Depatiment  of  Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
TECHNOLOGY  TRANSFER 
AND  THE  PUBLIC  INTEREST: 
COOPERA~  RESEARCH  AND

DEVELOPMENT  AGREEMENTS 
AT  NIH 
NOVEMBER  1993
 OFFICE OF INSPECrOR  GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department  of Health and Human Services (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by three OIG ope:ating components:  the Office of Audit Services, the 
Office of Investigations, and the Office of Evaluation and Inspections.  The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them. 
OFFICE OF AUDIT  SERVICES 
The OIGSOffice of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the Department. 
OFFICE OF INVESTIGATIONS 
The OIGS Office of Investigations (01) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrichment by providers.  The investigative efforts of 01 lead to criminal convictions, 
administrative sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE OF EVALUATION  AND  INSPECHONS 
The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department, 
the Congress, and the public.  The findings and recommendations contained in these inspection 
reports generate  rapid, accurate, and up-to-date information on the efficiency, vulnerability, 
and effectiveness of departmental  programs. 
This report was prepared  in the Boston Regional Office, under the direction of Mark R. 
Yessian, Ph.D., Regional Inspector General, and Martha B. Kvaal, Deputy Regional Inspector 
General, Region I, Office of Evaluation and Inspections.  Participating in this project were the 
followingpeople: 
BostonOffice  Headquarters 
Dana L. Miller, Project Leader  Mary Beth Clarke 
Timothy J. Corbett 
Fm additionalcopiesof thisrepo~ please contacttheBostonregionalo@ee  bytelephone,at 
(617) 565-1050, or byFe  at (617) 565-3751.  Department  of  Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
TECHNOLOGY  TRANSFER

AND  THE  PUBLIC  INTEREST:

COOPERA~  RESEARCH  AND 
DEVELOPMENT  AGREEMENTS 
AT  NIH 
oEI-01-92-Olloo 
NOVE~ER  1993   EXECUTIVE  SUMMARY 
PURPOSE 
The  purpose  of this study is to assess  the  extent  to which  the  National  Institutes  of 
Health  protects  the  public  interest  in its establishment  and  oversight  of Cooperative 
Research  and  Development  Agreements. 
BACKGROUND 
The  National  Institutes  of Health  (NIH)  is one  of the  worlds premier  biomedical 
research  institutions.  Its mission  encompasses  both  the  pursuit  of basic  scientific 
knowledge  and  the  application  of that  knowledge  to the  provision  of health  care.  h 
fulfilling this mission,  NIH  intramural  scientists  have  long  collaborated  with outside 
organizations  in the  research  and  development  of biomedical  discoveries  and 
inventions  and  in the  transfer  of Federal  technologies  to industry.  This  collaboration 
ranges  from  undocumented  exchanges  of research  materials,  to informal  compound-
screening  efforts,  to clinical  trials  conducted  by NIH  with private  organizations. 
In  1986 Congress  passed  the  Federal  Technology  Transfer  Act  (FITA),  which 
established  the  Cooperative  Research  and  Development  Agreement  (CRADA)  as a 
new collaborative  mechanism  intended  to foster  the  private  commercialization  of 
Federal  technology.  Of the  125 CRADAS  administered  by the  U.S. Department  of 
Health  and  Human  Services  in 1992, 93 were  at NIH.  Sixty-nine  percent  of these 
were  concentrated  within  three  institutes:  the  National  Cancer  Institute  (NCI),  the 
National  Institute  of Allergy  and  Infectious  Diseases  (NIAID),  and  the  National 
Institute  of Diabetes  and  Digestive  and  Kidney  Diseases  (NIDDK). 
Our  report  examines  the  usefulness  of the  CRADA  as a collaborative  mechanism  and 
identifies  important  challenges  to the  future  success  of the  NIH  CRADA  program. 
We  conducted  this study in response  to a request  from  the  Chairman  of the  United 
States  Senate  Special  Committee  on Aging. 
Our  findings  are  based  primarily  on a review  of documents  for the  61 CRADAS 
established  at NCI,  NIAID,  and  NIDDK  in 1990, 1991, and  1992, and  on interviews 
with NIH  principal  investigators  and  administrators,  and  industry  representatives 
involved  in the  24 CRADAS  established  in those  3 institutes  in 1992. 
FINDINGS 
Govemrnent  and  indksby ptuiici@nts  h  NZH CRALMS repn&d  that the CRAL?A is a 
uwjid  mechanirm for colkbomtin 
. The  CRADA  can facilitate  the  pooling  of NIH  and  private-sector  intellectual 
and  financial  resources,  equipment,  facilities,  and  research  materials. 
i  . ~eCWAcan  protect  theintellectual  proper~tights  of thegovementin 
inventions  that  result  from  collaborative  efforts. 
	 The  CRADA  can  facilitate  the  transfer  of technology  from  NIH  laboratories  to 
the  private  sector  for  development  and  commercialization. 
A/onetheleiw, several chalkngtx  to the efective  management  of the NH  ClL4DA progmm 
coukl jeopani&e  its fidure success. 
9	 Many  CIWDA  projects  may not  be well-suited  for the  CRADA  mechanism 
because  they  do not  focus  on the  transfer  of Federal  technology  to the  private 
sector  for commercialization,  which is the  central  intent  of the  FITA. 
	 The  process  of establishing  a CIL4DA  is lengthy  and  complex.  This  may 
discourage  participation  in CRADAs,  and  may undermine  the  intent  of the 
FT7~  which  calls for  an expeditious  review  and  approval  process. 
	 The  NIH  does  not  have  guidance  that  adequately  addresses  the  complexities  of 
providing  fair  access  to CRADA  opportunities.  Failure  to ensure  fair  access-
and  the  appearance  thereof--could  deter  industry  participation  in CRADAs, 
impede  market  competition,  and  undermine  public  support  for the  CRADA 
program. 
	 Limited  NIH  oversight  of CRADA  projects  may inhibit  the  ability  of NIH  to 
ensure  that  CRADA  work  is consistent  with the  intent  of the  FTTA  and  NIH 
policy. 
	 The  pricing  of CR4DA  products  is a matter  of considerable  controversy  that 
reflects  NIHs  difficulty  in achieving  a balance  between  protecting  the  p-ublic 
investment  in CRADAs  and  maintaining  industrys  incentive  to participate  in 
them.  This  controversy  threatens  to undermine  support  for the  NIH  CRADA 
program. 
RECOMMENDATIONS 
The  NIH  has  already  identified  and  begun  to address  several  of these  challenges.  In 
each  area,  a successful  response  requires  that  a careful  balance  be  achieved  between 
enhancing  the  protection  of the  public  investment  in CRADAs  and  preserving  interest 
in CRADA  participation  among  NIH  scientists  and  in industry.  Such a response  must 
also be  consistent  with the  decentralized  and  expeditious  CRADA  management  called 
for by the  FITA.  With  these  considerations  in mind,  we offer  the  following 
recommendations  to strengthen  the  management  of the  NIH  CIUDA  program: 
l%e NH  should  tipkment  guidelines that ckariy  indicate the ~pes  of reseadt  pmjectr 
that are approptite  for the CRADA  mechanism 
ii  The NIH  should buiki upon its cument florts  to clarijJ and streamline  the CRADA 
review and appval  process. 
The h?ZHshould jiuther  deveihp the fail  acce.w guidelines to rejlect the jhll  range of iwmx 
involved 
l%e NE?  should develbp  and maintain  a central database  system to tmck  all ongoing 
CRADA  WOk 
l%eIWH, wotigwith  the 0f7iceofti  Seme~dti  Oj&eofthe  As@@ti 
Secreti~  for Hea~  shouki seek a consensus on how to resolve the reasonable pricing 
Contmvmy. 
COMMENTS  ON THE  DRAFT  REPORT 
We  solicited  and  received  formal  comments  on our  draft  report  from  the  Public 
Health  Service  (PHS).  The  complete  text  of these  comments  appears  in appendix  C. 
The  PHS  concurred  with four  of our  five recommendations  and  indicated  steps  it has 
taken  and  plans  to take  to implement  them.  The  PHS  did not  concur  with  our 
recommendation  that  NIH  should  implement  guidelines  that  clearly  indicate  the  types 
of research  projects  that  are  appropriate  for the  CRADA  mechanism. 
The  agency  believes  that  restrictions  on the  use of the  CRADA  are  already  explicitly 
addressed  in current  CRADA  guidelines,  that  there  is no legal  requirement  for further 
restrictions,  that  there  is no inconsistency  between  the  intended  and  current  uses  of 
the  CRAD~  and  that  NIH  laboratories  and  public  access  to CRADA  inventions  are 
adequately  safeguarded  by current  NIH  policy and  procedures. 
We  continue  to believe  that  it is important  for NIH  to provide  further  guidance 
regarding  the  types  of research  projects  that  are  appropriate  for the  CRADA 
mechanism.  Our  concern  focuses  on fulfilling the  intent  of the  FITA  rather  than  on a 
narrowly  defined  compliance  with the  letter  of the  law.  We  are  particularly  concerned 
that  basic-science  research  projects  and  NIH  routine  testing  of industry-patented 
inventions  may not  be well-suited  for the  CRADA  mechanism. 
The  PHS  can best  protect  the  public  investment  in NIH  and  its scientists  by providing 
clear  guidance  now, before  CRADA  activity becomes  more  prevalent,  before  more 
public  resources  are  expended,  and  before  more  CRADA  products  reach  the  market. 
... 
111   TABLE  OF  CONTENTS

PAGE 
EXECUTIVE  SUMMARY  . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . ....  i 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...  .o ...  1

FINDINGS 
(cid:31) Government  and  industry  CRADA  participants  reported  that

the  CRADAis  a useful  mechanism  for collaboration  . . . . . . . . . . . . . . .  4

(cid:31) Nonetheless,  several  challenges  tothe  effective  management  of

the  NIH  CRADA  program  could jeopardize  its future  success  . . . . . . . .  6

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

COMMENTS  ON THE  DRAFI  REPORT  . . . . . . . . . . . . . . . . . . . . . . . . . . ...17

f%  Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  A-l 
B: A Statistical  Profile  of CRADAS  established 
at NCI, NIAID,  andNIDDl&  1990-92  . . . . . . . . . . . . . . . . . . . . . . . . .B-l 
c  Complete  Comments  onthe  Draft  Report  . . . . . . . . . . . . . . . . . . . . ..C-1

D:  Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  D-l   INTRODUCTION 
PURPOSE

The  purpose  of this study is to assess  the  extent  to which the  National  Institutes  of

Health  (NIH)  protects  the  public  interest  in its establishment  and  oversight  of

Cooperative  Research  and  Development  Agreements  (CRADAS).

BACKGROUND

Collaboration  between  the  NIH  and  Non-Federal  Organizations

The  NIH  is one  of the  worlds premier  biomedical  research  institutions.  It has  as its

mission  science  in pursuit  of fundamental  knowledge  about  the  nature  and behavior

of living systems  and  the  application  of that  knowledge  to extend  healthy  life and

reduce  the  burdens  of illness  and  disability.1  The  NIH  fiscal year  1993 budget  of

$10.3 billion  supports  research  through  16 institutes,  6 centers,  1 division,  and  the

National  Library  of Medicine.  Approximately  85 percent  of this budget  is spent  in

support  of extramural  research  conducted  by scientists  who are  not  Federal

employees,  working  in laboratories  that  are  not  owned  or operated  by the  Federal

government.  The  remaining  15 percent  of the  budget  supports  intramural  research

conducted  by federally  employed  scientists  working  primarily  on the  NIH  campus.2

Intramural  researchers  have  long collaborated  with  organizations  outside  of the

Federal  government  in the  research  and  development  of biomedical  discoveries  and

inventions  and  in the  transfer  of Federal  technologies  to industry  for

commercialization.  Intramural  scientists  publish  their  research  findings,  present  their

work in lectures  and  at meetings,  act  as unpaid  advisors  to external  organizations,  and,

on their  own time,  perform  paid  consultancies.  In addition,  they  exchange  chemical

compounds  for research  purposes  with  outside  laboratories,  screen  chemical

compounds  for such  organizations,  and  conduct  clinical  trials  with such  organizations.

