August 13, 2025
Welcome to Perspectives, a signature podcast series from The Leerink Center for Pharmacoeconomics. Hosted by Dr. Mel Whittington, a health economist and Head of the Center for Pharmacoeconomics, we will be hearing from individuals across the industry to better understand and appreciate the societal impact of healthcare innovations.
Mel Whittington: Today I get to talk to Ulrich Neumann, who’s a leader in the scientific affairs group at Johnson & Johnson and a founding director of the newly launched Johnson & Johnson Center for Healthcare Policy Research. Ulrich, thanks for being here and congrats on the launch of the center.
Ulrich Neumann: Thank you for having me, Mel, I’m glad to be here. The people that you brought on your podcast are really people that I admire and follow. So, I’m really glad to be amongst those.
Mel Whittington: I’m super excited. There’s not much I would say breaks the internet in the world of health policy, health economics. But when J&J launched their Center for Healthcare Policy Research, that got pretty darn close to breaking the internet in our health policy, health economics spheres. It was everywhere. So, I do want to congratulate you and your team on the launch of that center. And can you tell me a little bit about the center? What is it intended to do?
Ulrich Neumann: Yeah, absolutely. I love breaks the internet. Well, I think, you know, if anyone knows you would. Because here we are talking from center to center, cause you know, you beat us to the punch there with creating the center at Leerink for Pharmacoeconomics. So that’s also been great, which you deserve praise for, but anyways. What’s the mission of the J&J center for US healthcare policy research? I think it’s pretty simple. It’s actually in the name. We’re conducting and publishing scientific rigorous policy research and we’re delivering what I think is an authentic perspective on policy, what we’re standing for as a company. The goal really is to help policymakers drive decisions that ultimately advance human health, that further innovation. So, I’d say it’s a platform where you find our novel policy research studies, white papers, and hopefully timely useful evidence.
Mel Whittington: Speaking of useful evidence and supporting policymakers, there’s so much that that could encompass. Are there specific areas you are focusing on or how do you identify what you work on?
Ulrich Neumann: Yeah, so maybe let me briefly sketch out what it really is. So, the folks that go on the website, which is policyresearch.jnj.com, know what to find there and what they can expect over the next couple of months. So, we focus on, I would say, three evidence pillars, as we call them, value, access, and innovation. And I can go into a little bit what each of them is. When you think about value, we’re talking about the questions of how we develop methods for understanding the value of pharmaceutical treatments that are holistic methods, that are patient-centered methods, that are clinically driven. And I know that’s a lot of work you focus on as well in terms of just showing also the societal benefits of that type of innovation, right? So that’s why we’re asking, what’s the right approach that’s a really US-driven approach to conduct value assessments? In access, we’re looking at the systems, the policies that actually govern how patients receive treatments, how they get access to their appropriate treatments. So, a huge factor there is probably no surprise to anyone, is the question around patient affordability, trying to understand how we design and frankly sometimes have to redesign insurance, how we may have to reform the healthcare system, right? So that patients, when they’re at the pharmacy counter, actually aren’t forced to skip medications because they, let’s say, can’t afford the copays or co-insurances, right? Another area in that domain in that pillar is that we’re looking at chronic disease patients, for instance, who’ve, you know, let’s say every six months have to go back to kind of recertify that they’re sick and do a lot of paperwork and additional cost training as if they didn’t have enough skin in the game, right? So, we’re looking at these kinds of problems and you can already see there is a little potential here where we’re seeing needs for reform as well. So that’s the access domain, I would say. And then the last one is R&D and innovation. Specifically, there, we’re looking at, you know, how can we advance really what is the United States’ role as this robust, the world’s most robust medical research and development ecosystem. How can we expand? How we can maintain that type of leadership. And then I think the cost-cutting questions around that is around, let’s say we’re spending, I think you did a calculation, less than 2% of our GDP on medicines, but still it’s an important amount and we wanna make sure it delivers the greatest value to society, right? And so that’s the type of research that cuts across.
