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Academia (vs. Industry)

The State of US Medical Research

Here’s a look at the state of medical research in the US versus other developed countries (open-access article at JAMA).
Some things to note from that chart: (1) research funding has been pretty flat the last few years, with the only exception being the stimulus-package burst of cash. (2) The share of the total put up by biotechnology companies seems to have gone up a bit over the twenty-year span. (3) The money spent by industry is now up to 58% of the total in the US, and has been increasing over time. That’s partly due to increased spending by industry, and partly due to lower-than-historical increases in spending by government sources. One thing to note is that these numbers have been inflation-adjusted, but by the Biomedical R&D Price Index, not the CPI (see the comments to this post for more on this).
Here comes a section with some interesting numbers, derived from PhRMA annual overviews:

The distribution of investments across the types of medical research changed from 2004 to 2011. Pharmaceutical companies shifted funding to late-phase clinical trials and away from discovery activity such as target identification and validation. The share of pharmaceutical industry funding (including that by US companies outside of the United States) spent on phase 3 trials increased by 36% (5%/year growth rate) from 2004 to 2011 (Figure 4), and the share of investment in prehuman/preclinical activities decreased by 4% (2%/year average decline). This shift toward clinical research and development reflects the increasing costs, complexity, and length of clinical trials but may also reflect a deemphasis of early discovery efforts by the US pharmaceutical industry. While industry has shifted funding to clinical trials, the share of NIH contributions dedicated to basic science and clinical research was unchanged (eTable 2 in the Supplement), with the majority of funds still focused on basic research. These data may not accurately reflect the true division of NIH investment for basic science vs disease-focused research, as a growing proportion of NIH expenditures is for projects having potential clinical application in many diseases or organ systems.

I wonder if some of the shift has been away from what gets defined as “pharmaceutical companies” and toward what gets defined as “biotechnology companies”. A lot of smaller outfits are not members of PhRMA, of course, and I think that early-stage research has been heading towards their end of the industry. As for those small companies, here’s a look at venture funding across this period:

In real terms, venture capital investment in biotechnology companies steadily increased from $1.5 billion in 1995 to a peak of $7.0 billion in 2007 (eFigure 3 in the Supplement). During that period, investment in biotechnology companies as a share of total venture capital investment increased from 10% to 18%, and the number of investments increased from 176 to 538. Investment levels and the number of transactions of biotechnology decreased following the financial crisis in 2008-2009, declining to a low of $4.3 billion in 2009. Venture capital investment still has not recovered to its pre-2008 levels, with only $4.5 billion invested in 2013. Size of investment per transaction (median, $11 million, inflation adjusted) has remained unchanged for 2 decades.

I wonder if the current boom times in biopharma startups are changing these numbers (the JAMA article only goes up to 2011). We’ll have to take a look at these figures again in a couple of years and see if that’s happened (my guess is that it has). Interestingly, the paper goes on to talk about funding levels by disease, versus disease burden in the US. Cancer and HIV are funded at well above the levels that this measure would predict, but (as the study notes) there are many other factors in play (scientific opportunity, for one). Underfunded, by this measure, are migraine and COPD.
The comparisons to worldwide research funding then come up. The US share has been declining as Asia ramps up, but Asia was ramping up from a very small percentage twenty years ago. As it stands, the US is still the source of 44% of the world’s medical research funds, with Europe at another 33%. In terms of single countries, the US is still by far the largest contributor. When you look at the number of people doing the work, China comes out in numbers, but is quite low in percentage of the population so engaged (and this isn’t the only area where they’re an outlier in this fashion!)
I’ll discuss patent and publication data in another post; there’s enough to talk about at more length there. Overall, the authors of this paper conclude that the US, while still leading in most categories, has been standing relatively still or slipping a bit during the period reviewed:

Medical research in the United States remains the primary source of new discoveries, drugs, devices, and clinical procedures for the world, although the US lead in these categories is declining. For example, whereas the United States funded 57% of medical research in 2004, in 2011 that had declined to 44%. Basic research and product development are central to the health of countries’ economies. However, changes in the pattern of investment, particularly level funding by US government and foundation sponsors, with a decline in real terms, combined with companies’ focus on late-stage products (with diminished discovery-level investment) indicate that difficulties may soon appear in the ability of clinicians to fully realize the value of past investments in basic biology.

My hope is that this has turned around somewhat in the last two or three years. There has been a notable upswing in small company formation and funding, from what I can see, and many of them are jumping on some of that basic biology mentioned above (chimeric antigen receptor-based therapy in cancer, for example, which is one of the hottest biopharma investment areas going right now). So this could be a snapshot taken at the gloomiest point (I hope so), or it could be picking up on a longterm trend that’s continuing despite any recent new. I opt for the former, but I’m an optimistic person.

