The research is based upon my Wharton thesis, focuses on pharmaceutical R&D investment decision. It is organized into 1 theoretical chapter, 4 empirical chapters and 3 empirical appendices. Chapter2 develops a q-model framework for analyzing the determinants of pharmaceutical R&D investment. Chapters 3 and 4 test the capital market imperfections hypothesis using a variety of statistical methods. Chapter 5 builds upon this work and test the hypothesis that pharmaceutical price regulation diminishes incentives to invest in R&D. Finally, Chapter 6 employs a computer simulation model of pharmaceutical innovation and competition to study how price regulation in U.S. could affect R&D investment and innovation. Results reveal cash flows are an independent determinant of pharmaceutical R&D investment. Evidence was also uncovered suggesting pharmaceutical price regulation exerts a substantially negative influence on firm R&D investment intensity. Chapter Six obtains results consistent with those reported in Chapter Five, but given the simulation technique and investment strategy perspective numerous other results and findings were obtained.