January 24, 1994

What are the challenges, the hurdles and even threats facing biotechnology and what is the Administration doing to help you meet them successfully? You will be seeking the answers in your meeting today and I am looking forward to the results of your deliberations. I think it might be useful, for the purposes of your meeting, to explain why the Administration sees biotechnology as an area that requires firm, long term commitment of federal support and how we are carrying out this commitment.

The Promise of Biotechnology

Ten years ago when I was at OTA, we defined biotechnology to include "any technique that uses living organisms (or parts of organisms) to make or modify products, to improve plants and animals, or to develop microorganisms for specific use." This is not the definition of a singular industry -- but, rather, a set of tools that have already demonstrated their utility in a vast and still broadening array of applications ranging from health care, to food and feed production, biomass and other energy sources, bioremediation and environmental protection. The reagents and methods that permit the manipulation of physiological processes at the molecular level arose from fundamental biological research, largely through a base of support administered by the National Institutes of Health. Therefore, it is not surprising that the first applications of biotechnology appeared in the biomedical arena. There are now 20 biotechnology drugs on the market, in addition to over a hundred diagnostic kits and many more quickly following in the pipeline.

Many of the disease treatment and prevention methods targeted by the biotechnology industry represent innovative approaches and dramatic advances over the more traditional modalities. Biotechnology has already delivered on some of these goals and others are on the horizon -- the "clot busters," genetically engineered vaccines, and treatments for certain recalcitrant forms of cancer, for example. Other fascinating drugs and approaches for dealing with relatively common illnesses are on the horizon, including gene therapy for cystic fibrosis and the cancer vaccines that you heard about this morning and will be discussing this week. I was especially interested to learn that there may be a fairly simple way to prevent gastric ulcers, now that we know why people with the O blood type are twice as prone to such occurrences compared to those with A or B blood types. Biotechnology's versatility is amply demonstrated by the fact that it provides both the research tools for understanding the physiological processes underlying ulcer formation and preventing their occurrence and the manufacturing techniques for producing the prevention agents in bulk quantity.

The Clinton Administration, through the National Health Security Act, is encouraging the development of new ways to provide high quality health care at affordable cost. The most direct route to saving money currently expended through treatment of illness and lost work days is to avoid getting sick in the first place through effective disease prevention. It is also desirable to actually cure diseases rather than simply ameliorate symptoms, or to adopt less expensive methods, such as early diagnosis or pharmaceutical alternatives to surgery and others that permit shorter hospital stays and enhance quality of life.

As you know full-well, health care reform is of critical importance to this Nation. Access to health care is vital to all American citizens. Controlling health care costs is vital to the American economy. And the biotechnology industry is vital in both respects. We will make a genuine effort to reconcile any conflicts between the Administration's goal of encouraging long-term corporate research and investment on the one hand and the goal of expanding health care coverage while controlling costs on the other. We welcome your input and intend to work closely with the private sector on resolving these concerns.

I am aware that, from your perspective, one of the aspects of the health care reform package that you are most focused on is the provision dealing with breakthrough drug prices. Originally, there were proposals to attempt to control prices on all drugs but this was felt to be unnecessary. The rationale was that customary market forces would tend to hold prices of competing products down. In the case of certain novel forms of pharmaceutical agents, on the other hand, a period of market exclusivity might encourage the sponsor to charge whatever they could get in a less-than-fully competitive environment. There are also particular drugs on record that might cost over $100,000 per year per patient. The current plan for the advisory committee to the Secretary of HHS that would review "breakthrough" drug prices is that data analyzed would include more than simply the cost of the drug and others in its class, projected sales and manufacturing and R&D costs. Figures related to the long-term benefit of the product, relative to other forms of treatment, would also be considered. It is clear that the challenge would be to arrive at a "reasonable price" with everyone in agreement; but it is in everyone's interest to integrate information about outcomes into the health care decision-making process. I understand that many companies are spearheading efforts to advance this form of integrated assessment and this is admirable. Certainly, cost-effectiveness analysis should be a principal tool for evaluating the merit of a product, service, or procedure. We need to work together on protocols for such tools. This Administration values your contributions to better health care and we are committed to your industry's successful future.

