Technical innovation and the resulting improvement of resource utilization efficiency are ever-lasting themes of economy development, especially in knowledge-driven pharmaceutical industry. The complex, risky and costly technology innovation process in pharmaceutical industry requires massive funds and proper financial arrangements which can provide not only money but also information and other services. However, how the increasing amounts of capital flow into the pharmaceutical sector will affect its innovation efficiency is far from certain. In this thesis, data of varied funding resources for pharmaceutical innovation has been collected in order to identify effective funding ways. Besides, effect of debt financing and equity financing on listed pharmaceutical companies has also been investigated. ECM model and panel data models have been used to deal with the data. We can see that the annual growth rate of Chinese pharmaceutical innovation efficiency is 6.6% from 1995 to 2011, and most of the improvement is caused by progress of technology. Different funding sources show different impacts on the efficiency. Bank loan represents a negative influence on efficiency in a long term, but no obvious influence in short term. On the contrary, funds from capital market influences efficiency positively in a short term, but the effect has eliminated in a long term. Government funding and internal financing of enterprises have no significant ii impact. This result is confirmed by data from listed pharmaceutical companies. The influence of debt-to-asset ratio on R&D was negative in that sample, although it is very little. The result highlights the importance of equity financing for Chinese pharmaceutical industry. Based on the results and discussions, a new finance system in favor of pharmaceutical innovation should take development of a multi-level equity market as the core. VC and industrial investment fund can help to facilitate start-up. The OTC (Over the Counter) market and technology property rights market should be developed quickly to help unlisted companies and small high-tech pharmaceutical enterprises. Last but not least, in secondary market, regulation on IPO (Initial Public Offerings) and daily acts of listed companies is the most important practice.