Drug Costs

ITIF Paper: Price Controls Will Harm Public, Academic R&D

November 13, 2018 11:00 am

The life-sciences industry in the U.S. invests roughly 21 percent of its total sales into research and development. Those investments extend far beyond life-science companies themselves.


Recently, this blog highlighted a study from the Information Technology and Innovation Foundation (ITIF) that outlines the impact price controls would have on Americans’ access to new lifesaving medicines. Though dense, that post focused on just the first few pages of Robert D. Atkinson’s paper. 


There’s a whole lot more


Atkinson also says price controls would diminish certain spillover effects that biopharmaceutical firms have on “knowledge discovery and drug development overall, not just in individual firms’ labs.” 


What are the spillover effects of private-sector research and development, and how large are they? Those questions aren’t easy to answer, but as Atkinson notes, several scholars have tried. Here’s a summary of their results:

- Spillover effects have increased over the last four decades; 

- Basic research has an enormous spillover effect, as much as 150 percent of the investment; and

- In general, economists estimate a seven percent private return and 30 percent social rate of return on all research and development.


However, a 2006 Bureau of Economic Analysis/National Science Foundation study found the social rate of return was even higher than 30 percent. That report put the private return for research and development at 26 percent and the social return at 66 percent.


These studies looked at research and development in several sectors, but studies conclude the spillover effects are similarly robust in the biopharmaceutical industry. Additionally, these inquiries found “spillovers are significantly greater in large biopharma firms compared with smaller ones because the latter ‘tend to operate in technological ‘niches’” wherein fewer other firms are operating.” 


Even failed experiments have positive effects, Atkinson says, showing researchers the paths not to take. 


Biopharmacuetical firms also are aggressive sharers of information, Atkinson says, and “have been contributing to the world’s knowledge stock by giving paper presentations at scientific conferences and publishing in peer-reviewed scholarly publications” for decades. In fact, firms in the biopharmaceutical industry are more inclined than companies in other sectors to share knowledge, publishing more articles each year. Indeed, between 1995 to 2009, American firms published more than 78,000 scholarly articles.


In addition to adding to the knowledge pool, biopharmaceutical firms drive progress outside their own labs by funding academic research institutions. Atkinson found these companies provided more than $2.5 billion in research funding to U.S. universities in 2017 alone, spreading the money widely across the United States. In the Maryland, Virginia, Washington, D.C. area alone, universities received more than $125 million in 2016. 


Atkinson concludes, “[E]fforts to impose drug-price controls … will not only hurt drug innovation in the affected biopharma companies, it will reduce the generation of widely shared knowledge, thus limiting overall life-sciences innovation.”