The Role of the Federal Government

Let me turn to the role of the Federal Government in encouraging scientific and technological progress. Despite the fact that the U.S. biotechnology industry is generally regarded as the world leader, no one is, or should be, complacent about our situation. There are signs that indicate that biotechnology is at a particularly critical juncture right now, and the future vitality of our domestic capability may rest on what we in the Administration and Congress, and our partners in industry and academia, can accomplish together in the coming several years. The Clinton Administration has taken a very strong position that recognizes the critical role technology must play in stimulating and sustaining the long-term economic growth that creates high quality jobs and protects our environment. As you read in the latest issue of Genetic Engineering News, the President and Vice President have developed a strategy outlined in the February 1993 document "Technology for America's Economic Growth: A New Direction to Build Economic Strength," and followed by the President's Progress Report published in November. The Administration's science and technology goals include:

-- Reaffirming our commitment to fundamental science, the foundation upon which all technological progress is built;

-- Improving the contribution of federally sponsored science and technology innovation to economic growth by forming closer working partnerships among industry, federal and state governments, workers and universities; and

-- Doing a better job of coordinating federally-supported S&T investments across the government.

The Administration intends to work directly with entrepreneurs and industries that are improving existing or developing new technologies. These efforts will benefit biotechnology along with other emerging high technology-driven sectors and this effect is both desirable and appropriate.

The current Administration is sensitive to the unique challenges facing biotechnology and is cognizant of the need to proceed carefully in order to allow biotechnology to fulfill its promise. A few examples --

1. Support for Fundamental Science

   The ability to enlist the cooperation of the forces of Nature and put them to work in solving many of the problems we face today such as feeding and providing energy to a growing population, improving human health, undoing some of the damage man has wrought on the global ecosystem, and sustaining our natural resources was developed directly as a result of government-funded basic research. The Clinton Administration recognizes the enormous rate of return on our public investment in fundamental science. Even in the rather bleak atmosphere imposed by very tight budget constraints, the science agencies have fared relatively well in the allocation of Federal funding. This directly reflects the Administration's twin commitment to (1) deficit reduction and (2) making key investments for the future.

2. NSTC and the Biotechnology Research Subcommittee

   Like other emerging industries, biotechnology is moving toward a phase in which much of the information necessary for advanced product and process development will be proprietary. However, this industry is one that will continue to look to the kind of fundamental scientific research that is supported through NIH, the National Science Foundation, and other Federal agencies. For Fiscal Year 1994, the Administration is not conducting a stand-alone crosscutting analysis of Federal support for biotechnology research as was performed for the two previous years under the FCCSET. Unfortunately, this has been interpreted to mean that we have phased out the activities of the Biotechnology Research Subcommittee. This is not so. On November 23, 1993, the President signed an Executive Order establishing the National Science and Technology Council (NSTC), which he will chair. The charge to this new Cabinet-level Council which succeeds FCCSET is to establish clear national goals for federal science and technology investments and to ensure that science and technology policies and programs are developed and implemented to contribute effectively to those national goals.

   Private sector involvement with the NSTC will be essential to developing successful science and technology policies that will help American businesses achieve sustainable growth and create high quality jobs, as well as to maintain our academic and research institutions' world leadership in science, engineering and mathematics. To ensure that the federal science and technology are reflective of national needs of the U.S., the President also established a President's Committee of Advisors on Science and Technology (PCAST). The Committee will advise the President on science and technology issues and assist the NSTC in securing private sector involvement in its activities. The members of the PCAST will be appointed by the President and will include distinguished individuals from non-federal sectors, drawn from industry, education and research institutions, non-governmental organizations and other sources.

   As one of the first actions taken under this new policy coordination and implementation mechanism, we made certain that the efforts of the Biotechnology Research Subcommittee would continue under the new committee structure. This subcommittee will operate under the aegis of a single, overarching Committee on Fundamental Science which is co-chaired by Drs. Harold Varmus and Neal Lane, the Directors of the NIH and NSF, respectively, and Dr. M.R.C. Greenwood, the Associate Director for Science in OSTP. The Biotechnology Research Subcommittee will continue to provide government-wide coordination and focus for biotechnology research in the various Federal departments and agencies. Biotechnology will also receive attention in at least two other of the nine (9) NSTC committees -- e.g. {Health, Safety, & Food; Environment and Natural Resources}.

