Since our report in 2005, the rate of increase of research spending has slowed, with a compounded annualized growth rate of 3.4% (2003–2007) versus 7.8% (1994–2003). Total spending on biomedical research accounted for approximately 4.5% of total US health expenditures in 2007. While the decline has occurred at a time of intense economic instability and financial upheaval in the world’s financial markets, the rate diminished even before the events of 2007–2008. Funding from the NIH and industry, which includes pharmaceutical, biotechnology, and medical device firms slowed from 2003 to 2007 and, after adjusting for inflation, has decreased in 2008. Therefore, research investment appears to have returned to its previous cyclical pattern of increases noted since the 1940s.20
The rate and cyclic nature of sponsorship affects researchers and institutions, since it influences career choice, selection of projects, building of laboratories, and establishment of new programs. It makes them cautious and may portend a trend to favor incremental research rather than high risk/high reward avenues, which have particular value to refractory diseases and those of great clinical or public health impact.
Companies continue to supply the largest proportion of total research spending (58%). However, the rates of growth vary by type of company with medical device firms eclipsing biotechnology companies, and both surpassing conventional pharmaceutical firms. Over this same time period, the return as measured by stock price appreciation was greatest for the medical device sector (). In turn, stock performance influences companies’ overall ability to invest and the choice between low-risk, near-term projects versus high-risk, long-term undertakings. The findings are consistent with our 2005 analysis, though biotechnology companies replaced device companies as leaders of total shareholder return. These companies’ stock performance vis-à-vis conventional pharmaceuticals likely reflects several factors that influence the investor’s perception of value: an easier route to FDA approval; lower cost of trials, favorable pricing and eventual profitability of the commercial product; and predictable demand and direct marketing channels through a limited number of practitioners. Thus, both devices and bioengineered drugs are judged to be better company investments, a trend since 1994 that we can confirm. Furthermore, a higher proportion of companies’ spending is in late-stage clinical trials rather than drug discovery.1
Their preference for investments of lower risk is also reflected in accelerated purchasing of small biotech firms by large pharmaceutical companies. Because of these trends, some observers have predicted that the very model of the industry is changing, with large companies buying small ones, rather than investing in (and conducting) early-stage, discovery research themselves.21
This is clearly problematic in the absence of increased research investment pools for the small company, since this is the most common route for academic research to enter clinical use.22
It highlights the important role of foundations and other private research sponsors, as they fill the gap between government-sponsored and commercial research.
Stock Market Performance of Publicly Traded Life Science and Health Care Companies, 2003 – 2009*
Funding by foundations and charities also slowed from 2003–2007 compared to a decade earlier. These institutions were especially affected by the 2007–2009 recession, a time when their ability to fund speculative, high-risk research is particularly needed. With the intent to enhance the effectiveness and productivity of grants, foundations are exploring alternative research models, such as joint funding with industry and the NIH, , freestanding institutes outside of academia, off-shore (low-overhead) contracting, and pay-for-performance contracts in lieu of conventional grants.23
Ours is a US perspective. However, previous analyses indicate that about 70% to 80% of total global biomedical research and development is sponsored by the US public sector, US-based foundations, and US-headquartered corporations.24
This is in contrast to other research and development, where the US accounts for only about one third.25
As a proportion of total healthcare spending, the US invests 4.5%, an amount higher than any other country.24
An exception is the US support for health services research, which accounts for only 2% of total research or 0.1% of total US health care spending, and is more handsomely funded in Europe.26
Our estimates for 2003 and 2004 have been revised downward from our previous study due to improved data and analyses that reduce double counting of research and development support from industry. However, though the absolute amounts have been revised limiting the ability to compare the magnitude of the totals from 1994–2003 to 2003–2007, the comparison of relative trends remains valid. The selection of 2003 as the point for comparing the change in the trends in funding is arbitrary and reflects the time at which the analyses were conducted. Because of differences in the data sources between the two time periods, we cannot identify the exact year where the rate of funding changed nor was that the study’s objective. The objective was to quantify the funding for biomedical research from 2003–2007 and to compare changes in this period to those observed from 1994–2003. In this analysis, our data are improved but still have limitations. To quantify total funding across all major sponsors, we had to rely on disparate sources that may not be directly comparable. In addition, our estimates of biomedical research funding are likely conservative as the data due not capture all sources (e.g., private philanthropy) and are not exhaustive (e.g., excludes small device firms).
