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D CONRICT OF INTEREST, PROTECTION OF PUBLIC OWNERSHIP, IN DRUG DEVELOPMENT DEALS BETWEEN TAX-EXEMPT, FEDERALLY SUPPORTED LABS AND THE PHARMA=CEU_TICA_L I_NDUS_TRY PARTI Y 4. SH 1: 103-5 Conflict of Interest, Protection of... "MP BEFORETHE SUBCOMMITTEE ON REGULATION, BUSINESS OPPORTUNITIES, AND TECHNOLOGY OFTHE COMMITTEE ON SMALL BUSINESS HOUSE OF REPEESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION WASHINGTON, DC, MARCH 11, 1993 Printed for the use ofthe Committee on Small Business Serial No. 103 SEP 2 ^ fi99 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON :1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-041281-1 CONFLICT OF INTEREST, PROTECTION OF PUBLIC J? OWNERSHIP, IN DRUG DEVELOPMENT DEALS BETWEEN TAX-EXEMPT, FEDERALLY SUPPORTED ____ UBS AND THE PHARMACEUTICAL INDUSTRY PARTI Y 4, SM 1: 103-5 CoBflict of Interest, Protection of. MP* .. BEFORETHE SUBCOMMITTEE ON REGULATION, BUSINESS OPPORTUNITIES, AND TECHNOLOGY OFTHE COMMITTEE ON SMALL BUSINESS HOUSE OF REPEESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION WASHINGTON, DC, MARCH 11, 1993 Printed for the use ofthe Comifiittee on Small Business Serial No. 103^^ SEP 2 4 1993 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice.Washington,DC 20402 ISBN 0-16-0A1281-1 COMMITTEE ON SMALL BUSINESS JOHNJ. LaFALCE,NewYork, Chairman NEALSMITH,Iowa JANMEYERS,Kansas IKESKELTON,Missouri LARRYCOMBEST,Texas ROMANOL. MAZZOLI,Kentucky RICHARDH.BAKER,Louisiana JRNOOOHNRNMWACYNODNESYNIE,SRISSO,KrYe,Jgro.Vn,irMgiicnhiiagan JJRIOOMENLARLAHMDESFKLT.EAYDM,,ACCMHoilTnonLreEasdYoo,taRhodeIsland JAMESH.BILBRAY,Nevada SAMJOHNSON,Texas KFWLEOIYSDIHM.FFULMAEK,E,MaNreywlaYnodrk WMIILCLHIAAEMLHA..Z"EMLAICFF",CJOr.L,LINNeSw,HGaemoprsgihaire BILLSARPALIUS,Texas SCOTTMcINNIS,Colorado GEVLAENMN.PCOLSAHYATRODN,,INlolirntohisCarolina JMAIMCEHSAEML.HTUAFLFEINNTG,TMOiNss,ouCrailifornia MARTINT. MEEHAN,Massachusetts JOEKNOLLENBERG, Michigan PATDANNER,Missouri JAYDICKEY,Arkansas TEDSTRICKLAND,Ohio JAYKIM,California CNLYEDOIAFIME.LDVSE,LALoZuQiUsiEaZn,a NewYork PDEOTNEARLDG.AT.OMRAKNIZLDUSLELNO,,MIalslisnaocishusetts MARJORIEMARGOLIES-MEZVINSKY, Pennsylvania WRAOLNTKELRINRK.,TPUeCnnKsEyRlvaIInIi,aCalifornia LUCILLEROYBAL-ALLARD,California EARLF. HILLIARD,Alabama H. MARTINLANCASTER, NorthCarolina THOMASH.ANDREWS,Maine MAXINEWATERS,California DonaldF.Terry,StaffDirector StephenP. Lynch,MinorityStaffDirector Subcommittee on Regulation, BusinessOpportunities, andTechnology RONWYDEN,Oregon, Chairman IKESKELTON,Missouri LARRYCOMBEST,Texas TTEHDOMSATSRIHC.KLAANNDDR,EWOhSi,o-Mfeihe,• JSAAYMDJIOCHKNESYO,NA,rkTaenxsaass NORMANSISISKY, Virginia JAYKIM,California JFALMOESWHft.. BFILLABKREA,Y,NeNwevYaodrak MPEITCEHRAEGL.THOURFKFIILNDGSTEONN,,MCaaslsiafcohrunisaetts MARTINT. MEEHAN,Massachusetts WALTERR.TUCKERHI,California V^t^ -' SteveJenning,SubcommitteeStaffDirector - - " RobertLehman,MinoritySubcommitteeProfessionalStaffMember (ID CONTENTS Page HearingheldonMarch11,1993 1 WITNESSES Thursday, March 11, 1993 Beutler,Ernest,chairman.DepartmentofMolecularandExperimentalMedi- cine,theScrippsResearchInstitute 49 Etzkowitz, Henry, associate professor ofsociology, State University of New York 43 Healy, Bernadine, Director, National Institutes of Health, Department of HealthandHumanServices,accompaniedbyReidAdler,Director,Officeof TechnologyTransfer,andRobertLanman,generalcounsel 9 Nader,Ralph,consumeradvocate 36 Wagner, Judith L., senior associate. Health Program, Office of Technology Assessment,accompaniedbyMichaelE.Gluck,senioranalyst 35 Wells,Jim,AssociateDirector,EnergyandScienceIssues,Resources,Commu- nity, and Economic DevelopmentDivision, U.S. GeneralAccountingOffice, accompaniedbyLowellMininger,AssistantDirector 40 APPENDIX Openingstatements: Bilbray,Hon.JamesH 63 Combest,Hon.Larry 62 Johnson,Hon.Sam 68 Kim,Hon.Jay 65 Wyden,Hon.Ron 58 Preparedstatements: