Boston Globe

April 5, 1998


Author: This series was prepared by Spotlight Team editor Gerard O'Neill, reporters Mitchell Zuckoff, Alice Dembner, Matt Carroll, and photographer John Tiumacki. Today's story was written by Dembner.

Edition: Third
Section: National/Foreign
Page: A1

Working in a public laboratory, backed by $3.2 million in federal grants, Dr. Barry S. Coller turned a scientific hunch into a "super aspirin" and turned himself into a Park Avenue multimillionaire.

Coller's royalties from the sale of ReoPro, an intravenous drug that prevents blood clotting after angioplasty, are expected to hit $6.4 million by summer. The drug manufacturer, analysts say, will make a 28 percent profit. Heart patients get a new treatment. But the taxpayers who underwrote the development of ReoPro and scores of other new drugs get next to nothing.

Some, like Eric Harrington, can't even afford the new drugs.

To control Harrington's multiple sclerosis, his doctor would like to prescribe Avonex, a drug developed by Cambridge-based Biogen and tested with $4.6 million in government aid. But Biogen charges more than $11,000 for a year's supply. And Harrington, a maintenance foreman with no prescription coverage, ! doesn't have $900 a month for medicine.

"They take my tax dollars, it benefits the companies and I don't get any use out of it," said Harrington of Arlington.

Tracking government-funded research to develop new treatments, a Spotlight team investigation revealed a billion-dollar taxpayers' subsidy for pharmaceutical companies already awash in profits. The investigation also documented a pattern of scientists and universities cashing in on government-funded inventions.

The government spending helps bring new drugs to the public. But taxpayers often end up paying onerous prices at the pharmacy for medicine their tax dollars helped to create.

Now Congress is preparing to increase the stakes by doubling the budget for the National Institutes of Health, the main dispenser of grants for medical research. Scientists and drug companies are cheering, since NIH money comes with few obligations, like a bank loan that never comes due. In fact, NIH onl! y loosely tracks its spending on new drug development and rarely asks for any return of taxpayers' seed money.

Coller declined to comment on his research-to-riches story. Drug industry leaders say that NIH-funded research lays important groundwork for drug development, and they argue that restricting access to that work would delay development of new drugs essential to the health of Americans. Underscoring that point, Biogen president Jim Tobin said that without NIH's support, the company "would have taken a pass" on Avonex. But he and others also argue that to focus on NIH's investment is to ignore

"This is a wonderful synergy that has great benefit for patients with medical needs," said Judith H. Bello, executive vice president of the Pharmaceutical Research and Manufacturers of America (PhRMA). "We don't want to erect deterrents to that collaboration."

But critics ask why an industry that generates net profits more than twice as large as those of other major US businesses gets taxpayer assistance with so few str! ings attached.

"Taxpayers' money ought to earn money," said William Haddad, chairman of Mir Pharmaceuticals, a generic drug manufacturer, who believes that companies with successful products should reimburse the government.

The federal Department of Energy already requires payback of research funds in similar situations, and some prescription drug companies endorse the concept of a partial reimbursement through royalties to NIH. But the majority of the industry supports the status quo and vehemently opposes a plan proposed by US Representative Bernard Sanders of Vermont to cut the prices of drugs developed with public money. Sanders calls the current system "an outrageous example of corporate welfare."

The Spotlight team investigation of that system found:

Unlike most developed nations, the United States has no national drug policy, so there is no overall direction, no coordination, and no evaluation o! f the costs and benefits of federal spending for drug development, according to Stephen W. Schondelmeyer, a professor at the University of Minnesota's College of Pharmacy.

The industry takes full advantage of the situation, building on NIH's basic and applied research and readily accepting the government's help in testing new drugs.

As a result, researchers like Coller are striking it rich with tax dollars. Robert A. Holton, a professor of organic chemistry at Florida State University, received about $2.3 million from NIH to help develop a synthetic form of the cancer drug Taxol. Last year, he got $11 million in royalties on the semi-synthetic Taxol, bringing his total since 1993 to nearly $25 million. The NIH money, he said, was "key" to his work.

