Biotechnology: Opportunity and Challenge

John H. Gibbons

Assistant to the President for Science and Technology

National Biotechnology Summit< p>

Omni Shoreham Hotel

Washington, D.C.

January 24, 1994

I am pleased to have the opportunity to participate in this event. I applaudthis discussion by individuals representing the academia/industry/governmenttria d to come together to consider the challenges and goals facing our nation'sbiotechnology industry and the associated research community.

What are the challenges, the hurdles and even threats facing biotechnology andwhat is the Administration d oing to help you meet them successfully? You willbe seeking the answers in your meeting today and I am looking forward to theresults of your deliberations. I think it might be useful, for the purposes ofyour meeting, to explain why the Administration sees biotechnology as an areathat requires firm, long term commitment of federal support and how we arecarrying out this commitment.

The Promise of Biotechnology

Ten years ago when I was at OTA, we defined biotechnology to include "anytechnique that uses living organisms (or parts of organisms) to make or modifyproducts, to improve plants and animals, or to develop microorganisms forspecific use." This is not the definition of a singular industry -- but,rather, a set of tools that have already demonstrated their utility in a vastand still broadening array of applications ranging from health care, to foodand feed production, biomass and other energy sources, bioremediation andenvironmental protection. The reagents and methods that permit the manipulationof physiological processes at the molecular level arose from fundamentalbiological research, largely through a base of support administered by theNational Institutes of Health. Therefore, it is not surprising th at the firstapplications of biotechnology appeared in the biomedical arena. There are now20 biotechnology drugs on the market, in addition to over a hundred diagnostickits and many more quickly following in the pipeline.

Many of the disease treatment and prevention methods targeted by thebiotechnology industry represent innovative approaches and dramatic advancesover the more traditional modalities. Biotechnology has already delivered onsome of these goals and others are on the horizon -- the "clot busters,"genetically engineered vaccines, and treatments for certain recalcitrant formsof cancer, for example. Other fascinating drugs and approaches for dealingwith relatively common illnesses are on the horizon, including gene therapy f orcystic fibrosis and the cancer vaccines that you heard about this morning andwill be discussing this week. I was especially interested to learn that theremay be a fairly simple way to prevent gastric ulcers, now that we know whypeople with the O bl ood type are twice as prone to such occurrences compared tothose with A or B blood types. Biotechnology's versatility is amplydemonstrated by the fact that it provides both the research tools forunderstanding the physiological processes underlying ulc er formation andpreventing their occurrence and the manufacturing techniques for producing theprevention agents in bulk quantity.

The Clinton Administration, through the National Health Security Act, isencouraging the development of new ways t o provide high quality health care ataffordable cost. The most direct route to saving money currently expendedthrough treatment of illness and lost work days is to avoid getting sick in thefirst place through effective disease prevention. It is also desirable toactually cure diseases rather than simply ameliorate symptoms, or to adopt lessexpensive methods, such as early diagnosis or pharmaceutical alternatives tosurgery and others that permit shorter hospital stays and enhance quality oflife. < p>

As you know full-well, health care reform is of critical importance to thisNation. Access to health care is vital to all American citizens. Controllinghealth care costs is vital to the American economy. And the biotechnologyindustry is vital in both respects. We will make a genuine effort to reconcileany conflicts between the Administration's goal of encouraging long-termcorporate research and investment on the one hand and the goal of expandinghealth care coverage while controlling cost s on the other. We welcome yourinput and intend to work closely with the private sector on resolving theseconcerns.

I am aware that, from your perspective, one of the aspects of the health carereform package that you are most focused on is t he provision dealing withbreakthrough drug prices. Originally, there were proposals to attempt tocontrol prices on all drugs but this was felt to be unnecessary. Therationale was that customary market forces would tend to hold prices ofcompet ing products down. In the case of certain novel forms of pharmaceuticalagents, on the other hand, a period of market exclusivity might encourage thesponsor to charge whatever they could get in a less-than-fully competitiveenvironment. There are also particular drugs on record that might cost over$100,000 per year per patient. The current plan for the advisory committee tothe Secretary of HHS that would review "breakthrough" drug prices is that dataanalyzed would include more than simply the cost of the drug and others in itsclass, projected sales and manufacturing and R&D costs. Figures related tothe 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 ata "reasonable price" with everyone in agreement; but it is in everyone'sinterest to integrate information about outcomes into the health caredecision-making process. I understand that many companies are spearheadingefforts to advance this form of integrated assessment and this is admirable.Certainly, cost-effectiveness analysis should be a principal tool forevaluating the merit of a product, service, or procedure. We need to worktogether on protocols for such tools. This Administratio n values yourcontributions to better health care and we are committed to your industry'ssuccessful future.

