September 22, 2005
Biomedical Research Funding In United States Doubles In 10 Years

Public and private funding for biomedical research in the United States both doubled from 1994 to 2003.

From 1994 to 2003, total funding for biomedical research in the U.S. doubled to $94.3 billion, with industry providing 57 percent of the funding and the National Institutes of Health providing 28 percent, according to a study in the September 21 issue of JAMA, a theme issue on medical research.

The amount from private sources is much larger than I expected.

Lead author Hamilton Moses III, M.D., of the Alerion Institute, North Garden, Va., presented the findings of the study today at a JAMA media briefing on medical research.

Few comprehensive analyses of the sources of financial support of biomedical research and uses of these funds have been available, according to background information in the article. This results in inadequate information on which to base investment decisions and can create a barrier to judging the value of research to society. Previous articles have examined specific sectors, but few have done so comprehensively.

Dr. Moses and colleagues conducted a study to determine the level and trend from 1994 to 2004 of basic, translational (the application of knowledge of basic science research to clinical care), and clinical U.S. biomedical research support from the major sponsors of this research: (1) federal government, (2) state and local governments, (3) private not-for-profit entities including foundations, and (4) industry. The researchers compiled publicly available data for federal, state, and local governments; foundations; charities; universities; and industry. Proprietary (by subscription but openly available) databases were used to supplement public sources.

It is amazing that after such a huge increase across the board that the relative size of private and public contributions should have emerged unchanged.

The researchers found that biomedical research funding increased from $37.1 billion in 1994 to $94.3 billion in 2003 and doubled when adjusted for inflation. Principal research sponsors in 2003 were industry (57 percent) and the National Institutes of Health (28 percent). Relative proportions from all public and private sources did not change. Industry sponsorship of clinical trials increased from $4.0 to $14.2 billion (in real terms) while federal proportions devoted to basic and applied research were unchanged.

I am not surprised that diagnostics and therapeutic devices R&#amp;D yielded the best returns. Drug development returns have been declining. Diagnostic devices are taking off in in part because of a shift toward miniaturized devices. Diagnostics are going to follow in the path of computer chips with smaller devices becoming orders of magnitude more powerful and at the same time orders of magnitude cheaper.

The United States spent an estimated 5.6 percent of its total health expenditures on biomedical research, more than any other country, but less than 0.1 percent for health services research. From an economic perspective, biotechnology and medical device companies were most productive, as measured by new diagnostic and therapeutic devices per dollar of research and development cost. Productivity declined for new pharmaceuticals.

I recently saw a panel discussion at UC Santa Barbara with a venture capitalist and a couple of patent lawyers. The VC commented that just within the last year diagnostics have become a very hot area for VC funding. Makes sense. Diagnostics are going to take off because the demand is huge and biotech devices are becoming like computer devices: very small scale and automated.I was disappointed that it took them this long to figure out that diagnostics are a hot area. But better late than never.

Because next generation diagnostic technologies are going to be increasingly based on microfluidics, nanosensors, and other small scale devices I expect the development of diagnostics to do more to accelerate the pace of biotechnology than the development of drugs. Even though drug development gets a lot more money most of that money flows to clinicians to conduct trials, people who do regulatory filings, and other work that does not develop new enabling technologies. The increased interest of VCs in diagnostics therefore is very good news.

The huge increase in medical devices funding pushes a lot more money toward enabling technologies that will accelerate the rate of biotechnological advance.

The NIH is by far the largest federal funder of biomedical research. Adjusted for inflation, NIH obligations nearly doubled (in 2003 dollars) from $13.4 billion in 1994 to $26.4 billion in 2003. Private support for biomedical research, adjusted for inflation, increased 36 percent from $1.8 billion in 1994 to $2.5 billion in 2003 (in 2003 dollars). Private support for biomedical research comes primarily from foundations, voluntary health organizations, and the free-standing research institutes.

Industry funding from pharmaceutical, biotechnology, and medical device firms increased 102 percent from $26.8 billion in 1994 to an inflation-adjusted $54.1 billion in 2003 (in 2003 dollars). The growth rate (inflation adjusted) for the medical device sector (264 percent) exceeded that for either the pharmaceutical (89 percent) or biotechnology (98 percent) sectors. The proportion of biomedical research support coming from industry sources remained relatively constant and was 56 percent for 1994 and 58 percent for 2003.

So it turns out there was a shift toward non-governmental funding sources. Given that the Bush Administration is not increasing the budget of the NIH as fast as inflation I'm expecting the private portion to continue to grow relative to the public portion.

