OBJECTIVES: This paper sets out to examine factors determining the level of innovation in an organisation, examining two factors – market size and the strength of intellectual property rights for a particular drug class METHODS: The pharmaceutical industry is used as a case study as it not only relies heavily on R&D, but, with the division between brand name and generic drugs, can provide insight into how the removal of intellectual property rights might affect innovation. The estimation models were based on an economic model for innovation and market size developed by Acemoglu and Linn (2004). Drug approval data obtained from the US FDA was used for the innovation variable; a measure for market size was constructed using prescribed medicines expenditure data from the US Medical Expenditure Panel Survey. The analysis focussed on examining the relationships between the variables using various statistical estimation techniques, starting with a simple OLS log-log model, more general negative binomial and gamma models, as well as fully flexible non-linear smoothing regressions in the form of feed-forward neural networks. RESULTS: Brand name approvals increased by 2.64% and generic approvals by 4.2% for a 1% increase in income-based market size. The presence of generic drugs and, thus, weak intellectual property rights did not appear to have a negative effect on research and marketing activity by brand name drugs. Estimates were small, significant, and positive (feed-forward neural networks indicated an even stronger positive relationship between brand and generic approvals), suggesting that the presence of generic drugs might further innovation. CONCLUSIONS: It was shown that market size does affect the rates at which pharmaceuticals aim to bring their products to the market. While brand manufacturers react positively to increased market size, weak property rights do not appear to affect innovation output negatively.