[idiopathic]

You might be right that government can not do better than business, but this particular story is an example of where they can.

If there really "are plenty of companies that are not selling insulin, so they would be interested to be able to sell diabetes cure", none of them has come forward. This might be because the chances of developing are not good enough, but it sounds to me like you are starting from an assumption ("private sector would jump on this is if it was a good idea") and working your way backwards ("therefore this cannot have been a good idea").

Personally, my belief is that the best funding approach is multi-polar. In other words, there should be some government funding, some private sector, and some non-profit foundation funding. Each of these funders has blind spots, and is frightened by some research while others embrace it. The combination allows the entrepreneurial scientist to push their research forward at each stage.