Biopharmaceutical R&D: Investments in Innovation, Jobs, and Economic Development

Innovation is the engine of economic growth and development. Research and development (R&D) spending is what creates jobs and makes innovation a reality. As the global economy continues to recover and regain its former strength, the pharmaceutical industry remains the world’s largest source of R&D spending. According to a recent article in the Wall Street Journal, global pharmaceutical companies expect to spend just over $92 billion on research in 2015. Citing the 38th annual R&D Ratios & Budgets report from Schonfeld & Associates, the article notes that the pharmaceutical industry will spend 40% more than automotive companies which will be the second biggest investors at $65 billion.

The report notes that globally only seven companies are projected to exceed $10 billion in R&D spending in 2015. Of these, three are pharmaceutical companies. 

The question then becomes, “what does $92 billion buy us?” The research and development investments made by pharmaceutical firms ensure a continuous pipeline of cures and treatments, enhancing and extending life. The benefits to global public health are tremendous, both in terms of individual wellbeing and economic welfare. Pharmaceutical therapies result in significant savings in other areas of the healthcare arena. Moreover, since “drug therapy is generally agreed to be the most cost-effective treatment modality, the economic stakes are high.” 1

To those who would argue that pharmaceutical research and development funding is wasted on “me too” drugs and treatments that offer few therapeutic improvements, take a closer look. Even small advances, so-called “incremental innovations” are valuable. As evidence of the therapeutic value of incremental innovations, a recent study finds that 63% of the drugs on the World Health Organization’s Essential Drug Lists are follow-on drugs 2, and close to one-quarter of the therapeutic indications described are treated by drugs initially indicated to treat a different disease or condition. 3

These drugs also offer physicians the flexibility to treat the individual needs of diverse patients with precision. Therapeutic alternatives within the same drug class may differ in their metabolism, molecule, regimen, dosing schedules, speed of action, delivery system, adverse effects, therapeutic profile and/or interactions. In addition, incremental innovation increases the number of available dosing options, uncovers new physiological interactions of known medicines, encourages children’s compliance through reformulations, increases the shelf-life or heat-stability of a given medicine to ensure effectiveness in diverse environments, expands the number of treatment options available, improves patient administration, allows for the elimination or treatment-limiting drug reactions or side effects, and offers significant options to patients with different physiologic and pathophysiologic status. 

Beyond the innovations that extend and enhance life, the research spending of the global pharmaceutical industry generates employment in both developing and developed nations. According to the IFPMA (International Federation of Pharmaceutical Manufacturers and Associations), the pharmaceutical industry directly employs 650,000 people in the United States, 663,500 people in Europe, 70,900 in Russia, 37,500 in Egypt, 16,350 in Colombia, and many more across the globe. However, industry job creation extends beyond direct employment. Within the United States alone, every biopharmaceutical industry job supports five additional jobs outside of the pharmaceutical sector. This employment is generated in a variety of sectors, including manufacturing, construction, accounting, childcare and retail. 

Finally, these investments are good for economic development. Beyond the creation of jobs, the pharmaceutical industry’s presence leads to a transfer of technology and the dissemination of tacit and explicit knowledge. Managers and employees are exposed to innovative technologies and processes, skills training, and new managerial practices. This know-how benefits the entire workforce, as this knowledge is propagated and individuals take the skills with them to new jobs or into their own entrepreneurial endeavors. 

The benefits to the pharmaceutical industry’s R&D investments reach all of us. They provide us with the treatments and cures that will prevent disease and disability in the future. They generate jobs, directly and indirectly, in developed and developing economies. They lead to the transfer of skills and knowledge that foster economic growth and development. These investments extend far beyond the pharmaceutical industry – for the global community, they enhance public health and economic wellbeing. 

1 Wertheimer, A., R. Levy, and T. O’Connor. “Too Many Drugs? The Clinical and Economic Value of Incremental Innovations,” in Investing in Health: The Social and Economic Benefits of Health Care Innovation, 2001, volume 14, pp.77-188. 

2 Cohen, J., and K. Kaitin. “Follow-On Drugs and Indications: The Importance of Incremental Innovation to Medical Practice,” American Journal of Therapeutics, vol.15, 2008, pp.89-91. 

3 Wastilla, L.J., M.E. Ulcickas, and L. Lasagna. “The World Health Organization’s Essential Drug List. The Significance of Me-Too and Follow-On Research,” Journal of Clinical Research and Drug Development, 1989, vol.3, pp.105-115.