US innovation is high---contingent on private licensing

America’s wresting of global life-sciences leadership has been no accident, but rather the result of a series of intentional policy decisions designed to make America the world’s preeminent location for life-sciences research, innovation, and product commercialization. For instance, the United States’ introduction of the world’s first R&D tax credit in 1981 played a catalytic role in spurring greater levels of private-sector R&D. In the life-sciences sector, this was complemented by the 1986 introduction of the orphan drug tax credit, which allows drug manufacturers to claim a tax credit on research costs for orphan drugs (i.e., drugs for rare diseases affecting 200,000 or fewer U.S. patients). The 1992 introduction of the bipartisan Prescription Drug User Fee Act (PDUFA), which authorized the FDA to collect user fees associated with applications from the biopharmaceutical industry for regulatory approval of new human-drug submissions, has played a pivotal role in reducing the time it takes the FDA to make safety and efficacy determinations for new drugs—from the over 30 months it took on average in the mid-1980s to less than 10 months today.11 The United States has also benefitted greatly from having a drug-pricing system that permits companies to earn sufficient revenues from one generation of biomedical innovation to reinvest in the next.12 That matters greatly because, as the Organization for Economic Cooperation and Development (OECD) has clearly stated, “There exists a high degree of correlation between pharmaceutical sales revenues and R&D expenditures.”13

Increases in federal funding for health research also played a key role. National Institutes of Health (NIH) funding increased from around 0.12 percent of GDP in 1979 to around 0.21 percent in 2009—much of which went to research universities. The combination of increased funding for health research coupled with better policies to help transfer those discoveries to the marketplace played an important role in spurring the growth of the United States’ U.S. biopharmaceutical competitive advantage. In particular, the Bayh-Dole Act, which affords universities rights to the intellectual property generated from federal funding, has played a key enabling role. The act, passed in 1980, permitted contractors, such as universities, small businesses, and nonprofit research institutions, to secure intellectual property rights, often in the form of patents for molecular compounds or biotechnological processes, which in turn may be licensed to private-sector entities, including start-ups and existing biopharmaceutical companies, which then invest the hundreds of millions—often billions—of dollars required to bring safe and effective drugs to market.