i\\ / S. HRG. 103-948
V RESEARCH ON CHILDHOOD DISEASES
BY ENTREPRENEURS
Y 4. SM 1/2: S. HRG. 103-948
Research on Childhood Diseases by E. . .
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
ON
RESEARCH ON CHILDHOOD DISEASES BY ENTREPRENEURS
THURSDAY, MAY 26, 1994
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APR t 1 1995
v.OWMCMTrtrtPHjucmTcnppfl^r1
Printed for the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
87-127 WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-046720-9
S. HRG. 103-948
RESEARCH ON CHILDHOOD DISEASES
BY ENTREPRENEURS
Y 4. SM 1/2: S. HRG. 103-948
Research on Childhood Diseases by E. . .
HEAKING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
ON
RESEARCH ON CHILDHOOD DISEASES BY ENTREPRENEURS
THURSDAY, MAY 26, 1994
APR 1 1 1995
».OWMC»rrr»ftr,IMC|rrcnR,fl^fl
Printed for the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
87-127 WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-046720-9
COMMITTEE ON SMALL BUSINESS
DALE BUMPERS, Arkansas, Chairman
SAM NUNN, Georgia
CARL LEVIN, Michigan
TOM HARKIN, Iowa
JOHN F. KERRY, Massachusetts
JOSEPH I. LIEBERMAN, Connecticut
PAUL DAVID WELLSTONE, Minnesota
HARRIS WOFFORD, Pennsylvania
HOWELL HEFLIN, Alabama
FRANK R. LAUTENBERG, New Jersey
HERB KOHL, Wisconsin
CAROL MOSELEY-BRAUN, Illinois
John W. Ball III, Staff Director
Thomas G. Hohenthaner, Minority Staff Director
LARRY PRESSLER, South Dakota
MALCOLM WALLOP, Wyoming
CHRISTOPHER S. BOND, Missouri
CONRAD BURNS, Montana
CONNIE MACK, Florida
PAUL COVERDELL, Georgia
DIRK KEMPTHORNE, Idaho
ROBERT F. BENNETT, Utah
JOHN H. CHAFEE, Rhode Island
KAY BAILEY HUTCHISON, Texas
(ID
CONTENTS
HEARING DATE: MAY 26, 1994
Page
Morning session 1
Statements of Senators:
Lieberman, Hon. Joseph I., a U.S. Senator from the State of Connecticut . 1
Kerry, Hon. John F., a U.S. Senator from the State of Massachusetts 3
Burns, Hon. Conrad, a U.S. Senator from the State of Montana, prepared
statement 6
Statements of:
Beall, Dr. Robert J., president and CEO, Cystic Fibrosis Foundation,
Bethesda, MD, prepared statement 6
Esiason, Boomer, National Football League quarterback, Covington, KY .. 7
Wilson, Dr. James M., director, Institute for Human Gene Therapy, Uni-
versity of Pennsylvania, Philadelphia, PA, prepared statement 22
Penner, Harry, president and CEO, Neurogen Corp. Branford, CT, pre-
pared statement 48
Dovey, Brian H., partner, Domain Associates; board member, National
Venture Capital Association, Princeton, NJ, prepared statement 92
Goldberg, Dr. Robert M., senior research fellow, Gordon Public Policy
Center, Brandeis University, Springfield, NJ, prepared statement and
attachments 104
(HI)
RESEARCH BY ENTREPRENEURS ON
CHILDHOOD DISEASES
THURSDAY, MAY 26, 1994
U.S. Senate,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m., in room
SR-428A, Russell Senate Office Building, Hon. Joseph I.
Lieberman and Hon. John F. Kerry, jointly presiding.
OPENING STATEMENT OF HON. JOSEPH LIEBERMAN, A U.S.
SENATOR FROM THE STATE OF CONNECTICUT
Senator Lieberman. Good morning, and welcome to the hearing.
Today's hearing is designed to look at research being done by a
really vibrant new industry; research which is aimed at finding
cures and treatments for childhood diseases.
These kinds of diseases that we are talking about — cystic fibro-
sis, epilepsy, leukemia — really strike fear into the hearts of par-
ents.
We have one of those parents here today. Boomer Esiason is, ob-
viously, known as a great football player; but he really is here
today as a parent. I think he is also someone who knows that it
does not take half the courage to stand up to a Dallas Cowboy's
blitz as it does to battle a disease like cystic fibrosis.
We are very grateful that you are here, and we look forward to
your testimony.
Last Friday's Wall Street Journal summed up the industry that
is working on these cures and treatments, the biotechnology indus-
try, as great science and risky business. And, in a way, we have
structured this hearing today in just that form:
The first panel looks at the great science, the amazing leaps for-
ward in biotechnology, and the promise those discoveries hold for
curing the dreaded diseases of childhood.
The second panel examines the risky business, the daunting ob-
stacles that stand in the way of translating the promise of bio-
technology into the reality of healthier lives for our kids.
In the first panel, we are going to focus on cystic fibrosis, a dis-
ease many believe can be cured through gene therapy. By replacing
sick genes with healthy genes, scientists can bring about a true
miracle of medicine.
Gene therapy has already been successfully used to cure children
born with immune syndromes, otherwise known as bubble babies.
(1)
We are closing in on cures for babies born with dangerously high
cholesterol levels, which leave them susceptible to heart attacks in
their teen years; and even death, in their twenties.
Cystic fibrosis is just one example of the kinds of diseases that
we hope gene therapy can beat; and there will be tens of thousands
of children who stand to benefit from our victory in that battle, in-
cluding Boomer's son, Gunnar.
The second panel will examine what kind of financing it takes to
keep a biotechnology enterprise going, and how that financing will
be affected under different health care reform scenarios.
We are going to hear a lot about the financing that is needed for
what are very risky ventures. The same article that I referred to
in the Wall Street Journal likened the biotechnology industry to a
teenager who often makes promises it cannot keep: It can suck up
an inordinate amount of money, and sometimes it can be downright
irritating.
It is all the more fitting, I think, to liken this industry to a teen-
ager when you consider the fact that it did not exist 15 years ago.
So we want to talk about how those ventures are financed; why
some biotech products cost so much; and we are going to ask one
of the witnesses — who happens to be from Connecticut and has
been in business for, I believe, 6 years — when he expects to see
some revenues.
It is estimated that 99 percent of the companies in the bio-
technology industry have fewer than 500 employees; so it is cer-
tainly appropriate that the Small Business Committee holds this
hearing on these issues today.
It is also true that some companies rely on private investors, be-
cause they simply do not have any alternative. Banks do not make
the risky kinds of loans that biotech businesses need; and those
companies cannot plow money from existing product sales back into
the business, because they do not have any existing products to
sell. All they have is what might be called a pocketful of miracles—
we hope.
The potential benefits of biotechnology are enormous. We have
entrusted the development of this industry to genuine entre-
preneurs, operating on the sharp cutting edge not only of science
but of private sector technology development. We are breaking gen-
uine new ground here between science and in economics.
This is not a neat and orderly model that we have created, but
it is a model that has succeeded in other advanced technology de-
velopment in this country.
From computers to lasers to software, our private sector has been
turning brainstorms one could only imagine into products one can
easily buy. This mix of high science and advanced engineering with
high-risk entrepreneurs is the best way we have found to place new
technologies into the public's hands with maximum speed. It is a
marriage of science and entrepreneurial capitalism that represents
a bold new force for growth in our economy.
Biotechnology holds out the promise of curing age-old diseases,
even as it creates brand new jobs; that is, if we do not mess it up.
By that, I mean what we do in this session of Congress on health
care reform.
We should reform health care in this session of Congress; but we
must take care to do so in a way that does not snuff the life out
of the biotechnology business.
I am pleased that the administration and many of us here in
Congress seem to have gotten the message about how important it
is to encourage, and not discourage, this industry. I am heartened
that we are moving away from proposals that would stifle the fi-
nancing that the scientists need to battle diseases like cystic fibro-
sis.
It is a fact that new medical technology, new drugs, new medical
devices, and new medical equipment cost a lot. Some companies,
however, have charged too much for their products. Some health
care proposals attempt to control those costs, by imposing cost con-
trols. I, for one, think that would be a mistake for several reasons,
not the least of which involves the future of biotechnology, and the
fate of the children that biotechnology can protect.
We must reform health care in a way that enhances, not inhibits,
medical research and treatment in areas like gene therapy. The
truth is, we need to step on the gas of biotechnology research, not
hit the Drakes.
This is not to say that every new idea or technology possibility
deserves unlimited funding and encouragement. We have got to
spend our limited resources as wisely as we can. That is why I
think we have got to retain the wisdom of the marketplace, in help-
ing make those kinds of investment decisions.
If we replace private sector investment with too many public sec-
tor rules and controls, we will harm — not help — biotechnology re-
search and development; and deprive ourselves and our children of
the treatments and cures that we so desperately need.
I welcome the witnesses. We are delighted that you are here
today. We hope you can shed some light on how far in terms of re-
search, and how far in terms of financing, you are from treating
and even curing some of those childhood diseases. I hope you will
tell us, also, how we can help and not hinder you, in this great and
noble effort.
Thank you very much; and I would yield now, and welcome my
colleague and friend from Massachusetts, Senator John Kerry.
OPENING STATEMENT OF HON. JOHN F. KERRY, A U.S.
SENATOR FROM THE STATE OF MASSACHUSETTS
Senator Kerry. Thank you very much. I am delighted to join in
cochairing this hearing with you today; and we welcome the panel.
We welcome all those who are interested in this issue.
I particularly want to thank Senator Lieberman for his leader-
ship in this sector, and also for helping to bring this hearing about
today. It is an issue that is obviously critical to those of us in New
England, for a number of reasons, not the least of which is our eco-
nomic base.
But much more importantly, it is critical to everybody in this
country, as we will come to understand better in the course of the
testimony of our first panel.
I would like to thank Senator Bumpers also, for letting us have
this hearing today to talk about the linkage between new tech-
nology, small business innovation, and human beings; and the
whole question of breakthrough cures on diseases that plague us
and which are enormous burdens, not just on the health care sys-
tem of this country but, obviously, on individual families and peo-
ple struggling to cope with it, as we will also come to better under-
stand today.
I do not want to say too much here. We are here to hear from
our witnesses. But I would like to just take a moment, if I can, to
underscore as Joe had done why this is so important.
It is fair to say that we in Congress are in the midst of one of
the most dramatic and important legislative efforts of this century,
on a magnitude with some of those changes of the New Deal and
other great moments of legislative effort.
For those of us who are here in this legislative session, it is one
of the most important efforts that we will probably be involved in,
with social consequences that are huge. Thanks to President Clin-
ton and Mrs. Clinton, we are really tackling something that we
have all known has been on the agenda for 25 years or more.
The health care system has enormous advantages. It also has
problems, as we understand. We do not want to get trapped in the
gamesmanship of this debate that, somehow when you are talking
about the positives, you are ignoring the negatives; or that if you
are talking about the negatives, you are asserting that somehow
the whole system is caught up in a negative. It is not.
I think it is important, and I want to underscore this — that in
fixing this, we do not want to create a solution that eliminates our
capacity to continue to have breakthrough cures, whether it is in
breakthrough drugs or breakthrough technologies or procedures.
We do not want to lose the ability that has given us, notwithstand-
ing its problems, the greatest health care delivery system in the
world.
Now obviously, for 43 million Americans who do not have access,
that is a problem. It is not true. But they do get care; and the ques-
tion is whether we are going to redistribute the system more effec-
tively.
But here today what we are really talking about is the essence
of what has given us this system, this ability to deal with people's
problems; and it is really innovation. And we want to save that. We
do not want to rub it out, or somehow handicap it; it has to be nur-
tured.
Because innovation comes out of our teaching hospitals, it comes
out of our laboratories, it comes out of our small biotechnology com-
panies; and in the end, it ultimately is the foundation of a system
that people travel from all over the world to come and get.
Now, needless to say, there is a tragedy that some people who
live here cannot get what people travel here to get. And we want
to end that. But we do not want to end, with that, the quality of
care that is available and the innovation that comes with it.
I am not talking about innovation for innovation's sake. I am
talking about innovation that lifts the burden from people; and
that allows young kids and, in many cases, people of middle age
or even senior age, the opportunity to live out their life in the full-
est possible manner. That is critical to us.
Our first panel is here today to put a face on that innovation and
that reality; and they can do so, I think, with great eloquence and
with great testimony to their personal experiences, whether it is a
child — there is Boomer's child, who suffers from cystic fibrosis — or
a host of other afflictions that people face, which only innovation
will cure: Cancer, particularly; obviously, AIDS; sufferers of count-
less other diseases are waiting for our creativity and our innova-
tion to find the cure.
Our second panel is going to underscore the importance to our
national competitiveness which, in this new marketplace, is not
something that we can afford to take lightly.
Biotechnology has been identified as one of the handful of tech-
nologies critical to future U.S. economic growth and competitive-
ness, by the White House National Critical Technologies Panel; by
the private sector Council on Competitiveness; and the Congres-
sional Office on Technology Assessment.
As Dr. Goldberg of Brandeis is going to point out, the United
States currently leads in gene engineering patents, with over three-
fourths of the world total.
In addition, we produce more world-class drugs than any other
nation. And this has profound implications, not just for the pa-
tients who get that benefit, but for American economic growth and
jobs as well.
The biotechnology industry employs over 100,000 people in high-
skill, high-wage jobs, and employment has grown 23 percent since
1992. The Council on Competitiveness has stated that the bio-
technology industry could one day surpass the computer industry
in size and importance.
The importance of this industry to Joe's State and my State, and
to our region, is of particular value in pointing out. It was high-
lighted yesterday, in the Boston Globe, where we saw that Corp
Tech, which is a company in Woburn, MA, surveyed 392 small
high-technology companies with fewer than 1,000 employees; and it
asked them about their hiring plans, over the course of the next
12 months.
And the survey reported that the highest growth is going to be
in the biotechnology industry, with 23.9 percent growth over the
year in employment level. The environmental technology followed
that, with about 16 percent; computer software was third, with
about 11 percent; and medical technology was fourth, with about
10.3 percent. And telecommunications, way back, at about 5.5 per-
cent.
So it is clear that, if we nurture this industry, evidence shows
we will continue to promote jobs by investing in the future.
The biotechnology industry spends an average of $59,000 per em-
ployee on research per year, which is an astronomical amount
when compared to about the $7,000 spent on average by most cor-
porations in America.
I look forward to hearing today on the tangible benefits that are
provided to us, in terms of job growth. I hope the members of the
panel will permit me to do this, but I really want to thank Boomer
for his extraordinary efforts as an advocate for this issue.
It is so important in this country for people of celebrity, who can
make a whole lot of other choices, to understand the relationship
of their celebrity and their voice to things that happen when people
learn from them; and they have the capacity to be great teachers.
I read a story about Boomer last night and I really was not
aware of the great, really, the extraordinary and passionate efforts
that he has made in this endeavor.
So I want to thank him personally for that. I think he has been
an extraordinary example to a lot folks; not just athletes, but peo-
ple all over the country. We are very grateful to you for being here.
Though I must confess, after reading about all those people who
gather in your house before these games, I do not know how the
hell you get ready for a game. But other than that, we are de-
lighted to have you here.
Mr. Esiason. I leave the house. [Laughter.]
Senator Kerry. We welcome you.
Senator Lieberman. Thank you, John. Senator Burns has sub-
mitted a statement for the record and I'd like it to be included at
this point.
Prepared Statement of Conrad Burns, a Senator from the State of Montana
Thank you, Mr. Chairman, for holding this hearing. I only have a few brief com-
ments.
Small businesses are the engines that run our economy, and many of them are
making great strides in the research arena.
In fact, in Montana, there are several biotechnology firms who are actively re-
searching important health issues.
For example, small firms like TransGenic systems are performing cutting-edge ge-
netic research in my state. There are other small companies as well. The important
research they perform could result in a miracle for children with life-threatening
diseases.
As an aside, I must mention that I am deeply concerned about the impact of pro-
posed legislation to fundamentally change our health care system. The threat of
price controls and the possibility of certain services being limited, both which are
possibilities in health care bills now being debated, could have a devastating impact
on small businesses like this. The chance of mandates on employers is yet another
danger altogether to the small businesses we are talking about.
I am sorry that I cannot be here in person today to hear the testimony.
Senator Lieberman. Let us go to the first panel now: Dr. Robert
Beall, president and CEO of the Cystic Fibrosis Foundation; Boom-
er Esiason, whom we have talked about and welcome; and Dr.
James Wilson, director, Institute for Gene Therapy at the Univer-
sity of Pennsylvania, Philadelphia, PA.
Dr. Willson, I bring you greetings from your Senator, Harris
Wofford, who is a member of the committee, who regrets he cannot
be here because he is involved right now in the Senator Labor
Committee on marking up the health care reform package; in
which I am sure he will make sure that damage is not done to the
biotech industry.
Dr. Beall, why do you not start.
STATEMENT OF DR. ROBERT J. BEALL, PRESIDENT AND CEO,
CYSTIC FIBROSIS FOUNDATION, BETHESDA, MD
Dr. Beall. Senator Lieberman, Senator Kerry, we certainly ap-
preciate this opportunity. After hearing your introductory com-
ments today, I have the feeling this is going to be a very sympa-
thetic hearing.
As your introductory comments suggested, we are here to ask
your support on an issue that not only concerns the cystic fibrosis
community, but, we believe, the thousands of Americans who can
benefit from the investment in the American biotech industry.
We are on the verge of creating a cure for a disease; and a cure
for a disease that affects nearly 30,000 young Americans. But we
are very concerned, as we believe that our ability to bring about
that cure and that miracle is being threatened.
We are concerned about the issues associated with health care
reform, and the potential establishment of the Advisory Council for
Breakthrough Drug Pricing, and the establishment of blacklisting
for Medicare drugs; and we are very concerned that these issues
may destroy the innovation and the investment in research needed
to bring our dream to a reality.
There are a lot of headlines in the papers these days about cystic
fibrosis, and how we are starting to create this miracle. But the
fact is, we are getting there because there has been a unique part-
nership between the foundation, the academic institutions, the
NIH, the Congress, and industry.
Senator Harkin of this Committee has been a tremendous sup-
porter of our cystic fibrosis effort.
But, despite these breakthroughs that you are reading about, we
have not yet been able to save a single life.
We are counting on the wisdom and the foresight of this Commit-
tee, to help us in our effort to make sure that our pipeline for new
drugs, for new technology, for innovation and research, remains in
place. The pipeline produces and promotes the hope and optimism
for those like Boomer and Gunnar, and the thousands of other
young people and their parents, with cystic fibrosis. And the re-
sources that Dr. Wilson needs, to take the information from the
test tube to the bedside.
At this time, I would like to ask Boomer to share his predictions,
not about the Jets Super Bowl chances this year, but about the fu-
ture of his son, Gunnar.
STATEMENT OF BOOMER ESIASON, NATIONAL FOOTBALL
LEAGUE QUARTERBACK, COVINGTON, KY
Mr. EsiASON. Thank you, Doctor. Senators, thank you for having
me here this morning.
I want to speak to you as a parent, not so much as a football
player. And, as Senator Kerry noted, he did know my passion for
this particular disease — obviously, everybody in the room knows
that my son, Gunnar, is afflicted with this disease.
Senator, I want to let you know that anybody in my position, as
a parent and as a football player, would also exploit their celebrity
to hopefully someday see the end of this particular disease.
On May 6 last year, I was preparing to play football for the New
York Jets. I was traded there. I never thought in my wildest
dreams that I would find myself down here in Washington, DC, sit-
ting before you. But my wife, Cheryl, and I first found out that our
son, Gunnar, had CSF when he was diagnosed.
Needless to say, we were stunned and overwhelmed by the mag-
nitude of this situation. We learned that cystic fibrosis is a fatal
genetic disease that is passed from parents to children, via two cop-
ies of a defective gene: One CF gene from each parent.
We could not believe that we had given our sweet little child a
defective gene that we did: A defect that, at least, would sentence
Gunnar to a life of daily medications and arduous physical therapy;
and is hardly a life any of us would look forward to, let alone a
child who should be enjoying the carefree days of his youth.
It did not take us long to realize that Gunnar and those with CF
do not benefit from our feelings of guilt and self-pity. The only
thing that would really make a difference in their lives is our com-
mitment to do everything we can do to fight this particular disease.
CF families know that they must become the worst enemy CF
has ever had. Although it is not easy to say that you are going to
battle the disease that may take the life of your child and thou-
sands of others, it is a whole other story to really get in there and
do all that you can.
CF means rearranging family priorities, and disrupting what
once had been a pretty normal life. In CF, the body produces a
thick and sticky mucous which clogs the lungs and other internal
organs.
This mucous interferes with body processes that most of us take
for granted: Most notably, breathing, digestion, and even reproduc-
tion. This thick and sticky mucous, unless removed, also creates a
breeding ground for life-threatening lung infections.
New medications are greatly needed to intervene at every stage
of this complex, debilitating disease. For my family and all CF fam-
ilies, the battle against cystic fibrosis must now be fought on two
fronts: First, and most personally, is in the home front. Our daily
lives are structured around making sure Gunnar receives every-
thing he needs.
Gunnar's daily routine includes two physical therapy sessions,
where he endures pounding on his chest to help dislodge this mu-
cous. Gunnar also must receive daily medications that include tak-
ing more than a dozen pills, that provide him with the enzymes he
needs to digest his food; aerosolized drugs, which help break up the
mucous; and occasional intravenous antibiotics, to help fight infec-
tions.
It is quite a lot for a 3-year-old to endure each day. And it is so-
bering for the rest of the family, to learn how to handle drugs, nee-
dles and aerosolyzers, and accept the demands of performing phys-
ical therapy.
Before CF entered our home, we only saw the things that I just
described in hospitals and doctor's offices; and yet, now they have
become a part of our daily lives.
We must also fight this disease on a second front: And that is
the public front. That is basically where I have been coming in. Be-
cause if you are really going to fight CF, you really have to make
a difference; you really must work to enlist everyone to join the
battle.
This, too, means rearranging your life. Just when all a parent of
a CF child wants to do is stay at home and watch his child, he
must spend time away from home. And that is probably the most
difficult part for me.
As CF families, we must volunteer our time, talents, and money
to the biggest challenge we ever faced. You talk about the Dallas
Cowboys, well let me tell you something: This dwarfs that.
We want to stir the emotions of everyone, to tell them about CF;
in hopes that if enough people go to work on this disease, our chil-
dren and those like them will someday have a future.
I, like many parents, recognize the importance of the CF Founda-
tion. It has been the glue that has brought together the players
that will cure this disease.
It is an emotionally draining process to rise each day, knowing
that you cannot let up, until a cure is found. You know that you
and your family must give of yourselves until there is no more to
give; and then, continue on.
The most frightening part of this experience, Senators is that no
matter how attentive we are to Gunnar's needs, no matter how
much money we spend on his care, no matter how much time we
spend raising dollars for CF research, there is the one never-ending
nagging thought in the back of my mind and all those of CF par-
ents: All of our efforts still may not be enough.
Even though the results of the biomedical research on CF are
filling the pages of scientific journals, major newspapers and maga-
zines, and on primetime television, we have yet to save one life
from the ravages of CF.
I hear that the scientists say we are gaining ground — and you
will hear Dr. Wilson here tell you that — but I want to ask, "Where
are the tangible results to help those with CF today?"
As committed and as focused as I try to be, it devastates me to
realize that young lives are lost every day to CF. It is all we can
do to keep the faith alive, that someday we may beat this disease.
But one place I can see tangible results in our battle is the work
being done to develop new drug therapies. Armed with a clearer
understanding of the basic defect in the gene cells, scientists are
now testing new drugs to control this disease. I say, "control."
Today's promise for new treatments is astounding. Right now, as
we speak, hundreds of CF patients are participating in multicenter
drug trials all over this country. These studies are possible because
gifted and committed scientists from the laboratories and univer-
sities, and the National Institutes of Health and the private sector,
have been able to forge ahead freely, without threats to their incen-
tives, or for their innovation.
Their innovation has led to a remarkable new drug, to treat
cystic fibrosis. That drug is known as Pulmozyme.
This new drug has been the first real glimmer of hope that CF
patients and their families can reach out and touch. Pulmozyme,
when inhaled, enters the lungs and acts like a pair of scissors, cut-
ting up the thick and sticky mucous, and making it much easier
for the patient to clear the airways.
This drug not only decreases the chance of infection, but for the
first time in three decades, allows the CF patient to breathe easier.
Can you imagine? Finally, a drug that helps these people feel
better. Not just an improvement that shows up on a computer
printout during lung function tests, but a difference these people
can actually feel, every day. The psychological benefits, alone, are
reason enough for this new drug.
I have experienced the benefits of this drug, firsthand. My son,
Gunnar, has been using Pulmozyme for 6 months now, and the re-
sults are very encouraging. Pulmozyme has given him a near-nor-
mal life. There are days that you would never know that he is sick;
that he is fighting a disease that still takes the lives of young
adults and children every day.
10
Today, the opportunity for people with CF to experience a full
and long life is within our reach. Just 20 years ago, parents were
told that their children would only live long enough to attend kin-
dergarten. But because of the development of drugs like
Pulmozyme, our children will live longer; however, that is still not
enough.
Envision an airplane that has been put in a holding pattern, to
avoid a storm. So too, these new drug therapies put those with CF
into a place where they might wait out that storm until a cure is
found. It is this holding pattern that keeps our children's, and ours
as parents', dreams alive.
I fear that any change to the current laws governing the develop-
ment and sale of new drugs would dash our dreams, and send us
plummeting back into the storm; back into the throes of CF.
Senators I look forward to the day when the future of CF fami-
lies does not hang on the development of new drugs; and a day
when we will not need any more new therapies; a day when there
will not be such a thing as CF, because medical science will have
wiped out the most genetic killer of children and young adults.
I dream of a day when a little boy can live a normal life without
pills, without needles, inhalers, and pounding that prolongs his life.
I wish for him a full life, of the joys and promise that you and I
enjoy, complete with occasional trips to watch his dad at work.
I dream of a day that the only reason for that little boy's death
will be from old age, and the end of a long, full life.
But until that day arrives, we as CF parents can only have the
faith in the therapies being invented by the dedicated researchers
who now work so diligently at biotech companies and universities.
I ask you to keep in mind all of us so affected by diseases like
CF, who rest our hopes on their creative genius. And please re-
member Gunnar, and the other children with other fatal diseases,
as you consider legislative changes that might curb the incentive
of the scientists to invent, create and help.
With that, I would like to say thank you for having me here
today; and I would like to turn over our testimony to Dr. James
Wilson from the University of Pennsylvania.
[Material submitted by Mr. Esiason follows:]
11
12
13
vVefe
14
nHERE WAS QUIET IN THE NEW
York Jets" locker room, ihe quiel
of men awaiting violence. A tew
players stared at their playbooks.
Some talked to God. Some
wrapped earphones around their
heads and waited tor the music to
take them away.
They took turns v. alking into a
side room, emerging with thick
white crusts of tape around their
arms and knees and ankles in
preparation tor all the collisions
and twists. Their quarterback.
Boomer Esiason. needed the tape
for something else. He carried it to his locker, unzipped his
black shoulder bag and pulled out a photograph of a 2 '/: -year-
old boy with a blue cap tugged over his blond hair. Boomer
taped the picture of his son to the back of his locker and sat on
his stool.
!n earlier years he often spent this hour remembering insults
trom the media, opponents or tans, working himself into the
State Ol mind he needed to stand calmly at the heart of the vio-
lence Nov. all that seemed almost silly, Sou he stared at the
photograph and thought ot how sweetly this boy lav upon the
sloped board twice each day. how willingly he let his loved ones
beat on his back and chest and sides to dislodge trom his lungs
the mucus that could kill him. And the feeling seemed to surge
up inside the quarterback. They could beat on him today all
lhe> wanted. But no one could much him.
There w.is silence on the Jets' practice held. Ihe silence ol men
trapped inside helmets and pads in the third week ol two-a-day
practices under a killing sun. They looked over to the long row
Ol pine trees that lined the held. There he was again, the old
man with the black shoes and white socks sitting alone in
his lawn chair among the pinccones. The old man with the
St. John's Rcdmen cap pulled down to his sunglasses, little
leather tool holder hooked on his belt, pack ol TareWons
tucked inside his sleeve
practice he sal there. At the end of the morning ses-
sion he drove 40 minutes to his home in Last Nip. Long Island,
and then climbed right back into his truck two hours later and
iHtlirlaxcu
tkrstillol
drove 4i i minutes back tor the afternoon workout. The man in
the lawn chair.'' some called the 70-year-old man. Many play-
ers had no idea he was the quarterback's dad. Boomer looked
over to the shade and gave a little wave
Somehow life had washed Boomer back to the place where
he had grown up. w here he had been hurt and healed I he little
boy whose mother had died of lymphoma, who had looked
over to see his dad on the sidelines
every year, every practice, every
game . . . was now the adult, the la-
ther ot a little boy with cystic fibro-
kis son's practices sis- lne obJecI of whispers that his
arm was dead, looking over and
tint/ home games. seeing his dad. even day. once
again.
He never said a word, the old
man. about who you have to he for
your children, how much of your life you have toeivc away. He
never had to say it. He jusi sat there each practice under the
pine trees. The man in the lawn chair.
"God. Cheryl." Boomer said to his wife. "You wouldn't believe
how man\ times I thought about G Man today." That w as u hai
he always called his son. Gunnar. It was a Sunday night 2
weeks ago. hours alter the Jets had shocked the Dolphins in
Miami. 24-14. and Cheryl had come to meet Boomer at the air-
port in New York He stared out at the traffic, euphoric and
woozy at once, and shook his head The whole day. G Man
was right there with me."
Right there in the photograph in Ins locker. Right there on
the field in Joe Rohbic Stadium when the temperature hi! lOff
and all the water in Boomer s body was running in rivulets
down his back and legs, and the Dolphin defensive line was
driving its helmets into his ribs, Righi ihere. mosi ol all when
dehydration overcame Boomer on the Might home, when he-
blanched and vomited and watched two intravenous needles
going into his arm. How could he noi think of G Man and lhai
day last May in the hospital when the bov was vomiting mucus.
lying wan and pale with the IV in his arm and the oxygen tube
up his nose, unaware that the doctor had lust told his parents
that their son had cystic fibrosis'.'
On first hearing the diagnosis. Boomer had decided to retire
from football and to always be with the boy. But now he was oil
at war again, and somehow it was the boy. instead, who was al-
ways with him. Atter his first three games as a Jet. Boomer was
68 for °4. for sHW yards and five touchdowns, leading the Na-
tional Football League in completion percentage and average
gain per completion, posting the same kind of glaring numbers
that had made him the league's MVP in 1988. Every pass he
completed was a spiral hurled into the future, a message his
son would read one day: \ev rR GIN t i p! Every touchdown he-
threw meant another microphone to speak into and tell the
world about ihe disease that afflicts 55.00(1 people, another
chance to explain about the mutated gene that causes so much
thick mucus loclog the lung walls thai thc\ become a haven tor
infection, limiting the average CF patient to a life ol 2l> veais
and killing three people every day. I am going in be thi big
gcsl enemy thai this disease has ever had."" Boomer said
■We're going to beat this thing I know beyond a shudu
doubt that we're eoingtobcal it
i f) t ()(. H \ I'M S II > \| I
15
Boomer Esiason
Funny. Everything about Boomer was Boomer: his voice, his
size, his shocking white hair, his life. He had more friends — not
the artificial, slap-your-back kind of friends, but real friends —
than any man on earth. He had a three-vear contract with the
Jets worth $2.7 million a year, a string ot commercial deals on
the side, a weekly radio show, a fleet of big vehicles and big. big
TVs But his real name was Norman, the same as the man
Sitting quietlv in the lawn chair under the pines. Now that
Boomer had a little son in trouble, now that Boomer was back
home on Long Island, driving (he same streets as he had long
ago. walking into the same stores, bumping into the same peo-
ple, he had this feeling . . . almost as if he might turn the next
corner and see himself as a boy. And the question that kept go-
ing through his mind was. God, how did my dad ever do it?
Sorman — that was who Boomer had to find inside himself
now. The man who had kept ack-acking away at Messer-
schmuts while his buddies bled puddles around his ankles in
the Battle of the Bulge, and who never told a soul about it when
he came home. The man who had taken charge when one of
Boomer's friends was struck dead by a car and when cancer
took Boomer s mom.
Norman never laid eyes on another tcmale after Irene died:
forget it. what was the point ' Tall woman, big voice, long rip-
pling blonde hair, runner-up [that was a rip-off) in the Miss
Lake Ronkonkoma beauty pageant back in the '50s. Before
Norman knew u, she had him by the hand each Saturday night,
first on the dance floor at the cafes and bars, those long poodle
skirts she loved to wear pluming as they jitterbugged. Or he
would look up and see her bouncing onto the stage to join the
five-piece combo, one hand flying across the organ keys, the
other across the piano, pounding out a Sam Cooke or Chuck
Berry song. "Run, children, run!" Irene would shout when the
16
Boomer biason
heels of her children and nieces and nephews clickety-clacked
across the brick paiio behind ihe Esiasons' home. "I love ihai
sound!" She would scoop up [he little boy whose nickname
came from the kicks he had delivered inside her belly, beam at
him like the sun and ask everyone the same question: "Isn't he
And then one day when Irene and Norman were sledding in
the Poconos, she said her neck hurt. Six months later she was
dead, and Norman Esiason was a 44-year-old man alone with
two teenage daughters and a six-year-old son. A few years later
Norman's own dad. Henning — slowly wasting away from em-
physema— would move in with them too.
Noone ever saw Norman cry. not even at Irene's funeral. No
one saw the little boy cry, cither. All they noticed was that he
never, never wanted to be alone. At night Boomer would ap-
pear at the foot of his oldest sister's bed. his blanket stuffed un-
der his arm. "Can I sleep here. Robin?" he would ask. It wasn't
until six months after his mother's death, when Fawnie. the
family dog, went berserk in the basement and died of a stroke,
that some of the grief spilled out of Boomer. "How come?" he
sobbed. "How come everybody's leaving me?"
HE GIRLS WERE JUST ABOUT OLD
enough to fend for themselves, thank
god. because Norman didn't quite know
what a man could do to help a pair of
grieving teenage girls. For the boy,
though, he knew exactly. The boy be-
came Norman's life. The old man woke
up each morning at 4:45, then burrowed
through the dark on the hour-and-IO-
minute train commute to his job as a
safety engineer for Continental Insur-
ance in Manhattan. Up onto the steel girders 40 floors high,
across the collarbones of skyscrapers, to check the welding . . .
down into the tunnels when construction crews were about to
blast within inches of a gas line, making sure every safety pre-
caution was being taken on the big jobs his company insured.
"You don't build on rock. Norman." the underwriters would
protest when he tried to persuade them to insure the mammoth
apartment complexes going up on the Palisades in New Jersey.
"You do build on rock." he would argue. "You cement all the
hssures. you build fences to catch the falling pieces, you stay on
em like a hawk, and you build on rock." He knew. He was rock.
He could easily have been talking about himself and his moth-
erless children.
Home he would race, finishing his paperwork on the train
back to East Islip, yanking off his tie and changing into sneakers
in the car to go watch his boy play baseball, basketball, football.
"I've never seen a father like him." says Sal Ciampi. Boomer's
high school football and baseball coach. "Never interfered.
never complained, never missed a day."
Home to play catch with Boomer, or to pick him up. turn
around and take that hour-and-lU-minulc train ride back to the
city to Madison Square Garden or Shea Stadium to catch a
game. Or home to turn on the TV and radio to simultaneously
watch the New York Rangers and listen to the New York Mets.
the old man sprawled on the couch, the boy lying right on top of
his chest, then both of them erupting— Norman in a way he
could never let himself do in public— when a Ranger
scoooooored! or a Met hit one ouiahere! or a Giant broke free at
the 30 . . . he's at the 20 . . . the 10. . . touchdowwwn. New York!
Imagine Grandpa Henning each time the TV room explod-
ed. Imagine the bewilderment of the old glassblower. his lungs
giving way from all the dust he had inhaled working beside the
blast furnace in Philadelphia. Henning had refused to sign
Norman's scholarship offer to play football at Georgetown
University Henning had refused to attend a single game dur-
ing Norman's years as a three-sport athlete at Olney High in
Philly. Every night the family ate dinner at six: nearly every
night Norman would be late because of practice and trudge to
his room, waiting with a hollow gut for his mother to sneak him
dinner. Henning wasn't a bad guy. He was just off the boat
from a little town in Norway. He just didn't understand.
But Norman was nor going to raise his son that way. This was
Scandinavian rebellion: slow . . . patient . . . noiseless ... re-
lentless. Picture this: Boomer is 11 or 12. Boomer's already a
real piece of work. Boomer calls up Commack Arena, home of
the local minor league ice hockey team, the Long Island Ducks,
and rents the place so he and his buddies can play hockey. Only
it's not available until 2 a.m.. and it's a school night, and the
parents of the other nine kids Boomer has involved in the
scheme are furious, and the kids are a couple of tens shy of the
money they need to rent the arena, and Boomer's old man has
to be up for work at 4:45 a.m. So what does Norman do? Antes
up the rest of the cash, drives the kids to the arena, watches
them run around like a bunch of lunatics for an hour — Boomer
never had a clue how to skate. Yes. Norman was resolute. Nor-
man was Norwegian winter.
Funny, but he never once clobbered Boomer, no matter how
many times the kid tried to climb over the glass and join the
fights at Ranger games. No matter how long Boomer grew that
shocking white hair, no matter how much swagger and how lit-
tle patience he had. how many number-7 decals he plastered
on the windows and bumpers of his candy-red convertible Olds
in case someone out there didn't realize it belonged to the OB
at East Islip High ... no matter how opposite to Norman he
grew. All the old man ever had to do was lift his right fist and
growl, "Which do you want: the convincer" — then his left
fist — "or the convincer's helper?"
Norman, back then, was 6' 2". 280. Guanar is nor alwa\s
But more than anything. Boomer
just hated to let the old man down.
There was such dignity in the old
man. especially under stress.
Boomer could never forget the day i^ »^»
in ninth grade when Norman was
coaching Boomer's Senior League baseball team and the boys
were playing pepper before a game, and one of Boomer's
teammates darted across the road to retrieve a ball. All at once
there was a screech of rubber, a boy dead in the road and a man
a mile from a telephone. A man surrounded by 15 kids, half of
them hysterical with grief, the other half, including Boomer,
threatening to lake off the head of the woman driver. Norman
sent someone to find a phone, covered the body with a blanket
from his car. herded his team away from the woman and went
from boy to boy. putting his arm around each one's shoulders
and saying over and over. "Remember the good moments in
his life. . . . Don't look over there, that's not him. . . . Remem-
ber the good times."
by Boomer 's loiker.
bur his pururris.
17
From a distance, people looking at Boomer saw a tall kid
with ice-white hair and too little self-doubt. He walked out of
[he locker mom alter a high school basketball came one Friday
evening and found all four tires on his candy-red convertible
slashed- But up close you couldn't miss the sensitivity to hurt
and tear, the understanding of what lurked just behind the
manicured hedges and aluminum siding, the thin peel of Long
Island suburbia. Boomer was the kid who beat up the bullies.
He became the quarterback — of his block, ot his friends as
well as of his teams. A quarterback, unlike those who played
the other positions in life, could always make sure there was a
plan. a en p- a movement A quarterback could always make
sure the silent house he came home to at 3:30 p.m. would be
hopping in tour, rtie Esiasons
house became headquarters. I he
; Boomer s hoys to plot
and sleep over and wake up to the
old mans jell) crepes. Even on
summer vacation trips. Boomer
made sure he took three or tour
friends along. Between his fa-
ther, his sisters, .ill his aunts ana
uncles .md grandparents and
tnends. he was surrounded by this
bottomless pn ol love." says his
old friend Michael Dooley
\nd then Boomer got a schol-
arship to the University ol Mary-
land, said goodbye to his father,
left the love pit Suddenly he was
.i seventh-stringer in a strange
land. flunking halt his classes.
watching all his dorm mates go
Nome on weekends to get their
laundrv done and dinner cooked
b> Mom Suddenly there was si-
lence. He was about to quit
school and go home. He was sure
he would leave after that night
when 25 upperclassmen on his
learn cornered him. tied him up.
dumped him in an elevator alone
and pushed the button, echoes ot
their laughter following him up
and down the shaft.
But just when he was about to
give up. he would look over dur-
ing practice to the sideline. Ar-
thritic left knee stiff from the live-
hour drive, there would be the
man in the lawn chair.
Boomer set 17 records at the Uni-
versity ot Maryland, was a con-
sensus All-America his senior
w ^^H year, became the Cincinnati Ben-
?M^^9 gals starting quarterback his sec-
ond season. His life gathered mo-
mentum, grew wider each year.
Boomer loved bit* ... but he pre-
ferred gigantic. Jacked-up monster trucks with tinted windows.
TV screens that took up a quarter ot a wall, orbited by slightly
smaller screens in case anybody dropped b\ w nh a hankering to
watch four games simultaneously. An S.OOO-square-foot house
with four beers on tap at the bar. an electronic board flashing
up-to-the-minute scores from the NFL. NBA. NHL and major
leagues, a swimming pool Cheryl laughingly called a "polar
bear pit. ' and a basketball court.
