Life Science Compliance Update

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June 29, 2015

The Importance of Private Investment into Research and Development

NIH

Recently, we covered Thomas Stossel, M.D.’s new book, Pharmaphobia: How the Conflict of Interest Myth Undermines American Medical Innovation. The distinguished Harvard hematologist and research fights back against the “conflict of interest movement” as one that chills medical progress and hurts the people who benefit most from industry research collaboration: patients. “Physician-industry interactions have been critical to the development of a large percentage of the medical products that allow physicians to prevent heart attacks, cure cancers, and restore mobility to the elderly,” he writes. Despite their importance to modern research and development programs, critics remain undeterred, but a recent report suggests private research—which often relies upon physician-industry relationships—is critically important to the United States’ economy.

R&D Growth and Hope for the Economy

Bloomberg Business reports that amidst concerns of a permanently slowing United States economy, private investment into research and development remains “hope on the horizon,” growing at the fastest pace in 50 years. Specifically, from November 2014 through March 2015, American companies funded R&D to a tune of $316 billion, around 1.8 percent of gross domestic product. This represents the largest share ever for the private sector.

One economist quoted believes additional R&D spending will in turn spark the creation of new technologies, encouraging businesses to invest in new equipment. This domino effect by boosting worker productivity may then create higher growth rates. If funding breakthrough technologies does not bring the United States out of its economic rut, the article asserts there simply may be no other way out.

But it takes decades for research spending and subsequent development to translate into new products, if it ever happens at all. This is compounded by the fact that private partnerships with government are diminishing, despite their historic success after World War II when industry turned the most promising advances from government labs into critical products today like GPS and the Internet. As Bloomberg notes, pharmaceutical companies are one example of an industry where a substantial share of revenue is invested back into R&D. Most companies have no choice but to keep spending or risk getting left behind from important breakthroughs.

The article recommends making the R&D tax credit permanent. Since its introduction in 1981, the credit has been modeled internationally. Now, over three decades later, the United States ranks 27th in terms of the generosity of its R&D tax credit. It is one reason domestic companies have boosted overseas R&D 2.7 times faster than what companies have spent inside the United States. This corresponds with the biopharmaceutical industry which saw its largest 12 companies achieve a 4.8 percent return on R&D investments, compared to 10.5 only five years prior in 2010.

Many Other Challenges Facing R&D

The importance of private-sector R&D cannot be understated. It is critical as both public funding declines and critics continue to villainize industry-researcher collaborations, making R&D even more difficult. As we previously noted, a recent study found that it costs drugmakers $2.6 billion dollars to develop a new prescription medicine that gains marketing approval. This is up from $802 million in 2003, equal to approximately $1 billion in 2013 dollars. While the average time it takes to bring a drug through clinical trials has decreased, the rate of success has gone down by almost half, to just 12 percent.

Furthermore, the estimated cost of post-approval research and development of $312 million “boosts the full product lifecycle cost per approved drug” to close to $3 billion. R&D costs include studies to test new indications, new formulations, new dosage strength and regimens, and to monitor safety and long-term side effects in patients as required by the FDA as a condition of approval.

Conclusion

The importance of private investment into R&D is a key part of scientific discovery and spurs growth domestically and abroad. But the burdens upon researchers are vast, and only further complicated by additional costs related to the Open Payments program. Every dollar spent on a compliance manager is a dollar not spent on R&D or complementary departments. All of this makes it even more remarkable that despite these hurdles, industry R&D, especially in the pharmaceutical industry, remains a crucial component to jumpstart the stagnated American economy.

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