10 comments on “The State of US Medical Research”

  1. Ben There says:

    Starting in 2006 I worked at a Very Big Pharma company. In late 2008 they explicitly decided to shift investment to late stage programs because of the impending patent cliff of 2011-2013. Then in 2012-2013 they realized their early-stage pipeline was anemic and they started shifting investment back to target ID and pre-clinical programs.
    Last year I moved to Not Quite So Big Biotech. I’m not sure of the reasons here, but this company also had neglected pre-clinical research to an even worse degree but is now aggressively investing in rebuilding it to stoke the pipeline.
    My impression was that other big pharmas were following the same path – temporarily emphasizing late stage work to bridge the patent expirations. That would account for the dip described above and would argue that we may have passed the inflection point after those measurements.

  2. DCRogers says:

    If one believes that the rest of the world is getting somewhat of a “free ride” on US medical R&D, isn’t the fact that we’ve slipped from funding 57% of total world R&D to 44% a good thing? We should get the reverse free-ride on that new external investment.
    (Of course, there are other benefits to originating the research, such as being able to set research priorities.)

  3. johnnyboy says:

    @2: These numbers certainly put the “free ride” thesis in perspective. The idea behind this is that since the US government can’t negotiate drug prices with pharma (and insurance companies are loath to do it too, though that appears to be changing), the prices americans pay for drugs are higher than those europeans do. Therefore US drug companies have higher revenues, which (very) theoretically would mean higher R&D investment. But with a difference of 44 vs 33% between US and European R&D investment, with roughly similar populations, I wouldn’t say this difference qualifies as a free ride.

  4. John Thacker says:

    US government spending had a big boost in 2000-2004, and then remained steady or shrunk after that. (Similar numbers hold true for non medical research, including the NSF.)
    The “US pharmaceutical firms” number comes from PhRMA members, and includes their international spending. including spending abroad by any division of US owned PhRMA members and by US subsidiaries of foreign-owned PhRMA members, though not spending abroad by foreign units of foreign-owned members. About 75% of the total is actual R&D expenditures at US sites, according to the PhRMA report cited in the paper. (See Tables 3-5 in the Appendix, pp 73-74 of the PDF, numbered pages 65-66.) There may, I suppose, be US spending not included in the total by non-PhRMA members, especially foreign-owned companies.

  5. GladToMoveToProcess says:

    Derek wrote “I wonder if some of the shift has been away from what gets defined as ‘pharmaceutical companies’ and toward what gets defined as ‘bio-technology companies’.” That’s certainly ongoing: Tetraphase was recently added to some investment house’s “biotechnology index,” and totally synthetic tetracyclines are about as far from biotech as I can imagine!

  6. gippgig says:

    The amount of money spent is not a valid measure of the state of medical research.
    A 4% decrease over 7 years is not a 2%/year average decline.

  7. CRH says:

    @6: “A 4% decrease over 7 years is not a 2%/year average decline.”
    The way the numbers are juxtaposed in the text is confusing but Figure 4 makes it clear what is meant: as a share of all investment, spending on preclinical activities declined from 26% to 22%, while in absolute terms that spending declined by 2%/year.

  8. Anonymous says:

    Looking at the big picture I see that this trend is just the first half of a classic Gaussian shaped lifecycle curve which has now peaked and will continue into terminal decline.
    Now looking at the VERY big picture I see we are at the same point in virtually every other sector of the economy. Basically, overall economic growth has been slowing worldwide and is going into terminal decline. Society itself has reached middle age, and is now dying.

  9. Bernard Munos says:

    I am afraid the data for the paper is deeply flawed. The PhRMA figures for R&D spending do not capture the industry spending, but only the spending of PhRMA members, which is a small fraction of the total. The historic 13 big pharma companies — some of which are not PhRMA members — have an annual R&D spending of ~$70 billion, which is well in excess of the numbers used by the authors in their analysis. It’s a common mistake that has ruined many otherwise interesting papers.
    EvaluatePharma, which adds up the R&D spending of all public companies, reports a total of ~$140 billion. This is higher than the total spending from all sources in the authors’ data.
    Am surprised the reviewers did not flag the problem.

  10. 2013 R&D spending for the top 25 biopharmaceutical firms was $100 billion, with total revenue at $534 billion. Total headcount was reported to be 1.3 million employees, for what it’s worth. This is according to annual filing data that was collated by

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