Private companies are piggybacking on government research. Chiron Corp. of California charges kidney cancer patients up to $20,000 for treatment with Proleukin. The drug won FDA approval after nearly $46! million worth of clinical tests conducted or funded by NIH.

Corporations are getting direct government handouts. NIH awarded Abbott Laboratories of Illinois $3.2 million to design and develop a new drug, called a protease inhibitor, to slow the progression of AIDS. Abbott sold $41 million worth of Norvir in the first half of 1997.

Even foreign companies are cashing in. Teva Pharmaceutical Industries of Israel sold about $50 million worth of its multiple sclerosis drug, Copaxone, in the United States last year, reaping the rewards of nearly $5 million NIH and the FDA spent to help test it.

"They're [NIH] in the business of pouring money into private industry and failing to keep track of it," said professor Michael H. Davis, a specialist in intellectual property at Cleveland State University College of Law. "We're talking about millions of dollars wasted and about people being exploited because of excessively high drug prices."

NIH director Harold Varmus defends the agency's actions, asserting that they fit it! s goal of supporting research and ensuring that potential products are developed.

"The process is designed to benefit both the public good and private industry, and it works well," he said in a written statement.

"I do not attempt to measure the role of NIH in drug development by comparing how much money we spend on research with royalty revenue we generate," he added. "Royalties are subservient to public health considerations."

Rights to discoveries ceded by Congress

Up until the 1980s, the government owned the rights to any discoveries made with federal aid. But concern that important new drugs and other products discovered with federal assistance were not making it to market led Congress to change the rules. In a series of laws, Congress gave away the government's rights -- and the ensuing profits -- to universities, nonprofit laboratories, and small businesses.

In addition, Congress ordered federal laboratories to cooperate mor! e closely with industry in developing new treatments and products, and gave federal scientists an incentive by allowing them to collect royalties on inventions made while on the federal payroll.

To protect the public's interest, the law ordered federal agencies to ensure that products developed under the new system were "reasonably" available to the public and required them to collect royalties for work performed by government scientists that led to new patents. But in practice, the system has authorized loosely supervised government subsidies that go far beyond NIH's boost to the pharmaceutical industry, extending from other federal agencies to the fields of electronics, defense, and energy, among others.

Without doubt, the system has spurred economic development, added jobs, and generated tax dollars. The subsidies and results are striking in the pharmaceutical industry, where there has been an explosion of new drugs, many of which save lives and reduce hospitalization.

But even as he praises such advances, one of ! the architects of the new system, former US senator Birch Bayh, an Indiana Democrat, worries that they are being tainted by price-gouging or profiteering.

"How do we deal with a situation where one person who has a new mousetrap that is a lifesaver is gouging the public?" asked Bayh, who is now a lobbyist. "If there's a formula we can find for reasonableness, then we should do that."

In addition, by giving up its share of the profits, the government is losing a source of revenue that could be tapped, instead of taxes, to pay for more research.

That drain occurred during a decade that saw a doubling of NIH's budget. Now, President Clinton is proposing an additional 50 percent increase over the next five years, and congressional leaders in both parties want to top that, advocating a 100 percent increase that would bring NIH's annual budget to $26 billion.

Massachusetts would benefit greatly from an expansion of NIH's coffers, since the state! 's prestigious researchers win about 10 percent of NIH grants. But som e specialists worry that the money would give NIH less incentive to track its spending on drug development and end up sending more money into the pockets of individual researchers and big pharmaceutical corporations.

Industry leaders see no downside to that development, even as they downplay the importance of NIH's contribution.

"The vast majority of new medicines are actually developed by companies," said Jeff Trewhitt, a PhRMA spokesman. "NIH does most of the basic discovery work, but we do the applied research. We take new medicines through the expensive process of clinical testing and FDA approval. The cost per product can be up to $600 million."

Trewhitt acknowledges that the $600 million figure is an extrapolation, adjusted for inflation and changes in research and development, based on a disputed Tufts University study that pegged the average cost of developing a drug at $231 million in 1987. Both numbers count not only company spending but ! money lost on unsuccessful drugs and the expense of using funds for drug development rather than some other purpose. A 1993 government study that used the same base figures, however, found that the out-of-pocket costs after tax breaks were just $65.5 million. None of the figures can be verified because companies refuse to release actual expenses for individual drugs.