Some  collaboration  is undocumented;  other  cooperative  work  is formalized  in written

agreements.

Historically,  however,  Federal  scientists  have  not  been  encouraged  to pursue  research

with potential  commercial  applications.  In addition,  because  exclusive  licenses  were

difficult  to obtain,  industry  had  little  incentive  to develop  Federal  inventions.3  Of the

more  than  28,000 patents  that  the  Federal  laboratories  accumulated  over  the years,

only approximately  5 percent  had  ever  been  licensed  as of the  mid-1980s.4

Legislation  in Support  of Technology  Transfer

Growing  concern  about  U.S. competitiveness  in the  world  economy  has motivated  the

passage  of several  technology  transfer  laws since  1980.  These  laws are  intended  to

1  increase  U.S.  productivity  by fostering  collaboration  between  academic  institutions, 
Federal  laboratories,  and  private  industry  in the  development  of new technology.  The 
Stevenson-Wydler  Technology  Innovation  Act of 1980 (P.L.  96-480) was intended 
(l)  to build  links between  generators  of knowledge  (universities  and  Federal 
laboratories)  and  users  of knowledge  (indust~  and  State  and  local  governments);  and 
(2) to build  into  the  Federal  Government  a positive  concern  for the  welfare  of 
industry.s  The  Federal  Technology  Transfer  Act  (F7XA) of 1986 (P.L.  99-502) 
amended  the  Stevenson-Wydler  Act with provisions  specifically  designed  to improve 
the  transfer  of commercially  useful  technologies  from  the  Federal  laboratories  and  into 
the  private  sector.b 
The  CRADA 
The  FTTA  established  the  CRADA  as a new mechanism  for collaboration  between

Federal  researchers  and  State  and  local  governments,  private  businesses,  foundations,

nonprofit  organizations,  and  others.  Through  CRAD&  Federal  agencies  can  provide

personnel,  setices,  facilities,  equipment,  and  other  resources,  but  not  funds,  to

nonfederal  organizations  for the  conduct  of specific  collaborative  research  and

development  efforts  that  are  consistent  with the  Federal  laboratories  missions.  The

nonfederal  organizations  can  contribute  all of the  above  and  finds.  The  NIH

stipulates  that  all collaborative  partners  must  make  significant  intellectual  contributions

to CRADA  projects.7  The  FTTA  requires  that  Federal  agencies  give preference  to

small  and  domestic  businesses  when  choosing  CRADA  partners.

The  CRADA  provides  incentives  for both  industry  and  government  to cooperate  in

the  development  and  commercialization  of Federal  inventions.  It allows industry  to

invest funds  directly  in specific  government  research  projects  and  to negotiate  in

advance  for  exclusive  rights  to cooperatively  developed  inventions.8  The  l?lTA

makes  technology  transfer  the  responsibility  of each  Federal  laborato~  and  provides

for compensation  of Federal  employees  with royalties  and  cash  awards  programs.g  It

allows agency  heads  to delegate  to their  laboratory  directors  the  authority  to enter  into

CRADAS  and  calls for expedited  central-agency  consideration  of proposed

CRADAS.1O

According  to  the  Department  of Commerce,  Federal  laboratories  administered  a total

of 731 active  CRADAS  in 1991.11 The  Department  of Health  and  Human  Services

administered  125 active  CIU4.DAS in 1992.  Of the  93 managed  by NIH  in  1992, 69

percent  were  concentrated  within  three  institutes:  the  National  Cancer  Institute

(NCI),  the  National  Institute  of Allergy  and  Infectious  Diseases  (NIAID),  and  the

National  Institute  of Diabetes  and  Digestive  and  Kidney  Diseases  (NIDDK).12

The  number  of CRADAS  established  amually  at  these  3 institutes  has increased  from

16 in 1990 to 24 in  1992.  The  number  of companies  and  NH-I investigators  entering

new CRADAS  has  also increased.  The  total  number  of indust~  partners  entering  new

CRADAS  at  the  three  institutes  increased  from  14 in 1990 to 23 in 1992.  The  number
 of NIH  principal  investigators  entering  new CRADAS  increased  from  13 in 1990 to 20 
in 1992.  (See  table  2 in appendix  B for more  information.) 
concerns  about  NIH  CRA.DAS 
Policy and  procedures  on CRADAS  continue  to evolve  as NIH  experience  with this 
relatively  new  collaborative  mechamsm  grows.  Several  recent  studies  have  found, 
however,  that  problems  persist  in the  choice  of CR4DA  research  topics,  the 
identification  of CRADA  partners,  the  specifics  of CRADA  documents,  and  the 
oversight  of CRADA  work.  The  Office  of Inspector  General,  through  the  Office  of 
Audit  Semites,  issued  a report  in March  1992 that  identified  problems  in the 
management  of NIH  technology  transfer  efforts  and  in the  management  of NIH 
patents  and  royalty  income. 13 Several  NIH  administrators  have  themselves  indicated 
concern  over  the  need  for improved  CRADA  management.14 
As the  Federal  investment  of resources  and  personnel  in CRAD&  increases,  it is 
imperative  that  NIH  protect  the  public  interest  with practices  that  adequately  guard 
against  potential  vulnerabilities.  In order  to satisfy the  intent  of the  FIT&  however, 
these  practices  cannot  be  so cumbersome  as to discourage  either  industry  or NIH 
researchers  horn  collaborating  through  CRADAS. 
Our  report  examines  the  usefulness  of the  CRADA  as a collaborative  mechanism  and 
identifies  important  challenges  to the  future  success  of the  NIH  CRADA  program. 
We  conducted  this study in response  to a request  from  the  Chairman  of the  United 
States  Senate  Special  Committee  on Aging. 
METHODOLOGY 
Our  findings  are  based  primarily  on a review  of documents  for the  61 CRADAS 
established  at NCI, NIAID,  and  NIDDK  in calendar  years  1990, 1991, and  1992; and 
on interviews  with NIH  principal  investigators,  NIH  administrators,  and  industry 
representatives  involved  in the  24 CRADAS  established  at these  three  institutes  in 
1992.  We  gathered  supplemental  information  from  a review  of relevant  legislation, 
Congressional  testimony,  literature,  NIH  memoranda  and  training  materials  on 
CRADAS,  and  minutes  from  the  meetings  of the  NIH  Technology  Transfer  Board  and 
its CIUU3A  Subcommittee.  (See  appendix  A for more  detail  on our  methodology.) 
We conducted  our review  in accordance  with the  Quality Standardsfor hspections 
issued  by the  Presidents  Council  on Integrity  and  Efilcienq. 
3
 FINDINGS

GovmNMENT  AND  INDUSTRY  PARTICIPANTS  IN NIH  CRADAS 
REPORTED  THAT  THE  CRADA  IS A USEFUL  MECHANISM  FOR 
COLLABORATION. 
l%e CR4DA  can facilitate  the pooling  of NLH and private-sector  intellkctud  and 
financihl resounxx, equipm@  facilitia,  and reseaxh  matenlds. 
Investigators  at NIH  reported  that  the  CRADA  is a useful  means  by which they  can

enter  into  formal  collaborative  relationships  with  their  peers  in the  private  sector  in

order  to share  intellectual  property,  research  materials,  skills, and  expertise.  The  need

for collaboration  among  scientists  in government,  industry,  and  academia  has increased

in recent  years  as the  questions  addressed  in the  life sciences  have  become  increasingly

complex.  The  legal  protection  provided  by the  CRADA  allows the  NIH  and  private

sector  partners  to work  together  and  to share  proprieta~  information  freely  in the

pursuit  of common  research  goals.

Most  of the  NIH  investigators  with whom  we spoke  stressed  that  their  industry

partners  made  substantial  contributions  to their  CRADA  projects.  As one  NIH

investigator  explained,  most CRAD&  dont  arise  out  of a single brilliant  idea  from  an

NIH  lab; both  sides  have  some  good  ideas  and  some  limitations,  and  both  bring

something  to the  table.  Its a real  merger  of talents.  Several  NIH  investigators

informed  us that,  in fact,  the  research  they were  conducting  through  their  CRADAS

would  not  have  been  possible  without  the  option  of formal  collaboration.  In some

instances  the  industry  partner  held  the  patent  to an invention  whose  use was necessary

for the  research.  In other  cases,  the  industry  partner  possessed  expertise  not  readily

available  at NIH.

The  industry  representatives  with whom  we spoke--including  scientific,  management,

and  legal  staff--described  the  CR4DA  as a valuable  means  of expediting  the

development  and  commercialization  of new products.  One  industry  investigator

summed  up a common  indust~  comment,  noting  that  if these  sorts  of relationships

were  not  possible,  it would  be  a serious  blow to the  field  and  to the  nation.

Representatives  of small  companies  consider  working  with  NIH  to be  a particularly

great  benefit.

Many NIH  investigators  with whom  we spoke  also described  the  CRADA  as a useful

means  of expediting  research  projects  through  the  addition  of funds  and  staff.  The

median  industry  financial  contribution  to the  61 CRADAS  established  at NCI,  NIAID,

and  NIDDK  during  the  1990-92 period  was $40,000--ranging  from  $0 to more  that  $5

million  each.15  One-third  of these  CRADAS  involved  no  contribution  of funds;  one-

quarter  involved  total  contributions  of more  than  $100,000 each.  (See  tables  4 and  5

in appendix  B for more  information.)

4
 17te CRADA  can prvtect  the intellectudpmpdy  tights of the government  h  inventions 
that reindi jivm  collabomtive  q$oms 
Investigators  at NIH  noted  that  the  legal  protections  of the  CR4DA  serve  well to 
safeguard  the  governments  interest  in the  potential  outcomes  of their  collaborative 
efforts.  These  protections  give the  scientists  a sense  of security,  allowing  them  to 
share  materials  and  work  freely.  Tne  CRADA  serves  as what  one  investigator 
described  as a seal of approval  on their  collaborative  arrangements,  allowing  them  to 
demonstrate  that  they  have  covered  all the  bases  in their  dealings  with an industry 
partner. 
While  scientists  continue  to conduct  tests  and  to share  information  and  materials 
outside  of the  CRADA  framework,  NIH  policy requires  that  investigators  establish  a 
formal  CWA  upon  determination  that  interactions  with  outside  collaborators  might 
result  in an invention  or commercial  product.lG  As one  institute  scientific  director 
described  it, the  CRADA  is a tool  to use when  your  research  has  brought  you to the 
point  where  it looks  as though  you have  something  that  might  work.  One  investigator 
described  another  commonly  noted  advantage:  Although  scientists  can  no longer 
share  information  and  materials  with their  peers  outside  NIH  as quickly  or as readily 
as they  could  before  the  CRADA  mechanism  was introduced,  they  can  actually  share 
such things  more  widely and  freely  once  the  paperwork  is done.  They  can  be 
confident  that  the  governments  interests  are  protected. 
The CRADA  can facilitate  the transfer of technology @m  N~  bbomtories  to the #vati 
sector for development  and commercialization 
In  10 of the  32 CR4DAS  established  at NIAID  and  NIDDK  during  the  1990-92

period,  the  government  held  a preexisting  dominant  patent  necessary  for the  research

project  (this  information  was unavailable  from  NCI).  The  CRADA  mechanism  allows

NIH  investigators  to share  these  technologies  with their  industry  collaborators,  both  as

components  of larger  research  projects  and,  in some  instances,  as potentially

marketable  products.  A number  of industry  representatives  reported  that,  as one

described  it, the  CRADA  is a substantial  inducement  to the  development  of new

technologies.1

The  CRADA  program  itself has  seined  to heighten  awareness  among  NIH  researchers

of the  potential  for  the  practical  applications  of research.  One  NIH  investigator

summed  up  this effect,  describing  CRADAS  as having  made  NIH  scientists  think

more  about  the  implications  of their  research  for health.  He  commented  of his

research  that  he  never would  have  thought  that  this stuff was marketable.  Many  of

our contacts  remarked  on the  significance  of this heightened  awareness.  As another

scientist  explained,  the bench  is getting  closer  to the  patient.  Working  with industry

means  that  You are  closer  to the  bedside,  which is ultimately  what  NIH  is all about.