Government funding ought to shift away from specific diseases and shift toward the development of basic capabilities such as better instrumentation, microfluidics, nanosensors, and other work on technologies that improve the ability to automatically measure and manipulate biomolecules and biological systems.

The federal government and foundations spent $1.4 billion on health policy and health services research in 2002. Federal funding for health services research came primarily from the NIH ($787 million in fiscal year 2002) and the Agency for Healthcare Research and Quality ($299 million in fiscal year 2002). The sum of federal and foundation spending for health services research in 2002 was an estimated 1.5 percent of biomedical research funding.

"The doubling over a decade of total spending by U.S. public and private research sponsors in real, inflation-adjusted, terms should be reassuring to those who fear that financial sponsorship for research is not paralleling scientific opportunity. It is also reassuring that spending on health and biomedical science research by companies and government is not following reductions in research and development in other industries or reduced support for other areas of science. By comparison, the low proportion of spending on health services research is especially notable, since it is the main tool available to evaluate the clinical benefit of technology," the authors write.

The increased money for drug research has not helped.

"Barriers to the discovery of new drugs have received much attention over the past decade. Despite the doubling of biomedical research funding and the shift toward clinical research by pharmaceutical companies, the number of new molecular entities approved by the FDA has fallen. For example, from 1994 to 1997, the number of new molecular entities approved averaged 35.5 per year. From 2001 to 2004, the number of new molecular entities averaged 23.3 per year. As a consequence, pharmaceutical productivity decreased over the last 10 years, and it is lagging that of the biotechnology and device sectors," the researchers write.

"We believe a major factor in decreasing productivity stems from pharmaceutical companies' frequent determination that compounds approvable from a regulatory standpoint are not worth bringing to the market because the intensity of competition is so high that it is not worth challenging existing drugs that are safe and effective. This highlights the need to invest in clinical areas with few effective treatments and for which novel mechanisms or entirely new classes of drugs are possible. The willingness of biotechnology companies to do this may, in part, account for their greater relative productivity."

My own take on drug research is that it is becoming yesterday's approach to medical treatments. Most remaining health problems can not be solved with drugs. We need cell therapies and gene therapies much more than new chemical molecule drugs. Most diseases of old age and the very process of aging will be cured by gene and cell therapies and not by drugs. Though new useful drugs will still be found.

"For all sponsors, the challenge is patience. Biomedical research is an inherently high risk and lengthy process. It would be helpful to remind those making financial decisions that the promise of earlier advances in the basic understanding of physiology in the 1920s and 1930s, or of biochemistry and microbiology in the 1940s, 1950s, and 1960s, took decades to unfold."

I do not buy this argument about pressing challenges.

"Enhancing research productivity and evaluation of benefit are pressing challenges, requiring (1) more effective translation of basic scientific knowledge to clinical application; (2) critical appraisal of rapidly moving scientific areas to guide investment where clinical need is greatest, not only where commercial opportunity is currently perceived; and (3) more specific information about sources and uses of research funds than is generally available to allow informed investment decisions. Responsibility falls on industry, government, and foundations to bring these changes about with a longer-term view of research value," the authors conclude.

The big pressing challenges are nuch more ambitious and require boldness that can't be captured in conventional economic analyses:

  • Develop the ability to grow large replacement parts for the human body.
  • Develop the ability to make cell therapies that will replace on a finer granularity scale.
  • Develop the ability to send in new DNA programming (gene therapy) into cells to instruct them how to repair themselves.
  • Develop the ability to "take out the trash" to remove junk that accumulates both inside and outside cells.
  • Develop much better microfluidics and micro-instrumentation that can cheaply perform analyses and manipulations on cells and cell components such as DNA sequencing and measurement of intracellular and extracellular biochemical compounds.

We need all the enabling technologies for implementing Strategies for Engineered Negligible Senescence (SENS).

Share |      Randall Parker, 2005 September 22 11:45 AM  Policy Science


Comments
epobirs said at September 22, 2005 12:52 PM:

Improvements in diagnostics will have payoff for the drug discovery sector as well. A large amount of their time and money is used on finding out if a molecule does anything notable and what exactly that effect is. The reduced cost of diagnostics also means clinical studies can watch out for a wider range of side effects and perhaps avoid more costly rounds of litigation.

James Bowery said at September 22, 2005 11:22 PM:

The M-Prize (http://mprize.org) is a sixty thousandth of the funding for biomedical research.

This seems totally out of whack to me. What do you think is going on with this?

