Chapter | Innovation Policy and the Economy, Volume 1 | 2001

Publicly Funded Science and the Productivity of the Pharmaceutical Industry

by Rebecca Henderson and Ian Cockburn


U.S. taxpayers funded $14.8 billion of health related research last year, four times the amount that was spent in 1970 in real terms. In this paper we evaluate the impact of these huge expenditures on the technological performance of the pharmaceutical industry. While it is very difficult to be precise about the payoffs from publicly funded research, we conclude from a survey of a wide variety of quantitative and qualitative academic studies that the returns from this investment have been large, and may be growing even larger. Public sector science creates new knowledge and new tools, and produces large numbers of highly trained researchers, all of which are a direct and important input to private sector research. But this is not a one way street: the downstream industry is closely linked with upstream institutions, and knowledge, materials, and people flow in both directions. One important contribution of public science is that it sustains an environment in which for-profit firms can conduct their own basic research, which in turn contributes to the global pool of knowledge. Measured quite narrowly in terms of its effect on private sector R&D, the rate of return to public funding of biomedical sciences may be as high as 30% per year. Large as this figure is, these calculations are likely an underestimate, since they fail to fully capture the wider impact of pharmaceutical innovation on health and well-being. Indeed, the best may be yet to come: the revolution in molecular biology that began in publicly funded laboratories 25 years ago—and continues to be driven by the academic research—promises dramatic advances in the treatment of disease.

Keywords: Public Sector; Science-Based Business; Research and Development; Sovereign Finance; Pharmaceutical Industry;


Henderson, Rebecca, and Ian Cockburn. "Publicly Funded Science and the Productivity of the Pharmaceutical Industry." In Innovation Policy and the Economy, Volume 1, edited by Adam B. Jaffe, Josh Lerner, and Scott Stern, 1–34. MIT Press, 2001.