Research and development (R&D) spending, drivers, and impacts

Evidence has a huge impact on how we make decisions, and the best evidence comes from research. It can provide important information such as epidemiologic data on the disease of interest, outcomes of medical interventions, factors affecting clinical outcomes, and others. 

There are various types of research but clinical trials, in particular, help researchers discover new treatments for diseases and develop new ways to prevent and detect those diseases. In a clinical trial, participants receive specific interventions which may be medical products, such as drugs or devices; procedures; or changes to participants’ behavior, such as diet. Participants are randomly assigned to the control and experimental group. By comparing the impact of the intervention to those who did not receive the intervention, researchers can observe and measure the effects of the intervention. 

Medical advancements improve the health status and quality of life of individuals. Through the increase in life expectancy, the social and economic impacts of the disease are reduced and the increase in productivity of individuals positively contributes to the national economy. 

According to the World’s Bank definition, research and development (R&D) expenditures include both capital and current expenditures in the four main sectors: business enterprise, government, higher education, and private nonprofit, while covering basic research, applied research, and experimental development. The total R&D expenditures from both public and private sectors comprise only 0.15 percent of the gross domestic product (GDP), whereas the suggested R&D spending by the United Nations Educational, Scientific and Cultural Organization (UNESCO) for developing countries is one percent of the GDP. The top three countries with the highest R&D spending relative to GDP are Israel (5.44%), South Korea (4.81%), and Sweden (3.53%). The global average R&D expenditure is 2.63%.

Philippines lags behind in spending on R&D as compared with Singapore (1.89%), Malaysia (1.04%), Thailand (1.14%), Vietnam (0.53%), and Indonesia (0.28%). While the R&D spending in other ASEAN countries has increased, the spending ratio in the Philippines has remained constant over the years.

The pharmaceutical industry spent on average 25% of its revenue on R&D. Internationally, the top five pharmaceutical companies ranked by their spending are Pfizer ($13,829,000,000), Roche Pharmaceuticals ($13,342,082,240), Merck & Co. ($12,245,000,000), Janssen ($11,882,000,000), and Bristol Myers Squibb ($11,354,000,000).

Among sectors of performance, the private industry comprises 55.4% of R&D expenditure in the Philippines in millions (32,604.62), followed by the government at 22.9% (13,1461.26), higher education institutions at 20% (11,786.39), and private non-profit organizations at 1.70% (1,001.33). Based on available data, R&D expenditure comprises 0.7% only of the total expenditures of pharmaceutical companies. The majority of the costs are allotted for the purchase of raw materials (43%), payment for non-industrial services (27%), and goods purchased for resale (17.4%). Overall, 82.4% of the total R&D expenditure came from local manufacturers.

The R&D personnel (RDP) per million population indicates the growth of personnel engaged in R&D despite the growth of the population and is also considered the main factor that increases R&D intensity in high-income and low to middle-income countries. Highly skilled human resources significantly contribute to the country’s research and innovation capacity and competitiveness. In terms of human resources, there are 708 RDP  per million population in the Philippines, almost three times higher compared to 2015. Despite this improvement, our human resources for research are still low compared with Singapore (7,287), Malaysia (2,185), and Thailand (1,790). 

According to the Philippine Institute for Development Studies (PIDS), R&D in the Philippines focuses on modifying crops to adapt to undesirable weather conditions, improving nutrition and treatment of disease, and developing new products and services for industries. On the other hand, research and development activities of private businesses are geared towards product development and applied research.

In a systematic review, estimated costs of bringing new medicines to the market from pre-clinical to human trials range from $161 million to $4.54 billion. In a landscape analysis of R&D costs for discovery and pre-clinical development and costs for clinical development, the latter account for 50-58% of total costs. Anti-cancer drugs were found to have the highest cost of development ranging from $944 million and $4.54 billion. 

The drug development process is both risky and time-consuming. Before a drug is approved by the Food and Drug Administration (FDA), it undergoes a rigorous review of evidence from preclinical testing to phase I to III studies which may span for over ten years and may extend up to 20 years. The time a drug spends in development is an important driver of R&D costs.

Moreover, overall success rates also substantially increase the cost of drug development. The success rate from preclinical to phase I is estimated to be 31.8% while the likelihood of regulatory approval from phase I was 11.83% up to 19.3%. The most common research domains were neoplasms, followed by infectious and parasitic diseases, diseases of the nervous system, diseases of the circulatory system, mental and behavioral disorders, and endocrine, nutritional, and metabolic diseases. Antibiotics have the highest success rate while central nervous system drugs have the lowest success rate.

Due to the aforementioned failure rates associated with R&D, investors are cautious in balancing costs with projected benefits. Like any other investment, it accompanies risks that should be weighed carefully by stakeholders. R&D investment has the potential for higher profits due to innovation which is crucial for a company’s success in the market. 

R&D is an important driver of economic growth. It is, however, a costly endeavor since it requires manpower, facilities and equipment, and operational expenses. The returns can be immense as it leads to innovation, invention, and progress. It is important to foster relationships between public and private sectors and develop policies to increase R&D investment for future development and public health benefit.

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