It was ail for sharing, not for lording over. Boomer's friends
became like family: his family kept growing larger. Every home
game. 15 to 30 of them would fly in to Cincinnati and camp at
Boomer's. On New Years Eve and the Fourth of July. 60 or 70
people would respond to his call — friends trom Long Island.
18
Boomer Esiason
trom the University ol Man
ijnd. irom Cincinnati You
would walk in Boomers
door and he handed a par-
ty bag containing .1 T-shirt
thai said hotll esiason.
FOLRTHOF IULY. MOTHtROF
all PARTits. inscribed sun-
glasses and .1 plastic drink
container. You would see
the rctrigcrator shellacked
with a couple 0! dozen stick-
on notes giving flight num-
bers and arrival times so
Boomer could arrange rides
from the airport for his
guests, and a sign-up list so
you could volunteer to pre-
pare meals in shifts of 10.
You Mould plav killer pickup
basketball, darts and Ping-
Pong, then go in buses
Boomer had chartered to a
rivcrboat or a restaurant he
had rented for the night with a live band. Or perhaps eat in. a
pig roast b\ his backyard pool, and then everyone would end up
sprawled on beds, pull-out couches and sleeping bags, some
farmed out 10 next-door neighbors.
"Let's keep it simple this year, honey." Cheryl, the woman
he had met at Maryland and married, would say. "That's no
fun." Boomer would reply, thumbing through his monster Ro-
lodex. Somehow, no matter how last-minute the plan. Boomer
alwavs pulled it off. And Cheryl, a wry. philosophical son who
loved to sit buck and observe the human pageant that Boomer
emceed. would shrug, grin and go with it.
There was such zest and innocence to it. you couldn t get in
its way. Boomer was a boat pulling an ever-widening wake —
one of those rare people who fused all the phases ot his lite.
w ho grew hig w ithout devouring the small. Sitting at your table,
the one Boomer assigned you at the restaurant he had rented,
might be Boomer v Pro Bowl guard and his wife. Boomer's
cleaning lady and her husband. Boomer s high school coach
and his wile, and the gu\s who sold him his satellite dish and
did his kitchen cabinets. Some ol them started having babies,
and that made it even better. 'It \ a lunatic asylum." Boomer
would say "I love it. It \ lite " The doorbell would ring a half
dozen times, neighbors kids asking, as if he were eight vcars
old. "Can Boomer come out and play?" LikcK as not. he
would.
Boomer babies — sure, why not four or five? For vears
Boomer had this snapshot m his mind, a gaggle of little blondes
in pigtails following him everywhere, adoring everything he-
did, the way most women seemed t<< A hoy well, he never
talked about that. A dui\ came with that. Nobody knew that
like Norman Esiason 's son.
He went to the airport in Cincinnati one Sunday afternoon
in |y.s7. bclore ihcj had am children, to pick up Cheryl. The
NFL was on strike that autumn, and Boomer, quarterback to
the bone, had stepped out Iront to lead his teammates against
managemeni He and 3ll others had sat in tront ol a bus that
team officials had arranged for replacement plavers to use: he
had lent money to players buckling under the financial strain of
going without paychecks: and that very Sunday, an hour before
the first "scab" game, he had stood and begged for calm be-
tween a mob of strike-supporting Kentucky coal miners and a
mob of antistrike fans who wanted at each others' throats.
Boomer had become the lightning rod for criticism in one of
the most antiunion cities in America.
As he drove to the airport, his head still throbbing from the
confrontation outside Riverfront Stadium, he flicked on the
radio. The host of the local sports talk show was "breaking" a
story that Boomer had ordered the Bengals wives, in defer-
ence to the strike, to boycott the tund-raising fashion show
they had organized 10 benefit Cincinnati's Children's Hospital.
Radio callers were in a trenzy. The storv was untrue. Few ath-
letes anywhere gave as much time to chanties as Boomer did —
in a public way. raising S7(HI.(HH1 for the Arthritis Foundation
and the Caring Program for Children, and in a private way.
making frequent visits to kids with leukemia and cystic fibrosis
at Children's Hospital.
"Turn it off." Boomer told Cheryl as they headed home
from the airport. 'You don't want to hear this."
"Leave it on." she said.
A male caller was on the air. "You know w hat I hope .'" the
man said. "I hope the Esiasons have a child that has something
wrong with it somedav and Children s Hospital turns them
Cheryl and Boomer looked at each other, the air sucked out
of them. "Thais unspeakable." said Cheryl "My god.
that's.
Boomer went from the villain of Cincinnati in "87 to its hero
in \ss— lile happens that way in movies and Sports, He led the
AFC in passer ratings and touchdown passes in HM and '89. w un-
voted 10 his second and third Pro Bowls, whipped the Bengals
to the 'K(v Super Bowl, appeared in his underwear tor a Hancs
ad. plaved Goldilocks in a Diet Coke commercial and made a
19
^k
zillion appearances lor corporaiions and chanties. He had
such presence on the held, such command and camaraderie in
his voice. >ou fell as eas\ in his huddle as you did in his house.
Hell, ihe Bengals decided, who c%en needed a huddle' Lei
Boomer organize everything, just like one of his Fourth ot Juh
reunions — last second, seal ol his pants, hut. hut hut' Hadn I
Boomer always fell best amid a swirl .'
Cheryl got pregnant. The moment Boomer tound out n was
a boy. pictures ot his own past, warm and wonderful black and
whites, began to Hush in his mind. II he could have called an
Mill number that day and ordered tickets (or all the hockey,
basketball, baseball jnd Football games he planned to take his
son 10. he would have Bui Chen I was determined: This hah\
i not get swept up in the pub-
he whirl of her husband's life.
"Bahv Sub Rosa." she called the
child in her womb. It was a Latin
for everything Boomer
not: private, confidential, secret.
After Gunnar came ho
the hospital in April I<W1. Boomer
: on the rug holding the
baby on his chest. A remarkable
thing was happening Boomer
sometimes la\ there for hours. iust staring in wonder at thcbo\
He fell asleep like that. "It was the hrst time, says C heryl
"that I ever saw Boomer stay still."
Gunnar kept getting sick. Earaches. Three-week colds
Pneumonia. Diarrhea. Barely ate Asthma, the doctors said.
God. it was almost scan how similar Gunnar s problems were
to those of the little girl with cystic fibrosis. Sarah, with whom
Boomer had fallen in love at Children's Hospital . . how alike
in look and smell and sound they were, how even Gunnar s per-
achingly sweet, accepting personality
that all those CF kids Boomer had hugged seemed to have.
Asthma, the doctors said. Asthma.
Something was happening, meanwhile, to Boomer s no-hud-
dle, no-prisoners offense. Some blamed the deterioration ol
his offensive line. Some blamed the Bengal defense, which had
grown so porous that Boomer always seemed to be digging
himselt out ol a hole. Some blamed Boomer's left arm. Some-
times Boomer wanted s(. hadh K) make a football game do
what he wished it to do. he tried to take what wasn't his. whai
wasn't there In his last 41 starts tor the Bengals, he threw 53
interceptions
The lourth game last season was at home against Minnesota.
Gunnar had never been to a game, but he was six months shy ot
his second birthday, and. tor a change, he wasn't sick. It
wouldn i he quite the same as when Boomer was a boy. sitting
20
Boomer Esiason
knee-to-knee in the stanch with
Dad. But the snapshot in Boomer's
mind was. in many ways, even more
magical: little boy watching Dad
evade the Viking rush: Dad crank-
ing up and hurling the 50-yard -
bomb. . .he i at the 20, the 10. . .
the crowd going berserk.
The crowd went berserk. The ferocity of the boos that da\.
the insults, the tilth. . . . Boomer threw tour interceptions: the
Bengals lost 42-7. In the third quarter he stepped away from
his teammates on the sidelines and turned to the crowd.
searching for his wife and child, frantically waving: Go home,
go home! Cheryl wouldn't budge.
He stood half bent m the shower afterward, looking as if he
were about to cry. For the first time in his life, he couldn't go
back to the crowd of friends awaiting him at home. He drove in
circles that night and talked to Cheryl about quitting. His snap-
shot ol a tather and a boy and a ball game had been ruined
The Bengals benched him with tour games left in the season.
Gunnar couldn't sleep, couldn't eat. could barely breathe.
Some nights at 4 a.m. Boomer would drive in loops around
Riverfront Stadium with his son in the car. trying to get Gunnar
to drop off to sleep, numb to what was happening inside those
concrete walls and ramps on Sundays, just scared about his
boy. A test tor cystic fibrosis si\ months earlier had come back
negative, so Boomer and Cheryl kepi giving Gunnar cough
suppressants, unaware that mucus was the enemy, that the boy
needed to coueh to live.
The trade came on March 17. 1993. Few teams lusted for
Boomer Esiason anymore. The Jets got him for a third-round
draft pick in 93 and a conditional second-round selection in
'94 that hinges on Boomers performance. "He hung up the
phone after he found out.' recalls his business assistant. Tami
Amakcr. and he let out this whoop. He shouted. "Tami. I'm
going home. I m going home'.' The way he said that word, home
. . he said it like Dorothy in The WaardofOz!'
They called him off the field during the Jets' minicamp in May.
Cheryl was at Children's Hospital in Cincinnati. Gunnar had
pneumonia, again. The doctors were retesting him for cystic
fibrosis.
Boomer rushed back to Cincinnati. The doctor walked into
the hospital room with the test results. The boy had it: The dis-
ease that clogs the lungs with bacteria-trapping phlegm, leav-
ing parents to wonder which invisible particle in the air might
be the end of their child. The disease that shuts off the work of
the pancreas, making it impossible for the body to absorb most
foods unless enzyme pills are ingested before each meal. The
disease that otten makes males sterile.
Boomer asked the physician to leave. He and Cheryl looked
at each other, the air rushing out of the room, the thought in
both of t heir minds the same. The radio caller that day si\ v ears
ago . . . nothing to do with this, of course not. but . . . god. the
sickness of it all. They walked over to the crib, stared down at
the sleeping two-year-old with the tubes in his arm and his
nose, the child to whom they had passed the mutated gene
without ever dreaming they both were carriers. Thev cried.
We re sorry. Gunnar." they both kept telling the sleeping boy
"We love you. We'll always be here for you. We're sorry, we're
sorry."
Then they looked at each other again. Everything would
have to change now. All the film study, practice sessions, foot-
ball games, appearances, commercials, interviews, reunions
laughs — the life Boomer had filled with people and plans and
had kept spinning, faster and faster, ever since his mother had
died— it would have to end. AH the lime and energy it took to
be Boomer would have to go to the little bo> Wasn t that the
legacy of the man in the lawn chair' "I'm going to retire.
Boomer told Cheryl.
He drove past Rivertront Stadium on the way from the hos-
pital to their home in Villa Hills. Ky. He still couldn't believe
it — his body, a Pro Bowl quarterback's body, had betrayed him.
betrayed his son. A sad song was playing on the radio. He kepi
looking at the stadium. It just didn't feel right, turning inward
to fight this war. becoming smaller.
He snapped off the sad song. "No." he decided "I'm not go-
ing to quit. They won't listen to me if 1 quit or have a bad year.
I'm going to have a great year. I'm going to go on a crusade.
They'll listen to me if I have a great year. They'll haw to listen.
They'll /mi c to."
On a Friday, night. 41 hours before Boomer Esiason "s firsi
regular-season game as the Jet quarterback, there were 30 peo-
ple and five pieces of furniture in his new house in suburban
Long Island. Little kids scrambling up and down stairs still
siickv with polyurethanc. laughing and screaming Buddies
searching lor a corkscrew tor the wine. Wives tearing open
cardboard boxes, searching lor pillowcases and sheets. Bare-
21
chested construction workers painting rooms, sticking tiles to
the kitchen wall, carrying beds and mattresses to the upstairs
bedrooms. From room to room walked Boomer, hair askew,
belt unbuckJed. playbook under his arm. looking futilely for a
toilet with a seat. "Isn't this great?" he said. "I love it."
He could ask his friends to stay home if they or their children
had colds. He could eliminate dust and plants and animals
from his home. But not people.
At 9 p.m. he pulled out the sloped board covered with black
vinyl. He pulled Gunnar away from his train set. away from the
swirl. "Ready for P.T., G Man?" he boomed.
"Readv for P.T., Daddy." said Gunnar. His voice rasped.
That was the only clue. He grinned and thumped his father on
the back — if he had to be pounded for 20 minutes twice every
day, two sessions of physical therapy, so did everyone else in
the world.
First Gunnar sat on the bed for 15 minutes wearing a mask,
inhaling a mixture of two vaporized drugs designed to open the
breathing passages. Then Boomer laid him on the board — feet
up, head angled down — cupped his hand and began to beat on
Gunnar'sback. "Woooooo," went Gunnar. "A-wooooooooo."
"Where are we. G-Man?"
"BigAppaw."
"Who does Daddy play for?"
"Jets. ..a-wooooo."
"What position does Daddy play?"
"Cowbark."
"What do you think of the Bengals?"
"Bengals stink."
"Thumbs-up. by Jove?"
"Thumbs-up, by Jove."
"All right, G Man. Now cough. That's it. Cough."
"It's over. Daddy."
"Not yet, G Man. Big cough this time. Now turn over."
"It's over. Daddy . . . it's over."
On that Sunday. Boomer completed 29 of 40 pass attempts
for 371 yards and two touchdowns in his first game of the sea-
Boomer Esiason
son. a 26-20 loss to the Denver Broncos. There were 68.130
people in Giants Stadium. 70 of them in the Boomer Esiason
party. Norman sat on the 40.
"I'm sick and tired of losing," Boomer said in the locker
room afterward. He was pulling his son's photograph off the
locker wall, balling up the tape that had framed it. tucking it
back into his bag for the next game. "No one in this locker
room should sleep tonight. No one."
He drove home, his mind churning as always. Next Sunday,
the Dolphins, at Miami. Two days later the press conference to
announce the NFL Properties-sponsored fund-raising cam-
paign to fight cystic fibrosis, then the Good Morning America
show with Gunnar on his lap. followed by Regis and Kathie
Lee. Goodbye. Baby Sub Rosa. Hello, CF Poster Child. Any-
thing the Cystic Fibrosis Foundation needed, anything Boom-
er could possibly do. he was going to.
But all the cameras and microphones would go away if the
Jets didn't start winning, Boomer knew, and all the radio talk-
show- listeners would start gnashing their teeth. The clock was
ticking, and there were still millions of people who didn't know
that scientists were closing in on the cure, that they had pin-
pointed the gene on the seventh chromosome that caused the
disease and had even found a way to manufacture a healthy
gene, but until they found a way to get the healthy genes every-
w here they needed to go. children by the thousands would con-
tinue to die.
He walked into his house. He kissed Sydney, his one-year-
old daughter, who has tested negative for the disease. He
picked up Gunnar. He sat in the reclining chair in front of the
six-foot TV screen, turned on the Sunday night football game
and laid the little boy on his chest
Sothtng cairns the to watch with him.
The game ended. They both
restless Boomer hie yawned. Boomer carried the boy
an armful of Gunnar P3^ ,ne ^s room. He laid the boy
in his own bed. snuggled against
^ him and fell asleep. ■
22
Senator Lieberman. Let me just say, before Dr. Wilson begins
his testimony, how much I appreciate your testimony; because you
really do put a human face on this, both in terms of how hard it
is to face a child with this kind of disease, and yet also, how much
your child has begun to be helped by the therapy that science has
come up with.
Last night, I reread that article in Sports Illustrated from last
fall, and you used the word, "emotionally draining." I found reading
the article emotionally draining; but ultimately, left with a feeling
of confidence which I have as I hear you this morning, Boomer,
which is that because of the work that is being done by the doctors
and the biotechnology companies, and because of the kind of deter-
mination that you represent, we are going to beat this disease.
Mr. EsiASON. I really feel that way, Senator. When we found out
about Gunnar's disease, we immediately thought of a death sen-
tence. And because of our close work with the CF Foundation and
people like Dr. Wilson, we have found that these new therapies,
these new drugs, are showing a light at the end of the tunnel. That
is basically what, as a parent, I hang my hat on.
That is what I try to tell all CF parents: That, if we just pool
our resources together, and we believe that we will find an end to
this, that it will happen someday. And it will happen in Gunnar's
lifetime; I am sure of it.
Senator Lieberman. I am, too. And again, that message is so
clear to us: That, in what we do here on health care reform, we had
better make sure that we do not stand in the way of that happen-
ing; that we do not create obstacles to the realization of those
drugs.
Mr. Esiason. I totally agree.
Senator Lieberman. Thank you. Dr. Wilson.
STATEMENT OF DR. JAMES M. WILSON, DIRECTOR, INSTITUTE
FOR HUMAN GENE THERAPY, UNIVERSITY OF PENNSYLVA-
NIA, PHILADELPHIA, PA
Dr. Wilson. Thank you, Senator Lieberman, Senator Kerry. My
name is Jim Wilson. I am a scientist, and I am director of the Insti-
tute for Human Gene Therapy, of the University of Pennsylvania.
Today, I would like to share with you some of the excitement
that we have experienced in attempting to treat disabling lethal
diseases; but also I would like to comment on some concerns that
we have in academia about realizing our goal to achieve that.
We are in the midst of a revolution in human biology; a revolu-
tion that is totally unpredictable, that is moving faster than any
estimate could put forth. I think a dramatic example of that is, un-
derstanding the genes that compose and comprise a human being.
It is projected that, over the next 10 to 12 years, we will know
the genetic makeup in every particular gene that comprises a
human cell; about 150,000. This will provide tremendous opportu-
nities to change the way that we practice medicine, both in a pre-
ventive and a therapeutic way.
But what we have begun to learn is that the basis for disease
is often in the genes. So, the simple concept and extension of that
is: Why do we not design approaches for treating the disease at its
root? That is, at the gene level.
23
That is a concept I would like to talk about today; it is called
gene therapy.
Where are we, in this whole evolution of gene therapy? We really
have only begun; and in fact, Senator Lieberman commented on
two early successes: Treating the young boy with an inherited de-
fect in immune function; and the woman who we treated with high
cholesterol. But that really is the tip of the iceberg.
But I suggest that, as we proceed forward with our discussions
today, that we have to consider a new paradigm for promoting this
sort of activity. There are really three reasons for it, and it has to
do with concept.
What we are talking about, for the first time in the history of
medicine, is curing disease, rather than treating its symptoms.
I think there are two other important components, one of which
is the scope. Gene therapy is so fundamental in concept that it is
going to have an impact on the practice of medicine in every sub-
specialty. It, basically, is modifying the expression of our genes, in
a way to treat and eventually cure or prevent disease.
But I think the one aspect that has been even striking to me is
the pace. We now can, in a period I think in as short as 6 months,
discover a new gene, and begin to use that gene to implement that
in clinical therapy. Before, it would take decades to just identify
the gene.
So in light of this, I would like to use cystic fibrosis as an exam-
ple of some of the challenges that confront us as we consider this
new paradigm, and the partnerships that will be necessary to im-
plement that.
As Boomer described, cystic fibrosis is an inherited disease: It is
due to a defect in a single gene that provides important functions
in many organs, the lung of which is a very important affected
organ. As a result of this defect, mucous accumulates in the pas-
sages of the lung, leading to clogging, difficulty of breathing, and
then infections. The approach to treating these patients is to treat
the infections; or to try to clear the mucous.
Gene therapy is very simple to understand; and that is, to treat
the disease before the mucous accumulates, and before the infec-
tions start. And that is done by fixing the genetic defect, by adding
a corrective gene to the cells of the lung. That is the essence of the
field.
Now, let us talk about implementation.
Senator Lieberman. In other words, the disease is diagnosed;
then you look for the time when you can go in, identify the problem
with the gene; and essentially, replace the gene?
Dr. Wilson. That is exactly true. Where we would like be is to
treating the disease before the symptoms begin.
The reality of gene therapy is that we believe it will also be use-
ful for patients who already have this disease, to prevent the pro-
gression of the disease.
Senator Lieberman. And you would treat it before it begins, by
somehow creating a test to determine that the defect in the gene
is there?
Dr. Wilson. Right. It would be important to know which patients
were at risk of developing the disease, and that could be deter-
mined through either family history or even just diagnosis. Because
24
the gene probes are now available, to identify those that would be
at risk.
The implementation is very challenging, and I consider it in
many ways a drug delivery problem that is more complex than any
pharmaceutical company has ever tried to tackle.
The drug here is the perfect drug: It is a normal gene. Except,
it is a very complicated drug: It is much larger, and much more
complex.
So the technology is really based on developing approaches for
somehow capturing that normal gene, and delivering it to the af-
fected cells. In the setting of cystic fibrosis, this could be adminis-
tered through inhalation of a vehicle, sort of like a missile whose
payload was a normal gene.
A lot of the innovation of the field, and a lot of which has to be
developed both in academia and by technology, is designing new
and safe vehicles, to target the genes to the cells.
But the concept here is, once the gene is in the cell, it is likely
to be there for a long period of time. So, it's not necessarily re-
peated administration of a drug.
So, where were we in cystic fibrosis? In 1989, I think, is when
the field changed; and that is when the gene responsible for cystic
fibrosis was identified through a collaborative effort with the Cystic
Fibrosis Foundation, the NIH, and various academic labs. That
provided a substrate for two activities: One is diagnosis, which will
be critically important; but also, therapy.
The milestones that have been achieved since 1989 in this area,
will prove to be a model; but actually, in terms of this day and age,
progress is rather slow.
Within a year, that gene was reconstructed, placed in a cell of
a patient with cystic fibrosis in the laboratory, and the defect in
that cell was corrected. A year or two later, an animal model was
designed from scratch in the laboratory. Then, in 1993, the appro-
priate delivery vehicles designed in clinical trials of gene therapy —
within 4 years — were initiated; and now are undergone in four dif-
ferent academic laboratories, including at the University of Penn-
sylvania.
I suggest that, if we were to begin that process today, it could
occur in less than 1 year.
Now, how did this happen? I think this happened through very
important partnerships.
Senator Kerry. Excuse me. Precisely what would occur, within
less than 1 year?
Dr. Wilson. From the discovery of a gene, through the develop-
ment of the appropriate delivery vehicles, to the initiation of clinic
trials of gene therapy. Now, you have to appreciate, beginning clin-
ical trials is only the beginning; and that is what I would like to
comment on at the end. That relates to the translation, in the im-
plementation and the distribution of the technology.
The reason we were able to achieve what we were able to achieve
is due to partnership; and it was primarily focused in academia,
with the Federal Government through support to the NIH, as well
as the Cystic Fibrosis Foundation. In terms of what we are talking
about today, since I am coming from the academic life, I would like
to comment on why that is important; but only on one part of it.
25
Academia provides a somewhat unstructured, but very creative,
environment for the discoveries that are necessary, that provide
the foundation. It is interesting. Often, these come out of serendip-
ity. The most powerful advances are developed in that kind of set-
ting.
The Federal Government has supported this; and more recently,
has been able to target money directed toward the development of
gene therapy. And that has been extremely important, to try to
push this field forward so that we could keep up with that pace.
Then, the Cystic Fibrosis Foundation, provides the leadership to
coordinate this area in a very focused way.
But we have only begun. And, in many ways, if one reflects on
what we have accomplished, we have accomplished a lot; but we
have a lot more to go. We have only initiated this process.
What I would like to try to comment on is the role of translation
of basic discovery, and the difficulty with that. What the academic
community has been able to achieve is identifying the gene, design-
ing a delivery system, and beginning clinical trials.
At the University of Pennsylvania, we have treated more CF pa-
tients with gene therapy than anybody; and we have treated eight.
Over the next year, we could probably finish the trial, up through
20.
And through that process, we will prove principle. But we now
have to design ways and assure that we have passed the baton. We
now have to move into the next phase, and that is technology
transfer.
We are poised and ready to do that. But that has to be done in
a facile, unencumbered way; and if we lose any time in doing that,
I believe it would be tragic.
What we are talking about now are different issues that cannot
be done in academia. We are talking about manufacturing; we are
talking about distribution; we are talking about access; we are
talking about large-scale trials. This is where the new collabora-
tion, the new partnership, needs to occur.
From a resource standpoint, it is my view that the investment
in the subsequent steps — the development, the large-scale clinical
trial — is much larger than the investment that the NIH and the
Cystic Fibrosis Foundation has put into the discovery. Some esti-
mates indicate it could be as much as tenfold greater.
So, from a resource standpoint, even if we wanted to do it, we
would not be in a position to do that. We need investment from the
private sector, to accomplish this.
I think there really are two ways to view this: One is purely from
a financial standpoint. If we can begin to talk about curing disease,
so that patients would not have to come into the hospital especially
with chronic illnesses, we could alleviate human suffering. But
more specifically, the cost: The cost of treating the cystic fibrosis
patient, on a yearly basis, is up to $30,000.
There would be tremendous cost savings; let alone the impact
that this would have on human suffering. I think that we are
poised, as a medical community, as a society, to begin to offer hope
for large numbers of patients, for which there was no other help.
Genetic diseases are a prime example, for which as physicians we
have had very little to offer.
26
It is incredible. We are now in a position where we can talk to
families and, in a meaningful way, begin to describe new opportu-
nities; and begin to talk about the word, "cure." I am confident that
we are going to be able to do that.
The bottom line is, we have to make sure we do not inhibit this
translation; and in many ways, I am anxious to hear about mecha-
nisms that we can attempt to facilitate that.
I think with that I will pass it back to Dr. Beall.
[The prepared statement of Dr. Wilson follows:]
27
ga
Cystic
Fibrosis
Foundation
TESTIMONY OF
JAMES M. WILSON, M.D., PH.D.
DIRECTOR, INSTITUTE FOR HUMAN GENE THERAPY
UNIVERSITY OF PENNSYLVANIA
REGARDING RESEARCH ON CURES AND THERAPIES
FOR CYSTIC FIBROSIS
BEFORE THE
SENATE SMALL BUSINESS COMMITTEE
MAY 26, 1994
Foundation Office
6931 Arlington Road Bethesda Maryland i
(301 ) 951-4422 1 800 FIGHT CF
28
Thank you. My name is James Wilson, M.D., Ph.D. I am both a physician and research
scientist at the University of Pennsylvania. My purpose this morning is twofold. First, I will
share with you some of the excitement now building in the medical community over gene
therapy. And second, I will discuss legislative proposals that threaten to put the brakes
on this progress--and quite possibly grind the wheels of success to a halt.
We are all fortunate to be living through an incredible revolution in modern medicine. One
miracle unfolding before our eyes is the progress in gene therapy for fatal diseases such as
cystic fibrosis (CF). U.S. scientists are pushing the frontiers of medicine every day. Clearly,
we are leading the world in this feat of biotechnology. As we make these advances,
however, we also see that there is a lot of unexplored land ahead that must be "cleared."
To accomplish this work, a joint effort must continue, which involves researchers from both
the public and private sectors.
I direct the Institute for Human Gene Therapy at the University of Pennsylvania, and,
therefore, am involved in the study of many diseases. CF has come to the top of my list
of priorities though, for several reasons. One obvious reason is that when we have the
technology to defeat CF, we will be stopping the number-one genetic killer of children in
this country. To date, gene therapy has been restricted to extremely rare types of diseases
for only a few patients. CF gene therapy has the greatest potential to evolve into a model
treatment for other diseases and benefit many, many patients.
In essence, gene therapy could be the "magic bullet" we need for CF because the disease
is a recessive disorder. In other words, a child must inherit two copies of the defective
gene, one from each parent, to have the disease. Therefore, adding one normal gene
should supersede the effects of the faulty gene. We are not correcting a gene rather, we
are adding a gene to overpower a defective one.
When the CF gene was discovered in 1989, it was a monumental step toward understanding
and curing the disease. Having the gene fueled an explosion in CF research advances.
After many months of innovative work, scientists made another quantum leap. They
successfully produced a normal version of the gene in the laboratory, in sufficient quantities,
to use for gene therapy experiments.
The next major hurdle for CF researchers was to invent a delivery method to carry the
normal genes into the defective CF cells. Coaxing the defective CF cells to receive and
incorporate the healthy gene was not an easy matter. "Foreign" genes are rejected by cells.
So researchers had to devise a way to penetrate the cells by sneaking the gene into the cells
with a 'Trojan Horse." In this case, scientists selected an adenovirus, or common cold
virus, that naturally targets airway cells and programmed the virus to enter the cells, deliver
the healthy genes and then disintegrate. They achieved this by altering the virus genetically;
they deleted the part of the virus that would enable it to reproduce itself and be infectious.
The new virus could then be the gene delivery system without harming the cells.
Scientists first used this novel gene delivery method to treat human CF cells in laboratory
dishes. The technology worked. The gene treatment corrected the defective CF cells.
After this, CF researchers used the same method to insert healthy human genes into the
29
lungs of laboratory animals. The genes turned on and made a normal protein. Scientists
then refined the technology further in laboratory animals. They discovered that, once again,
the normal protein was produced.
We now know that this protein is vital to the function of certain cells in the human lungs
and digestive tract. Once defective CF cells have enough protein, they should produce
normal mucus, which, in turn, prevents lung infections, tissue destruction and ultimately,
death. What is most exciting about exploring this virgin territory is the potential it carries
for curing this disease.
Medical history was made last spring when scientists took this research to the next level:
they launched the first experimental gene treatment for individuals with CF. Since that
time, four similar studies have begun at the University of Iowa; the University of
Pennsylvania; the University of North Carolina at Chapel Hill and soon, the University of
Cincinnati. The studies vary in only subtle ways such as how the virus is made. Some
research teams are treating nasal cells while others are treating lung cells. All are striving
to determine how safe the treatment is, how long the added genes function and what dose
works best.
The current strategy to deliver gene therapy to CF cells may more properly be called "gene
transfer." Our goal is to get the normal gene into the cell and have it produce the protein
for the life of the cell-which might be only a few days or weeks. We must get to the point
where we know exactly how many cells need to be treated (and for how long) to correct the
function of the lungs. If you can imagine the tissue of the human lungs and airways being
stretched out cell-to-cell it would cover the expanse of a tennis court! We are dealing
with an enormity of cells and a complex disease.
One definite advantage in treating CF patients is that the cells we need to target line the
airways and, therefore, can be reached through aerosolized treatments. This contrasts with
gene therapy for other diseases which require removing cells from the body, and then
replacing them back into the body.
Although all initial CF gene therapy research in individuals will be evaluating safety first,
one team of scientists was able to demonstrate that cells had been corrected. A few months
ago, researchers at the University of Iowa treated CF patients with a modified cold virus
containing normal genes. The Iowa study documented that the gene treatment actually
repaired CF cells. They treated CF nasal cells because these cells are good models of CF
airway cells, but more accessible. In this study, scientists applied the low-dose gene
treatment into the noses of three CF patients. Then, to determine whether the cells had
actually been repaired, they measured the electrical charge. The level of voltage meant that
the genes had instructed the CF cells to make a normal protein and move chloride (salt)
through cells. Actual clinical improvement in patients will be assessed after dose levels are
determined.
This past fall at the University of Pennsylvania, our team of scientists and physicians began
its first CF gene therapy study. We dripped the cold virus and healthy genes into the left
lung of a patient through a bronchoscope. There were no complications. A total of 20
patients will participate in the study; to date, seven have been treated. We will be
determining both the maximum and optimal dose ranges.
87-127 0-95-2
30
For CF scientists to meet their ultimate goal— a cure--they must clear more than one path
leading to CF gene therapy. Some are testing alternative viruses to deliver therapeutic
genes, for example. Others are modifying the cold virus genetically so that it will not
transform itself into a new and potentially damaging form after repeated dosages.
In fact, the Iowa group has already received National Institutes of Health (NIH) approval
to begin another important study. They plan to use a "next generation" cold virus and will
be the first researchers to test repeated doses for CF patients. The doses will also be
escalated. And, there is another first in CF gene therapy right around the corner as well.
A research team at the University of Alabama, Birmingham, was granted approval to begin
the first study in this country to use liposomes, or fat capsules, to deliver normal genes.
The ground-breaking study will begin later this year.
Progress in the development of gene therapy for cystic fibrosis has been unprecedented due
to the dedication of many scientists and physicians, and the generous support of the federal
government via the NIH, and the Cystic Fibrosis Foundation. The reality is that this
journey has only begun. We have to continue to develop improved technologies for
delivering the normal gene that are safer and more effective than current approaches.
More importantly, we have to facilitate the transfer of this technology to industry so that
it can be disseminated to the whole CF community.
Progress in basic research that has helped to unravel the mysteries of CF and identify novel
strategies for delivering therapeutic genes to the airways has emerged from academic
laboratories, primarily funded by the federal government. Academia provides the kind of
environment that fosters creative nontargeted research which allows fundamental
breakthroughs, often out of serendipity. This research is necessary to fuel the successful
development of a complex field such as gene therapy.
The ultimate goal, however, is to cure disease and prevent human suffering. To accomplish
this, we must provide a mechanism for translating the basic discoveries made in academia
into meaningful advances in the diagnosis and treatment of diseases. This is done by
creating mechanisms for transferring technology to the commercial sector for large-scale
testing, manufacturing and distribution.
The translation of basic discovery to clinical practice is an exceedingly complex and
expensive undertaking. We estimate that the cost of the successful development of gene
therapy for CF will exceed the cost of the underlying basic research by at least tenfold.
This can, and should be, done in the commercial sector. It is essential that an environment
is created that facilitates the kind of investment necessary to achieve our goal: to develop
new treatments and ultimately, cures for fatal diseases such as CF. It is the moral
responsibility of both the public and private sector to assure that the investment made in
basic research, for treatment of disease, is quickly developed and disseminated in a fair and
equitable manner to all people in our country who could benefit.
31
Dr. Beall. Thank you. You have heard about the hope now, and
optimism of the parents; and the hope from the prospective of the
scientists who are out there on the front line.
Once again, I want to reiterate the foundation's concern about
how health care reform may impact adversely on our ability to
bring this miracle to conclusion.
In addition to cystic fibrosis, the dividends that we can gain from
the investment in the biotech industry have the potential of im-
proving the quality of life for millions of Americans: Those who suf-
fer from heart disease; cancer; and orphan diseases, like multiple
sclerosis and muscular dystrophy.
In addition, we believe that the solid investment would help us
retain our technological superiority, help us to achieve balance of
payments, and stimulate new jobs. This investment also will help
us to assure the health of our academic institutions, and of our
economy. This is the time when we should be supporting and nur-
turing this industry.
The continued attack over drug prices, and the proposals in our
President's health care reform strategy, are taking their toll in this
industry. If this negative climate continues, it will destroy the pipe-
line of new products; not only those designated for cystic fibrosis,
but for other diseases as well.
Why would an individual want to invest in an industry that has
been the focal point for criticism, and especially, administration
criticism?
We have seen the successes of the biotech industry. We have
been able to profit by that. Boomer just described that to you, as
he discussed what is happening with Pulmozyme.
The reason that Pulmozyme happened is that it was a unique
partnership between the Cystic Fibrosis Foundation, with
Genentech Corp., with the NIH, and our network of care centers.
This winning team resulted in Pulmozyme being approved in less
than 5 years after it was first conceived by a great young
Genentech scientist.
For many, many years, we had to wait for the pharmaceutical
companies to invest in cystic fibrosis. We were limited to having to
wait for spillover drugs that were being developed for other dis-
eases.
But times are changing. The biotech industry has increased its
efforts to find a niche for diseases like cystic fibrosis, and has cre-
ated a groundswell of interest.
For instance, as we speak, Genzyme Corp., Targeted Genetics,
Genetic Therapy, Inc., and the GenVec Corp. are developing strate-
gies to, hopefully, cure cystic fibrosis by gene therapy.
Other biotech companies like Univax are exploring ways to con-
trol the infection process associated with this disease. Biogen and
Synergen are both looking at ways to reduce the complications of
this disease.
CF certainly has been able to gain momentum in the biotech in-
dustry, and we are very fortunate to have been able to attract the
best and the brightest of the industry.
Our parents are very optimistic, on the one hand; but on the
other hand, they are worried about the growing trend to criticize
and overregulate the biotech industry.
32
The price of drugs has become a central issue; unfortunately, out-
weighing the enormous potential of these new therapies. Such a cli-
mate clearly jeopardizes the commitment of the drug companies to
invest in CF products.
Let me now describe to you what I think happens with this nega-
tive trend.
In the past 2 years, efforts to destroy revenue incentives in the
Orphan Drug Act have caused a tremendous decrease in the num-
bers of new drug applications submitted to the FDA under the Or-
phan Drug Act.
What are the hard facts? The number of new orphan drugs appli-
cations submitted to the FDA is down. In 1990 and 1991, there
were a total of 215 applications; in 1992 and 1993, the total was
down to 149 applications. That is only two-thirds as many applica-
tions.
The number of withdrawals of product applications for orphan
drugs that have already been designated has increased. In the pe-
riod of 1989, 1990 and 1991, there were only 15 withdrawals; in
1992 and 1993, there were over 57 withdrawals.
More recently the drug pricing panel, proposed by the White
House as part of health care reform, has had a further negative im-
pact on the biotech industry. Since the threat of price controls was
first suggested in February 1993, the value of biotech stocks has
dropped by nearly 30 percent.
Additionally, for the first time in 5 years, there has been a drop
in the number of biotech applications submitted to the FDA for re-
view. t
Another glaring warning signal is the impact on CRADA's. The
reasonable pricing clause has resulted in a decrease in the number
of CRADA's being presented to the Public Health Service for con-
sideration. t
Senator Lieberman. Why do you not spell out what CRADAs
are, for the record?
Dr. Beall. These are a granting program, or a contract program
between the NIH and the private sector, which is helping to sup-
port basic research. It is kind of a cooperative agreement between
the organizations that is a way of getting technology and innova-
tion, and to be able to have the exchange of new ideas. It was a
very unique process; and in fact, the very early work in gene ther-
apy, for the treatment of denazine diaminase deficiency, was done
under a CRADA program.
But our concern is that, because they are going to be imposing
reasonable pricing clauses in these CRADA's, there has been actu-
ally a decrease in the number of CRADA's that have been pre-
sented to the Public Health Service. In fact, the numbers of appli-
cations presented to the Public Health Service in the last 2 years
has dropped by about one-half.
We have heard that other price proposals are also being devel-
oped. One, apparently, would have the NIH require that its univer-
sity and foundation grantees include a reasonable pricing clause in
all its license agreements, which require the NIH to set a price for
the product, if and when a product is licensed and then developed.
This is an idea that will further cripple the NIH technology
transfer process, and undermine the whole rationale for our invest-
33
ment that we are making in basic biomedical research. This could
have a major impact on the university and NIH partnerships, and
the biotech industry.
In fact, we recently heard of an agreement between a biotech
company and an academic institution that precluded the investiga-
tors from receiving NIH support. The NIH support, in this case,
was called contaminated money.
What will this do to the partnership of academic, industry and
the NIH, that has brought us this far?
We have already witnessed the withdrawal of a drug that reflects
the fragile nature of this industry. For instance, the economic woes
of one of the biotech corporations in Boulder, CO forced them to
withdraw a new, important product for CF and place it on the back
burner.
This product, called SLPI, secretory leukocyte protease inhibitor,
could very well have had a profound impact on treating the inflam-
matory diseases associated with cystic fibrosis.
The biotech revolution that began to take shape 20 years ago in
the way of cancer has now reached a critical point in its develop-
ment. We are at the threshold of finally reaping rich dividends
from our prior investment. Cystic fibrosis patients have waited for
many, many years; but this hope could soon be dashed.
The free enterprise system must be protected, especially in the
new realm of biotechnology. We must nurture the infancy stages of
this particular industry; and we must provide incentives, rather
than roadblocks, to its growth.
Certainly, we cannot subsidize the biotech industry. But likewise,
we cannot pull out the underpinnings of this industry, by threaten-
ing to change the pricing structure by price controls.
Since 99 percent of the Nation's 1,300 biotech companies have
fewer than 500 employees, the Senate Small Business Committee
should, be exploring ways to nurture and protect this important in-
dustry.
The threats, if allowed to continue, will eventually destroy the in-
dustry that is finally offering new hope to people with diseases like
cystic fibrosis.
We must nurture this industry in our actions, and support it in
our words. Ironically, this is the very industry that would not only
save lives; but in the long run, we could save many health care dol-
lars— more than we could ever calculate.
Thank you very much.
[The prepared statement of Dr. Beall follows;]
34
s
Cystic
Fibrosis
Foundation
TESTIMONY OF
ROBERT J. BEALL, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYSTIC FIBROSIS FOUNDATION
REGARDING RESEARCH ON CURES AND THERAPIES
FOR CYSTIC FIBROSIS
BEFORE THE
SENATE SMALL BUSINESS COMMITTEE
MAY 26, 1994
Foundation Office
6931 Arlington Road Bethesda. Maryland 20814
(301 1 951 -4422 1 -800-FIGHT CF
35
My name is Robert J. Beall, Ph.D., and I am president of the Cystic Fibrosis Foundation.
First, thank you for inviting us here this morning to talk to you, the members of the Small
Business Committee, about cutting-edge research against this fatal, genetic disease.
The 1990s have clearly become the "Golden Age" of cystic fibrosis (CF) science. When
researchers discovered the gene four years ago, they found the blueprint for building a cure.