Regardless of the actual cost, critics agree with Trewhitt that "it is not cheap, and it is very risky to develop a new medicine." But they ask whether the public, which shares that cost and risk, should share more directly in the benefits.

Anti-clotting drug pays big dividends

Throughout the development of ReoPro, Barry Coller says, he has been serving the public. "I view my scientific investigation as serving my commitment as a physician to improve the diagnosis and therapy of patients suffering from illness," he wrote in a 1995 article about the drug's development.

But Colle! r has also served himself -- and the drug companies that produce and s ell his drug.

Coller, a doctor who specializes in the study of blood, developed his anti-clotting drug in the labs of the State University of New York at Stony Brook, where he was a member of the faculty. He credits SUNY for providing "an enriched scientific environment" and the National Heart, Lung and Blood Institute, a branch of NIH, for funding the basic work. Over nearly 20 years, NIH records show that the agency contributed $3.2 million to his efforts.

But after testing the developing drug in animals, Coller and SUNY turned to industry in 1986. They sold the rights to develop ReoPro to Centocor, a young biotechnology company from Malvern, Pa. Over the next eight years, Centocor would supplement Coller's NIH research funding and his state salary, while also giving SUNY more than $1 million in licensing fees and upfront royalties. Centocor paid to patent the drug and says it spent more than $200 million on development.

ReoPro won FDA approval i! n late 1994. Given intravenously to patients following surgery for clogged arteries, the drug helps prevent heart attacks from blood clots. Eli Lilly and Co. markets ReoPro for Centocor. In 1997, annual worldwide sales hit $254 million.

Under the deal with Centocor, the university collected nearly $12 million in royalties by the end of 1997 and expects another $4 million by summer, much of which will fund university research. Coller's share will be $6.4 million. Analysts predict sales will nearly triple by 2001, which could boost Coller's royalty income over $20 million.

A year before ReoPro won FDA approval, Coller departed SUNY for Mount Sinai Medical Center in Manhattan, becoming chairman of medicine, its largest department. He purchased a home on Park Avenue that realtors say is worth more than $1.5 million.

Officials at SUNY said NIH does not deserve a dime back. "The university takes on all the responsibility of patenting and marketing and t! rying to develop the invention," said John Petersen, director of the u niversity's office of technology licensing. "The public as a whole benefits from getting the product on the market."

But not all scientists agree that is sufficient at current drug prices. ReoPro costs about $1,500 per treatment.

"When the public pays for something, they should expect to get access to it," said Richard J. Roberts, a Nobel laureate in medicine who is now research director of New England Biolabs in Beverly. "They're not expecting that a university or a university researcher is going to get rich on it."

But Coller has plenty of company in the millionaire's circle.

Royalties for Holton, the Florida State professor, dwarf Coller's. For his work developing the semi-synthetic form of Taxol, Holton says he's collected just shy of $25 million in royalties.

"In 1983, when I first started working on Taxol, I never expected it would be a drug," said Holton, who still teaches organic chemistry. Over 12 years, he received $2.3 ! million from NIH for work that changed his view.

While scientists at the National Cancer Institute, another branch of NIH, were spending nearly $27 million to develop and test the natural form of the drug, derived from the bark of Pacific yew trees, Holton pressed ahead with his search for a cheaper and more readily available source. His success boosted the sales of Taxol and added to the revenues of Bristol-Myers Squibb, which produces and sells the drug. In the first half of 1997, Bristol-Myers sold $323 million of Taxol in the United States, helping to push its profit margin to 19 percent.

Holton says he'd be willing to give a share of his royalties to NIH "as long as it went back to the NIH budget in the same area that generated it and didn't supplant other funds."

For its part, Bristol-Myers last year made its first -- and only -- royalty payment to NIH for Taxol, $3.4 million in exchange for additional rights that extend Bristol-Myers's mono! poly on the drug. The payment followed years of criticism of the origi nal deal in which the government gave the company rights to Taxol without seeking any direct payback.