He  added  that  it is gratifying for NIH  investigators  to see their work  put  to practical

use. 
5
 NONETHELESS,  SEVERAL  CHALLENGES  TO  THE  EFFECITVE 
MANAGEMENT  OF THE  NIH  CRADA  PROGRAM  COULD  JEOPARDIZE  llS 
FUTURE  SUCCESS. 
Many CMA  pmjecti  may not be welhuited  for the CRADA  rnechaniwn because they 
db not foctu  on the tmr@er of Fe&ml  technology to the @vate  sector for 
COIW?W?ChhdiOq  which i$ the C(??lfTd  ihtent  of the ~~ 
According  to Congress,  the primary  purpose  of the  [CRADA]  agreements  is to take 
technologies  that  originate  in the  [Federal]  laboratories  and  to stimulate  or support 
their  development  and  commercialization.  lg  The  NIH  policy finther  states  that  the 
CRADA  is designed  to facilitate  the  transfer  of technology  from  Federal  labs  into  the 
private  sector  for further  development  and  commercialization.  lg 
Many  of the  61 CRADA  projects  established  at NCI,  NIAID,  and  NIDDK  between 
1990 and  1992, however,  do not  adhere  to the  central  intent  of Congress  and  NIH.  In 
particular,  this is true  of those  CRADA  projects  that  center  on either  basic  research 
or NIH  routine  testing  of industry-patented  inventions.m  (See  tables  8 and  9 in 
appendix  B for more  information.) 
Thirteen  of the  61 CRADA  projects  focused  exclusively  on basic  research.  Such 
research  involves  the  investigation  of fundamental  biological  structures  and 
mechanisms.  The  purpose  of one  basic-research  CRADA  was to determine  the 
tumor-producing  mechanism  of an industrial  chemical.  The  goal  of another  was to 
discern  the  structure  of a chemical  found  in the  body.  While  some  basic-research 
CIL4DAs  may yield  results  which provide  a foundation  for future  endeavors  with  clear 
commercial  relevance,  this kind  of research  is not  intended  to transfer  commercially 
useful  technology  to the  private  sector.  Accordingly,  while  it is not  prohibited  by law, 
it is inconsistent  with  the  central  intent  of the  FfTA  and  with NIH  CRADA  policy. 
None  of the  scientists  with whom  we spoke  cited  this inconsistent  as a source  of 
worry.  Several,  however,  made  a point  of noting  that  industry  funding  of basic 
research  through  CRADAs  could  bias  the  choice  and  direction  of NIH  research. 
These  scientists  were  concerned  that  future  NIH  research  budgets  might  be reduced 
by an anticipated  amount  of CRADA  funding  and  that  their  laboratories  might,  as a 
result,  become  dependent  on soft industry  funding.zl 
Of the  12 preclinical  and  clinical  CRADAs  for which we were  provided  patent 
information,  2 focused  on NIH  performing  routine  testing  of industry-patented 
inventions.n  In one  such CRADA  project,  NIH  coordinated  clinical  trials  for 
regulatory  approval  of a new therapeutic  agent  that  is patented  by industry.  In 
another,  NIH  conducted  clinical trials  to evaluate  a new  use for  an already-marketed, 
industry-patented  drug.  Here  again,  even  though  the  CRADA  might  result  in 
expedited  drug  development  and  approval,  and  even  though  the  CRADA  might  allow 
NIH  to obtain  unique  resources  or important  data,  no  transfer  of technology  from  the 
6
 Federal  laboratories  totheprivate  sector  is intended.  Thus,  these  CR4DAs  are 
inconsistent  with  the  central  intent  of the  FTTA  and  NIH  CIUiDA  policy.~ 
Five of the  26 NIH  CRADA  scientists  with whom  we spoke  made  a point  of 
expressing  concern  about  this  type  of CIV%DA.  The  scientists  apprehensions  were 
summarized  by one,  who explained  that  it seems  less a scientific  collaboration  than  a 
service.  A few CRADA  administrators  also expressed  unease  about  such routine-
testing  CIU4DAS.  They  did not  want  to sacrifice  scientific  advancement  by committing 
the  finite  intellectual  and  financial  resources  of NIH  to clinical  trials  that  would 
otherwise  be  conducted  by industry. 
Why, then,  do NIH  scientists  collaborate  with their  industry  counterparts  in CRW& 
if they  do not  focus  on technology  transfer  as envisioned  by Congress  and  NIH?  The 
most  basic  explanation  we were  able  to derive  from  our  intemiews  is that,  amidst 
concerns  about  conflict  of interest  and  intellectual  property  rights,  the  CRADA 
mechanism  provides  unique  and  valuable  formal  protection  for both  governmental  and 
industry  partners.  Thus,  some  collaborations  that  might  well have  been  undertaken 
informally  in prior  years  are  now more  likely to be  formalized  through  CRADA 
agreements,  even  if they  do not  involve  the  transfer  of Federal  technology  to the 
private  sector. 
lhe pmces  of establishing a CR4DA  is lengthy and complex  Th& may d&coumge 
p-tin  in CRAD&  &  ~  undmnhwtheintentofthe~~  which calkforan 
*U  review and appvalpmcas. 
  For the 24 CRADAS established at NC~ NMID,  and NIDDK  in 1992, the median 
length of time from  initial contact  between the NIH and indus~  parmen  to final 
approval was 330 days.  T7ukwas an increase from  a median of 259 days in 1990. 
The  NIH  CRADA  approval  process  requires  several  levels of review,  and  a CRADA 
can be reviewed  more  than  once  at each  level for revisions .x  The  final  stage  of this 
process  entails  a central  review  by the  CRADA  Subcommittee  of the  NIH  Technology 
Transfer  Board.  This  step  allows the  central  NIH  administration  an opportunity  to 
disapprove  or require  modification  of proposed  CRADAS;  the  FTTA allows a 
maximum  of 30 days for such  review.  Of the  24 CRADA  approved  at NCI, NIAID, 
and  NIDDK  in  1992, however,  only 2 received  this central  review within  30 days.  The 
median  time  required  for this  step  was 69 days.X  (See  tables  6 and  7 in appendix  B 
for more  information.) 
Despite  ongoing  efforts  to improve  the  process, X it continues  to be  complex  and 
confusing.  The  institute  technology  development  coordinators  recently  noted  their 
frustration  and  concern  with  the  number  of individuals  and  organizations  which 
review  the  CRAD~  the  often  repetitive  nature  of the  review,  ... ~a1nd   the  excessive 
time  horn  submission  to final  approval  of a negotiated  CRADA.  7 
7
 Private-sector  collaborators  alsoconttibute  tothelen@h  of the  process.  Several 
industry  contacts  with whom  we spoke  noted  that  their  organizations  often  require 
considerable  time  to make  both  scientific  decisions  about  the  content  of projects  and 
business  decisions  about  the  legal  obligations  of the  agreement. 
  Many NIH and industrypartnem describe the process as inefficient and view it as a 
dtiincentive to their continued parnclpationin the NIH CRADA program. 
Twelve  of the  24 NIH  investigators  and  11 of the  15 indust~  partners  with whom  we 
spoke  made  a point  of noting  that  the  process  was not  time-efficient.  One  NIH 
investigator  summed  up the  frustrations  of many, noting  that  things take  a very long 
time;  if youre  not  really  interested  in a project,  forget  it.  Several  NIH  investigators 
noted  that  it is easy for the  science  to get  stale after  a lengthy  wait  for approval. 
One  investigator  described  his project  as a hot topic,  and  expressed  great 
disappointment  that  the  research  had  been  delayed  14 months  because  of CIU4.DA 
paperwork. 
Several  of the  NIH  investigators  with whom  we spoke  reported  that  they would  avoid 
doing  collaborative  research  through  the  CRADA  mechanism  again  because  of the 
delays  involved.  One  investigator  noted  that,  on seeing  what  a hassle  the  process 
had  been  for  him,  his colleague  in an adjacent  lab decided  never  to do a CRADA. 
Another  NIH  investigator  pointed  out  that  some good  projects  dont  happen  because 
the  process  is too  long; the  process  may actually  discourage  collaboration  that  might 
otherwise  be  undertaken  informally. 
At the  time  of the  passage  of the  FTT~  Congress  noted  that  lengthy headquarters 
approval  delays  can cause  businesses  to lose interest.  . . .tu  Indeed,  several  of the 
industry  partners  with whom  we spoke  suggested  that,  although  they were  currently 
involved  in CRADAs,  they  regarded  the  length  of the  process  as a great  disincentive 
to participation.  The  technology  development  coordinator  at one  institute  told  us of 
three  major  drug  firms that  will not  participate  because  of the  time  required  by the 
process. 
The Nm  does not have guidance  that adequately  adhsses  the compldies  of pmviiiihg 
fair access to CWA  opprtunitk.  Faihue to ensure fau  access-and  the appeamnce 
thereof<ouki  deter indusby putic@ation  in CUALMs, im.  mdet  comptitiorq  and 
undkmhepublic  support for the CIL4DA pmgrarm 
Ensuring  fair  access  to NIH  CRADAs  is a complex  matter  that  raises  many  difficult 
questions.  Under  what  circumstances  should  the  institutes  advertise  specific  CRADA 
opportunities?  How  should  they  take  into  account  prior  collaboration  between  NIH 
scientists  and  potential  CRADA  partners?  How broad  should  they  allow the  scope  of 
a CRADA  research  plan  to become?  How  many CRADAs  should  they  allow  any one 
company  to  enter  in a specific  field  of research  at NIH?  How  should  they  provide 
8
 preference  to small  and  domestic  businesses  as potential  CRADA  partners,  as called 
for by the  FTTA? 
Congress,  in the  FITA  gives little  guidance  on how to answer  these  questions,  except 
to indicate  that  conflict  of interest  guidelines  should  be  established  for Federal 
employee  conduct  and  that  normal  procurement  contract  procedures  do not  apply  to 
CRADAs.  The  PHS  goes somewhat  further.  In a February  1989 policy statement, 
PHS  stresses  the  importance  of both  ensuring  fairness  in access  and  adhering  to 
congressional  preferences;  it then  offers  some  guidelines  for NIH  and  other  PHS 
components  to use in fulfilling these  goals. 29 The  NIH  has not  elaborated  upon 
these  guidelines  to provide  further  guidance  for its scientists  and  CRADA 
administrators. 
As a result,  NH-I scientists  and  CRADA  administrators  in the  institutes  are 
handicapped  in their  attempts  to answer  the  myriad  difficult  questions  concerning  fair 
access.  While  the  FTTA  indicates  that  the  institutes  should  retain  considerable 
independence  and  flexibility in establishing  CRADAs,  central  operational  guidance  is 
necessary  to address  such a sensitive  and  complicated  matter  as fair  access.  At 
present,  the  institutes  lack such guidance  regarding  at least  four  central  dimensions  of 
providing  fair  access: 
(1)  They  lack sufficient  guidance  regarding  the  circumstances  in which  they 
should  advertise  specific  CRADA  opportunities.  The  1989 PHS  fair access 
guidelines  call for specific  announcements  when  it is anticipated  that  a 
substantial  numbe~  of private  sector  organizations  are  likely to be  interested  in 
the  opportunity.w  Neither  the  PHS  fair  access  guidelines  nor  NIH,  however, 
identify  the  types  of CRADAs  that  might  elicit  interest  from  multiple 
organizations.  As a result,  individual  institutes  address  the  need  for special 
amouncements  according  to their  own policies  or on a case-by-case  basis. 
Many  of the  scientists  with whom  we spoke  were  uncertain  of their 
responsibilities  regarding  the  provision  of fair  access.  Of the  61 CRADAs 
established  at NCI,  NIAID,  and  NIDDK  between  1990 and  1992, 8 were 
advertised  as specific  CRADA  opportunities.31  For  33 of these  61 CRADAs, 
we were  provided  information  on which  CRADA  partner  had  initiated  the 
collaboration;  in 8 of these,  the  industry  partner  had  done  so.32 It might  be 
inappropriate  for NIH  to advertise  such CWA. 
(2)  They  lack sufficient  guidance  regarding  what  relationships  may exist 
between  NIH  scientists  and  their  CRADA  partnem  prior  to the  establishment 
of a CRADA.  The  PHS  fair  access  guidelines  do not  address  this issue.  The 
NIH  requires  all NIH  CRADA  participants  to submit  a Conflict  of Interest 
and  Fair  Access  Survey as part  of the  CRADA  approval  process,  but  the 
individual  institutes  have  different  procedures  to manage  conflict  of interest 
concerns.  At least  one  institute  requires  a six-month  cooling-off period 
between  the  termination  of a consulting  relationship  between  an NIH  scientist 
9
 and  a company  and  the  establishment  of a CRADA  between  the  two; other 
institutes  have  no such  requirement.33 
Many  of the  scientists  with whom  we spoke  expressed  confusion  as to what 
preexisting  relationships  between  themselves  and  their  CRADA  partners  were 
acceptable.  Of the  61 CRADAS  established  at NCI,  NIAID,  and  NIDDK  in 
1990, 1991, and  1992, 20 grew out  of prior  working  relationships  between  the 
partners.~ 
(3)  They  lack  sufficient  guidance  regarding  the  fair  access  implications  of the 
breadth  of CRADA  research  plans  or the  number  of CRADAS  that  a company 
is allowed  in a specific  area  of research.  Narrowly  defined  work  plans  allow 
greater  competition  and  are  less likely to enable  any single company  to 
monopolize  a given  field of NIH  research.  Similarly,  controlling  the 
circumstances  in which  a company  is allowed  multiple  CIV%DASin a given field 
is a means  of both  promoting  competition  and  limiting  opportunities  to 
monopolize  NIH  research.  Neither  the  PHS  fair  access  guidelines  nor  NIH, 
however,  explicitly  address  these  issues. 
(4)  They  lack  clear,  operational  definitions  of the  terms  small business  and 
domestic  business  to assist them  in their  compliance  with the  FTTA  In 
December  1992, the  Office  of the  Secretary,  OffIce of the  General  Counsel 
provided  the  CRADA  Subcommittee  with an opinion  about  the  meaning  of 
these  terms.  From  the  perspective  of many  in the  institutes,  however,  much 
ambiguity  remains.35  In addition,  because  neither  the  PHS  fair  access 
guidelines  nor  NIH  offer  guidance  regarding  the  means  by which  this 
preference  is to be  provided,  the  individual  institutes  have  inconsistent 
practices.  One  institute  advertises  each  CRADA  for which  a foreign  industry 
partner  is being  considered;  others  do not. 
Unfair  access  to CIWDA  opportunities--or  even  the  appearance  of it--could  have 
serious  detrimental  effects.  It could  result  in certain  companies  gaining  advantaged 
access  to patentable  new technologies  and  expedited  product  development,  while 
others  lose  interest  in what  they  regard  to be  a closed  process.  It could  discourage 
competition  in emerging  markets  and  therefore  contribute  to higher  prices  and/or 
reduced  access  to products.  Furthermore,  it could  undermine  public  support  for  a 
collaborative  mechanism  intended  by Congress  to promote  the  public  interest. 
Limited ALE?oversight of CRADA pmjecti  may inhibti the ability of NH  to emxue duzl 
CRADA  WOk  k  CO~  with  the  hat  of the K17A  and N~poiYcy. 
The  FTTA indicates  that  CRADk  should  be  managed  largely  at the  institute  level. 
Nevertheless,  some  central-NIH  oversight  is necessary  to protect  both  the  government 
and  its industry  partners  by providing  coordination  and  consistency  in the 
10
 administration  of CRADAS  among  the  many  NIH  institutes.  Indeed,  the  FITA  clearly 
states  that  each  agency  is to maintain  a record  of all CRADA  agreements. 
The  NIH  has  established  a central  structure  to coordinate  CRADA  activities  among 
the  institutes.  Central-NIH  oversight  of CRADAS  is handicapped,  however,  because 
NIH  has  not  implemented  a central  system  to track  approved  CRADAS,  the 
involvement  of indust~  partners  in CRADAS  at more  than  one  institute,  or the  NIH 
investment  of funds,  resources,  and  personnel  in CRADA  projects.% 
The  central-NIH  administration  is not  apprised  of the  status  of ongoing  CRADA 
projects.  Some  CRADAS  expire  and  are  terminated  without  the  knowledge  of the 
central-NIH  administration.  Companies  fund  multiple  CFL4DAS with  different 
institutes,  and  no central-NIH  record  documents  the  extent  of their  full involvement 
with NIH.  It has been  the  practice  to allow significant  amendments  to previously 
approved  CRADAS  without  the  knowledge  of the  central-NIH  administration.  For 
example,  one  CRAD~  which was originally  approved  in  1987 as a one-year  project, 
has been  renewed  annually  without  central  NIH  review.  Other  CRADAS,  which  began 
as preclinical  research  projects,  have  progressed  to clinical  trials  without  central-NIH 
oversight.37 
This lack  of information  at the  central-NIH  level limits NIHs  ability  to make  prudent 
decisions  about  the  allocation  of its resources  and  the  commitment  of its intellectual 
property  in newly proposed  CRADAS.  This  information  gap  also limits  NIHs  ability 
to ensure  that  approved  CRADA  projects  are  being  conducted  in a manner  that  is 
consistent  with NIH  policy and  the  intent  of the  FITA. 
%  prichg  of CRADA p&tY  is a matter of consiierabh  controve.my that refikcts NE?% 
_
 ~  achievikg a baihnce between protecting the pubilc  irwestment in CRADAS and 
mahtaining  indurbyk  incentive to participate  in them  l%k  contmvemy  threatens to 
udmnine  suppti  for the NH  CRADA pmgmrm 
Congress,  in the  FTT~  did not  address  the  pricing  of products  emerging  from

