In general, the investment to produce a new drug for a small market is no different than producing a new drug for a large market, but a company is less likely to recoup its investment in a small market. Government funding of new drug development can raise the science base and move any promising drug closer to launch. Improving the science base can increase opportunities to create new drugs, and increase the likelihood of producing drugs that will be more effective and acceptable to a wider market. Any drug that has progressed toward launch poses less risk of failure, and shortens the time to revenues, increasing the present value of the drug. From the standpoint of industry, this can shift the balance of risk and reward by effectively decreasing the front-end investment required for entering this risky market. Government funding may take the form of extramural and intramural research, cooperative research agreements with industry, or otherwise owning or acquiring the rights to promising compounds and then offering these to pharmaceutical companies willing to complete the development cycle, as in the "guaranteed handoff" scenario described in this report. Thus, government funding of new drug development could counteract the barrier of the small and uncertain market.