Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 32
Funding for Health Sciences Research
The United States is widely recognized as the world's greatest investor
in health sciences research. Of the estimated $132 billion invested in all
research and development (R&D) in the United States in 1989, $20.6
billion was health related (Figure 2-1~.~2 In this country health research is
funded by three autonomous yet interlocking sectors: (1) federal, state, and
local governments; (2) industry; and (3) private nonprofit organizations. In
1988 the federal, state, and local governments supported slightly more
than half (51 percent) of all health-related R&D in the United States. Of
the remainder, industry supported about 45 percent, and private nonprofit
organizations supported about 4 to 5 percent (Figure 2-1~. This ratio has
changed slightly over the past decade, while the nation's investment in
health research has tripled in current dollars (Figure 2-2~. In inflation-
adjusted dollars the investment has grown by 65 percent during this time
(Figure 2-3~.
Before World War II, however, the federal government did not invest
heavily in life sciences R&D. Most federal support for biological research
was sponsored by the Department of Agriculture through block grants to the
land-grant colleges. Projects sponsored by these funds were targeted toward
the applied life sciences of agriculture and forestry, with few provisions for
basic biological research. Additionally, geographical criteria were employed
as the primary means to disburse these funds.
During this same period, health research was sponsored primarily by
industry, academic institutions, and private individuals.3 In fact, of the
~,, ~.
32
OCR for page 33
RESEARCH FUNDING
Other R&D
$111
- _Health R&D
$21
Nonprofit 4%
llndustrv 45%
Total U.S. R&D Source of U.S. Health
$132 Billion R&D Funding
FIGURE 2-1 Estimated U.S. research and development expenditures for 1989.~2
100%
80%
60%
40%
20%
0%
77 78 79
33
80 81 82
83 84 as
YEAR
NIT ~ Other Public ~ Industry
86 87 88 89
F.........
~ 1 Nonprofit
FIGURE 2-2 Source of U.S. support for health research and development from 1977 to
1989.2
estimated $45 million spent on biomedical research in 1940, industry con-
tributed 55 percent or about $25 million. Approximately 26 percent ($17
million) came from philanthropy, either through earnings on institutional
endowments or grants from foundations. The federal government's invest-
ment that year totaled $3 million-about 15 percent of the total, most
of which was spent in its own laboratories. Some university-based inves-
tigators eschewed governmental support, fearing the loss of intellectual
freedom and undue influence on their research.4
During World War II, basic research in the sciences made significant
contributions to the success of the war effort. In 1945 Vannevar Bush, then
OCR for page 34
34
25
20
1 5
10
5 _
O 1 1
77 78 79
- -
FUNDING HEALTH SCIENCES RESEARCH
DOLLARS (Billions)
F -
80 81 82
~+~ Current $
83 84 85 86
YEAR
Constant 1988 $
87 88 89
FIGURE 2-3 Total U.S. support for health research and development from 1977 to 1989.
(Appendix Able A-1)
head of the Office of Scientific Research and Development (OSRD), formu-
lated a set of proposals intended to sustain the nation's war-time research
momentum and direct it toward civilian goals. His report to the President,
entitled "Science, the Endless Frontier," proposed a coordinated federal
policy of investing in research and training new researchers.5 The policy
was to be driven by scientific merit rather than by political or geographical
interest. Subsequently, Bush and his colleagues in OSRD established a
system by which grants and contracts were awarded to institutions based
on scientific merit, and this approach became the cornerstone of the peer-
reviewed, academically based system now in place for federally sponsored,
competitive extramural research grant programs.
In the two decades following the war, several pieces of legislation
changed the organization and conduct of scientific research in the United
States. The federal government became the largest single sponsor of health
research and about three fifths of these funds now come from programs in
the Department of Health and Human Services (DHHS), namely those in
the Public Health Service (PHS).2 Within the PHS the National Institutes
of Health (NIH) and the Alcohol, Drug Abuse, and Mental Health Ad-
ministration (ADAM HA) allocate the largest percentage of federal funds
for health-related research (Figure 2-4~. Research funds in DHHS also are
allocated to the Centers for Disease Control; the Health Care Financing
OCR for page 35
RESEARCH FUNDING
35
Other 19%
\\\\\\\: ADAMHA-5-%-
~ Other HHS 3°/O
$9.2 Billion
Other 5.5
NSF 1.2
DOE 2.4
IVA 27
FIGURE 2-4 Source of federal support for health research and development for 1989.
(AppendLx Able A-1)
Hicher Education
54%
State and Local
1%
Foreign
1%
Other
Nonprofit
13%
Industry
5%
Federal Laboratories
26%
FIGURE 2-5 Distnbution of federal health research funds for 1989.2
Administration; the Health Resources and Services Administration; the
Food and Drug Administration; the Office of Health Research, Statistics,
and Technology; and the Once of the Assistant Secretary for Health in
the PHS. Other federal departments and agencies have budgets for health
sciences research as well most notably, the Departments of Defense, En-
ergy, and Veterans Affairs, and the National Science Foundation (NSF)
(Figure 2-4~.