PacRim Jim said at September 22, 2005 11:55 PM:

Hurry up, guys. Reach the singularity, already. Immortality beckons but the calendar leaves are falling ever faster.

Reason said at September 23, 2005 12:34 AM:

If you want to see a specific future ahead of you, you have to do something about it. Donate - to the Mprize or other pro--longevity-research group - or take part in making things look the way you'd like them to look. If you can put money aside for retirement, you certainly have the required foresight to do more than stand on the sidelines when medical research doesn't look the way you'd like it to.

James Bowery said at September 23, 2005 5:12 AM:

I can understand perhaps why there is a much larger private investment in biomedical research than private donations. That's just the way it is when you are a wealthy philanthropist: why donate when you can invest? What gets me about the M-Prize ratio is that it is out of whack even by the standards of the X-Prize. It may be that what with the huge government investments in aerospace via DoD and NASA that the ratio of prize incentives to government-funded aerospace development wouldn't be that different from the analogous ratio in biomedical.

Mr. Econotarian said at September 23, 2005 11:27 AM:

Probably the best improvements in health care in the short term can come from applying existing supply chain management and process improvement methodologies that are already known.

For example, see the Harvard Business Review article on applying the Toyota Production System of continuous process improvement to hospitals to dramatically reduce in-hospital infections and falls.

The challenge is lining up health-care spending sources with the needed incentives to become more efficient. Government money generally does not encourage efficiency...

AA2 said at September 23, 2005 12:52 PM:

Randall you really hit the nail on the head with your statement about how chemical drug discovery now is reaching its limits. I heard a fascinating statistic that even if we eliminated all diseases and infections it would only increase the average life expectancy by 12 years. So on the one hand there is some room to move still, but on the other to keep up the serious gains from health care technology that the last century has seen we will need new technologies. Which you mentioned stem cells, gene therapy, proteomics, junk removal and so on.

I think in the past we saw a number of dramatic increases to life expectancy and quality of life. First proper sanitation methods put in place by engineers not doctors. Its unthinkable today to imagine people throwing their feces onto the street.

Then with increasing agricultural productivity especially in the first part of the 20th century people were properly nourished. Obviously being undernourished including not having the proper vitamins and minerals can severely affect health.

The next one I think was antibiotics. Obviously that was a huge change where we could cure infections. Vaccinations is another.. Then in the more recent past the primary effort has been on drugs like insulin and anti-depressants as two examples. Which can save peoples lives but also increase their quality of life.

Each area gets explored as much as possible but eventually you can't get the huge returns as before. I think its obvious looking at the pharmacuetical companies drug pipelines that they aren't going to have the growth in the next 20 years that they had in the last 20. And even in the last 5 years a lot of the growth in revenue has been from increasing the price of the drugs. Now they are looking at having some of their best drugs patents running out.

However still pharma is going to be a big business, and even without the drug development big pharma companies have the infrastructure in place for advertising, clinical trials, production, distribution.. at least they could help smaller upcoming companies distribute their products quickly and widely.

AA2 said at September 23, 2005 12:54 PM:

One other question I have is I wonder if the governments in Europe will provide the new technologies in healthcare to their people. Like stem cell therapies or gene therapy. Or if they will throw in the towel for the new technologies being provided through the state, and instead keep the state care at today's level. I think that could substantially open things up as obviously Europe is a huge and wealthy area, with an economy the size of America's.

Marvin said at September 24, 2005 8:19 AM:

Trial lawyers are destroying much of the drug industry. Modern day pirates and looters stripping the infrastructure for short term loot. Remember that trial lawyers are "for the little guy." The little guy will never miss the remedies that are not there, because they were never developed, because the pharmaceutical infrastructure was stripped down. The little guy will always believe the trial lawyers. A widow whose husband died of heart attack, who also took Vioxx, is awarded money in the billions. It makes sense. This woman and her attorney obviously has done as much for the country as any billionaire, right? Who can live on under a few billion these days? Have you checked the price of milk and bread lately?

Hugh Angell said at September 24, 2005 10:34 AM:

AA2,

My understanding of the European healthcare systems is that they are not very innovative.
Just as HMO providers in the US are reluctant to spend money on expensive new therapies
so to are the European state health systems, only more so as private patients in the US
can pressure HMO's a lot better than a patient in the UK can rattle the cage of the NHS.