Bristol-Myers spokeswoman Jane Kramer says the public got much more than the royalties, including "a cancer-fighting drug that it wouldn't otherwise have had," and NCI got free supplies of Taxol, research support to test the drug for new uses and royalties that together were worth $30 million.

But critics say the payments don't begin to compensate taxpayers. "It's a great deal for Bristol-Myers, but it's a terrible deal for the taxpayers," said James P. Love, an executive with the Taxpayer Assets Project, founded by Ralph Nader. "It's as if the government hired 1,000 people to build cars for General Motors and GM agreed to pay for their coffee."

Like Bristol-Myers, other private companies are riding government research to the bank. Chiron Corp. of Emeryville, Calif., for example, is the beneficiary of more than $45 million worth of clinical tests c! onducted or funded by NIH.

The company sells Proleukin, a genetically engineered form of interleukin-2, for the treatment of kidney cancer and malignant melanoma. The substance was patented by scientists at Cetus Corp., later taken over by Chiron. But it was work by surgeon Steven A. Rosenberg and his colleagues at the National Cancer Institute that showed the drug could help people with advanced kidney cancer. And it was NCI that funded most nationwide tests of the drug for use in other cancers. NCI eagerly shared

Maurice Wolin, medical affairs director for Chiron, acknowledges Rosenberg's contribution. But he says Chiron poured millions of dollars into the drug, and provided it free to Rosenberg and his patients. Added Chiron vice president James Knighton, "All the constituents get a share that's fair to the risk they bore."

Knighton said Chiron sold more than $75 million of Proleukin worldwide in 1997. NIH said it gets no royalties.

NIH spent $1 billion on drug research in 1996

Rosenberg's years o f work on Proleukin are indicative of the government's massive investment in developing new medicines that goes far beyond grants to university researchers.

In fact, NIH has several divisions devoted to searching for potential drugs. For certain illnesses, government scientists also run a screening service for drug companies, spending taxpayer dollars to determine whether those companies have a potential winner among the chemical substances they've patented. The companies retain all rights and profits.

NIH says it spent approximately $1 billion on drug and vaccine development in fiscal 1996. But the actual figure may be higher. NIH largely tracks its spending by disease, not by drug. For most drugs, therefore, NIH has no idea how much taxpayers invested and no way to determine if they're getting a fair return.

"Every time we've tried to work backwards, the picture gets very complex of how a drug or compound was created," said Barbara McGarey, deput! y director of NIH's Office of Technology Transfer.

The Spotlight team calculated government spending on 50 drugs by conducting its own search of NIH's grant database, a method that probably underestimates taxpayer contributions since the database does not include all work done by NIH's own scientists and often does not specify drug names. Still, the total spent on those 50 drugs from 1972 to 1996 was just under $175 million. Hundreds of millions more were undoubtedly spent on scores of other drugs approved by the FDA during that period andon drugs still in the pipeline.

NIH also does little to enforce rules designed to protect US rights to drugs that result from taxpayer-funded work.

For example, government rules require recipients of NIH money to report any inventions that resulted and to acknowledge the federal role in any patent received. But, when asked by the Globe, NIH could not produce any reports on five specific drugs developed with milli! ons of dollars from NIH. The agency says there is neither time nor res ources to verify researchers' compliance with the rules, despite a warning from its own inspector general in 1994 that NIH's lax enforcement meant the agency

As a result of federal policies and practices, NIH's royalty income is small. In fiscal 1996, the year NIH says it spent $1 billion on drug development, it took in just $27 million in royalties from all products that came out of its research. NIH does not tally its drug royalties separately.

NIH royalty revenue is rising -- it hit $35 million in 1997 -- and would be expected to lag development spending, but it is dwarfed by some universities' royalties. The University of California, for instance, collected $57 million in 1996.

In most cases, NIH refuses to release royalty totals from specific drugs, saying that would reveal proprietary information about private companies. But NIH's typical royalty rates are lower than those usually negotiated by universities and firms.

McGarey said NI! H aggressively pursues royalties. But she acknowledged, "We license with an eye toward commercializing the product for a reasonable return on the public's investment. Our primary goal is not to maximize the financial return."