Unlike most other countries where government-sponsored research is
conducted in government laboratories, two-thirds of federally sponsored
health sciences research in the United States is conducted in institutions
of higher education (colleges and universities), research organizations, and
hospitals, and approximately one-quarter is performed in federal labora-
tories (Figure 2-5~. Whereas the majority of industrial health sciences
research is performed within corporate facilities, only a small fraction of
federally sponsored research is performed in private industrial laboratories.2
The broad array of research sponsors and the decentralized nature of
OCR for page 36
36
FUNDING HEALTH SCIENCES RESEARCH
research efforts by thousands of individual health researchers are recognized
widely as the key advantages to the U.S. approach to health research and
as the means by which it has flourished over the past four decades. In this
type of system the individual scientist is recognized as the most important
element in determining scientific priorities. This has been accomplished
primarily by scientists by serving on merit review panels and advisory
groups. Currently, there are more than 2,000 nonfederal scientists serving
on peer review study sections and advisory groups in the NIH alone.6
Whereas the federal government along with other sponsors of research has
been highly supportive of these peer review mechanisms and has provided
financial resources for performing the research, many of the benefits of
health research could not have been realized without a well-trained cadre
of scientists.
Despite the success of the health research enterprise, the system
has become stressed increasingly in recent years for many reasons. Most
significant is the concern over growing federal debt and recent legislation
attempting to reduce the huge annual federal budget outlays. Recent
attempts to reduce federal deficits have increased the competition for
scarce funds for all federally financed programs. Unfortunately, funds
from states and private sector sources have been unable to compensate
for the slower growth of available federal funds, especially support for
fundamental health sciences research. The increasing competition among
worthy projects has required making difficult choices, often resulting in
concessions to short-term needs rather than longer-term investments.
This study committee was created out of a concern that these short-
term choices have helped create an imbalance in the support of research
projects, personnel, and the facilities and equipment needed for research.
The committee examined the allocation policies of the primary sponsors
of health research and the contributions to the scientific decision-making
process by all concerned parties. This chapter overviews the funding of
health research by the various sponsors and reviews policies affecting the
allocation of these resources. The subsequent chapters examine more
closely the sources and uses of funds for talent development, research
projects, facilities and equipment, and processes for matching scientific
priorities with political and fiscal realities.
FEDERAL SUPPORT FOR HEALTH SCIENCES R&D
NIH and ADAMIlA
Before World War II nearly all federally sponsored health research was
conducted in the government's own laboratories. The precursor to NIH,
the Laboratory of Hygiene (later renamed the Hygienic Laboratory), was
OCR for page 37
RESEARCH FUNDING
37
established out of the Marine Hospital Service in 1887 and was designated
the National Institute of Health in 1930. Its role was expanded over
the following decade to include public health advisory functions. The
National Cancer Act of 1937 empowered the Surgeon General to administer
extramural grants-in-aid for cancer research and provide fellowships to
train scientific personnel. The Public Health Service Act of 1944 made
NIH a separate entity in the PHS and empowered NIFI to support research
on diseases other than cancer through extramural grant and fellowship
programs. The NIH Research Grants Office, forerunner of the Division of
Research Grants, was created In 1946 to administer a program of extramural
awards.
In 1953 the PHS was reassigned to the newly created Department of
Health, Education, and Welfare, and the scope of NIH's responsibilities
began to change.7 In 1956 the National Library of Medicine Act created
the National Library of Medicine (NLM) out of the Armed Forces Medical
Library, and the Health Research Facilities Act was passed the same year,
authorizing a program of matching funds to be administered through NIH
for constructing health sciences research facilities. Growing appropriations
under this new NIH construction authority were responsible for the major
research building projects that expanded the research infrastructure In the
United States from the late 1950s to 1970.
In response to new scientific opportunities in the health sciences,
Congress increased funding for scientific research dramatically between
1945 and 1970, when appropriations for NIH rose from $26 million to
$4.8 billion in constant 1988 dollars* (Figure 2-6~.7 Congress also added
numerous categorical institutes to NIH during that time, reflecting efforts
of special interest groups to target research on specific organ groups and
illnesses. However, the rate of growth in funding for health sciences
research slowed after 1965 in the wake of increased expenditures for the
domestic human service initiatives of the Johnson administration and the
Vietnam War.8
Despite this declining rate of budgetary growth, NIH continued to
expand its role in the health sciences and underwent various reorgan~
lions during the 1960s and 1970S.7 In 1967 the National Institute of Mental
Health (NIMH) was removed from NIH and established as a separate bu-
reau within the PHS. Following this, in 1973, the recently created National
Institute of Alcohol Abuse and Alcoholism (NIAAA) and the National
Institute of Drug Abuse (NIDA) were merged with NIMH to form the
*All constant dollar figures in this text use the biomedical R&D price index developed by the
Commerce Department for NIH. Although there are minor differences between the deflators
for the intramural and extramural indices, only the combined deflator is used for all calculations.
OCR for page 38
6
4
2 _
0-`
45 50 55 60 65 70
YEAR
-
38
FUNDING HEALTH SCIENCES RESEARCH
DOLLARS (Billions)
-
,+
75 80 85 90
Constant 1988 $ ~+~ Current $
FIGURE 2-6 NIH appropriations from 1945 to 1990. Note: Constant dollars are calculated
using the Biomedical Research and Development Price Index (BRDPI). (Appendix Table
A-2)
ADAMHA. Also, during the 1970s, two institutes were elevated to bureau
status within NIH, reflecting congressional emphasis on cancer and heart
disease, and the National Institute of Aging was created because of an
increasing desire to understand the aging process.
Inflationary pressures in the 1970s reduced the purchasing power of
research funds, fostering the academic community's perception that the
financial base of federal research support was eroding.9 In response, the
director of NIH advised Congress to stipulate the minimum number of
new and competing research project grants that NIH would be required
to support with its annual appropriations. This policy became known as
"stabilization." Beginning in fiscal year 1981, NIH and ADAMHA were
required to support 5,000 and 569 research project grants, respectively.
