This document analyses the effect of the regulation on the pharmaceutical industry’s innovation processes. The objective is analyzing the effect of the regulation on the development of an innovative drug produced by a Mexican-based pharmaceutical company. This is an exploratory-type and case study design research. The case is the development of a new diabetes drug. Data was gathered mainly through semi-structured interviews to the company’s staff, who took part in the innovation project. To understand the effect of the regulation, we started from the analysis of the regulatory requirements that the company had to meet. The different stages of the innovation process were analyzed—it was found that most of the effects are focused into three stages: (i) the stage where human beings are involved for developing tests (clinical trial stage), (ii) the sanitary registration stage, the process in which the drug to be marketed complies with the safety, efficiency, and quality conditions, and (iii) the manufacturing stage, in order to guarantee the appropriate manufacturing of the drug according to good practices. Regulations lead to both positive and negative effects. Among the positive effects, it is important to highlight the regulations on intellectual property and on the drug’s quality. Main negative effects are related to the implementation of the regulation, rather than to the requirements implied. Throughout the innovation process, the regulation caused some delays in the planned activities, leading to cost increases, loss of competitiveness, and uncertainty about the return on investment.