small businesses are required to team with research institutions to receive SBTT funding (no such requirement exists for SBIR). SBTT began a three year pilot program in FY 1994. Funding levels for SBTT were also initially below the levels for SBIR. In 1994, this amounted to $4.1 million for NIH, or approximately 40 awards in FY 1994 (AAAMI, 1994c).

Tax Credits on Incremental Research and Development

As well as direct federal funding to support biomedical research, substantial indirect support for research is provided to industry in the form of tax credits on incremental R&D expenses. According to estimates by the U.S. Treasury Department, this indirect means of federal support for basic R&D has accounted for more than $20 billion from 1981 to 1992 (National Science Board, 1993). No data are available specifically for biomedical R&D. Unfortunately, a tax credit requires positive earnings, not usually enjoyed by the smaller, innovative companies in biotechnology or medical devices.

Industry Spending for Biomedical Research and Development

The largest source of financing for biomedical R&D is spending from private sources. As illustrated in Figure 2-1 above, industry is the main supporter of biomedical R&D in the United States. Industry spending exceeded $15 billion in 1993, or 50 percent of all health R&D, and substantially exceeded all sources of federal financing, including NIH. Industry spending was also the most rapidly increasing source of financing in 1993 (U.S. DHHS, 1993).

Industry performed by far the majority (78 percent) of the $15 billion in biomedical R&D that it funded in 1993 (see Figure 2-5), as well as 40 percent of all spending on health R&D overall (U.S. DHHS, 1993). For-profit sponsorship of research at universities and academic medical centers remains a relatively small proportion of the total investment by industry in R&D. According to the American Association for the Advancement of Science, about 11 percent of funds received by universities in 1991, or $1.35 billion, come from industry; only 5 percent of industrial R&D is allocated for basic or fundamental research (AAAS, 1993b).

Research and Development Investments by Pharmaceutical and Biotechnology Companies

The pharmaceutical sector is the largest industrial funder of biomedical R&D. According to the Pharmaceutical Manufacturers Association (PMA; 1993b), there were 136 pharmaceutical companies operating in the United States in 1993. The member companies of the PMA, representing over 90 percent of U.S. pharmaceutical sales, spent $12.6 billion on biomedical R&D in 1993

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