Increasing target numbers were proposed for subsequent years but were
negotiated between the administration and Congress during the annual
federal budget process. Nonetheless, the appropriations for NIH grew
steadily over the past decade (Figure 2-7~. With the exception of 1982,
NIH has realized a growth, after adjustments for inflation, of about 2
percent per year. Appropriations for ADAMHA, although they dropped
in the early 1980s, had real growth in the research portion of the budget
OCR for page 39
RESEARCH FUNDING
39
throughout the 1980s (Figure 2-8~.~° The research budgets for NIH and
ADAMHA are covered in more detail in Chapter 4.
Over the past decade a variety of new laws and regulations have been
enacted, affecting how federal research agencies carry out their missions and
how they interact with industry, universities, and other extramural research
institutions. For example, the Stevenson-Wydler Act (P.L. 96-480), passed
in 1980, mandated that all agencies with R&D budgets allocate 0.5 percent
of their research funds to industry or universities for technology transfer.
In 1980 the Small Business Patent and Procedure Act (P.L. 96-517) made it
possible to transfer patent rights derived from federally supported research
to small businesses, universities, and certain nonprofit organizations.
The Small Business Innovation Development Act of 1982 established
a program to grant federal research funds to for-profit businesses by all
federal agencies with more than $100 million budgets for R&D.7 This
legislation called for a phase-in of the program over 4 subsequent fiscal
years-from 1983 to 1986. Currently, all federal agencies awarding ex-
tramural research funds must allocate 1.25 percent of their annual R&D
appropriations through this program.
The Federal Technology Transfer Act (P.L. 99-502) of 1986 encouraged
additional government-indust~y collaboration. This legislation promotes
technology transfer by authorizing government laboratories to enter into
10
9
8
7
6
5
4
3
2
1
DOLLARS (Billions)
-
.~.
77 78 7980 81 82 83 84 85 86 87 88 89 90 91
YEAR
- Constant 1988 $ -I- Current $
FIGURE 2-7 NIH appropriations from 1977 to 1991. Note: Figures for 1991 are derived
from the President's proposed 1991 budget. (Appendix Table A-2)
OCR for page 40
2000
1 500
1 000
500
40
DOLLARS (Millions)
3000
2500
FUNDING HEALTH SCIENCES RESEARCH
. .. ..
\
o
77
,:
~-
_,
i,/
7
-
~ . , .
1 1
78 79 80 81 82 83 84 85 86 87 88 89 90 91
YEAR
Constant 1988 $ -+-- Current $ * Research Funds
FIGURE 2-8 ADAMHA appropriations Tom 1977 to 1991. Note: Figures for 1991 are
derived from the President's proposed 1991 budget. (Appendix liable A-2)
cooperative research and economic development agreements with other
federal agencies, state and local governments, and for-profit and nonprofit
organizations. Thus, companies now have unprecedented access to the
research results from government laboratories upon which they can obtain
exclusive licensing rights for development.
Centers for Disease Control
The primary mission of the Centers of Disease Control (CDC) is to
assist state and local health authorities and other health-related organi-
zations in stemming the spread of communicable diseases, protecting the
public from other diseases or conditions amenable to reductions, providing
protection from certain environmental hazards, and improving occupational
safety and health. Additionally, the CDC is responsible for licensing of clin-
ical laboratories engaged in interstate commerce, for conducting foreign
quarantine activities aimed at preventing the introduction of disease into
the United States, and for developing scientific criteria for occupational
health hazards. About nine-tenths of CDC's budget is allocated to the
nonresearch portion of its mission, predominantly through block grants to
states (Figure 2-9~.
Of the $982 million appropriated to CDC in fiscal year 1989, only
OCR for page 41
RESEARCH FUNDING
IP 15% STD 8%
PHSBG 9%
ED 7%
ES 6%
NCHS 5%
~--= 1 ~
AIDS 39% i/ NIOSH 7%
Percent of CDC Budget
100
80
40
41
FIGURE 2-9 Distribution of
budget for the Centers for Dis-
ease Control for 1989.~4 (Key: IF
= immunization program; STD
= sexually transmitted diseases;
PHSBG = preventive health ser-
vices block grant; ED = environ-
mental diseases; ES = epidemic
services; NCHS = National Cen-
ter for Health Statistics; NIOSH
= National Institute for Occupa-
tional Safety and Health; AIDS =
acquired immune deficiency syn-
drome; and ID = infectious dis-
eases)
CONSTANT 1988 DOLLARS (Thousands)
o
84 85 86 87
88 89
YEAR
1 - NIOSH ~ OTHER CDC
FIGURE 2-10 Research allocations for the Centers for Disease Control from 1984 to
1989. (Appendix Table A-3)
about 10 percent ($100.6 million) was obligated for health research. In
constant 1988 dollars, research funds at CDC grew from $56.6 million
to $95.5 million between 1984 and 1989 (Figure 2-10~. Increases were
greatest in fiscal years 1987 and 1988, when research funds grew by 18.8 and
26.8 percent, respectively, in constant dollars. These increases coincided
directly with the increasing national emphasis on research into human
immunodeficiency virus (HIV) infection.
The National Institute of Occupational Safety and Health (NIOSH) is
the primary research arm of the CD C. NIOSH conducts research; develops
OCR for page 42
42
FUNDING HEALTH SCIENCES RESEARCH
criteria for occupational safety and health standards; and provides techni-
cal services to government, labor, and industry, including training in the
recognition, avoidance, and prevention of unsafe or unhealthful working
conditions and the proper use of adequate safety and health equipment.
