanisms would be strongly contrary to that of any other industry. However, the effects on incentives will be coloured by the particular conditions of the industry.