Our analysis suggest that market value of different industry sectors move in parallel with research investment, which has driven the strikingly favorable performance of the medical device sector from 1994 to 2003 and medical biotechnology (chiefly large-molecule drugs) sector since 2003. Conventional pharmaceuticals (predominantly small-molecule drugs) have suffered in comparison. Many reasons can explain their lag, including higher regulatory hurdles, longer and more expensive clinical trials, higher failure rates in pre-clinical studies, and less flexibility in pricing. When conventional small-molecule drugs are compared with large-molecule agents that have known biological actions, or with devices that rely on minor engineering changes, the incentives for drugs are less attractive. For this reason, some have suggested new incentives for new drugs that are effective against diseases of high societal burden or gravity for the individual. These include incentives for novelty and comparative effectiveness, extended patent life, and pricing enhancements for drugs in particular need. Such incentives have been used successfully for vaccines and low prevalence “orphan” diseases.27
The number of new drug or device approvals is an incomplete measure of research productivity. Broader health status measures do favorably reflect the result of biomedical research investments. These include: lower death rates for cancer, stroke, and heart disease; longer life expectancy and improved quality of life for those over 65; more effective and earlier disease detection; substitution of non-invasive for invasive interventions; and improved pain avoidance and control. Notably, few of these rely on the model of one drug for one disease; many reflect public health advances not solely new technology.28
We have entered a period when the cost of care will be an even greater influence over research investment than it has been in the era just concluded. The United States and other developed countries all have aging populations, greater burdens of chronic diseases, increased sense of obligation toward disease in the developing world, and new or refractory infections that have public health import (e.g., H1N1 influenza). Economic limitations are also palpable as the US considers alternatives to private insurance, limits to public funding, and more realistic actuarial assumptions. Moreover, all countries are facing nearly identical rates of increase of total spending (albeit from very different base amounts as a percentage of GDP). Therefore, the cost and value of technology will likely receive additional scrutiny. Hence, it will be even more important to examine research productivity critically.
What might improve researchers’ productivity and their effectiveness? Changes recently recommended include: routine interchange of ideas and people between laboratories having complementary capabilities; less onerous patents for basic discoveries to promote access and research use; recruitment of scientists from other fields, especially from informatics and information sciences, materials, and physics; and the systematic search for unconventional approaches to refractory research problems. Such remedies have motivated the NIH’s Roadmap programs, industry’s reorganization of their internal research and development efforts, and foundations’ experimentation with unconventional alliances and grants. Many of these changes are aimed at creating “semi-permeable membranes” between laboratories within and outside of different institutions, as well as between companies and universities.29
New technology can be viewed either as an undesirable cost or as a source of value. In the countries within the Organisation for Economic Co-operation and Development (comprising the 8 largest economies), between 30% and 45% of the yearly increase in medical spending is attributed to new technology.26
Some in the US and Europe consider that rate of increase to be unsustainable (as the population ages) and as an undesirable drain on overall economic activity (each 1% increase in medical spending lowers GDP by 0.3%).30
Others counter that view and see investment in health care and technology as sources of a country’s competitive advantage, and not a financial drain.31
Therefore, it is inevitable that incentives for development of new medical technology will be scrutinized. Also, since the amount spent on health services research, effectiveness, and clinical epidemiology is so much less than that on new technology, pressure will likely mount to direct funds toward new tools to evaluate technology’s clinical value.32
Biomedical research captures the public’s imagination. It serves many masters. It is highly valued as a source of new and more effective treatments for common or devastating diseases. Conducting research itself and the products and services it spawns are sources of economic development, which is recognized in the developed and developing world alike. Therefore, we will see in the coming years a growing debate between those who view technology as a source of additional cost and others as a source of value. The research community should be mindful of how others view it, and take aggressive steps to enhance its own productivity.