   Under the NSTC, we will focus on extending the scientific and technical foundations necessary to the development of biotechnology, developing the human resources necessary to biotechnology, facilitating the transfer of biotechnology research discoveries to commercial applications and realizing the benefits of biotechnology for human health, agriculture, and the restoration and protection of the environment. The Biotechnology Research Subcommittee which coordinates Federal research in biotechnology is in the process of developing strategic plans for federal research in agricultural biotechnology, environmental biotechnology, manufacturing and bioprocessing technology and marine and aquatic biotechnology.

3. Science Forum

   As another example of our focus on science, I would point to a meeting that my office will co-sponsor next week, in conjunction with the National Academy of Sciences and several professional societies and Federal agencies. The "Forum on Science in the National Interest: World Leadership in Basic Science, Mathematics and Engineering," will provide for discussion among representatives from academia, industry, and science policy makers across the government. The objective is to share information and views on the national investment in fundamental science and the critical challenges facing U.S. science today. It is our intent to use this forum in the development of a national strategy for science that parallels the technology initiative already in place.

4. Technology Initiatives

   Biotechnology research and development are supported through several other mechanisms that I would encourage you to follow. One of those is the Advanced Technology Program (ATP) administered by the Department of Commerce through the National Institute for Standards and Technology. The ATP is designed to promote the economic growth and competitiveness of U.S. businesses and industry by accelerating the development and commercialization of promising, high-risk technologies with substantial potential for enhancing the Nation's economy. The ATP research priorities are set through an interactive process with industry, by means of competitive proposals from industry and academia aimed at development and commercializing innovative technologies. Out of 400 industry responses to a recent ATP announcement, 50 were in the biotechnology arena. On January 12, NIST hosted a workshop on biotechnology to explain the procedures necessary to obtain support through the program, and to solicit industry input on setting research priorities that meet the following program selection criteria:

   -- Potential U.S. economic impact;

   -- Good technological ideas that are "cutting edge," high risk, strategically important, and based on sound scientific and technical concepts;

   -- Strong industry commitment to participate, including a willingness to share costs and to work with the government and other partners; and

   -- Opportunity for ATP to make a major difference by supporting work that is unique or complementary to other industrial and government efforts, that offers timely and significant acceleration of research progress, and that requires a critical mass of funding.

   I hope that the good attendance at the biotechnology workshop indicates your interest in the ATP and other Federal technology programs.

   Other elements of Federal policy in biotechnology include:

5. CRADAs

   Instructions have been given to Federal laboratories to devote a growing percentage of their budgets to R&D partnerships with civilian industry. We are emphasizing increased use of cooperative, cost-shared research and development agreements (CRADAs) as well as other cooperative arrangements.

   One of the first CRADAs initiated by the National Institutes of Health is noteworthy in several respects. The CRADA between NIH and Genetic Therapy Inc. (GTI) capitalized on technology and expertise in the NIH laboratories of Drs. French Anderson (one of the speakers in the earlier session), Michael Blaese and Steven Rosenberg, to launch a new company, a new form of treatment for genetic and other diseases and a new industry sector, that is, gene therapy. Beginning with the first human gene transfer trial initiated in 1988, NIH has now approved over 50 clinical gene therapy trials at centers across the nation. Studies involving revolutionary approaches to the treatment of cystic fibrosis, severe combined immune deficiency, advanced melanoma and AIDS are now underway or are about to be undertaken. These represent tremendous health care and economic opportunities for this country.

   I understand you may have some concerns regarding the pricing clause in NIH CRADA's and licenses. This is an issue under examination in the Administration, and I would be interested in having your views.

6. Encouraging patient capital

   Reflecting its growth dynamics, biotechnology is heavily dependent on the public and private investment markets to bankroll start-ups and follow-on financing. Although we hear differing views on how long the window may remain open for biotechnology company public offerings, it is my understanding that some are doing quite well right now. Biotechnology firms have generally been able to raise cash for the initial stages of operation. But second and third rounds of capital financing, which are necessary o bridge the gap between research and profit generation from marketable products, are more difficult to come by. A bottleneck is developing as startup companies attempt to move forward into development, testing, and marketing -- the expensive part of the process. As much as $5 billion to $10 billion may be needed just to develop the 100 biotechnology products currently in human clinical trials.