Mel Whittington: Yeah, value, access, innovation, really important pillars. And I think most of the majority of our podcasts we’ll be talking about your peer reviewed published research related to that R&D innovation ecosystem. But I do, for some self-serving reasons, want to ask you more about your center too. It’s kind of related to just policy research and why companies would or should take that on. I think it seems more typical for biopharmaceutical companies to work on research related to safety and efficacy of a specific product that they have in development or has been approved. And I think it’s easier to see kind of that direct benefit of that kind of research of, hey, I’m doing this phase three trial to support potential regulatory approval and then commercialization. But your center at Johnson & Johnson is charged specifically with policy research. And you know, policy research, the audience is a little bit different. As you suggest, it’s kind of informing policymakers. And there might not be a direct benefit to J&J or some other company taking on this type of research, like some research related to safety and efficacy. So, could you expand on that a little bit and say, like, you know, why is it important for companies to still be involved in this kind of policy research where the benefits might be more indirect or kind of adding to this larger repository of evidence to inform decision making?
Ulrich Neumann: I really like the framing you had there. We all know, right, we need robust sound evidence to develop and deliver transformative medicines. Everyone sort of knows that that’s what we do. It’s really important. But at J&J, we also believe it’s really, really important and just as necessary that we’re having sound evidence in developing and evaluating and also in implementing healthcare policy, right? And you just think about it for a second. We spend so much time, and rightfully so, right, in modeling and estimating, the clinical, the economic impact of one intervention for one group of patients. It’s a lot of work you’ve led over the years. But also, I think, you know, when you think of a new policy, whether that’s, you know, a change in insurance design, whether it’s incentivizing R&D or not incentivizing R&D through a policy, right? Those are population level interventions that literally impact millions of people in terms of how they access treatments. And I think we should study them as healthcare interventions because frankly, they directly impact patients’ outcomes, right? That’s why we need to study them. And I think we believe we need to study them rigorously because we want to have an informed discussion, not just on the medical science, but also on the policies that shape access and innovation. And I think just to the company, why does the company want to do it? Or other companies should also do it. I think you have to ask yourself, right, are you a science-driven organization? Do you owe it to your company DNA that you’re making contribution with data and research, right? Not just in the labs, but maybe also in the places up and down the country where some of the parameters of our innovation ecosystem are decided. Our business model is actually being shaped there. And then there’s the question, do you believe that they have enough evidence? Do you believe that that’s really sufficient that it’s super well understood what we’re doing? Or do we need to play a leadership role here in educating, in leading with an example? And I think for J&J, we clearly decided we want to be at the forefront of this. We want to be at the forefront with transparency. One thing I didn’t mention is that we’re hosting our annual transparency report on the side as well. We’ve been doing this since 2016. So, transparency is the first step. Then rigorous evidence, peer-reviewed studies that we can talk about, we can debate and then authenticity, a section where we’re saying, well, this is what we see and here’s what we’re standing for. And I think, you know, you had Brian Reid on, I think your first edition of the podcast, right? He’s an amazing communicator in our space. One of the things he says is we’re at a crossroads here in terms of the public perception and the public discourse about our industry. And it’s just, you know, it’s about time we step up here. We lead with evidence because, you know, also we’re in a time where that’s more needed than arguably ever before.
Mel Whittington: Yeah, well, wow, I love it. I always say like evidence, economics and effective communication is how things should be informed. I’m really excited and not surprised at all that J&J is really rising to that and taking a strong leadership position in that. You alluded to now is the time a little bit and thanks for listening to the episode with Brian Reid. He is a terrific communicator and just as a straight shooter and he’s so compelling. But what motivated the timing of the center’s launch? Why now?
