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Biomedical Innovation: How the U.S. Can Stay Number One

December 20, 2011
By Ross DeVol, chief research officer of the Milken Institute

“The first step in winning the future is encouraging American innovation,” declared President Obama in his last State of the Union speech. A logical place to start is making sure that where we hold a lead, we keep it.

Today, the U.S. has such a lead in biomedical innovation — the process of transforming scientific discoveries into vaccines, diagnostics, devices and therapies that improve and save patients’ lives. This industry represents one of the great American success stories of the past century.

But success can breed complacency, and there are signs that U.S. dominance is eroding as other countries build formidable research, testing and manufacturing capabilities. Within the Beltway there’s little awareness of how the U.S. became a biomedical powerhouse in the first place — and of what’s at stake if we don’t bolster a critical industry.

As recently as 1980, European firms defined the biomedical industry, both in terms of market presence and their ability to produce new products. But beginning in the 1980s, the United States surged to the forefront. This sudden and remarkable shift was no accident. It was the direct result of smart federal policies: the absence of price controls, the clarity of regulatory approvals, the ability to attract foreign scientific talent to outstanding research universities, and a thoughtful intellectual property system.

With the resulting ecosystem — defined by university-business collaborations, industry clusters, private equity finance and entrepreneurship — the American student far surpassed the European master. The innovative leaps made in biopharmaceutical research, medical devices and diagnostics transformed the industry in the United States.

On the investment front, Switzerland-based Novartis AG established its main research hub in Cambridge, Mass., in the early 2000s, while another Swiss firm, Roche, acquired a majority stake in Genentech in 1990 and bought out full ownership in 2009. Sanofi, which is headquartered in France, announced a deal in February 2011 to acquire the Cambridge-based biotech firm Genzyme. These moves underscore how the rest of the world values U.S. assets.

On the jobs front, more than 1.2 million Americans were employed by the biomedical industry in 2009, according to the most recent data from the Bureau of Labor Statistics. The average job in the U.S. biomedical industry paid $78,600, more than 70 percent higher than the national average. And once the ripple effects of its supply chain are taken into consideration, the industry accounts for 5.3 million jobs, or 4 percent of America’s non-farm employment.

The United States assumed the mantle of global biomedical leadership by putting the right infrastructure in place and then being first to commercialize recombinant DNA research. But its continued standing doesn’t come with a long-term guarantee.

If another nation develops a similar ecosystem and subsequently makes a pivotal breakthrough, it could tip the scales in the other direction. This scenario isn’t all that far-fetched. Witness the nanotech-related patents granted between 1996 and 2008: While the U.S. led with 29.7 percent of the world’s patents in this field, China was a close second with 24.3 percent.

Another reliable measure of a nation’s innovation capacity is its ability to maintain high levels of R&D expenditures. In 2004, the United States accounted for 55 percent of the total biopharmaceutical R&D spending of leading nations. By 2008, this figure had slipped to 51 percent.

Europe and Japan have made aggressive moves to channel public funding into research, speed commercialization of new discoveries, and ensure that start-up firms in the life sciences have better access to capital. China, India and Singapore have made impressive strides in scientific research and instituted crucial regulatory reforms.

Just as global competition is heating up, shifts in public policy are beginning to hinder the U.S. industry’s productivity. While other countries are increasing government support for biomedical research, funding for the National Institutes of Health (NIH) has declined. The efficiency and predictability of the FDA’s review process was once a key advantage for the U.S., but today the system is marked by increasing complexity and rigidity.

But Washington can take steps to help the U.S. biomedical industry retain its competitive edge. For starters, it’s critical to increase the R&D tax credit by 25 percent and make it permanent. Research and development in the biomedical industry carries substantial risks of product failure and investment losses, but tax incentives can mitigate these risks. The U.S. pioneered this policy but has now fallen behind other nations in the generosity and predictability of its tax credits. Likewise, the U.S. corporate tax rate needs to be brought into line with the OECD average.

Though the deficit looms large, not all federal spending is created equal, and Congress should commit to robust funding for both the NIH and the FDA. The FDA needs additional resources to better manage the review process and accelerate the adoption of more flexible approaches, such as adaptive trials. In addition, the agency needs to focus on revamping the approval process for medical devices and prepare for the age of personalized medicine. The NIH needs additional resources to support clinical trials and translational research, a role that could improve productivity throughout the scientific community.

The U.S. also needs to beef up support for cutting-edge areas like nanotechnology, personalized medicine and stem-cell research. These new frontiers are likely to provide the greatest societal returns in the decades ahead.

Finally, policymakers need to recognize the value of human capital in the innovation process. U.S. immigration policy should welcome top international science talent, perhaps offering green cards in exchange for working in biomedical research. In addition, science, technology, math and engineering education must become a national priority if American students are going to become the scientists of tomorrow.

The greatest impediment to U.S. biomedical innovation is underestimating the risk of losing it. Protecting this legacy is not a task that can be left to the talented scientists and technicians working in the lab. Policymakers have a crucial role to play in creating an environment that allows innovation to flourish.

Ross DeVol is the chief research officer of the Milken Institute and author of its recent study, The Global Biomedical Industry: Preserving U.S. Leadership.