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Panel Discussion: The Role of the Public Sector in Innovation

11 October 2011

Matthew R. Keller, Southern Methodist University


The U.S. Government is Deeply and Critically Involved in the Innovation Economy
a) Shifts toward networked production among private firms and increasing salience of network failures to failed industrial dynamism b) Emergence of a decentralized innovation apparatus at the Federal level that has partially addressed such failures


Post-2009 Trends and Opportunities: Strengthening Domestic Manufacturing Networks Potential Areas for Policy Enhancement


90 80 Number of Awards 70 60 50 40 30 20 10 0 1975 2006

Recipients of Federal Funding Public Entities or Partners

Product Epogen, Procrit, Eprex Enbrel Neupogen, Neulasta Rituxan/MabThera Remicade Avonex Synagis Cerezyme

Sales 6.1 bn 4.4 bn 4.0 bn 3.9 bn 3.6 bn 1.7 bn 1.1 bn 1.0 bn

Role of Federal Support NIH funding leads to patent at Columbia University NIH funding leads to patent at SW Texas Medical Center NIH research for initial development (NIH licensed patent rights) NIH (SBIR) funding, leading to IPO of Idec (now Biogen-Idec) NIH funding for research at NYU NIH funding and market protection under Orphan Drug Act NIH research, plus extensive SBIR funding NIH research, funding; market protection under Orphan Drug Act

Significant Federal Support for Drug Discovery, Development and Clinical Trials

Significant Federal Support for Clinical Trials

Herceptin Avastin Humira Humalog Betaseron/Betaferon 3.1 bn 2.4 bn 2.0 bn 1.3 bn 1.2 bn Corporate support for research; federal support for testing Corporate support for development; federal support for clinical testing Limited federal support for development; significant federal support for clinical testing Limited federal support for development; extensive federal support for clinical tests Federal support for testing; market protection under Orphan Drug Act

Little or No Federal Support

Aranesp Erbitux 4.1 bn 1.1 bn Modification of Epogen to gain patent approval No evidence of federal support

Source: Vallas, Kleinman, and Biscotti (2011), "Political Structures and the Making of U.S. Biotechnology"

A) Shifts toward Decentralized, Networked Production among Private Firms

Correlative Proliferation of Network Failures (Schrank and Whitford 2011)

B) Post-1980 Emergence of a Decentralized Innovation Apparatus at the Federal Level

The U.S. has long excelled at generating innovative ideas, but production has often been offshored. Since 2009, ARRA funds have been used to expand support for domestic production capacity
Advanced Battery Manufacturing Support for Manufacturing & Demonstration

Projects in e.g. Renewable Energy

General Level:
Building upon existing strengths - and extending

it through increased support for manufacturing and production capacity

Refining and redefining performance indicators to

incorporate measures of network governance




5000 VC Early Stage VC Seed 4000 STTR SBIR Phase II 3000 SBIR Phase I



0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008