Ulrich Neumann: Yeah, it’s really, I think about realization. We’ve been having a team that does this work for actually a couple of years, right? But in one way, we wanted to create a central gateway to that information. To all of those peer-reviewed studies. And frankly, I should say, we’re just about to get that stuff on there. As you know, when you launch something, it actually takes quite the effort to put it all in the right place, to tag it, et cetera. It’s just the mechanics of it aren’t as easy. So, there’s a lot more research that will be coming over the next couple of months, but it’s just the right time, I think, to lead with that evidence and, as I said, to show also with authenticity what you’re standing for.
Mel Whittington: Yeah, well, I’ve already spent hours on your impressive website. There’s already a ton of content on there. I’m excited to continue to track all your great work and continuously check out that website.
Ulrich Neumann: One day we’ll have a podcast. That might be the future iteration. You certainly will be invited.
Mel Whittington: Yeah, well, I want an invitation. I love it. So, speaking to all that great research you have on your website, there are two in particular peer reviewed publications on biopharmaceutical R&D that I have read and reread. We’ve had at the Center for Pharmacoeconomics, we have a newsletter, and I’ve covered them in the newsletter. And so, I’m super pumped to be able to talk to you about them here. And I think like the whole biopharmaceutical R&D ecosystem is incredible and I would say most people don’t understand all of the components of it. I think it’s easy for people in our industry, in R&D, in kind of the biopharma world to know what it takes, but beyond that, just consumers or policymakers, I think they might not be as aware of how much goes into biopharmaceutical R&D and a few podcast episodes ago, we had Dr. Joey Mattingly on the podcast and he talked about all of the different players within the pharmaceutical supply chain. As a consumer, we often think of going to the pharmacy, we pick up a prescription, and we think that’s it. But we’re blinded from all of the players and the incredible number of steps it took to actually get that drug to the pharmacy. The drug R&D ecosystem is similar to that. When a drug is first launched into the market, we often think of that pharmaceutical company on the label. It’s often one of the big pharmaceutical companies that most people have heard of, like a Johnson & Johnson. But we’re blinded from all of the players that were involved and steps it took to get a drug launched. And so, I’m hoping you can explain some of those players and steps in this really incredible drug development and R&D process.
Ulrich Neumann: Do you want me to give it a try here?
Mel Whittington: Yeah, well, I’m hoping to give you a little challenge. When Joey was on the podcast, I asked him in 90 seconds or less if he could describe the drug development process from drug discovery to drug approval. And I’m hoping you would do the same.
Ulrich Neumann: Yes and let me just quickly comment on that episode because you did a formidable job and he’s just explaining it in just clear terms. Where does spending go in that value chain and I would argue actually value chain starts with the drug development process or drug discovery process in the first place. So, 90 seconds. Okay here’s my try.
Mel Whittington: Okay, I’m pressing start, 90 seconds to describe the drug development process. Here we go.
Ulrich Neumann: So first of all, drug discovery and development, it’s a highly complex journey. It’s a long journey and it is extremely challenging because in fact, it involves a lot more lessons on things that do not work than things that actually do work, right? But it’s also extremely rewarding because at the end of it, what is the goal? The goal is the discovery of a new medicine that saves lives, improves health of millions of people, truly changes not just trajectory of medicine, but also what it means to individual patient lives. So, it’s long because it takes about 10 to 15 years on average. In my estimates, around four to five billion dollars to develop one successful compound and bring that to patients. And there’s several hills to climb on that journey. But I think you can start with something where you say, like, we’re starting at base camp, and that’s basic research, right? And then you move into drug discovery, into pre-clinical testing, optimizing the dosages, actually testing the drugs in human beings across various different phases and then submitting the drug to regulatory bodies. And frankly, I think what’s important to say is the research doesn’t actually stop there. Because you know, in innovation, basically everything builds on each other, right? I mean, follow on innovation, sometimes people say incremental innovation – it’s extremely meaningful because what we’re doing really is we’re refining, we’re optimizing, we’re adding to what was a first in class, you know, innovation and improve adherence, we improve safety, we improve access. So anyways, all of those different types, expanding the new patient populations, patient-centric improvements. You could actually say that the drug development process is well alive after drug approval, right? So, it’s a long process. I can give you some stats, but I’ll stop there because I’m probably over the 90 seconds.
