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Medical Research Generates Investment Returns Of 40% In Perpetuity

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http://blog.sciencecampaign.org.uk/?p=1887

The positive relationship between world-class medical science and national gains in health and wealth is well established. Every £1.00 invested in public or charitable research into cardiovascular disease in the UK between 1975 and 1992, for example, produced a stream of health and economic benefits equivalent to earning £0.39 per year in perpetuity. The UK’s superior medical research base that is second only in the world to the US, our co-coordinated landscape of private, public and charity funders, and the research potential of the NHS give us an unparalleled global competitive advantage. Retaining and harnessing this competitive advantage is reliant on Government’s continued commitment to the publicly funded science base.

More at the link.

http://www.the-scientist.com/article/home/53302/

The bottom line: No one knows what the actual returns of science are. "I'm not aware of any metric that people can agree on, particularly for basic research. It's so hard to trace the scientific origins of a product that's actually making money," says John Marburger, director of the Office of Science and Technology Policy, which advises President Bush on science.

Part of what makes it difficult to estimate the return on scientific investment are the long lags between input and output, says Adams. "What does come out of the scientific community has to be filtered through applied research and development, and products have to be developed and marketed, and it's easy to see why it takes a long time for this to happen." Economists have found time lags to be anywhere between a few years and many decades. The mathematical innovations that influenced the development of aircraft occurred in the 19th century. Adams estimates that the peak effect on the growth of industrial productivity occurred between 20 and 30 years following the publication of new research findings.6

Moreover, when looking at the economic benefits of research, what should you measure? The impact of research leaks out of the laboratory and into the economy in a number of ways, says Ben Martin from the University of Sussex. There's the obvious linear scenario, in which a scientific discovery gets published in a journal, is picked up by a company, becomes an innovation, and earns that company money. But most scenarios aren't so straightforward.

More at the link.

Exceptional economic returns on investments in medical research

The economic value of medical research: is it worth the investment?

Understanding the economic benefits of medical research

Was at a talk earlier in the week where a Prof was making the claim that for every £1 invested in medical research generates a return of 40p per year. At the time my first instinct was your talking utter crap, but I didn't know what the source was it was a little difficult to start pulling it apart so I've spent a few days looking for information to find the source of the figure and find out how they've come to such a startling conclusion. My feeling was people where deluding themselves with their own self importance.

Not had time to read this all fully yet but my first thoughts that this figure was fantasy ponzi crap appears well founded, big assumptions are being made about the benefits.

I'm quite prepared to admit that not all benefits can be quantified on the balance sheet, living longer and seeing your grandchildren grow up is very valuable but won't show up on a balance sheet.

My initial thoughts are they are using GDP and not giving any comparison to increases in GNP. By just using GDP I suspect there is a bit of the broken window fallacy being used. People live longer therefore will need more medical treatment which of course costs money meaning you will get an increase in GDP, for me the argument starts to become circular.

How the hell do you measure what the benefits are, if people are living longer how do you proportion x increase due to Y. Improved diet is not just down to medical research.

http://en.wikipedia.org/wiki/Perpetuity

A perpetuity is an annuity that has no definite end, or a stream of cash payments that continues forever.

This is clearly a bit of a misleading claim, as it falls foul of exponential growth the rate of return will clearly plateau at some point. I'm sure Taleb would have a fit over this claim as well, even if historically the rate of return for cardiovascular research was 40p YoY that doesn't mean it will generate that rate of return forever.

If the original claim had been around 4% or 5% per year I'd have been more comfortable with that but this 40% claim seems too good to be true.

http://www.marketoracle.co.uk/Article16835.html

8% returns are indeed unrealistic. Using leverage to achieve those returns is suicidal. If someone wanted to use leverage on fixed income or equities (on the long side) the time to do that was in March of 2009. Let's take a look at a few charts.

http://globaleconomicanalysis.blogspot.com/2010/06/ny-state-shell-game-municipalities.html

Plan assumptions of 8% annualized are highly unlikely to happen.

http://globaleconomicanalysis.blogspot.com/2010/06/toxic-pension-and-municipal-bonds-state.html

Given that 8% returns are likely Fantasyland material, I believe states will be out of money long before the dates proposed.

http://globaleconomicanalysis.blogspot.com/2010/06/toxic-pension-and-municipal-bonds-state.html

Worse yet are the current unsustainable pension plan assumptions of 8% coupled with a horrific fundamental backdrop of debt deflation, boomer retirement dynamics, and short-term treasury yields at close to 0%.

Now if we can get a 40% return it would appear I've solve the entire global pension crisis.

However I strongly suspect that economic benefits for the rate of return on medical research is being somewhat exaggerated.

