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SCRIPPS NIH GRANTS WILL BE RESTRICTED IF DEAL WITH SANDOZ IS FINALIZED AS IS, HEALY WARNS; SANDOZ, SCRIPPS AGREE TO ADDRESS CONCERNS AS JULY DEADLINE NEARS

Executive Summary

NIH will place restrictions on the Scripps Research Institute's grants if its exclusive research support agreement with Sandoz is finalized in its current form, National Institutes of Health Director Bernadine Healy told the House Small Business/Regulation Subcommittee June 17. "We clearly have put Scripps on notice," Healy testified. "We have told them that we are prepared to exercise the exceptional circumstance [determination] under Bayh-Dole...[which] would involve putting restriction on all of their present and future grants, and that we would do so if we felt we could not come to a reasonable understanding based on the existing contract." If NIH places a restriction on Scripps grants, Healy explained, the government would retain an interest in any patented invention arising from the research, thereby keeping Scripps from having "unfettered title" to its inventions. This would interfere with the institute's December agreement with Sandoz, under which the pharmaceutical company will give Scripps $300 mil. over 10 years in exchange for first rights to all Scripps medical discoveries ("The Pink Sheet" Dec. 7, 1992, T&G-8). The agreement has a four-year phase-in period and begins in full in 1997; it also includes an option to renew for another six years. A review of the contract by NIH lawyers confirmed objections that NIH initially had raised at a March 11 subcommittee hearing on the topic, Healy reported. At that time, NIH had conducted only a preliminary review of the contract ("The Pink Sheet" March 15, p. 8). After closer examination of the document, Healy said, NIH lawyers concluded that the agreement appears to violate the Bayh- Dole Act, which governs technology transfer, and to infringe upon academic freedom. Sandoz and Scripps both have expressed their willingness to work with NIH to address the concerns that have been raised. The parties face a July 1 deadline for Sandoz to sign the contract and finalize it. Scripps already has signed the agreement. In a June 16 letter to NIH, Sandoz President and CEO Timothy Rothwell said the company is "prepared to meet with you at your earliest convenience to discuss these matters in depth. To the fullest extent possible, we will work with you in good faith to address all of NIH's concerns prior to July 1, 1993." NIH has not yet dealt directly with Sandoz but did have one meeting with Scripps on April 13 to discuss details of the contract. NIH followed up the April 13 meeting with a June 11 letter to Scripps that outlines its objections in writing. Scripps responded June 14 with a letter from general counsel Douglas Bingham, noting: "Now that we have all of your comments on our proposed agreement in writing, we will be better able to understand them, and, we believe, respond to them so as to resolve NIH's concerns." Scripps explained that "there are some contractual provisions which we believe may have been misconstrued by NIH...[and] we appear to have a different understanding of the policy objectives of the Bayh-Dole legislation and the best ways of achieving them." The problems cited by NIH reiterated the concerns expressed at the March 11 hearing and focused on the amount of control Sandoz would be given over Scripps and the resulting restriction on other parties' access to NIH-funded Scripps research. In 1992, Scripps received federal support amounting to about $70 mil., including $61.2 mil. from NIH. The institute's 1992 operating budget was approximately $122 mil. The problems include the broad scope of the research covered under the agreement; Sandoz' control over access to research and inventions; Scripps' consent to assist Sandoz in obtaining a waiver to the Bayh-Dole requirement for U.S. manufacture of products; and the control Sandoz would gain over Scripps, including the direction of research, membership on the research institute's board of trustees, and, according to NIH lawyers, the option to cancel the agreement if Scripps appoints a new CEO "not acceptable to Sandoz." Because Scripps already has signed the contract, Healy told the subcommittee June 17, "this means that some things have to be done between now and July 1, which is only a few weeks away. Or, Scripps and Sandoz will have to delay the actual signing and come to some other terms." She warned: "We have notified them that if the contract goes forward as we have seen it, that we are prepared to take swift action, and we have the support of [HHS] on this." However, Healy emphasized her desire not to stifle the research being done at Scripps under NIH grants or the transfer of technology from grantees to industry. "We in no way want to interrupt the very good research that's going on there under our grants," she said. Healy pointed out that NIH's preliminary review of approximately 375 research-support agreements entered into by NIH grantee institutions found the Scripps/Sandoz case to be "an aberration" (see following story). Healy noted with some skepticism Scripps' repeated assurance that the contract was unanimously endorsed by all of its scientists. She contended: "Well, when we looked into it, we found that most of the scientists had not read the contract, that if they wanted to they could go to the lawyer's office and take a peek at it, but it's a hundred pages, and I can tell you it takes a long, long time to read it." Both Healy and subcommittee Chairman Rep. Wyden (D-Ore.) noted that one of their major concerns with the Scripps/Sandoz contract would be the precedent that might be set. Healy warned: "If [contracts like the Scripps/Sandoz arrangement] proliferate, I think that it will force the government to intrude itself in relationships that largely work very well." Wyden first drew attention to the Scripps/Sandoz agreement in a Feb. 2 letter as part of his ongoing interest in the role NIH should take with regard to drugs developed with federal funding. Following the March 11 subcommittee hearing, Wyden sent a letter to the HHS Inspector General's office requesting an investigation of the contract as well as of Scripps patent applications to determine whether the applications acknowledge the role of NIH funding as required ("The Pink Sheet" March 22, T&G-2). Scripps declined to appear at the June 17 hearing, citing a preference to work out its problems with NIH privately. The institute did release a statement indicating its continued belief that the contract with Sandoz is consistent with both "the letter and spirit" of Bayh-Dole. Scripps also noted it is in the process of correcting its inadvertent omission of the sponsorship statement from some of its patent applications.
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