Innovation versus Financialization in the US Pharmaceutical Industry

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Öner Tulum (The Academic-Industry Research Network) William Lazonick (The Academic-Industry Research Network)

Innovation versus Financialization in the US Pharmaceutical Industry

Öner Tulum (The Academic-Industry Research Network), William Lazonick (The Academic-Industry Research Network)

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English

Cambridge University Press
20 November 2025

Health economics; Chemical industries; Public health & safety law; Medical insurance

Series: Elements in Corporate Governance

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.

By: Öner Tulum (The Academic-Industry Research Network), William Lazonick (The Academic-Industry Research Network)
Imprint: Cambridge University Press
Country of Publication: United Kingdom
Weight: 152g
ISBN: 9781009707985
ISBN 10: 1009707981
Series: Elements in Corporate Governance
Pages: 96
Publication Date: 20 November 2025
Audience: General/trade , ELT Advanced
Format: Paperback
Publisher's Status: Active

1. High drug prices and the inflation reduction act of 2022; 2. What is a 'Fair' drug price?; 3. Foundational, translational, and clinical research; 4. Collective and cumulative learning in translational research; 5. The knowledge ecosystem of drug discovery and development, and the fair price for a drug; References.