And since then, their Herculean efforts-based on this new tool-have made medical history
against the leading fatal, genetic disease in our country. They will not only cure CF
someday but also create the stepping stones to cure many other diseases as well.
What we offer today, an overview of the progress in CF research, will also serve as a model
of what is "right" in U.S. science. As pioneers, CF researchers continue to break new
ground every day-and with each step they are closer to benefitting thousands of Americans.
Some benefits of science-in particular the biotech industry-are tangible, and some, such
as the human benefits, are intangible. We will hear about both today as we make our case
for strengthening and nurturing the biotech industry. We strongly oppose any plans to set
up what would amount to statutory road-blocks, impeding and perhaps even paralyzing their
endeavors.
Our panel will present several facets of CF research today before this distinguished
Committee. First, I will give a brief overview of the challenges we face in improving the
lives of those with CF and what's in place to tackle these challenges. Boomer Esiason will
talk to you about the human aspect-what it's like to be the father of a child with CF.
Then, one of the premier scientists in our country, Dr. James Wilson, will bring you up to
speed on CF gene therapy and address biotech transfer issues. And I will end this session
with a look to the future, a future which includes several innovative new products now in
the pipeline to treat CF.
Some of the proposed bills now swarming before Congress could be quite damaging to the
scientific community and the CF community. In fact, these legislative changes could dry up
the important pipeline of new treatment strategies for CF. What a crime that would be,
not only against those with CF, but for many others as well.
Let me offer you the big picture:
1 in 20 Americans, or 12 million, carry the defective CF gene and, therefore, carry
the risk of having a child with the disease;
• Prevalence: there are an estimated 30,000 people with CF in the U.S.;
• Incidence: CF will occur once in 2,500 live white births;
Median survival age continues to rise-now at 29 (that means that half live beyond
29 and half die before 29);
. Every day, three young people die of this disease in the United States;
The life expectancy in 1992 for infants with CF is very optimistic-estimated to be
40-50 years. This will increase as new treatments are developed.
36
Please do not forget today, as you hear about the excitement in CF research, that this
disease continues to rob the lives of young people. The median survival age now is the late
twenties; what should be the prime of life. When the disease was first described in the
1930s, nearly all CF children were expected to die in the first six months of life.
By the mid-1950s, the median survival age was still just five years. By 1966, it had risen to
11 years. Due to rapid improvements in diagnosis and specialized treatment, the median
survival now is 29 years. Many are living into their 40s and beyond; survival is impossible
to predict because the severity of the disease varies widely. In other words, CF progresses
differently in each patient.
CF physicians must treat the secondary manifestations of CF. This disease primarily affects
cells lining the airways and the digestive tract; the thick, sticky mucus blocks the flow of
enzymes to aid digestion and makes the lungs receptive to serious bacterial infections.
Antibiotics are used to try to kill bacteria in the mucus and physical therapy to dislodge the
thick CF mucus jamming the airways. Earlier this year, an exciting new biotech drug called
Pulmozyme was introduced and is now used to thin CF mucus. More on that later.
Our ultimate goal, of course, remains the same: to target the root cause of CF rather than
wait for the disease to do its damage. The goal was carved in stone by the Cystic Fibrosis
Foundation (CFF) when it began as an organization in 1955. The Foundation was formed
from the sheer will of a few dozen parents of children with CF. They resolved that this
disease would be cured.
The focus has been clear from the beginning-and this intensity of purpose has brought us
far-to the point last year that we made medical history when the first gene therapy
experiments began involving people with CF. You will hear more about this later when
Dr. James Wilson describes the new "foothold" we now have on this disease.
While teams of scientists are making outstanding headway toward CF gene therapy, better
drugs are needed now to adequately treat these patients-patients who labor to even
breathe. The Foundation supports scientists who make observations about CF cells-at the
basic level-and translate this information into applications for the patient. Basic science
can move quickly, from the test tube to the bedside, when nurtured and given the freedom
to achieve.
There is no secret to our success in CF research. Outstanding researchers are recruited by
the Foundation and then backed with the resources needed to push the science forward.
Financial support comes in the form of grants, some to train young clinical and scientific
investigators, others to offer research opportunities to veteran scientists at prestigious
medical institutions.
We also pool our resources throughout multi-disciplinary CF Research Centers which are
launching pads for new ideas. Seven of the nine CF gene therapy centers established by
the NIH are located at our Research Centers-a reflection of the high quality science we
have been fortunate enough to foster.
37
In many ways, the Foundation functions as a bridge-between the academic research
community, industry, caregivers and federal agencies; the more collaboration, the more
progress in the laboratory and beyond. The wheels of progress are obviously gaining
momentum. What isn't obvious is that every day at least three people still die from CF.
We are working hard to change this. The exciting realm of CF gene therapy offers a whole
new frontier for scientists and with it a whole set of research questions. Much remains to
be done. New genetic technologies are closing the gaps between theoretical advances and
what is now achieved in the laboratory.
The Foundation's network of CFF Care Centers collaborates with more than a dozen
pharmaceutical/biotech companies to orchestrate extensive clinical trials on several new CF
drugs. These new CF treatment strategies could revolutionize the management of CF care
as we now know it. But, more research is needed. New drugs could help win the battle
against deadly Pseudomonas infections, for example. New interventions could prevent
damage to affected organs such as the liver.
The Foundation is often told "that's impossible" when we set out to accomplish something.
We go right on, past the nay-sayers and do whatever is needed to expedite the science. Our
success to date has been remarkable, but as I must say-all too often-the rate of progress
is never fast enough for those with CF and their families.
38
With dedicated scientists like Dr. Wilson, we are shoring up our defenses on many fronts
and close to winning the war against cystic fibrosis. As you have heard today, gene therapy
will most likely be our best weapon. The impact of this exciting new strategy, however, still
rests in the future. Thousands face CF every morning when they wake up. New clinical
weapons must be developed now to keep these people alive.
Unfortunately, the drug development process is now under fire by those proposing health
care reform. Yes, cures cost money. But taking away incentives from the biotech industry
to create new products, proposing more bureaucracy, more red tape, will have far-reaching
negative effects. Our goal must continue to be medical advances which will control and
cure diseases, anything less leaves us in midstream only able to treat symptoms. Besides
the real human cost, it will also cost more money down the line in cumulative health care
expenditures. Research emerging from biotech investments will enable the cost of treating
today's diseases to plunge long term, not escalate.
Getting Down to Basics
First, I want to talk about the research progress we are making in CF. CF researchers are
making important clinical inroads by transforming what they learn in the test tube into
exciting new therapies. They examine CF cells to understand what goes wrong and why.
Basic research has shown us that CF attacks the body from many angles, therefore, we must
address many different clinical problems. These new treatments include therapies to thin
CF mucus, to reduce inflammation, to fight lung infection and eventually, to treat all organs
affected. A record number of Foundation-supported clinical studies on new CF treatments
are being conducted at most of our 120 CFF care centers.
Our care center network offers researchers an ideal way to test new drugs for CF quickly
and efficiently. Patients and caregivers alike are eager to participate in new drug trials.
But some ideas may become frozen on the drawing board and never reach the patient if
biotech and drug companies are burdened by more regulations and less incentives.
DNase: The First New CF Drug in 30 Years
We have had breakthroughs in CF research recently-you have heard about those in gene
therapy. Biotech scientists are also solving the clinical problems CF patients face. They
are designing treatment strategies to thin the dangerously thick CF mucus. There is a
vicious cycle at work in CF. The defective gene causes cells to make incredibly thick, sticky
mucus. The defective CF mucus attracts bacteria and an influx of white blood cells. As
these cells die, they release their DNA structure which adds even more to the thickness of
the mucus. Scientists at Genentech, Inc. worked with CF researchers at the National
Institutes of Health (NIH) and the University of Washington, Seattle, to develop a new drug
to correct this-DNase.
DNase, now called Pulmozyme, was made possible through the application of the latest
technology. It is a genetically-engineered version of a human enzyme called
deoxyribonuclease which chops up DNA waste and thins mucus. Thinner mucus can be
cleared more easily out of the airways and allows antibiotics to reach chronically infected
lung tissue.
39
Realizing the potential of DNase, the Cystic Fibrosis Foundation collaborated with
Genentech, Inc. to conduct the largest clinical trial ever conducted on a CF drug. The
extensive DNase study involved 50 CFF care centers and nearly 1,000 patients. Researchers
found that the drug improved lung function, helped reduce infections, and improved the
patients' quality of life. Biotech opened up a whole new door for CF treatments--a new
class of drugs-the first in 30 years!
Today, CF patients throughout the country are being evaluated to see whether Pulmozyme
will improve their quality of life, in the short term and, hopefully, lengthen their lives as
well. In the first week alone, more than 500 patients received prescriptions for this new
drug--and we estimate that 12,000-15,000 patients will eventually benefit from this product.
For many years, we have waited for pharmaceutical companies to invest in CF, a disease
representing a small patient population size. People with CF have been forced to wait for
"spill-over" products developed for blockbuster diseases. But times are changing. The
biotechnology industry has increased its efforts to find a niche for diseases like CF and
has created a ground swell of interest. For instance, as we speak, Genzyme Corporation,
Targeted Genetics, Genetic Therapy, Inc., and GenVec are developing strategies for CF
gene transfer. Nearly 20 CF patients have undergone this revolutionary therapy providing
hope that a cure can be found for this disease.
Other biotechnology companies like Univax and PathoGenesis are exploring ways to control
the infection process associated with chronic bacterial infections (Pseudomonas aeruginosa)
so common in CF. BIOGEN and SYNERGEN are both looking at ways to reduce other
complications of this disease.
Another partnership being forged between the Foundation and BIOGEN is to examine the
benefits of a new product called Gelsolin. It appears that Gelsolin may effectively thin
defective CF mucus. An initial study is underway. CF research has certainly gained
momentum and is fortunate to now attract the "best in the business".
Fighting Fatal Infections
Besides battling the effects of damaging thick mucus, 90 percent of people with CF fight
daily against serious lung infections. They are now closer to having a new weapon in the
fight against life-threatening infections. New technology, first developed as passive immune
therapy to treat cancer, is being applied to CF.
The new CF drug, called "HyperGAM + CF," may someday provide protection against the
most common source of lung infeclion-Pseudomonas aeruginosa bacteria. Researchers are
conducting clinical trials to evaluate HyperGAM + CF to see whether the drug treats and
possibly even prevents the most common and dangerous Pseudomonas infections.
Scientists at Univax Biologies Inc. and Genzyme Corporation have developed
HyperGAM + CF to boost the patient's own natural immune system. First, healthy (non-
CF) volunteers are given a special "agent" that triggers the production of antibodies in their
blood to Pseudomonas. People with CF cannot make sufficient antibodies-which protect
against the bacteria. The scientists then extract these normal antibodies, or fighting agents,
from the healthy blood.
40
These antibodies then are used as the HyperGAM treatment. HyperGAM should boost
the patient's immune system to reduce and possibly wipe out the bacteria, reduce
inflammation and improve lung function. The first stage of the study is underway at five
CFF Care Centers to test the safety of HyperGAM + CF. Phase II/III trials will involve a
large number of CF patients and should begin in the fall of 1994.
In Search of the Ultimate Drug
The ultimate drug for CF may be the Cystic Fibrosis Transmembrane Regulator Protein
(CFTR). In other words, we may someday treat CF cells by adding the normal product of
the gene, the protein, rather than the gene. Scientists at Genzyme Corporation and the
University of Iowa are collaborating to find a means of manufacturing large quantities of
CFTR, enough for therapeutic treatments.
Scientists must develop a whole new type of technology to be able to produce human
protein in the laboratory. They are attempting to manufacture human protein in the
mammary glands of animals. Much research remains to be done to refine this technology
before sufficient amounts of protein can be made. The technology, again, should be helpful
in the treatment of other diseases as well.
Health Care Reform Threatens Innovation
So that is the good news I have to share with you today, but there is some bad news. There
are aspects of health care reform proposals--now on the table-which could bring all of our
scientific progress to a standstill.
Many of us are alarmed by the Administration's idea of setting up a national panel to
establish drug prices on breakthrough drugs. Such a panel would stifle medical advances.
The Administration's proposal for the blacklisting of new Medicare drugs, while it would
probably not have much impact on CF patients, would stifle medical advances on diseases
afflicting Medicare-aged beneficiaries. Even the mere mention of these proposals has
already scared off the investment capital, needed up front, by many biotech and drug
companies. Investors see such regulation as a disincentive to put their money towards the
development of new drugs, especially for orphan diseases. A decline in breakthrough drug
investment means, frankly, that lives will be lost.
We have heard that other price control proposals are being developed. One apparently
would require the NIH and perhaps its university and foundation grantees to include a
"reasonable pricing clause" in all licensing agreements. This would require the NIH to set
the price for the product if and when it is developed. This is an idea that will further
cripple the NIH technology transfer process and will undermine the whole rationale for the
huge appropriations we make in our country for basic biomedical research.
If the University of Michigan, which discovered and patented the CF gene under the
leadership of Francis Collins, M.D., Ph.D., included such a clause in its licensing agreements
for this gene, we doubt whether any private biotech company would be willing to develop
gene therapy to cure this disease. In short, this is a thoroughly counter-productive idea and
it should be rejected for an NIH or NIH grantee license.
41
We should all see a red flag being raised. This type of "control" could change the flow of
new products to a mere trickle. In essence, the state of technology and new drugs will be
frozen as they are in 1994-sealing off the fate of thousands of young Americans.
As a fatal illness, CF, of course, causes great emotional stress to the individual and his
family beyond our ability to calculate. But the other cost, financial costs, can be estimated.
The annual health-care costs for a moderately ill patient are approximately $17,000; for a
severely affected patient, about $42,000. It is not uncommon, however, for someone to pay
in excess of $250,000 in the last stages of the disease.
What is so absurd is that we are endangering the development of new products that could
provide a better quality of life for CF patients and many others. Some have made an issue
of how much DNase (Pulmozyme) will cost-approximately $10,000 per year. Ask any CF
patient whether he or she would sacrifice the availability of this drug for the likelihood of
repeated infections. By the way, in dollars and cents, these CF-related infections require
hospitalizations that average about $15,000 each; some patients require more than one
hospitalization per year.
As we enter the home stretch, CF remains a formidable enemy. We must not back down
now as we have attained a commanding position to beat this disease. We have the tools
in hand to attack the disease on several fronts, from opening up the path to gene therapy
to paving the way for new drug treatments.
The free enterprise system must be protected in the new realm of biotechnology-we should
be providing incentives to create new therapies rather than roadblocks. Price controls
would quite literally pull out the underpinnings of the biotech industry and cause it to self-
destruct. Setting pricing is often put under the guise of "helping" the patients when, in fact,
it will deprive them of lifesaving new treatments.
When describing research to fight a fatal disease, such as CF, we tend to use war analogies:
"doing battle" and "new weapons in the arsenal." There's a big difference though, in our
fight-it doesn't take place on a battlefield. It takes place at home, in the clinic and in the
hospital. And the saddest thing that could happen is that, there, in the very places these
young individuals look to find hope, they may have to hear; "I'm sorry, there's not much else
we can do, you still have to wait."
42
Senator Lieberman. Thank you, Doctor. The three of you have
really been excellent witnesses, and have told us a story that has
been clear to follow. I have, very few questions to ask.
Dr. Wilson, one of the things I noted as I listened to you is, that
we too rapidly take for granted some of the remarkable break-
throughs that have occurred in pharmaceuticals and medical treat-
ment. We live in an extraordinary time. In fact, we see on the front
page of the paper today, the picture of the black hole that the Hub-
bell telescope has taken; and our age is described as "The Informa-
tion Age."
But one of the most dramatic changes in our time is the extent
to which we can deal with disease; and the leaps forward we are
taking are astounding. We do tend to take them for granted, and
forget where they came from.
Even Boomer's earlier description — before the description of
Pulmozyme — of the drugs that his son is taking, while not perfect,
obviously bring him to a higher level of capacity and ability to live
a normal life, than if those drugs had not been here. Now hope-
fully, Pulmozyme takes him that much higher.
Let me understand, Dr. Wilson, in terms of what we are focusing
on here, how we go from academia to the private sector. In other
words, what happens with the breakthrough that you have in deal-
ing with cystic fibrosis, for instance? How do you connect with a
private sector operation, to fund the next larger stage of research
and testing and sales that you described?
Dr. Wilson. I think in academia what we are well equipped to
do is to understand the basic biology that is going to go into the
formulation of the particular vehicle, as well as studying the target
organ and a lot of other issues that are important in terms of fea-
sibility. I think in an academic medical center we can also prove
principle; that is, is it possible to safely administer a gene into a
patient and demonstrate that that gene has taken up residence.
But we now have to move into the next phase, which is moving
those technologies that are discovered and developed in academia
into biotechnology in a way that they would feel comfortable invest-
ing in the development of that technology at a couple of levels. One
has to develop special manufacturing, large-scale manufacturing,
implement large- scale clinical trials, because to prove that this is
truly effective and safe requires more than 20 patients whom we
are approved to treat.
All we can do is prove principle, and they are really pilot experi-
ments. Then beyond that, once that is proven, there has to be a
mechanism for distribution, and you can maybe describe that as
marketing. But I view that as distributing this to the population.
Senator Lieberman. Is it typical that somebody from academia
would join with some folks in business to form a biotech company
to further develop a breakthrough? I guess part of what I am ask-
ing is do you go looking for the biotech companies or do they come
looking for you, in terms of product development?
Dr. Wilson. Well, in academia it is not the normal mind-set. As
an assistant professor, one usually focuses on tenure or promotion,
not necessarily the biotech company you are going to start. But I
think things are changing in biomedical research because we are
advancing closer toward achieving something meaningful. In terms
43
of human health we are becoming more directed and targeted in
our basic research. I think what you are seeing now is we are be-
ginning to focus much more on why are we doing this and what is
the next step. I consider it almost a moral obligation to design
strategies for transferring the technology.
Now, on the flip side, each university has its own mechanism to
facilitate technology transfer. And I believe it is to the advantage
of the university to facilitate that because the technologies are
owned by the university. They are licensed to the companies, and
if this is done effectively you not only respond to the moral obliga-
tion but there would be a return to the university if there were any
financial gain out of that new technology.
Senator Lieberman. Thank you.
Dr. Beall, one final question for you. You have cited some very
powerful statistics about the fall-off in applications which I pre-
sume, unless there are some other variables, has at least some-
thing to do with what we in Washington have been talking about
doing which has had a chilling effect on capital moving into these
fields. I would be interested if you have anything more to say about
that.
Dr. Beall. Well, I think Dr. Goldberg later on is also going to
have some figures that are going to support that assertion.
Senator LlEBERMAN. Then let me ask one final question. The
market is a good mechanism, as I have described earlier. On the
other hand, if you have a disease that affects a relatively small
number of people, and I suppose we could put cystic fibrosis in that
category, certainly less than are affected by cancer, heart disease,
or AIDS, it may become less attractive in just a pure business
sense for businesses to invest the capital necessary to develop the
therapy.
I noted that you said that Pulmozyne was developed as a result
of a collaboration between Genentech and the Cystic Fibrosis Foun-
dation. How do we deal with that as we look toward developing
treatments and cures, not only for the diseases that affect millions
or hundreds of thousands, but a disease that affects 30,000 kids?
How did you work that out in this particular case?
Dr. Beall. Well fortunately, we have a network of care centers
where we follow about 18,000 patients. What we were able to facili-
tate is once that Genentech had this drug and they thought it could
go into patients, because of our network of care centers that were
out there we were quickly able to identify these patients. We were
able to enroll 1,000 patients within 3 months, and have the clinical
trial phase 3 over within 9 months.
I think this is an example of how partnerships can work between
the foundations that exist out there and the NIH that supported
a lot of the basic work. Then you have the biotech companies that
can take some of the ideas that have been developed at the NIH
or developed through our support, and we leverage our investment
through the biotech companies to be able to take it to the market-
place. We could never have afforded that single clinical trial, but
because of our relationship with them and their investment, we
were able to take this drug in a really miraculous time — 5 years
after we were able to conceive of it.
44
Senator Lieberman. Then I presume it is also worthwhile as a
business venture for Genentech?
Dr. Beall. Absolutely. It was done under the Orphan Drug Act.
But for every drug that is out there this was a success story. There
are other products, such as SLPI as I mentioned already, where
there is some question whether it is worth their investment. And
because of the problems that we have seen in the biotech industry
and the fact that they are less willing to make an investment in
a disease that affects only 30,000 individuals. They would much
rather go after the blockbuster drugs.
Senator Lieberman. Sure. Thank you.
Senator Kerry.
Senator Kerry. Thank you, Joe. I just have a few questions.
Dr. Beall, what is the ideal role that you want vis-a-vis the Gov-
ernment? Do you want it just to stay out of the way and do not
screw up the ability of private capital to move, or is there an ideal
that is better than that? Do you want more? Do you want a collabo-
ration, a joint venture?
Dr. Beall. We really would like to see it to the point where we
are creating an environment to nurture this. The issue of price con-
trols and the threats of price controls
Senator Kerry. The administration has indicated in the most re-
cent conversations that they are amenable to moving in that direc-
tion. So I suspect we are not going to be talking about pricing or
controls in the manner that indeed the stocks have reacted to over
the course of the last months. Do you accept that at this point?
Dr. Beall. Yes.
Senator Kerry. Assuming that is true, then, moving beyond that
what is the ideal?
Dr. Beall. We still have price panels potentially in the CRADA
program at the NIH. I think that is very much of a concern because
the companies are not going to invest in that. There are a lot of
places through the Public Health Service with the drug develop-
ment. But issues of price control are being suggested in the
CRADA program, in cooperative agreements, and I think that this
goes beyond health care reform.
Regarding Senator Kennedy's committee, we are also concerned
that in place of the drug pricing panels there was a study that has
been proposed that would look at different kinds of technologies
and so forth. I think once you put these kinds of studies into the
hands of bureaucrats you do not know what kind of ramifications
can come from these kinds of studies. And if they focus on
Senator Kerry. You want the marketplace to be able to deter-
mine it?
Dr. Beall. I want it to be open.
Senator KERRY. And you do not want a bureaucrat making a de-
cision in some way that restrains your ability to move in a particu-
lar direction?
Now, assuming you have that, can you make any suggestions as
to how we deal with the inflation side of the health care system,
particularly with respect to drug prices? What do you do in terms
of the evidence a lot of people have brought forward, Senator Pryor
and others particularly, with respect to drug pricing?
45
Dr. Beall. Well obviously, at one point drug pricing for
Pulmozyne was an issue for cystic fibrosis. It costs $10,000 a year.
But to show you the cost-benefit ratio here, it saves hospitaliza-
tions. An average hospitalization is $14,000 per year. There are
people in this audience here that used to have one or two hos-
pitalizations per year, and since Pulmozyne they have not had hos-
pitalizations. So I think you have to look at the cost-benefit in
terms of the longer vision in cystic fibrosis and other diseases.
I think you have to weigh these. You cannot just say $10,000 is
a lot of money. If our patients have to go and have a transplant
it is $350,000, and then we lose four out of every five patients who
are on waiting lists for a transplant. So I think you have to be
very, very careful. As you look at drug prices I think you have to
look at the long-term benefits for these patients.
Senator Kerry. Dr. Wilson, you mentioned the technology trans-
fer issue, which is one we are getting a little more sophisticated
about down here and we have had a good technology bill come out
of the Commerce Committee which we passed in the Senate which
will assist in technology transfer. I am not sure if you are familiar
with it or not. But you also said something to the effect that you
cannot lose time. It would be tragic. Can you elaborate on that a
little further? Make sure we understand the picture of the time ele-
ment here and what the tragedy would be, if you could define that
a little further.
Dr. Wilson. I think it goes back to this being a new paradigm,
and it has to do with the pace and the scope. Quite frankly, in
many ways when one has to represent this we know this will have
a huge impact on diseases such as cystic fibrosis in a very mean-
ingful way, and we have ideas as to how we are going to do that.
But the actual technology that will be brought to bear to cure pa-
tients with cystic fibrosis in 3 years may not have necessarily been
discovered yet.
It is an incredible time. If one would have approached the phar-
maceutical industry with that concept 5 years ago, or even today,
that would not be looked at very favorably. And it has to do with
how broad this concept really is. People believe it may be a new
industry. So we have to create a mechanism in which entre-
preneurs can buy into the potential of this, the likely success of
gene therapy for which maybe we have not precisely defined the
mechanism by which we are going to do that. And that is risky.
Senator Kerry. When you say we have to create a mechanism
for that, some people would argue that we did create a mechanism
for that and it is called the marketplace, and that if you adhere to
the notion of freedom that Dr. Beall is talking about, people come
to the risk on the basis of the reward or their perception of it, and
so they invest. Prior to the impact of the health care bill on the
biotechnology stocks you cannot exactly say they have not been at-
tracting significant capital, correct?
Dr. Beall. That is true.
Senator Kerry. So do you envision some different structure? Is
there something we have to do or create to enhance this, or if we
just simply remove any restraints will the market take care of it?
Are you talking about something new here?
Dr. Wilson. Well, no. In many ways not get in the way.
46
Senator Kerry. So you are not envisioning something different
when you say we have to create something, you are just saying
keep your dirty cotton picking hands off it.
Dr. Wilson. Well, maybe not that blunt.
Senator Kerry. Well, it ought to be.
Dr. Wilson. There are some other issues that I think we could
take up, maybe not necessarily in the context of this discussion,
but the ever-present threat of conflict of interest is stifling with re-
spect to technology transfer. When are we put in conflict of inter-
est? The bottom line is those rules are continually changing.
The other issue that I think may be useful to consider with re-
spect to gene therapy has to do with long-term liability, and that
is something that maybe could be taken up at the Federal level. It
is an issue that has come up in the context of another form of ther-
apy, vaccine development. That threat has been somewhat stifling.
Senator Kerry. There are also, obviously, a subset of moral is-
sues that are increasingly raising some questions with respect to
gene therapy and gene patenting, is that not fair to say?
Dr. Wilson. Moral with respect to what?
Senator Kerry. Well, the question of who owns what and what
you can begin to do and who controls it becomes fairly significant.
If you develop the ability through the gene mapping system, gene
therapy, and so forth, to change and alter and it is in private
hands, can somebody come in for say, $500,000 or $1 million and
change who they are, their hair, their makeup, their size? Would
we be producing quarterbacks on command? Are these serious is-
sues? I am just saying I am beginning to hear them and feel them
bubbling up under the surface.
Let us get back to the heart of this hearing. In terms of what
Gunnar needs or thousands of other kids need, is there something
more that we can do? Is there something more, without getting in
the way, that the Government is not doing today that you think
would move this process faster, from your perception?
Then, Boomer, I would like to ask you as a parent and somebody
who has been struggling to get the system to respond. How do you
feel it is doing? Is there enough happening? Do you think we have
a greater role?
Dr. Wilson. I think the marketplace will, without interference,
address the development of these new therapies for diseases where
there are huge markets. The concern that I have has to do with
the rare diseases and whether there could be potentially joint ven-
tures in supporting that translation. Cystic fibrosis regrettably is
common enough where there may be a sufficient market to warrant
investment when looked at from that standpoint. But there are oth-
ers that are not as common.
The one thing that is powerful here, as I view it, is that develop-
ing an approach for treating a gene defect can very simply be ex-
tended to another disease with very little incremental investment,
necessarily. Because both diseases are caused by the absence of a
gene, and we just have to figure out a way to get that gene in. And
to that extent one possibility that I have thought about are ways
in which there literally could be coinvestment in that regard, keep-
ing in mind you would then ameliorate chronic disabling diseases
47
for which individuals come into the hospital all the time and has
a tremendous impact on the cost of health.
Mr. Esiason. Senator Kerry, the day that Gunnar was diag-
nosed, and, I should let you know that Gunnar's primary care cen-
ter is Cincinnati Children's Hospital, which is one of nine, I be-
lieve, federally funded care centers when it comes to gene therapy
and is also in conjunction with the foundation also NIH. That day
they told us that there was a new drug that was coming out within
the next 6 months, and that drug was Pulmozyne.
I never thought in my wildest dreams that that was going to be-
come a reality because I know how slow things take. They take
time and things happen. Lo and behold, 6 months later we had a
Pulmozyne party at our house. We had a cake, we had balloons, the
whole bit, to let Gunnar know that he had new therapy that he
was going to go through, and this was the Pulmozyne party.
To answer your question, I have seen in the last year remarkable
trends take place in this particular industry. And when I sit here
and I listen to Dr. Wilson and Dr. Beall, as a parent I get excited
about the things that they say. Your opening remarks were exactly
what a parent like me needs to hear, because this is what keeps
our struggle that much more intense, because we know with the
support of people like you and the doctors here that Gunnar will
see a bright future.
So yes, the answer is that I have seen things move quickly and
rapidly, and I do not want to see them go the other way.
Senator KERRY. I think Joe and I could not agree more, and we
are going to do everything possible to come up with a bill that lib-
erates and encourages creativity and does not stifle and restrain it.
I think we are on the road to making some of those corrections
now, and not just the industry but interested parties and others
have done a very good job of helping people to understand this rela-
tionship.
So I want to thank you very much. You have presented a very
cogent lineal description of the relationships between the various
components of this issue from the primary care level to the re-
search level, and I think it is very helpful to have that information
and I am very grateful to you.
Mr. Esiason. If you need me to bring Gunnar over to the White
House just let me know.
Senator Kerry. That is a great idea. If we need it we will do it.
Senator Lieberman. Also, while we are turning out those quar-
terbacks we are going to be turning out offensive linemen, as well.
[Laughter.]
Mr. Esiason. Those are really the most important, I can tell you
that.
Senator Kerry. The reason Joe and I are so interested in this,
we want to hold the pattern in New England, you see?
Mr. Esiason. Yes, I see.
Senator Kerry. And we can finally have something going for our-
selves.
Mr. Esiason. Well, hopefully not too good because we have to
play them twice a year. We had some fun with them last year.
Senator Kerry. Yes; you did.
48
Senator Lieberman. Have a great day, and thanks very much for
being here. You have been a superb panel in every way. We look
forward to continuing to work with you. Good luck in everything
that you are doing. Thank you all.
We will call the second panel now: Harry Penner, who is the
president and CEO of Neurogen Corp., Branford, CT; Brian Dovey,
Domain Associates, Princeton, NJ; and Robert Goldberg, senior re-
search fellow, Gordon Public Policy Center in Springfield, NJ.
Senator Kerry. Mr. Chairman, if I might just explain, regret-
tably I have a prior commitment to address the World Economic
Forum, which is meeting downstairs, so I apologize for having to
depart at the outset of your testimony, but I have your statements,
and my staff will be here to follow up.
Senator Lieberman. Thank you, John, and thank you for your
support and involvement in this, which has been critical. I look for-
ward to continuing to work with you. We will begin with Mr.
Penner.
STATEMENT OF HARRY PENNER, PRESIDENT AND CEO,
NEUROGEN CORP., BRANFORD, CT
Mr. Penner. Thank you very much, Senator Lieberman and Sen-
ator Ke rry. We appreciate very much the interest of this committee
and the research that is being conducted by entrepreneurs, espe-
cially into cures for childhood diseases.
I am testifying here today not only in behalf of Neurogen, but
also in behalf of the Biotechnology Industry Organization, BIO.
BIO represents some 500 biotech companies, the great bulk of
which are involved in the medical side of biotechnology seeking to
provide cures for illnesses across the spectrum, not only for chil-
dren but for us grownups as well.
The biotech industry appreciates very much the interest of this
committee in the biotech industry, and we look forward to working
with this committee on policy issues of interest to high technology
entrepreneurs.
Neurogen is based in Branford, CT, and was founded in 1988 on
private venture capital, by two tenured professors at the Neuro-
science Group of the Yale University School of Medicine, without
any help, I might say, from Yale University itself.
At Neurogen, we are designing and developing the next genera-
tion of psychotherapeutic drugs, drugs to treat such scourges as
schizophrenia, epilepsy, Alzheimer's disease, dementias of all sorts,
depression, anxiety, as well as eating and sleeping disorders.
We are employing the most recent advances in neurobiology, me-
dicinal chemistry, and molecular biology to develop innovative psy-
chotherapeutic drugs which not only will reduce or eliminate side
effects altogether but provide more efficacious treatment for these
serious diseases.
We are a small company. We employ only 67 people, 26 of whom
have Ph.D.'s, and we are happy to say that our projections for this
year are in line with those of one of the witnesses here, that we
expect to hire perhaps another 25 percent this year.
Senator Lieberman. Great.
49
Mr. Penner. According to the Office of Science and Technology
Policy, in 1988 alone, these kinds of disorders cost this country
over $130 billion, so we expect to have an enormous impact.
Senator LlEBERMAN. The specific disorders that you are working
on treatments for?
Mr. PENNER. Yes. Many of the disorders that we are seeking to
treat have a disproportionate impact on the young. Epilepsy and
depression strike in childhood years.
Eating disorders and schizophrenia will strike people in their
teenage years.
Neurogen has no sales or existing products, but it expects to file
its first investigational new drug, IND, application, in September
for a breakthrough drug to treat schizophrenia. By mid-next year,
we expect to have two more IND's, two more drugs in the clinic,
one to treat epilepsy and one more to treat schizophrenia. We have
also developed an antianxiety agent that we have licensed out to
Pfizer which is already in clinical trials.
The clinical trials process, and dealing with FDA, takes many
years. We expect to have our compounds on the market by the end
of the century, perhaps as early as 1999.
While the markets we seek to serve are substantial, the thera-
pies currently available to treat neuropsychiatric disorders are
suboptimal and might even be said to be problematic. Take the
case of epilepsy alone. One percent of people in this country suffer
from epilepsy, and children are especially affected by it. The inci-
dence is greatest in children under 10, and 75 percent of all per-
sons with epilepsy have their first seizure by the age of 18.
Seizures have unfortunately been long associated with behavioral
changes, and also, tragically, children affected by epilepsy gen-
erally score much lower on tests of intellectual capability. Perhaps
most unfortunate, next to the fact that there is no cure, is the fact
that over 30 percent of patients taking such medications experience
severe side effects or are unhelped by the medications and they
must be discontinued.
Since our founding, we have spent nearly $30 million. We have
developed an outstanding portfolio, but we will need several mul-
tiples of this amount to turn our compounds into commercially
available hope for the many people who suffer from these debilitat-
ing disorders.
Our funding has come solely from the private sector. We are
talking about venture capital groups, stock offerings, and equity in-
vestment from Pfizer.
On the strength of only the antianxiety agent that was the sub-
ject of a deal with Pfizer back in 1992, our stock soared to over $20
a share. Today, with that compound in human clinical trials and
a broad and promising portfolio, we see our stock sitting at less
than 50 percent of that figure.
Our costs are accelerating dramatically as we approach testing
in humans, and we are setting out to raise the necessary capital
to move forward. But the market for biotech stock offerings, as I
am sure I do not have to tell you, has been seriously dampened by
the prospect of health care legislation that has been before the
Congress.
50
We believe that the tremendous cost of neuropsychiatric dis-
orders to our economy can be significantly reduced, that many suf-
fering from such disorders can return to productive lives, and that
it would be possible for the many children and young people suffer-
ing from these disorders ultimately to lead normal lives.
We further believe that the only viable way to achieve these re-
sults is through the introduction of dramatically improved psycho-
therapeutic medications, but in order to encourage biotech compa-
nies such as ours to develop such drugs, they must be able to
charge a price for these drugs that will reward the investors for the
extraordinary risks that they have taken in the financing of the re-
search.
If the companies cannot charge fair prices, or if the investors fear
that they will not be permitted to do so, the research will not be
funded, and we will not see breakthrough drugs developed.
We in America must rely and do rely on the hundreds of small
entrepreneurial biotech companies to discover and develop break-
through drugs that will ease the lives of children and adults that
suffer from these life-threatening illnesses. It is in the Govern-
ment's interest for the U.S. private sector to take this risk. On the
strength of the biotech industry, at least partly on the strength of
the biotech industry, the United States far surpasses Europe and
Japan in the development of new therapeutic drugs.
How breakthrough drugs are priced once they are developed is
an issue only if the drugs are, in fact, developed. We have been de-
lighted to see that recently Senator Kennedy and his Committee on
Labor and Human Resources and Congressman Dingell have both
backed away from the idea of a breakthrough drug price commit-
tee.
Their action has begun to lift a cloud from over our industry
which has been chilling investment to fund our research, but too
many small biotech companies are, like Neurogen, sitting on only
a year or less of capital. The therapies we promised can change the
world only if these companies survive, and we will only survive if
we as entrepreneurs have the prospect of realizing the fair return
possible in every other business.
In closing I would like to simply point to the fact that BIO has
today issued a report entitled, "Biotechnology: Seeking Cures and
Therapies for Children's Diseases." It is attached to my testimony
and it highlights the research that is being done by a broad spec-
trum of biotech companies as concerns the development of cures for
a plethora of childhood diseases, including cystic fibrosis, leukemia,
juvenile diabetes, and epilepsy.
This report forms the basis of hope for our children. Companies
like Neurogen and hundreds of others across this country can pro-
vide dramatic breakthroughs in therapies for diseases affecting our
children. You in the Senate can help maintain an economic climate
which will make this possible.
Thank you, and I look forward to answering your questions.
[The prepared statement of Mr. Penner follows:]
51
TESTIMONY OF HARRY PENNER
PRESIDENT AND CEO OF NEUROGEN CORPORATION
BEFORE THE
SENATE SMALL BUSINESS COMMITTEE
MAY 26, 1994
Good morning. My name is Harry Penner and I am the President and CEO of
Neurogen Corporation. I very much appreciate the opportunity to testify today on Research
by Entrepreneurs on Childrens' Diseases.
I am testifying here today on behalf of the Biotechnology Industry Organization
(BIO), the international trade organization to serve and represent the emerging biotechnology
industry in the United States and around the globe. As the leading voice for the
biotechnology industry, BIO represents over 500 companies of all sizes engaged in the
development of products and services in the areas of agriculture, biomedicine, diagnostics,
food, energy and environmental applications.
The biotechnology industry appreciates the interest of this committee in the
biotechnology industry. We look forward to working with this committee on many policy
issues of interest to high technology entrepreneurs.
NEUROGEN'S STORY
Neurogen is based in Branford, Connecticut, and was founded in 1988 on venture
capital funding by two tenured professors in the neuroscience group at the Yale University
School of Medicine.
At Neurogen we are designing and developing products to treat a broad variety of
neuropsychiatric disorders, including schizophrenia, epilepsy, Alzheimer's disease,
52
depression, anxiety, as well as eating and sleep disorders. We are employing very recent
advances in molecular biology, medicinal chemistry, and neurobiology to design innovative
psychotherapeutic drugs which have both improved efficacy and fewer side effects than drugs
currently used to treat these disorders.
We are a small company employing 67 people, 26 of who are Ph.D.'s, but we expect
our impact to be enormous. According to the Office of Science and Technology Policy, in
1988 alone, behavioral disorders cost the U.S almost $130 billion. Many of the disorders we
seek to treat have a substantial impact on the young. Epilepsy and depression may strike in
childhood while schizophrenia and eating disorders, such as bulimia and anorexia, may be
encountered during the teenage years.
Neurogen has no sales or existing products, but it expects to file its first IND in
September for a breakthrough compound to treat schizophrenia. By mid next year we expect
to have two further compounds in the clinic, one to treat epilepsy and one more to treat
schizophrenia. In addition, we have developed at Neurogen and out-licensed to Pfizer a new
treatment for anxiety which began clinical trials just last month.
While the markets we seek to serve are substantial, the therapies currently available to
treat neuro-psychiatric disorders are suboptimal, and in many cases problematic.
Take the case of epilepsy. Almost five percent of the population will have an
epileptic episode at some time in their lives and as many as one percent will have epilepsy.
Children are specially impacted by epilepsy, the incidence being greatest in children under
age 10, and 75% of epileptics will have their first seizure by age 18. Seizures have long
been associated with changes in behavior, and children affected by epilepsy generally
53
perform more poorly on measures of intelligence. Perhaps most unfortunate, however, is the
fact that there is no cure, and there are some 30% of patients who experience such severe
side effects or such poor control that currently available medications must be discontinued.
Since our founding we have spent nearly $30 million. We have developed an
outstanding portfolio, but we will need many multiples of this figure to turn our compounds
into commercially available hope for the millions of Americans, young and old, suffering
from brain disorders.
Our funding has come from private investors, venture capital groups, public
financings and via our collaboration with Pfizer. On the strength of only the anti-anxiety
agent our stock soared to $20 in 1992. Today with that compound in human clinical trials
and a rich portfolio of innovative psychotherapeutics, our shares are trading at 40% that
figure, or $8.50 per share.
Our costs are accelerating dramatically as we approach testing in humans and we are
setting out to raise the necessary capital. But, the market for biotechnology stock offerings
has been seriously dampened by the specter of health care reform legislation that would
essentially control the prices of the new therapies we will bring to the market.
We believe that the tremendous cost of neuropsychiatric disorders to our economy can
be significantly reduced, that many suffering from such disorders can return to productive
life, and that it will be possible for the children and young people suffering from these
disorders to lead normal lives. We further believe that the only viable way to achieve these
ends is through the introduction of dramatically improved psychotherapeutic drugs. But in
order to encourage biotechnology companies to develop such drugs, they must be able to
54
charge a price for the drugs that will reward investors for the extraordinary risk they have
taken in financing the research. If the companies cannot charge fair prices, or if investors
fear that they will not be permitted to do so, the research will not be funded, and we will not
see breakthrough drugs developed.
