Could public funding replace private pharmaceutical R&D? New research examines the economic impact.
A study evaluates the economic feasibility of replacing private pharmaceutical research and development (R&D) funding with public funding while maintaining the current pace of innovation. Using updated data, researchers estimate the average life-cycle R&D cost per approved medicine at up to $4.04 billion (2022 USD), including a 10.5% cost of capital. The study concludes that shifting R&D funding from the private sector to the government would introduce enormous uncertainties, estimating that this shift in financing could add up to $289 billion annually to taxpayer costs, over and above existing NIH spending.
Findings confirm that private pharmaceutical R&D investments vastly outpace government R&D support, based on a conservative estimate of industry-related research costs, not including any expenses of delivering medicine access to patients.
The study contributes to a body of literature indicating that the inefficiencies associated with a centrally mandated, bureaucracy-directed R&D system would risk stifling innovative research incentives, distort scientific priorities and slow drug development—ultimately leaving critical patient needs unmet. While public funding plays a crucial role in basic science and early-stage research, the study highlights the pivotal role of private at-risk capital in driving pharmaceutical innovation and bringing new medicines to market.
This research was funded by Johnson & Johnson Innovative Medicine and conducted in collaboration with Dr. Henry Grabowski of Duke University and researchers at the Analysis Group. For full details on the study design, methods and limitations, see: Proudman D, et al. Public sector replacement of privately funded pharmaceutical R&D: cost and efficiency considerations. J Med Econ. Published online October 3, 2024. 2024;27(1):1253– 1266. doi: https://doi.org/10.1080/13696998.2024.240540