CRADAS.  The  NIH  has done  so, however,  with the  inclusion  of a reasonable  pricing

clause  in the  NIH Policy Statement  on Cooperative  Research  and  Development

Agreements  and  Intellectual  Property  Licensing.=  This  clause  is also incorporated

into  the  model  CRADA.  It expresses  NIHs interest  that  there  be  a reasonable

relationship  between  the  pricing  of a licensed  product,  the  public  investment  in that

product,  and  the  health  and  safety  needs  of the  public.  It further  states  that  NIH  ,

may require  CRADA  partners  to support  this relationship  with reasonable  evidence.

While  the  clause  has served  as an important  reference  point  in the  crafting  of

CRADAS,  it is widely regarded  as inadequate.

A  industry  representatives,  Congressional  representatives,  academics,  and  NIH

administrators  have  noted,  NIH  is ill-equipped  to implement  its policy for the  pricing

of CRADA  products.  It lacks  explicit  legislative  authority  to obtain  necessa~  cost

11  information  from  industry  partners  and  the  requisite  expertise  to analyze  such data. 
The  NIH  director  reported  to Congress  that  NIH is not  equipped,  either  by expertise, 
or programmatic  or legislative  mission,  to undertake  an  analysis of the  reasonableness 
of private-sector  product  pricing  decisions.39 
Consumer  advocates  have  pointed  out  that,  as a result,  NIH  is unable  to protect  the 
publics investment  in products  which  result  from  CRADAS.  Such  advocates  have 
argued  that  the  public  is left in a position  in which it might  be forced  to pay 
inappropriately  high prices  for  drugs whose  research  and  development  they have 
financed  as taxpayers. 
Indust~  views the  clause  as being  too  broad  and  too  threatening  to companies 
proprietary  interests  in a highly competitive  marketplace.w  Industry  partners  argue 
that  they must  agree  to the  clause  without  knowing  how NIH  w-illattempt  to 
implement  its intent  when  it comes  time  to market  a product.  Some  companies  have 
cited  it as the  basis for their  refusal  to participate  in CRADAs.41  Many who have 
participated  have  done  so on the  condition  that  specific  limitations  or assurances  be 
reflected;  the  clause  has been  modified  in 13 of the  61 CIU4DA  established  at NCI, 
NIAID,  and  NIDDK  between  1990 and  1992.42 
To date,  only one  CRADA  product  has  reached  the  marketplace  and  been  priced--an 
anti-cancer  agent,  Taxol. 43 In this instance,  however,  the  model  reasonable  pricing 
clause  was modified  and  NIH  did not  attempt  to ascertain  that  there  was a reasonable 
relationship  between  the  price  of the  product  and  the  public  investment  in its 
development.a  Instead,  to promote  the  establishment  of a fair market  price, NIH 
asked  its industry  CRADA  partner  to set the  price  of the  drug below  the  median  for 
other  recently  approved  anticancer  drugs.  In addition,  NIH  entered  into  a CRADA 
with another  company  to develop  a product  that  will provide  market  competition  for 
Taxol.45 
In the  months  following  the  pricing  of Taxol,  controversy  regarding  the  NIH  approach 
has resulted  in three  Congressional  hearings.a  While  NCI  and its CRADA  industry 
partner  are  apparently  satisfied  with  the  approach  taken  to ensure  a fair  price  for the 
drug,  Congressional  representatives,  consumer  advocates,  and  academics  have  raised 
strong  objections.47  They  contend  that  the  method  employed  was inappropriate,  that 
the  data  used  were  seriously  flawed,  and  that  NCI  had  insufficient  information  to 
ascertain  that  the  price  set was, indeed,  fair.a 
During  the  next  few years  additional  CIU4.DA products  are  likely to come  to market. 
Left  unresolved,  the  controversy  concerning  the  pricing  of these  products  could 
escalate  to such  a point  that  it jeopardizes  the  entire  NIH  CRADA  program. 
12
 RECOMMENDATIONS

Government  scientists  and  their  industry  partners  consider  the  CIU4DA  to be  a useful

mechanism  that  can  facilitate  the  transfer  of technology  from  the  NIH  laboratories  to

the  private  sector  for  development  and  commercialization.  Thus,  NIH  CRADAS  can

accelerate  the  development  of healthcare  inventions  and  stimulate  the  U.S. economy,

as Congress  intended.

We have  identified  several  important  challenges  to the  effective  management  of the

program,  however,  that  could  undermine  its future  success.  In a recent  report,  the

Office  of the  Assistant  Secretary  for Health  noted  some  of the  same  challenges.  The

NIH  has  also  identified  and  begun  to address  several  of these  challenges.49

In each  area,  a successful  response  requires  that  a careful  balance  be  achieved

between  enhancing  the  protection  of the  public  investment  in CRADAS  and

preserving  interest  in CRADA  participation  among  NIH  scientists  and  in industry.

