Based on the panel data of China’s 24 provincial pharmaceutical manufacturing industries from 1995 to 2015， this paper calculated the total factor productivity（TFP） of innovation in the pharmaceutical manufacturing industry with malmquist index. The threshold effect panel data model was further used to analyze the relationship between agglomeration level and TFP. The results showed that the industrial agglomeration only had a monotone increasing effect on innovation and technological progress in the pharmaceutical industry， and had a significant single threshold effect on innovation TFP and technical efficiency. On the whole， a moderate increasing agglomeration degree can improve the innovation efficiency of pharmaceutical industry， but excessive agglomeration degree may have a negative impact on innovation efficiency. Therefore， according to the current development trend of agglomeration degree in pharmaceutical manufacturing industry， pharmaceutical companies should be balanced with agglomeration economy（regional distribution）， and innovation efficiency can be best incentive by the agglomeration degree.