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SECTION 5: DRUGS BENEFITING FROM GOVERNMENT
GRANTS OR RESEARCH SUBSIDIES
Congress requested that HHS identify prescription drug products recently approved by the Food
and Drug Administration (FDA) whose development “benefited significantly from government
grants or research subsidies in either the pre-clinical or clinical stages of development.” There is
some empirical evidence which suggests that in virtually all cases, new drug products approved
for sale in recent years involved research and development activity that was based at least in part
on advances in basic medical science that were made possible by public funding.
The mission of the National Institutes of Health (NIH) is to improve human health by conducting
and supporting research in the causes, diagnosis, prevention, and cure of diseases. Basic science
research funded by NIH identifies mechanisms of disease and describes biological processes,
highlighting potential drug targets that offer the promise of valuable new strategies for therapy.
Knowledge gleaned from such research is often described as a “public good” available to all
parties for use. Private markets are known to underproduce public goods such as basic scientific
knowledge because private investments in their development yield economic benefits that cannot
be held solely for private use, so such investments are not profitable; that dilemma provides the
rationale for public funding of basic science.
In a typical case of new commercial drug development, private investments in research on the
safety and efficacy of specific drug compounds are based directly or indirectly on insights into
basic science knowledge made possible by public funding. Private firms have strong incentives
to conduct applied research into the development of new drug therapies because patent
protection confers time-limited exclusive sales rights, allowing drugmakers to earn potentially-
high rates of return on investments in new product development. Those high rates of return are
necessary to induce investments in pharmaceutical R&D given the high capital costs of such
investments and the fact that such investments are made in the face of scientific uncertainty as to
a compound’s clinical value. Of the many compounds that are studied by innovative drugmakers,
the overwhelming majority fail to reach FDA approval and marketing by the sponsor.. Evenwhen
a drug is approved , and marketed, the drugmaker sees no revenue for years after the initial
investment decision, so there are high opportunity costs for investment capital during the
research stage.
A recent analysis addresses the question of how public funding has contributed to the
development of new prescription drug products in recent years.