Merrill Goozner has put together a thoughtful review of the book by Stan Finkelstein and Peter Temin:
In Reasonable Rx: Solving the Drug Price Crisis (FT Press, 2008), Finkelstein and Temin argue (as Goozner summarizes): For years, the industry has justified its high prescription-drug prices — at least in the United States, where there are no price controls and purchasers have little bargaining power — by claiming they are a prerequisite for innovation. That policy has been an abject failure. The failure is of two sorts--first, the new drugs emerging from the pipeline are unaffordable to far too many people; and second, there simply are very few truly useful and innovative drugs coming out of the pipeline. In short, from a social-benefit viewpoint, the entire blockbuster-dominated business model of the industry is a flop. (A point argued a bit less forcefully in the Epilogue of HOOKED.)
Ultimately, the authors argue (and Goozner seems to agree, though he wished they had provided more details) that the function of the industry must be split under two corporate structures. The first industry would perform R&D in the public interest under a sort of competitive prize system, where the public purse would pay out bigger prizes for discovering really useful and needed drugs. The second industry would function like the generic drug industry, putting out bids to manufacture newly discovered drugs at lower prices.