I agree that the days of 'blockbuster' drugs are at an end. Pharmacogenomics will limit
the scale to which new drugs are prescribed to the population. As an investor I have tried
to find companies with some product likely to appeal to a wide population and came upon
Inspire Pharmaceuticals 'dry eye' drug. Not a life saver to be sure but nonetheless with
the demise of HRT for aging women it will be an increasing problem for millions of women.
Alas Inspire's NDA did not pass FDA muster for effectiveness and my jackpot shrank quickly
but not completely.

I have also been disappointed with another stock, Dendreon, which had and still hopefully
has, some potential in cancer vaccines. Here too the progress is painfully slow and the
earlier promise elusive. Like Avastin, Dendreon's prostate cancer treatment Provenge, offers only a increase in survival of months, which while useful, is not a biotech homerun.
Yet other methods like RNAi seem even further from being a therapeutic reality. I still am
optimistic about cancer vaccines as a laymen, I am intuitively convinced that manipulating
the bodies own immune system is the way to go here.

I also believe that drugs or treatments that are endogenous, I believe is the term, i.e.
do not involve introducing molecules with potential toxic or hidden side effects are much
more likely to gain FDA approval and avoid the fate of Viox or Elan's Tysabri.

So my interest is frankly mercenary as much as humanitarian in biotech. My hunch is that
biotech will be to the 21st century what transistors and silicon were the 20th. Randall's
point that diagnostics maybe just as or even more lucrative than the somewhat stalled
biotech field promises to be is an interesting one I will have to investigate. However,
problems with things like stents and implantable pacemakers give me pause. They are very
vulnerable to the same sort of legal hell as pharmaceuticals.

Patrick said at September 24, 2005 6:06 PM:

Hey Randall,

Did you miss this story http://www.timesonline.co.uk/printFriendly/0,,1-210-1754008-210,00.html?

It is very slightly possible that the breakthrough has been achieved. As expected, it was by accident.

AA2 said at September 24, 2005 6:28 PM:

Hugh I agree the Euro health markets seem far less innovative then America. Back in 1990 Europe actually spent the same as America on pharmacueticals and it was one of their main growth areas. But during the 90's governments came under pressure to reduce costs when faced with out of control spending and pensions, so they started block negotiating for drugs. And if they didn't get the price they wanted simply not offering the drugs to their people. So pharma companies ended up selling for much lower in America at least to get something.

By 2003 the European pharmacuetical market was only just over a third the size of America's. And the industry's center of gravity had clearly moved to America. I think its very likely the Euro governments won't have enough money to pay for the new technologies like stem cells or gene therapy. But I actually look at this as a positive if they then allow their citizens to buy it on the free market.

And in Europe one advantage they have is they don't have the litigation system that stifles innovative. That is why car companies for example are testing their new technologies in Germany. Like systems that brake automatically if you are coming in too quickly at the car infront of you.

AA2 said at September 24, 2005 6:33 PM:

Stock wise I dont' really like the pharmacueticals right now. They need to keep growing at a substantial pace just to justify their stock valuations. Of course high stock valuations can be good for innovation as lots of people jump in trying for a piece of the action.

My own feeling on cancers is that our bodies naturally kill off renegade cells. But as we age our immune system degrades until eventually it is so weak it doesn't stop the cancer. That is why you see aids patients with all sorts of cancers.

Randall Parker said at September 24, 2005 8:22 PM:

Patrick,

I was aware of the story. But I didn't post on it because it is not new news. The press wrote about it because Ellen Heber-Katz was going to be speaking at Aubrey de Grey's SENS conference about it. The reporters didn't understand that this was not a new discovery. So she got a lot of write-ups.

Well, here's the original PNAS paper from 1998 reporting the discovery of these mice. Ellen Heber-Katz and her team at Wistar Institute made the discovery. You can check out a number of ways they've tested these mice since 1998. But they still haven't pinned the effects to a specific mutation or set of mutations. We need that info to make any use of this discovery in humans. Maybe she doesn't have enough money to figure that out in 7 years? If so, that's a shame.

Anyway, I'll get excited about it again when specific genetic mechanisms are pinned down.

David Govett said at September 24, 2005 11:21 PM:

Whatever the innovativeness of Euro pharma companies, the capital and scientists Europe has injected into American pharma companies have been invaluable. This proves, once again, that it's the American system, not the people per se, that shines so brilliantly.

AA2 said at September 25, 2005 7:16 PM:

If Europe had America's system or even a more free market oriented one then America's, the continent would be wealthy beyond belief. I mean if you look right now America spends 32% of gdp on government. A lot of the west European countries spend 50-55% of gdp. Can you imagine how the American system would fall apart if Bush oversaw a government that was twice as large as it is now, yet the total economy was the same size?

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