This paper describes the experience of Sri Lanka in reforming the structure of production, importation, and distribution of pharmaceuticals in the period 1972-1976. It highlights the actions and reactions of transitional pharmaceutical corporations to these reforms, and traces the achievements and problems of the State Pharmaceuticals Corporation which was set up to implement the reforms. The roles of political leadership in regulating the power of drug transnationals, and of the medical profession in resisting reform seem to be of crucial significance. Developing countries wishing to lower the present high cost of drug delivery must proceed with great care and immense caution, since complex problems of quality control, bioequivalence, medical acceptance, and consumer reeducation are involved.