More on Science Policy

This is a guest contribution from Luke O’Neill, in response to some of the criticisms levelled at his original Irish Times piece.  Thanks to Luke for submitting the comment:

Good to see the debate on Science funding in Ireland proceeds apace. 2 things- first I’m always surprised at being accused of having a vested interest. Of course I have a vested interest having been at this profession for 25 years and really believing in scientific research as an extremely important activity that should in part be funded by governments. Doesn’t everyone have a vested interest of some sort?

The second thing I get accused of is of not providing enough facts. Well there are so many facts out there when trying to measure ROI and its been going on for years and years with no absolute answer. The one conclusion that most countries draw is that it is a good thing for governments to support basic research. I guess in Ireland since the budget is tight the question is can we afford it or not? If we decide that we can’t afford it I think this would be very negative indeed but obviously many think it would not be negative, although what they want instead is not necessarily spelt out. The question then arises as to where a govt should put its money regarding science and technology. What would be good would be for there to be a debate on this and to compare the alternatives with agreed metrics.

Now as to the facts what follows is a series of pieces trying to establish these. I didn’t put many of these in the Irish Times piece I did because I wanted to keep the piece to a certain length and emphasise not only the economic benefits, important though they are.

The ROI ranges from as low as 10% to 40 fold and the whole problem is the assumptions being made when trying to establish the facts. So we can pluck whichever ones suit us, both to support our particular argument or use against another person’s view. Of course we could conclude that because there is no accurate measure, funding should not be given…but that might be viewed as being, dare I say it…crass. Anyway I would appreciate your opinion on each of the articles below. I can provide as many facts as are needed. I also finish with my non-economist’s view of why it’s important for governnments to support basic research.

1. First the 3 to 1 return is normally attributed to return on education (including educating PhD students) rather than research per se http://www.universityofcalifornia.edu/news/article/7685

2. On research this is an analysis of investment in Health research – which is narrower in focus ( just health) but broader in context ( not just basic research) – it estimates anything from 1.5 to 20X http://www.cmaj.ca/cgi/reprint/180/5/528.pdf
( the US Murphy KM, Topel RH. The economic value of medical research. Chicago (IL): University of Chicago; 1999. Available:
http://faculty.chicagogsb.edu/kevin.murphy/research/murphy&topel.pdf

3. This is a good balanced book on the topic: McClellan M, Heidenrich P. Biomedical research and then some: the causes of
technological change for heart disease. In: Murphey KM, Topel RH, edi ors. Measuring
the gains from economic research: an economic approach. Chicago (Il):
University of Chicago Press; 2003. p. 163-205.)

A comment from this book: “American investments in science and engineering have driven most of the innovations that underpin our economy today. A wide variety of studies conclude that between 50 and 85 percent of the growth of the U.S. economy over the past half-century-and two-thirds of our productivity gains in recent decades-are directly attributable to scientific and technological advances.”

http://science.house.gov/press/PRArticle.aspx?NewsID=2472

4. http://www.ostp.gov/galleries/testimony/holdren_senate_testimony.pdf

Some good analysis but no numbers on this one – makes the comment that it is too difficult to measure across all parameters http://www.nsf.gov/oig/hague_presentations/vincent.pdf

http://www.futureofinnovation.org/PDF/Benchmarks.pdf

5. A 40:1 return attributed to MIT is actually a quote from Hockfield and it refers to return in energy R&D across the board irrespective of institution – not exclusive to MIT just quoted by their president at the Whitehouse with the other president.
http://web.mit.edu/newsoffice/2009/hockfield-whitehouse-0323.html

6. Another good balanced account which does make the point that for smaller countries investing in basic research can be risky – we must however see Ireland as being in a global context (eg most of the investment into Opsona is from outside Ireland).

