Table Of ContentD 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
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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, (chair-
man 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 be-
tween 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, non-
profit research labs, some in universities, some independent, receiv-
ing significant, if not a majority, oftheir annual operating budget
(1)
through Federal grants. In 1991, for example, the top 25 independ-
ent 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 tech-
nology 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 ar-
rangement 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 adminis-
trator 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 col-
laboration 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 technolo-
gy 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 agree-
ment between Scripps and Sandoz, my understanding is that few
others who are scheduled to testify here today have seen the agree-
ment 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