We have found that a very large percentage of Americans think that the federal
government pays the tab on the ground breaking research into new medications. While one
of our compounds did come from NTH research, all others are home grown at Neurogen.
Moreover, the real expense of developing even the NIH compound is Neurogen's
responsibility, and the NIH will be paid a royalty.
We in American must rely, and do rely, on the hundreds of small entrepreneurial
biotechnology companies to discover and develop the breakthrough drugs that will ease the
lives of children and adults suffering from disability and life threatening disease. It is in the
government's interest for the private sector to take the risk, invest its own money, navigate
the long FDA process, and compensate its employees in stock options.
How breakthrough drugs are priced once they are developed is an issue only if the
drugs are, in fact, developed. Our industry is delighted that the proposal for a Breakthrough
Drug Council in the Clinton health care plan has been decisively rejected by the Chairman of
the House Energy and Commerce Committee, Congressman Dingell, and the Chairman of
the Senate Labor and Human Resources Committee, Senator Ted Kennedy. Their action has
begun to lift a cloud from over our industry which has been chilling investment to fund our
research.
Too many small biotechnology companies are, like Neurogen, sitting on only a year
55
or less of capital. The therapies we promise can change the world only if these companies
survive. We will only survive if we as entrepreneurs have the prospect of realizing the fair
return possible in every other business.
BIO REPORT ON RESEARCH ON fHn.nRF.NS' DISEASES
BIO has just completed a report entitled Biotechnology: Seeking Cures and Therapies
for Childrens' Diseases. The report documents research and development which
biotechnology companies are currently conducting into childrens' diseases such as epilepsy,
cystic fibrosis, leukemia, juvenile diabetes, and several others. The purpose of the report is
to heighten awareness of the extraordinary work which is being done in this area by the
biotechnology industry. It is also to identify the diseases which decrease the quality of life
for thousands of our nations children.
A copy of this impressive report, which is being released today, is attached to my
testimony.
The report forms the basis for hope for our children. Companies like Neurogen and
hundreds of others across this country can provide dramatic breakthroughs in therapies for
diseases afflicting our children. You in the Congress can help maintain an economic climate
which will make this possible.
BIOTECHNOLOGY INDUSTRY OVERVIEW
Neurogen is typical of many of American's biotechnology companies. Let me turn
now to the big picture and health care reform.
56
The biotechnology industry consists of approximately 1,300 companies, of which 235
are publicly traded. Approximately 525 of these are biotherapeutic companies, while 344 are
diagnostic biotech companies, 191 are ag-biotechnology companies, and approximately 100
firms represent the chemical and environmental segments of the industry. Ninety-nine
percent of the companies in this industry have 500 or fewer employees and less than 1 % are
profitable. The industry currently employs over 100,000 people in high-skill, high-wage
jobs, a 23 percent increase over 1992. The biotech industry had revenues last year of $10
billion, a 20 percent increase over 1992. Finally, there was a net loss of $3.6 billion in
1993, an increase in losses of 6 percent over 1992. The biotechnology industry, in fact, has
never had a profitable year.
A large portion of the biotechnology industry is focusing on the development of
medical products. To date, twenty-three genetically engineered drugs and vaccines are now
commercially available to prevent or treat such diseases as AIDS, diabetes, dwarfism,
hepatitis, heart attacks, anemia, leukemia, renal cancer, organ transplant rejection, and
Kaposi's sarcoma. The techniques discovered by the biotechnology industry are also used to
assist in the discovery of drugs from traditional sources and unique applications. Drugs and
vaccines that are being developed by emerging biotechnology and pharmaceutical companies
will treat such intractable diseases as cancer, arthritis, Alzheimer's, and genetic disorders.
Hundreds of biotechnology products are being marketed for the diagnosis of such
medical conditions as pregnancy, cancer, hypercholesterolemia, and AIDS. Many more
diagnostic products are being developed by emerging biotechnology companies.
One reason that the industry has consistently shown a net loss is the amount of capital
57
the industry puts into research and development.
The biotechnology industry is the most research intensive industry in the history of
civilian manufacturing, based on R & D as a percentage of revenues and on a per employee
basis. In a 1993 survey by Business Week' seven of the top ten firms in the U.S. in terms
of research expenditures per employee were biotechnology companies - Biogen ($178,168
per employee), Genentech ($115,893), Centocor ($105,291), Amgen (S78,072), Chiron
($76,554), Genetics Institute ($66,572), and Immunex ($55,034). On average biotech firms
spend $59,000 per employee on research. The U.S. corporate average was $7,106. Ernst &
Young reports that biotechnology companies spent $5.7 billion on research in 1993, a 14
percent increase over 19922.
The risks for companies developing biopharmaceutical products on the way to the
market are enormous. The approval process is approximately seven years for a
biopharmaceutical, according to a recent article in BioPharm. The same article added, "The
seven-year development time for biopharmaceuticals is an average for the first successful
products derived through biotechnology. This figure does not include all biopharmaceuticals
that reached the stage of clinical testing during the 1980s. Because the biotechnology
industry is still young, products with relatively long development times are less likely to have
been approved than products with relatively short ones."3
1 Peter Coy et al, "In the Labs, the Fight to Spend Less, Get More," Business Week, (June 28,1993), 102-
127.
2Emst & Young, Biotech 94 Long Term Value Short Term Hurdles. Eighth Annual Report on the Biotech
Industry. VIII (1993).
3Brigitta Bionz-Tadmor and Jeffrey S. Brown, "Biopharmaceuticals and Conventional Drugs: Comparing
Development Time," 44^*9, BioPharm, (March 1994).
58
The long odds against a product making it past the scientific risks and the regulatory
process make it difficult for companies in the biotechnology industry to convince investors
that their company is worth investing in. Investing in the biotechnology industry is risky.
That is why it is important to demonstrate to investors that potential rewards are
commensurate with the risks.
Without patient investment from venture capitalists, public investors and others, this
industry would not exist. The U.S. biotechnology industry dominates international markets
because of the convergence of outstanding basic science and sophisticated capital markets.
The Office of Technology Assessment finds that the average cost per new chemical
entity (NCE) is $359 million4. This survey did not cover the cost of developing a
biotechnology drug, but analyses done by our industry find that the cost of developing a
biotechnology drug may be similar. We know that Genzyme and Amgen, two of our
member companies, raised $328 and $264 million, respectively, in equity before they
brought their first products to market. In addition, Genentech has spent $1.6 billion on R &
D and has four basic products on the market.
FINANCING OF RESEARCH AND DEVELOPMENT
The biotechnology industry is dependant on the equity capital markets to fund its
research and development. Very few biotech firms are profitable or can fund their activities
from sales of existing products. Banks generally will not lend money to a biotech firm. The
4U.S. Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks and Rewards,
OTA-H-522 (Washington, DC: U.S. Government Printing Office, February 1993).
59
overwhelming bulk of our capital comes from the sale and placement of stock.
Biotechnology companies were able to raise a total of $2.8 billion in the capital
markets in 1993, compared with $2.5 billion in 1992. However, if you look closer at these
figures, you will understand why only segments of the market were open and that the cost of
capital increased. A significant portion of the money that was raised last year was in the
form of private placements. Taken together, venture capital firms, institutions and even
individuals came up with a full 40 percent of all monies flowing to biotech in 1993s.
Venture capital and private placements are usually seed money that allow companies to begin
their research. When a venture capitalist invests in a company, he/she is investing in the
science of biotechnology. As a company gets close to commercialization of a product, it
usually must "go public" to raise funds from shares traded on the NASDAQ, NYSE or
AMEX stock exchanges. Public investors are investing based on their belief that an
individual company will be successful. The public stock market is the only place that they
can go to raise the enormous amounts of money that are needed to commercialize a product.
Public financing was especially difficult for biotechnology companies in 1993. The
American Stock Exchange Biotechnology Index lost 32.6 percent last year. These difficulties
are further displayed by figures comparing this year to last year in terms of total public
offerings and initial public offerings (IPOs). The average deal size of public offerings in
1993 was down to $23 million, from $28.2 million in 1992. IPOs were down to $22 million
in 1993, compared with $26 million in 19926. Several public biotech companies were
5Van Brant, Jennifer, "1993 Tops Out at $2.9 Billion - and It's Still Coming," BioWorld Financial Watch,
1 (January 10, 1994).
6Feinstein Partners Incorporated, January 19, 1994.
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forced to do Private Investment in Public Equity (PIPE) financings, deals where public
companies sell stock to private investors at a discount to their current stock price. According
to many press accounts, mezzanine investors were scared by the de facto price controls in the
Administration's health care plan because they feared that some widely discussed points of
health care reform would mean that they would not recoup their investment in a company
that was close to bringing a product to market.
The biotech industry is in a critical stage of development and research. There are 23
biotech medicines that have been approved for sale in the U.S. by the Food and Drug
Administration (FDA). Two hundred and seventy biotech therapeutics and cures are now in
human clinical trials. According to Ernst and Young, two thousand potential therapies and
cures are in early development stages7 Now is the time when the biotech industry needs
increasing amounts of capital to bring these products to market where they can improve our
quality of life.
According to a recent report by Dr. Robert Goldberg of the Gordon Public Policy
Center at Brandeis University, fully 75 percent of biotechnology companies have 2 or less
years of capital left. Ernst & Young reports that biotech companies are raising capital now
at 25 percent of their burn rate (the rate at which capital is being expended.) As has already
been mentioned, there are approximately 1,300 U.S. biotechnology companies. That means
that a staggering 975 companies will need to go to the market in the next two years or face
going out of business, merging or selling rights to a larger firm.
7Ernst & Young, Biotech 94 Long Term Value Short Term Hurdles. Eighth Annual Report on the Biotech
Industry 28-31 (1993).
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In the past, each time there has been a prolonged scarcity of financing for the
biotechnology industry, there has been discussion of a massive consolidation. The theory is
that there are too many biotechnology companies to be supported by the amount of capital
which is available, and therefore companies will either be acquired or go out of business. So
far, biotechnology executives have had the ability to creatively finance their companies to
keep this from happening. However, with stock prices for biotechnology companies
currently depressed, it may be more inexpensive than ever for biotech companies to be
acquired. Consolidation for the biotechnology industry may take the form of major
pharmaceutical companies acquiring biotechnology companies. This would increase their
pipeline of products and give them access to a new technology. There have already been
some major deals: Roche Holdings Ltd. owns 62% of Genentech; American Cyanamid owns
53.5% of Immunex; and in April Eli Lilly and Company acquired a 100% share of Sphinx
Pharmaceuticals. In many cases, the deals benefit both companies. The infusion of capital
to biotech companies gives them financial security, and the ability to develop new products.
The downside is that, in some cases, there will be a loss of autonomy for companies. In
addition, we may never know what companies who are unable to obtain capital may have
done.
INTERNATIONAL PRICING FOR BIOTECH MEDICINES
It is sometimes said that U.S. prices for drugs are higher than those for the same
drugs abroad and that the U.S. is subsidizing the world's research on medicines. This is not
11
87-127 0-95
62
true for biotech medicines,8 which is a positive measure of our competitiveness in
international markets.
A 1992 study by the investment bank Robertson Stephens and Company compares
international prices for the leading biotech drugs in the U.S. and Japan. It shows that the
prices of these drugs tends to be much higher in Japan (which sets drug prices) than in the
U.S., often three times as high. For example, Human Growth Hormone is priced at $14 in
the U.S. and $53 in Japan.; G-CSF is priced at $112 in the U.S. and $375 in Japan; EPO is
priced at $40 in the U.S. and $99 in Japan and Alpha Interferon is priced at $8.75 in the
U.S. and $25 in Japan. Japan adopted this pricing policy because it prizes innovation and
wants to develop a biotech industry that can compete with ours.
BIO is aware of only one case in which a biotechnology company charges a lower
price for its drugs in a major developed country compared to the United States. That one
case is a drug that sells for 9% less in Europe. However, that same drug sells for the same
price in Canada and for 65% more in Japan. In all other cases, the drugs are priced at the
same price or a higher price abroad.
If the Japanese provide an incentive for innovative biotech medicines, we had better
think long and hard before we penalize that same innovation.
PRICING OF BREAKTHROUGH MEDICINES
Many are interested in how the biotechnology industry prices its breakthrough
medicines. This is a critical competitiveness issue for our industry. The biotechnology
T"hose products whose sales and prices are controlled by the U.S. biotech company.
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industry does not have, and never has had, unlimited discretion to price its breakthrough
products. We never will. The same is true of any other industry or company which creates
a breakthrough on some technology, including computer chips, software or any other
technology. The beauty of our free enterprise system is that there are always competitors
who are ready to enter your market, make your product obsolete and take away your market
share.
We believe that the health care market works when breakthrough drugs are
developed. The market does not work when no breakthrough drugs are developed.
How breakthrough drugs are priced once they are developed is an issue only if the
drugs are, in fact, developed.
In order to encourage biotechnology companies to develop breakthrough drugs, they
must be able to charge a price for the drugs that will reward investors for the extraordinary
risk they have taken in financing the research. If the companies cannot charge this price or
if investors fear that they will not be permitted to do so, the research will not be funded and
we will not see breakthrough drugs developed.
Some may wish that investors did not expect a return on their investment in
biomedical research. Some may wish that investors would fund research even if they did not
receive a return on their investment. But, the government does not provide the funds to pay
for the research. Government research sponsored by NIH is only one step in the research
and development process. We must and do rely on the private sector to develop
breakthrough drugs and it is one of the geniuses of the U.S. economy that our private sector
is so innovative and practical. It is in the government's interest for the private sector to take
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the risk, invest its own money, navigate the FDA approval process and compensate its
employees in speculative stock options.
Companies that do develop breakthrough drugs often feel market pressures as soon as
they market the drug. The real period of exclusivity in the market is likely to be 2-4 years,
not the 17 years of its patent. Once a drug is developed, it is remarkable how quickly other
companies will develop other drugs that will compete with it. This was true for AZT and
the price of AZT dropped precipitously when the competitors arrived on the market. The
company certainly cannot charge a price that consumers or their insurers cannot or are
unwilling to pay. HMO's are very tough bargainers with any supplier of medical services.
In addition to direct market pressure, companies also are sensitive to public
controversy, criticism from Congress and the Administration, Congressional oversight
hearings, and other types of protests. They all have an impact on pricing decisions. They
are part of the "market" that determines drug and all other prices in our economy.
BIO'S POSITION ON HEALTH CARE REFORM
BIO is a strong supporter of health care reform. We have not supported or opposed
any of the pending health care reform bills. Rather, we have focused on the key issues that
affect our sector of the health care industry.
We believe that health care reform is critical to the competitiveness of America. Our
health care costs are high in comparison to those of our major competitors. We, as a nation,
must find a way to contain costs while maintaining the unequalled quality of our health care
system. The biotechnology industry can play a central role in lowering health care costs by
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developing effective treatments and cures for currently unbeatable diseases which cost
America billions of dollars each year.
Let me briefly outline BIO's position on the key issues that have been raised in the
pending proposals.
Innovation: BIO believes that we do not have enough therapies and cures for diseases
like cancer, AIDS, Alzheimer's, Cystic Fibrosis, Multiple Sclerosis, and a host of other
deadly and costly diseases. One of the highest priority in developing a health care reform
plan must be to encourage research on these therapies and cures.
Universal Coverage: BIO supports the need to provide universal coverage. Without
universal coverage we will continue to see massive cost shifting from those who do not
provide, to those who do provide, health insurance coverage. Universal coverage is in our
humanitarian and economic interest. It gives an opportunity to expand preventative health
care, which will lower our long-term costs. We applaud the leadership which the Chairman
of this Subcommittee has shown in championing universal coverage.
Universal coverage and cost containment are critical issues; however, we need to
focus on innovation as well. It does a patient little good if he or she can pay the hospital and
doctor bills but there are fewer treatments or cures for their disease.
Employer Provided Insurance: BIO understands the critical role that employers
should and must play in providing health insurance to their employees. Virtually all of our
biotechnology companies provide health insurance to their employees.
Basic Research Funding and Technology Transfer: BIO supports an increase in the
funding for the National Institutes of Health (NIH). The biotechnology industry has two
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concerns about the current technology transfer process of the agency which conducts most of
the basic biomedical research, the National Institutes of Health. The transfer of technology
by NTH often involves a license of a patented invention and the agreement by the licensee to
pay royalties to the patent holder for products derived from the patent. These royalties
provide a return to the government if and when the research leads to product sales for a
private company. A similar license-royalty system is used extensively in relationships
between private companies for the same purpose.
Unfortunately, starting during the last Administration, NTH insists on inserting a
clause into it's CRADA's which impose a reasonable price clause. As the Office of the
Inspector General of HHS has recognized in a recent report, this system has deterred
technology transfer. A recent article in Science cites NIH officials attributing the price
control clause for the decline in CRADAs.9 NIH is unique among the Federal agencies
which sponsor CRADAs in requiring the review of the prices of the medicines which are
based on its patents. This government review of price process applies now only to licenses
issued by NIH.
Our companies are willing to negotiate royalties or other agreement with NIH. The
parties can determine when the patent is licensed the forms and conditions of an agreement,
including whether royalty payments are appropriate and if so how much. But, they are not
able to plan if the NIH reserves the right to set the price for the medicine if and when it is
sold to the public.
This use of an arbitrary "reasonable price clause" is undermining the transfer of NIH
'Anderson, Christopher, "Rocky Road for Federal Research Inc.", Science, 497 (October 22, 1993).
67
patents to private companies and the competitiveness of our industry. Many private
biomedical research companies now refuse to license NIH's patents. This fact undermines
the rationale for appropriating so many billions of dollars to fund this basic research. The
impact of these price controls has been startling. 1993 was the worst year for new CRADAs
in the history of the program. In 1992, 47 new CRADAs were reached and in 1993 this
declined to 26 new CRADAs. Moreover, most of these new CRADAs do not involve drug
development, a trend that results from the application of the pricing clause.
Press reports outline a legislative proposal to be offered as amendment to the health
care reform legislation which would extend the NIH price control process to all research
which has been funded in whole or in part by the Federal government. Any such proposal
would be disastrous for the transfer of this technology to private firms. We would encourage
the Chairman and this Subcommittee to review any such proposal and oppose it if it is
offered to the health care reform legislation.
Prescription Drug Benefit: BIO supports inclusion of a drug benefit as a part of a
standard benefit package, and the provision of a prescription drug benefit for Medicare
beneficiaries. Without such a benefit we will continue to see some of our elderly unable to
afford the medicines that will improve their quality of life and continued cost shifting
between medicines and other medical costs. BIO supports inclusion of a prescription drug
benefit in any standard benefit package for non-Medicare individuals for the same reasons.
Market Based Competition and Cost Containment: BIO supports market based
competition to contain health care costs. We are confident that biotech medicines will be
found to be both effective and cost effective by payers, doctors and patients. We are ready
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to compete in the current health care marketplace and to compete in a marketplace where
buyers groups are even more powerful. We expect it will be tough, but we have effective
and often unique products to sell. We are not afraid of competition based on patient
outcomes.
Non-Cost Values: BIO cautions that we should not focus only on financial issues. If
we do we will neglect some fundamental values. If a patient is likely to die, the least costly
and most cost-effective strategy is probably not to treat them at all and to let them die as
quickly as possible. This is not health care; this is euthanasia. A health care system
focusing only on financial issues, as important as they are, is not a health care system that
any of us can support.
COST EFFECTIVENESS OF BIOTECH MEDICINES
Biotechnology medicines should be a critical element of any cost containment
strategy. This is consistent with the fundamental values of our economic system, which look
to innovative technologies in order to lower costs and improve our quality of life.
The most cost effective health care we can provide is safe and effective drugs and
vaccines. Some surgery can be vastly more expensive. Hospital stays can be more
expensive.
If we eliminated all costs - not just profits, but all costs - for breakthrough drugs,
we would have an impact on 3% of the 7% of the total health care budget that comes from
breakthrough drugs. Three percent of 7% is 0.2%, a few billion dollars. If we eliminated
only the profit of breakthrough drugs, the savings would be a fraction of that amount.
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The effectiveness of biotech medicines is high. GM-CSF, a treatment of Hodgkin's
disease, has a cost of $6,700. However, use of this treatment for a patient with Hodgkin's
disease results in a net savings of $16,000 when compared with other treatments10.
Interferon Alfa-2B, a treatment for hairy cell leukemia, has a cost of $3,364. However, if
this treatment is used rather than other existing therapies, there is a net savings of $9,019".
Finally, Neutropenia, a biotechnology medicine which treats cancer patients that develop low
white blood counts and fevers as a result of chemotherapy, costs $2,300 per cycle.
However, since the medicine reduces hospitalization, its use can save $8,47012.
COMPETnTVENESS OF BIOTECHNOLOGY INDUSTRY
The United States currently has the dominant biotechnology industry when compared
with any other country in the world. The former White House Council on Competitiveness
stated that, "American researchers developed much of the basic science of the new
biotechnology, and the United States continues to lead the world in the commercialization of
most emerging biotechnology products."13 Precisely because the U.S. is preeminent in the
field of biotechnology, it has become a target of other country's industrial policies.
l0Gulati, S.C. and Bennett, C.L.: "Granulocyte-macrophage colony-stimulating factor (GM-CSF) as
adjunct therapy in relapsed Hodgkin's disease." Annals of Internal Medicine, Vol 116, No 3 (1992 February
1): 177-182.
uOzer, H. et al., "Cost-Benefit Analysis of Interferon Alfa-Ab in Treatment of Hairy Cell Leukemia."
Journal of the National Cancer Institute, Vol 81, No 8 (1989 April 19): 594-602.
l2Glaspy, J. et al. "The Economic Impact of Recombinant Granulocyte Colony-Stimulating Factor." Health
Systems - The Challenge of Change. Proceedings of the 5th International Conference of Systems Science in
Health Care. Editors: Chytil. M.K. et al. Omni Publishers. Prague.
°The President's Council on Competitiveness, Report on National Biotechnology Policy 4 (February 1991).
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In 1991, the Office of Technology Assessment (OTA) found that Australia, Brazil,
Denmark, France, South Korea and Taiwan (Republic of China) all had targeted
biotechnology as an enabling technology. Furthermore, in 1984, the OTA identified Japan as
the major potential competitor to the United States in biotechnology commercialization.14
The former White House Council on Competitiveness agreed, observing that "foreign
governments have targeted biotechnology as of vital economic importance," with Japan in
particular mounting a challenge to continued U.S. preeminence in biotechnology "in the same
way that it earlier targeted the semiconductor and consumer electronic industries. " The
Council further stated that "European investment in the new biotechnology is close to that of
the United States, and Europe actually leads in the production of monoclonal antibodies."15
The OTA also identified the manner in which Japan had targeted biotechnology. The
report stated,
"In 1981, the Ministry of International Trade and Industry (MITI) designated
biotechnology to be a strategic area of science research, marking the first official
pronouncement encouraging the industrial development of biotechnology in Japan.
Over the next few years, several ministries undertook programs to fund and support
biotechnology. "
One of the Japanese ministries, the Ministry of Health and Welfare (MHW), instituted a
policy whereby existing drugs would have their prices lowered, while allowing premium
prices for innovative or important new drugs, thus forcing companies to be innovative and to
14U.S. Congress, Office of Technology Assessment. Biotechnology in a Global Economy 243 (October
1991).
15The President's Council on Competitiveness, Report on National Biotechnology Policy 5 (February
1991).
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seek larger markets.16
It is widely recognized that the biotechnology industry can make a substantial
contribution to U.S. economic growth and improved quality of life. For example:
o The National Critical Technologies Panel, established in 1989 within the White House
Office of Science and Technology Policy by an Act of Congress,17 calls
biotechnology a "national critical technology" that is "essential for the United States
to develop to further the long-term national security and economic prosperity of the
United States.""
o The private sector Council on Competitiveness also calls biotechnology one of several
"critical technologies" that will drive U.S. productivity, economic growth, and
competitiveness over the next ten years and perhaps over the next century.19
o The United States Congress' Office of Technology Assessment calls biotechnology "a
strategic industry with great potential for heightening U.S. international economic
competitiveness." OTA also observed that "the wide-reaching potential applications
of biotechnology lie close to the center of many of the world's major problems —
malnutrition, disease, energy availability and cost, and pollution. Biotechnology can
change both the way we live and the industrial community of the 21st century."20
o The National Academy of Engineering characterizes genetic engineering as one of the
ten outstanding engineering achievements in the past quarter century.21
o Lester Thurow and Robert Reich have recommended policies that shift investment and
resources away from declining segments of manufacturing and into services and
16U.S. Congress, Office of Technology Assessment. Biotechnology in a Global Economy 244-245 (October
1991).
"National Competitiveness Technology Transfer Act, Pub. L. No. 101-189, 103 Stat. 1352 (42 U.S.C.
§6681 et seq.).
18White House Office of Science and Technology Policy, Report of the National Critical Technologies
Panel 7 (1991).
"Council on Competitiveness, Gaining New Ground: Technology Priorities for America's Future 6 (1991).
20 U.S. Congress, Office of Technology Assessment, New Developments in Biotechnology: U.S.
Investment in Biotechnology-Special Report 27 (July 1988).
21National Academy of Engineering, Engineering and the Advancement of Human Welfare: 10 Outstanding
Achievements 1964-1989 2 (1989).
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emerging industries such as biotechnology and computers.22
The importance of the biotechnology industry to America's competitiveness warrants
development of a comprehensive biotechnology strategy that takes into account the industry's
strengths, weaknesses and needs.
OUR CHILDREN'S FUTURE
There is no committee in the Congress that better understands the value of technology
than this subcommittee.
The biotechnology industry knows that it will create medicines that are effective and
cost effective. We are seeking to create breakthroughs in the treatment of cancer, AIDS,
Alzheimer's, and a host of other deadly and costly diseases. That is our business, our
inspiration, and our contribution to reducing the cost of health care in America, thus
increasing our competitiveness.
We are reasonable and practical. That is essential to our survival as entrepreneurs.
We do not fear assessments of our products. We may not always agree with them, but we
are confident that our products will find a market with doctors and patients who care about
the quality of health care. Such assessments should not, however, presume that we are the
principal cost containment problem or priority.
America should rely on the biotechnology industry to improve the quality of our
health care system and contain costs. We need a national bias in favor of breakthrough
^Choate, Pat, The High Flex Society - Shaping America's Economic Future, 169 (1986).
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medicines.
Our industry is the paradigm of the high-tech, high-research, high-risk emerging
industry that we all know is the hope for America. We cannot expect to compete based on
how low our wages are; we have to compete with our brains.
BIO strongly support universal coverage. We want a reasonable opportunity to find
cures and therapies for diseases like cancer. That is our goal and we want a fighting chance
in the market place to achieve it.
We look forward to working with the Small Business Committee to fashion a health
care plan that encourages innovation. This is your jurisdiction, your expertise, and your
issue. We commend your leadership on this critical issue.
I am happy to answer your questions.
Attachment: Biotechnology: Seeking Cures and Therapies for Childrens' Diseases
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BlO
Biotechnology:
Seeking Cures and Therapies
For
Childrens' Diseases
Biotechnology Industry Organization
1625 K Street, N.W., Suite 1100, Washington, D.C. 20006
Phone: (202) 857-0244 Fax: (202) 857-0237
75
Executive Summary
This report describes the research and development of biotechnology companies into
cures and therapies which have the potential to ease the pain and suffering of thousands of
children and their families across the United States and around the world.
Small, entrepreneurial companies are working diligently to make the promise of
biotechnology a reality. But, biotechnology firms are among the most capital and research
intensive enterprises in history. Only one percent are profitable right now. Most
biotechnology companies are staking their existence on the success of the first product they
hope to develop. For many childhood diseases like Cystic Fibrosis, Juvenile Diabetes, and
Gaucher Disease, there is only one company working on a cure or therapy.
Unfortunately, the biotechnology industry is in a particularly fragile state. The risks
for companies developing life-saving therapies, including ones for children's diseases, are
enormous. The long odds against a product negotiating the scientific risks and regulatory
process make it difficult for companies in the industry to convince investors to invest in their
company. Without patient investment from venture capitalists, public investors and others,
the biotechnology industry would not exist.
New hurdles which the biotechnology industry must now face include provisions
contained in the Administration's and other health care reform proposals which call for a
breakthrough drug council and give the Secretary of Health and Human Services the ability
to "blacklist" drugs from Medicare reimbursements. Other proposals would impose price
controls on biotechnology companies which license technology from the National Institute of
Health. The damage from these provisions has already hurt the industry.
Of all the risks which are presented to investors by the biotechnology industry,
Congress has the power to preclude one: price controls as part of any health care reform
bill. Investors must be able to receive returns which are commensurate with the risks
inherent in their investment. The proposed price controls are making it impossible for this to
take place with regards to the biotechnology industry. Investors are being driven away from
biotechnology and into other investments which have less risk and a comparable return.
We urge Congress to support innovation in medical research and to work against the
inclusion of price controls on breakthrough drugs in any health care reform legislation.
Cures and therapies for childrens' diseases and other patients are at stake.
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section i: List of Childhood Diseases
• Asthma
• Childhood Cancers (excluding leukemia):
Bone cancers:
Osteogenic sarcoma
Ewing's sarcoma
Brain tumors
Lymphomas and Hodgkin's Disease
Neuroblastoma
Retinoblastoma
Rhabdomyosarcoma (soft tissue sarcoma)
Wilm's Tumor
Chronic Granulomatous Disease
Cystic Fibrosis
Epilepsy
Fabry Disease
Gaucher Disease
Hemophilia
Juvenile Diabetes
Leukemia
Acute Lymphoblastic Leukemia
Acute Promyelocytic Leukemia
Muscular Dystrophy
Pediatric AIDS
Respiratory Distress Syndrome (Neonatal)
Spinal Muscular Atrophy
Turner Syndrome
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section ii: Description of Childhood Diseases
Asthma
Asthma is a chronic (continuous or long-term) illness in which the airways or
bronchioles - small tubes in the lungs through which we breathe - become temporarily
narrowed or blocked when affected by various "triggers," such as exercise, cold air,
allergen (substances that cause allergies), other irritants and some viral infections.
Asthma is the most common chronic childhood disease. It is estimated that in the
United States, children have 30 million days of restricted activity per year because of
asthma. The prevalence of asthma is increasing in the United States: a recent
government survey found that 7.5% of U.S. children between the ages of 6 and 11
have asthma; the same survey found only 4.8% with asthma just a few years earlier.
There are number of treatments for asthma available, including: corticosteroids,
bronchodilators, and theophylline; however, these are treatments and preventatives,
not cures. Although these can be effective, there is still a long way to go in
researching cures for asthma.
Childhood Cancers (excluding leukemia)
Cancer is actually a group of diseases, each with its own name, its own treatment,
and its own chances of control or cure. It occurs when a particular cell or group of
cells begins to multiply and grow uncontrollably, crowding out the normal cells.
Incidence: An estimated 8,000 new cases in 1993; as a childhood disease, cancer is
rare. Common sites include the blood and bone marrow, bone, lymph nodes, brain,
nervous system, kidneys, and soft tissues.
Mortality: An estimated 1,500 deaths in 1993, about one-third from leukemia.
Despite its rarity, cancer is the chief cause of death by disease in children between the
ages of 1 and 14. However, mortality rates have declined 60% since 1950.
Major childhood cancers include:
Bone Cancers (Osteogenic sarcoma and Ewing's sarcoma) - cause no pain at
first, with swelling in the area of the tumor being the most frequent first sign;
usually occurs between the ages of 10 and 25;
Neuroblastoma - arises from very young nerve cells that, for unknown
reasons, develop abnormally; found only in children, with one-fourth of those
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affected showing initial symptoms during the first year of life and three-fourths
before age 5; more than half of these cases are located in the abdominal area
near the kidneys; surgery, and subsequently chemotherapy are current
treatments
Rhabdomyosarcoma - the most common soft tissue sarcoma (fibrosarcoma,
and spindle-cell sarcomas are others); although it can occur in any muscle
tissue, it is generally found in the head and neck area, the pelvis, or in the
extremities; surgery, chemotherapy, and radiation are the primary treatments
Brain tumors - as a group, brain tumors are the second most common cancers
of childhood, seen most often in children 5 to 10 years old; symptoms include
seizures, morning headaches, vomiting, irritability, behavior problems,
changes in eating or sleeping habits, lethargy, or clumsiness; diagnosis is
difficult because symptoms can indicate a number of other problems; surgery
and/or radiation are the most common treatments
Lymphomas and Hodgkin's disease - are cancers of the lymphatic tissues that
make up the body's lymphatic system, which is a circulatory network of:
vessels carrying lymph (an almost colorless fluid that arises from many body
tissues); lymphoid organs such as the lymph nodes, spleen, and thymus that
produce and store infection-fighting cells; certain parts of other organs such as
the tonsils, stomach, small intestine, and skin; lymphoma have been broadly
divided into Hodgkin's disease and non-Hodgkin's lymphomas; Hodgkins
disease occurs occasionally in adolescents and is rare in younger children; non-
Hodgkin's lymphomas most frequently occur in the bowel, particularly in the
region adjacent to the appendix
Retinoblastoma - an eye cancer, usually occurs in children under age four;
when detected early, cure is possible with appropriate treatment
Wilms' Tumor - a cancer which originates in the cells of the kidney; occurs
in children from infancy to age 15, and is very different from adult kidney
cancers; treatment is a combination of surgery, radiation therapy, and
chemotherapy
Treatment: Childhood cancers can be treated by a combination of therapies.
Treatment is coordinated by a team of experts including oncologic physicians,
pediatric nurses, social workers, psychologists, and other who assist children and their
families.
Survival: Five-year survival rates vary considerably, depending on the site: all sites
68%; bone cancer, 56%; neuroblastoma, 55%; brain and central nervous system,
59%; Wilms' tumor (kidney), 87%; Hodgkin's disease, 88%.
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Childhood Leukemia
Every year about 4,000 cases of leukemia and lymphoma are diagnosed in children.
More than 50 percent of these children will be cured of their disease. Childhood
leukemia and lymphomas can now be classified as potentially curable diseases.
Acute lymphocytic leukemia (ALL) is a malignant disorder involving the production
of immature white blood cells of the lymphocyte series. The net effect is an
accumulation of these cells in the bone marrow, the bloodstream, and lymphatics.
Less commonly, accumulations are seen in certain sanctuary sites, like the central
nervous system and gonads.lt is now considered the most curable of all major forms
of leukemia in children. ALL is the leading form of leukemia in children,
representing approximately 85 percent of leukemia in patients under age 21.
Acute promyelocytic leukemia (APL) is a type of cancer affecting the blood-forming
cells. It is characterized by an abnormal increase in the number of promyelocyte cells
(partially differentiated granulocyte cells) in the bone marrow. These cells have
difficulty utilizing retinoids, which cause immature white blood cells to differentiate
and mature. When effective, retinoids can stimulate cancer cells to revert to normal
cells. Symptoms of APL can include: fatigue, shortness of breath, infection and
bleeding, and anemia thrombocytopenia (low platelet count). Some patients have
enlarged livers and spleens. APL affects nearly 11,000 U.S. patients, primarily
children. With chemotherapy, many newly diagnosed patients with promyelocytic
leukemia achieve complete remission.
Chronic Granulomatous Disease
Chronic Granulomatous Disease (GCD) is a very rare inherited immune disorder in
which white blood cells are not effective in killing bacteria and certain other
infectious agents. As a result, CGD patients, mostly children, are vulnerable to
frequent and severe infections which often require hospitalization and can be fatal.
Cvstic Fibrosis
Cystic fibrosis (CF) is number-one genetic disease of children and young adults in the
United States. The symptoms are diverse, vary in severity and can be misdiagnosed
as pneumonia, asthma or other respiratory problems.
CF affects approximately 30,000 children and young adults. It occurs in one of every
2,500 live births. Roughly 1,300 people are diagnosed each year with the disease,
usually by the age of three. One in 20 Americans, more than 12 million,
unknowingly carries the defective gene and has no symptoms.
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CF is characterized by a thick, sticky mucus which clogs the lungs and the digestive
system. This abnormal mucus breeds lung infection which leads to lung damage. It
also interferes with digestion.
Treatment:
Scientists are quickly transforming laboratory discoveries about cystic fibrosis into
potentially life-saving treatments. The rate of progress in CF research is fast
becoming a true medical success story.
When scientists discovered the CF gene in 1989, it signalled a new era in the
campaign to defeat this deadly disease. The complex gene that causes CF also
contains the answers to cure it. Researchers have determined how to make normal
copies of the gene and have used them to correct CF cells in lab dishes.
Scientists using this state-of-the-art technology recently achieved a milestone when
they inserted copies of the normal CF gene into the airways of some people with CF.
This gene replacement therapy targets the root cause of the disease - the defective
gene - not merely the symptoms. Results of a limited gene therapy trial in the nasal
passage were the first to show efficacy in stimulating the cells to produce the missing
protein. Gene therapy hods the promise of a cure for CF.
Epilepsy
Epilepsy is one of the most common neurological disorders. Almost five percent of
the population will suffer from an epileptic episode at some time in their lives, and as
many as one percent will have epilepsy.
The incidence of epilepsy is greatest in children under ten years of age, and seventy-
five percent of epileptics have their first seizure by the age of 18.
The age at which brain damage is sustained appears to be an important determinant of
the nature and extent of subsequent behavioral deficits. Studies have led to the
conclusion that persons with early onset of seizures are more adversely affected than
persons whose seizures begin later in life.
Treatmenr.
Roughly twenty medications are available to control epileptic seizures. There is no
cure, and in about thirty percent of patients the various medications either fail to
control symptoms or produce such severe side effects that they must be discontinued.
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Fabry disease
Fabry disease is an inherited metabolic disorder caused by the absence of the enzyme
a-galactosidase, also known as ceramide trihexosidase. Lacking this enzyme, the
body is unable to break down certain naturally occurring glycolipids, which
accumulate predominantly in the lining of blood vessels within the kidney, heart and
other organs. Since the gene for Fabry disease is on the X chromosome, males who
have only one X chromosome are more likely to be affected by the disease than
females.
The symptoms of the disease most often appear in childhood or early adulthood.
Symptoms include renal dysfunction, a rash in the inguinal, scrotal, and umbilical
regions, and corneal defects in the eyes. Eventually, glycolipids accumulate in the
kidney, heart and brain. In patients severely afflicted, the disorder may lead to organ
failure and death around age 40. Current therapies are aimed at relieving pain or
treating kidney complications through dialysis or organ transplantation.
Approximately 2,000 patients in the U.S. have the disease; it affects one in 40,000
males worldwide.
Gaucher Disease
People with Gaucher disease lack the normal form of the glucocerebrosidase enzyme.
Thus, they are unable to break down glucocerebroside into glucose (sugar) and a fat
called ceramide. The glucocerebroside is continually stored in certain cells, including
the spleen, liver, and bone marrow. The affected organ becomes enlarged and fails to
function properly.
Approximately one in 100,000 people have genetic mutation for Gaucher disease, but
60 percent of these individuals do not develop symptoms. Those with symptoms
often develop them in childhood or early adulthood. Severe Type 1 Gaucher disease
is usually fatal in children. These patients suffer from easy bleeding and bruising,
enlargement of the spleen and liver, and deterioration of bones leading to frequent
fractures.
Hemophilia
Hemophilia is a genetic blood clotting disorder which affects about 20,000
Americans. There is no cure; people with hemophilia require lifelong treatment.
Contrary to popular belief, people with hemophilia do not bleed to death from minor
cuts or injuries, nor do they bleed faster than what is considered normal. People with
hemophilia bleed longer, because their blood cannot develop a firm clot. Often
bleeding is internal, into joints, and results in arthritis or crippling.
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Hemophilia is hereditary, passed on from parent to child. The gene for hemophilia is
carried by females, but those affected are almost always males. One-third of all
hemophilia cases are thought to be caused by spontaneous gene mutation with no
family history of hemophilia. There is a 50 percent chance that sons of a female
carrier will have hemophilia and a 50 percent chance that her daughters will be
carriers. All daughters of men with hemophilia are carriers, but his sons are
unaffected.
The cost of hemophilia care is extraordinarily high. Treating a person with
hemophilia using existing technology can cost anywhere between $60,000 and
$100,000 per year. If there are complications with this treatment, such as the patient
contracting HIV, expenses could be as high as $500,000 per year.
Juvenile Diabetes
Juvenile diabetes, often referred to as Type I or insulin dependent diabetes, is the
more severe form of the disease. In this type of diabetes, which is commonly
diagnosed during the childhood years, the pancreas stops producing insulin entirely.
In order to metabolize glucose from foods into energy, a person with juvenile diabetes
must inject insulin, generally twice a day or more, for the rest of his or her life.
People with insulin-dependent diabetes must monitor their blood glucose levels
through repeated daily blood testing in order to insure a proper, constant balance of
insulin, exercise and food; if this delicate balance is upset, a person with diabetes can
fall quickly into a life-threatening comma resulting from insufficient levels of glucose
in the bloodstream or can suffer from the toxicity of elevated levels of blood glucose.
Diabetes can cause devastating complications for those afflicted, including blindness,
increased risk of heart and kidney disease, stroke, impotence, nerve damage and
amputations.