The Role of the Federal Government

Let me turn to the role of the Federal Government in encouraging scientificand technolo gical progress. Despite the fact that the U.S. biotechnologyindustry is generally regarded as the world leader, no one is, or should be,complacent about our situation. There are signs that indicate thatbiotechnology is at a particularly critical jun cture right now, and the futurevitality of our domestic capability may rest on what we in the Administrationand Congress, and our partners in industry and academia, can accomplishtogether in the coming several years. The Clinton Administration has tak en avery strong position that recognizes the critical role technology must play instimulating and sustaining the long-term economic growth that creates highquality jobs and protects our environment. As you read in the latest issue ofGenetic Engine ering News, the President and Vice President havedeveloped a strategy outlined in the February 1993 document "Technology forAmerica's Economic Growth: A New Direction to Build Economic Strength," andfollowed by the President's Progress Report pub lished in November. TheAdministration's science and technology goals include:

o Reaffirming our commitment to fundamental science, the foundation upon whichall technological progress is built;

o Improving the contribution of federally spo nsored science and technologyinnovation to economic growth by forming closer working partnerships amongindustry, federal and state governments, workers and universities; and

o Doing a better job of coordinating federally-supported S&T investm entsacross the government.

The Administration intends to work directly with entrepreneurs and industriesthat are improving existing or developing new technologies. These efforts willbenefit biotechnology along with other emerging high tech nology-driven sectorsand this effect is both desirable and appropriate.

The current Administration is sensitive to the unique challenges facingbiotechnology and is cognizant of the need to proceed carefully in order toallow biotechnology to f ulfill its promise. A few examples --

1. Support for Fundamental Science

The ability to enlist the cooperation of the forces of Nature and put them towork in solving many of the problems we face today such as feeding andpr oviding energy to a growing population, improving human health, undoing someof the damage man has wrought on the global ecosystem, and sustaining ournatural resources was developed directly as a result of government-funded basicresearch. The Clinton Ad ministration recognizes the enormous rate of return onour public investment in fundamental science. Even in the rather bleakatmosphere imposed by very tight budget constraints, the science agencies havefared relatively well in the allocation of Fede ral funding. This directlyreflects 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 i ndustries, biotechnology is moving toward a phase inwhich much of the information necessary for advanced product and processdevelopment will be proprietary. However, this industry is one that willcontinue to look to the kind of fundamental scientific research that issupported through NIH, the National Science Foundation, and other Federalagencies. For Fiscal Year 1994, the Administration is not conducting astand-alone crosscutting analysis of Federal support for biotechnology researchas was perfo rmed for the two previous years under the FCCSET. Unfortunately,this has been interpreted to mean that we have phased out the activities of theBiotechnology Research Subcommittee. This is not so. On November 23, 1993,the President signed an Executiv e Order establishing the National Science andTechnology Council (NSTC), which he will chair. The charge to this newCabinet-level Council which succeeds FCCSET is to establish clear nationalgoals for federal science and technology investments and to en sure that scienceand technology policies and programs are developed and implemented tocontribute effectively to those national goals.

Private sector involvement with the NSTC will be essential to developingsuccessful science and technology policies that will help American businessesachieve sustainable growth and create high quality jobs, as well as to maintainour academic and research institutions' world leadership in science,engineering and mathematics. To ensure that the federal scienc e and technologyare reflective of national needs of the U.S., the President also established aPresident's Committee of Advisors on Science and Technology (PCAST). TheCommittee will advise the President on science and technology issues and assistthe NS TC in securing private sector involvement in its activities. The membersof the PCAST will be appointed by the President and will include distinguishedindividuals from non- federal sectors, drawn from industry, education and research institutions, non- governmenta lorganizations and other sources.

