A startling report in The New England Journal of Medicine shows U.S. industry investment in biomedical research and development falling off a cliff over the past five years – and reappearing in Asia. The study, the first of its kind since 2006, found that overall R&D spending in the U.S., Canada, Europe and Asia-Oceana increased $41.8 billion, or 18.4 percent, from 2007 to 2012. Broken down by region, the lion’s share of that growth is in Asia-Oceania, and U.S. R&D investment has actually fallen by 12.9 percent. Although tightening of government belts in recent years seems like the logical explanation, the numbers actually point to industry as the culprit.

“I hope it is widely read by decision-makers,” National Institutes of Health (NIH) Director Francis Collins told BioWorld Today. Collins said that the results came as no surprise, “It is not a set of trends we were not aware of.”

Collins also noted that while the analysis ends in 2012, early figures from 2013 show that the trends identified have, in fact, worsened in 2013, particularly with the latest cuts from NIH’s budget.

Justin Chakma, first author on the paper and an analyst with Thomas McNerney and Partners, told BioWorld Today that he and his co-authors were inspired to carry out the analysis by the discussion revolving around NIH funding cuts, especially with the sequestration cuts looming in coming years. “In early 2013, we saw an opportunity to bring some data to this policy issue,” Chakma said. According to him, most of the discussion and analysis had focused on emerging markets and did not break down figures for spending specific to the biomedical sector.

“Nobody had looked at what was actually happening to those expenditures in the U.S. and throughout the world. That’s what motivated our team,” Chakma said.

Inflation-adjusted figures for global R&D expenditures showed an increase of $6.3 billion, or 2.4 percent, from $262.1 billion to $268.4 billion, but only the Asia-Oceania region showed an increase – $10.9 billion. In the U.S., spending fell $12 billion. In Europe, there was a loss of $1.8 billion, and Canada fell $1.3 billion.

In contrast, Japan’s R&D spending jumped $9 billion, and in China the gain was $6.4 billion. Percentage-wise, China showed the most impressive growth. Its 32.8 percent increased dwarfed all other regions.

Public sector spending increased in all regions studied, and the U.S. public sector kept pace with inflation, even taking into account a decrease of $1.7 billion in NIH spending under the Budget Control Act of 2011. In 2012, the NIH funded $30.9 billion in U.S. biomedical R&D. But the American Recovery and Reinvestment Act of 2013 offset the NIH’s shortfall. Overall, public sector spending increased by $859 million in the U.S., and the U.S. contributed the largest share of public spending, at 52.9 percent.

The article concluded that the U.S. decline of $12 billion, therefore, was due to reductions in industry spending of $12.9 billion. The contribution by the U.S. to global R&D spending fell off from 50.4 percent to 42.3 percent over those five years. The authors noted that the decline in U.S. spending is “remarkable because the U.S. has provided a majority of the funding for biomedical R&D globally for the past two decades – a share that some previous analyses suggested was as high as 70 percent to 80 percent.”

The low cost of carrying out R&D in the Asia-Oceania region may be responsible for the shifting dollars, since labor is cheaper and more government subsidies are available. As well, the article points out, costs per FDA drug approval have risen.

Even more surprising, crunching the numbers revealed that while global investment by industry remained flat, the U.S. share declined, suggesting that those missing $12.9 billion are reallocating to the Asia-Oceania region.

“I thought we would have seen more of a decline in public spending,” Chakma said. But even with the loss in NIH funding, the system was resilient, with an uptick in institutional funding and charitable funding compensating for the lost NIH dollars.

The primary driver for funds redirecting to the Asia-Oceania region, Chakma said, turned out to be the overall drop in R&D productivity. “Large pharma in particular has been shutting down R&D sites in the U.S.,” Chakma said. Those sites have been relocating to China for market access and government subsidies. To a lesser degree, that migration has also been directed to India for the same reasons.

A second contributing factor is increasing reliance on biotech companies for R&D activities by big pharma, Chakma explained.

Government incentives offer a potential solution. One option would be tax credits for R&D spending, which used to exist but have expired. The U.S. will need such incentives if it is to remain competitive with industry.

The troubling trend fulfills predictions made by a National Academy of Sciences (NAS) report in 2005. That report predicted a “gathering storm” of global competition for U.S. science and innovation. A follow-up five years later, in 2010, upgraded the storm to a tsunami, noting that foreign companies had overtaken U.S. companies in patent filings and that new drug approvals from within the U.S. had dropped compared to the decade before. (See BioWorld Today, Sept. 27, 2010.)

The NAS said that some progress had been made between 2005 and 2010, but that the recession and growth of the national debt from $8 trillion to $13 trillion had hindered efforts for the U.S. to maintain its competitive global position.

Although the U.S. held steady in public funding, Chakma said that current and future cuts to NIH funding could be potentially disastrous. Those cuts will phase in between 2014 and 2016, and, according to Chakma, risk “destabilizing the entire biomedical system” by undercutting the source of innovation upon which big pharma increasingly relies.

“I think it’s great for all parts of the world to be investing in R&D advances in human health, prevention and treatment. But if you’re interested in the U.S. enjoying the benefits in terms of health advances sooner than later and economic growth and job creation, then why would we want to walk away from such a fantastic opportunity, when everyone else in the world has decided to copy our path?” Collins said.

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