Mel Whittington: No, that was perfect. The four to five billion dollars is a huge number and then, you know, 10 plus years is a huge amount of time. Similar to, you know, when you go to the pharmacy to pick up your prescription, you kind of think that’s how you, you know, it’s easy to think that’s how you get a drug. When you think about paying for a prescription drug, I think we often think as consumers, okay, we go to the pharmacy, we pay for a prescription drug, we might have an out of pocket or you know, premiums and know, insurance compensates for the rest that we have paid for with our premiums. And it’s not easy to remember the costs that already happened way before that, all of the costs in the research and all of the, and we only are paying at the pharmacy counter for those that get to approval. And that’s, you know, the minority of drugs that are initially studied. So, you hit on all of these amazing items.
Ulrich Neumann: And if I give you a stat on that, that always surprised me, that I always found fascinating. Start with the compounds in like say drug discovery, right? You’re talking about 15,000 potential compounds in that process, right? When you get to actual testing them years later in clinical trials, right? Where they could even be medicines, we’re talking about five compounds. That process in drug discovery and preclinical testing to actually even get to see if a drug could work in patients, right? I think, that then, you know, maybe in the end leads to one market of drug. I think just those numbers. It’s this failure rate. And I don’t like the term failure. That’s why I said, you know, we learn things about what doesn’t work. It’s not a failure if we learn things. But anyways, that process, all of that is resource intensive, but it’s also quite competitive. So, you know, it takes 15 years perhaps, but we’re trying to get it as soon as possible because it matters to patients.
Mel Whittington: Right, and you know, competition is great for outcomes, pricing and getting the right drug to the right patient. Let’s go back to that drug discovery process and talk about some of the players because it’s a complex process, it takes many years, it takes a ton of money. Who all is involved in that system?
Ulrich Neumann: I think we could probably spend an entire podcast on this, right? I mean, it’s, it’s, it’s, and probably wouldn’t be with me because there’s, there’s thousands of scientists. Again, I work at an organization with thousands of incredible scientists who know a lot more about those various aspects of getting it right, there. But I thought maybe I’ll share a couple examples. So, one of the things that people do know about is okay, J&J is a big investor in research, right? And so, you know, I can give you a number. If you go right now, we have the new transparency report out and it shows that we’re investing over $90 billion in R&D since 2016. You know, over $13.5 billion last year, it’s 14% or 13% increase over a year. So, people know that. That’s, I think, when people think of J&J, they do think about that. But I think it’s also interesting to note to your question of how we’re interacting with all of those stakeholders in this ecosystem is that we have things called, for instance, JLABs. Those are incubation hubs all over the world. I think there’s 11 of those sites globally currently. And those offer for very small investors for ideas, for inventors, infrastructure, lab equipment, access to expertise, potential funding and investor connections. And there’s about 350, I think, companies since I last looked at this program that had at least one deal with J&J or one partnership with J&J, right? We’re obviously also generally accelerating early-stage innovation through strategic partnerships. There’s over 640 of those strategic collaborations with early innovator companies. And then there’s also, J&J has a strategic venture capital arm. So how do we engage across pharma and medtech, really across all stages, from new company creation, C-level startups to Series A and actually beyond, even including private investment in public equity, right? I think in 2024 alone, we had 100 active portfolio companies in that, 50 investments, nine venture assets. So, I think that gives you a bit of the sense of how we’re interacting with this ecosystem that maybe people aren’t aware of, which is basically the philosophy that innovation comes from multiple places, right? It comes from various places. So yes, we’re a critical driver in our own labs, but we’re also a critical driver in this ecosystem and enabling this ecosystem. And that’s our philosophy here.