Return on Investment in Innovation: Implications for Institutions and
National Agencies*
Author: Heher, A.1
Source: The Journal of Technology Transfer, Volume 31, Number 4, July 2006 ,
pp. 403-414(12)
Publisher: Springer

From the Abstract:
Commercial success in universities in the USA and Canada has resulted in
many other countries taking steps to emulate this performance and major
technology transfer and commercialisation support programmes have been
launched in UK, Europe, Australia, Japan and many other countries‹including
South Africa. Unrealistic expectations have, however, been generated by the
spectacular successes of a relatively few institutions and it is not always
realised that the success from commercialisation is proportional to the
magnitude of the investment in research. Without a well funded, high quality
research system, it is not possible for technology transfer to make any
significant contribution to economic development. The possible economic
returns to higher education institutions from commercialisation of research
can be estimated using international benchmarks. This forecast uses a
combination of an institutional return on investment model and a simple
economic projection. The model is generic and can be adapted for use in any
institution. As more data becomes available from local (and international)
sources, the model will be refined to give better estimates. The model is
dynamic and shows, quantitatively, why it can take up to 10 years for an
institution, and 20 years nationally, to attain a positive rate of return
from an investment in research and technology transfer. The model enables
the long-term impact of policy decisions, in an institution and nationally,
to be examined and alternative scenarios explored. The performance of
individual institutions is, however, highly variable and unpredictable. This
is even for those institutions that are comparable in size and maturity. A
large portfolio of patents and licences is required to give a reasonable
probability of positive returns. This may be possible at a national level,
but is problematic in smaller institutions‹and smaller countries. Because
the benefits of the innovation system are captured largely at national
level, with institutions having a high uncertainty, public sector support to
reduce the institutional risk is necessary to assist institutions to make
the necessary investments. Technology transfer is of course only one element
of the overall research and innovation value chain. All elements must be
functioning effectively to derive the economic and social benefits from
research. In addition to a strong research system, adequate incentives must
exist to encourage academics to participate, particularly with regard to the
crucial initial step of invention disclosure. After disclosure, sufficient
institutional capacity must be in place to take an idea, evaluate it,
protect the intellectual property appropriately and then seek a path to
commercialisation through either licensing or start-up company formation.

7. Another good article:
What does society get for the billions it spends on science?

By Kerry Grens

Double research funding? Be careful

In 1930, the US Congress gave a group of scientists and administrators
$750,000 to start a new agency, the National Institute of Health. Over time,
“Institute” became “Institutes,” and appropriations grew. In 1938, the NIH
received $464,000 for research – roughly equivalent to $6.8 billion in
today’s dollars. This year, NIH will spend approximately $29 billion on
research. The National Science Foundation, founded in 1950, will spend
another $6 billion.

Each year, appropriations are passed around before ending up at a final
figure. For the 2006 NIH budget, the Federation of American Societies for
Experimental Biology (FASEB) requested $30.07 billion. President George Bush
requested $28.8 billion, the House approved $28.5 billion, while the Senate
wanted to appropriate $29.4 billion. Ultimately, NIH received $28.6 billion.

What formula directs such tweaking? With hundreds of billions of dollars at
their disposal for discretionary spending, and numerous other projects to
fund – including education and healthcare – how do presidents, lawmakers,
and their staff settle on what goes where?

For a recent example, I looked to the California Institute for Regenerative
Medicine, now run by Robert Klein, chair of CIRM’s Independent Citizens’
Oversight Committee. Several years ago, Klein was facing a big task:
Identify a figure that California voters would agree to pay for stem cell
research. Rather than start from scratch, Klein looked to the NIH. In 2003,
NIH was spending $220 million on stem cell research. Adjust for inflation,
stretch it out over 10 years, and you get $3 billion, a figure that 59% of
California voters approved.

NIH has some economic evidence to support what it does. In 2000, a report on
the benefits of NIH research by the Joint Economic Commission of the US
Congress found high economic returns from investing in research. In other
words, besides the obvious health benefits of NIH funding for biomedical
research, it also saves Americans money by lengthening their lifespan and
improving healthcare. In their meta-analysis of a number of economic
studies, the authors concluded that if even a minor fraction of the
healthcare savings from healthier, longer-living people were due to medical
research, the payoffs from that research would be many times the initial
investment.