Today, approximately 1.2 million Americans have been diagnosed with juvenile
diabetes, and its prevalence is increasing at a rate of greater than six percent annually,
approximately 50,000 new cases of juvenile diabetes are diagnosed each year.
Diabetes and its complications are the third leading cause of death by disease in the
United States, responsible for the death of approximately 200,000 Americans
annually. Studies have shown that diabetes reduces life expectancy by up to 30
percent. A recent study conducted by Lewin-VHI concluded that the total annual
health care costs for persons with diabetes exceeds $105 billion; one dollar of every
seven spent on health care goes to treat persons with diabetes.
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Muscular Dvstrophv
The term refers to a group of inherited diseases marked by progressive weakness and
degeneration of skeletal or voluntary muscles which control movement. There are
nine different types of muscular dystrophy (MD), with distinctions being in severity,
age of onset and muscles affected. MD is found in both children and adults. One
example of a childhood MD is Duchenne's MD, which is only found in boys who are
usually between the ages of two and six. Symptoms include rapid loss of muscle
control and a shortened life span.
Neonatal Respiratory Distress Syndrome (RDS)
Neonatal respiratory distress syndrome (RDS) is the most common clinical problem in
the neonatal intensive care nursery. There are approximately 40,000 - 50,000 cases
per year in the United States. Although deaths associated with RDS have been
steadily decreasing with the advent of surfactant replacement therapy, it remains a
leading cause of neonatal mortality.
The symptom of neonatal RDS is when the lungs are not fully formed, which results
in insufficient oxygen transfer because of fluid build-up.
Pediatric AIDS
The World Health Organization predicts that by the year 2000 HIV will infect ten
million children worldwide. Pediatric AIDS research cannot be included with adult
research. Drugs that work for adults may not work for children. And drugs that do
not work for adults may, in fact, help children.
Children with HIV are affected very differently than adults with the disease.
Complications of the central nervous system, for example, are common in children
but not in adults. And because HTV/AIDS affects the immune system, children
cannot develop antibodies to combat childhood diseases such as measles and polio. It
is not yet fully understood how the AIDS virus passes from pregnant mothers to their
newborns. Research findings may enable us to prevent passage from mother to child,
thus preventing virtually all new cases of pediatric AIDS.
It is conservatively estimated that as many as 10,000 - 20,000 children in the U.S.,
may be infected with HIV. Over 6,000 HTV infected women give birth each year in
the U.S. Approximately 20 - 30% of these children are HIV infected. This accounts
for over 1,800 new HTV infected infants each year. Over 50% of children with AIDS
have died already. AIDS is the seventh leading cause of death among children aged
one to four.
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Spinal Muscular Atrophy (SMA)
Spinal muscular atrophy (SMA) is a motor neuron disease, which is progressive and
degenerative in nature. It is a cousin of Lou Gehrig's disease, meaning that it is
neurotrophic in nature. The disease afflicts the nerve cells, which in turn the affect
the muscles, rendering the person afflicted in most cases crippled, and in many
causing premature death. There are three classes of the disease:
1) Infant form, which is the most fatal; in fact, infant SMA is the number one
killer of infants under the age of two in the United States, killing
approximately 20,000 per year;
2) Less fatal, long term version of SMA, which causes crippling, with the
patient probably not able to walk, and shortens life-span in most cases;
3) adult form, which is rare but does not shorten life-span. The disease acts to
weaken all muscles in the body, thus rendering the person crippled, in most
cases for the duration of his or her life.
A SMA gene search was begun by Dr. Conrad Gilliam at Columbia University in
1987. Dr. Gilliam is currently very close to locating the gene that causes SMA. The
outgrowth of this search will hopefully be therapeutics for those already afflicted.
Today, there is a pre-natal diagnostic test for SMA. In addition, there are diagnostics
being worked on to identify carriers of the SMA gene.
Turner Syndrome
In 1938, Dr. Henry Turner published a report about 7 girls, describing a set of
symptoms or features which is now known as Turner Syndrome. Twenty-one years
later, Dr. C.E. Ford discovered that the cause of Turner syndrome was a
chromosomal abnormality involving the sex chromosomes. The symptoms of Turner
Syndrome are short stature, lack of sexual development, cubitus valgus (arms that
turn out slightly at the elbow), webbing of the neck, and low hairline in the back.
Some doctors refer to Turner syndrome as gonadal dysgenesis, since one of the
characteristic features of the condition is underdeveloped ovaries. Turner syndrome is
a common genetic problem, affecting one out of every 2,000 to 2,500 girls.
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Section III:
Biotechnology Company Research Into
Childhood Diseases
Alliance Pharmaceutical Corp.
LiquiVenf* - a product, currently in a Phase I/n clinical trial, for the treatment of
respiratory distress syndrome (RDS); opens up collapsed air sacs that obstruct the
normal functioning of the lungs; allows the use of conventional gas ventilators at
lower, safer pressures; works by filling the lungs with a liquid which gently inflates
the lungs and provides oxygen; LiquiVenf has already been instrumental in saving
the life of neonates who were referred to the clinical trial after undergoing all other
available treatments unsuccessfully; Alliance expects to begin a clinical trial for RDS
in pediatric and adult patients this summer; the product has been in development since
1987.
Cambridge Biotech
Have licensed a vaccine adjuvant to several companies for vaccines directed against a
number of infectious diseases, several of which are children's diseases; for some of
these infectious diseases, there is not an existing vaccine, while for others the
adjuvant can result in an improved vaccine.
Currently in pre-clinical research and development on a streptococcus pneumonia
vaccine. The importance of such a vaccine is increasing because of growing
resistance to antibiotic therapy.
GeneMedicine, Inc.
Several of GeneMedicine' s product development programs are aimed at diseases
affecting children. This includes programs aimed at developing:
• gene medicines expressing IGF-I for treating certain growth
deficiencies, for managing wasting associated with chronic
disease, or enhancing muscle rehabilitation after injury or
surgery
gene medicines factor DC and VIII for therapy of hemophilia
•
• gene medicines for treating asthma
Also under active consideration are applications of Gene Medicine's technologies for
gene-based vaccines as well as gene medicines for the treatment of cancer, muscular
dystrophy, and certain other inherited metabolic diseases.
10
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Genentech, Inc.
Cystic Fibrosis - On December 30, 1993, Pulmozyme* received approval for
managing CF from regulatory authorities in the United States and Canada, becoming
the first new therapy for CF in 30 years. By breaking down the thick, infected
secretions that are the hallmark of CF, Pulmozyme9 significantly reduces the risk of
serious respiratory tract infections, makes breathing easier and improves quality of
life. It also reduces cosdy hospitalization and other related medical costs. Genentech
has assured the CF community that they will continue research towards a cure.
Chronic Granulomatous Disease (CGD) - Genentech markets Actimmune9 to manage
CGD. Aaimmune9 received regulatory approval in 1990 based largely on the results
of a Phase HI clinical trial which showed that it reduces the frequency of serious
infections in CGD patients approximately threefold. This translates into fewer
hospital days and an improved quality of life for CGD patients.
Allergic Asthma - Anti-IgE Humanized Monoclonal Antibody, designed to interfere
early in the complex, multistep process that leads to the symptoms of allergy, such as
allergic asthma, which can be severe and even deadly. The goal for 1994 for this
product is to complete Phase I and begin Phase II trials.
Diabetes (Type I and Type ID - Genentech is currentiy investigating whether Insulin-
like Growth Factor (IGF-1) can help patients maintain stable glucose levels without
more frequent insulin injections. In Type II diabetics, trials are underway to
determine if IGF-1 can increase insulin sensitivity. The goals for 1994 for this
product is to complete current experimental Phase II trials.
Genetic Therapy
Pediatric Brain Tumors - there is an adult clinical trial currently ongoing; for a
pediatric trial, there is approval from the National Institutes of Health Recombinant
Advisory Committee (RAC) for a clinical trial; will submit initial new drug
application to the FDA soon, and expect to be in the clinic this year; are utilizing
HSTK genetic therapy technology during the research of these therapeutics, which
attempts to give the cell a new property so that it may function properly
Cystic Fibrosis - expect to be in the clinic before the end of June, 1994; are utilizing
genetic therapy technology whereby a vector which carries corrected genes is inserted
into the DNA where the defective genes which cause the disease are located, with the
hope that the new genes will correct the defective ones
Childhood Leukemia - collaborating with St. Jude's Hospital as well as other hospitals
on a product that is in research stages
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Hemophilia - currently working on a product which attempts to correct a defect in the
clotting factor genes
Genetics Institute
Factor IX - recombinant blood clotting factor used to treat hemophilia in children and
adults; currently in preclinical research, expect to begin clinical trials by early 1995;
has been working on the product for approximately 5 years; will replace Factor IX
which is currently taken from human blood
Genzyme
Cvstic Fibrosis - Genzyme is developing several products to treat cystic fibrosis (CF).
Genzyme is testing the use of an adenovirus vector to deliver the normal gene to the
respiratory system to augment the abnormal genes and enable the patient's cells to
produce the normal cystic fibrosis transmembrane conductance regulator protein
(CFTR). Genzyme's gene therapy trial was the first human study to demonstrate
efficacy in stimulating production of CFTR. Genzyme is also exploring non-viral
gene therapy using cytofectin (liposome) technology developed by Vical, as well as
several proprietary cationic lipids.
Genzyme is also investigating protein therapy, a means to replace the missing CFTR
protein with a properly functioning protein. Genzyme has produced recombinant
CFTR protein in mammalian and insect cells, as well as transgenically in the milk of
mice and rabbits.
In 1993, Genzyme began a collaboration with Univax Biologies to develop a treatment
for the common bacterial lung infections experienced by the majority of CF patients.
HyperGam+T" CF is an immune globulin preparation designed to provide passive
immunity against Pseudomonas bacteria. Genzyme is underwriting a portion of the
development cost of this promising therapy in return for worldwide marketing rights.
Gaucher Disease - Ceredase*, which was approved by the Food and Drug
Administration (FDA) in 1991, replaces the missing enzyme, glucocerebrosidase
(GCR), that breaks down certain lipids in the body. For people with Gaucher
disease, it relieves many of their devastating symptoms, reverses the disease process,
and dramatically improves their quality of life.
Since Ceredase* uses GCR purified from human placental tissue, the natural supply of
this enzyme is limited. Genzyme is now developing a recombinant product,
Cerezyme™, which will ensure the availability of an adequate supply of GCR for
patients who need treatment. Approximately 4,000 - 6,000 patients worldwide need
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88
this enzyme replacement therapy. Genzyme is now supplying 20 percent of these
patients with Ceredase®. Once Cerezyme™ is approved, Genzyme will be able to
meet all patient's needs.
Fabry Disease - Genzyme is developing CTH, a recombinant a-galactosidase (a-Gal)
expressed in mammalian cells. This product will be used as protein replacement
therapy in patients with Fabry Disease. Genzyme is now examining this product in in
vitro and in vivo preclinical studies.
Acute Promyelocyte Leukemia (APU - Tretinoin"1 is Genzyme's first anti-cancer
agent. Genzyme is targeting acute promyelocyte leukemia (APL). A key component
of Tretinoin"1 is retinoic acid which is effective in stopping immature blood stem cells
from multiplying uncontrollably in patients with APL and other cancers. The use of
retinoic acid has been limited by its toxicity and its diminishing effect with continued
use. Genzyme hopes to reduce toxicity and enhance or continue its effectiveness by
encapsulating the retinoic acid in liposomes, e.g., drug delivery carriers made from
phospoholipids. Genzyme developing Tretinoin1-1' in partnership with Argus
Pharmaceuticals, Inc. based on Argus' cancer research and novel liposomal delivery
systems.
Immunogen
OncolysinB - has numerous indications, one of which is pediatric leukemia: currently
in a multi-center Phase I/TJ clinical trial with the National Cancer Institute (NCI);
began trials in 1989, treated first patient for leukemia with this product on 1/1/90
Medarex
MDX-11 - Initiated a Phase II trial in December of 1993 of the monoclonal antibody-
based therapeutic for Acute Myeloid Leukemia (AML). Patients undergo a standard
chemotherapy regimen followed by a dose of MDX-11, which attempts to eliminate
any residual leukemic cells. Earlier studies of the product have demonstrated that
MDX-11 is well-tolerated and can mediate the elimination of a substantial number of
leukemic cancer cells. It has also been shown that MDX-1 1 can enter the bone
marrow where residual cancer cells often remain after chemotherapy. Treatment with
traditional chemotherapeutics leads to long-term survival for fewer than 5% of
patients with advanced or secondary AML.
Neurogen
Epilepsy - ADCI, broad spectrum anticonvulsant in per-clinical development. ADCI's
broad spectrum application makes it potentially effective in many types of seizures
both at the initiation of the seizure and at the spread of seizure stages. Physicians
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89
should be able to prescribe doses of ADCI that will achieve efficacy without the
debilitating side effects of previous therapies.
Oncogene Science
Chronic myelogenous leukemia - currently in the pre-clinical stage of research into a
treatment; research has been ongoing for between one and two years
Muscular Dystrophy - currently in early stage pre-clinical research into a treatment; is
a recent collaboration
Ortho Biotech
Ortho is currendy conducting research work in a pulmonary surfactant program. The
indication which is being explored in Phase I clinical trials is for the treatment of
Infant Respiratory Distress Syndrome (RDS). Results to date have been encouraging,
suggesting that the compound may significantly improve survival. This research is
being extended into treatment of Adult Respiratory Distress Syndrome.
Additionally, clinical research has been conducted on the use of EPREX^/PROCRIT*
for the treatment of anemia of prematurity. Literature and data analysis is ongoing.
Results to date are also encouraging.
Somatix Therapy Corp.
Currently in pre-clinical research, using gene therapy techniques to produce sufficient
levels of Factors VIII and K in hemophilia A and B patients; have been conducting
research in this area for between two and three years
Using gene therapy techniques in clinical trials for various adult cancers; do foresee
possibility of expanding treatable indications to include childhood cancers, but only as
they relate to adult cancers
Targeted Genetics
In Vivo AAV-Based Therapy - Targeted Genetics and its collaborators have developed
significant expertise with respect to the design and use of AAV vectors in gene
therapy. Certain features of AAV vectors may make them particularly well suited for
the treatment of a number of diseases. AAV vectors can introduce genes into certain
nondividing or slowly dividing cells, such as cells lining the airway of the lung. In
addition, AAV vectors can integrate DNA into host cell DNA and therefore provide
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long-term expression. AAV has also not been associated with any disease, and AAV
vectors can be purified and concentrated, allowing for more efficient manufacturing.
Cystic Fibrosis - A gene therapy for cystic fibrosis may be possible by delivering the
gene for the cystic fibrosis transmembrane regulatory protein ("CFTR") directly to
cells on the surface of the lung, most of which are nondividing. Targeted Genetics
believes that the characteristics of AAV vectors may make them useful for the long-
term correction of the cystic fibrosis gene defect.
Univax
Cystic Fibrosis - HyperGAX+™ CF and HyperGAM+™ HMWPS for prevention and
treatment of chronic Pseudomonas infection in cystic fibrosis patients, in Phase I/II
clinicals
U.S. Bioscience
Working in the pediatric oncology area; on occasion, when it is a logical step, add
pediatric tests to basic research that is being done in this area; in addition,
trimetrexate glucuronate is currently on the market to treat AIDS-related p. carinii
pneumonia, and is Phase n clinical trials for pediatric tumors.
Vical Corporation
Hemophilia - has a program in conjunction with Baxter, to develop Vical 's gene
therapy technology; program is in the pre-clinical stage, and was begun late last year
Cvstic Fibrosis - developing gene-delivery technology with Genzyme; started research
late last year; expect to be in clinicals in late 1994 or early 1995
15
91
Senator LlEBERMAN. Thank you, Mr. Penner. Let me just ask you
one or two questions at this point.
You mentioned that you have already raised about $30 million
and will probably need multiples of that as you go forward. Am I
correct in what I heard, that you probably will not begin to receive
substantial revenues until later in the decade?
Mr. Penner. That is correct.
Senator LlEBERMAN. So, obviously if things work out, the reve-
nues will be substantial, but there is a clear and lengthy period of
development in which you are pursuing your goal without any con-
temporaneous reimbursement in that sense.
Mr. Penner. And it requires a lot of faith on the part of the in-
vestor.
Senator LlEBERMAN. Let me ask you about that, because this is
a classic balancing of risk and reward activity. It is part of why
companies like yours do not get bank financing, but do get equity
finance. What do the investors, or those who bring in the investors,
ask you about what you are doing to determine whether they are
going to invest?
Mr. Penner. I think most of the examination is into the nature
of the research — the basis or the technology that undercuts the de-
velopment of the new compounds.
In our particular case, Neurogen seeks to develop, move, and ad-
vance technology which is represented in compounds such as
Prozac, about which I think many people know, which is now being
used broadly to treat not only depression but a number of associ-
ated disorders.
What it amounts to is in fact being able to target a particular
brain receptor without the shotgun approach that drugs took in
years past. The technology is now available to design such drugs.
Senator LlEBERMAN. So your investors really want to know about
the technology.
Mr. Penner. Absolutely.
Senator Lieberman. And I presume about the market.
Mr. Penner. Yes. The market potential, of course, is a secondary
factor.
Senator LlEBERMAN. Do you have any doubt that the actions that
were at least included in the original administration proposal, such
as the price controls and the breakthrough drug committee, Medic-
aid black-listing, would have a very serious negative effect on the
availability of capital for a company like yours?
Mr. Penner. There is no question about it. As I indicated in my
testimony, the present effect on our stock has been something in
the neighborhood of a 50- to 60-percent decline.
Senator Lieberman. There is no other reason for that drop to
have occurred, is that correct?
Mr. Penner. No; none at all.
Senator Lieberman. There is no other variable out there?
Mr. Penner. Not at all, and I think the industry figures are
more in the nature of two-thirds.
Senator Lieberman. OK. Thank you. Let us go on now to Mr.
Dovey.
92
STATEMENT OF BRIAN DOVEY, NATIONAL VENTURE CAPITAL
ASSOCIATION, DOMAIN ASSOCIATES, PRINCETON, NJ
Mr. Dovey. Thank you very much for inviting me to be here
today. I am one of five partners with Domain Associates, which is
a venture capital firm based in Princeton, NJ. Specifically, we are
focused on the life sciences and invest significantly in the bio-
technology area. I am also a board member of the National Venture
Capital Association, which represents about 200 professional ven-
ture capital firms with a large stake in the life sciences.
With respect to Domain, since the mid-eighties I and my part-
ners have started up approximately 60 companies, mostly in the
biotech area, which now employ around 12,000 people, so it is quite
a dramatic difference, starting really from nothing.
We have a number of companies that are playing an important
role in children's diseases. For example, in the area of cystic fibro-
sis, we have a company called Univax Biologies that is working on
the infections associated with this disease.
In diabetes, we have started a company called Amylin, which has
found a new hormone that works in conjunction with insulin. Many
people think diabetes has been solved, but there are very serious
problems with these patients, particularly juvenile diabetes, and
this looks like an important new finding.
Also, in the diabetes field we helped to found a company called
Neocrin, which is developing an artificial pancreas, a fairly complex
effort, but one, if we are able to pull it off, that would be a dra-
matic improvement for the diabetic.
We have some companies analogous to Mr. Penner's, which is
kind of an interesting thing about biotech, that you can see from
the fundamental science the benefits, but there are a lot of paths
that make sense.
For example, we are working in the field of epilepsy, but we are
doing that in the context of four different companies.
Acea Pharmaceuticals, a company we founded, is involved, as is
Athena Neurosciences, CoCensys, and Gensia, so there are a num-
ber of approaches to any of these diseases that can have a real im-
pact.
Finally, Domain provided the initial funding for Genzyme, which
has been veiy important in Gaucher's disease, and also has a major
commitment in cystic fibrosis.
I think venture capital has played and will continue to play a
critical role in the founding of biotech industry. There are 23 prod-
ucts now that have been approved by the Food and Drug Adminis-
tration. There are 270 biotech drugs, vaccines, and therapies,
which are now undergoing clinical trials, and almost all of these
were funded by venture capital. In fact, almost a third of all capital
available for venture capitalists is going into this biotech and medi-
cal area.
Personally, I have spent my entire career in the health care field,
most recently in venture capital, but prior to that as president of
a major pharmaceutical company and prior to that as president of
a start-up company and I can attest to the enormous risks associ-
ated with bringing products to market.
The cost of a successful drug is in the neighborhood of $260 to
$270 million. There is some disagreement as to exactly what it is,
93
but it is certainly in that neighborhood, and it is fraught with
risks.
There are the scientific risks, the technical risks, the regulatory
risks, et cetera, but I think that as a result of that, investors such
as myself are looking to see that those rewards are commensurate
with the risk. I would say if there is a bias on the part of venture
capitalists, maybe it is a personality defect or whatever, we do not
really recoil from the risks or are particularly interested in having
all those risks mitigated. We seem to be motivated toward seeing
that we can get an answer to the medical problem at the end, and
that the rewards be sufficient.
Senator Lieberman. So we should not hope that Mr. Penner
comes up with a drug to take care of your personality defect.
[Laughter.]
We want you to maintain that defect so that you can keep this
good work going.
Mr. DOVEY. To depart from our prepared remarks a little bit,
since there have been a lot of questions about what the Govern-
ment can do and how they might step aside, I thought it might be
important to try to describe the process, as I see it, that we go
through in starting these new companies.
Senator LlEBERMAN. That would be very helpful.
Mr. DOVEY. I think you can see how certain kinds of interven-
tions, which are either meant to be incentives or disincentives,
could have a real impact.
Venture capital funding, or the biotech area, is a unique indus-
try. It is unique because its roots are almost all out of academia.
Therefore, almost all of the insights, the notions, the concepts, are
coming out of academia, and that is a very important source to us
of potential companies, and I will just use Domain as a specific ex-
ample.
We look at approximately 350 to 375 possibilities, proposals a
year. Some of these are sent to us in the form of business plans.
For others we are going out to places like the University of Penn-
sylvania, Harvard, Stanford, Yale, et cetera, to find out who is
doing interesting work.
Senator Lieberman. And you are going out with highly skilled
personnel.
Mr. Dovey. Yes.
Senator Lieberman. You are going out with doctors, for instance.
Mr. Dovey. Yes. I am a molecular biologist. My four partners are
all Ph.D's. We get very involved with these companies, and we also
interface with the top academic people around the world.
We are not going to do something new, let us say, in the AIDS
field or in immunology, without getting three or four people who
are really experts in that field, and I think, as you were saying,
it is kind of the blocking and tackling of venture capital, knowing
that the science makes sense and is fundamental to the process.
Obviously, when we are winnowing down from 350 or 360, and
we do maybe four a year, that is a pretty tough filter to get
through, and there are a lot of factors that are taken into consider-
ation— the market size, the quality of the science, priority position
is very important.
87-127 0-95
94
I think something was alluded to earlier about are there any im-
pediments on the price, et cetera, and I think one thing that you
talked about earlier, and that was, what is the effect if you had
very high prices. We will not do anything that is not going to be
cost-effective. In other words, the total cost of handling that disease
has got to come down.
You take something like Alzheimer's disease, which is one I am
particularly interested in. I am chairman of a company in that
field, where $40 billion or $50 billion is being spent on this disease
without any effective answer, and the extent to which we can come
up with an answer is clearly going to be something less than that,
entirely effective.
Senator Lieberman. So you reach that determination because
you can sell the product as a cost-saver.
Mr. DOVEY. Right, exactly. You are looking at large unmet needs.
It needs not only to be effective, but it ought to save, and when you
are looking at drug costs that are around 7 percent of the total
cost, my view is that the drugs and technology ought to be really
promoted, because we can invade that other 93 percent of the cost,
which is labor, et cetera, and nursing, which is mainly caretaker
types of things.
At any rate, classic in what we do when we invest in a company
is that we will license the technology from the university, attempt
to have the academic people who are involved in this have a finan-
cial stake by virtue of stock ownership going forward, and then we
will hire or bring people out of industry and marry it with that
academician to move the company along. And most venture capital-
ists do, and we do in particular, get very involved in the companies.
We serve on the boards and spend a number of days a month on
them.
Subsequent to venture capital investing, our goal then is to take
these companies public. Generally, if you are looking at this aver-
age of $250 to $300 million that is going to be required for a new
drug, venture capitalists probably only put in 20 or 25 percent of
that, and we join together with other venture capitalists to fund it
initially, so we are dependent on the public markets to fund it
through to success.
As you can probably see, I have oversimplified this to some ex-
tent, but all of these stages are critical. We need the academic in-
sights, and we need the venture capitalists to take the high risk
and filter out those projects which are better than others, and then
we need the stock market at the end.
My view is that many of the current proposals by the Govern-
ment have the effect of substantially reducing the rewards. I do not
think there is a lot to be done, nor would we ask for anything to
be done in terms of mitigating the risks. Those risks are inherent
in the kind of science that we are talking about. But with the
Council on Breakthrough Drugs, which is now starting to look
more remote, which is great, we still have major problems. The
proposed authority to blacklist drugs, Medicare, price control
clauses, and the Government research agreements, these CRADAs,
the concept of conflict of interest rules at the NIH that would pre-
clude us from offering incentives to the academic people, all of
95
these have a negative impact on our industry, and on the impor-
tance in going forward.
I think Mr. Goldberg will talk about a number of things that
have happened in the field already, the stock prices going down,
but I think far more important than what has happened are what
the future intentions are of venture capitalists and the people pro-
viding the financing.
In fact, surveys have been done by Bob showing that most ven-
ture capitalists are talking about pulling back from new invest-
ments and staying with the ones that they are involved in.
The concept of breakthrough drugs is the most important thing.
Having been in a major pharmaceutical company, a lot of our ef-
forts were directed toward improving current therapies. If, in fact,
you could take a drug that lowered blood pressure from three or
four times a day to once a day, there was a major market scene
for that.
I think what we are talking about in the biotechnology field are
major and fundamental breakthroughs to solve diseases. I just
think it is kind of perverse that there is a discussion about putting
a price control on the things that we need the most.
Finally, I would say that the concern over runaway costs is hon-
estly misguided, because the investments are not being made on
something that is going to create huge new cost burdens on the
public. We are as aware as anyone of this kind of concern, but be-
lieve there is plenty of opportunity to replace a lot of palliative
kinds of care with breakthrough technology.
It does seem to me that this committee is particularly well-placed
to be the champion of innovation by these exciting companies, and
I guess that is what I would ask.
I think the most important thing would be, rather than us hav-
ing to fight negatives all the time, it would be nice if somebody
stood up and said, this is a good thing, and we kind of took it from
there. I appreciate the opportunity to discuss this important issue.
[The prepared statement of Mr. Dovey follows:]
96
TESTIMONY OF BRIAN H. DOVEY
NATIONAL VENTURE CAPITAL ASSOCIATION
BEFORE THE SENATE SMALL BUSINESS COMMITTEE
MAY 26, 1994
ON
RESEARCH BY ENTREPRENEURS ON CURES
FOR CHILDREN'S DISEASES
97
Good morning. My name is Brian Dovey and I am a Partner of Domain Associates,
a New Jersey-based venture capital firm which is focused on the life sciences and invests
heavily in emerging biotechnology and medical companies located throughout the United
States. I also am a Board Member of the National Venture Capital Association. NVCA is
comprised of over 200 professional venture capital organizations designed to foster a broader
understanding of the importance of venture capital to the vitality of the U.S. economy and
stimulate the flow of equity capital to emerging growth and developing companies.
Most of the venture capital investments that Domain Associates makes are in the
biopharmaceutical and medical device fields. The approximately 60 start-up companies in
which Domain has been involved and has helped grow since the early 1980s now employ
over 12,000 people. Importantly, a significant number of these companies are pursuing
projects directed toward children's diseases.
* In the area of cystic fibrosis-related infections, Univax Biologies is currently at the
human clinical testing stage with proprietary vaccines and immunotherapeutic
products;
* Regarding diabetes, Amylin Pharmaceuticals has pioneered the discovery and
commercialization of a new hormone, called "amylin," that seems to be secreted by
pancreatic islet cells along with insulin and serves to balance insulin's effects;
98
* Also in the diabetes field, Neocrin is developing a "bioartificial pancreas" consisting of
a biocompatable device containing islet cells that would be implanted into patients in
order to efficiently correct blood glucose levels;
* In epilepsy, Domain companies such as Acea Pharmaceuticals, Athena Neurosciences,
CoCensys, and Gensia all maintain active projects at various stages of development;
* In Gaucher's disease, where the enzyme glucocerebrosidase is tragically missing,
Genzyme currently supplies a naturally derived version of this product, and the
company appears to be close to receiving regulatory approval to market a
recombinant version as well; and
* Finally, respiratory syncytial virus is one of the targets being addressed by
Trimeris, which is developing novel antiviral drugs based on research originally
stemming from Duke University.
These companies and others in the Domain portfolio illustrate that biotechnology and
medical innovation are giving new and renewed hope for people across virtually the entire
spectrum of diseases and afflictions. However, at this moment and in this very building one
of the most significant debates in U.S. history on the nation's health care system is taking
place. The results of this debate may directly affect the future of emerging biotechnology and
medical device companies and in turn impact the availability of the novel products these
companies are developing.
99
Venture capital plays an integral role in the funding of the biotechnology and medical
device industries, many of which as we speak are working on cures for various children's
diseases and afflictions. There are currently 23 biotechnology therapeutics/vaccines approved
for sale by the Food and Drug Administration. Two hundred and seventy biotech drugs,
vaccines and therapies for conditions such as cancer, arthritis, genetic disorders, burns and
blindness currently are in clinical trials. Many of these companies have been financed by
venture capital.
In fact, without patient investment from venture capitalists this industry would not
exist. In 1993 venture capitalists invested $806 million in biotech and pharmaceutical
companies and another $393 million in medical device and equipment companies. This
represents, according to the research firm of VentureOne, over 28% of all venture capital
funding in 1993. Over the past 5 years (1989-1993), 75 venture-backed biotechnology and
116 medical/health-related companies have gone public. These companies comprise one-third
of all venture-backed IPO's over the past five years.
What we are dealing with here is still largely a very "American" industry of small
businesses. In the U.S. there are approximately 1,300 biotechnology companies of which
75% have fewer than 50 employees. Most of these companies are involved in pharmaceutical
product development. Although billions of dollars have been invested in these companies
since 1980, less than two dozen companies have established the capability for full
pharmaceutical development and manufacture.
100
As a seasoned venture capitalist who sits on the boards of several biotechnology and
medical company boards, I can attest to the enormous risks these companies face in an
attempt to bring a product to market. The Biotechnology Industry Organization estimates that
it takes 10 to 12 years to research, develop, and obtain regulatory approval to market a new
biopharmaceutical product, at an average estimated R&D cost of $259 million (in 1990
dollars), and this figure does not even include general and administrative expenses. Given
these numbers it is no wonder that investing in this industry is very risky and why it is
important that the government demonstrate to investors, such as myself, that potential rewards
are commensurate with the risks.
If prospective health care reform creates a perception or reality that our potential
return is limited or at greater risk, additional investment in the industry could markedly
decline. The Gordon Public Policy Center of Brandeis University recently released a survey
of venture capitalists who invest in biotechnology companies. The genesis of the report was
to understand how investors, not biotech executives, view health care reform, and in particular
the threat of price controls on the industry. Key findings in the report include:
Nearly 100% of all venture capitalists stated that their concern about possible
price controls has had a negative impact on investment decisions.
* Because of price controls concerns, a majority of venture capitalists put less
money in fewer biotechnology firms in 1993 than previously planned.
101
* In 1994, most venture capitalists surveyed will put less money into
biotechnology overall and will invest in fewer firms because of price control concerns
Despite potential opportunities, investors, such as myself, are a lot more selective and
are investing less money than otherwise would be the case because of the implication of price
controls and Medicare blacklisting.
Why? The huge cost of taking a product through FDA clinical trials today collides
directly with the public market's view that price controls will restrict the economic return on
new drugs. If venture capitalists don't believe they can raise the money to successfully get a
product on the market, we are naturally going to invest in less-risky types of pharmaceutical
deals where the potential returns are lower but more assured. Simply put, venture capitalists
will stay away from long-term, high-nsk medical breakthroughs if the government makes it
more difficult to invest in them.
A shift from offering "seed" capital to start-up medical technology and biotech
companies toward funding more established companies that are further along in the FDA
approval process or have drugs which are not viewed as "breakthrough" drugs subject to
possible drug price controls, could have a detrimental affect on health care. Start-ups often
are the cradle of medical innovation and, unfortunately, without venture funding many cannot
survive. It would be ironic to establish a reformed health care system which reduces the
potential for new cures, but this could happen as medical research declines because of lack of
venture capital and other sources of capital.
102
In addition, venture capitalists believe that biotechnology and new medical devices
actually can contribute to controlling medical costs. As investors, we are banking on the idea
that new drugs can reduce hospital stays and medical costs and be a cost-effective way to deal
with many diseases. By helping to contain spiraling health care costs, however, venture
capitalists, and the entities which give us money to invest, need to be rewarded financially. If
this incentive is put in jeopardy investors, even sophisticated and experienced ones, will have
difficulty finding sufficient motivation to provide funding that is a decade or more from
economic maturity. To the risk of obtaining FDA approval would be added the risk of drug
price review or Medicare blacklisting that could undermine the "upside" needed to justify
investment.
Early stage venture capital is the bedrock of new and emerging biotechnology
companies because this money goes largely toward research and development. Before we can
have the medical breakthroughs, the health care cost savings, an improving quality of life and
the financial rewards that come from a successful product launch, we must have the research.
It is important to note that venture capitalists are far from the only component in the
delicate equation that brings new drugs from basic research into clinical development and
ultimately onto the market. Rather, our industry serves to provide the early commercial
funding for new companies in order to bridge the gap between academically oriented research
and large-scale commercial drug development. For small biopharmaceutical companies, the
public equity markets serve as the main funding source for the costly and necessary advanced-
103
stage clinical trials. Unfortunately, the perception that health care reform could harm the
industry is having a profoundly negative impact on its ability to raise capital Although R&D
is surely ongoing, a recent report by Dr. Robert Goldberg, who also is testifying today,
indicates that fully 75 percent of biotechnology companies have 2 or less years of capital left.
If we want to maintain this industry, which the White House Council on
Competitiveness stated "has the potential to surpass the computer industry in size and
importance," we need a national health care policy which clearly favors breakthrough
medicines and devices. Such a policy would allow venture capitalists to invest needed capital
in many promising biotech drugs and medical devices thereby helping to alleviate many
diseases which affect our children.
104
Senator Lieberman. This committee is interested in being sup-
portive not only because of the extraordinary advances in treat-
ment and cure of diseases, but also from the business perspective.
We really have high hopes that the biotech fields and related phar-
maceutical industries will continue to be a major source of job cre-
ation and job protection that is sustaining jobs that are already
created, some of the 12,000 jobs that you helped to create and the
operations that you helped fund.
We have been focusing on the diseases and the cures, but clearly
our motivation is also to create jobs. Thank you for your testimony.
Mr. Goldberg.
STATEMENT OF ROBERT GOLDBERG, Ph.D., SENIOR RE-
SEARCH FELLOW, GORDON PUBLIC POLICY CENTER,
SPRINGFIELD, NJ
Mr. Goldberg. Thank you, Senator. It is nice not to have to talk
as if in a defensive position about these things.
I am going to talk about why we are doing this, how we are de-
veloping cures from new drugs, and what would happen if certain
controls were enacted.
The why is really a question of the values of society, and there
is a saying in the Talmud that he who saves a life is like one who
saves an entire world. And that impetus in many respects is trans-
lated into what we have in the biotechnology industry.
Now, you may know that some people have actually raised the
question about whether we should go forward. There is a medical
ethicist, Daniel Callahan, who said that we must be prepared to ra-
tion medical progress and forego potentially beneficial advances if
we want to control health care spending.
I was disappointed to hear the panel, which I shared with Henry
Tamir, that a White House official had told him that Genzymes
should shift money into, "more broad research and away from ex-
pensive treatments aimed at Goucher's Cystic Fibrosis, and other
childhood diseases." I had the article from Biotech Daily which
summarized that but Mr. Esiason took it from me and I was not
about to ask for it back. [Laughter.]
Senator Lieberman. A wise decision.
Mr. Goldberg. Thank you.
Senator Lieberman. Let me just assure you that that is not an
attitude that I hear very much around Congress. The more we have
gotten into this health care debate the more we understand that
there are parts of this system that we ought to be changing, and
the more we understand that there are parts of the system that we
would be stupid to change because they are moving in the right di-
rection.
It is not that we should always follow what the constituents are
telling us, but in this case they are telling us something quite right
and truthful which is the obvious. They want the best medical care
they can get. Why would we expect otherwise? And they do not
want health care to be rationed and they are right.
Mr. Goldberg. As Brian said, the other rationale is pragmatic.
The first thing to remember is we cannot control the cost of disease
without controlling disease itself. When we can control cystic fibro-
sis like we cystic fibrosis like we can take care of a cold or if we
105
can control AIDS like we can control small pox, the costs are going
to fall. But we cannot get from here to there without this evolution
that biotechnology is providing us, which leads to the second point,
which is there is no other way of preventing or controlling diseases
except through the development of newer, better medicine. There
is none.
I jog. I eat a lot of broccoli. I make my kids eat a lot of broccoli.
It does not make a difference.
Senator LlEBERMAN. You stopped eating the margarine, now.
[Laughter.]
Dr. Goldberg. No margarine, just schmaltz, you know, that is
it. [Laughter.]
My grandmother said it is OK. And as a matter of fact, you
know, we have the CF gene in our family and we were lucky to
dodge the bullet. My grandmother would attribute that to chicken
fat as well, but I do not think there is any scientific basis for that.
So, how do we do this? There is this notion that NIH does all the
basic research and that the drug companies and biotech firms just
sort of, take the mold and make the cookies. Well, that notion even
if it really held, and I do not think it did historically, is obsolete.
Advances in basic biology, as Dr. Wilson discussed, are increas-
ingly critical to the pace and success of drug developments. What
he said about 6 months is no joke. The reason that guys like Brian
are going deeper and deeper into the pharm system, so to speak,
or drug companies are going deeper into the pharm system, going
to the academic wellhead, is because so much of what is basic now
has direct application to developing a real cure.
The reorganization and growth of private capital, which includes
venture capital and pharmaceutical capital and public markets
around early stage biotechnology is probably the single most impor-
tant shift in funding and biomedical research since the NIH was
established after World War II.
Let me just go through a couple of these components. There has
been a virtual integration of biotechnology and drug companies.
The drug companies have seen the light of day. They realize that
their best nickel is in early, unproven science. And in many cases
companies such as Pfizer, are working side by side with venture
capitalists and with biotech companies to develop drugs.
There is increased collaboration, as we have heard, between pri-
vate firms, NIH, and academic researchers. Genzyme is a good ex-
ample of this. Hundreds of millions of dollars has been invested de-
veloping gene therapy for CF, but what is less well known is that
the basic discovery research, the building blocks essential to devel-
oping gene therapy, has been conducted collaboratively with
Genzyme, the University of Iowa, the Whitehead Institute, and the
Children's Hospital in Cincinnati.
The third component is what I referred to earlier. It is the need
for greater concentration of capital in early stage biology. To me
this is great and is what America is all about. There are a lot of
rich people investing in these. Instead of spending money at the
racetrack, they are putting money into these risky ventures which
could help humanity reduce health care costs. If they get money
out of it, that is great.
106
In Britain they are trying to raise $300 million for the entire bio-
technology industry in 2 years. Amgen raised that before they even
had one drug on the market in 1 year. It is unbelievable.
And the question is, why tamper with that relationship?
Senator Lieberman. Why is that happening now? I do not want
to ask you to go into a long discourse. But what are the factors in
the economy that are encouraging those people of wealth to put
their money into these operations instead of into mutual funds or
CD's?
Mr. Goldberg. I think there are two things. One is for the risk
you get a reward. And frankly, you might want to correct me on
this but I just get a sense, having talked to hundreds of venture
capitalists, there really is a sense of excitement. There is this sense
that if we can do well by doing good, that is great.
That really underscores why biotechnology is so uniquely Amer-
ican. We really believe we can change things in this country. And
that kind of spirit is part and parcel of the gold rush mentality, if
you will.
Senator LlEBERMAN. I am interrupting again, but we are way
ahead not only of the numbers that you say in Britain but really
of the rest of the world in terms of our investment and work in bio-
technology.
Mr. Goldberg. No question about it. Just to give you a couple
of additional facts, we have 74 percent of all gene engineering pat-
ents. Except for one, we are conducting every gene therapy trial in
the world. We outspend the Europeans 2-to-l in R&D, and recently
the European Commission studied the problem of why they were
lagging in entrepreneurship and they came up with two conclu-
sions: Price controls and a fragmentation among universities and
institutes and private companies — they lack the kind of teamwork
that we have developed under our system.
So my question is, what would happen if we tried to alter that?
I did a little research and I will give you a brief synopsis of what
my research showed. First, I surveyed biotech firms and knowing
it is hard to raise money because of the riskiness of biotechnology,
1 asked them: Have the price control concerns made it harder?
I surveyed 107 biotech firms of which 73 were public companies.
