Annex to Chapter Six
R&D; i.e. there might be a feedback loop back to public R&D from the private R&D that has been generated in the first place from public R&D. The literature has focused primarily on estimating quantitatively how much private R&D is generated by publicly funded R&D. We found two particularly relevant published empirical studies of the relationship between publicly funded and privately funded R&D in the pharmaceutical industry: Ward and Dranove (1995) and Toole (2007). Both studies refer to publicly funded medical research in the USA, by the National Institutes of Health (NIH), and to the impact on the sum of R&D expenditure in the USA by all pharmaceutical companies and R&D expenditure by US-based pharmaceutical companies worldwide. A great deal of caution must be exercised when considering the relevance of these studies to the question of the impact of UK public and charitable medical research on UK private sector R&D. The scales of both publicly funded medical research and private sector R&D activity in the pharmaceutical and other health industries are several times greater in the USA than in the UK. The opportunities for interactions between the two are therefore much greater in the USA than in the UK. However we were unable to find empirical data on the public/private R&D linkages for the UK or for an economy closer to it in scale. Ward and Dranove (1995) used annual data for the period 1966–88. Over that period NIH-funded R&D grew at an average rate in money of the day terms by 8–11% p.a. depending on therapeutic category. Pharmaceutical industry R&D (in money of the day) grew over the same period at an average rate of 11–19% p.a. depending on therapeutic category. From these data Ward and Dranove estimated that a 1% increase in publicly (NIH) funded basic research expenditure in the USA in a particular therapeutic category would, after a lag of seven years, cause a 0.76% increase in private industry R&D spend in that same therapeutic category and a 1.71% increase in private industry R&D spend in other therapeutic categories. Thus a 1% increase in NIH spend across all therapeutic areas leads to a 2.5% increase in total private pharmaceutical R&D spend by members of the US trade association, Pharmaceutical Manufacturers of America. Industry data cover “both domestic and overseas R&D by US manufacturers” but “only US-based R&D for foreign manufacturers” (p. 76). Ward and Dranove did not attempt to estimate whether there was any impact of public medical research on non-pharmaceutical sector private R&D. The recent studies published by Toole, based on US data, show that basic research supported by government and public agencies, mainly undertaken in university and non-profit laboratories, stimulates and supports private investment on R&D in the pharmaceutical and biotech sector. Toole (2007) concluded that public medical research complements, rather than crowds out, private pharmaceutical industry R&D investment. Unlike Ward and Dranove, Toole
distinguishes different strengths of impact for NIH funded basic laboratory research and for the clinical human research they fund. But, unlike Ward and Dranove, Toole does not distinguish the impact of public research spend on private R&D spend within the same therapeutic category from that on private R&D spend in different therapeutic categories. Like Ward and Dranove, Toole also did not attempt to estimate the impact of public medical research on non-pharmaceutical sector private R&D. Toole used data for the period 1981–96 for NIH spend disaggregated into seven therapeutic categories, and for 1981–97 for US pharmaceutical industry R&D spend defined as US and worldwide spending by US companies and spending in the USA by non-US companies (i.e. the same definition used by Ward and Dranove, and again from the trade association of the pharmaceutical industry in the US, now named Pharmaceutical Research and Manufacturers of America, PhRMA). Over the 1981–96 period, NIH expenditure was growing at an average rate of around 3% p.a. in real terms, and pharmaceutical industry R&D grew faster than NIH in most therapeutic categories. The study is based on an empirical model where the level of private investment is a function, among other things, of basic scientific knowledge generated by public research. Toole found that a 1% increase in NIH expenditure on basic research leads to a 1.69% increase in pharmaceutical industry R&D after a lag of eight years. Toole also found a U-shaped pattern of response: with private R&D increasing in years 1, 2, 7 and 8 after the increase in NIH spend, but with no great response in years 3–6. The response to public clinical research is shown to be smaller than for basic research but achieved sooner. Toole estimates that a 1% increase in NIH expenditure on clinical research leads to a 0.40% increase in pharmaceutical R&D, and that this is achieved within three years. Moreover, Toole’s results indicate that “a dollar increase in public basic research stimulates an additional $8.38 in pharmaceutical investment after eight years” (Toole, 2007). Similar arguments have been presented by the US Congressional Budget Office (CBO, 2006): “It is seldom possible to identify particular cases in which the private sector would have performed research if the government had not. Thus, most of the available empirical evidence is based on aggregate studies. On balance, that evidence suggests a positive relationship between public and private pharmaceutical R&D” (p. 31). For the UK in particular, recent data published by the Association of the British Pharmaceutical Industry (ABPI) shows the extensive collaborative research links between the pharmaceutical industry and the UK university science base. The ABPI figures, gained from a survey of 11 major pharmaceutical companies operating in the UK, show that 606 PhD studentships and 327 postdoctoral grants were conducted in collaboration with 78 British universities in 2007 (ABPI, 2008). However, the figures are down from 2003 – by
Medical Research: What’s it worth? Estimating the economic benefits from medical research in the UK
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