Mel Whittington: Yeah, it’s fascinating how it does. It is this very interconnected system that starts with NIH funding, and we’ll get to kind of the funding and the investment in a little bit, but starts with researchers and then biotech companies, smaller biotech companies and drug discovery companies and large pharmaceutical companies. And there’s so many more players than just that handful of big pharmaceutical companies that we might initially think of. It takes a lot of players. So, I want to pivot a little bit to this investment piece and of how much R&D really costs. And it costs a lot of money and as I previously mentioned, I feel like all of the different players of this biopharmaceutical R&D ecosystem are largely behind the scenes. But I think the capital required to develop a drug is also pretty behind the scenes. I know you talked about the number that J&J has invested in R&D and how people know that. I would say people in our industry know that, but maybe most policymakers or many consumers and those people who are paying for health insurance and paying into the premiums, I don’t know if it’s common knowledge of how much money and risk this takes. But you and your team recently conducted a study on the total dollar amount of R&D by all biopharmaceutical companies. So that’s all that R&D expenditure that isn’t NIH or taxpayer funded but is paid for through private investments. And could you give us a little summary of the article? And what did you find? How much is being spent on R&D?
Ulrich Neumann: Yes, and just to tease it up even little more, right? We as an industry don’t really know that that well either, right? So, you could look at certain congressional reports and say, maybe it’s $100 billion or it’s $83 billion or it’s maybe a little bit more. And then there’s some proprietary research, but people don’t really trust that because they don’t know the methodology. And we said, wait a minute. I mean, this is such an important question. We are in fact the most resource research intensive industry in the world and we don’t really know exactly what that number is and we don’t have a methodology that you can look in a journal and can replicate? And we said, well we need to change that. And I should say this has been a partnership with Amitabh Chandra of Harvard University an excellent team led by Noam Kirson at the Analysis Group and my colleagues Silas Martin and myself who were researchers on this. So we try to measure across all of those different stages, right? Commercial stage, development stage, are the companies public, are they private? For the first time, we developed this replicable methodology to come out to a number. And I want to say what’s really interesting is, we’ve looked at thousands of companies there. A lot of times, you alluded to that, people don’t think of the fact that there’s actually thousands, there’s just such a long tail of companies. There’s not just, you know, the big companies that people think of, the J&Js of the world, right? Which account for a huge share, but there’s thousands, literally, of companies in the development stage. And we said, look, we need to find a methodology to actually measure what all of that contribution is. So, what is it? Well, we found out that it actually, and we just took one year, that it actually is $276 billion in one year on an annual basis, right? Think about in four year’s worth about a trillion dollars in R&D investment. Now you could say, well, you know, it’s just a big number. How is that different? That’s about 60% more of what is usually cited. And if you don’t look at all of the other actors, and which is why I’m coming back to what I said earlier, right? As J&J we believe it is really an ecosystem. You might miss out like, you one third of that entire ecosystem because you might not look at, you know, these private companies, et cetera. And so, it’s a huge number and we can talk more about what the constituent parts are, but about 50% come from the big companies that you may think of, and around 50% come from a long tail of small companies.
Mel Whittington: I love your paper. $276 billion in one year is an enormous number. Another enormous number that was in your analysis was the number of companies involved. I think it was 4,191 companies. So, it shows you how big this system is and again, these are all non-taxpayer funded, non-government funded money. It is resource intensive. Now, you already alluded to a little bit, but this number was higher than other previous estimates. And I think those other previous estimates mostly focused on those, the largest publicly traded companies and ignored some of these or didn’t include R&D from private companies or smaller publicly traded companies. Why is it important to really comprehensively measure this total R&D spending? How does this impact policy or how does this impact thinking?
