Up until the 1950's pharmaceutical development was entirely a government enterprise: https://www.google.com/url?q=https://www.slu.edu/law/academi...
People seem to get confused on what actually goes into bringing a new drug to market. Yes, a significant amount of basic research is done through government funding. But discovering a new drug target is about 20% of the way to a new drug.
You still need someone to develop new candidates, screen them, identify promising compounds, bring it through years of clinical trials, develop a manufacturing process, get FDA approval and then sell it.
A good rule of thumb is that the cost of R&D is typically 1/3 research and 2/3 development. Development is almost always entirely private. And a significant amount of research is too.
A single phase 3 clinical trial can run into the hundreds of millions of dollars. You can fund a lot of basic research for that kind of money.
When I was in grad school, my PI got grants of ~$2M a year and that supported a lab of ~10 researchers.
There's a big pay difference between grad students, industry researchers, and government researchers, with grad students being the lowest on the totem pole. Which should make sense because they are researchers in training. There's many different types of research too.
From talking to some of the old-timers, universities started to get better and better funding (NIH grants, royalties, etc) and eventually could buy the equipment they needed themselves, no need to rely on drug companies.
So it might be more accurate to say that basic research funding has grown and most of that growth happened on the university side. Pharma companies have either held steady or decreased their spend on basic research (it really depends on the company).
Certainly with the costs associated with drug approvals being exponentially higher today, only Federal government could possibly be in the drug business.