NIH is responsible for every biotech product in the US

THE NATIONAL INSTITUTES OF HEALTH: CREATING THE WAVE VS. SURFING IT

State support and involvement in biotech span a wide range of forms, the most significant being that the enormous knowledge base which biopharmaceutical companies are dependent on has developed more from government investment than from business. The knowledge base has been developed from the critical investment the government has given to funding basic science. At the forefront lie the NIH and other government programmes which have invested in many of the key scientific achievements that the industry's success has been built on. Drawing on NIH spending data compiled in Lazonick and Tulum (2011), it is easy to see how crucial this funding was for biotech innovation. From 1938 to 2013, NIH spending on life sciences research totalled $884 billion ([2013$], deflated by the Consumer Price Index). Every year from 1938 to 2013, with a few exceptions,3 NIH funding increased in nominal terms, in contrast to the widely fluctuating funds from venture capital and stock market investments.

Figure 8 below shows that total NIH spending between 1938 and 2012 (in 2012 dollars) was $841 billion. The budget for 2012 alone reached $30.9 billion. Thus, while business continues to lobby for tax cuts and less 'red tape', in the end they are greatly dependent on the finance of the tax receipts which they fight against. And indeed, those countries, like the UK, that are increasingly convinced that what drives business are 'low taxes and low regulation' are suffering from the flight of many companies, such as Pfizer and Sanofi.

More striking is that in the 35 years since the founding of Genentech as the first biotech company in 1976, the NIH funded the pharma-biotech sector with $624 billion (figure to 2010). As evidenced in this data, Lazonick and Tulum (2011, 9) argue that the US government, through the NIH, and by extension via the US taxpayer, 'has long been the nation's (and the world's) most important investor in knowledge creation in the medical fields'. This knowledge base was 'indispensable' and without it, venture capital and public equity funds would not have poured into the industry. They have 'surfed the wave' rather than created it.

Through a system of nearly 50,000 competitive grants, the NIH supports more than 325,000 researchers at over 3,000 universities, medical schools and other research institutions in every US state and throughout the world. These grants represent 80 per cent of the agency's budget with another 10 per cent used to directly employ 6,000 individuals in its own laboratories. The agency's 26 research centres in Maryland serve a prominent role in the biotech industry—one that is increasing as more centres and institutes continue to develop within the NIH. Beyond these 'knowledge-creating programs', traces of government support can also be seen in almost every single major bio-pharmaceutical product in the US (Vallas, Kleinman and Biscotti 2009). Although many biotech scholars acknowledge the immense government support in the science base, overall they fail to draw the causal relationship among the successful growth of this industry, its attractiveness to investors and the long-lasting government efforts that develop and sustain the substantial knowledge base found in the US.

So why does venture capital often get so much credit for creating the biotech revolution? The story of private and public investments in biotech is perfectly described by Paul Berg (the 1980 Nobel Prize winner in chemistry) in the quote at the beginning of this chapter. In essence, Berg was aware that the State actively paved the way for future industry development by bringing the courage, vision and funding so lacking in the private sector. Or perhaps more fairly, by investing in new technology until fear-inducing uncertainty was transformed into mere risk.

The point of this chapter was to show that the case for State investment goes beyond 'blue-sky' basic research. In fact, it applies to all the different types of 'risky' and uncertain research, since the private sector is in many ways less entrepreneurial than the public sector: it shies away from radically new products and processes, leaving the most uncertain investments to be first taken on by the State. So while blue-sky research is necessary for innovation to occur, it is far from sufficient, and indeed the role of the State goes deeper. I continue to examine the breadth and depth of State leadership in producing the knowledge economy in Chapter 4. In Chapter 5, I review the specific case of Apple as an example of a company that has benefitted enormously from both publicly funded blue-sky research and State policies that facilitate commercialization.