Such a response  must  also be  consistent  with the  decentralized  and  expeditious

CRADA  management  called  for by the  FITA.  With  these  considerations  in mind,  we

offer  the  following  recommendations  to strengthen  the  management  of the  NIH

CRADA  program:

17zeN~  shdd  bnpliment  guidehkes that clem$  indicate the ypes  of research projects 
that are apppiate  for the ClL4DA  rnechaniwn 
To  address  the  apparent  inconsistency  between  the  intended  and  current  uses of the 
CRAD~  NIH  should  build  upon  its current  efforts  to develop  and  implement  clear 
criteria  for determining  if proposed  collaborative  research  projects  are  appropriate  for 
the  CRADA  mechanism.  The  NIH  should  clarify under  what  circumstances,  if any, 
projects  that  are  not  intended  to transfer  technology  to the  private  sector  for 
commercialization--such  as those  that  primarily  involve  either  basic  research  or NIH 
performing  routine  research  on industry-patented  compounds--are  appropriate  for the 
CRADA. 
In order  to facilitate  the  CR4DA  management  process  and  to reduce  confusion 
among  potential  CRADA  participants,  it is important  that  NIH  inform  its scientists 
and  potential  industry  CRADA  partners  about  the  appropriate  uses  of the  CRADA 
mechanism.  With  this clarification,  NIH  could  better  ensure  that  its CRADA  projects 
are  consistent  with  the  central  intent  of the  FITA  and  with NIH  CR4DA  policy. 
Because  collaborative  basic-research  efforts  and  projects  in which  NIH  performs 
routine  testing  of industry-patented  compounds  c-an be  of benefit  to the-public  and  are 
consistent  with  the  NIH  rn~ssion, NIH  could  pursue  the  development  of alternative 
mechanisms  to formalize  these  collaborations.  The  NIH  might  consider  whether  or 
13
 not  legislative  amendments  are  necessary  to support  the  development  of these 
alternative  mechanisms. 
The NIH should bui.ki upon its cument @orts  to clmijj  and strearnhke the CRADA 
reviinv and appval  process. 
To reduce  the  length  and  complexity  of the  CRADA  review  and  approval  process, 
NIH  should  build  upon  its current  efforts  to better  define  this process.  The  NIH 
should  determine  which reviews  are  necessary  and  the  exact  purpose  of each.  The 
NIH  might  clarify the  circumstances  in which  particular  classes  of CRADAs--perhaps 
those  in which  options  to negotiate  exclusive  licenses  have  been  waived--might  be 
exempted  from  particular  stages  of review.  The  NIH  should  determine  the 
appropriate  participants  in each  stage  of review.  In defining  this process,  it is 
important  that  NIH  pay particular  attention  to avoiding  possible  redundancies. 
As an additional  step  to increase  the  timeliness  of the  CRADA  review  and  approval 
process,  NIH  could  establish  timeframes  for completing  each  stage  of the  approval 
process.  Review  teams  that  currently  meet  on a monthly  basis  could  meet  more 
frequently  or on an as-needed  basis  to complete  their  work  within  the  established 
timeframes. 
Providing  greater  definition  to the  CRADA  review  and  approval  process  would  both 
expedite  that  process  and  reduce  confusion--and  resulting  frustration--among  CRADA 
participants  and  administrators. 
The NH  shoukl@the-r  develhp the fair access guidelines to reflect the jidl  range of iwues 
blvohwd. 
To better  ensure  the  consistent  provision  of fair access  to NIH  CRADA  opportunities 
in all institutes,  NIH  should  build  upon  the  current  PHS  guidelines  regarding 
amouncements  of specific  CRADA  opportunities.  In particular,  NIH  should  clearly 
define  the  circumstances  in which  a substantial  number  of companies  are  likely to be 
interested  in a CRADA  opportunity.  For  example,  NIH  might  determine  that  there  is 
likely to be wide  interest  in CRADAS  that  include  clinical  trials  which  are  not 
primarily  dependent  on indust~-patented  inventions.  The  NIH  could  indicate  other 
circumstances  that  warrant  announcements  of specific  CIUM3A opportunities.  For 
instance,  NIH  might  determine  that  special  announcements  are  called  for whenever  a 
foreign  partner  is being  considered  for a CIU4DA  project  that  is not  primarily 
dependent  upon  industry-patented  inventions. 
The  NIH  should  build  upon  the  Technology  Transfer  Act  Interagency  Conflict  of 
Interest  Guidelines  now being  developed  by the  Interagency  Task  Force  on 
Technology  Transfer.  With  this as a basis, NIH  could  clarify appropriate  procedures 
for managing  prior  relationships  between  NIH  scientists  and  their  CRADA  partners. 
14
 It is also important  that  NIH  provide  guidance  to its scientists  and  CIUDA 
administrators  regarding  the  fair  access  implications  of the  breadth  of CRADA 
research  plans  and  the  circumstances  in which  a company  might  be  allowed  to enter 
into  multiple  CRADAS  in a given field  of NIH  research.  To  assist its scientists  in 
their  efforts  to ensure  fair  access,  NIH  might  provide  examples  of overly broad 
research  plans  and  amended,  more  narrowly  focused  research  plans. 
Finally,  the  NIH  should  seek  to establish  clear,  operational  definitions  of the  terms 
small business  and  domestic  business  so that  Federal  scientists  and  CRADA 
administrators  will be better  able  to comply  with the  intent  of the  FTTA. 
A detailed  compendium  of rules  and  regulations  would  be  counterproductive  in an 
organization  such  as NIH,  in which  flexibility is central  to the  nature  of the  work. 
More  fully developed  guidance,  however,  would  ensure  a greater  degree  of consistency 
among  institutes  in the  provision  of fair  access.  It would  also ease  confusion  and 
frustration  on the  part  of CRADA  participants,  and  diminish  misunderstandings  on the 
part  of both  indust~  and  the  public. 
lk  NH  should  devebp  and maintain  a central dktabase  syflem  to track all ongorng 
CRADA  WO?k 
To assist central  and  institute  administrators  in their  efforts  to ensure  that  CIUDA 
projects  are  appropriate  and  acceptable,  NIH  should  develop  a central  CRADA 
database  that  is frequently  updated  and  readily  accessible  by Technology  Transfer 
Board  members,  CRADA  Subcommittee  members,  and  the  TDCS in all institutes.  In 
developing  this  system,  NIH  could  build  upon  its experience  with CRADA  databases 
in the  individual  institutes  and  the  OTT. 
The  database  might  include  information  on several  different  dimensions  of CRADA 
research,  perhaps  including  the  name  of the  principal  investigator  the  name  of the 
nonfederal  CRADA  partner;  the  subject  of the  research;  a classification  of the 
research  as basic,  preclinical,  clinical,  involving the  development  of laboratory 
techniques  or equipment,  or other;  the  original  approval  date  and  intended  term  of 
the  CRADA,  CIUDA  renewal  dates  and  renewed  terms;  any other  amendments  to 
the  originally  approved  CRADA  and  their  dates;  CRADA  expiration  or termination 
dates;  the  funds  that  have  been  approved  for transfer  from  industry  the  funds  that 
have  actually  been  transferred;  the  NIH  investment  of funds,  personnel,  and  resources 
in CRADA  projects;  who holds  the  patents  necessary  for the  CRADA  research;  a 
listing of all patents,  licenses,  and  products  that  have  resulted  from  the  CIUH)A,  and 
a listing of any unresolved  problems  with  the  CRA.DA. 
Such a database  would  support  NIH  in its efforts  to ensure  both  that  CRADA  work  is 
consistent  with  the  intent  of the  FITA  and  NIH  policy, and  that  newly proposed 
CRADAS  are  appropriate  in the  context  of the  NIH-wide  CRADA  portfolio. 
15
 TheNET, wotigti  ti~eofti  Semetiydk@eofti~ 
Secretq  for Hea~  should seek a consennM on how to resolve the reasonable prkhg 
contmveny. 
The  pricing  of CRADA  products  is an extremely  complex  and  volatile  matter--one  that 
involves  issues  extending  well beyond  NIHs own domain.  It is intricately  related  to 
the  current  deliberations  on national  health  care  reform.  It involves basic 
considerations  about  the  prices  of all pharmaceuticals,  whether  or not  they  are 
produced  through  the  CRADA  mechanism.  It raises  questions  about  wha$  if any, 
access  government  should  have  to private-sector  cost data  and  the  criteria  it should 
use in determining  what  is fair.  It triggers  still other  questions  about  the  expertise 
necessary  to  determine  what  is a fair  price  and  about  where  such  expertise  should 
reside. 
These  are  questions  and  considerations  which  NIH  can not  resolve  itself.  Nonetheless, 
NIH  has  an  important  role  in helping  the  broader  policy community  recognize  that  the 
entire  CRADA  effort  is dependent  on resolving  them  in a manner  that  lowers  the 
level of controversy  and  allows the  Department  to achieve  a balance  between  the 
competing  objectives  of protecting  public  investment  in NIH  CRADAS  and  preserving 
industrys  incentive  to participate  in them. 
Obtaining  such  resolution  is urgent.  In the  next  few years  many  of the  CRADA 
projects  now  underway  are  likely to result  in marketable  products.  Some  of these  may 
raise  pricing  controversies  every bit  as intense  as the  one  surrounding  Taxol.  At 
present  there  is a window  of opportunity  that  could  be  used  to help  ensure  the  future 
success  of NIHs  CRADA  efforts. 
16
 COMMENTS  ON  THE  DRAFT  REPORT

We  solicited  and  received  formal  comments  on our  draft  report  from  PHS.  We 
respond  here  to the  major  themes  contained  in the  comments.  We first summarize 
the  comments,  and  then  provide  our  response  in italics.  We  include  the  complete  text 
of the  agencys comments  in appendix  C. 
The  PHS  concurred  with four  of our  five recommendations.  The  agency  did not 
concur  with  our  recommendation  that  NIH  should  implement  guidelines  that  clearly 
indicate  the  types  of research  projects  that  are  appropriate  for the  CIUDA 
mechanism. 
The  PHS believes  that  restrictions  on the  use  of the  CRADA  are  already  explicitly 
addressed  in current  CRADA  guidelines,  that  there  is no legal  requirement  for further 
restrictions,  that  there  is no inconsistency  between  the  intended  and  current  uses  of 
the  CRAD~  and  that  NIH  laboratories  and  public  access  to CRADA  inventions  are 
adequately  safeguarded  by current  NIH  policy and  procedures. 
In our report jindings, we note that many NIH  CRADA projects may not be well-suited 
for the CRADA  mechanism because  they are inconsktent  with the central intent of the 
FTZA.  77ukintent is arhculatedon page one of the Legislative Hkto~  of the Act  (Senate 
Repoti No.  99-283),  where it k stated the pupose  of this bill [the FIXA]  k to improve 
the transfer of commercial~  Usefil technologies j?om  the Federal laboratones and into the 
private sector.   XJu3pupose  is reiterated throughout the legklative hhto~  of the Act. 
We arepamcularlyconcerned that basic-science researchprojects and NIH routine testing 
of indushy-patented inventions may not be intended to transfer commercial/y usefil 
technologies from  the Federal laboratonesto thepnvatesector.  We recognue  that none 
of the NIH  CRAEA  projects we reviewed k prohibited by the FITA.  Our concern focuses 
on jidfilling the intent of the Act,  rather than on a nanowly defined compliance  with the 
letter of the law. 
In our recommendation,  we utge NIH to implement guidelines that clearly indicate the 
types of research projects that are appropriate for the CRADA  mechanism.  We suggest 
that NIH clanfi  under what circumstances, if any, projects  that are not intended to 
tran.$er technology to the private sector for commetcialuation  are appropriate for the 
CRADA. 
We continue to believe that it k important for NIH to implement such gutielines.  As the 
draft NIH CR4DA  Manual Polikiks and l%ocedures acknowledges,  only a segment of the 
broad spectrum of all NIH research activities may be appropriate for consideration for 
CRADAS.  We uge  NIH to elaborate on thk statement by providing further guidance to 
potential  CRADA  participants and CRADA  administrationas to the dejlnition of the 
segment of NIH research that may be appropnatefor conduct  as a CRADA.  l%e NIH 
can best protect  the public investment in NIH and its scientkts by providing clear 
17  guidance now, before  CRADA  activity becomes  more prevalent, before more public 
resources are expended, and before more  CRADA products reach the market. 
The  PHS  concurred  with  our  recommendation  that  NIH  build  upon  its current  efforts 
to clarify and  streamline  the  CRADA  review  and  approval  process.  The  PHS  referred 
to a committee  that  has been  formed  to address  this task  and  to a policy document 
that  it is developing  to fulfill this  recommendation. 
The  PHS  concurred  with  our  recommendation  that  NIH  further  develop  the  fair 
access  guidelines  to reflect  the  full range  of issues involved.  To fulfill this 
recommendation,  NIH  has  established  an ad hoc committee  to evaluate  fair  access 
issues and  to develop  a revised  PHS  policy for fair  access  to CRADAS. 
The  PHS  concurred  with  our  recommendation  that  NIH  develop  and  maintain  a 
central  database  system  to track  all ongoing  CRADA  work.  The  PHS  outlined  steps  it 
will take  to develop  a plan  for  such  a database  system  and  noted  that  there  is not  yet 
a date  for completion  of either  the  plan  or the  database  system.  In addition,  PHS 
noted  that  it is difilcult  to quanti~  the  value  of personnel  and  resources  that  NIH 
devotes  to CRADA  projects. 
We recognize that it is dificult  to quantifi the value of the NIH investment in CRAMS. 
We suggest, howeve~  that the importance of being able to do so outweighs the burden of 
the work involved.  The NIH responsibilityfor public accountability necessitates that the 
agency be prepared to provide a ji.dl report on the allocation of public funds.  In addihon, 
an undenrtandingof the NIH investment in the development  of commercial products to be 
sold for profit by indushy h critical to any consideration of pricing for those products. 
The  PHS  concurred  with  our  recommendation  that  NIH,  working  with  the  Office  of 
the  Secretary  and  the  Office  of the  Assistant  Secretary  for Health,  seek  a consensus 
on how to resolve  the  reasonable  pricing  controversy.  The  PHS  noted  the  steps  it has 
taken  and  plans  to take  in response  to our  recommendation. 
In addition,  PHS  provided  three  technical  comments  on our  report.  We have revised 
our report to reflect these comments. 
18
 APPENDIX  A

