Research and development financing models for new biopharmaceuticals in the United States

Introduction

The enactment of the Inflation Reduction Act (IRA) and the growth of state Prescription Drug Affordability Boards have raised important questions about how to improve drug affordability without curbing biopharmaceutical innovation.¹ Although current policy discussions often center on the role of large manufacturers in drug development, understanding all entities’ involvement in biopharmaceutical research and development (R&D) is critical to evaluating policy impacts and designing more targeted policies across the market.² Prior studies have demonstrated that biotechnology companies and academic institutions were involved in nearly half of priority-reviewed therapeutics approved between 1998 and 2007.³ However, important gaps remain in understanding the role of other key contributors in the development and commercialization of new biopharmaceuticals.^4,5 We examined trends in R&D financing for new biopharmaceuticals approved by the US Food and Drug Administration (FDA) over the past decade.

Methods

We conducted an analysis of new biopharmaceuticals approved by the FDA between January 2015 and June 2024. We assembled a novel dataset to identify each product's financing and ownership history using Clarivate™ Cortellis Drug Intelligence and PitchBook financial data, which have been used in prior studies of biopharmaceutical pipelines.^6-8 We classified entities involved in biopharmaceutical development before regulatory approval (hereafter referred to as “originators”) into 4 categories based on their primary funding source, following conceptual funding archetypes identified in a Dutch government–commissioned report⁴: (1) established companies that manufacture and commercialize biopharmaceutical products approved by the FDA for the US market regardless of headquarters location; (2) startup companies that received venture capital (VC) investment during the biopharmaceutical development period (eg, Acceleron Pharma); (3) non-US pharmaceutical companies without a commercial presence in the US that lacked a VC funding history and had no new biopharmaceutical products approved and registered in the FDA database under their business name (eg, Chugai); and (4) public organizations or academic institutions that funded the initial R&D (eg, Defense Advanced Research Projects Agency or Duke University). We calculated the percentage of biopharmaceuticals developed by originator type and examined the changes over time. Statistical significance was set at α = 0.05 (2-sided).

Results

Among the 495 new biopharmaceuticals approved by the FDA between 2015 and 2024, 45% originated from established companies, 24% from VC-backed startups, 20% from foreign companies without US commercial presence, and 8% from public or academic institutions. The entities involved in biopharmaceutical development shifted during the 10-year period. Between 2015-2017 and 2021-2023, the share of new biopharmaceutical approvals originating from VC-backed startups rose from 17% to 28%, while the share originating from foreign companies increased from 18% to 21% (Figure 1). In contrast, the share originating from established companies declined from 56% to 44%, while those originating from public or academic institutions dropped from 10% to 7%. Differences in the distribution of originators between the 2 time periods were statistically significant (P = 0.01). The decline in biopharmaceuticals originating from established companies was attributable to reductions in both in-house R&D and partnerships between established companies.

Figure 1.

Changes in the originator type for new biopharmaceutical approvals.

Discussion

Biopharmaceutical development is commonly viewed as stemming primarily from publicly funded academic research or internal pipelines of large manufacturers supported by existing revenue streams. While VC investors have become an increasingly important participant in drug development, empirical evidence on the evolving origins of biopharmaceutical R&D remains limited. Our study found that VC-backed startups and foreign companies without a US commercial presence are increasingly prominent contributors of biopharmaceutical R&D, underscoring the growing diversity of the innovation ecosystem.

Policy debates often focus on how drug pricing reforms for established products affect biopharmaceutical innovation as a whole, but biopharmaceuticals developed by startups may be also sensitive to upstream incentives, such as the federal R&D payroll tax credit in the IRA for small businesses and R&D tax expensing under the Trump Administration, changes in federal science funding, and broader financial policies, such as interest rates. However, these incentives, which can mitigate any potential downward impact of pricing reforms on innovation, have received little attention. Policymakers should consider these dynamics when evaluating drug pricing policies and explore targeted incentives to sustain a broader range of biopharmaceutical innovators.

This study provides a descriptive analysis of trends in R&D financing among biopharmaceuticals that entered the market and does not assess the policy or market factors that may have driven these transitions—a limitation of the current work. The exclusion of drugs that failed during development also highlights an important area for future research.

Supplementary material

Supplementary material is available at Health Affairs Scholar online.

Funding

This work was supported in part by Arnold Ventures. The funder had no role in the collection of the data, analysis, interpretation, or reporting of the data or in the decision to submit the manuscript for publication.