Through these various mechanisms, NIOSH tries to reduce the high eco-
nomic and social costs associated with occupational illness and injury.
Obligations for research funded by NIOSH grew only slightly between 1984
and 1987, and declined in the following 2 years (Figure 2-10~. Of the
$70.4 million appropriated to NIOSH for fiscal year 1989, $24.7 million was
committed for research and about $10.1 million was obligated for training.*
The CDC has been a leader in the nation's efforts to prevent and
control the spread of HIV infection, managing a comprehensive HIV pre-
vention program that includes surveillance; epidemiologic and laboratory
studies; and prevention through information, education, and risk reduc-
tion. Appropriations for AIDS activities for fiscal year 1989 were $382.3
million 39 percent of the CDC budget. The research portion of this
allocation was $44.6 million for epidemiologic and laboratory studies to
determine the natural history of the disease and to gain more knowledge
about transmission of HIV In fact, research funds allocated to other parts
of CDC have grown much faster than those in NIOSH (Figure 2-10~.
Another part of the CD C, the National Center for Health Statistics
(NCHS), is responsible for collecting, maintaining, analyzing, and dissemi-
nating statistics on the health, illness, and disability of the U.S. population
and on the impacts of these factors on the economy. Although this function
is not classified under research, it is an ancillary service for epidemiological
studies utilizing the data base. NCHS also is responsible for collecting
nonhealth data on births, deaths, marriages, and divorces. For fiscal year
1989, $49 million dollars was appropriated to NCHS.
Office of the Assistant Secretary for Health
In the past, appropriations for the Office of Assistant Secretary for
Health included funds for the National Center for Health Services Research
and Health Care Technology Assessment (NCHSR). The center was the
focal point within the federal government for research on the health care
delivery system and examined problems in the organization, delivery, and
financing of health care services. It was also within the center's purview
to coordinate health services research in the PHS and to disseminate the
*There is a discrepancy between the NIOSH appropriations for research in the conference re-
port from Congress ($60.5 million for fiscal year 1989) and the information received directly from
CDC, which reported only $24.7 million.
OCR for page 51
RESEARCH FUNDfNG
TABLE 2-1 Distribution of U.S. R&D Expenditures for Ethical Pharmaceuticals by
Function, 1987 (dollars in millions)
51
Function
Amount Percent
Clinical evaluation:
phases I,II,III
Biological screening and
pharmacological testing
Synthesis and extraction
Pharmaceutical dosage formulation
and stability testing
Toxicology and safety testing
Process development for manufacturing
and quality control
Clinical evaluation: phase IV
Regulatory, IND and NDA preparation,
submission and processing
Bioavailability studies
Other
TOTAL
$1,296.0 24.0
907.2 16.8
556.2 10.3
491.4
448.2
507.6
237.6
194.4
162.0
599.4
5,400.0
9.1
4.4
3.6
3.0
11.1
100.0
Reprinted with permission. Pharmaceutical Manufacturers Association. 1989. Annual
Survey Report of the U.S. Pharmaceutical Industry, 1987-1989. Washington, D.C.
recent understanding of genetics, recombinant DNA, cell fusion, and novel
bioprocessing techniques have become known as "new biotechnology."
Although the demarcation between old and new is somewhat cloudy, the
committee focused only on the latter. (It also should be noted that not all
biotechnology is in the realm of biomedical science.)
The federal government is the primary source of R&D funds for
biotechnology; most funds come from NIH. NIH reported that nearly 22
percent or $1.02 billion of its 1988 R&D budget was allocated to research
on developing biotechnology techniques or employing the technology. The
size of the NIH investment in biotechnology reflects the importance of
molecular genetics in biomedicine.
The OTA conducted two surveys of biotechnology firms in 1987. Of
the 296 dedicated biotechnology firms contacted in the first survey, 63 (21
percent) were involved with human therapeutics and 52 (18 percent) were
conducting R&D in diagnostics. In the second survey of 53 large, diver-
sified companies investing in biotechnology, 20 were performing R&D in
human therapeutics and diagnostics. Overall, OTA estimated that, as of
OCR for page 52
52
FUNDING HEALTH SCIENCES RESEARCH
January 1988, 403 dedicated biotechnology firms and more than 70 major
corporations were investing in biotechnology. OTA estimated further that
the total investment by industry was between $1.5 and $2.0 billion per year.
The NSF surveyed corporations engaged in biotechnology research
as a pilot study for future investigation of industrial R&D in emerging
technologies.20 In 1986 and 1987 the NSF sent questionnaires to firms
expected to spend at least $1 million annually on biotechnology R&D. A
total of 54 firms responded to both surveys a total estimated to account
for half of all industrial investment in biotechnology R&D.2i These 54
companies increased their R&D investments by 20 percent In 1985 but by
only 16 and 12 percent, respectively, in 1986 and 1987. Although these firms
showed a slowing rate of growth for R&D investment, their expenditures
as a percent of sales continued to surpass those of industry overall. The
NSF estimated that industry invested $1.4 billion in biotechnology R&D in
1987.
General fiends
From 1985 through 1987, Business Week reported both sales and R&D
expenditures for 38 health care companies in its R&D scoreboard. These
firms have continued to increase their rate of investment in R&D from
12 percent in 1986 to 16 percent in 1987. These rates exceeded industrial
averages by 2 percent in 1986 and 9 percent in 1987. In addition, the
health care firms' ratio of R&D investment to sales surpassed the average
industrial ratio by more than 4 percent.