METHODOIXIGY 
Our  findings  and  recommendations  are  based  on five main  sources  of information: 
1.  A review  of NIH  documentation  for the  61 CRADAs  established  at N~  NIAID, 
and  NIDDK  in calendar  years  1990, 1991, and  1992  These  three  institutes  accounted 
for approximately  69 percent  of all NIH  CRADAs  in 1992.  Each  file included  the 
legal  CIWDA  document,  correspondence,  and various  patent  and  licensing  records. 
From  each  file, we collected  information  on the  length  of the  CRADA  term,  the 
amount  of money  to be  transferred  to NIH  by the  CRADA  partneq  and whether  or 
not  a clinical  trial  was being  conducted,  the  collaborative  opportunity  was advertised, 
the  industry  partner  was categorized  by NIH  as a small or foreign  business,  the 
reasonable-pricing  clause  was modified  or deleted,  and  an option  for a nonexclusive  or 
exclusive  license  to CRADA  inventions  was provided. 
In addition,  we asked  the  technology  development  coordinators  in each  of the  three 
institutes  we reviewed  to provide  us with additional  information  for their  respective 
1990-92 CFL4DAs,  including  the  type  of research  involved,  and whether  patents  were 
held  by NIH  or the  indust~  partners. 
2  Interviews  with NIH  scientists  and  industry  contacts  involved  in the  24 CRADAs 
established  at  N~  NTAID, and  NIDDK  in  1992  We gathered  information  from  each 
contact  on his or her  experience  with the  CRADA  program.  Most  of these  interviews 
were  conducted  by telephone. 
3.  Other  interviews.  We interviewed  NIH  administrators,  including  institute  scientific 
directors,  technology  development  coordinators,  members  of the  Patent  Policy Board 
(which was renamed  the  Technology  Transfer  Board  in the  Spring  of 1993) and  its 
CRADA  Subcommittee,  and  staff in the  Office  of Technology  Transfer  and  the  Office 
of the  Secretary,  Office  of the  General  Counsel.  We  also held  discussions  with 
academics  concerned  with technology  transfer,  and with representatives  horn  the 
Department  of Commerce,  the  General  Accounting  Office,  and  the  Office  of the 
Assistant  Secretary  for Health. 
4.  Review  of the  literature.  We  reviewed  relevant  legislation  and  literature,  NIH 
memoranda  and  training  materials,  minutes  from  the  meetings  of the  NIH  Patent 
Policy Board  and  its CRADA  Subcommittee,  and  CRADA  files and  database 
information  from  the  Office  of Technology  Transfer. 
5.  Conference  and  meeting  attendance.  We  attended  the  October  1992 PHS 
Technology  Transfer  Forum,  tsvo meetings  of the  CRADA  Subcommittee,  and  a 
public  meeting  of the  Advisory  Committee  to the  Director  of NIFI. 
A-1
  APPENDIX  B

A STATISTICAL  PROFILE  OF  CRADAS 
ESTABLISHED  AT N~  NIAID,  AND  NIDDK 
1990-92

Tables 
1	 Number  of CRADAS  approved,  by institute  and year;  NCI, NIAID,  and

NIDDK,  1990-92

2	 Number  of NIH  scientists  and  industry  partners  entering  into  at least  one

CRADA;  NCI,  NIAID,  and  NIDDK,  1990-92

3	 Mean  approved  duration  of CRADAS,  in years;  NCI,  NIAID,  and  NIDDK,

1990-92

4	 Mean  funds  approved  to be  provided  by indust~  CRADA  partners,  in

thousands  of dollars;  NCI,  NIAID,  and  NIDDK,  1990-92

5	 Median  funds  approved  to be  provided  by industry  CRADA  partners,  in

thousands  of dollars;  NCI,  NIAID,  and  NIDDK,  1990-92

6	 Median  elapsed  time  from  initial  contact  between  CRADA  partners  to final

CRADA  approval,  in days; NCI, NIAID,  and  NIDDK,  1990-92

7	 Median  elapsed  time  from  institute  submission  of a CRADA  to completion  of 
review  by the  CRADA  Subcommittee  of the  NIH  Technology  Transfer  Board, 
in days; NCI,  NIAID,  and  NIDDK,  1992 only 
8	 Number  and  percentage  of CRADAS  involving  each  type  of research,  by yeaq

NCI,  NIAID,  and  NIDDK,  1990-92

9	 Number  and  percentage  of CRADAS  involving each  type  of research,  by

institute;  NCI,  NIAID,  and  NIDDIQ  1990-92

10	 Number  of CRADAS  for which  NIH  held  a preexisting  patent  necessary  for the

research;  NIAID  and  NIDDK  only; 1990-92

11	 Number  of CRADAS  for which  the  industry  partner  held  a preexisting  patent

necessary  for the  research;  NIAID  and  NIDDK  onljq  1990-92

B-1
 Tables 
12	 Number  of CRADAS  in which the  reasonable  pricing  clause  was modified;  NCI,

NIAID,  and  NIDDK;  1990-92

13	 Number  and  percentage  of CRADAS  in which  the  indust~  partner  was

categorized  by NIH  as a small  or foreign  business;  NCI,  NIAID,  and  NIDDK,

1990-92

14	 Number  and  percentage  of CIU4DAS that  were  advertised  as specific

opportunities  or that  grew out  of prior  working  relationships  between  the

partners;  NCI,  NIAID,  and  NIDDE,  1990-92

B-2
 Table  1 
Number  of CRADAS  approvq  by institute  and  year 
N~  NIAID,  and  NIDDK 
199(MZ2 
NCI 
NIDDK 
Total  for all 
3 institutes 
I 1  II
SOURCE:OIGreviewofCRADAfiles 
at NCI,NIAID,andNIDDK 
Table  2

Number  of NIH  scientists  and  industry  partners 
entering  into  at least  one  CRADA 
N~  NIAID,  and  NIDDK

1990-92

nr!T!g2  F

NH  scientists  13  I  18

Industry  partners  14  21  23  II  51

SOURCE OIGreviewof CRADAfiles 
at NCI,Nf.AIDa,ndNIDDK 
NOTE:Totalsarenotcumuladvqpartnerswhobegan 
multipleCRADAindifferenytears arecountedonlyonce. 
B-3
 Table  3 
Mean  approved  duration  of CRADAS,  in years 
N~  NIAID,  and  NIDDK 
1990-92 
F~F
Mean  for all 3  2.0  2.4  3.3  2.7
institutes 
N=61 
SOURCE OIGreviewof CRADAfiles 
at NCI,NIAID,andNIDDK 
NOTE l%e*  durationof theseCRADAmSay 
differfromtheapprovedduration. 
B-4
 Table  4 
MEAN  funds  approved  to be  provided  by indus~  CRADA  partners, 
in thOUSa.IldSof dollars 
N~  NIAID,  and  NIDDK 
1990-92 
M*H
Meart  for  all

3 institutes  49  146  724  $348

N=61 
SOURCE:OIG  review ofCRADA  files at NCI, NL41D, andNIDDK 
NOTE:Theactualcontributiofnromtheindust~partner 
maydifferfromtheapprovedamount. 
B-5
 Table  5 
MEDIAN  funds  approved  to be  provided  by industry  CRADA  partners, 
in  of doilars 
thOWilIKiS 
NC~  NTAID, and  NIDDK 
1990-92 
Median  for 
a%
all 3 years 
1[ i  , 
$45 
54 
6 
Median  for  all

3 institutes  39  0  68
 $40 
N=61 
SOURCE:  OIG  review of CRADA  files at NCI, NIAID,  and NIDDK 
NOTE:  The U  contribution  from the indust~  partner 
may differ from the approved  amount. 
B-6
 Table  6 
Median  elapsed  time  from  initkd  eontaet

between  CRADA  partners  to final CRADA  appro@  in days

N~  N_IAID, and  NIDDK

1990-92

F~E . 
Median  for  all

3 institutes  259  333  330  299

N=61 
SOURCE  OIG  review of CRADA  files 
at NCI, NIAID,  and NIDDK 
B-7
 Table  7 
Median  elapsed  time  from  institute  submission  of a CRADA  to completion  of 
review  by the  CRADA  Subcommittee  of the  NIH  Technology  Transfer  Boar& 
in days 
N~  NIAID,  and  NIDDK 
1992 Only 
II 
I 
I
NCI 
90  I 
INIcDDK  E--_-J 
Median  for all  69 
three  institutes
N=24 
SOURCE:  OIG review of CRADA  files 
at NCI, NIAID,  and NIDDK 
B-8
 Table  8 
and  percentage  of CRADAS  for each  typeof research 
by year 
N~  N_IAID, and  NIDDK 
1990-92 
=lzclrEicl 
otifordyem 
[ 
=RR
Basic  6  (38%)  4  (19%)  3  (13%)  13  (21%) 
II

Preclinical  6  (38%)  10  (4%)  6  (M%)  22  (36%) 
Fclinical  1  ( 6%)  2  ( 9%)  4  (17%)  7  (11%) 
Lab  technique,  1  (6%)  o  (o%)  3  (12%)  4  (7%)
machine,  etc. 
Combinations  of 
the  above  topics
mpp=