Ulrich Neumann: Yeah, I think there’s a simple answer. I alluded to the fact that actually kind of proud to be at a company where there’s thousands of scientists and researchers that are doing this because they’re just passionate about scientific progress and helping patients. That’s really what a lot of people don’t know, that’s the majority of the people who work everywhere in these big companies, right? So, to them it matters whether that number is lower or higher. It’s basically showing that, you know, we are what we say we are. We are the most research-intensive industry in the world. We can talk about how that’s measured, et cetera, but it’s much higher than let’s say software or semiconductors or other technology, right? So, we are that what we say we are. And I think that’s extremely important to the thousands of people who do this every day, because it’s a validation of their work. If you think about it, if you just think about it on a weekly basis, or like, let’s take 48 hours. We’re investing about $1.5 billion in finding new cures. I think that’s really impressive. When I say to policymakers, in one week, we’re investing $5 billion as an ecosystem to find new medicines. That does impress them. But we can be more specific, right, when we’re modeling this. And we’re saying, you know, why is this number important? It’s important because, you know, if we don’t get the number right, and we say we get about 50 drugs a year, and the number is different, well, if it takes us more to develop these drugs, we would actually have less with certain regulations, right? So, we kind of just need to understand, what does it take us to get to those 50 drugs? If it takes us $76 billion to get those 50 drugs, it gives us an indication. And that’s just really audited financial data that this is not kind of, you know, that’s not just my back of the envelope bottom-up calculation when I’ve been really optimistic to advance a high number. No, that’s just accounting data. It’s literally just looking at, how much we spend divided by the number of approvals we sort of on average get. And you could argue 50 is even optimistic per year. Right. So, if you’re a policymaker, if you’re at the CBO, if you’re modeling this type of stuff, it matters if it were only 100 billion that’s needed, that’s different. And if you say, you don’t need that much in R&D, you might only need to 100 billion. Well, you can do the math and calculate how many drugs you’d get on how many less you would get. So, I think that’s why it’s important to policy makers and patients that we’re just accurate about these numbers. Those are not numbers we should be fighting about. I think those are numbers where you know, we have a basis, we can then discuss the best policy, right? None of this is saying that we ideally should spend more or less. It’s not the point to spend a lot. It’s the point to get the drugs.
Mel Whittington: That’s right. And it kind of links to what we were talking about at the beginning of this episode is we need evidence to inform those conversations and evidence that isn’t only back of the envelope calculations, but is data informed, evidence informed, robust calculations like the work that your center is doing. So, you know, consider myself a cheerleader for your work. You did mention it’s a research-intensive industry. How do you measure that?
Ulrich Neumann: There’s various ways you can talk about productivity of R&D, efficiency, effectiveness. A simple measure on the intensity is just basically the question, how much of your revenue are you putting back into, are you reinvesting back into research? Now, in order to get drugs to patients, there’s a lot of other things you have to do, but if you’re just looking at that share that you’re putting back into, research and development, how much is that. Do you want to know kind of like how it looks across different regions and globally?
Mel Whittington: I would love to know globally of how is this kind of R&D intensity, what is it globally? Because I have a spicier question as a follow-up that I want to know the global number first.
Ulrich Neumann: Okay, well, we’ll do it step by step. So, the global number is, in our estimate, 27%, right? Which means that if for every dollar in revenue, 27 cents are being put back directly into R&D. And I will say when I say R&D our measure is conservative, and there’s other activities. We’re not talking manufacturing, right? We’re not talking distribution. We’re talking literally science.
Mel Whittington: Fascinating. So, this is my spicy question. Now that we know that number, that 27%, we all hear how much money is spent on R&D. But I have to ask this because I hear this all the time. How does this compare with the amount of money that pharmaceutical companies spend on marketing? And you know, do pharmaceutical companies spend a lot more marketing than on this kind of science-driven R&D?
Ulrich Neumann: It’s a totally important question. I think it’s an example of why we’re also doing this type of research. To just lead with evidence. Again, we’re looking at audited data here. But we did it in two ways, right? We first of all, looked at, what is reported? And we’re finding that there’s about $65 billion every year that are, at least in 2021 when we did it, that were reported as sales and marketing. And, that compares to $276 billion in, R&D. So much smaller. But then we said, okay, we actually, found that some companies n that year did not report marketing-
Mel Whittington: Yeah, just to clarify, when we say much smaller, marketing was much smaller.