The NSF survey estimated that the biotechnology industry spent $1.4
billion on R&D in 1987 and that pharmaceutical manufacturers invested
nearly $5.4 billion in the same year. This suggests that industries contribu-
tion to biomedical R&D is comparable to the total NIH budget. NIH staff
members have estimated that industry is the most rapidly growing sector
of health R&D and that the aggregate industrial investment in biomedical
R&D has exceeded the NIH budget since 1982. In fact, the PMA has
reported that the combined total R&D expenditures of its member firms
exceeded the NIH budget in 1989.~8
Recently, it appears that the growth of industrial investment in R&D
has begun to level off. This slower growth has been attributed to mergers
that force corporations to cut costs, to economic troubles in some indus-
tries' and to other pressures to show short-term profits.~4 Additionally, a
reduction in tax credits for incremental increases in R&D investment may
have caused some firms to trim their R&D expenditures. The NSF and
PMA surveys suggest that growth of industrial investment in biomedical
R&D has plateaued. This could indicate that the field of biotechnology
OCR for page 53
RESEARCH FUNDING
53
has begun to mature or that firms engaged in biomedical R&D are not
immune to the economic pressures facing all U.S. corporations.
Legislation Affecting Corporate R&D
In the past decade the federal government helped industry strengthen
its associations with universities. For example, the NSF developed special
research centers to foster collaboration between universities and corpora-
tions.~i In addition, the antitrust law was relaxed so as to permit companies
within the same industry to form nonprofit research consortia, such as
Sematech.
The 1981 Economic Recovery Fix Act provided a tax credit for in-
cremental increases in R&D spending to foster additional investment and
stimulate technology transfer. In a recent report, the General Accounting
Office estimates that the tax credit stimulated between $1 billion and $2.5
billion of additional R&D between 1981 and 1985. However, the cost was
estimated to be $7 billion in foregone tax revenues.22 While these costs
seem high, the societal benefits derived from the research may be much
higher.
The law expired in 1985 but was renewed in 1986. However, the
renewal trimmed the tax credit from 25 to 20 percent of investment and
added restrictions to the types of research that qualified for the credit.
Also, the 1986 renewal included a 20 percent credit for industry-supported
research conducted at universities and other academic institutions.
The credits, set to expire in 1988, again were extended through 1989
and although companies still could receive a 20 percent tax credit, they
had to reduce the R&D expenses they deducted on their tax returns by
an amount equal to half of the earned credit.23 New bills introduced into
the House and Senate continue this provision. President Bush, who favors
making the tax credit permanent, is supporting a provision for companies
to subtract 100 percent of the tax credit value from their declared R&D
expenses. The administration also would like to allow start-up companies
to carry earned credits forward 15 years, for these companies generally do
not earn taxable profits in their early years and therefore cannot benefit
from the present law.
The Technology Transfer Act of 1986 was intended to facilitate more ac-
tive collaboration between industry and federal agencies involved in R&D.
Although this legislation was intended in part to respond to the steadily
rising costs of health care, the legislation actually dampened enthusiasm for
these collaborations between some corporations and NIH. Pharmaceutical
firms are displeased particularly because of the government's insistence
on imposing price controls for 10 years after development on new drugs
developed cooperatively.
OCR for page 54
54
FUNDING HEALTH SCIENCES RESEARCH
University-Industry Cooperation
In 1986 industry contributed approximately 5 percent to overall support
for academic research. Despite increasing academic research funding from
industry since then, industry investment is not expected to exceed 7 to 8
percent of university research budgets. The mechanisms of this industrial
support for academic research span the spectrum, from small, unrestricted
gifts and contract research to highly organized cooperative ventures.
Many issues are involved when cooperative ventures between uni-
versities (or government) and industry are established. Differences exist
between the cultures of corporations and universities, the most notable
being freedom of information. For instance, in-house corporate research
is proprietary information, but similar secrecy and publication constraints
in a university setting can threaten the very essence of university freedom.
Despite these differences, however, a number of cooperative ventures have
succeeded in the past decade. Reconciliation between the goals and ex-
pectations of industry and academe has been and remains crucial to their
success. When successful, these cooperatives provide a unique technol-
ogy transfer mechanism, one of the federal government's key policies for
increasing U.S. economic competitiveness.
An example of successful industrial support of university research is
the Monsanto Corporation's collaborative research effort with Washington
University on the peptides and proteins that regulate cellular function and
communication. Monsanto initiated the arrangement in 1982 to support
research in an area in which it did not have in-house expertise. The
firm provides a pool of funds for grants to Washington University faculty,
with 30 percent allocated to basic research and 70 percent to projects
that may result eventually in the development of commercial products.
Research results are made public, and Washington University holds patents
on products created by the research. Monsanto reserves both the right to
view results for 30 days before submission for publication and the right
of first refusal for exclusive licensing to develop products. Under this
arrangement, Monsanto is expected to have provided the university with
$62 million for research by 1990.~6
NONPROFIT ORGANIZATIONS
During the nineteenth and the first half of the twentieth centuries, pri-
vate nonprofit foundations constituted a primary source of funds for health
sciences research. Many early foundations were established to benefit par-
ticular institutions or to address specific social or health problems. These
foundations' assets were derived generally from an individual's or family's
gifts. During the twentieth century, voluntary health agencies, which are
OCR for page 55
RESEARCH FUNDING
55
referred to also as operating foundations, have proliferated. Additionally, a
special type of nonprofit organization the medical research organization
has developed, such as the Howard Hughes Medical Institute.