Beutler,Ernest,withattachments 129 CurriculumVitae 145 Listofarticlesandletters 150 LettertoChairmanWydenfromSandozCorp 209 Etzkowitz,Henry 116 Healy,Bernadine 70 Nader,Ralph 90 Wagner,JudithL 76 Wells,Jim 109 Statementssubmittedfortherecord: Johnson&JohnsonCorp 215 SandozPharmaceuticalsCorp.,withattachment 220 Patent Reexamination, Senate Judiciary Committee, hearing ex- cerpts ^ 225 DRUG DEVELOPMENT COLLABORATION BE- TWEEN NON-PROFIT FEDERAL SUPPORTED RESEARCH LABS AND DRUG MANUFACTUR- ERS: WHO OWNS THE RESULTS? HOW SHOULD THEY BE PRICED? THURSDAY, MARCH 11, 1993 HouseofRepresentatives, Subcommittee on Regulation, Business Opportunities, andTechnology, Committee on SmallBusiness, Washington, DC. The subcommittee met, pursuant to notice, at 9:38 a.m., in room 2359-A, Rayburn House Office Building, Hon. Ron Wyden, (chairman ofthesubcommittee) presiding. Chairman Wyden. The subcommittee will come to order. Today, the Subcommittee on Regulation, Business Opportunities, and Technology continues its 2-year-long inquiry into the pricing of drugs and medical devices which is the result of cooperation between taxpayer-supported, nonprofit, research laboratories and the pharmaceutical industry. The potential importance to the Nation's public health of this medical research collaboration is not in dispute. From these projects flow life-enhancing treatments for cancer, medications for cardiovascular disease, and cures for diseases and conditions that formerly meant death or a lifetime of disability for many of our fellow citizens. But this collaboration over time also has cemented the economic foundation ofa very large, very profitable industry. On a continu- ing and increasing basis, the pharmaceutical industry mines a mother lode of valuable medical discoveries from a laboratory system that Federal taxpayers support with almost $10 billion per year. Ofthis $10 billion, $3 dollars ofevery $4 go to a university or independentlab. The Federal administrators who supervise this system appear to have little control over the prices charged by private drug manu- facturers, who are their partners in either project-specific orbroad- based research ventures. This system results in the commercializa- tion of drugs discovered and developed in Federal laboratories, then priced out ofsightby the pharmaceutical industry. Today, the subcommittee turns to the experience ofprivate, nonprofit research labs, some in universities, some independent, receiving significant, if not a majority, oftheir annual operating budget (1) through Federal grants. In 1991, for example, the top 25 independent and university labs received over $5 billion in Federal awards, mostlythrough NIH grants. Of special interest to the subcommittee are the instances where private nonprofit research institutes, receiving the bulk oftheir fi- nancial support from the Federal Government, sign exclusive technology transfer agreements with private drug companies. Such agreements, by definition, can be extremely detrimental to small business because they create monopolies dominated by very large multinational pharmaceutical corporations that reduce market- placecompetition in ourcountry. As a case study, the subcommittee intends to use a major 10- year-long agreement, entered into by the Sandoz Corp. of Basel, Switzerland, and the Scripps Research Institute of La JoUa, CA. Scripps gets most of its operating funds, almost $100 million per year, from the Federal taxpayer. It has signed an exclusive technology transfer agreement with Sandoz, which will supersede an already existing exclusive arrangement between Scripps and Johnson & Johnson Corp. As a result ofthe agreement, Sandoz will have access to approximately $1 billionworthoffederallysupported research. A billion dollars is obviously a lot oftaxpayer money. One would hope thatthe Governmentwould scrutinize how itwasbeingspent. But in this case, the key Government agency was