Research & Development - 2014

Goal: Increase support for the research and development activities that provide a foundation for high-tech growth

Research and development (R&D) is one of the traditional measures of innovation. Federal and state programs encourage R&D investment, and successful companies invest internally and support research performed by and / or with partners, including with academia. Virginia’s universities, hospitals, and laboratories discover and disseminate innovative ideas with applications across industries. The Research & Development category is central within the IEMS, capturing the actual idea-creation stage when the right people (talent pipeline) have the money they need (access to capital, R&D funding) and the right facilities to develop ideas with potential for commercialization.

Federal research and development obligations declined in 2010 in Virginia, though a year-over-year decline was somewhat inevitable given the $483.3 million in R&D / science awards to Virginia linked to the 2009 Recovery Act. Combined SBIR / STTR awards, both in dollar amounts and number of awards, decreased overall in 2012, masking a slight increase in Phase I dollars awarded and STTR dollars awarded. Patents filed by and the number of patents awarded to residents of Virginia increased. Data for state and corporate R&D intensity are only available through 2008, but both increased over the previous year. 

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Why is Research & Development important?
Investment in R&D is a direct pursuit of innovation-driven growth, whether for businesses investing in new products or for federal programs investing in research with broader economic impacts in both expected and unforeseen areas. Not all investments are successful in creating a commercially viable product, or even intend to be, but measuring these investments provides an indication of the state’s ability to create and spread knowledge. The number of patents filed by and awarded to residents of Virginia show how many businesses and individuals believed they had an idea worth protecting and developing to profit from their investments in research. 

How has Virginia performed over the last five years?

Federal R&D
Between 2005 and 2010, Federal R&D Obligations increased 4.2% ($366 million). Obligations rose to a peak of nearly $9.4 billion in 2009, but declined to $9.1 billion in 2010. Federal Obligations for R&D fell 0.6% in the U.S. between 2009 and 2010, compared with the 2.9% decline in Virginia. The decline was primarily driven by reduced spending from the Department of Defense (DoD), as R&D dollars from the DoD to industrial firms fell by nearly $300 million between 2009 and 2010.

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SBIR & STTR Awards
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide federal dollars to fund innovative research and development. SBIR and STTR encourage and support small businesses to participate in R&D that has potential for commercialization. STTR expands funding for small businesses; its unique feature is requiring collaboration with a nonprofit research institution. In 2012, Virginia businesses received $93.6 million in SBIR awards and $11.9 million in STTR awards. The combined number of Phase I awards through both SBIR and STTR decreased 6.9% between 2011 and 2012, but the dollars awarded for Phase I research increased 9.8%. Both the number of awards and funds awarded for Phase II research declined 38% and 32%, respectively, between 2011 and 2012. The dollars awarded in Virginia through STTR increased slightly between 2011 and 2012, but awards from the larger SBIR program fell. The dollars awarded through SBIR and STTR decreased from $138.7 million in 2011 to $105.5 million in 2012. Total award amounts peaked in 2008 at $145.1 million. 

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State R&D Intensity
State R&D intensity measures federal, business, university, other nonprofit, and state R&D performed as a percentage of state gross domestic product (GDP). It is an indicator of the concentration of R&D funding and performance in the state. Between 2004 and 2008, Virginia’s R&D intensity increased from 2.23% to 2.85% of the Commonwealth’s GDP. This increase of .62 percentage points compares with a .21 percentage point increase nationally.

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Corporate R&D Intensity
Corporate R&D intensity explores the R&D performed by businesses in the state as a percentage of private industry output (revenue from firms). Higher values indicate a greater investment by businesses in R&D activities. Corporate R&D intensity grew slowly from 1.47% of private industry output in 2004 to 1.51% in 2007 before jumping to 1.86% in 2008. The U.S. average in 2008 was 2.14%.

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Patents Filed
The number of patent applications filed by residents of Virginia, including those filed by individuals at companies or universities, rose from 3,554 in 2007 to 4,106 in 2012, an increase of 15.5%. The total number of applications filed in the U.S. rose 12% over the same period. Between 2011 and 2012 the number of patents filed by residents of Virginia rose 7.9%, compared with a 6.1% increase across the U.S.

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Patents Awarded
The number of patents awarded to residents of Virginia, including those filed by individuals at companies or universities, increased 4.2% between 2011 and 2012, from 1,744 to 1,817. Total patents awarded in the U.S. rose 10.1% over the same period. Patents awarded to Virginia residents rose every year between 2008 and 2012, and jumped 42.7% between 2009 and 2010, while all U.S. patents jumped 31% in 2010.

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What are the implications?
Investments in research and development are some of the most visible indications of a focus on innovation. In 2008, in the middle of the U.S. recession, R&D investments in the Commonwealth increased as a percentage of GDP, and businesses increased their intensity as a percentage of private industry output, showing a strong commitment to promoting growth through innovation. While obligations and awards from federal sources declined in Virginia, the number of patents both filed and awarded increased substantially in recent years. Overall, there are indications that Virginia increased its focus on R&D during the recession, and individuals and businesses have since been increasingly successful in generating innovative products and services worth protecting and moving to commercialization.


Data Sources and Definitions:
Each IEMS indicator reflects the latest available data and includes a discussion of trends in up to five years of historical data, depending on availability.

Federal R&D Obligations: Obligations represent the total dollar amounts from Federal agencies for R&D orders placed, contracts awarded, services received, and similar transactions from any performer in Virginia during the given year, regardless of when the funds were appropriated and when future payment of money is required. Data from the National Science Foundation, Science and Engineering State Profiles, http://www.nsf.gov/statistics/states/show.cfm?year=0&stateID=53%2C48. Recovery Act data from http://www.recovery.gov

SBIR & STTR Awards: Data for the Small Business Innovation Research (SBIR) program and Small Business Technology Transfer (STTR) program from U.S. Small Business Administration, http://www.sbir.gov/past-awards. The stated objective of Phase I awards is “to establish the technical merit, feasibility, and commercial potential of the proposed Federal Research /R&D efforts” and to evaluate the performance of the organization before providing more funding in Phase II. Phase II awards are to continue the Federal R&D efforts begun in Phase I, based on results from Phase I and commercial potential. Generally, only Phase I awardees are eligible for a Phase II award. 

State R&D Intensity: State R&D intensity measures federal, business, university, other nonprofit, and state R&D performed as a percentage of state gross domestic product (GDP). Data from the National Science Foundation, Science and Engineering Indicators 2012 State Data Tool, Table 39. http://www.nsf.gov/statistics/seind12/c8/interactive/table.cfm?table=39. Data are in current dollars.

Patents Filed and Patents Awarded: United States Patent and Trademark Office (USPTO), Performance and Accountability Report 2012, with preliminary 2012 numbers for patents filed obtained by request from USPTO (www.uspto.gov). The number of patents awarded per year is based on the date the patents were granted. Data include utility, design, plant, and reissue patents.


CIT acknowledges the important contribution of Chmura Economics & Analytics in preparing the IEMS.