Eighty-three percent of the firms said that concerns regarding price
controls were distinct, identifiable and independent of everything
else it took for them to raise money. Seventy percent of the firms
said that they would have to cut fundamental research and devel-
opment if things got worse.
As a matter of fact, 75 percent of the companies I surveyed have
2 years or less left of cash and that is not good. You like to see
more than 2 years of cash in the bank when you are doing clinical
research.
Ninety percent of the venture capitalists I surveyed, said they
will reduce their biotechnology investments if price controls were
adopted. Rather than putting money into treatment for Alz-
heimer's, Domain might put their money into the kind of company
that manages the treatment of Alzheimer's patients more cheaply.
So we are just treating the problem in a more efficient fashion
probably.
107
Senator LlEBERMAN. Let me just state what is evident, because
I do not know if we have stated it explicitly for the record. The rea-
son price controls inhibit investment in this way is obviously be-
cause the investor worries that his return will be dramatically lim-
ited by price controls; in other words there could be such an unrea-
sonable price control that the risk he has taken will not be worth
it.
Mr. Goldberg. That is right. And, I have talked to some biotech
companies and some venture capitalists who have spoken to people
in the administration, and the officials always say, trust us. No
venture capitalist I know is going to trust anybody with their
money except their own sensitivities and their own instinct.
Senator LlEBERMAN. The classic response here in Washington is
we trust you. It is the guy who comes after you that we are worried
about.
Mr. Goldberg. That is right. The other issue the people have
touched on is CRADA's. If you want to help small business, take
all this CRADA legislation and just tear it up, put it in the bin,
because the CRADA process has been destroyed by this whole en-
terprise. The number of CRADA's has declined by 80 percent.
I will give you an example with the gene therapy center. This is
unbelievable. This legislation would require companies like
Genzyme to enter into a reasonable pricing clause if Dr. Wilson's
center received NIH funding. Dr. Wilson's NIH funded center needs
additional funding. He needs adenovirus manufacturing facilities.
He needs primate supports. He needs clinical study support on the
order of $30,000 a patient.
Now a company like Genzyme or a venture capitalist is not going
to put money into a gene therapy center which was funded initially
by NIH. The mandate of Congress was to fund the thing to get it
commercialized. And here we have a CRADA which is saying no,
let us not give you incentives to commercialize this thing. Sorry to
get so upset. It just makes no sense whatsoever.
Senator LlEBERMAN. Feel free. It is good to get upset.
Mr. Goldberg. It gives me a migraine. I have talked to people
at NIH, and Bruce Tabner, who is with NCI, and they can tell you
the same stories. Everyone is terrified to enter into collaborations
with drug companies because they are afraid of what disease group
you in Washington are going to stick it to today.
I was in an Institute of Medicine roundtable where the AIDS ac-
tivists were saying we have reached a crisis in AIDS research be-
cause there is no CRADA research anymore.
So, do me a favor. Do something about it. I will leave you with
an anecdote which you can share with your colleagues.
Senator LlEBERMAN. Good. I am always looking for one of those.
[Laughter. 1
Mr. Goldberg. Because when someone comes up with an anec-
dote you know they are about to finish. I know that is why you are
saying good. [Laughter.]
Senator LlEBERMAN. No, no. You have been great.
Mr. Goldberg. Several years ago there was another very inter-
esting breakthrough drug, and like the gene therapy for CF the
discovery research languished in the labs for decades. It showed a
lot of promise but developing a safe, effective way of delivering the
108
drug was considered to be physically impossible, and almost finan-
cially undoable.
The Government tried to do it by itself, could not do it, but
through this collaboration of private companies, venture capitalists
and so on they were able to produce this breakthrough drug. When
it first came to the market it was very expensive. A vial of the drug
sold for $80. Only the rich and well connected could get the drug.
Do you know what the name of that breakthrough drug was?
That was penicillin. As with penicillin, CF therapy will come to
symbolize how a combination of reason, risk, and spirit can solve
the seemingly unsolvable.
I am going to close by saying that those who argue that break-
through drugs will drive up the cost of drugs forget that even with-
out initially expensive medicines, the cost of caring for children
with intractable diseases will continue to climb, the premiums will
continue to rise, and the sad memories unfortunately will continue
to mount.
I told Boomer that I would do whatever I could with my research
to help him. So you have got to get me off the hook here in some
way, shape, or form.
Thank you very much.
[The prepared statement and additional material of Dr. Goldberg
follow:]
109
Testimony of Robert M. Goldberg, Ph.D.
Senior Research Fellow
Gordon Public Policy Center
Brandeis University
Before the Senate Committee on Small Business
May 26, 1994
Mr Chairman:
Thank you for the opportunity to testify before this committee on how to sustain and increase
research and development of better treatments and cures for childhood diseases. I have devoted
the last two years to identifying what resources and conditions are required to support medical
progress. Nowhere do medical advances hold so much promise as in the treatment of such
diseases as cystic fibrosis. Unfortunately, several policies the Congress is considering to include
as part of health care reform could undermine such progress. My written testimony sets forth the
significant potential and profound shift in biotechnology and identifies the policies that would
weaken the nation's commitment to biomedical innovation, especially in children's diseases. And
with your permission. I would also like to include as part of the record two surveys - of
biotechnology firms and biotechnology venture capitalists respectively — that suggest the negative
effect price controls could have on investment in biopharmaceutical research
Mr. Chairman, there is a general agreement that as Harvard University economist Joseph P.
Newhouse concludes, " the principal cause of increasing health care costs appears to be the
increased capabilities of medicine."1 There are many health care analysts, policymakers and
insurers who conclude that reducing development of new medical technologies is socially
desirable because it will free up money for other health expenditures. That is why limits on the
price and introduction of breakthrough drugs control health care costs have such strong support.
There are two serious objections that can be raised to this argument. First, we cannot control the
cost of disease without controlling disease itself. We will ultimately spend increasing amounts of
money until we eliminate or control most of the major diseases of our time. Health care costs will
continue to rise because medical expenditures go to sustain the treatment of chronic and
degenerative conditions such as cancer and heart disease. We are spending more because we are
treating symptoms or illness at highly advanced stages. The more we know about the disease
process and its causes, such as many infectious diseases, the more we can do earlier in the onset
of disease. If we are at the highpoint in the cost of treating such diseases as mental illness, AIDS,
Alzheimer's, cancer and heart disease, it is because we simply don't know enough to prevent them
or stop them conclusively. When we can treat AIDS as we handled smallpox or heart disease
without by-passes, costs will fall. The relative cost of treating a disease falls as the level
110
technology becomes more decisive. But we cannot get from there from here without this
evolution.
The trouble is not that there is too much technology, but not enough medical and biological
knowledge to decisively cure and prevent disease. The real policy question is: if you had $10,000
to spend on medical innovations would you rather buy 1960's breakthroughs at 1960's prices or
1990's advances in 1990's prices?
Second, there is no other way to control or prevent disease except through the development of
new and better medicines. There is no other solution to the major illness' of our time, including
genetic disorders, except future biomedical advancement. In this respect, the benefit and
effectiveness of prevention and better life styles will have marginal value. As the eminent
essayist— physician, Lewis Thomas wrote: "We are obliged, like it or not, to rely on science for
any hope of solving such biological puzzles as Alzheimer's disease, schizophrenia, cancer,
coronary thrombosis, stroke, multiple sclerosis, diabetes, rheumatoid arthritis... chronic nephritis
and AIDS."2
It does not make sense to adopt policies that would lead to less investment in biomedical
advances when the treatment for many major diseases is either inadequate or nonexistent. In the
United States, seven diseases — including heart disease, stroke, cancer and Alzheimer's ~ account
for nearly half of all medical expenditures. According to the National Cancer Institute, the
incidence of cancer is rising. Heart disease still consumes over SI 00 billion a year in medical
costs. Alzheimer's lacks anything but palliative care. AIDS looms as a major public health
problem throughout the world. Many rare genetic diseases such as cystic fibrosis and Huntington's
go without a cure. Meanwhile, drug resistant strains of such infectious diseases as tuberculosis
and cholera and new illness' such as hantavirus and dengue will require greater vigilance and new
antibiotics.
The challenge to develop new medicines will be met by the new science of drug development.
The foundation of this enterprise is biotechnology. Instead of primarily screening compounds
and soil samples, researchers can now use discoveries and a deeper understanding of cell and
molecular biology to produce novel drugs and drug delivery methods that cure or more effectively
treat diseases now controlled through halfway measures.
Biotechnology is revolutionizing the process of medical progress. First, the old distinction of
basic and applied research is now largely obsolete. Molecular and cell biology increasingly has
direct bearing on enabling therapeutic breakthroughs. Second, a deeper understanding of the
mechanism of disease means that new medicines have tremendous potential to be used for a
variety of illness. This means that clinical research will have a more immediate impact on
improving or shaping medical practice than in the past. This technological shift has led to a
critical reorganization in the financing and conduct of biomedical R&D: Today and in the 21st
century, medical progress depends largely on the growth and profitability of biopharmaceutical
industries and clinical experimentation with new drugs.
Ill
The Organic Model of Medical Progress
It is important to discuss this assertion. The assembly line model of innovation -- basic research
leads to the discovery and development of drugs is outdated, if it actually ever existed. It has
been replaced by a more organic model in which new information leads immediately to new
product concepts or product candidates. Fundamental, basic research is now essential and
advances in molecular genetics and the human genome project have fostered investment and the
formation of private companies that challenge and transform academic science.. The sequencing
and identification of human genes alone will provide a vast array of tools that will lead to dramatic
advances in the understanding of life itself. Capital and intellectual resources have shifted rapidly
to adapt to the architecture of medical progress. As a result, the reorganization and growth of
private capital around early stage biotechnology is the single most important shift in the
funding of medical research since the establishment of the NTH after World War n.
What are the characteristics of this new national medical research enterprise? True to its organic
nature, it is characterized by independent elements interacting freely to reinforce a mutually
beneficial research And most importantly it is defined by the substantial privatization of essential,
broad-based basic biology that will sustain not only product development but the future
biomedical research infrastructure of this nation. For it is largely in the private sector that the
enterprise of assembling the pieces of the biological puzzle can be fully funded. As Jeffrey
Casdin, a managing director of Oppenheimer and Co., Inc. observes: "technology is advancing so
rapidly that the few experts on the leading edge will continue to be attracted to., small start up
companies where the lack of bureaucracy and a premium on achievement allow for the realization
of their ideas and knowledge."3
Hence the drive to find innovative drugs now focuses more intensively on the development of
fundamental knowledge. This has led to a the creation of the organic model of medical progress
reflected in the following developments:
1. Virtual integration of biotechnology and pharmaceutical companies in the United
States.
While policymakers love to love biotechnology and love to hate drug firms, the fact is the two
enterprises are largely Siamese twins. The two industries are virtually and nearly completely
integrated. As a recent Emst and Young report on biotechnology notes: "By aligning between
and within their sectors — strength-to-strength and need-to-need — pharmaceutical and
biotechnology companies are equipping themselves to pursue their long term goals...
state-of-the-art development and delivery of high quality, cost-beneficial products. The
restructuring of the two industries is simultaneous and symbiotic."4
In the beginning of biotechnology, drug companies waited out the infancy, believing they could
invest "..heavily in the survivors that emerged with products in late-stage clinical trials... But the
waiting period in the "waiting game" became increasingly short by the early '90s as big companies
aggressively licensed programs in the earliest stages of development." 5 As a result,
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pharmaceutical venture capital is more focused, complementing and accelerating basic research of
internal programs. As a recent article in IN VIVO put it: "More big companies are turning on the
nickels in early, unproven science. . Because the access is now regarded as far more vital, the
sawiest big companies recognize it is no longer cheaper and are seeking to invest before it
becomes unaffordable. "6
Indeed, the link between the two industries is enduring and complex. IN VTVO estimates that
pharmaceutical firms invested $2.3 billion in biotech companies in 1993. According to the North
Carolina Biotechnology Center, there are nearly 400 alliances between biotechnology and
pharmaceutical firms.7 They include American Home Product's part ownership of Genetics
Institute, Eli Lilly's purchase of Prizm Pharmaceuticals and Schering-Plough's investment in
Cephalon. Such alliances provide one of the most important sources of venture capital for biotech
firms and create a larger number of scientific opportunities as a foundation for more efficient
product development. Virtual integration is a highly effective means for screening all potential
disease targets that emerge from biotechnology.
2. Increased collaboration between private firms, NTH and academic researchers.
Traditional attitudes about cooperation have given way to a quilting bee or barn raising
orientation. The development of human antibodies in mice and the work on developing an
effective animal model for Alzheimer's are two example of fundamental research being carried
about by biotech firms with a combination of venture capital, drug company investment and
shareholder equity that will not only have a direct bearing on the treatment of such diseases as
arthritis, cancer and Alzheimer's. It will also lead to an explosion of productive research in other
companies, in academia and in other disease areas.
The development of knowledge about cystic fibrosis has been achieved through close
industry-academic coopeation. Many people know that Genzyme Corporation has invested
hundreds of millions of dollars in developing gene therapy for CF. Less well known is the fact,
that over the past four years, basic discovery research essential to developing a cure has been
conducted on a collaborative basis by Genzyme Corporation, the University of Iowa, the
Whitehead Institute, Children's Hospital in Cinncinnati and the University of Michigan. Recently
Genzyme's Vice President of Research, Alan E. Smith, Ph.D. was recently cited by the Cystic
Fibrosis Foundation for making important contributions to the CF research community.
By the same token, NTH researchers and academic scientists play a critical role in taking
molecules identified or developed by private companies and determining what are appropriate
disease targets. In some cases, such as with Interleukin-2 and Interleukin-12, this discovery work
is carried out simultaneously in cooperative fashion. The spillover benefit to basic research is
significant because it reinforces the value of discovery work to product development.
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3. Greater Concentration of Capital in Early Stage Biology
As advances in molecular science and genetics have revolutionized pharmaceutical research, it has
required a heavier concentration of R&D capital in fundamental research. This critical need for
capital is being met by an amalgam of industrial and venture partners. In some cases — with gene
sequencing firms for example -- pharmaceutical firms, venture capitalists and biotech startup's
fund and contract with academic researchers to probe the genome for disease targets and
sequence the human chromosome structure. Genzyme developed adenovirus facilities, supported
animal studies and paid for primate studies to support discovery efforts of academic researchers
working on cystic fibrosis .
Increasingly, venture capitalists are financing the basic biology that supports such technologies as
cell cycle to cell separation, gene therapy to gene sequencing, rational drug design, regulation of
oligonucleotides (which are involved in DNA replication), transcription factors, carbohydrates and
ribozymes. For example, Geron, a company that has isolated the mechanism controlling cell
death is a startup company funded by Accel Partners, a venture capital firm.
A combination of up-front financing, potential royalty payments and complex licensing
arrangements create value and scientific opportunities not only for the parties involved but for the
national biomedical research enterprise as a whole. Eli Lilly has a partnership with GenPharm, one
of two companies that have succeeded in genetically engineering mice to product human versions
of monoclonal antibodies. Genpharm's research was done in collaboration with academic
researchers. As Anthony Fauci of the NTH has observed, if such antibodies perform as expected,
it could revolutionize discovery research in infectious diseases. Warner-Lambert's used it's
Parke-Davis Research division to initiate investments in biotech firms withfunds from its venture
capital operation. Genentech has a 20% stake in GenVec Inc. a gene therapy company funded by
the venture capital firm of Hillman Medical Ventures to develop cystic fibrosis therapies around
the form of former NIH scientist Ronald Crystal.
Similarly, the virtual integration of SmithKline Beecham, Human Genome Sciences, venture
capitalists and a nonprofit gene sequencing partner is an example of how the basic biology behind
medical progress will be financed and developed through the 21st century.
4. Clinical research is a critical link between the lab and people's lives.
Finally and inseparably, the clinical research of thousands of physicians in community settings and
teaching hospitals provides patients and researchers with insights on the versatility and efficacy of
different drugs. Without clinical research, the lag time between the development of innovative
technologies and its adoption would grow significantly. Examples of the crucial role clinical
research plays in applying new drugs include the benefits of Pulmozyme ®, Genentech's cystic
fibrosis drug for people with bronchitis, the use of calcium channel blockers in delaying kidney
disease, the use of antibiotics in treating bacteria-induced ulcers, the use of AZT in stopping
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HIV transmission between a mother and fetus, and the application of clozapine for treatment
resistant forms of schizophrenia.
A classic example of the critical role of clinical research and the organic model of medical
progress is the development of Intron A. In 1979, Schering-Plough purchased an equity interest
in Biogen and acquired Biogen's rights to the commercial development of genetically recombinant
interferon. Schering was able to product highly pure interferon through recombinant DNA
technology for further study. Despite obtaining only marginal results in 1000 cancer patients in
24 different tumor types, Schering decided to invest SI 00 million in phase in development and
the construction of a production facility for interferon.
Thereafter, research conducted by at the M.D. Anderson Cancer center was instrumental in
showing that Intron A reduced tumors in people with hairy cell leukemia. This lead to its first
FDA approval. Subsequently, infectious disease researchers at NTH used Intron A to treat
hepatitis in additional clinical research, leading to another FDA-approved indication. Additional
off-label experimentation with interferon has shown promising results in other cancer clinical
trials.
This organic model of drug discovery is the foundation for medical progress into the 21st century.
Yet, if the cost containment policies being considered by Congress and used by managed care
were widely applied in 1979, the development of interferon would have been impossible.
Health care reform could shake the foundation of America's biomedical research enterprise to its
core. Policymakers believe they can impose price controls and by funding NTH, still support
basic research and sustain medical progress. But because the pathway of medical progress is
organic and interdependent, price controls and restrictions on access to new drugs and cuts in
clinical research will reduce the amount of important medical research being conducted in the
United States. They are already discouraging some investment and keeping people from receiving
the best and newest medicines.
Unfortunately, the belief that medical technology drives up health care costs and the demonization
of drug companies is providing political cover for policies that undermine biomedical innovation.
If these views gain currency and strength, they will erode the national will to sustain medical
research.
Price Controls and Innovation
Price controls would have the most immediate negative effect on the nation's medical research
enterprise, and would cause the greatest harm to fundamental biological discovery. While
policymakers have sought to control drug prices without affecting innovation, the history of price
regulation and response of the capital markets to such government intervention suggests that they
would compromise medical progress.
One example of the negative impact of price controls on biomedical progress is found in Europe.
Indeed, a recent report by the European Commission about Europe's slippage in medical
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innovation should be a warning for American politicians eager to place biotechnology under
government control. The Commission notes that while 20 years ago Europe was developing half
American Pharmaceutical Companies
Produce More World Class Drugs 1970-92
Other
Sweden
U.K
Switzerland
Italy
Germany
France
Japan
U.S.
21
24
— -7-n 20
am 9
22Z3 14
i r
113
0 20 40 60 80 100120
Figurel: Source P.E. Barral 18 Ans de Resultats de le Recherche Pharmaceutique Dans Le Monde
(1975-1992) and Heinz Redwood, Price Regulation and Pharmaceutical Research
of all new medicines, since 1970 U.S. pharmaceutical and biotechnology firms have developed
nearly 50% of all innovative drugs.
American Share of World Class Drugs
Has Increased in Recent Years
1970-92
1990-92
Japan (21.0V.
Figure 2: Source P.E. Barral 18 Ans de Resultats de le Recherche Pharmaceutique Dans Le Monde
(1975-1992) and Heinz Redwood, Price Regulation and Pharmaceutical Research
116
Figure 1 shows that for the past 20 years, the US has led in the development of 'world class
drugs' — drugs deSned as therapeutically innovative and sold in the seven largest international
markets. In recent years the American leadership in innovation had widened. (Figure 2)
American R&D spending increased at twice the rate of European counterparts in the 1980s.8 The
reason for the reversal? The commission concludes that price controls and a "fragmentation
among universities and institutes" have impeded innovation.
U.S. Leads in Gene Engineering Patents
Patents Received in 1992
Japan (16 )
U.S. (140 )
Figure 3 Source: Pharmaceutical Research and Manufacturers Association
This combination of factors discourages the development and deployment of R&D capital for
biotechnology in Europe. In the meantime, the US biopharmaceutical industry is spending twice
as much on new drug development. The European Commission report concludes: "It is hard to
escape the conclusion that the United States, rather than Europe, is now the main base for
pharmaceutical research and development, and for therapeutic innovation."
America holds a commanding lead in every key biomedical endeavor. US firms have 74% of all
gene engineering patents. The US is conducting all but one of the 63 gene therapy trials. And
while there are over 1000 biotechnology enterprises in America, there are only 300 such
companies in Europe. When European and Japanese firms want to invest in biotechnology, they
have to come to the United States to do so.
Can It Happen Here?
Some policymakers believe that the Clinton administration's proposal to exclude from Medicare
reimbursement new drugs that are regarded as excessively priced are not price controls. In fact,
such the Clinton controls are similar to European price controls in every aspect except one: only
the Clinton administration would subject biomedical breakthroughs to special scrutiny and and
special rebates.
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According to a recent study by Duke University economists Henry Grabowski and John Vernon,
the Clinton price controls would reduce the cash flow of the most commercially successful
("breakthrough") drugs by nearly 100%9 Not only would this reduce the amount of money
available to pay for future R&D, it threatens the flow of venture capital into biotechnology.
Recent surveys of biotechnology firms and venture capitalists confirm that threat of price controls
has increased the risk and difficulty associated with raising capital for basic research. A survey of
107 biotechnology firms, including 73 public companies found that nearly 83% of all companies
said that price control concerns made it more difficult to raise capital in 1993.10 Nearly 90%
would seek out foreign partners or acquirers. Nearly 70% of all firms would have to cut
fundamental research and delay R&D if price controls were adopted. Similarly, 67% of all
companies would be less likely to develop drugs for the Medicare population because proposed
price controls would make more difficult to obtain investment capital.
Venture capitalists ~ who are noted as funding an increasingly significant amount of discovery
research — also expressed serious concerns about the negative impact of price controls. 65% of
all venture capitalists had invested less money in fewer biotech firms in 1993 due to price control
concerns. In 1994, 67% of all venture capitalists plan to reduce their investment in biotech
because of price control concerns. The survey of 62 venture capital firms shows 90% of all
venture capitalists reduce would their biotech investment activity if price controls are adopted.
The effect of price controls would be to chase money away from the discovery research that is the
fount of new products. Venture capital is the linchpin of this new organic model of
pharmaceutical research. But as Robert Curry a principal with the Sprout Group, a venture
capital firm notes: "We are increasingly uncertain that we can we find the cash to go all the way to
bring a drug to market. Our ability to do so would be diminished in a dramatic way if controls are
adopted."11
Nearly 14 years ago, Amgen was formed with some good ideas and a few dedicated scientists. It
initially raised S19 million in venture capital and S400 million years later before selling even one
vial of product. This could not happen in any other country in the world. Indeed, the entire
biotechnology industry in England is struggling to raise that much in two years. Venture
capitalists must believe that the high costs and hardships of risky ventures can yield high rewards.
Thanks to the browbeating biotechnology is taking, they are less certain of this possibility than
ever before.
Government Industry Collaboration is Being Discouraged
An important venue for cooperation between NIH and private biopharmaceutical firms are jointly
sponsored drug development projects or clinical trials. The potential for collaboration is
tremendous consistent with the wide range of opportunities for interaction at the discovery level
noted earlier. But recently, the price of drugs developed even partially under such cooperative
research and development agreements (CRADA's) has become a focus of congressional scrutiny.
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While NIH has the right to ask that drug prices under CRADA's be reasonably priced, some
policymakers want NIH to take a more aggressive stance in setting drug prices.
The effect of the 'reasonable pricing' becoming an important policy consideration provides a
natural experiment of what would happen to collaboration generally. For nearly a half century,
NIH-private sector cooperation has been a unique combination of public effort and private
competitive enterprise, mutually reinforcing the vitality of the nation's biomedical enterprise. But
since Congress began jawboning about drug prices, the number of CRADAs has declined by 80%.
Only 27 new CRADAs were established and many others were withdrawn.
Current legislative proposals to subject any the clinical trial of products conducted in cooperation
with researchers that obtain NIH funding to reasonable pricing clauses threatens to weaken
collaboration further. For example, university-based gene therapy centers receive funding from
NTH. None of the centers have sufficient resources to launch clinical trials, where it costs
$30,000 per patient for gene therapy as compared to $5000 per patient for other forms of
biotechnology clinical trials. These centers lack the manufacturing facilities, research
infrastructure and capital to carry out full-fledged gene therapy trials. Private support in terms of
building production facilities, carrying out preclinical work and animal studies, providing ample
quantities of vectors and viruses is essential. Yet concern about NTH price controls are forcing
companies such as Genzyme to rule out including top investigators. It defeats the whole
purpose of gene therapy centers, which is to facilitate the commercialization of gene therapy, by
taking the leading investigators out of the market.
Ironically, many policymakers and the public at large believe that NTH does or should do more
drug development. But at a recent Institute of Medicine AIDS Roundtable conference, the
consensus of NTH officials, biopharmaceutical executives and AIDS activists was that in the
words of one participant "We have reached a state of crisis in terms of government-industry
collaboration." Dr. Bruce Chabner, director of the National Cancer Institute's Drug Development
Program observed that "we cannot move forward on three interesting cancer compounds because
companies are reluctant to move forward under [CRADA] price controls. Companies are
withdrawing drugs or refusing to work with us."
In one case, Genzyme has limited support of the development of a National Cancer Institute's new
cancer technology. NCI wants Genzyme to manufacture a large amount of virus for clinical
research, but because of the reasonable pricing concern, it ~ and the NCI research — cannot move
forward. The disincentive for collaboration is undercutting progress in gene-based research in
AIDS, cancer and cystic fibrosis at a crucial time in its short history. Greater understanding of the
basic mechanism of a disease is important for most illness' as well as AIDS precisely because such
basic biology is now more immediately important to drug development generally. The need for
more constant interaction in understanding the molecular biology and pathogenesis of all diseases
only makes the price control-induced paralysis more tragic.
Anthony Fauci, the scientific director of the National Institute on Allergies and Infectious
Diseases asserted that " government and industry cannot come up with better drugs for AIDS
alone. Price controls are overshadowing all collaboration. If industry is not a partner, the
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mechanism will not work." Price controls on research collaboration would fragment research
activities, retard the rate of medical progress and deprive the nation's medical research efforts of
an important competitive advantage.
Price-Based Rationing of New Drugs
A consensus is emerging in Congress to have government and managed care organizations, not
patients and physicians, control the use of new and innovative drugs. Such 'cost containment'
restrictions are already being used more aggressively by private insurers, Medicaid and Medicare
Yet several studies conducted over two decades have failed to show that formularies in outpatient
or inpatient settings reduce drug budgets without leading to an increase in other medical spending.
As a result, they are already denying hundreds of thousands of people the best available care,
without saving much money in the process. Even if price controls are not adopted, this assault
on patient access to breakthrough drugs will undermine medical progress and force millions of
Americans ~ including children - to accept substandard and increasingly outdated medical care.
Drug Formularies Could Reduce Incentives for R&D
Both the Stark and Clinton plans would permit Medicare to blacklist any drugs deemed too
expensive by federal health bureaucrats. Formularies are defended as a tool for controlling drug
expenditures in a cost-effectiveness fashion. But apart from whatever discounts managed care
organizations can extract from drug benefit managers, most insurers have no idea how to relate
the cost of a drug to the over cost and quality of treatment. As a result, while formularies control
drug budgets, they can effectively delay and limit access to the newest, more effective medicines.
A study by Henry Grabowski of Medicaid drug formularies found that they restricted availability
of new therapeutically significant drugs by 2-5 years.12 (A good example of the impact of
formularies is the fact that Prozac and many other new antidepressants have been excluded from
the California Medicaid drug list for almost five years.) Both the Clinton and the Stark plan
would require Medicare to establish Medicaid-style formularies with one difference: because
price negotiations will be based on international drug prices, it will behoove a company to launch
products overseas first, adding another two years before patients in America can get the drug.
The incentives to develop many new drug product and conduct R&D will decline as formularies
become more prevalent. For example, drug companies are already investing billions in the
acquisition of drug benefit companies and generic product lines in response to the growth of
formularies. What is the opportunity cost to medical progress of not investing that additional
money in more research? In a world of widespread formulary programs, many new drugs would
have difficulty achieving break-even status, given the added time delays of obtaining formulary
approval and the possibility of non-approval.
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Medical Research is Being Compromised by Strict Limits on Off-Label Drug Use and
Clinical Trials
One of the potentially most dangerous assaults on quality of care is the move to limit
reimbursement of the use of any drug not used for its original FDA approval. Insurers have
fought off-label drug use on the grounds that its cost-effectiveness has not been demonstrated.
Both the Clinton and Stark plans would allow HHS to deny reimbursement for off-label uses.
Under the Clinton and Stark plans, this form of harassment ~ known as prior authorization and
utilization review — will have life and death implications for millions of Americans. And as
practice guidelines become a tool for limiting the use of new drugs, they lock researchers and
patients alike into increasingly outdated medical knowledge.
HMOs and other insurers assert that off-label drug use is "investigational" and is therefore not
'cost-effective'. Yet off-label drug use is not quackery. Nearly half of the eight most frequently
used cancer drugs is for off-label applications as are 90% of all chemotherapy protocols.
According to Dr. Frederick Goodwin, the former Director of the National Institute of Mental
Health, nearly 60% of drugs used for mental illness are used in off-label fashion. Similarly, over
half of all treatments for AIDS is off-label use.
According to Dr. Lawrence Norton, of the Memorial Sloan-Kettering Hospital in New York City,
one of the world's experts in treating breast cancer: "Forcing physicians to use drugs only for
their indications would lead to substandard care. People would die that don't have to."13 One
notable example: Taxol is widely used to treat breast cancer as an off-label use. Yet managed
care companies declined to pay not only for the drug but all other care because the use of taxol
was deemed "investigational." Dr. Lawrence Norton, a pioneer in treating breast cancer says:
"I have patients for whom I know Taxol works, but I can't give them the drug because the insurer
won't cover it. This practice is only going to get worse under health care reform."
Unfortunately, this jawboning on expensive drug use is constant. According to Lee Mortenson,
executive director of the Association of Community Cancer Centers, oncologists spend 30% of
their time battling with insurers to obtain new and experimental drug use. Dr. Norton estimates
that he must fight "12 times a week" with HMO's and insurers. Though he is regarded as an
expert in treating breast cancer, he must constantly justify his drug use to clerks reading from
rulebooks. In many cases, denials of approval mean withholding drugs he knows would beat a
patient's tumor into remission. Under managed care a provider is discouraged, sometimes
prohibited, from telling people that cost is a factor in denying them the best care possible.
Similarly, Dr. Goodwin, a pioneer in treating manic depression, spends hours on the phone trying
to secure prior approval for drug combinations that are highly effective but not standard care.
Goodwin maintains that forcing psychiatrists to stick to 'established' prescribing guidelines will
stifle innovation and result in patients receiving out-of-date psychiatric care.
Finally, managed care organizations, seeking to keep costs down, are refusing to pay for clinical
research that allows doctors to figure out what drugs work best. Presently only 3-4% of the 1.2
million diagnosed with cancer are participating in clinical trials at a time when a real shortage of
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participants exists. If almost everyone is under an HMO or Medicare setting and is forced to
provide a mandated health plan at the lowest price possible, there will be no funding for the
additional expenses associated with clinical trials In California, where the HMO-alliance model
predominates, there is a shortage of patients for National Cancer Institute community cancer
prevention trials because managed care groups won't support patients in the studies. Similar,
cutbacks are also occurring in mental illness research programs. Dr. Goodwin predicts a "near
complete cessation in innovation in treating mental illness. The fact is, all the innovations in
mental illness came from clinical research carried out by community physicians."
Drawn out price negotiations, formularies and reimbursement-driven practice guidelines send a
clear signal to physicians that using any innovative drug or engaging in clinical research to
advance medical treatment will be investigated and discouraged. The stagnation in medical care
that will emerge is hard to underestimate. The ability to provide specialized, complex care using
new medicines will become increasingly rare. And many potential medical miracles will languish
on the shelves of biopharmaceutical firms.
Public Policy Considerations
1. Delays and Decline in the Rate of Medical Progress.
Instead of the robust reorganization of intellectual and financial resources towards basic discovery
research, public policy could lead to a retrenchment in funding and scientific commitment. Such
reductions will delay the development of new drugs and gene-based therapies by a generation. In
particular, a considerable amount of private capital would be switched out of future cures into
businesses that manage the existing health care system more efficiently. So for example, venture
capitalists would put less money in finding an effective treatment for Alzheimer's and more money
into companies that reduce the cost of simply caring for people with the disease cheaply. Drug
companies would continue to devote less money to research and more money to managing and
marketing existing products. Biotechnology firms would have less money and would invest in
safer, simpler product development.
2. Fragmentation of the National Medical Research Enterprise
Biomedical research is now more widely diffused than it was when NTH was established 50 years
ago. NTH support for basic researchers have played an important role in this diffusion. And
today, the ability to use this knowledge to develop products has provided a unifying force in the
creation of new medical knowledge. Absent this focus, the rationale and forums for collaboration
will begin to erode.
Greater government regulation over the price of new drugs and the direction of biomedical
research will politicize drug development more than it is today. The threat of being hauled before
a congressional committee has paralyzed CRADA research at NTH. Now it appears that even
clinical trials to measure the cost-effectiveness of premium priced drugs such as TPa will be fair
game for congressional scrutiny.
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It will lead to fights between disease groups to dictate the pace and direction of biomedical
innovation. Increasing political conflict and the falloff in funding from biopharmaceutical firms
and venture capitalists will lead to a reduction in support for academic research and lead to the
loss of many young scientists. And nothing is more likely to discourage researchers from taking
their work into clinical settings then cost containment policies that eliminate clinical research and
denies reimbursement to any creative or off-label experimentation of new drugs.
3 The Continual Turn of the Regulatory Screw
Innovation will not collapse overnight. That will allow policymakers to let a few years of
European-style interventionism go by, with centralization, price regulation and emphasis on cost
containment irrespective of medical progress. But such strategies will not contain health care
costs. This will lead to several additional turns of the regulatory screw to tighten controls and
restrain spending. Such regulation will spawn a new generation of oversight hearings, bureaucrats
and various interest groups with such names as The Pharmaceutical Pricing Accountability Project
and Citizens Alliance for Pharmaceutical Progress. Such regulations will ultimately protect some
companies and hurt others, leading to more lobbying and legislative tinkering. "Ultimately, this
type of interventionism is caught on its own hook: relaxation of control becomes 'unthinkable'
because that would set off a cost explosion..." in markets which have been distorted by price
controls in previous years.14
4. Decline in Medical Values
Some medical ethicists and policymakers are willing to reduce access to truly beneficial medical
progress in an effort to control health spending. It must be pointed out that cutting research that
could ultimately yield better treatments for a wide variety of diseases is a form of euthanasia.
Reducing innovation to control costs is an prospective act of withholding essential and more
advanced care. Policymakers and managed care organizations are already applying the
"cost-effective" standard in ways that mark new drugs that benefit small disease subgroups
previously treatment resistant as cost-ineffective.
5. Loss of American Leadership in Medical Research as a Force for Peace and Democracy
While most of our attention is focused on the role of medical progress in our nation's health care
system, the challenge of disease in developing nations will become a economic and health problem
of great enormity. Indeed, disease could, along with environmental problems, become the most
important source of political instability by the 21st century. In the 20th century, America was a
military force for democracy and the world's breadbasket. In the coming years, America's
medical abundance can be a weapon against sickness and hardship around the world as well as a
platform for global economic competitiveness.
Conclusion
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As the debate over medical research and cost containment moves forward it is important to bear
in mind the history of a breakthrough drug introduced years ago. The discovery research behind
the drug languished in a lab for decades. While showing great promise, developing a safe and
effective drug formulation was considered to be almost a physical impossibility The government
sought to develop the drug on its own, but was unsuccessful. Then, relying on its own basic
research, several private companies, working in conjunction with government scientists overcame
the problems of product development and production. Even then, the drug was criticized as
waste of money. It's high price was controversial and shortages led to a black market in which
one vial of the drug could be sold for $6000.
The name of that breakthrough drug is penicillin. And like breakthrough drugs of today, its
development spawned a competitive revolution in drug discovery that continues until today. As
with penicillin, the difficulties associated with using genetic information to develop vaccines and
drugs that can cure cancer and cystic fibrosis, protect against AIDS and schizophrenia, reduce the
burden of heart disease and diabetes are great. The will involve high costs and risks. The use and
price of the drugs will generate the same skepticism and concern about the high price of
technology penicillin created 50 years ago. Which will prevail, the spirit of collaboration or of
cynicism?
Policymakers who believe that biomedical research will flourish under price controls ignore the
critical importance of pricing and clinical freedom in advancing the state of medical knowledge.
Is the short term political advantage of adopting price controls and limits on medical progress
worth weakening this nation's enduring commitment to biomedical research and innovation'' We
must decide whether we have reached our limit or whether the true fulfillment of the promise of
medical progress is yet to come. We can move forward or begin to lose greater ground. The
choice is ours. But the consequences will be borne — ill or good -- by our children and
grandchildren. Let us choose wisely and well.
15
124
Joseph P. Newhouse, "An Iconoclastic View of Health Cost Containment", Health Affairs, Summer
Supplement 1993, page 159.
Lewis Thomas, M.D., The Fragile Species, Charles Scribner's Sons, New York , 1992, page 15.
Jeffrey W. Casdin, Time for a Thesis Check, Monthly Research Review, September, 1992.
Ernst and Young, Biotech 94: Long Term Value, Short Term Hurdles, 1994, page 21.
"Big Partners Dip Deeper in VC Waters", IN VTVO, March 1994, page 10.
Ibid., page 12.
MarkD. Dibner, "Blood Brothers", Biotechnology, Vol. 11 October 1993, page 1120.
Heinz Redwood," Research, Finance and 1992". In S.R Walker, ed. Creating the Right Environment
for Drug Discovery. Quay Publishing' Lancaster, U.K. pages 129-136.
Henry G. Grabowski and John M. Vernon, "Returns to R&D on New Drug Introductions in the 1980s",
Conference Paper, Competitive Strategies in the Pharmaceutical Industry, American Enterprise Institute,
Washington, DC, October 27-28, 1993.
Robert M. Goldberg, Price Controls and The Future of Biotechnology, Gordon Public Policy Center,
Waltham, MA, 1994
Robert M. Goldberg, Price Controls and The Future of Biotechnology: The View of Venture
Capitalists, Gordon Public Policy Center, Waltham, MA., 1994, page 6.
Henry G. Grabowski, "Medicaid Patients' Access to New Drugs, Health Affairs, Winter 1988, pages
102-114.
Dr. Larry Norton, Sloan-Kertering Memorial Cancer Center, Personal Interview, May 2, 1994.
Heinz Redwood, "Price Regulation and Pharmaceutical Research: The Limits of Coexistence", Oldwicks
Press, London, England 1993, page 47.
16
125
Gordon Public Policy Center
Price Controls And Investment In Biotechnology: The View
Of Venture Capitalists
By Robert M. Goldberg Ph.D.
Senior Research Fellow
Gordon Public Policy Center
Brandeis University
87-127 0-95-5
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Gordon Public Policy Center
Executive Summary
A survey of venture capitalists was conducted to determine whether concerns about price controls
on new druas are affecting their willingess to invest in early stage biotechnology companies The
survey also asked if pnce control concerns have already affected investment decisions. One
hundred and sixty (160) venture capitalists received the survey and nearly 40% responded. The
results of the survey are as follows:
• Most venture capitalists believe that price control rhetoric and proposals were more
important than other factors in investment decisions.
Over 78% of investors responded that concerns about the administration's pnce control proposals
were more important than other factors affecting investment decisions.
• Nearly 100% of all venture capitalists said that their concern about possible price
controls had a negative impact on investment decisions
Nearly 50% said that price control proposals had a very negative effect on biotechnology
investment decisions. Another large segment -- 44% -- said that the same factors were somewhat
negative
• Because of price control concerns, a majority of venture capitalists put less money in
fewer biotechnology firms in 1993 than previously planned.
49% of the respondents said that they invested less money in fewer firms than otherwise would
have been the case. Sixteen percent (16%) of the investors said they actually reduced spending
overall due to price control concerns.
• In 1994, most venture capitalists surveyed will put less money into biotechnology
overall and invest in fewer firms because of price control concerns.
More than half-- 51% - of all investors said that they would invest less money in early stage
biotechnology firms in 1994. Another 16% said they will cut investment in biotechnology across
the board.
• Venture capitalists were nearly unanimous that price controls would negatively
impact on their future biotechnology investment.
Nearly 73% of all investors said that price controls would have a very negative impact on their
biotechnology investments. Nineteen percent (19%) said that they would be somewhat negative
This survey suggests that price controls, if adopted, would reduce the amount of money venture
capitalists invest in early stage biotechnology companies. Policymakers should weigh the risks to
biomedical innovation before seeking to adopt such regulations.
