This paper examines technical change in the ethical pharmaceutical industry. A Poisson specification is used to estimate a productivity relationship between research expenditures and drug discoveries, thus taking into account the integer nature of the data. The results of estimations using panel data indicate that there is a positive correlation between a firm's research and development intensity and its probability of discovering a new drug. Firm size, however, does not significantly affect the marginal productivity of research expenditures. Finally, the estimates show that an increase in regulatory stringency decreases the expected number of new drug discoveries.