Are there any good papers pulling apart these claims, or any which support them?

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Now if we can get a 40% return it would appear I've solve the entire global pension crisis.

However I strongly suspect that economic benefits for the rate of return on medical research is being somewhat exaggerated.

Are there any good papers pulling apart these claims, or any which support them?

40% in perpetuity did seem high to me, although of course drug companies doing medical research do make obscene profits.

I would imagine that it would be almost impossible to quantify this in any real respect as there are, as they point out above, so many ways in which investment in research interacts with the rest of the economy. I think about the closest you can come to it is to look at which countries have the highest gdp, manufacturing output, etc and compare it to research input, allowing for a multiphase lag between research input and manufacturing output (for instance training an engineer in R&D will have a short lag, taking something from discovery to profit may lag by decades (something I discovered in the mid nineties is just entering the monetisation stage and will hopefully be a product by 2015 - a twenty year lag - for what it's worth the company projections are that over the projected lifespan it should profit them by between 10x and 50x (worse case and best case) the total R&D input, if there are no snags between now and then (which there may be - about 1 in 5 products make it from where we are now to the market in this sector))).

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I think that figure of 40p in perpetuity is big pharma free, this is academic research.

I have several friends who work or used to work in big pharma. A considerable number of their ideas come out of academic research, and are then taken on in prototype form and put through the trials by the company. In addition these companies also spend a reasonable whack on academic research themselves - buying in expertise in some niche area if you like. I am sure that this is counted in the stats feeding back into the worthiness of academic funding.

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I think that figure of 40p in perpetuity is big pharma free, this is academic research.

And given that this sample is cardiovascular disease I suspect that this notional income is the gain in the economy due to less people dieing. prematurely.

Of course you can't scale up this gain forever. If you stop people dieing of heart disease at 50 and they live to 65 then you have improved their economic activity (and created a positive effect on the overall economy). But if you stop people dieing at 65 and they live until 80 you will make a negative effect on the country's finances.

tim

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And given that this sample is cardiovascular disease I suspect that this notional income is the gain in the economy due to less people dieing. prematurely.

Yep, it is this sort of argument. I've seen similar numbers bandied about for providing clean water or combating malaria in undeveloped countries.

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40% in perpetuity did seem high to me, although of course drug companies doing medical research do make obscene profits.

Drug companies make similar profits to other sectors, capitalisation is adjusted by the market to ensure this is the case.

Drug companies make obscene profits on some particular drugs, but that just covers the huge losses they make on the thousands of drugs that fail. Big pharma is big because it has run as a lottery looking for the winning ticket.

I suspect the study is only looking at successful drugs and the cost of research on them, not all drug research. Possibly also looking only at successful companies and ignoring the ones that went bankrupt. Either way this is 'survivor' bias, always a huge problem in quantifying returns.

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http://www.nytimes.com/2010/11/06/health/policy/06germ.html?ref=business

Worried about an impending public health crisis, government officials are considering offering financial incentives to the pharmaceutical industry, like tax breaks and patent extensions, to spur the development of vitally needed antibiotics.

While the proposals are still nascent, they have taken on more urgency as bacteria steadily become resistant to virtually all existing drugs at the same time that a considerable number of pharmaceutical giants have abandoned this field in search of more lucrative medicines. The number of new antibiotics in development is “distressingly low,” Dr. Margaret A. Hamburg, commissioner of the Food and Drug Administration, said at a news conference last month. The world’s weakening arsenal against “superbugs” has prompted scientists to warn that everyday infections could again become a major cause of death just as they were before the advent of penicillin around 1940.

“For these infections, we’re back to dancing around a bubbling cauldron while rubbing two chicken bones together,” said Dr. Brad Spellberg, an infectious disease specialist at Harbor-U.C.L.A. Medical Center in Torrance, Calif.

For example, scientists have become alarmed by the spread from India of a newly discovered mutation called NDM-1, which renders certain germs like E. coli invulnerable to nearly all modern antibiotics. About 100,000 Americans a year are killed by infections acquired in hospitals, many resistant to multiple antibiotics. Methicillin-resistant staphylococcus aureus, or MRSA, the best known superbug, now kills more Americans each year than AIDS.

While the notion of directly subsidizing drug companies may be politically unpopular in many quarters, proponents say it is necessary to bridge the gap between the high value that new antibiotics have for society and the low returns they provide to drug companies.

“There is a market failure,” said Representative Henry A. Waxman, a California Democrat and the chairman of the House Energy and Commerce Committee, who said he was considering introducing legislation. “We need to look at ways to spur development of this market.”

And today we have this story in the NYTimes.

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  • 153 Brexit, House prices and Summer 2020

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