   The Administration has taken some steps to improve the long-term, lower cost availability of capital. The President has signed into law tax incentives for private-sector investment in R&D and new business formation, including a targeted reduction in the capital gains tax for investment in small businesses. We also continue to push on reducing Federal deficits which syphon off savings that otherwise could flow to private capital markets. In addition, a multi-agency working group under the aegis of the National Economic Council has been tasked to develop additional proposals to ensure patient capital for industrial investment. We may be able to use that working group to address something I know is of concern to you -- the impacts of the health care reform package on capital availability for development of biopharmaceuticals.

7. Making the Research and Experimentation (R&E) Tax Credit permanent

   During my tenure as Director at the Office of Technology Assessment, the OTA report on Biotechnology in a Global Economy cited the R&E tax credit as a key issue for congressional consideration in protecting U.S. industrial innovation and international competitiveness. In the past, the effectiveness of this credit was seriously undermined because it was extended one year at a time. Under those conditions companies cannot accurately project the real costs of a given R&D project. Research and development, by its nature, requires long-term investment, and businesses will be reluctant to make such commitments without a permanent R&E tax credit. The tax credit was reauthorized for 3 years and we will continue to work toward our goal of making it permanent.

8. Regulatory Policy

   The final point I want to touch on is the need for a thoughtful, sensible and, above all, clear regulatory framework that will encourage innovation and enable us to meet our national social objectives efficiently. As part of the Technology Initiative, the President and Vice President stated that,

   -- "We can promote technology as a catalyst for economic growth by ...directly supporting the development, commercialization and deployment of new technology; and

   -- "To improve the environment for private sector investment and create jobs, we will ensure that Federal regulatory policy encourages investment in innovation and technology development that achieve the purposes of the regulation at the lowest possible cost.

The Clinton Administration welcomes open discussion and debate as key ingredients to the development of successful regulations. Only through public dialogue can we develop regulations which address the necessary questions in a way that facilitates decision-making by the Government, increases certainty and predictability for industry at the lowest practical cost, and that are demonstrably fair to the public interest.

However, to protect the public interest, it is neither necessary nor desirable to erect new hurdles that require the Government to determine what is "best" for people, as compared to what is safe, effective and of high quality. It is far preferable to build bridges to the public that empower individuals -- through education, public disclosure, reasonable access to and influence over the regulatory process -- than to make decisions for them. It is the responsibility of the Government to provide an effective and credible regulatory system. I know that industry wants this as the best means to ensure public confidence and acceptance of the products of biotechnology. There is no better antidote to the actions of anti-biotechnology activists than an informed public and an open debate. Industry has a role to play also in providing as much information regarding products as is reasonable within the confines of maintaining the confidentiality of proprietary business information.

Within the Government, the Administration is actively promoting greater coordination of regulatory efforts that require agencies to talk to one another, streamline data requirements and facilitate innovation in regulatory procedures. I assume you heard about the Department of Health and Human Services exempting the Food and Drug Administration from what is otherwise a Department-wide hiring freeze. This is a graphic demonstration of the government's commitment to make sure that the product development pipeline is not constricted at the site of regulation by understaffing.

In the international arena, the Administration intends to accelerate efforts to reach consensus on regulatory requirements in the interest of expediting commerce with our trading partners and using scarce Government resources to better advantage.

Conclusion

In conclusion, biotechnology offers great promise for the future and has the potential to impact nearly every facet of our lives. The keys to successful innovation and commercialization will be a strong basic research program, fiscal and economic, tax policies that encourage investment, a rational regulatory policy and an educated public. This Administration will help sustain the strong research base for biotechnology and will offer a forum for biotechnology advocates and critics to reach some consensus on how various biotechnology products can benefit our society. The Clinton Administration will work with industry, and the research and health care communities and the American people to build that consensus, so that ten years from now, we can look back and say that the 1990's was the decade of continued vigorous research and also the successful commercialization of biotechnology and biotechnology products in the United States and throughout the world.