How Early-Stage Science Drives Medical Innovation

Early-stage research is crucial for driving innovation and maintaining global competitiveness, even when its commercial viability is not immediately apparent. Take, for example, the immensely successful Defense Advanced Research Projects Agency (DARPA), which pioneered early innovations for common technologies including GPS, weather satellites, and even Siri in our iPhones. Many of the everyday innovations we rely on exist in part because of publicly funded, high-risk, high-cost efforts. This is especially true in the biopharmaceutical sector.

Public investment helps fill the gap in the industry created by market uncertainty and high costs by supporting the foundational science that sparks breakthroughs, results in life-saving therapies, and boosts national competitiveness. Federal agencies including the National Institutes of Health (NIH) and the Advanced Research Projects Agency for Health (ARPA-H) play an essential role in funding this vital early-stage research.

Federal investment in the life sciences is also critical for stimulating private sector investment. A comprehensive review of academic studies found substantial evidence of the public sector’s impact on biopharmaceutical innovation, estimating that the ROI from public funding for biomedical research could reach 30 percent annually, measured solely on its impact on private sector research and development (R&D).

The review detailed that out of 21 transformative drugs developed between 1965 and 1992, research funded by the public sector provided foundational insights for over three-quarters of these innovations, laying the groundwork for major therapeutic advancements. Further, research indicates that a $1 increase in federal life sciences R&D funding is associated with a $0.29 rise in private and state/local government funding. A Milken Institute study even found that for each $1 of NIH funding spent, the output of the bioscience industry increases by $1.70.

In addition to funding foundational, early-stage basic research, the NIH plays a key role in translating scientific discoveries into real-world applications. For instance, the NIH’s National Center for Advancing Translational Sciences (NCATS) focuses specifically on accelerating translational research—a key challenge in drug development—by bridging the growing gap between laboratory discoveries and clinical applications.

Beyond the NIH’s efforts to advance translational research, ARPA-H—modeled after DARPA to address health challenges—is critical in driving biopharmaceutical innovation through its support of high-risk, high-reward projects. For example, more than 90 percent of drug candidates fail clinical trials due to safety or efficacy concerns, but ARPA-H’s CATALYST program supports the development of computational models to better predict drug safety and efficacy. This key resource reduces failure rates, protects trial participants, and spurs the development of safe and effective therapies.

Despite the importance of federal support for U.S. biopharmaceutical innovation, the Trump administration’s efforts to reduce the size of the federal government have already resulted in decreased funding. One significant cut involves capping indirect costs at 15 percent, down from an average of 27-28 percent. Indirect costs are vital to “keeping the lights on,” because they cover expenses associated with lab facility maintenance, equipment, and insurance, utilities (e.g., electricity, gas, cloud services, and other IT costs), and administrative personnel. NIH indirect cost rates also vary across universities, reflecting operational costs across different locations, and such funding is key to their operations. Even beyond funding new scientific knowledge and technological tools, public funding also cultivates a highly skilled scientific workforce, which is crucial to continuing biopharmaceutical progress.

While some private foundations offer lower indirect rates than federal agencies, their grants are complementary to federal funding, and universities are able to accept such lower rates precisely because federal grants provide the baseline foundational research support that serves future project-specific funding. Moreover, private foundations tend to prefer supporting specific research projects that align with their funding priorities, which is another reason why broader federal support is so important for scientific progress. Reducing federal funding will discourage research projects that require large-scale investments due to a simple lack of funding, harming U.S. biopharmaceutical innovation.

At a time when the United States is scaling back its life sciences funding, China is expanding its federal investment in this sector to advance its vision of becoming a global biotechnology superpower. China’s primary science funding agency, the National Natural Science Foundation, has been increasing support for basic research as part of a broader national strategy to strengthen its entire biotechnology sector. As a result, reductions in U.S. federal life sciences funding risk slowing the development of life-saving treatments and weakening global biopharmaceutical competitiveness.