Delivering cures and new treatments to patients in the United States relies on the complementary contributions of private-sector pharmaceutical companies and government support for R&D. While some have suggested replacing private-sector investment with government funding, that could lead to a dead end in the long road to developing innovative medicines, as research by Johnson & Johnson and academic co-authors suggests.
In the R&D ecosystem, the biopharmaceutical industry and public sector agencies, such as the National Institutes of Health (NIH), generally take on complementary funding roles, as the study published in the Journal of Medical Economics explains. The NIH supports research that advances basic scientific understanding. While largely not focused on the development or commercialization of medicines, its funding generates new knowledge by exploring biological systems, pathways and cellular changes involved in the development of diseases. Government support for such important foundational science has produced a high return to our society in terms of subsequent private investment, new jobs created and the number of pharmaceutical targets entering clinical trials. However, government spending on direct medicine research represents only a small part of the NIH budget, and an even tinier fraction of the investment needed to support the development process to bring new medicine to patients, from pre-clinical and clinical research to drug approval. It’s the private biopharmaceutical industry that funds almost all applied clinical research, advancing scientific discoveries by developing viable candidates into approved medicines after conducting rigorous clinical trials that are subject to extensive regulatory requirements and government oversight.
Another Johnson & Johnson co-authored study, published in Nature Drug Discovery, provides the first peer-reviewed methodology to account for all private sector R&D spending, revealing that it exceeded $276 billion across 4,191 firms worldwide in 2021. The figure is more than double the most frequently cited previous estimates. The study underscores that the bulk of investment in R&D is underwritten by the private sector, ranging from small VC-funded startups to large pharmaceutical companies. This estimate puts industry R&D at 49 times the dedicated NIH funding for clinical trials. Even the entire NIH budget – mostly not focused on applied medicine research – was less than 16% of private R&D investments in 2021.
The research highlights that the U.S. is the global hub for biopharmaceutical innovation, with U.S.- based firms dominating in terms of R&D investments and research intensity. Political discourse portraying the NIH as the central force in bringing a new drug to market ignores the pivotal role of private at-risk capital. Instead, innovation policies should encourage collaboration between government-funded research and private investment, leveraging the strengths of both sectors to support scientific advancement and sustain U.S. R&D leadership. Policymakers should consider increased public funding for areas that lack private investment incentives, such as antibiotics. R&D tax breaks are a successful strategy for incentivizing R&D in neglected disease areas. The Orphan Drug Act has been successful in expanding orphan drug development to treat patients with rare diseases. The Act has been proposed as a model for incentivizing other underinvested areas.
In short, successful innovation requires a synergistic system in which each stakeholder plays an important role. The U.S. should build on its historic track record of supporting complementary, innovative R&D policies. This approach will incentivize — rather than replace — each sector’s contributions and, most importantly, accelerate access to medical innovation for patients in the U.S.
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