As one of the first actions taken under this new policy coordination andimplementation mechanism, we made certain that the efforts of the BiotechnologyResearch Subcommittee would continue under the new committ ee structure. Thissubcommittee will operate under the aegis of a single, overarching Committee onFundamental 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 ResearchSubcommittee will continue to provide government- widecoordinati on and focus for biotechnology research in the various Federaldepartments and agencies. Biotechnology will also receive attention in atleast two other of the nine (9) NSTC committees -- e.g. {Health, Safety, &Food; Environment and Natural Resource s}.

Under the NSTC, we will focus on extending the scientific and technicalfoundations necessary to the development of biotechnology, developing the humanresources necessary to biotechnology, facilitating the transfer ofbiotechnology resear ch discoveries to commercial applications and realizing thebenefits of biotechnology for human health, agriculture, and the restorationand protection of the environment. The Biotechnology Research Subcommitteewhich coordinates Federal research in biote chnology is in the process ofdeveloping strategic plans for federal research in agricultural biotechnology,environmental biotechnology, manufacturing and bioprocessing technology andmarine and aquatic biotechnology.

3. Science F orum

As another example of our focus on science, I would point to a meeting that myoffice will co-sponsor next week, in conjunction with the National Academy ofSciences and several professional societies and Federal agencies. The "Forumon Science in the National Interest: World Leadership in Basic Science,Mathematics and Engineering," will provide for discussion among representativesfrom academia, industry, and science policy makers across the government. Theobjective is to share info rmation and views on the national investment infundamental science and the critical challenges facing U.S. science today. Itis our intent to use this forum in the development of a national strategy forscience that parallels the technology initiative a lready in place.

4. Technology Initiatives

Biotechnology research and development are supported through several othermechanisms that I would encourage you to follow. One of those is the AdvancedTechnology Program ( ATP) administered by the Department of Commerce through theNational Institute for Standards and Technology. The ATP is designed topromote the economic growth and competitiveness of U.S. businesses and industryby accelerating the development and commer cialization of promising, high-risktechnologies with substantial potential for enhancing the Nation's economy.The ATP research priorities are set through an interactive process withindustry, by means of competitive proposals from industry and academia aimed atdevelopment and commercializing innovative technologies. Out of 400 industryresponses to a recent ATP announcement, 50 were in the biotechnology arena.On January 12, NIST hosted a workshop on biotechnology to explain theprocedures necessary to obtain support through the program, and to solicitindustry input on setting research priorities that meet the following programselection criteria:

o Potential U.S. economic impact;

o Good technological ideas that are "cutting edg e," high risk, strategicallyimportant, and based on sound scientific and technical concepts;

o Strong industry commitment to participate, including a willingness to sharecosts and to work with the government and other partners; and

o Oppor tunity for ATP to make a major difference by supporting work that isunique or complementary to other industrial and government efforts, that offerstimely and significant acceleration of research progress, and that requires acritical mass of funding. < p>

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

Other elements of Federal policy in biotechnology include:


Instructions have been given to Federal laboratories to devote a growingpercentage of their budgets to R&D partnerships with civilian industry. Weare emphasizing increased use of cooperative, cost-shared research anddevelopment agreements (CRADAs) as well as o ther cooperative arrangements.

One of the first CRADAs initiated by the National Institutes of Health isnoteworthy in several respects. The CRADA between NIH and Genetic Therapy Inc.(GTI) capitalized on technology and expertise in the NIH labor atories of Drs.French Anderson (one of the speakers in the earlier session), Michael Blaeseand Steven Rosenberg, to launch a new company, a new form of treatment forgenetic and other diseases and a new industry sector, that is, gene therapy.Beginning with the first human gene transfer trial initiated in 1988, NIH hasnow 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 defi ciency, advanced melanoma and AIDS are now underwayor are about to be undertaken. These represent tremendous health care andeconomic opportunities for this country.

