New Publication: Spillovers between Public and Private Sector Biomedical and Health Research

OHE’s Yan Feng and Jorge Mestre-Ferrandiz have co-authored a new publication on quantifying the spillovers between public and private sector biomedical and health research and development funding in the UK.

In the latest issue of BMC Medicine is an article assessing the complementarity between public and private sector R&D in the UK, co-authored by OHE’s Yan Feng and Jorge Mestre-Ferrandiz. 

What are the benefits of biomedical and health research? This is the core question at the heart of any decision to fund research – whether made by the government on behalf of taxpayers or medical research charities on behalf of donors.

It is a methodologically challenging question – there are a set of perennial issues, such as: the time it takes for research to move from bench to bedside (Hanney et al., 2015), benefits that arise from many different research projects, and the difficult issue of measuring and actually valuing research. 

In a recent paper published in BMC Medicine we present an up to date and UK specific estimate of the extent of public/private spillovers in biomedical and health research. We were interested in investigating whether public and private sector research ‘complement’ each other or are ‘substitutes’.  Complementarity is when investments in one sector stimulate activity in another sector; substitution occurs when investment in one sector replaces activity in the other. 

We fitted an econometric model to time series data for biomedical and health R&D expenditure in the UK for ten disease areas (including ‘other’) for the public and private sectors respectively. We found that there was a statistically significant complementary relationship between public (government plus charity) biomedical and health research expenditure and private pharmaceutical R&D expenditure in the UK. A 1% increase in public sector expenditure is associated in the best-fit model with a 0.81% increase in private sector expenditure.

With this magnitude of relationship, every additional £1 of public research expenditure is associated with an additional £0.99 of private sector R&D spend in the UK; 44% of the additional private sector expenditure occurs within one year, with the remainder accumulating over decades.

Using these new estimates we estimate the total impact of biomedical and health research in the UK on the UK economy. This implies a real annual rate of return (in terms of GDP impact) to public biomedical and health research in the UK of around 17% – in other words a £1 investment from public spending would benefit the economy to an extent equivalent to receiving about 17p per year in interest each and every year after (as opposed to our earlier figure of around 30% – see for instance: HERG, OHE and RAND Europe, 2008; Glover et al., 2014)).

We stress this does not imply that there has been a decline in the economic rate of return to public spending on biomedical and health research – what we have developed in this paper is a contemporary estimate specifically for the UK.  Indeed, when combined with the net health benefit (of approximately 10%) the total return on government and charitable research investment in the UK is around 27% – a significant return on investment.

This paper builds on previous studies that have attempted to measure the economic returns from publicly (government and charitable) funded biomedical and health research in the UK for two areas – cardiovascular disease and cancer.  For both studies two types of impact were identified – the first was health gain, which is the (net) monetised health benefit of living longer and healthier lives.  The second was ‘GDP gain’, which is the benefit to the wider economy arising from public and consequential private sector biomedical and health research activity (including additional private sector R&D spending). Much of the economic gain from public biomedical and health research is achieved by stimulating additional private industry R&D. Such ‘spillovers’ from public to private research are often a deliberate policy objective of spending on public research.

Access the full paper here.

For more information contact Jorge Mestre-Ferrandiz at OHE.

References

Glover, M., Buxton, M., Guthrie, S., Hanney, S., Pollitt, A., Grant, J., 2014. Estimating the returns to UK publicly funded cancer-related research in terms of the net value of improved health outcomes. BMC Medicine, 12:99.

Hanney, S.R., Castle-Clarke, S., Grant, J., Guthrie, S., Henshall, C., Mestre-Ferrandiz, J., Pistollato, M., Pollitt, A., Sussex, J. and Wooding, S. 2015. How long does biomedical research take? Studying the time taken between biomedical and health research and its translation into products, policy and practice. Health Research Policy and Systems, 13(1), pp.1-18.

Health Economics Research Group, Office of Health Economics and RAND Europe, 2008. Medical Research: What’s It Worth? Estimating the economic benefits from medical research in the UK. Consulting report. London: UK Evaluation Forum. Available here.

Sussex, J., Feng, Y., Mestre-Ferrandiz, J., Pistollato, M., Hafner, M., Burridge, P., Grant, J., 2016. Quantifying the economic impact of government and charity funding of medical research on private research and development funding in the United Kingdom. BMC Medicine, 14:32.