Each of these types of organizations differs in its mission, governance,
and mechanisms of support. Although these organizations comprise a
limited portion of health sciences research support, they are vital to the
nation's research enterprise because of their flexibility and their dedication
to curing human disease and suffering. The NIH estimated that private
nonprofit organizations contributed about $700 million (or about 4.3 per-
cent of the total), to health R&D in 1988.2 However, this figure probably
underestimates the role of philanthropy in health sciences research by ex-
cluding endowed professorships and donations for facilities and equipment.
Another estimate has placed philanthropy at nearly one-quarter of a typical
institution's budget for biomedical R&D.4
Foundations
In the early l900s the philosophy of foundation philanthropy began to
change, becoming less restrictive as broad charters were given to the boards
of directors of such newly formed foundations as the Rockefeller and Rus-
sell Sage Foundations and the Carnegie Corporation of New YorL4 These
charters allowed the directors to focus their foundation's philanthropy in
ways they believed would provide the greatest social benefit rather than
at specific problems. At the same time, community foundations were be-
ginning to form in cities around the United States. Unlike independent
foundations, these community foundations relied (and continue to rely) on
charitable contributions.
Fix law changes in the mid 1930s allowed corporations to deduct char-
itable contributions and fostered the formation of corporate foundations to
serve as the primary philanthropic arm of companies. Presently, there are
more than 400 company-sponsored foundations actively involved in grant
support, and they provide more than $2 billion per year to all scientific
areas, including the health sciences.
Since World War II, federal investment in health sciences research
has eclipsed that of foundations, but foundations still play a vital role in
the research enterprise, augmenting federal funding for health sciences
research. However, some foundations that support health-related activities
may not support research directly; rather, they support talent development
or facilities. Also, some foundations that previously supported research no
longer do so. Nonetheless, foundations, in general, have provided crucial
support in filling gaps in the research agenda that have not been addressed
appropriately or profitably by government or industry.
OCR for page 56
56
FUNDING HEALTH SCIENCES RESEARCH
Currently, private foundations provide a great variety of support mech-
anisms for health sciences research. Few of these foundations conduct
in-house research, most believing that extramural research provides the
most efficient use of funds. Common types of foundation support include
individual research project grants, predoctoral and postdoctoral fellowships,
equipment grants, publication expenses, special library collections grants,
and sponsorship of conferences or workshops. Large, independent founda-
tions contributing to health sciences research include but are not limited to
the following: the Lucille P. Markey Must, the Pew Charitable [lusts, the
Duke Endowment, the Commonwealth Fund, the Alfred P. Sloan Founda-
tion, the John ~ Hartford Foundation, the Henry J. Kaiser Family Foun-
dation, the Robert Wood Johnson Foundation, the John D. and Catherine
T. MacArthur Foundation, and the Andrew W. Mellon Foundation.4
The mechanisms for priority setting vary among foundations-company
sponsored as well as independent. In some instances, funding decisions are
made through personal contacts or because of interest in a specific disorder.
Large, independent foundations may form advisory committees to deter-
mine areas of emphasis; proposals also may be subjected to a peer review
process similar to that used by NIH. Smaller foundations may not plan pro-
gram initiatives but rather may fund the best unsolicited proposals received
in a given time period. The extent of foundation support for health sci-
ences research varies from year to year, depending on the relative timing of
costly initiatives. Also, company-sponsored foundations frequently restrict
support in communities in which the company has operations and in pro-
grams that may affect its employees directly. Several committee members
believe that corporate charity is becoming more closely tied to individual
employee charitable giving, with corporate donations often matching the
employee's contributions. This diminishes the size of corporate gifts to
academic institutions for research purposes.
Tax laws and the economic environment affect foundation contributions
to all areas, including the health sciences. Until 1969 there were few
specific federal regulations pertaining to foundations. Modifications to the
Internal Revenue Code in that year, however, changed the rules regarding
organizations classified as private foundations by federal tax law. Included
in the changes were restrictions on self-dealing and limitations on business
ownership. Now, all foundations with assets exceeding $s,oCo must file
an annual report with the IRS, listing all of the principal officers of the
foundation, its total assets and investments, and every grant made in that
year.
Prior to the Ax Reform Act of 1976, a foundation's annual giving
requirements were based on whichever was greater: adjusted net income
or a variable percentage of the market value of investment assets. The 1976
act fixed the giving requirements at 5 percent of market value assets or net
OCR for page 57
RESEARCH FUNDING
57
income, and it eliminated the variable percentage method. Private foun-
dations were being charged a 4 percent excise tax on their net investment
until 1978, when the law reduced the tax rate to 2 percent. The Economic
Recovery Tax Act of 1981 changed the giving requirements again to equal
a flat 5 percent of market value of assets per year. These tax law changes
have contributed to the growth of foundation giving in recent years.
Since giving requirements are tied directly to the market value of
foundation assets, the economy has a significant effect on total giving. In
periods of high inflation, such as that experienced in the late 1970s, founda-
tions actually lost assets when measured in constant dollars. However, the
bull markets and low inflation rates of the 1980s helped increase the value
of foundation assets and subsequently increased contributions to health
research.
Voluntary Health Agencies
Voluntary health agencies (often referred to as operating foundations)
are private charities supported primarily by public donations. There are
now perhaps as many as 200 national and regional organizations actively
supporting health research. Many of these organizations were founded by
the families and friends of individuals suffering from a particular disease.