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Gordon Public Policv Center
Introduction
As a major source of financing for early stage technology, venture capitalists underwrite the a
continuous stream of biotechnology start-ups Venture capitalists generally finance companies
until the point where a company turns technology into a potential product Thereafter, venture
capitalist and the companies they sponsor must turn to the public markets to raise the capital
required to fund product development. Hence, if venture capitalists believe that price controls
will dry up the public markets, they will be less likely to invest in startups Fewer start-ups will
lead to a retrenchment in biotechnology overall Will venture capitalists continue to invest heavily
in biotechnology if in fact price controls are adopted9
About the Survey
To gauge the extent of the possible impact of price controls, a survey was sent out to 160 venture
capitalists identified as the most active investors in biotechnology over the past 3 years by
VentureOne, a firm that tracks the venture capital industry Responses were obtained from 62
investors Hence the survey reflects the views and actions of nearly 40% of all venture capitalists
investing in biotechnology
Survey Results
• Most venture capitalists believe that price control rhetoric and proposals were more
important than other factors in investment decisions.
Over 78% of investors responded that concerns about the administration's price control proposals
were more important than other factors affecting investment decisions. Fifty-four percent (54%)
said the administration's price control proposals were significantly more important or most
important, while 24% said that they were somewhat more important relative to other investment
factors. Only 21% of all respondents said that such controls were in some degree less important
than other factors.
Table 1
Most important 14.7%
Significantly more important 39.3%
Somewhat more important 24.6%
Somewhat less important 11.5%
Significantly less important 6.6%
Least important 3.3%
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Gordon Public Policy Center
• Price control proposals had a negative impact on venture capitalist investment
decisions
Investors also noted that their concerns about price controls had a decidedly negative impact on
their decision to invest in biotechnology Nearly 50% said that the President's attack on drug
prices price control proposals had a very negative effect on biotechnology investment decisions
Another large segment -- 42% - said that the impact of price control concerns were somewhat
negative. Only 6% said they had no impact. None of the venture capitalists stated that they had a
positive effect.
Table 2
Very negative 49.2%
Somewhat negative 44.3%
No importance 6.5%
Somewhat positive 0%
Very positive 0%
• Because of price control concerns, a majority of venture capitalists put less money in
fewer biotechnology firms.
This does not mean that venture capitalists invested less money in biotechnology in 1993 than in
1992 due to price control concerns Rather, 49% of the respondents said that they invested less
money in fewer firms than otherwise would have been the case. Sixteen percent (16%) of the
investors said they actually reduced spending overall due to price control concerns Eighteen
(18%) of all investors made no change in investment, while 16% put more of their money in more
firms. Only 5% put more money in fewer firms No company increased biotechnology
investment due to the possibility of price controls
Table 3
Less money in fewer firms 49 2%
More money in fewer firms 9 8%
More money in more firms 1 .6%
Less money in more firms 5.0/o
Same investment level overall 18.0%
Cut investment level overall 16 4%
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Gordon Public Policy Center
• In 1994, most venture capitalists surveyed will put less money into biotechnology
overall and invest in fewer firms.
Nearly 51% of all investors said that they would invest less money in early stage biotechnology
firms in 1994 Another 16% said they will cut investment in biotechnology across the board and
13% will keep overall funding at 1993 levels Only 3% said they would invest more money in
more firms.
Table 4
Less money in fewer firms 50.8%
More money in fewer firms 6.6%
More money in more firms 3.3%
Less money in more firms 1.6%
Same overall level of investment from 1 993 13.1 %
Cut overall level of investment from 1993 24.6%
• For most venture capitalists, possible price controls are more important than other
factors in their biotechnology investment strategy in 1994.
Nearly 65% of all investors said that price control concerns were significantly more important or
the most important factor. Another 19% said that price control concerns were somewhat more
important. Eleven percent (11%) said that they were somewhat less important Only two
investors said that price controls were significantly less or least important.
Table 5
Most important 24.2%
Significant more important 40.3%
Somewhat more important 19.4%
Somewhat less important 1 1.3%
Significantly less important 1.6%
Least important 3.2%
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Gordon Public Policy Center
• Venture capitalists were nearly unanimous that price control proposals would
negatively impact on their future biotechnology investment.
Nearly 73% of all investors said that price controls would have a very negative impact on their
biotechnology investments. Nineteen percent (19%) said that they would be somewhat negative
Only 3% said they would have no impact. None of the companies said price controls would have
a positive effect on investment
Table 6
Very negative
72.6%
Somewhat negative
19 4%
No impact
3.0%
Somewhat positive
0%
Very positive
0%
Discussion of Survey Results
As Table 7 suggests, the amount of venture capital going into biotechnology has been increasing
since 1991 Indeed, 1993 was a record year for venture financing. If most venture capitalists
assert that they put less money into fewer firms, then how can aggregate totals be higher in 1993°
Table 7
Year Amount % Change From Number % Change From
(In S millions) Previous Year of Financings Previous Year
19% 140 7%
22% 139 10.3%
NA 126 NA
First, venture capitalists were basing their answers on what they had planned to do in 1993, not
what they actually did in 1992. Hence, the survey measures the investment behavior relative to a
1993
S865
1992
S725
1991
S592
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Gordon Public Policy Center
previously established strategy and the relative importance of price control concerns in chaneine
that strategy Most companies put less money in fewer firms than they would have because of
pnce controls.
The survey does not suggest that the venture capital community has stopped raising caoital
because of the possible threat of pnce controls. The central thesis of biotechnology - he
understanding of disease at the cellular and molecular level will produce more effective treatments
for chronic and fatal diseases -- still stands. As Steven Reidy and Milton Pappas of Euclid
Partners point out: "Groups of academics/investigators pursuing novel understanding of disease
mechanisms with the hope that such understanding will eventually lead to compounds that could
become products is still the predominant type of biotechnology financing that is getting done."
Second, a careful look at the aggregate totals shows that the number of new financings did not
increase and the rate of increase in 1993 declined from previous years. The fact that there is more
money per financing is in part a statistical artifact of the slight increase in financings Additionally,
interviews with some venture capitalists confirm that they are providing more follow-on financing
— and less in fewer startups — because of the roiling effect price control concerns are having on
the public markets. That means less money for start ups.
Further, as Dr. Alexander Barkas, a partner at Kleiner, Perkins, Byers and Caufield observes
"We haven't seen the full effect of price control concerns. There is a built in lag time because a lot
of companies are running on past cash. The fact is, we could keep going if we had nothing but
good news to announce, but people are recognizing the reality. The idea that price controls
concerns is merely hype is just wrong. We are very sensitive to these issues "
Other Possible Explanations of Survey Results
Another group of observers holds that if there is a decline in venture capital funding for early
stage biotechnology firms, it is because there are 'too many' biotechnology companies already
competing for scarce funding. Indeed, Dr. Barkas notes that after "you see three or four small
firms with cell transcription technology, as an investor you wonder if we need to invest in another
one. " But Barkas also confirms that "the pace of discovery is still quite rapid The number of
companies with exciting biology is still enormous " Indeed, venture capitalists consistently
pointed out that there is no lack of excellent early stage opportunities to invest in. As Robert
Curry of the Sprout Group observes: "The number of scientific opportunities is growing
continuously. So the fact that we are more cautious has more to do with uncertain state of the
public markets and price controls."
Consistent with the data, venture capitalists interviewed assert that they have become cautious
because the possibility of pnce controls threatens to shut off investor's access to the later stage
private investors and the public markets. Concern about limited access to the public markets "is
affecting venture capital investment overall" says Barry Weinberg of CW Partners. At a cenain
point this concern could begin to limit future biotechnology investment. "Raising $5 to $1 5
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Gordon Public Policy Center
million for a start-up is still relatively easy," says Paul KJingenstein, a principal at Accel Partners
"The problem is that we are less certain that we can raise the S200 million needed to take a
product through clinical trials because the public markets see price controls as restricting the
economic returns on important drugs."
The Sprout Group's Bob Curry concurs: "We are increasingly uncertain that we can we find the
cash to go all the way to bring a drug to market Our ability to do so would be diminished in a
dramatic way if controls are adopted "
Are Venture Capitalists Crying Wolf?
Despite these concerns, some in the venture capita! community argue that concern about pnce
controls are overblown for political purposes Instead of worrying about impact of price controls
on biotechnology profits, the investment firm of Euclid Partners believe that venture capitalists
should regard them as part of the trend of large health care customers demanding cost-effective
medical technology:
"We fear that the biotechnology and venture capital industries are behaving stupidly by
insisting that efforts to improve the quality, delivery and cost of health care in this country should
not include the biotechnology and pharmaceutical industries. And to do so by raising the bugaboo
of price controls is unscrupulous.. It would be far more constructive for the industry and its
investors to argue that its successes can contribute to controlling costs, rather than complaining
that reform means price controls and that such will create an environment in which the industry
cannot survive."
In fact, venture capitalists are not only quite aware that biotechnology's medical successes can
"contribute to controlling costs", they are literally banking on it. "The factor driving the financial
market's interest in biotechnology is that new drugs can leverage health care costs out of the
system," says Dr. Barkas. "That is the most pervasive incentive " Barry Weinberg, a principal at
CW Partners agrees: "We are motivated by the fact that we can make money by helping save
health care dollars with biotechnology products."
Paul Klingenstein states: "As investors we recognize that biotechnology's attraction is the ability
to let people save money in treating chronic or previously untreatable illnesses. Every
biotechnology company is addressing the issue of efficacy and cost, as well as quality of life." As
Brian Dovey of Domain Partners observes: "If someone comes up with a highly effective cancer
treatment for S6000 a year, that might be expensive relative to other drugs, but if it works better,
it will help reduce costs."
Hence, while biotechnology venture capitalists see the economic opportunity in developing
breakthrough drugs, the perceived threat about price controls is working against such
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Gordon Public Policy Center
market-dnven incentives Barkas says: "We haven't seen the full effect of price control concerns
vet but it is starting to happen in early stage financing. Prices are being pushed down, valuations
are declining. And we are setting higher hurdles, even if the technology is exciting. Indeed, some
venture capitalists are already investing as if there are price controls on new drugs " This means
that despite potential opportunities, investors are being a lot more selective and investing less
money than otherwise would be the case. Venture capitalists can clearly distinguish between the
underlying motivation for investing in biotechnology - the life saving, cost effective product
potential - and public policy moves that would in one investor words " replace capitalism with a
social definition of what is enough profit."
The survev and interviews confirm that the passage of the price controls would lead to a
significant decline in biotechnology venture capital in the immediate future. Put simply, many
investors would take money earmarked for drugs that could reduce the incidence of Alzheimer's
and put it into companies that can manage people with the disease in long term care settings. The
shift in capital mirrors the shift in health care policy away from encouraging medical innovation to
redistributing and reducing the cost of existing treatments more efficiently. As Brian Dovey
notes: "the emphasis on cost containment is hurting late stage private investors. Investors are just
going to stop investing if they see price controls."
The Implications of Price Controls
When asked what their investment strategy would be if controls were imposed, venture capitalists
said that they would immediately and drastically reduce investment activity. Paul Klingenstein
states: "I have been in this business since its inception and I am as deeply involved in funding
biotechnology as other venture capitalist. If I believed today that any form of price control would
pass, I would not write the check for start up investment, because if price controls are passed it
would kill the public markets."
Bob Curry notes that "As venture capitalists we ask one question: Can we achieve the liquidity
through the public markets to finance drug development. Price control concerns have already
made it more unlikely we could do that. In the past, we have done 8-9 new deals a year. We did
slightly less in 1993 and if controls are imposed we would reduce it to 1-2. Our checkbook
would close up quickly if the Clinton proposals are imposed." And Domain's Brian Dovey
concludes that " We would invest in less risky types of pharmaceutical deals where the potential
returns are lower but more assured. We would just take existing positions and hold on to them
longer. Then we would change the type of investment we do, looking at incremental
improvement instead of breakthroughs. We would stay away from long term, high-risk
breakthroughs."
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Gordon Public Policy Center
Conclusion
This survey suggests that price controls, if adopted, would reduce the amount of money venture
capitalists invest in early stage biotechnology companies. Concern about the adoption of such
regulations is more important in restraining biotechnology funding for most companies than any
other consideration. Even if the survey only reflects the decisions of the investors that responded
-- 40% of all venture capitalists who actively invest in biotechnology -- it means that if price
controls are adopted a huge amount of venture capital would be lost.
Ultimately, the threat of government regulation of the returns on high risk investment will
discourage venture capital formation for biotechnology Dr. Stelios Papadapolous a managing
director at Paine Webber, Inc. observes: "All you have to do is take any company, cut the price of
the drug by 15-25% and reduce the stock price to see what the impact would be. As of today,
investment in biotechnology has been a money losing proposition. What drives the investment of
venture capital is the chance to hit the lottery with an important drug. If you impose price
controls, likely returns will fall and biotechnology becomes a very pedestrian industry. "
For biotechnology, the coming years will be a time of decision. There is a significant amount of
evidence that price controls have a negative effect on investment here and in Europe.
Biotechnology is the product of a unique combination of public effort and private enterprise. It
would be unfortunate if short term political objectives undermine the venture capital spirit of
success that is one of the biotechnology industry's greatest assets.
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Gordon Public Policy Center
Regulatory Review Project
POLICY REPORT
Price Control and Innovation: An International Comparison
Volume 1
December 1993
By Robert (Goldberg, Pjh D , Senior Research Fellow
Introduction: Progress and Profits
The Clinton proposal to regulate the price of new drugs has become one of the most controversial elements
of the President's health care plan. First, there is a concern that innovative products tend to be more expen-
sive than current products. For consumers, a drug that costs hundred or thousands of dollars a year could
exceed ability to pay or insurance coverage. As a result, many policymakers believe that comprehensive
coverage of prescription drugs is more important than research for innovative new drugs
Policies that lower drug prices may yield drug savings at the expense of delaying more cost-effective treat-
ments As the late Lewis Thomas has noted, the price of the outright capacity to prevent or cure is never as
high as the cost of managing disease with less effective technologies. Controls could make cost-effective
drugs even more so by cutting their prices. However, price controls also send a signal to bio-pharmaceutical
companies and investors alike that lower prices are more important than new, breakthrough drugs and there-
by bring about a more enduring decline in the bio-phaimaceutical R&D enterprise. Less R&D will lead to
fewer innovative drugs Ultimately, as Dr Harold Varmus, director of the National Institutes of Health has
noted, neglect of research will slow the pace of biomedical discovery and the search for new cures ' From
an economic viewpoint, higher drug prices and pricing freedom have contributed to the US pharmaceutical
and biotech enterprise being " . . in a class by itself as an exceptionally strong competitor" ,2
Proponents of controls insist that incentives of R&D will not be undermined They point to the fact that Eu-
ropean pharmaceutical firms have managed to produce innovative drugs under price controls Even Presi-
dent Clinton has weighed in on the subject by stating that the German pharmaceutical industry was healthy
despite controls on drug prices and expenditures Price controls could have profound implication for the
quality of medicine and America's economic competitivess Their impact on innovation in Europe compared
to the United States must be examined carefully Comparing rates of innovation internationally will allow us
to more accurately assess the tradeoff between price regulation and rates of innovation and determine which
path to follow 3
1 JMBishop, R Kirshner. H Varmus, Science. Volume 259, 1993, page 444.
Lacy Glenn Thomas, m, "Implicit Industrial Policy: The Triumph of Brtam and uie Failure of France m Global Phar-
maceuticals". School of Business. Emory Universily, February, 1993.
"Implicit Industrial Policy The Triumph of Britain and the Failure of France in Global Pharmaceuticals" Page 4.
136
Innovation and Global Competitiveness
The Clinton health plan seeks to adopt many price regulations used in Europe and elsewhere to control
drug costs The Administration believes that its proposals will retain "adequate incentives for research and
development * One way of determining whether the Administration's restraints on launch prices and price
increases will protect innovation is to look at the global competitiveness of America's bio-pharmaceutical in-
dustry The International Trade Commission and the Council on Competitiveness have suggested that pric-
ing freedom is an important factor in sustaining world leadership in pharmaceuticals. .5
American Pharmaceutical Companies
Produce More World Class Drugs 1970-92
Other
Sweden .
UJC
Switzerland
Italy
Germany .
France .
BOBB 21
KB 11
MB 24
BBBO 20
aansa 24
m 14
Japan
U.S.
WIM'W 2>
113
0 20 40 60 80 100120
Figurel Source PX Barrel 18 Ans de Rcsuhats de le Rcherehe Pharmacortique Dans Le Monde
1975-1992) and Heinz Redwood, Price Regulation and Pharmaceutical Research
It is useful therefore to review how America's pricing freedom stacks up against the abiility of European
pharmaceutical industry in sustaining rates of innovation and global competitiveness under price control
Pricing Freedom and Innovation: An International Comparison
• Figure 1 shows that for the past 20 years, the US has led in the development of "world class drugs'
— drugs denned as therapeutically innovative and are sold in the seven largest international markets.
• In recent years the American leadership in innovation had widened America RAD spending in-
creased at twice the rate of European counterparts in the 1980s6 Recent gains are more likely a resuh
4 StatemertofPtihpRLee,MX>., Assistant Secretary for Health, Depamne^ of Healm arid Human Semces Before the
Senate Committee on Aging, U.S. Senate, November 16, 1993, page 6
See Global Competitivenesses^ Advanced Technology Mamrfacturiiig Industries: Phannaceuticals. ASum-
mary of the Report to the Committee on Finance, Unrted States Seiiate, on Investigation Na 332-302 USITC Pubhcation
2438 Washington, DC , September, 1991 See also A Gmrjetitive Profile of the Drugs and Pharmaceuticals Industry
Owrrf cm Qjmpetjm'eness, Wasrungtoi^ Both reports concluded that funding for research and development
and pricing freedom were essential factors explaining Anierica'sleadeishromphanTiacaiticals and biotechnology'
6 Heinz Redwood," Research. Finance and 1 992" In SR Walker, ed. Creating the Right Environment for Drug Dis-
covery Quay Publishing' Lancaster, UJC pages 129-136
137
American Share of World Class Drugs
Has Increased in Recent Years
cxtur (iso»/.) -y-^^
EC 01.OV.) ^^^^^
1970-92
1990-92
Figured Source P.E.Barral 18 Ans de Resuhats de le Rcherehe Pharmacttitique Dans Le Monde
(1975-1992) and Heinz Redwood, Price Regulation
VS. Leads in Gene Engineering Patents
Patents Rcuovtd n 1992
Japan (16)
US. 040 )
Figure J <^»™»- Ptiarmarwtiral Mamifartntw's AMDdXJM
of a large investment in biotechnology, basic research and the development of drugs to treat debilitating and
fetal diseases (Figure 2) In feet, US bio-pharmaceutical companies have 70% of all biotechnology based
drugs on the market and 70% of all biotechnology drugs in development 7 Figure 3 underscores that a sub-
stantial amount of private R&D investment is going into gene therapies, one of the more promising bio-
technology advances
This lead in innovation has allowed the US to obtain a large share of the world market. Such innovations are
"global products [which] represent significant innovations that can be effectively marketed in diverse medical
environments"8 By comparison, European and Japanese concerns produce largely local products Best
Heinz Redwood, 'Pharmaceutical Regulation and Pharmaceutical Research: The Limits of Co-Existence " Oldwicks
Press, Suffolk, England, 1993.
138
characterized as minor innovations, they are "either directly imitative of existing products or unsafe products
that can not clear regulatory hurdles in many nations, or are products that fill minor local niches "9 Indeed,
"of the top 50 products (by value) in each of four European countries, 10 of those in Italy and France were
classed as useless, compared with six in Germany and none in the UK ."'° Such drugs accounted for up to
20% of total sales A closer look at one of the largest prescription markets - cardiovascular products - un-
derscore that products tend to be less innovative under price regulation
• In the 1980's there were 9 different beta-blockers sold in the US and the UK, 14 in France and 30 in
Japan. Low prices in Japan and France discourage firms in those nations to discover major new products
At the same time, the US is the world leader in developing innovations in cardiovascular therapy, surpassing
the British contribution of beta-blockers nearly a decade ago"
• US companies have six of the top ten cardiovascular drugs sold worldwide.
• Over 76% of US retail cardiovascular pharmacy sales (with similar dosage forms in Europe) are
also available in other countries On average, less than half of cardiovascular products sold in Europe are
sold in the US i; "The fact that these domestic products in these countries have not penetrated the US sug-
gest that either they could not pass the high FDA screens on efficacy, or that they were not sufficiently inno-
vative to generate expect sales sufficient to cover the cost of entry".
Price Controls as an Implicit Industrial Policy: A World Tour
Price controls seem to affect the quality of R&D as well as research spending rates For example, of the 7
countries with the highest R&D expenditures (The US, Japan, Germany, France, the UK Switzerland and
Italy in that order) all spend about 14-17% of sales on R&D. However of those 7 countries, the three that
have product-by-product regulation of drug prices - Japan, France and Italy - have produced a preponder-
ance of new drugs that are not innovative
In contrast, countries with historically higher degrees of pricing freedom including the US, Britain, Switzer-
land and Germany, have had more innovative drugs and therefore have been more globally competitive
The reason: Price controls keeps prices low. Inflation eroded prices for old drugs provide an incentive for
ibid, pageS.
"Implicit Industrial Policy." page 5
10 "Italy, France Top "Useless" Drug League " Scrip Oct 28, 1993. Page 5. Lax product efficacy standards in France also
contributed to the development of dnigs that are safe but are of dubious therapeutic value
1 ' "Implicit Industrial Policy." page 30.
Patricia M Danzon and Jeong Kim, "International Price Comparisons For Phannaceulicals " The Wharton School
University of Pennsylvania, October 1993, page 30.
13 ibid, page 30
System
139
Origin Of 'Major Global Drugs In Relation to Price Control and Size of Domestic Market
(i)% share of 265 'Major Global Dnigs' 1970-May 1992
(ii) Originators' home market as % of world market 1989-1990
World Share Of: 265 Drugs Home Market
% %
Pricing Freedom 72 42
Price Control 28 34
Non-originating countries ° 24
TOTAL 100 100
Figure 4 Source: Price Regulation and Pharmarfimr al Research
low risk R&D to turn out new drugs that are not innovative or merely "me-too products that can be
launched at higher contemporary prices
The implications for global competition are made clear by comparing world shares of global drugs with the
innovators home market as a percent of the entire world market This shows whether the size of the world
market had a greater influence on the origination of global drugs than the extent of price control. As Figure
4 shows, countries with less price controls had a collective home market share of only 4 1 percent. The US
has only 29% home market share of the global market but has 43% of all major global drugs. The UK has
only 3% of the world market but nearly 10 % of the major global drugs In contrast, Japan has 1 7% of the
world market and has about the same percentage of global drugs as the UK
Another way of assessing the influence of price controls on innovation and global competitiveness is to ex-
amine the impact of recent measures to control drug prices in countries that have historically had pricing free-
dom with those that have had price controls over the years. As the following overview suggests, different
types of price and product regulations appear to reduce investment in innovative medicines.
United Kingdom
The Pharmaceutical Price Regulation Scheme (PPRS) regulates profits and return on capital rates and ex-
plicitly encourages innovative research with higher profit margins and higher launch prices. (In fact, UK drug
prices have been higher than the European average. ) Rates of return are negotiated and regulation extends
only to home market sales. In fact, higher rates of return are provided for "export oriented" frims.
During the 1 970s and 1 980s Britain's pharmaceutical industry has been highly innovative and profitable Yet
as cost containment becomes paramount, its policy of promoting innovation through higher prices and prof-
its is being dramatically altered. First, the National Health Service (NHS) which is run by the Department of
Health (DOH) has tried to keep costs in check by setting prescribing limits More directly, the British gov-
ernment has begun to reduce profit rates by restricting price increases to below the rate of inflation As a re-
sult, return on capital in the UK pharmaceutical industry has declined to 10 percent, less than half of the
21% that has been allowed
Today, the British government is proposing a 2.5% rollback of all drug prices, extension of blacklists and a
cut in the prices and profits of innovative drugs Companies exceeding negotiated rates of return must pay
fines and reduce prices According to a research analyst with the Association of the British Pharmaceutical
140
Industry ( ABPI) British drug concerns have shifted nearly $1 billion a year in R&D to their US operations as
a resuh of eroding profits and NHS restrictions on drug prices.14
The impact has affected innovation overall. In 1988, three of the top ten best selling product worldwide
came from the UK In 1992, only one remained In contrast US has eight of the top ten best selling
drugs worldwide Further, the PPRS has a built-in bias towards larger firms Biotechnology companies find
it difficult to attract investors because the financial rewards the PPRS has set for big company R&D (a maxi-
mum of 2 1 % return on capital) are not high enough for most small companies with potentially large break-
throughs to offset the attendant risks of drug development.
Germany
The German Health Ministry initiated efforts to control drug costs in 1989 with a plan to limit what public
health pilaris could pay for drugs and what drugs would be eligible for reimbursement If a drug's price ex-
ceeded the government limit, the patient had to pay the difference In 1993, the government mandated a 5%
cut in drug prices and slashed what the Krankenkassen could spend on drugs by nearly 1 0 percent Doctors
have been placed on drug budgets and are required to reduce their own fees to equal the amount drug bud-
gets were exceeded Sales have fallen at the seven largest research-intensive drug producers by 16 5% while
generic sales increased by 36 percent .
Over 1 26 pharmaceutical firms have cut their R&D investment Forty percent of these firms are cutting
1 0-30% of their R&D budget and 22% are cutting R&D by a third or more. Two companies are mak-
ing no investment in research for the coming year. Generic companies have prospered, registering sig-
nificant increases in sales ranging from 40 to 300 percent
The government's policy is designed to reduce the use and develeopment of innovative medicine and
"shove the market towards low cost generics."16 Bayer's Chairman Manfred Schneider warned that if
Germany becomes a country of copycat genenc drugs and cheap medicine, 'the research-based phar-
maceutical industry no longer has a future here ,"17 Recently the president of Miles Laboratories (the
American subsidiary of Bayer AG) noted that all of Bayer's major investments in pharmaceuticals have been
made outside of Germany, particularly in the US and Japan18 Bayer and Schering AG are healthier than all
other German companies in part because of revenues from two new biotechnology-based products devel-
oped by US companies they either own or invest in.
France
The Ministry of Health in France controls the price of each individual product at the time of introduction as
well as subsequent price increases The Ministry holds down prices regardless of value As a result France
14 Robert Chew, Senior Research Analyst Personal Communication, October 20, 1993.
15 "German Bnef." November 5, 1993, pages 12-15.
ibid.page 14.
17 StephenD Moore, •European State-Funded Health Systems Come Under Fire for Skyrocketing Costs " The Wall Street
Journal, May 4, 1993, page A14
" Hans Walrabe, President, Miles Inc., Personal Interview, November 18, 1993.
6
141
has some of the lowest drug prices in Europe It also has one of the worst records in developing innovative
products that can compete globally The most successful companies in France are firms that produce and
market 'me-too' drugs or palliatives with little therapeutic value Innovative companies are punished with ar-
tificially low prices to favor companies that produce low price drugs without regard to their ability to add
therapeutic value Indeed, "one might joke that is an honor to receive a low price in France, as this a signal
precisely of global competitiveness." "
Japan
Since product patents were instituted for the Japanese pharmacuetical industry in the 1970s, the amount of
Japanese R&D has increased rapidly However, most drug developed in Japan are made for the Japanese
market Japan reduces the price of existing products every two year This system has skewed innovation to-
wards minor product extentions and compounds that are not efficacious in order to get high prices
In the last two years however, the Japanese government has begun build up the nation's presence in bio-
technology Specifically, Japanese companies are aggresssivery seeking to acquire product and technology
rights from US biotechnology companies in order to quickly upgrade their scientific and industrial capabili-
ties Indeed, with the shortage of financing for biotech in the United States, Japan has become an important
investor of last resort for many small biotechnology concerns in this country Finally, new drugs can now
come to market at 2-3 times the price they could have expected in years past The government hopes that
the higher prices encourage the development of innovative products.
Are Price Controls Just Pricing Pressure in Disguise?
The conventional wisdom is that price controls will force companies to discard the development of incre-
mental drug development and focus their talents and money on innovative products in the hopes of develop-
ing a blockbuster'. As this overview suggests, this notion is inconsistent with experience under price control
and the forces shaping and encouraging innovative research Price regulation rewards incrementalism and
punishes risk-taking, particularly if the price and access of new drugs are regulated Without innovation, it is
difficult for a country's pharmaceutical industry to be globally competitive and hs biotechnology industrial
base to rapidly develop That is one reason the European Community is considering ways to do away with
price controls
The Clinton Administration's proposed price control scheme has much in common with the French system of
setting pharmaceutical prices and reducing the price of innovative drugs as well as the German system of de-
emphasizing innovation in favor of generic drugs. In both health care systems, riskier and innovative re-
search is discouraged. In turn, the introduction of minor product extensions are encouraged In Germany
particularly, generic companies are prospering and research-intensive companies are cutting back R&D acti-
vities In the US, larger generic concerns are estimated increases in sales and profits of 40 percent over the
next two years
It is highly likely that price regulations in the US will reduce innovatioa Political reforms of the market sys-
tem in Europe have achieved little cost control. They have been efFective in discouraging innovative R&D
"The Triumph of Britain and the Failure of France " Page 22
7
87-127 0-95-6
142
Lower prices result in less investment That was the case in the pharmaceutical industry in the 1 970s and
that is the case under price regulation in Europe, Japan and elsewhere
It is possible however that price regulations in the US won't discourage innovation? After all, the industry
has gone through three years in which price increases have declined and even stagnated after all discounts,
price freezes and generics are taken into account Managed care concerns are increasingly are favoring low-
er priced drugs and are beginning to examine the cost-effectiveness of new drugs before agreeing to pay for
them In addition, the industy has paid out nearly $ 1 billion a year to the federal government in the form of
medicaid rebates And yet, R&D spending has increased, not decreased If the both the pharmaceutical and
biotechnology industry were able to thrive and invest in innovation in the new pharmaceutical market, why
would government regulation of launch prices make any difference'7
• First, because of the time lag between discovery and market introduction, the impact of the policy
and market environment today will not be fully felt for years Nonetheless we have some preliminary trends
Price competition has begun to have an effect on R&D It has sent a signal that cheaper versions of existing
products are in demand As a result, drug companies are spending more money to acquire generic product
lines or increase sales volume to offset price stagnation Marion Merrill DoWs $ 6 billion acquisition of ge-
neric maker Rugby-Darby and Merck's acquistion of Medco Containment Services, a mail order pharmacy,
are two examples of this trend At the same time, according to In Vivo, a biotechnology and pharmaceuti-
cal newsletter, pharmaceutical alliances with biotech firms have declined20
• Second, as cash flow declines, R&D will decline as well. According to a study by Professor Henry
Grabowski of Duke University, for every $100 drop in cash flow, pharmaceutical R&D investment declines
by $30 to $40 For biotechnology companies, the decline in cash flow - all risk capital used for R&D - the
decline is dollar for dollar The only opportunity for robust earnings growth are breakthrough products.
Grabowski and Vernon estimate what would happen if the government cut the price of breakthrough drugs
by 23% (essentially capping the price of breakthrough drugs to a breakeven rate of return on R&D invest-
ment) which is close to the proposed basic rebate of 1 7% Rebates on breakthrough drugs could be higher.
Cash flows for the top best selling drugs or biotechnology therapies to fall below the total cost of R%D.21
The impact on rates of R&D should be obvious, particularly for biotechnology companies.
• Third, government price controls would cover up to 50% of all prescription drugs purchased As
the largest purchasers of drugs it would have immense, near monosponistic power to force prices down, ex-
tract discounts and pay only for drugs that met its terms. Government can anglehandledly create significant-
ly more pricing pressure than several managed care concerns can collectively bring to bear
• Finally, government price controls are not merely an extension of market pressure, they represent a
fundamental shift in values Controls substitute a political process for the marketplace In order for controls
to work individuals must be made to adhere to the governmental or bureaucratic decision Millions of physi-
cians, pharmacists, medical researchers, companies, and patients who make decisions based on the quality
and value of pharmaceutical innovations would be replaced with a few (in the case of the HHS Breakthrough
Drug Council, thirteen) "experts". These experts will evaluate the 'reasonableness' of drug prices in terms of
products in the same therapeutic category (an interesting criteria since breakthrough drugs are supposed to
ibid, pages 4-5
Henry G Grabowski and John M. Vernon, "Returns on New Drug Introductions In the 1 980s". Duke University, Octo-
ber 27, 1993, Supplemental appendix, page 3.
143
be unique by definition), manufacturer cost information, prices of drugs in other countries and projected
volume
• Hence, price controls replace social interactions that arrive on a price based on the highest worth of
a drug in terms of a patient's health with a system that focuses exclusively on the cost or cost-effectiveness
of a product Innovation is encouraged because a market will reward new products that benefit consumers
by saving lives, increasing the quality of life and reducing medical costs Price controls reject these prefer-
ences and stipulate that drug prices will be set according to the need to meet budget targets or a planner's
definition of what is 'reasonable'
Controls restrict the ability of firms to obtain higher prices when they introduce more valuable and innovative
products Far from merely being an extension of market forces, price controls supplant them and subsume
the value of innovation to the political goal of cost containment. Lower prices send a signal that innovation
will not be rewarded with higher returns By limiting rewards for innovation and discouraging investment,
price controls limit innovation As Dr Judith Wagner, a Senior Associate with the Health Program at the
Office of Technology Assessment has noted, " an administrative process for controlling drug prices would
add a new source of uncertainty one that would not be resolvable until all the money has been spent
Consequently, investors would be more hesitant to commit early R&D money. . . "~
Tradeoffs Between Price Controls and Innovation Current Consumption or Future Investment?
Some policymakers have argued that a decline in R&D and breakthrough products is an acceptable tradeoff
for getting drug prices under control and extending prescription drug coverage to all Americans a They
realize that pricing freedom is a powerful incentive for encouraging investment in future cures instead of de-
manding the consumption of current drugs at lower prices Without pricing freedom, there is no effective
mechanism to encourage consumers to forgo the immediate benefits of cheaper drugs for the formation of
risk capital required to fund breakthrough research.
Political and bureaucratic organizations cannot effectively meet the health needs of future generations In-
stead, they tend to respond to demands for current consumption for acute medical needs. As Dr Michael
DeBakey noted in Science magazine, "The most effective way to improve health is to gain new medical
knowledge, and that requires the expansion and intensification of research "2A To the extent that price con-
trols reduce investment in innovations, price controls sacrifice the goal of quality on the altar of cost
containment As a result, future investments in preventative or curative treatments receive a lower priority
In this context, it is important to remember that the medical advances to cure, prevent and effectively treat
most of the devastating disease of our time will have to come from bio-medical breakthroughs
We can travel no other route to improve the quality of health care and break the grip of illness on the hu-
man condition It is for this reason that the public should look at Europe's experience with all forms of price
Statement of Judith L. Wagner, PhD Senior Associate, Health Program, Office of Technology Assessment, Before the
Special Committee on Aging, Washington, DC, November 16, 1993, page 13.
Some congressmen have gone so far to suggest that pharmaceutical firms should be prohibited from selling genenc
products because independent genenc firms might not survive the competition! Apparent!) , the onh way pharmaceutica] firms
should respond to market pressure is to launch breakthrough drugs at lower prices and let generics eat away at their market share
without a response.
Michael E DeBakey, M.D., "Medical Centers of Excellence and Health Reform." Science Volume 262, October 22,
1993, page 524.
144
controls and think carefully about enacting them Once in place, they will be very difficult to reverse Price
controls could be our ironic contribution to the health of the next generation.
About the Gordon Public Polio Center
The Gordon Public Polio.' Center is a non-profit, non-partisan and liuenisciplinaiy research center located at Brandos University
The Center's mission is to analyze domestic public policy to improve the policymaking process As pan of its Regulatory Review
Project it has identified government regulation of bio-pharmaceutical companies as an important, but neglected, aspect of the de-
bate over the direction and scope of health care reform Robot Goldberg, Senior Research Fellow, is responsible for this aspect of
the project His research will deal with a wide range of critical issues such as pharmaceutical pnee controls, the role of biomedical
progress in improving the health care system and controlling costs and the future of biotechnology under health care reform
For information on the Gordon Center's research programs contact Martin A Levin, PhJ> at 617-7364795. Individuals inter-
ested in contacting Dr. Goldberg may do so at 201-379-4029 or via fax at 201467-5579.
10
145
The Gordon Public Policy Center
Policy Bulletin
Volume I
September 1993
Robert Goldberg ,M?h D Senior Research Fellow
The Impact of Price Controls on Biotech Stocks: The Future is Now
According to The Wall Street Journal "right now is precisely the time to be raising money" by
going public ' So why is all the money pouring into the IPO's of companies that develop real es-
tate, make golf equipment or information devices, but not biotechnology9
The reason is starkly simple The threat of government price controls has stunted the ability of
biotechnology firms to innovate and become highly profitable In the short run, the possibility of
price reviews is causing investors to stampede out of biomedical research-based companies In the
long run, the Clinton plan for government controls on the launch price of new drugs will create a
biotechnology wasteland in which the vitality of the industry ebbs away, biomedical progress
withers and live saving breakthroughs fail to take root
Rapid movement of investors out of pharmaceutical stocks
The market capitalization of pharmaceutical stocks has declined by over $80 billion since January
1992 Stocks fell initially because of the increasing pricing pressure on drug company earnings
Stock prices have fallen and flattened since price controls on new drugs were proposed because
the launch of innovative biotech products is the large firms remaining avenue to profitability
Complete evaporation of the market for biotechnology initial public offerings
• As Figure 1 shows, fear of launch price regulation has made it nearly impossible to sell
new biotech issues to the public2
Biotech IPO's Vanish After Clinton
Attack on Drug Prices
$250
$200
S150
S100
$50
$0
tf
91-92
92-93
Nov. Dec. Jan. Feb. Mar. Apr.
146
• Concern over price controls has also undermined the capitalization of existing publicly-
traded biotech companies, weakening their ability to attract additional investment In this year
alone, the total market value of biotechnology stocks has plummeted 30% since President Clinton
lashed out at drug prices in February
Biotech Market Value Crashes
In the Clinton Era
July August
Figure 2 Source: Oppenheimer and Co., from monthly Biotech Revii
Decline in the number of biotech ventures larger drug companies are underwriting
In the past, drug companies have acted as sort of a Federal Reserve Bank for small biotechnology
firms, "keeping their window open after all others close ."' Indeed, larger drug companies have
provided start-ups with 30% of their funding and are investing billions more in other biotech
concerns But worries about the effect of price controls on these biotech investments ( as well as
their internal own biotech projects) have forced drug companies to draw down that window
• According to an In Vivo survey of several pharmaceutical companies, "while the biotech in-
dustry has historically looked to the large pharmaceutical companies during the frequent biotech
bear markets, the companies today have never been more uncertain of their own futures or the
advantages that a biotech alliance might provide."4 Specifically, the "uncertainty regarding price
restraints - both on current products of large companies and potential high-cost products of bio-
tech firms - will mean ..." fewer alliances
"New Stock Offerings To Surge This Fall," The Wall Street Journal, August 30. 1993, page Bl
Thomson Financial Networks. Inc , "Bio-Financial Monthly No Relief in Sight." April 5, 1993.
"Biotech Review." Oppenheimer and Co . January, 1993, page 6.
"Dealmaking Ice Age, " In Vivo, March 1993. pages 4-5.
ibid , pages 4-5.
2
147
• According to the In Vivo survey, the number of new partnerships declined from 26 in the first
four months of 1992 to 19 in the first four months of this year Total industry alliance activity
'will be about hair of last year's 6
Price Controls, Stock Prices and Pharmaceutical R&D
The deteriorating capital position of bio-pharmaceutical stocks contradicts the public statements
of some price control advocates in Congress who maintain (with a straight face) that if companies
want to raise capital for R&D they should get it from 'investors' instead of the 'public' by charging
higher drug prices.
The idea that America is divided into two camps -- 'capitalists' on the one hand and the public on
the other has no basis in fact. The public markets have been the most important source of financ-
ing for biotechnology firms. At no point in history have more corporate biotech and pharmaceuti-
cal assets been in the hands of so many 'citizen capitalists'
More troubling, price control advocates apparently believe that price controls will have no impact
on the willingness of investors to fund expensive and risky biotechnology research Incredibly,
they point to the previously robust market in biotech stocks as evidence that high drug prices are
not needed to fund research! In fact, a recent congressional Office of Technology Assessment re-
port concludes that " ..the success of the health-care oriented biotechnology industry in raising ex-
ternal capital proves that companies raise substantial R&D capital in external capital markets
when future prospects look promising." 7
Yet it is precisely high drug prices that help investors determine what and when "future prospects
look promising " The investment in research must take place years before the outcome of a
drug's development is determined And like it or not, developing the next generation of medicine
requires a tremendous amount of capital Higher prices for innovative therapies provide the only
benchmark of a new drug or biologic's future value and financial potential That is why low prices
generate less investment in future R&D and higher prices stimulate more investment. The pro-
posed drug price review board (that punishes 'unreasonable' prices by denying access to Medicare
customers), as well as a separate "Breakthrough Drug Committee" that would review the price of
drugs with tremendous life saving potential, would institutionalize the bias towards cheaper drugs
and less investment.
Fearing bureaucratic control of the launch prices of new drugs, investors have stopped putting up
risk capital As Henri Termeer, Chairman of Genzyme, commented recently: " Proponents of
government controls don't know what it takes to attract investment for projects that won't show a
payoff, if at all, for at least 10 years They have no idea what investors need in return for investing
$100 million at a time when you can't even show them a project " 8
6 "Deal Making Ice Age," In Vivo, March 1992. page 5
7 Pharmaceutical R&D: Costs, Risks and Rewards, The Office of Technology Assessment. Washington
DC, March 1993. page 10.