Klein used the findings of this report to make a good case that taxpayers
would get something significant back from their investment, arguing that,
overall, federally-funded biomedical research pays back to the economy to a
considerable degree. This is another reason Klein chose to imitate NIH –
what the institutes spend is working. To gain voters’ approval, “it was
important to have a responsible economic plan that had been shown on a
portfolio basis to have some results,”

Klein says. The “Yes on 71″ campaign (based on CIRM’s proposal, called
Proposition 71) helped deliver the message to voters.

Initially, at least, some say the gamble California citizens agreed to take
will pay off. An economic impact report conducted by Bruce Deal at the
Analysis Group and Laurence Baker at Stanford University found that
Californians could expect returns of at least 120% to 236% on their
investment in stem cell research over thirty years. At the high end, if
Proposition 71 leads to “major advances in health care treatments,” the
authors say the state could get back more than seven times the cost of the
initiative.

If we get so much back from biomedical research, why not invest $30 billion?
$300 billion? Certainly there are limitations on how many dollars are
available to invest, as well as competing investments such as Medicaid and
education (on the state level), and the war in Iraq (on the national level).
But if science’s returns are so economically robust, why don’t we put more
into it?

“The issue is, are we underinvesting or overinvesting in life sciences
research?”
-Pierre Azoulay
Twenty-eight percent. This is the figure Edwin Mansfield, a now-deceased
economics professor at the University of Pennsylvania, obtained after
wrestling with an army of assumptions to pinpoint a likely return on
research payoffs.1 In 1991, Mansfield estimated that the rate of return on
investing in academic research (across all disciplines) was 28%, meaning
each dollar put into research would yield $1.28 in social and economic
benefits within about a decade.

As part of the study, Mansfield estimated that 27% of drug industry products
would not have been developed, except with significant delay, had academic
research been eliminated from the pipeline. James Adams, an economist at
Rensselaer Polytechnic Institute in Troy, NY, has been able to pick apart
some of the relationship between academic research and industrial
innovation. He surveyed the research and development laboratories of 200
companies to measure the amount they invest in learning about research at
universities, such as attending conferences, hiring and meeting with
consultants, and purchasing publications. On average, companies spent about
six percent of their research and development budgets on learning efforts,
and with each 10% rise in federal funding at universities, the learning
budget at companies rose by more than one percent.2

“What happens next is we found the learning share [of R&D budgets] to be
positively correlated with more patents,” Adams says. So when the federal
investment in university research increases, companies spend more money on
learning about academic research, and companies produce more patents, an
indicator of future economic impact. “There’s no question that [research] is
an incredibly large contributor to all advanced countries’ economies,” Adam
says.

Other groups agree. Looking at a group of 16 developed countries, Dominique
Guellec and Bruno van Pottelsberghe de la Potterie (former and current chief
economists, respectively, at the European Patent Office) found that when
publicly funded research at universities and government laboratories
increased by one percent, countries experienced a 0.17% increase in
productivity, measured as the ratio of industry’s domestic product to labor
and capital.3

Economists have also found that medical research can, not surprisingly, have
an enormous impact on human health, especially longevity. Kevin Murphy and
Robert Topel at the University of Chicago found that, from 1970 to 1990, the
economy earned $1.5 trillion each year solely from reductions in heart
disease death rates. “These values are truly enormous,” the authors write.
Though such changes could be due to improvements in public health or
lifestyle, “if even a small fraction of this improvement is due to medical
research, the economic return to that research could be substantial.”4

Often the relationship between science and savings is hard to tease apart. A
2003 study by the Europe-headquartered Organization for Economic Cooperation
and Development found that private R&D appears to have “high social
returns,” which includes economic benefits, but noted no clear-cut
relationship between publicly funded research and economic growth.5

Joe Cortright, an economist and vice president of Impresa, an analysis
company in Portland, Ore., has found that the benefits of federal academic
funding on biotechnology vary by region (see “The biotech contrarian.”) For
example, Johns Hopkins University receives the most federal money, but is
“not a particularly good performer in terms of commercialization,” says
Cortright. Likewise, Chicago, St. Louis, Houston, and Detroit are leading
research centers with little to show in terms of bringing their work out of
academia and into biotechnology companies.