Ulrich Neumann: That’s right. Marketing was much smaller. But we, we said, okay, let’s even look at it from a… let’s perhaps maybe be, thinking that maybe some companies did not report marketing that year, but maybe they did it the year before, right? They reported all their marketing spend that year before, or for other reasons, didn’t report it. But we find that they had a commercial product. So, what we did is, we for all companies that didn’t report marketing, we actually took the share of the companies that did report marketing, right, to almost inflate that number. And what we did there is we found that we ended at $96 billion, right? So again, 96 versus 276 in R&D. Again, sales and marketing much smaller. And so, when you want to put this in a relationship, it’s really just not true. There’s just no basis for the claim that industry is spending more on sales and marketing than on R&D. It is much smaller what we’re spending in terms of sales and marketing. And you could put it like that: For every dollar spent on sales and marketing, US companies, public US companies with commercial products, so they tend to be the bigger guys, invest $5.7 on R&D, right? And that’s even, that’s even assuming the higher scenario of imputing for costs if some companies actually didn’t report it. So that’s by any means, it’s a conservative measure. What I mean by this is, it’s important, R&D is much, much higher. In fact, R&D is higher than all general sales and administrative expenses across the sectorR&D is the highest expense! And the last thing I say about this, when people think about marketing, what they really think is, know, like your consumer advertising, right? They’re thinking about the TV ads. How much is that? That’s $10 billion, right? In the most, you know, in the wildest or most generous estimation, the direct-to-consumer advertising is about $10 billion. That’s about 2 weeks of R&D per year. And that’s it. So, I just hope we can put that to rest and, you know, not see another media report kind of like inflating those numbers because it just isn’t true.
Mel Whittington: It isn’t true. Well, yeah, again, this is why evidence is so important to be able to counteract those things. I want to zoom in a little bit to the US. I know that the number we were talking about were these global estimates. But what percentage of that gigantic annual R&D number came from companies that were headquartered in the US?
Ulrich Neumann: So basically 55% came from the US, more than half, 29% came from Europe. And the share is even higher when you go to the smaller companies, the private development stage companies, that’s overwhelmingly in the United States. You know, when I spoke about the R&D intensity, right? So, l how much of your revenue you’re putting back into R&D. And what I actually was surprised about, I found really interesting is, that there’s a huge difference between, let’s say, European-based companies and US-based companies. US-based companies reinvest into R&D at a rate that’s 50% above that in Europe. So, in the US, it’s actually not 27%, it’s 34%. 34 cents on the dollar going back into R&D. And in Europe, it’s 22 cents on the dollar that go back into R&D. So, I think that’s interesting for policymakers, I think that’s an interesting finding that you want to explore because there’s something really special about the U S market where, so many of the companies are domiciled that it really is all about R&D.
Mel Whittington: Right, with the US having the highest R&D number, just in absolute terms, but also the highest R&D intensity. That’s pretty impressive. One other kind of US specific question I have for you, and again, this is kind of a spicier question, but in addition to all of those kind of private R&D investments that your study talked about, the NIH is also an essential player in this large biopharmaceutical R&D ecosystem, and it supports a lot of this kind of basic biomedical research, what you referred to as this base camp that serves as a foundation for a lot of these subsequent research projects. And another thing that you kind of hear on the street is some have wondered if that private sector funding of R&D, those $276 billion, I guess that was globally, so the US number of that, wondered if that private sector funding of R&D could just simply be replaced with the public sector. And an argument for this, it’s an interesting question, kind of an argument for this question is maybe if the government funded all R&D rather than private investment, could we remove that profit percentage, which would then translate into lower prices and maybe even more innovation in areas of unmet need. But your center also did some original research answering this question. And what did you find?