8 Henri Termeer, Chairman and CEO, Genzyme Corporation. Personal Interview, April 14, 1993
148
payoff, if at all, for at least 10 years They have no idea what investors need in return for investing
$100 million at a time when you can't even show them a project " 8
The Consequence of Controls
In April of this year, Science magazine editorialized that, "The major casualties of excessive price
pressure on drugs would be the small biotechnology companies, the rate of development of new
drugs to relieve human suffering and global leadership" A brief tour of the biotech market con-
firms their concern:
Bashing Biotechnology
If price controls are imposed, the market for pharmaceutical and biotechnology stocks will contin-
ue to deteriorate
• The ability of biotech firm to raise fund will be compromised. Transkaryotic Therapies, a
pioneer in gene therapy for hemophilia, had to postpone its IPO in August. David Hale, CEO of
Gensia Labs, a biotech firm developing drugs to treat heart disease and stroke, notes that his
company had to pull its offering from the market, well short of its $120 million goal, in the wake
of presidential assaults on the drug industry. "We had to stop short because the entire market be-
gan to break up after Clinton's attack on drug prices." 9
• Even promising breakthroughs will be affected As Henry Termeer, CEOofGenzyme
has noted, "We raised $100 million for our new cystic fibrosis gene therapy product last year. If
we had tried to hold an offering today we couldn't do it. The threat of price controls has done
more to damage the biotechnology industry than anything else that has happened in the industry's
history."10
• Since cash-starved companies include even those with promising new drugs, there will be
a rush to consolidate through technology licensing and outright mergers with pharmaceutical
companies Yet transferring technology to partners earlier in the development process lowers
shareholder value, reducing further the incentive to invest.
In any event, there are fewer takers among drug companies for biotech investments. This has led
to an increase in the number venture capital firms backing away from biotechnology. As Ned
Olivier of Oxford Bioscience, a venture capital group notes, "We look to pharmaceutical compan-
ies to be there when biotech firms come to us for middle stage financing. Without their involve-
ment, we will be less likely to invest " "
Henri Termeer, Chairman and CEO, Genzyme Corporation, Personal Interview, April 14, 1993
Da-nd Hale, Chairman and CEO, Gensia Labs, Personal Interview, September 9, 1993.
Henri Termeer, Personal Interview.
Ned Olivier, Vice President. Oxford Bioscience, Personal Communication, March 24, 1993.
4
149
Declining Rates of Development
Price control advocates believe that if companies only cut out duplicative or imitative drug re-
search they could free up cash for innovations In fact, there is very little incremental research to
cut in order to preserve cash Both pharmaceutical and biotech firms are investing in nothing but
innovative treatments for life threatening diseases As result, price controls will lead to fewer
projects, less innovation and slower rates of development
• Funding decisions involving some of the riskiest and potentially most medically beneficial
projects will be made within the next 12-24 months As stock prices decline, hamstringing the
ability to raise money in the public markets, research in such areas as cancer, AIDS and multiple
sclerosis will be cut Ironically, as companies put more eggs in one basket, it increases the risk of
a research project and makes them less attractive to investors
• Henry Termeer predicts that price controls will leading to "dumbing down" of bio-
technology R&D to safer projects Termeer noted that "if you introduce price controls on new
products, it will lead to a lot of "me-too" research It will be less risky and will pick on those
therapies that can be reimbursed You won't be able to raise the money in the public markets
otherwise "12
• Many companies have been forced to downsize after failing to raise money in recent public
offerings Cytel, a world leader in cell adhesion research, recently laid off researchers after it had
to pull a public offering In addition, much fruitful academic research, funded by biotech firms, is
being cut as well
• Viagene, possessing one of the more promising AIDS vaccine programs, had to cancel a
$25 million stock offering due to investors fears about price controls It has had to cancel promis-
ing research on preventative vaccines for cancer and AIDS Viagene also has delayed develop-
ment of an immunotherapeutic HIV vaccine
Forfeiting Global Leadership in Bio-Pharmaceutical Technology
As public markets and pharmaceutical companies dry up as sources of capital, foreign companies
are taking an increasing share of America's biotechnology business at bargain prices According
to a report in The Los Angeles Times " companies are feeling increasing pressure to make deals
with Japanese and European investors "" As Gensia's David Hale noted, "The hottest plane
ticket in the biotech industry is to Japan Hundreds of companies are going over there because
they can't get access to capital from the markets or drug companies A lot of technology is going
to be sold cheaply to Japan in the next few months because there is no place else to go and the
Japanese companies know it and know how bad we need the money The Japanese government is
pouring billions into biotechnology My real strong belief is if we see any form of price controls
imposed, Japan will be a world biotech power in 15 years"'4
Henn Termeer, Personal Interview
Chris Kaul, "Backing Out of Biotech Health Care Reform Dampens Enthusiasm of Investors," Los An-
geles Times. June 7. 1993. Page Dl
150
Conclusion
The prospect of pharmaceutical price controls have been " denting big company stocks, help-
ing to wreak havoc at small biotechnology companies ",? The Clinton proposal for a "Break-
through Drug Committee" and other price restrictions deepens the danger As Robert Abbott,
CEO of Viagene, observes, "the market responds quickly to bad news and slowly to good news.
The market will go away and not come back for at least two years until it sees how a price review
board behaves."1"
Despite rhetoric supporting innovation, the Clinton Administration apparently sees breakthrough
drugs as a source of greed instead of a source of hope If its plans go through, biotech firms will
remain cutoff from the capital markets and biotechnology will undergo a substantial retrenchment
Drug companies due to their cash position and the increasing risk of biotechnology investments
will continue to scale back their alliances and own R&D activities Many important research proj-
ects that could save and enrich the lives of millions, will be delayed, shelved or sold overseas
Biomedical progress could be derailed within a very short period of time Both the Congress and
the White House must decide whether price controls are worth this cost, and soon In Though in-
credible as it may seem, in both financial and humanitarian terms, the future is now for America's
still vibrant but increasingly besieged biotechnology industry
The Gordon Public Policy Center is a non-profit, non-partisan research center located at Brandeis Universi-
ty. The Center's mission is to analyze public policy and improve the policymaking process. It has initiated a
study of the impact of health care reform on the economics and research of the bio-pharmaceutical industry.
Policy Bulletins on this issue will be published on a regular basis. In addition, the Center will prepare in-
depth policy reports on related concerns. Copies of the follow ing reports of related interested can be ob-
tained by contacting the Gordon Center at The Gordon Public Policy Center, Sachar Building, Brandeis
University, \\ altham, MA 02254-9110. The phone number is 617-736-4790.
Removing the Barriers: A New Look At Raising Immunization Rates, by Robert Goldberg, Ph.D.
Pharmaceutical Price Controls: Saving Money Today or Saving Lives Tomorrow? (forthcoming and issued
by the Institute for Policy Innovation), by Robert Goldberg, Ph.D
Drug Prices and the Demand for Pharmaceutical Knowledge, by Robert Goldberg, Ph.D.
David Hale. Personal Interview.
Udayan Gupta. "Clinton Health Plan Hurts Biotech Firms," The Wall Street Journal. May 24. 1993,
page B 1
Robert Abbott. CEO of Viagene. Incorporated. Personal Interview. September 9. 1993.
151
BlO
Biotechnology:
Seeking Cures and Therapies
For
Childrens' Diseases
Biotechnology Industry Organization
1625 K Street, N.W., Suite 1100, Washington, D.C. 20006
Phone: (202) 857-0244 Fax: (202) 857-0237
152
Executive Summary
This report describes the research and development of biotechnology companies into
cures and therapies which have the potential to ease the pain and suffering of thousands of
children and their families across the United States and around the world.
Small, entrepreneurial companies are working diligently to make the promise of
biotechnology a reality. But, biotechnology firms are among the most capital and research
intensive enterprises in history. Only one percent are profitable right now. Most
biotechnology companies are staking their existence on the success of the first product they
hope to develop. For many childhood diseases like Cystic Fibrosis, Juvenile Diabetes, and
Gaucher Disease, there is only one company working on a cure or therapy.
Unfortunately, the biotechnology industry is in a particularly fragile state. The risks
for companies developing life-saving therapies, including ones for children's diseases, are
enormous. The long odds against a product negotiating the scientific risks and regulatory
process make it difficult for companies in the industry to convince investors to invest in their
company. Without patient investment from venture capitalists, public investors and others,
the biotechnology industry would not exist.
New hurdles which the biotechnology industry must now face include provisions
contained in the Administration's and other health care reform proposals which call for a
breakthrough drug council and give the Secretary of Health and Human Services the ability
to "blacklist" drugs from Medicare reimbursements. Other proposals would impose price
controls on biotechnology companies which license technology from the National Institute of
Health. The damage from these provisions has already hurt the industry.
Of all the risks which are presented to investors by the biotechnology industry,
Congress has the power to preclude one: price controls as part of any health care reform
bill. Investors must be able to receive returns which are commensurate with the risks
inherent in their investment. The proposed price controls are making it impossible for this to
take place with regards to the biotechnology industry. Investors are being driven away from
biotechnology and into other investments which have less risk and a comparable return.
We urge Congress to support innovation in medical research and to work against the
inclusion of price controls on breakthrough drugs in any health care reform legislation.
Cures and therapies for childrens' diseases and other patients are at stake.
153
section i: List of Childhood Diseases
• Asthma
Childhood Cancers (excluding leukemia):
Bone cancers:
Osteogenic sarcoma
Ewing's sarcoma
Brain tumors
Lymphomas and Hodgkin's Disease
Neuroblastoma
Retinoblastoma
Rhabdomyosarcoma (soft tissue sarcoma)
Wilm's Tumor
Chronic Granulomatous Disease
Cystic Fibrosis
Epilepsy
Fabry Disease
Gaucher Disease
Hemophilia
Juvenile Diabetes
Leukemia
Acute Lymphoblastic Leukemia
Acute Promyelocytic Leukemia
Muscular Dystrophy
Pediatric AIDS
Respiratory Distress Syndrome (Neonatal)
Spinal Muscular Atrophy
Turner Syndrome
1
154
section ii: Description of Childhood Diseases
Asthma
Asthma is a chronic (continuous or long-term) illness in which the airways or
bronchioles - small tubes in the lungs through which we breathe - become temporarily
narrowed or blocked when affected by various "triggers," such as exercise, cold air,
allergen (substances that cause allergies), other irritants and some viral infections.
Asthma is the most common chronic childhood disease. It is estimated that in the
United States, children have 30 million days of restricted activity per year because of
asthma. The prevalence of asthma is increasing in the United States: a recent
government survey found that 7.5% of U.S. children between the ages of 6 and 11
have asthma; the same survey found only 4.8% with asthma just a few years earlier.
There are number of treatments for asthma available, including: corticosteroids,
bronchodilators, and theophylline; however, these are treatments and preventatives,
not cures. Although these can be effective, there is still a long way to go in
researching cures for asthma.
Childhood Cancers (excluding leukemia)
Cancer is actually a group of diseases, each with its own name, its own treatment,
and its own chances of control or cure. It occurs when a particular cell or group of
cells begins to multiply and grow uncontrollably, crowding out the normal cells.
Incidence: An estimated 8,000 new cases in 1993; as a childhood disease, cancer is
rare. Common sites include the blood and bone marrow, bone, lymph nodes, brain,
nervous system, kidneys, and soft tissues.
Mortality: An estimated 1,500 deaths in 1993, about one-third from leukemia.
Despite its rarity, cancer is the chief cause of death by disease in children between the
ages of 1 and 14. However, mortality rates have declined 60% since 1950.
Major childhood cancers include:
Bone Cancers (Osteogenic sarcoma and Ewing's sarcoma) - cause no pain at
first, with swelling in the area of the tumor being the most frequent first sign;
usually occurs between the ages of 10 and 25;
Neuroblastoma - arises from very young nerve cells that, for unknown
reasons, develop abnormally; found only in children, with one-fourth of those
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affected showing initial symptoms during the first year of life and three-fourths
before age 5; more than half of these cases are located in the abdominal area
near the kidneys; surgery, and subsequently chemotherapy are current
treatments
Rhabdomyosarcoma - the most common soft tissue sarcoma (fibrosarcoma,
and spindle-cell sarcomas are others); although it can occur in any muscle
tissue, it is generally found in the head and neck area, the pelvis, or in the
extremities; surgery, chemotherapy, and radiation are the primary treatments
Brain tumors - as a group, brain tumors are the second most common cancers
of childhood, seen most often in children 5 to 10 years old; symptoms include
seizures, morning headaches, vomiting, irritability, behavior problems,
changes in eating or sleeping habits, lethargy, or clumsiness; diagnosis is
difficult because symptoms can indicate a number of other problems; surgery
and/or radiation are the most common treatments
Lymphomas and Hodgkin's disease - are cancers of the lymphatic tissues that
make up the body's lymphatic system, which is a circulatory network of:
vessels carrying lymph (an almost colorless fluid that arises from many body
tissues); lymphoid organs such as the lymph nodes, spleen, and thymus that
produce and store infection-fighting cells; certain parts of other organs such as
the tonsils, stomach, small intestine, and skin; lymphoma have been broadly
divided into Hodgkin's disease and non-Hodgkin's lymphomas; Hodgkins
disease occurs occasionally in adolescents and is rare in younger children; non-
Hodgkin's lymphomas most frequently occur in the bowel, particularly in the
region adjacent to the appendix
Retinoblastoma - an eye cancer, usually occurs in children under age four;
when detected early, cure is possible with appropriate treatment
Wilms' Tumor - a cancer which originates in the cells of the kidney; occurs
in children from infancy to age 15, and is very different from adult kidney
cancers; treatment is a combination of surgery, radiation therapy, and
chemotherapy
Treatment: Childhood cancers can be treated by a combination of therapies.
Treatment is coordinated by a team of experts including oncologic physicians,
pediatric nurses, social workers, psychologists, and other who assist children and their
families.
Survival: Five-year survival rates vary considerably, depending on the site: all sites
68%; bone cancer, 56%; neuroblastoma, 55%; brain and central nervous system,
59%; Wilms' tumor (kidney), 87%; Hodgkin's disease, 88%.
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Childhood Leukemia
Every year about 4,000 cases of leukemia and lymphoma are diagnosed in children.
More than 50 percent of these children will be cured of their disease. Childhood
leukemia and lymphomas can now be classified as potentially curable diseases.
Acute lymphocytic leukemia (ALL) is a malignant disorder involving the production
of immature white blood cells of the lymphocyte series. The net effect is an
accumulation of these cells in the bone marrow, the bloodstream, and lymphatics.
Less commonly, accumulations are seen in certain sanctuary sites, like the central
nervous system and gonads. It is now considered the most curable of all major forms
of leukemia in children. ALL is the leading form of leukemia in children,
representing approximately 85 percent of leukemia in patients under age 21.
Acute promyelocytic leukemia (APL) is a type of cancer affecting the blood-forming
cells. It is characterized by an abnormal increase in the number of promyelocyte cells
(partially differentiated granulocyte cells) in the bone marrow. These cells have
difficulty utilizing retinoids, which cause immature white blood cells to differentiate
and mature. When effective, retinoids can stimulate cancer cells to revert to normal
cells. Symptoms of APL can include: fatigue, shortness of breath, infection and
bleeding, and anemia thrombocytopenia (low platelet count). Some patients have
enlarged livers and spleens. APL affects nearly 11,000 U.S. patients, primarily
children. With chemotherapy, many newly diagnosed patients with promyelocytic
leukemia achieve complete remission.
Chronic Granulomatous Disease
Chronic Granulomatous Disease (GCD) is a very rare inherited immune disorder in
which white blood cells are not effective in killing bacteria and certain other
infectious agents. As a result, CGD patients, mostly children, are vulnerable to
frequent and severe infections which often require hospitalization and can be fatal.
Cystic Fibrosis
Cystic fibrosis (CF) is number-one genetic disease of children and young adults in the
United States. The symptoms are diverse, vary in severity and can be misdiagnosed
as pneumonia, asthma or other respiratory problems.
CF affects approximately 30,000 children and young adults. It occurs in one of every
2,500 live births. Roughly 1,300 people are diagnosed each year with the disease,
usually by the age of three. One in 20 Americans, more than 12 million,
unknowingly carries the defective gene and has no symptoms.
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CF is characterized by a thick, sticky mucus which clogs the lungs and the digestive
system. This abnormal mucus breeds lung infection which leads to lung damage. It
also interferes with digestion.
Treatment:
Scientists are quickly transforming laboratory discoveries about cystic fibrosis into
potentially life-saving treatments. The rate of progress in CF research is fast
becoming a true medical success story.
When scientists discovered the CF gene in 1989, it signalled a new era in the
campaign to defeat this deadly disease. The complex gene that causes CF also
contains the answers to cure it. Researchers have determined how to make normal
copies of the gene and have used them to correct CF cells in lab dishes.
Scientists using this state-of-the-art technology recently achieved a milestone when
they inserted copies of the normal CF gene into the airways of some people with CF.
This gene replacement therapy targets the root cause of the disease - the defective
gene - not merely the symptoms. Results of a limited gene therapy trial in the nasal
passage were the first to show efficacy in stimulating the cells to produce the missing
protein. Gene therapy hods the promise of a cure for CF.
Epilepsy
Epilepsy is one of the most common neurological disorders. Almost five percent of
the population will suffer from an epileptic episode at some time in their lives, and as
many as one percent will have epilepsy.
The incidence of epilepsy is greatest in children under ten years of age, and seventy-
five percent of epileptics have their first seizure by the age of 18.
The age at which brain damage is sustained appears to be an important determinant of
the nature and extent of subsequent behavioral deficits. Studies have led to the
conclusion that persons with early onset of seizures are more adversely affected than
persons whose seizures begin later in life.
Treatment:
Roughly twenty medications are available to control epileptic seizures. There is no
cure, and in about thirty percent of patients the various medications either fail to
control symptoms or produce such severe side effects that they must be discontinued.
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Fabry disease
Fabry disease is an inherited metabolic disorder caused by the absence of the enzyme
a-galactosidase, also known as ceramide trihexosidase. Lacking this enzyme, the
body is unable to break down certain naturally occurring glycolipids, which
accumulate predominantly in the lining of blood vessels within the kidney, heart and
other organs. Since the gene for Fabry disease is on the X chromosome, males who
have only one X chromosome are more likely to be affected by the disease than
females.
The symptoms of the disease most often appear in childhood or early adulthood.
Symptoms include renal dysfunction, a rash in the inguinal, scrotal, and umbilical
regions, and corneal defects in the eyes. Eventually, glycolipids accumulate in the
kidney, heart and brain. In patients severely afflicted, the disorder may lead to organ
failure and death around age 40. Current therapies are aimed at relieving pain or
treating kidney complications through dialysis or organ transplantation.
Approximately 2,000 patients in the U.S. have the disease; it affects one in 40,000
males worldwide.
Gaucher Disease
People with Gaucher disease lack the normal form of the glucocerebrosidase enzyme.
Thus, they are unable to break down glucocerebroside into glucose (sugar) and a fat
called ceramide. The glucocerebroside is continually stored in certain cells, including
the spleen, liver, and bone marrow. The affected organ becomes enlarged and fails to
function properly.
Approximately one in 100,000 people have genetic mutation for Gaucher disease, but
60 percent of these individuals do not develop symptoms. Those with symptoms
often develop them in childhood or early adulthood. Severe Type 1 Gaucher disease
is usually fatal in children. These patients suffer from easy bleeding and bruising,
enlargement of the spleen and liver, and deterioration of bones leading to frequent
fractures.
Hemophilia
Hemophilia is a genetic blood clotting disorder which affects about 20,000
Americans. There is no cure; people with hemophilia require lifelong treatment.
Contrary to popular belief, people with hemophilia do not bleed to death from minor
cuts or injuries, nor do they bleed faster than what is considered normal. People with
hemophilia bleed longer, because their blood cannot develop a firm clot. Often
bleeding is internal, into joints, and results in arthritis or crippling.
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Hemophilia is hereditary, passed on from parent to child. The gene for hemophilia is
carried by females, but those affected are almost always males. One-third of all
hemophilia cases are thought to be caused by spontaneous gene mutation with no
family history of hemophilia. There is a 50 percent chance that sons of a female
carrier will have hemophilia and a 50 percent chance that her daughters will be
carriers. All daughters of men with hemophilia are carriers, but his sons are
unaffected.
The cost of hemophilia care is extraordinarily high. Treating a person with
hemophilia using existing technology can cost anywhere between $60,000 and
$100,000 per year. If there are complications with this treatment, such as the patient
contracting HIV, expenses could be as high as $500,000 per year.
Juvenile Diabetes
Juvenile diabetes, often referred to as Type I or insulin dependent diabetes, is the
more severe form of the disease. In this type of diabetes, which is commonly
diagnosed during the childhood years, the pancreas stops producing insulin entirely.
In order to metabolize glucose from foods into energy, a person with juvenile diabetes
must inject insulin, generally twice a day or more, for the rest of his or her life.
People with insulin-dependent diabetes must monitor their blood glucose levels
through repeated daily blood testing in order to insure a proper, constant balance of
insulin, exercise and food; if this delicate balance is upset, a person with diabetes can
fall quickly into a life-threatening comma resulting from insufficient levels of glucose
in the bloodstream or can suffer from the toxicity of elevated levels of blood glucose.
Diabetes can cause devastating complications for those afflicted, including blindness,
increased risk of heart and kidney disease, stroke, impotence, nerve damage and
amputations.
Today, approximately 1.2 million Americans have been diagnosed with juvenile
diabetes, and its prevalence is increasing at a rate of greater than six percent annually;
approximately 50,000 new cases of juvenile diabetes are diagnosed each year.
Diabetes and its complications are the third leading cause of death by disease in the
United States, responsible for the death of approximately 200,000 Americans
annually. Studies have shown that diabetes reduces life expectancy by up to 30
percent. A recent study conducted by Lewin-VHI concluded that the total annual
health care costs for persons with diabetes exceeds $105 billion; one dollar of every
seven spent on health care goes to treat persons with diabetes.
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Muscular Dystrophy
The term refers to a group of inherited diseases marked by progressive weakness and
degeneration of skeletal or voluntary muscles which control movement. There are
nine different types of muscular dystrophy (MD), with distinctions being in severity,
age of onset and muscles affected. MD is found in both children and adults. One
example of a childhood MD is Duchenne's MD, which is only found in boys who are
usually between the ages of two and six. Symptoms include rapid loss of muscle
control and a shortened life span.
Neonatal Respiratory Distress Syndrome (RDS)
Neonatal respiratory distress syndrome (RDS) is the most common clinical problem in
the neonatal intensive care nursery. There are approximately 40,000 - 50,000 cases
per year in the United States. Although deaths associated with RDS have been
steadily decreasing with the advent of surfactant replacement therapy, it remains a
leading cause of neonatal mortality.
The symptom of neonatal RDS is when the lungs are not fully formed, which results
in insufficient oxygen transfer because of fluid build-up.
Pediatric AIDS
The World Health Organization predicts that by the year 2000 HIV will infect ten
million children worldwide. Pediatric AIDS research cannot be included with adult
research. Drugs that work for adults may not work for children. And drugs that do
not work for adults may, in fact, help children.
Children with HIV are affected very differently than adults with the disease.
Complications of the central nervous system, for example, are common in children
but not in adults. And because HIV/AIDS affects the immune system, children
cannot develop antibodies to combat childhood diseases such as measles and polio. It
is not yet fully understood how the AIDS virus passes from pregnant mothers to their
newborns. Research findings may enable us to prevent passage from mother to child,
thus preventing virtually all new cases of pediatric AIDS.
It is conservatively estimated that as many as 10,000 - 20,000 children in the U.S.,
may be infected with HIV. Over 6,000 HIV infected women give birth each year in
the U.S. Approximately 20 - 30% of these children are HIV infected. This accounts
for over 1,800 new HIV infected infants each year. Over 50% of children with AIDS
have died already. AIDS is the seventh leading cause of death among children aged
one to four.
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Spinal Muscular Atrophy (SMA)
Spinal muscular atrophy (SMA) is a motor neuron disease, which is progressive and
degenerative in nature. It is a cousin of Lou Gehrig's disease, meaning that it is
neurotrophic in nature. The disease afflicts the nerve cells, which in tum the affect
the muscles, rendering the person afflicted in most cases crippled, and in many
causing premature death. There are three classes of the disease:
1) Infant form, which is the most fatal; in fact, infant SMA is the number one
killer of infants under the age of two in the United States, killing
approximately 20,000 per year;
2) Less fatal, long term version of SMA, which causes crippling, with the
patient probably not able to walk, and shortens life-span in most cases;
3) adult form, which is rare but does not shorten life-span. The disease acts to
weaken all muscles in the body, thus rendering the person crippled, in most
cases for the duration of his or her life.
A SMA gene search was begun by Dr. Conrad Gilliam at Columbia University in
1987. Dr. Gilliam is currently very close to locating the gene that causes SMA. The
outgrowth of this search will hopefully be therapeutics for those already afflicted.
Today, there is a pre-natal diagnostic test for SMA. In addition, there are diagnostics
being worked on to identify carriers of the SMA gene.
Turner Syndrome
In 1938, Dr. Henry Turner published a report about 7 girls, describing a set of
symptoms or features which is now known as Turner Syndrome. Twenty-one years
later, Dr. C.E. Ford discovered that the cause of Turner syndrome was a
chromosomal abnormality involving the sex chromosomes. The symptoms of Turner
Syndrome are short stature, lack of sexual development, cubitus valgus (arms that
turn out slightly at the elbow), webbing of the neck, and low hairline in the back.
Some doctors refer to Turner syndrome as gonadal dysgenesis, since one of the
characteristic features of the condition is underdeveloped ovaries. Turner syndrome is
a common genetic problem, affecting one out of every 2,000 to 2,500 girls.
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Section III:
Biotechnology Company Research Into
Childhood Diseases
• Alliance Pharmaceutical Corp.
LiquiVenf" - a product, currently in a Phase I/II clinical trial, for the treatment of
respiratory distress syndrome (RDS); opens up collapsed air sacs that obstruct the
normal functioning of the lungs; allows the use of conventional gas ventilators at
lower, safer pressures; works by filling the lungs with a liquid which gently inflates
the lungs and provides oxygen; LiquiVenf has already been instrumental in saving
the life of neonates who were referred to the clinical trial after undergoing all other
available treatments unsuccessfully; Alliance expects to begin a clinical trial for RDS
in pediatric and adult patients this summer; the product has been in development since
1987.
• Cambridge Biotech
Have licensed a vaccine adjuvant to several companies for vaccines directed against a
number of infectious diseases, several of which are children's diseases; for some of
these infectious diseases, there is not an existing vaccine, while for others the
adjuvant can result in an improved vaccine.
Currently in pre-clinical research and development on a streptococcus pneumonia
vaccine. The importance of such a vaccine is increasing because of growing
resistance to antibiotic therapy.
• GeneMedicine, Inc.
Several of GeneMedicine's product development programs are aimed at diseases
affecting children. This includes programs aimed at developing:
• gene medicines expressing IGF-I for treating certain growth
deficiencies, for managing wasting associated with chronic
disease, or enhancing muscle rehabilitation after injury or
surgery
• gene medicines factor IX and VIII for therapy of hemophilia
• gene medicines for treating asthma
Also under active consideration are applications of Gene Medicine's technologies for
gene-based vaccines as well as gene medicines for the treatment of cancer, muscular
dystrophy, and certain other inherited metabolic diseases.
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i.63
Genentech, Inc.
Cystic Fibrosis - On December 30, 1993, Pulmozyme9 received approval for
managing CF from regulatory authorities in the United States and Canada, becoming
the first new therapy for CF in 30 years. By breaking down the thick, infected
secretions that are the hallmark of CF, Pulmozyme9 significantly reduces the risk of
serious respiratory tract infections, makes breathing easier and improves quality of
life. It also reduces costly hospitalization and other related medical costs. Genentech
has assured the CF community that they will continue research towards a cure.
Chronic Granulomatous Disease (CGD) - Genentech markets Actimmune9 to manage
CGD. Actimmune* received regulatory approval in 1990 based largely on the results
of a Phase III clinical trial which showed that it reduces the frequency of serious
infections in CGD patients approximately threefold. This translates into fewer
hospital days and an improved quality of life for CGD patients.
Allergic Asthma - Anti-IgE Humanized Monoclonal Antibody, designed to interfere
early in the complex, multistep process that leads to the symptoms of allergy, such as
allergic asthma, which can be severe and even deadly. The goal for 1994 for this
product is to complete Phase I and begin Phase II trials.
Diabetes (Type I and Type II) - Genentech is currently investigating whether Insulin-
like Growth Factor (IGF-1) can help patients maintain stable glucose levels without
more frequent insulin injections. In Type II diabetics, trials are underway to
determine if IGF-1 can increase insulin sensitivity. The goals for 1994 for this
product is to complete current experimental Phase II trials.
Genetic Therapy
Pediatric Brain Tumors - there is an adult clinical trial currently ongoing; for a
pediatric trial, there is approval from the National Institutes of Health Recombinant
Advisory Committee (RAC) for a clinical trial; will submit initial new drug
application to the FDA soon, and expect to be in the clinic this year; are utilizing
HSTK genetic therapy technology during the research of these therapeutics, which
attempts to give the cell a new property so that it may function properly
Cystic Fibrosis - expect to be in the clinic before the end of June, 1994; are utilizing
genetic therapy technology whereby a vector which carries corrected genes is inserted
into the DNA where the defective genes which cause the disease are located, with the
hope that the new genes will correct the defective ones
Childhood Leukemia - collaborating with St. Jude's Hospital as well as other hospitals
on a product that is in research stages
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Hemophilia - currently working on a product which attempts to correct a defect in the
clotting factor genes
Genetics Institute
Factor IX - recombinant blood clotting factor used to treat hemophilia in children and
adults; currently in preclinical research, expect to begin clinical trials by early 1995;
has been working on the product for approximately 5 years; will replace Factor IX
which is currently taken from human blood
Genzyme
Cystic Fibrosis - Genzyme is developing several products to treat cystic fibrosis (CF).
Genzyme is testing the use of an adenovirus vector to deliver the normal gene to the
respiratory system to augment the abnormal genes and enable the patient's cells to
produce the normal cystic fibrosis transmembrane conductance regulator protein
(CFTR). Genzyme's gene therapy trial was the first human study to demonstrate
efficacy in stimulating production of CFTR. Genzyme is also exploring non-viral
gene therapy using cytofectin (liposome) technology developed by Vical, as well as
several proprietary cationic lipids.
Genzyme is also investigating protein therapy, a means to replace the missing CFTR
protein with a properly functioning protein. Genzyme has produced recombinant
CFTR protein in mammalian and insect cells, as well as transgenically in the milk of
mice and rabbits.
In 1993, Genzyme began a collaboration with Univax Biologies to develop a treatment
for the common bacterial lung infections experienced by the majority of CF patients.
HyperGam+™ CF is an immune globulin preparation designed to provide passive
immunity against Pseudomonas bacteria. Genzyme is underwriting a portion of the
development cost of this promising therapy in return for worldwide marketing rights.
Gaucher Disease - Ceredase®, which was approved by the Food and Drug
Administration (FDA) in 1991, replaces the missing enzyme, glucocerebrosidase
(GCR), that breaks down certain lipids in the body. For people with Gaucher
disease, it relieves many of their devastating symptoms, reverses the disease process,
and dramatically improves their quality of life.
Since Ceredase® uses GCR purified from human placental tissue, the natural supply of
this enzyme is limited. Genzyme is now developing a recombinant product,
Cerezyme™, which will ensure the availability of an adequate supply of GCR for
patients who need treatment. Approximately 4,000 - 6,000 patients worldwide need
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this enzyme replacement therapy. Genzyme is now supplying 20 percent of these
patients with Ceredase®. Once Cerezyme™ is approved, Genzyme will be able to
meet all patient's needs.
Fabry Disease - Genzyme is developing CTH, a recombinant a-galactosidase (a-Gal)
expressed in mammalian cells. This product will be used as protein replacement
therapy in patients with Fabry Disease. Genzyme is now examining this product in in
vitro and in vivo preclinical studies.
Acute Promyelocyte Leukemia (APL) - TretinoinLF is Genzyme's first anti-cancer
agent. Genzyme is targeting acute promyelocytic leukemia (APL). A key component
of TretinoinLF is retinoic acid which is effective in stopping immature blood stem cells
from multiplying uncontrollably in patients with APL and other cancers. The use of
retinoic acid has been limited by its toxicity and its diminishing effect with continued
use. Genzyme hopes to reduce toxicity and enhance or continue its effectiveness by
encapsulating the retinoic acid in liposomes, e.g., drug delivery carriers made from
phospoholipids. Genzyme developing TretinoinLF in partnership with Argus
Pharmaceuticals, Inc. based on Argus' cancer research and novel liposomal delivery
systems.
Immunogen
OncolysinB - has numerous indications, one of which is pediatric leukemia: currently
in a multi-center Phase I/II clinical trial with the National Cancer Institute (NCI);
began trials in 1989, treated first patient for leukemia with this product on 1/1/90
Medarex
MDX-1 1 - Initiated a Phase II trial in December of 1993 of the monoclonal antibody-
based therapeutic for Acute Myeloid Leukemia (AML). Patients undergo a standard
chemotherapy regimen followed by a dose of MDX-1 1, which attempts to eliminate
any residual leukemic cells. Earlier studies of the product have demonstrated that
MDX-1 1 is well-tolerated and can mediate the elimination of a substantial number of
leukemic cancer cells. It has also been shown that MDX-1 1 can enter the bone
marrow where residual cancer cells often remain after chemotherapy. Treatment with
traditional chemotherapeutics leads to long-term survival for fewer than 5 % of
patients with advanced or secondary AML.
Neurogen
Epilepsy - ADCI, broad spectrum anticonvulsant in per-clinical development. ADCI's
broad spectrum application makes it potentially effective in many types of seizures
both at the initiation of the seizure and at the spread of seizure stages. Physicians
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166
should be able to prescribe doses of ADCI that will achieve efficacy without the
debilitating side effects of previous therapies.
Oncogene Science
Chronic myelogenous leukemia - currently in the pre-clinical stage of research into a
treatment; research has been ongoing for between one and two years
Muscular Dystrophy - currently in early stage pre-clinical research into a treatment; is
a recent collaboration
Ortho Biotech
Ortho is currently conducting research work in a pulmonary surfactant program. The
indication which is being explored in Phase I clinical trials is for the treatment of
Infant Respiratory Distress Syndrome (RDS). Results to date have been encouraging,
suggesting that the compound may significantly improve survival. This research is
being extended into treatment of Adult Respiratory Distress Syndrome.
Additionally, clinical research has been conducted on the use of EPREX^/PROCRIT*
for the treatment of anemia of prematurity. Literature and data analysis is ongoing.
Results to date are also encouraging.
Somatix Therapy Corp.
Currently in pre-clinical research, using gene therapy techniques to produce sufficient
levels of Factors VIII and IX in hemophilia A and B patients; have been conducting
research in this area for between two and three years
Using gene therapy techniques in clinical trials for various adult cancers; do foresee
possibility of expanding treatable indications to include childhood cancers, but only as
they relate to adult cancers
• Targeted Genetics
In Vivo AAV-Based Therapy - Targeted Genetics and its collaborators have developed
significant expertise with respect to the design and use of AAV vectors in gene
therapy. Certain features of AAV vectors may make them particularly well suited for
the treatment of a number of diseases. AAV vectors can introduce genes into certain
nondividing or slowly dividing cells, such as cells lining the airway of the lung. In
addition, AAV vectors can integrate DNA into host cell DNA and therefore provide
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long-term expression. AAV has also not been associated with any disease, and AAV
vectors can be purified and concentrated, allowing for more efficient manufacturing.
Cystic Fibrosis - A gene therapy for cystic fibrosis may be possible by delivering the
gene for the cystic fibrosis transmembrane regulatory protein ("CFTR") directly to
cells on the surface of the lung, most of which are nondividing. Targeted Genetics
believes that the characteristics of AAV vectors may make them useful for the long-
term correction of the cystic fibrosis gene defect.
Univax
Cystic Fibrosis - HyperGAX+™ CF and HyperGAM+™ HMWPS for prevention and
treatment of chronic Pseudomonas infection in cystic fibrosis patients, in Phase I/II
clinicals
U.S. Bioscience
Working in the pediatric oncology area; on occasion, when it is a logical step, add
pediatric tests to basic research that is being done in this area; in addition,
trimetrexate glucuronate is currently on the market to treat AIDS-related p. carinii
pneumonia, and is Phase II clinical trials for pediatric tumors.
Vical Corporation
Hemophilia - has a program in conjunction with Baxter, to develop Vical's gene
therapy technology; program is in the pre-clinical stage, and was begun late last year
Cystic Fibrosis - developing gene-delivery technology with Genzyme; started research
late last year; expect to be in clinicals in late 1994 or early 1995
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Senator Lieberman. Thank you, Dr. Goldberg, that was a great
statement. Let me just draw one conclusion and then go on to a
couple of things you mentioned in your testimony, which is at one
point you make the claim that 90 percent of the biotech firms
would seek foreign partners if price controls were put into place.
Would you flesh that out a little bit?
Dr. Goldberg. Well, you talked about the bank financing, you
cannot get money from a bank. You cannot get money from a ven-
ture capitalist, and you cannot get money from Household Finance
Corporation. You know you are down to your last dollar.
So, companies are turning to European and Japanese investors,
larger companies, to help bail them out. And they are doing it at
substantially less on the dollar than they would have ordinarily
through the public markets.
So, NIH has done this infrastructure development. Venture cap-
italists have funded the initial clinical research. But now we are
coming to a situation where biotech firms are going to take the
technology that was subsidized by American taxpayers, but risk
capital, and turn it over to foreign investors for a song.
Now, I am not opposed to foreign investment in biotechnology,
but in terms of your mandate as a committee the notion of trying
to nurture the American small business community would be ill
served by supporting legislation that would basically turn over the
technology that was already invested with American dollars at a
fire sale, which is happening.
Senator Lieberman. Excellent point, and very important for us
to remember. One is that we may take ourselves down a path with
price controls and where we not only inhibit the development of
treatments and cures, but that we throw away a competitive ad-
vantage that we have now in the creation of new businesses and
jobs.
Dr. Goldberg. Right.
Senator LIEBERMAN. Finally, and this leads to a point that I
want to make — we squander an investment that we have made
through NIH-NSF funding. We have tended to talk about the Gov-
ernment as a potential problem here in terms of price controls, et
cetera, which we could be if those were enacted.
But the Government has also played a remarkably positive, sup-
portive role through NIH-NSF funding which creates in a sense
the raw material that we then are able to take into the private sec-
tor to develop, as Mr. Penner and Dr. Wilson described.
Dr. Goldberg. NIH is really sort of the crown jewel of the
world's scientific community in the sense that it provided the 40
acres and the mule, if you will, for biotechnology. It was a Home-
stead Act for biotechnology, and it would really be a pity if that in-
vestment wound up on the shelves first and foremost of companies
that had no party to it in the beginning.
Senator LIEBERMAN. I agree. You and the other witnesses have
made some strong points about this problem with the CRADA
agreements. What is going on there? In other words, is it necessary
to introduce legislation to try to fix the problem? I recall having
heard this only once before, about 2 months ago and somebody in
a biotech company mentioned it in passing.
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Do any of you know what efforts are being made to remedy this?
I would take the liberty, if you do not, of asking Chuck Ludlum if
he knows of anything.
Mr. Ludlum. Senator, no bill has been introduced with regard to
the NIH CRADA process at the moment because they currently op-
pose a reasonable price clause on CRADA's from NIH. They do not
oppose them if a university or a foundation received money from
NIH and it transfers technology. It only applies if the money goes
directly from NIH Bethesda to a private company, and then they
include a reasonable price clause. There is no bill that has been in-
troduced which would roll back that process, which has under-
mined that process.
There have been bills introduced which would apply a reasonable
price clause to the university and foundation, to their licenses,
which would cripple that process the way the NIH process has been
crippled.
Senator LlEBERMAN. Yes. Does it require legislation? Is this a
statutory base or could it be changed administratively?
Mr. Ludlum. There are people who would argue that the NIH
reasonable price clause is not mandated by statute. It is certainly
not mandated by statute. It may exceed their statutory authority.
They certainly have the authority not to do it. They are the only
agency of the Government with CRADA's of the 13 that does it, so
they could roll it back administratively.
Senator Lieberman. OK, I am going to go to work on that and
see if we can be of help. We will see if we can do it administra-
tively, but if not I would be prepared to introduce legislation.
I want to thank all of you. This has been an excellent hearing.
Obviously you could tell from our opening statements that Senator
Kerry and I began this with a point of view which is sympathetic
to your point of view for all the reasons that we have stated. I
think that you and the panel before you have created a superb
record here which we will be able to use in the next few months
as part of this health care reform debate to make sure that we do
not, in the words of my colleague, screw up something very good
that is happening in American health care and in the American
economy.
The hearing is adjourned.
[Whereupon, at 12:04 p.m., the hearing was adjourned.]
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