neither informed nor consulted about the deal. We have a situation where the labs and the drug companies have been romancing each other, cutting sweetheartagreements, andjiltingthetaxpayer. Here is one for Ripley. This apparently is standard operating procedure. The Scripps-Sandoz deal raises many troubling questions. First, are some federally supported research institutions under no legal obligation to even show the Government the agreements that they have entered intowith private drugcompanies? Second, is the Federal Government bolstering the profit margin ofa large foreign corporation? Competition is frozen in the United States, decreasing market access forsmall companies, and probably encouraginghigherdrug prices forourconsumers. In addition, it appears that the Federal Government has turned a blind eye toward conflict ofinterest risks involving key adminis trators or researchers at these tax exempt, federally subsidized in stitutions. Drug companies may reward these individuals with con suiting contracts and equity ownership incentives. Clearly, thest sweetheart deals can bias decisions made by these key lab person nel in two respects; First, the research direction taken bythe feder allysubsidized labs, and second, whogets to marketthe results. However, in response to pressure from the drug industry, botl the Department of Health and Human Services and the previoui administration squelched conflict of interest regulations intendet to discourage misuse ofFederal grants, resulting in an atmosphen oftroubling entrepreneurship among insiders at these labs. This i unacceptable. Because of our concern with potential conflicts of interest, th subcommittee will examine evidence that a key administrator a Scripps has a lucrative consulting contract with Sandoz, the drU; manufacturer who enjoys an exclusive technology transfer agree- mentwith the laboratory. The subcommittee will look at whether this arrangement influ- ences research decisions at the lab? Whether the public interest is protected? For the record, Johnson & Johnson Corp. and the Sandoz Corp. have both been invited to attend the subcommittee's hearing. They have declined the subcommittee's invitation to testify, although both have submitted written statements to the hearing record at the subcommittee's request. Without objection, those statements will be included in the record. [Thestatements maybe found in the appendix.] Chairman Wyden. The Chair notes that the National Institutes of Health, at the subcommittee's request, is looking beyond the Scripps-Sandoz and Scripps-Johnson & Johnson deals. The National Institutes of Health is trying to define the extent of similar ar- rangements throughout its grantee community. Moreover, NIH is surveying more than a hundred research institutions receiving NIH money. Dr. Bernadine Healy, the National Institutes of Health director, will testify today on the progress ofher inquiry, and the specifics of the Scripps-Sandoz and Scripps-Johnson & Johnson collaborations. Beyond the question of pricing of products, these deals raise many issues which are ofcritical concern to scientists, the Govern- ment, taxpayers, and small business. How will this deal affect normal interchange between scientists within and outside of Scripps, and how will it affect the course of ground breaking science? Will a Scripps scientist whose bread is not only buttered but paid for by Sandoz be barred from speaking to colleagues atthe UniversityofOregon, orat Georgetown? What kinds ofcontrols existto prevent an unscrupulous administrator from selling access to the lab for what amounts to a profes- sional orfinancialgain? In addition, do our drug companies have the same kind ofaccess to public-supported labs in foreign countriesthatforeign companies appear tohave toours? In the Chair's view, Government acquiescence to arguments by federally supported research institutions that drug company