These voluntary health agencies, such as the American Cancer So-
ciety and the American Heart Association, play critically important roles
in advancing their areas of interest. With activities that include public
awareness and education, patient referrals, continuing education for health
professionals, grants for research and training, and lobbying to increase
federal funding for disease-specific research. However, it should be noted
that not all disease-specific organizations support research, and of those
that do, most do not conduct in-house research.
The six largest voluntary health agencies (in terms of revenues) are,
in descending order, the American Cancer Society, the American Heart
Association, the March of Dimes-Birth Defects Foundation, the Muscular
Dystrophy Association, the National Easter Seal Society, and the American
Lung Association. These six organizations reported combined expenditures
for disease-related research of more than $250 million in 1988.* Since these
organizations rely on voluntary contributions, they are not able to make
long-term commitments to research efforts. However, they are effective in
responding rapidly to new research initiatives and in providing resources to
scientists to develop new lines of investigation.
The voluntary health agencies also can play a very critical role in the
* Figures were obtained from 1988 annual reports.
OCR for page 58
58
FUNDING HEALTH SCIENCES RESEARCH
early stages of many individuals' scientific career development. Through
funding mechanisms such as fellowships and career development awards,
these organizations attract young researchers to a specific field and provide
them with research funding before they are able to compete successfully for
federal support. Grant awards from these organizations commonly range
between $20,000 and $50,000.
Voluntary health agencies also act as lobbyists for increases in disease-
specific funds for NIH. These organizations increase public awareness of
the need to fight particular diseases and solicit grass-roots support for
more federal research funds, and they also have been very influential in
establishing new institutes at NIH.
Medical Research Organizations
Medical research organizations (MRO), such as the Howard Hughes
Medical Institute (HHMI) and the J. David Gladstone Foundation Labora-
tories for Cardiovascular Disease, conduct medical research in conjunction
with hospitals. By law, these types of organizations must spend 3.5 per-
cent of their endowments on medical research annually. The Gladstone
Foundation is a relatively small medical research organization with assets
estimated at $118 million and is affiliated with the University of California
at San Francisco.
On the other extreme, the largest MRO is HHMI with assets in excess
of $6 billion. In recent years HHMI has become the largest single private
nonprofit contributor to biomedical research. Currently, HHMI's total
investment in biomedical research is comparable to the budget of a small
institute within NIH, with expenditures totaling $238.4 million in 1989. The
trustees have designed the institute's program to complement NIH activities
within a few selected areas of research: cell biology and regulation, genetics,
immunology, neuroscience, and structural biology. A 10 member medical
advisory board has ultimate responsibility for the quality of the research
program, whereas scientific review boards composed of scientists in each of
the five areas oversee work in their respective fields. Although the institute
is sufficiently large to make a major contribution, it does not seek to replace
the central role of NIH in any field.
HHMI traditionally has established large laboratories with a core group
of investigators in universities and hospitals around the United States to
facilitate interaction with the larger research community. Investigators are
appointed for fixed terms of 3 to 7 years, with full funding provided for
faculty and technician salaries as well as research expenses. Investigator
productivity is evaluated through research conferences, annual progress
reports, and site visits.
By mid 1988 HHMI employed approximately 180 investigators and a
OCR for page 59
RESEARCH FUNDING
59
1,350-member support staff in 30 sites. In order to expand the number of
host institutions, HHMI recently began to support individual investigators
rather than multi-investigator laboratories. The institute plans to support
approximately 250 investigators and 2,000 support staff in at least 40 sites
within a few years.
HHMI has undertaken a broad program to strengthen science educa-
tion from the precollege to the postdoctoral stages. The Institute is funding
a study by the Commission of Life Sciences of the National Academy of
Sciences that is examining the curricula and teaching of high school biology.
The new HHMI Undergraduate Science Education Program awards grants
to strengthen science education and research in private undergraduate col-
leges. Begun in 198%, the program is intended to increase the number of
students, especially minorities and women, pursuing careers in the biomedi-
cal sciences. In 1988 HHMI awarded $30.4 million to 44 colleges, including
10 historically black colleges. Expansion of this program in 1989 granted
$61 million to 51 undergraduate colleges affiliated with research universities
and other doctorate-granting institutions.
The graduate science education program funds several levels of gradu-
ate training. For instance, doctoral fellowships in the biological sciences (60
per year) provide predoctoral students with a stipend and cost-of-education
allowance for 3 to 5 years; medical Student Research Training Fellowships
(up to 60 per year) are modeled after HHMI's Research Scholars Program,
supporting students for a year of research training at any U.S. academic or
research institution. The Research Resources Program funds development
of institutional infrastructures related to graduate research and education.
The resources program may provide support in the following areas: courses
and symposia concerned directly with HHMI areas of interest, replenish-
ment of biological stocks and materials, and genetic analysis projects that
complement the HHMI human genome data base.
SUMMARY AND CONCLUSIONS
The committee concluded that health research is supported by a di-
verse, yet interlocking network of federal agencies, industry, and private
nonprofit organizations. Of these, the federal government is the single
largest sponsor of health research in the U.S. Of the $71 billion the federal
government will invest in R&D during fiscal year 1991, nearly $10 billion
will be health related. Contributions by health-oriented corporations are
roughly equal in magnitude, but devoted largely to product application de-
velopments rather than fundamental discovery research. Contributions by
private nonprofit sponsors favor fundamental discovery research, generally
in somewhat restricted fields of interest, but represent only about 4 to 5
percent of the total U.S. investment in health research.