16 (loo%)  21 (100%)  24 (100%)  61 (100%) 
m 
SOURCE:  Reports  to the OIG  from the Technology  Development  Coordinator 
at NCI, NIAID,  and NIDDK 
B-9
 Table  9 
Number  and  percentage  of CRADAS  for each  type  of research 
by institute 
N~  NTAID, and  NIDDK 
1990-92 
Emrmc 
Basic  5  (17%)  6  (32%)  2  (15.5%)  13  (21%) 
Preclirtical  15  (52%)  4  (21%)  3  (23%)  22  (36%) 
clinical  3  (lo%)  4  (21%)  o  ( o%)  7  (11%) 
Lab  technique,  2  ( 7%)  o  ( o%)  2  (15.5%)  4  ( 7%) 
machine,  etc. 
Combinations  of  4  (14%)  5  (%%)  6  (~%)  15  (25%) 
the  above  topics 
E  E  ~ 
EmmmE 
SOURCE Reports  to the OIG  from the Technology  Development  Coordinators 
at NCI, MAID,  and NIDDK 
B-10
 Table  10 
Number  of CRADAs  for which  NTH held  a 
preetitig  patent  necessaq  for  the  research

NIAID  and  NIDDK  Only

1990-92

1990 
Total  for both  2  1  7  10 
institutes 
, 
N=32 
SOURCE  Reports  to the OIG  from the Technology  Development  Coordinators 
at MUD  and NIDDK 
NOTI+  This information  was unavailable  from NCI. 
Table  11 
Number  of CRADAs  for which  the  industry  partner  held  a 
preexisting  patent  necessary  to the  research

MAID  and  NIDDK  Only

199(M2

FIFI 
Total  for both  1  2  2  5 
institutes 
N=32 
SOURCE  Reports  to the OIG  from the Technolo~  Development  Coordinator 
at NIAID  and NIDDK 
NOTE  This information  was unavailable  from NCI. 
B-n  Table  12 
Number  of CRADAS  in which  the  reasonable  pricing  clause  was modified 
N~  MAID,  and  NIDDK

199092

sq+p~

Total  for all  2  4  7  13

3 institutes

N=61 
SOURCE.  OIG  review of CRADA  files at NCI, NIAID,  and NIDDK 
B-12
 Table  13 
Number  and  percentage  of CRADAS  in which  the  industry  partner  was 
categorized  by NIH  as a small  or foreign  business 
N~  NIAID,  and  NIDDK 
199W2 
Small  Business  24  (39%) 
Foreign  Business  8  (13%) 
N=61 
SOURCE  OIG  review of CRADA  files at NCI, NIAID,  and NIDDK 
Table  14 
Number  and  percentage  of CRADAS  that  were  advertised  as speeific 
opportunities  or that  grew out  of prior  informal  working  relationships 
between  the  partners 
N~  NIMD,  and  NIDDK 
1990-1992 
CRADAS  that  were  advertised  8  (13%) 
as specific  opportunities 
CRADAS  that  grew out  of prior  working 
relationships  between  the  partners  20  (33%) 
N=61 
SOURCE  OIG  review of CRADA  files at NCI, NIAID,  and NIDDK 
B-13
  APPENDIX  C 
COMPLETE  COMMENTS  ON THE  DRAFT  REPORT 
FROM  THE  PUBLIC  HEALTH  SERVICE 
c-1  *
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DEPARTMENTOF HEALTH& HUMANSERVICES  PublicHealthService
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Rockville  MD  20857 
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OCT  -8 
MEMORANDUM 
From:  Assistant  Secretary  for  Health 
Sub ject:	 Office  of  Inspector  General  (OIG)  Draft  Report 
Technology  Transfer  and  the  Public  Interest: 
Cooperative  Research  and  Development  Agreements  at 
the  National  Institutes  of  Health,    0EI-01-92-01100 
To:  Acting  Inspector  General,  OS 
Attached  are  the  Public  Health  Service  comments  on  the  subject 
OIG  draft  report.  In  addition  to  our  comments  on  the  specific 
recommendations  in  the  report,  we  offer  several  technical 
comments  for  your  con federation. 
(//+  L  ~ 
Philip  .  Lee, M.D. 
Attachment 
c-2  PUBLIC HEALTH  SERVICE  (FHS1 COMMENTS ON THE OFFICE OF INSPECTOR

GENEWIL  (OIGJ  DRAFT REPORT  TECHNOLOGY TWUW3FER AND THE PUBLIC 
INTEREST:  COOPEIWTIVE  RESEARCH  AND DEVELOPMENT AGREEMENTS  AT

THE NATIONAL  INSTITUTES  OF HEALTH  (NIHI, OEI-O1-92-O11OO

OIG Recommendation 
1.	 The NIH should  implement  guidelines  that  clearly  indicate 
the  types  of  research  projects  that  are  appropriate  for  the 
cooperative  Research  and  Development  Agreexnents  (CRADA) 
mechanism. 
PHS COmment

We do not concur.  There is no inconsistency  between  the intended 
and current uses  of the CRADA.  Also, there is no legal authority 
or compelling  policy  rationale  for the proposition  that the CRADA 
mechanism  should be limited  to any particular  category of 
research. 
Pursuant to Section  310(a) of the PHS Act, agencies of PHS, such

as NIH, are authorized  to:

u  ..conduct.  .and  encourage,  cooperate  with,  and  render 
assistance  to  other  appropriate  public  authorities~ 
scientific  institutions  and  scientists  in  the  conduct  off 
and  promote  the  coordination  of,  research,  investigations, 
experiments,  demonstrations,  and  studies  relating  to  the 
causes,  diagnosis,  treatment,  control,  and  prevention  of 
physical  and  mental  diseases  and  impairments  of  man... 
The Federal Technology  Transfer  Act of 1986 (FTTA) was  enacted  to 
promote  technolo~  transfer  by  authorizing  Govezmnent 
laboratories  to  enter  into  CRADAS and  conduct  other  relevant 
activities!  such as the patenting  and licensing of inventions.

CRADAS are defined  as  any agreement  between one or more Federal

laboratories and...non-Federal  parties ...toward the conduct of

specified research  or development  efforts which are consistent

with the missions  of the laboratory. 

The legislative  history  and implementation  of the FTTA by various

agencies show no indication  that it was the intention of Congress

to limit CRAWJS  Only to research  that reflects  practical

technology rather  than to generally  encourage xnission

appropriate  research.  The ETTAbroadly defined the categories  of

collaboration  (@.g.~ research  or development)  that are

acceptable ~ rather  than any particular  kinds of projects  (e.g.r

basic or applied).  The NIH Technology  Transfer Manual,  cited in

the OIG report  at footnote  19, is consistent  with the foregoing

interpretation  as it merely  paraphrases  the FTTAs preamble.

c-3  2

We are unaware  of any statutory  basis for concluding  that 
Congress  intended  to exclude any category of research  or 
development  within  the mission  of the agency from the possibility 
of joint efforts with outside  entities.  Moreover,  given that the 
FTTA explicitly  encompasses  bcth research and development,  it 
would be problematic  to define  basic  and  non-basic  research  in 
the  context  of  NII-Is  research  mission.  For  example,  although 
clinical  trials  designed  to  answer  fundamental  questions  about 
the  pathophysiology  of  a  particular  disease  might  be  considered 
basic  or  routine  by  some  people,  validly  they  could  be  considered 
to  be  developmental  or  commercial  from  the  perspective  of  a 
corporate  research  partner. 
By way of example,  the statutory  mission  of  the  National  Cancer 
Institute  (NC1)  includes  research,  experiments  and  studies 
related  to  the  treatment  of  cancer,  as  well  as  programs  for the 
application  of NCI  research  to clinical practice.  Therefore, 
clinical  trials with company products that expedite  dmg 
development  and Food and Drug Administration  (FDA) approval  fall 
squarely within  the mandate  of the PHS Act and the FTTA. 
Complicating  this picture  is the pragmatic concern  that the CRADA

is the only statutory mechanism  by which research agencies  can

make licensing  commitments  in advance to research  partners  for

inventions yet to be made.  Companies  increasingly  request CRADAS 
in order to secure patent rights  for a wide variety  of research

projects.  Some companies will not provide materials  for clinical

trials conducted  at NIH  without  a  promise  of  patent  rights 
related  to  new  methods  of  using  their  proprietary  compound  that 
may  be  discovered  in the course of the study.  Additionally,  the 
CRADA mechanism  is the primary  statutory mechanism  by which

company contributions,  such as funds, can be accepted  and applied

to designated  intramural  research  laboratories.

The PHS is concerned  that research  laboratories  not be  acquired 
by various pharmaceutical  or biotechnology  companies.  Thus , 
appropriate  limits should be placed on the amount  of time that 
any one investigator  should contribute  to any single CRADAr or on 
the number of CRADAS that  any  company  might  have  with  a  PHS 
agency  or  its  institutes,  centers  or  divisions  (ICD).  The 
Technology  Transfer  policy  Board  (TTPB)  at  NIH,  which  includes 
representatives  from  the  Centers  for Disease Control  and 
Prevention,  FDA,  and  the  Office  of  the  Assistant  Secretary  for 
Health  (OASH), is developing  recommendations  to address  these 
concerns. 
To the extent that a fundamental  invention is made under a CRADA 
and licensed to a CRADA partner,  the NIH patent  licensing 
agreement already  contains  several safeguards  to ensure  that 
(I) public access  to the underlying  technology  is permitted,  and

(2)  the commercial  development  rights are available  to other 
c-4  3

companies  when  necessary  in  the  public  interest.  For  example, 
NIH  generally  reserves  the  right  to  grant  sub-licenses  when  the 
licensee  cannot  demonstrate  a  capability  to  respond  to  public 
health  needs when  additional uses  for the product  are identified. 
In conclusion,  we believe that the OIG report restricts  its focus 
to the direct transfer  of practical  technology,  rather than 
looking at joint research and development  efforts  that may 
transfer technology  as a result  of collaborations.  We agree that 
interactions with  companies involving  only  routine,  conventional 
testing with no collaborative  or intellectual  contribution  are 
not appropriate  for CRADAS.  For that reason restrictions  on the 
use  of CRADAS are set forth explicitly  in current guidelines.  We 
also agree that~ in approving  any CRADA, due consideration  must 
be given to the possibility  that the level of confidentiality 
associated with  that CRADA project  might  inappropriately  impair 
the degree of openness  necessary  to serve the public interest  in 
the success of that research. 
OIG Recommendation

2.	 The NIH should build  upon  its  current  efforts  to  clarify  and 
streamline  the CRADA review  and  approval  process. 
PHS Comment

We concur.  An ad hoc CRADA Process  Committee,  comprised  of 
technology transfer  staff, began meeting  in Janua&  1993  to 
evaluate  the  CRM2A review  and  approval  process.  This  committee 
(now  called  the  CRADA Committee)  was  reauthorized  formally  at  the 
first  meeting  of  the  new  TTPB  in  May  1993.  A  draft  policy 
document  was  presented  to  the  Board  in  June  1993. 
Their  assignment  is  to  develop  procedures  and  policies  to 
simplify  and  facilitate  the  review  and  approval  of  CRADAS.  In 
performing  this  function,  they  will  identify  specific  review 
criteria  as  well  as  delineate  the  roles  and  responsibilities  of 
reviewers  at  each  level  to  alleviate  duplication  of  effort  and 
expedite  processing.  Among  other  charges,  the  CRADA Committee 
will  also  analyze  the  Composition  of  the  CRADA review  committee 
in  order  to  ensue  the  objective  review  of  each  CRADA. 
In  addition  to  this  formal  process,  regular  consultations  take 
place on an on-going  bases among  the ICD Technology  Development 
Coordinators  on various aspects  of policy  and procedural

development.  Also, the Office  of Technology  Transfer  (OTT)

expects to recruit  for and fill key CRADA management  positions  in 
Fiscal Year 1994.  Filling these  positions  will  facilitate  the 
processing and review of CRADAS.

c-5  4

OIG  Recommendation 
3.	 The NIH should  further develop  the fair access guidelines  to 
reflect  the full range  of issues involved. 
PHS Comment

We concur.  The TTPB, in August  1993, established  an ad hoc

committee  to evaluate  issues of fair access to CRADA

opportunities.  This committee  is charged with evaluating  and

developing  a reissuance  of the February  1989 policy document

entitled  *PHSPolicy  for Ensuring  Fairness of Access  in CRADAS. 