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

6. Encouraging patient capital

Reflecting its growth dynamics, biotechnology is heavily d ependent on thepublic and private investment markets to bankroll start-ups and follow-onfinancing. Although we hear differing views on how long the window may remainopen for biotechnology company public offerings, it is my understanding thatsome are doing quite well right now. Biotechnology firms have generally beenable to raise cash for the initial stages of operation. But second and thirdrounds of capital financing, which are necessary o bridge the gap betweenresearch and profit generation fro m marketable products, are more difficult tocome by. A bottleneck is developing as startup companies attempt to moveforward into development, testing, and marketing -- the expensive part of theprocess. As much as $5 billion to $10 billion may be need ed just to developthe 100 biotechnology products currently in human clinical trials.

The Administration has taken some steps to improve the long-term, lower costavailability of capital. The President has signed into law tax incentives forpriva te-sector investment in R&D and new business formation, including atargeted reduction in the capital gains tax for investment in smallbusinesses. We also continue to push on reducing Federal deficits which syphonoff savings that otherwise c ould flow to private capital markets. In addition,a multi-agency working group under the aegis of the National Economic Councilhas been tasked to develop additional proposals to ensure patient capital forindustrial investment. We may be able to use t hat working group to addresssomething I know is of concern to you -- the impacts of the health care reformpackage on capital availability for development of biopharmaceuticals.

7. Making the Research and Experimentation (R&E) Tax Creditpe rmanent

During my tenure as Director at the Office of Technology Assessment, the OTAreport on Biotechnology in a Global Economy cited the R&E tax creditas a key issue for congressional consideration in protecting U.S. industriali nnovation and international competitiveness. In the past, the effectivenessof this credit was seriously undermined because it was extended one year at atime. Under those conditions companies cannot accurately project the realcosts of a given R&D project. Research and development, by its nature,requires long-term investment, and businesses will be reluctant to make suchcommitments without a permanent R&E tax credit. The tax credit wasreauthorized for 3 years and we will continue to work toward our goal of makingit 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 andenable us t o meet our national social objectives efficiently. As part of theTechnology Initiative, the President and Vice President stated that,

o "We can promote technology as a catalyst for economic growth by ...directlysupporting the development, com mercialization and deployment of new technology;and

o "To improve the environment for private sector investment and create jobs, wewill ensure that Federal regulatory policy encourages investment in innovationand technology development that ac hieve the purposes of the regulation at thelowest possible cost.

The Clinton Administration welcomes open discussion and debate as keyingredients to the development of successful regulations. Only through publicdialogue can we develop reg ulations which address the necessary questions in away that facilitates decision- makingby the Government, increases certainty and predictability for industry at thelowest practical cost, and that are demonstrably fair to the public interest.

However, to protect the public interest, it is neither necessary nor desirableto erect new hurdles that require the Government to det ermine what is "best"for people, as compared to what is safe, effective and of high quality. It isfar preferable to build bridges to the public that empower individuals - - through education, public disclosure, reasonable access to and influence overthe regulator y process - - than to make decisions for them. It is the responsibility of the Government toprovide an effective and credible regulatory system. I know that industrywants this as the best means to ensure public confidence and acceptance of theproducts of biotech nology. There is no better antidote to the actions of anti- biotechnologyactivists than an informed public and an open debate. Indu stry has a role toplay also in providing as much information regarding products as is reasonablewithin the confines of maintaining the confidentiality of proprietary businessinformation.

Within the Government, the Administration is actively pro moting greatercoordination of regulatory efforts that require agencies to talk to oneanother, streamline data requirements and facilitate innovation in regulatoryprocedures. I assume you heard about the Department of Health and HumanServices exempti ng the Food and Drug Administration from what is otherwise aDepartment-wide hiring freeze. This is a graphic demonstration of thegovernment's commitment to make sure that the product development pipeline isnot constricted at the site of regulation by understaffing.

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


In conclusion, biotechnology offers great promise for the future and has thepotential to impact nearly every facet of our lives. The keys to successfulinnovation and commercialization will be a strong b asic research program,fiscal and economic, tax policies that encourage investment, a rationalregulatory policy and an educated public. This Administration will help sustainthe strong research base for biotechnology and will offer a forum forbiotechnol ogy advocates and critics to reach some consensus on how variousbiotechnology products can benefit our society. The Clinton Administrationwill work with industry, and the research and health care communities and theAmerican people to build that consen sus, so that ten years from now, we canlook back and say that the 1990's was the decade of continued vigorous researchand also the successful commercialization of biotechnology and biotechnologyproducts in the United States and throughout the world.