OBJECTIVES: To assess the impact various price control mechanisms (PCM), including re-importation, would have on the incentives for R&D investment in the pharmaceutical and biotechnology industries. METHODS: A simulation model, based on the most recently compiled estimates of the costs and returns to R&D investment in the pharmaceutical industry is used to estimate the distribution of expected NPV at the time products enter clinical testing. The model estimates the impact of various PCMs on this distribution, and on the resulting R&D investment ($ and % age) that meet the necessary NPV > 0 threshold. RESULTS: Under the naïve model of no project specific information, the model shows that there would be little impact of implementing price controls if firms could be assured that these controls would not reduce prices by more than 25%. However, preliminary results show that if firms believed that price controls would exceed this threshold, they would suspend all investment in new R&D projects. Under more realistic assumptions, the impact of even mild price controls leads to an immediate cut-backs in R&D projects as marginal projects are eliminated. An anticipated 25% reduction in future US prices would decrease R&D project by approximately 50% and R&D investment by approximately 33%. CONCLUSIONS: Our simulation model shows that pharmaceutical industry investment in R&D is very sensitive to price controls in the US.