Testimony Before the House Oversight Committee on Drug Prices, Intellectual Property, and Biomedical Innovation

Stephen Ezell May 16, 2019
May 16, 2019

As ITIF documented in its report “How to Ensure That America’s Life-Sciences Sector Remains Globally Competitive,” the United States leads the world on a number of life-sciences innovation measures, from R&D investment to high-impact scientific publications to innovative new drug launches (i.e., number of new chemical or biological entities). U.S. life-sciences leadership starts with secure intellectual property rights (IPR) and robust public and private investment in life-sciences R&D, which is essential because developing a new pharmaceutical compound takes an average of 12 to 14 years of research, development, and clinical trials at a cost of an estimated $2.6 billion. As an innovation-based industry, the U.S. life-sciences sector is extremely research-intensive. In fact, according to the OECD, U.S. pharmaceutical companies devoted 43.8 percent of their value-added to research and development. This was higher than any other industry in any other country. The U.S. life-sciences sector accounts for 23 percent of domestic R&D funded by U.S. businesses—more than any other sector.  America’s life-sciences industries performed $96.5 billion of R&D in 2013 (the most recent year for which public data are available), of which $74.5 billion was self-funded. Eighty-four percent of this R&D activity occurred in the United States. Measured by R&D expenditure per employee, the U.S. biopharmaceutical sector leads all other U.S. manufacturing sectors, investing more than 10 times the amount of R&D per employee than the average U.S. manufacturing sector. This robust investment has made the United States the world’s largest global funder of biomedical R&D investment over the past two decades, a share that some analyses suggested reached as high as 70 to 80 percent over that time period.

America’s robust investment in life-sciences R&D has translated into global leadership in new drug development. In the last decade, biopharmaceutical companies have invested over half a trillion dollars in R&D, and more than 350 new medicines have been approved by the U.S. Food and Drug Administration (FDA).  In the 2000s, more new chemical entities were developed in the United States than in the next five nations—Switzerland, Japan, the United Kingdom, Germany, and France—combined. However, it wasn’t always that way; in fact, in the latter half of the 1970s, European-headquartered enterprises introduced more than twice as many new drugs to the world as did the United States (149 to 66). But, as noted, a combination of conscientious and intentional public policy decisions—including increasing R&D investments, providing robust tax credits for research and innovation (e.g., introducing the research and experimentation tax credit and the orphan drug tax credit), and strengthening IP, technology transfer, and commercialization policies (e.g., the Bayh-Dole tax credit), among many others—enabled the United States, starting in the 1980s, and growing in the decades since, to become the world’s life-sciences innovation leader. Indeed, in every five-year period since 1997, the United States has produced more new chemical or biological entities than any other country or region. And from 1997 to 2016, U.S.-headquartered enterprises accounted for 42 percent of new chemical or biological entities introduced around the world, far outpacing relative contributions from European Union member countries, Japan, China, or other nations. 

Since 2000, the FDA has approved more than more than 500 new medicines. And today, U.S. biopharmaceutical companies have more than 3,400 drugs under clinical development. This accounts for almost half of the estimated 7,000 medicines under development globally. And while some assert that biotechnology companies focus too often on “me-too” drugs that compete with other treatments already on the market, the reality is that many drugs currently under development are trying to tackle some of the world’s most intractable diseases, including cancer and Alzheimer’s. Moreover, such arguments miss that many of the drugs developed in recent years have in fact been first-of-their-kind. For instance, in 2014, the FDA approved 41 new medicines (the most since 1996 at that point) many of which were first-in-class medicines, meaning they represent a possible new pharmacological class for treating a medical condition.  In that year, 28 of the 41 drugs approved were considered biologic or specialty agents, and 41 percent of medicines approved were intended to treat rare diseases. As of 2018, 74 percent of medicines in clinical development are potentially first-in-class medicines. 

This testimony elaborates further on the key factors that have made the U.S. life-sciences innovation system the world’s most successful—specifically robust public and private sector investment in life-sciences R&D, robust intellectual property rights that facilitate effective technology transfer and commercialization from universities and federal laboratories to the private sector, and a drug pricing system that enables companies to earn sufficient returns from their investments in one generation of life-sciences innovation to enable their investment in the next.