NIH says a similar philosophy drives its policy that allows private companies to compete with university researchers for grants. Seven percent of all NIH research grants and contracts in 1997 -- $733 million -- went to for-profit organizations.

Abbott Laboratories, for example, won $3.2 million in grants from 1988 to 1992 that laid the groundwork for its development of Norvir, a protease inhibitor used to fight the progression of AIDS. In 1992, the Illinois company began testing Norvir in animals, followed by tests in patients with additional help from NIH. The FDA approved it for market in 1996. US sales of the drug, typically used as part of a two- or three-drug "cocktail," hit $41 million in the first half of 1997. The company repo! rted a profit margin of 18 percent.

As required, the company credited the NIH grant on its patent for Norvir. But NIH didn't ask for any financial return and Abbott didn't offer. Abbott officials declined comment.

Foreign-based firms also benefit from US subsidies

The government's subsidy of drug companies also extends abroad. Twenty of the drugs examined by the Globe were developed by foreign-based firms that benefited from NIH or FDA-funded research or testing. The subsidy totaled $39 million.

Teva Pharmaceutical Industries of Israel, for example, won FDA approval to sell its multiple sclerosis drug, Copaxone, with the help of about $4.9 million worth of testing funded by NIH and the FDA. The saga began when researchers in Israel working independently of Teva discovered the drug. They sought help from colleagues in New York, who won more than $4 million in NIH grants to try the drug in patients. Armed with successful results, the Israeli researchers licensed the drug to Teva. The company then received $300,! 000 more to test Copaxone from the FDA's orphan drug program, which offers grants, tax breaks, and a seven-year monopoly to companies developing drugs for rare diseases.

Analysts estimate Teva sold $50 million worth of Copaxone in 1997, the first year the drug was available in the United States. Teva manufactures the drug in Israel and markets it here through a joint venture with another company. After taxes, profits are sent back to Israel. Patients pay more than $10,000 a year for the drug, which reduces MS symptoms.

Teva officials say the company would be willing to pay back similar grants in the future if that were required, especially if the funds were recycled for other research projects. But they note that the Copaxone grants were not awarded with any strings.

"It's a public ripoff," said patent lawyer Michael Davis, who represented citizens in a suit over drug pricing. "Our government is more than eager to allow public research to be sipho! ned off to foreign companies. So we're not only paying twice, we're pa ying it to a foreign company."

That seems the ultimate injustice to Eric Harrington as he struggles with multiple sclerosis. His most recent bout numbed his entire body, at its worst leaving him unable to hold a cup of coffee, let alone feed his newborn daughter. By early February, he had exhausted his vacation time and all but one sick day for 1998.

Back at work now, he is increasingly worried that he will lose his job at a local real estate company. His wife, Anne, fears that his next episode will leave him unable to walk unassisted. The irony is that if he becomes unemployed or disabled, he might qualify for Medicaid or Medicare coverage that would pay for a drug to ease his symptoms.

Biogen, which makes Avonex, the MS drug Harrington's doctor prefers, has offered to discount the drug, but Harrington says it is still out of reach. The company reported a net profit of $89 million in 1997. Teva, which sells the competitor drug Copaxone, made $101 ! million.

"The bottom line is that taxpayers invested when no one else would," said Ralph DeGennaro, executive director of Taxpayers for Common Sense, a budget watchdog group. "It's only fair that they get a cut when the pharmaceutical companies hit the jackpot."


Private profits from public funds

The drug industry, which is twice as profitable on average as other major businesses in the United States, benefits from substantial government subsidies obtained through grants to academic or government researchers or given directly to the companies themselves.

The Globe looked at 50 top-selling drugs approved by the Food and Drug Administration over the past five years: 35 new drugs, which are bestsellers among those the FDA deemed most important or most unique, and 15 "orphan" drugs targeting rare diseases. Thirty-three of the 35 new drugs and 12 of the 15 orphans received money from the National Institutes of Health or the FDA to he! lp in discovery, development, or testing.



Copyright 1998 Globe Newspaper Company
Record Number: 9804070305

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