Ulrich Neumann: It’s important to preface what the roles are here, right? What the NIH does and what the private sector does is quite different. And I think it’s important to understand those roles because as we get into discussions about replacement, economists would say, theoretically, you can replace anything with anything, right? I mean, $1 can be replaced elsewhere. But the question is, at what loss of efficiency and what welfare cost this comes, right? So, it’s not purely a question of, could it theoretically happen, but also what would it mean. And so, just to preface this work, what does the NIH do? It doesn’t focus on development or commercializing medicines. Its funding is for knowledge that explores biological systems, pathways, cellular changes that are involved in the development of diseases. That’s really important. I will say that before I go into, you know, the other side of this argument.. Government support for that stuff is really important. Produced a tremendous return for society in terms of actually incentivizing for the private investment after that, jobs created, number of pharmaceuticals that actually entered the target because of basic science funding. Really important, that funding is key. But when it comes to the discrepancy and when it comes to when it gets to actually developing drugs, the stuff we talked about earlier, that happens very much in the private sector. In the initial phases, there’s still some sort of government funding involved, but even 50% of discovery research comes from the industry in terms of dollar amounts. But when you compare, let’s say, the NIH funding for clinical trials and the industry funding, depending on some of your estimates, but if I take that $276 billion number, the industry’s R&D is about 49 times the NIH funding for clinical trials. But even if you take the proposition and say, well, let’s take the entire NIH budget, right? Let’s ignore the fact that it’s mostly not focused on applied medicine research, but basic research that I described. But let’s say, we take that, that’s less than 16% of the private R&D investment. And so you do have a question simply of the discrepancy. But here’s why I actually don’t like the replacement discussion. You might say, well, that’s weird, you put a model out about replacement, you called it a replacement model, why didn’t you like replacement? Well actually, the whole point of that study was not to say you just need to, you know, find ways to raise taxpayer revenue, or you know, debt financing and then just get the number and everything’s good. It’s also about the strengths of each of the roles are being played and most of that paper that takes on that proposition and really addresses it seriously looks for evidence, looks how could that actually look like and why is it not a good idea for efficiency about the scientific process. And you know we went through dozens and dozens of potential case studies to find out in most areas would it make sense. In some areas, you know, it could make sense, but in most areas there’s something about how the private sector does that, just in terms of efficiency, in terms of gains, much more in fact superior for drug development. And that’s why it I don’t like the discussion about replacement, because it’s kind of like an either-or relationship. You can’t replace one, you know, you shouldn’t cut basic science funding, because it’s really important for drug development. But you also shouldn’t claim that you know, it’s the government who develops drugs because that’s not true either. You can’t really replace these two. The reality is they’re complementary, right? They amplify each other and that’s kind of part of the beauty that we have, unlike any other system, in any other country in the world, in the US really. Precisely where universities are part of it, where public funding of basic science and that interchange with the private sector. It’s been supported by legislation, Bayh-Dole and other acts have long supported that ecosystem. So, I think because it’s the beauty that it does that, that we should not talk about replacement and substitution.They’re complimentary, they’re not interchangeable.
Mel Whittington: Well, with that, I think that’s kind of the mic drop moment to wrap up this podcast. It’s complimentary. It’s interconnected. The biopharmaceutical R&D ecosystem requires a lot of players and can produce tremendous innovations for society. And I’m excited to keep tabs on your center. You’ll have to come back on this podcast because I have dozens more questions to ask you. But I want to thank you for coming on and I appreciated this so much.
Ulrich Neumann: What a tremendous opportunity for us and thank you so much for having me here.
Thank you for listening to this episode of Perspectives. If you’re interested in participating in future podcasts or would like to learn more about the Leerink Center for Pharmacoeconomics, please email cpe@medacorp.com.
Resources mentioned in this episode:
https://policyresearch.jnj.com
https://jnjinnovation.com/home
https://www.nature.com/articles/d41573-024-00131-2
https://www.tandfonline.com/doi/full/10.1080/13696998.2024.2405407