collaboration deals should remain secret would be irresponsible in the extreme. Continued refusal to share this information ought to be grounds for divorce, and certainly the withholding ofFederal grant funds. Finally, the Chair notes that there are substantial questions as towhether the Scripps deals comply with the Bayh-Dole Act, which is the principal Federal technologytransfer law. The Chair will take special interest in this issue, and intends to examine specifically the impact of these deals on small business, and the encouragement ofmonopolistic pricing practices on impor- tant newdrugs. [Chairman Wyden's statement maybe found in the appendix.] Chairman Wyden. The Chair would also like to note that there is absolutely nothing partisan about the issue ofpromoting technology transfer among small business, ensuring that the tax funds are well spent, and protecting our consumers against price gouging. That is notthe waythat thissubcommittee does itsbusiness. We are pleased to welcome our new ranking minority member, the gentleman from Texas, Mr. Combest, and recognize him for his openingstatementat thistime. Mr. Combest. Thank you much, Mr. Chairman. I appreciate your kind remarks. Mr. Chairman, I want to first say that I look forward to working with you in a bipartisan manner on the many real problems facing the Nation's 20 million small businesses. I believe that there are serious policy questions that need to be addressed, many ofwhich you addressed in your opening remarks, in connection with collaborative biomedical research agreements between private research institutions and their industrial partners. However, I also have some concerns as to why the subcommittee is focusing on only two players in this area. Hundreds of such agreements have existed since Congress enacted the Bayh-Dole Act of1980. Because ofpast requests from the subcommittee, the National In- stitutes of Health has asked 103 universities and private research institutions for all information that may have been collected about institutions receivingsignificant Federal funding. I am concerned that by focusing on only one agreement, the Sandoz-Scripps agreement, that there is an appearance of an im- proprietywhich may notexist. Furthermore, Mr. Chairman, it is my understanding that NIH has received little or no response from the many institutions con- tacted. While NIH has received some information on the agreement between Scripps and Sandoz, my understanding is that few others who are scheduled to testify here today have seen the agreement in question. I also understand that this agreement has not been completely finalized, and would not go into effect for years. Mr. Chairman, thebiotechnology field is one ofthe many shining stars in our economy. Some folks at this hearing may tryto contra- dict that, but the facts are clear. NIH's own estimate claims that by the year 2000 that $50 billion in revenues and thousands ofnew jobs canbe attributedto thebiotechnologyfield. While I understand the need to address possible policy concerns, Ihopethatthe subcommitteewill move prudently. Finally, Mr. Chairman, as you know, Sandoz Pharmaceutical Corp. was unable to testify this morning. Consequently, Sandoz has provided me with awritten statement, together with their March 5 letter, which I hereby request be included in the hearing record. Chairman Wyden. Withoutobjection, so ordered. Mr. Combest. Thankyou, Mr. Chairman. [Mr. Combest's statement and the referenced materials may be found in the appendix.] Chairman Wyden. I thank my colleague, and look forward to workingwith him on these issues. Letme recognize thegentleman from Nevada, Mr. Bilbray. Mr. Bilbray. Mr. Chairman, I would liketo thank you forhaving this hearing. After reading a lot of the testimony and what has been goingon, I thinkthat it is ashockto me as it isto thetaxpay- er what has been happening in this area. It is my hope that these