OCR for page 60
60
FUNDING HEALTH SCIENCES RESEARCH
In light of this investment and the continuing budget limitations, the
scientific community must reexamine its resource base to improve its effec-
tiveness and efficiency. Federally sponsored health research by the various
agencies is generally mission oriented. NIH and ADAMHA are the pri-
ma~y agencies that disburse federal health research funds for investigation
into fundamental biological discovery, but the committee emphasizes that
all health research expands the boundaries of knowledge.
Although industry has been playing an increasingly important role in
health research, focusing primarily on product development, it relies heavily
on university research programs for basic scientific knowledge and talent.
Cooperative ventures between universities (or government) and industry
provide a unique mechanism for sharing knowledge and technology transfer,
a central policy of the federal government for increasing U.S. economic
competitiveness.
Foundations, voluntary health agencies, and other nonprofit organiza-
tions have played a very important role in sponsoring health research. The
committee believes that these organizations have been particularly helpful
in providing crucial support in filling gaps in the nation's research agenda
and sponsoring new initiatives. Although the federal government rapidly
eclipsed the investment by these organizations following World War II, they
have continued to supply a steady stream of research dollars. These funds
are used for individual research projects, supporting career development
awards in specific research fields, equipment, facilities, and various pro-
grams of knowledge dissemination. The committee anticipates that these
organizations will continue to provide support for the health sciences.
REFERENCES
3.
1. National Science Foundation. 1989. Science and Technology Resources: Funding and
Personnel. Publication No. 89-300. Washington, D.C.
U.S. Department of Health and Human Services; Public Health Service. 1989. NIH
Data Book 1989. Publication No. 89-1261. Bethesda, Md.: National Institutes of
Health.
Ginzberg, E. and JOB. Dutka. 1989. The Financing of Biomedical Research. Baltimore:
The Johns Hopkins University Press.
4. Boniface, Z.E. and R.W. Rimel. 1987. U.S. Funding of Biomedical Research.
Philadelphia: The Pew Charitable Trusts.
Bush, V. 1945. Science-The Endless Frontier, A Report to the President on a Program
for Postwar Scientific Research. Washington, D.~: Office of Scientific Research and
Development. (Reprinted lay the National Science Foundation, May 1980.)
U.S. Department of Health and Human Services; Public Health Service. 1986. DRG
Peer Review [Lends; Member Characteristics: DGR Study Sections, Institute Review
Groups, Advisory Councils and Boards, 1976-1986. Bethesda, Md.: National Institutes
of Health.
U.S. Department of Health and Human Services; Public Health Service. 1989 NIH
Abnanac. Publication No. 89-5. Bethesda, Md.: National Institutes of Health.
OCR for page 61
RESEARCH FUNDING
61
8. Strickland, S.P. 1972. Politics, Science, and Dread Disease: A Short History of United
States Medical Research Policy. Cambridge, Mass.: Harvard University Press.
9. Seggel, R. Lo 1985. Stabilizing the Funding of NIH and ADAMHA Research Project
Grants. Washington, D.C.: National Academy Press.
10. U.S. Department of Health and Human Seances; Public Health Service. 1989.
ADAMHA Data Source Book 1988. Rockville, Md.: Alcohol, Drug Abuse, and
Mental Health Administration.
11. U.S. Congress; Office of Technology Assessment. 1988. New Developments in Biotech
nology: U.S. Investment in Biotechnolog~Special Report. OlA-BA-360. Washington,
D.C.: U.S. Government Printing Office.
12. Institute of Medicine. 1989. Government and Industry Collaboration in Biomedical
Research and Education. Washington, D.C.: National Academy Press.
National Science Foundation. 1987. Report on Funding [lends and Balance of
Activities: National Science Foundation 1951-1988. NSF 88-3. Washington, D.C.
14. U.S. House of Representatives. 1989. Report of the House of Representatives Appro
priations Subcommittee for the Departments of Labor, Health and Human Services,
and Education, and Related Agencies Appropriations Bill, 1989, Report No. 100-689.
Washington, D.C.
Boniface, ~E. U.S. Funding for Biomedical Research: An Update. Background paper
prepared for this study committee.
16. National Academy of Sciences; Government-University-Indust~y Research Roundtable.
1986. New Alliances and Partnerships in American Science and Engineering. Wash
ington, D.C.: National Academy Press.
National Science Foundation. 1988. The Science and Technology Resources of Japan:
A Comparison with the United States. NSF 8~318. Washington, D.C
18. Pharmaceutical Manufacturem Association. 1989. Annual Survey Report of the U.S.
Pharmaceutical Industry, 1987-89. Washington, D.C.
19. U.S. Congress; Office of Technology Assessment. 1984. Commercial Biotechnology:
An International Analysis. OTA-BA-218. Washington, D.C.
20. National Science Foundation. 1987. Biotechnology Research and Development Activi
ties in Industry. 1984 and 1985. NSF 87-311. Washington, D.C.
21. National Science Foundation. 1988. Science Resource Highlights: Industrial Biotech
nology R&D Increased an Estimated 12 Percent in 1987 to $1.4 Billion. NSF 88-306.
Washington, D.C.
22. U.S. General Accounting Office. 1989. The Research lax Credit Has Stimulated
Some Additional Research Spending. Report number GAO/GGD-89-114. Washington,
D.C.
23. Science. 1989. Fate of R&D tax credit uncertain. Vol. 243, March 31, P. 1659.
Representative terms from entire chapter:
funding health