Mansfield considered his estimate tentative and loaded with caveats, but
still conservative. For example, he looked at the impact of academic
research on only seven industries, and only as far out as 15 years. “Of
course, the roughness of this figure should be emphasized,” Mansfield wrote.

For every estimate of the returns on scientific investment, there are many
reasons why that estimate could be wrong. Each economic study of the impact
of science carries its own assumptions and other potential confounders.
“These claims can always be demolished,” says Terence Kealey at the
University of Buckingham, often because they are loaded with assumptions
that greatly affect the figure. For instance, Mans-field’s 28% does not
account for the cost of development, marketing, or the cost of building
factories, some of which could lower his estimate of the return on science
funding. “He’s assumed in some magical way that scientists do their research
and produce the facts and these instantly become products,” Kealey notes.

“There are all kinds of methodology and measurement problems,” agrees Iain
Cockburn at Boston University. Congress’ 2000 economic impact report on NIH,
for example, assumes the agency is responsible for about 10% of health
advances in the United States. “The question of what’s the rate of return to
NIH budget is fundamentally a very difficult one,” Cockburn says.

8. Interesting comparision between Europe and the US:
Study: Europeans beat Yanks at the R&D game
By John Carroll Comment | Forward
If you asked just about any biopharma exec on this side of the Atlantic if U.S. developers are more productive than their European colleagues, chances are you’d get a good laugh. Everybody knows that the Yanks are more productive than the Europeans, right?

A new study, though, might have you rethinking that bit of common wisdom. Stanford Professor Donald Light decided to take a second look at the data in a 2006 Health Affairs report which concludes that the U.S. developers did indeed bring more first-in-class drugs to market in the 21 years leading to 2003. Light found that if you looked at productivity based on R&D dollars spent, though, the Europeans actually come out ahead. The most productive based on R&D investments: The Japanese.

“It would appear that American research provides poorer value,” Light concludes in a Wall Street Journal piece. U.S. research productivity has been “low and flat in proportion to the large company investments in R&D, while the number of major new drugs credited to Europe is high and increasing in proportion to company investments. Why is American research performance not better?”

– read the story in the Wall Street Journal

Related Articles:
Money, money, money and medical innovation
Expert forecasts revolution in drug dev. work
Biotech’s value creation chain starts with research link
Deloitte sees ‘fundamental shift’ in drug dev. Strategies

Now from all the above you can pick and chose whichever facts you want depending on your own vested interest.

What I would say is this:

Let’s say a government invests $1m in research:

1. Universities spend a significant percentage on salaries in skilled labour
market, employees pay income tax and consumption related taxes and use local
services/purchase goods locally. It could therefore be argued that majority of
money recycles locally. (the direct economic value of a University to a
city should be measurable)

2. In many areas eg bioscience, engineering, physical sciences IT etc
research is co-funded by EU or Commercial sector, adding to the tax and
consumption returns above.

3. The percentage of research that enters development attracts more
commercial investment and creates new jobs.

4. Successful commercialisation leads to profits and more jobs and tax
returns.

5. In some sectors the products and skills developed have indirect economic
benefits eg health care- countries/regions/cities that research and develop
new treatments have a more skilled medical profession = better outcomes for
patients; and earlier access to improved treatments = better outcomes and
reduced disease burden on society.

6. Successful/trained/experienced people can be recycled to make the circle
of life more efficient.

Why government is essential to this process is that without it the large
volume of highly risky/speculative early research would not attract
investment, leading to vastly reduced choice at stage 2 and beyond and as
success in 3,4 and 5 is related to number of projects and availability of
6.you need govt to prime the process.

Bottom line is do we want Ireland to slip back to the times when our
creativity was restricted to the arts, financial engineering and emigration, or do we want a country that keeps
its scholarly heritage AND stimulates creative activity in emerging
scientific, technical, medical, cultural and commercial areas…

Answers on a postcard please…

Now back to my day job.

Luke