In the course  of its deliberations,  the committee will  consider

related access  procedures  from other Federal laboratories.  The

issue of fair access in this context was a featured topic at the

second annual  summer meeting  of the Association  of Federal

Technology  Transfer  Executives  at their meeting  last July.

OIG Recommendation

4.	 The NIH should develop and maintain  a central database

system to track all on-going  CRADA work.

PI-ISComment 
We concur.  Effective  data management  is a vitally  important  tool

for oversight  of the CRADA process  and CRADA-related  activities. 
The OIG report  suggests  several  appropriate  data fields.

However, we note that it is difficult  to quantify  the value of

personnel  and resources  contributed  to a given CRADA by the

participating  research  laboratory.

In connection  with corrective  action plans prepared  in response 
to a 1992  OIG  review of the technology  transfer function  (A-Ol-
90-01502), and the organizational  and internal controls  study 
performed  in 1993 by NIHs Division  of Management  Policy,  an 
information  systems  assessment  and users requirements  analysis 
is being developed.  OTT has developed  a prototype  for an interim

data system fOr monitoring  CRADA activity  and is comparing  this

system with existing  systems  developed  by NCI and the National

Institute on Aller9Y  and Infectious  Diseases.  lillthree systems

will  be presented  to the ICD Technology  Development  Coordinators~ 
the TTPB, and the CRADA Committee  to solicit their views as to

the preferred  interim system  pending more comprehensive  users

requirements  analysis.  A firm date for completion  of the overall

information  systems management  plan for OTT is not yet available.

C-6
 5

OIG Recommendation

5.	 The NIH, working with the Office of the Secretary  and OASH, 
should seek a consensus on how to resolve the reasonable 
pricing controversy. 
PHS Comment

We concur.  The issue of reasonable  pricing is a complex matter 
in which  the interests  of the Government  in facilitating 
collaboration  and the transfer  of technology  sometimes  appear to 
conflict with its interest  in containing health  care costs.  The 
OIG report correctly  notes that the issues raise questions  about 
the role of research  agencies  in regulating  or influencing 
private  sector pricing decisions  as well as the appropriate  scope 
of access by the Government  to cost and other price-related 
corporate data.  NIH notes that it has no legislative  mandate, 
programmatic  mission,  or expertise  in the evaluation  or 
regulation  of drug prices.

On December  2,  1992,  the Advisory  Committee  to the Director,  NIH, 
assisted  by  a  group  of  outside  experts,  discussed  the  policy 
implication  of  the  reasonable  pricing  clause  in  considering  the 
general  issue  of  how  the  public  investment  in  biomedical  research 
should  be  reflected  in  the  cost  of  products.  The  topic  has  also 
been  considered  at  several  House  and  Senate  hearings  earlier  this 
year. 
As a follow-up  to the Advisory  Committee meeting  and the

Congressional  hearings,  OTT is preparing  an options  paper  for

consideration  by the TTPB and the Director,  NIH,  regarding  the

question  of  how  the  public  investment  in  Federally-sponsored

biomedical  research  should  be  reflected  in  products  brought  to

market  through  joint  NIH-private  sector  efforts.  Appropriate

roles  for  the  Department  and  its  research  agencies  must  be

considered  in  the  context  of  the  Administrations  health  care

reform  efforts.

Technical Comments

Paqe  i under  Findin~s:  CRADAS  can  also  facilitate  the pooling

of NIH and  private-sector  equipment,  facilities,  research

materials,  as  well  as  intellectual  and  financial  resources.

CRADAs can  include  academic  institutions  as  research  and

development  partners.

Paqe 6:  The discussion  focusses on CRADAs which  are inconsistent 
with the central intent of the FTTA and NIH CRADA POlicY.  The 
statement  although inconsistent  with  the central  in~ent ~f the 
FTTA and with NH-I CRADA policy,  this type of research  is a1lowed 
c-7  6

by  both should be  stated  i.n  the  body  of  the  report  rather  than 
in  Appendix  C.  This  would  clarify  that  the  focus  of  the  finding 
is  on the words  central  intent. 
Paqe 9:  The report  states that NIH advertised  as CRADA 
omortunities  only  eight of the 61 CRADAS which were Part of this 
~~dy  .  The repor~  sh~uld clarify whether  all 61 CRAD&  were 
S 
initiated by NIH.  Any CR?LDAS initiated  by the private-sector 
counterpart  cannot  be included  correctly  in this statistical 
population because  NIH may not advertise  them. 
C-8
 APPENDIX  D

NOTES 
1.  National  Institutes  of Health  Strategic  Plan, April  1993. 
2.	 The  Presidents  Fiscal  Year  (FY)  1994 Budget  for the  Department  of Health 
and  Human  Services,  pp.  25-28. 
In FY  1993, NIH  allocated  $5.7 billion  (55 percent  of its total  budget)  directly 
to 23,582 extramural  research  project  grants.  It allocated  $1.2 billion  (11 
percent  of the  budget)  directly  to intramural  research.  The  remainder  of the 
budget  was allocated  to the  centers,  research  training,  R&D  contracts,  research 
support,  the  National  Library  of Medicine,  the  Office  of the  Director,  the 
Womens  Health  Study,  the  Minority  Health  Study,  other  research,  and  NIH 
facilities  repairs. 
3.	 Department  of Commerce,  Technology  Transfer  under  the  Stevenson-Wydler 
Technology  Innovation  Act:  The  Second  Biennial  Report,  January  1993, p. 1. 
4.  Senate  Report  No. 99-283 on Public  Law 99-502, pp.  1-2. 
5.  House  Report  No. 96-1199  on Public  Law 96-480, p. 3. 
6.  Senate  Report  No. 99-283 on Public  Law 99-502, p.  1. 
Other  legislation  supporting  technology  transfer  includes  the  Bayh-Dole  Act  of 
1980 (P.L.  96-517);  the  Small  Business  Innovation  Development  Act  of 1982 
(P.L.  97-219);  the  Cooperative  Research  Act  of 1984 (P.L.  98-462);  the 
Trademark  Clarification  Act  of 1984 (P.L.  98-620);  the  Japanese  Technical 
Literature  Act  of 1986 (P.L.  99-382);  the  Malcolm  Baldridge  National  Quality 
Improvement  Act  of 1987 (P.L.  100-107); the  Omnibus  Trade  and 
Competitiveness  Act  of 1988 (P.L.  100-418); the  National  Institute  of Standards 
and  Technology  Authorization  Act for Fiscal  Year  1989 (P.L.  100-519); the 
Water  Resources  Development  Act  of 1988 (P.L.  100-676); the  National 
Competitiveness  Technology  Transfer  Act  of 1989 (P.L.  101-189); and  the 
Defense  Authorization  Act  for  Fiscal Year  1991 (P.L.  101-510).  Executive 
Orders  12591 and  12618 in  1987 also supported  technology  transfer  efforts. 
7.	 According  to the  NIH/ADAMHA  Policy Statement  on Cooperative  Research 
and  Development  Agreements  and  Intellectual  Property  Licensing, 
NIH/ADAMHA  may  permit  their  investigators  to enter  into  CRADAS  with 
collaborators  who will make  a significant  intellectual  contribution  to the 
research  project  undertaken  or who will contribute  essential  research  materials 
D-1
 ortechnical  resources  not  otherwise  reasonably  available.  While

NIH/ADAMHA  welcome  contributions  to their  gift funds  for research

purposes,  they  do not view CRADAS  as a general  funding  source  or mechanism

for sponsored  research.

8.	 The  Federal  government  retains  a nonexclusive,  royalty-free  license  to use NIH-
or collaboratively  developed  CRADA  inventions  throughout  the  world  by or on 
behalf  of the  U.S. government.  Additionally,  NIH  reserves  the  right  to grant 
nonexclusive  licenses  to make  and  use any CRADA  invention  (even  those 
developed  solely by the  collaborator)  for purposes  of research  involving  that 
invention. 
9.	 The  FITA  requires  that  Federal  employees  receive  at least  15 percent  of any 
royalties  generated  by a CRADA  invention  for which  they  are  responsible.  In 
addition,  agencies  with internal  research  and  development  budgets  of more 
than  $50 million  are  required  to implement  cash  awards  programs  for 
outstanding  technical  inventions  or exemplary  activities  that  promote  domestic 
technology  transfer. 
10.	 Senate  Report  99-283 states  that  lengthy headquarters  approval  delays  can 
cause  businesses  to lose interest  in developing  new technologies.  (p. 4) 
P.L. 99-502, Section  2.  An  agency  head  is allowed  30 days to either  disapprove, 
or require  modifications  to, any CRADA  presented  by a director  of a federally 
operated  laboratory. 
11.	 Department  of Commerce,  Technology  Transfer  under  the  Stevenson-Wydler 
Technology  Innovation  Act:  The  Second  Biennial  Report,  January  1993. 
Appendix  B, Table  1. 
12.	 National  Institutes  of Health,  Office  of Technology  Transfer,  1992 PHS 
Technology  Transfer  Directory,  1992, pp.  25-33.  This  information  was 
reported  as of July 27, 1992. 
The  93 CRADAS  managed  by NIH  in 1992 included  25 with the  National 
Cancer  Institute;  21 with the  National  Institute  of Allergy  and  Infectious 
Diseases;  18 with the  National  Institute  of Diabetes  and  Digestive  and  Kidney 
Diseases;  6 with the  National  Institute  on Neurological  Disorders  and  Stroke;  5 
with  the  National  Heart,  Lung  and  Blood  Institute;  4 with each  the  National 
Institute  of Child  Health  and  Human  Development,  the  National  Institute  of 
Dental  Research,  and  the  National  Institute  of Mental  Health;  3 with  the 
National  Eye  Institute;  2 with the  National  Institute  on Drug  Abuse  and  one 
with the  Division  of Computer  Research  and  Training.  Additional  CIUIDAs 
are  also being  administered  by the  Centers  for Disease  Control  and  the  Food 
and  Drug  Administration. 
D-2
 13.	 Review  of Public  Health  Service  Controls  over  Technology  Transfer  and 
Royalty  Income  (A-01-90-01502),  Office  of Inspector  General,  March  1992. 
Relevant  reports  from  the  General  Accounting  Office  include  Technology 
Transfer:  Constraints  Perceived  by Federal  Laboratory  and  Agency  Officials, 
March  1988; TechnologyTransfer:  U.S. and  Foreign  Participation  in Research 
and  Development  at Federal  Laboratories,  August  1988; Technology  Transfer: 
Implementation  Status  of the  Federal  Technology  Transfer  Act  of 1986, May 
1989; Implementation  of the  Technology  Transfer  Act:  A Preliminary 
Assessment,  May  1990; Technology  Transfer:  Copyright  Law Constrains 
Commercialization  of Some  Federal  Software,  June  1990; Technology 
Transfer:  Federal  Agencies  Patent  Licensing  Activities,  April  1991; Diffusing 
Innovations:  Implementing  the  Technology  Transfer  Act  of 1986, May  1991; 
Technology  Transfer:  Federal  Efforts  to Enhance  the  Competitiveness  of 
Small  Manufacturers,  November  1991; Technology  Transfer:  Barriers  Limit 
Royalty  Sharings  Effectiveness,  draft,  1992. 
Other  reports  include  The Federal  Technology  Transfer  Act  of 1986:  The 
First  2 Years,  Department  of Commerce,  July  1989; Technology  Transfer 
under  the  Stevenson-Wydler  Technology  Innovation  Act:  The  Second  Biennial 
Report,  Department  of Commerce,  January  1993; and  Report  on the 
Administration  of Cooperative  Research  and  Development  Agreements 
(CRADAS)  within  PHS, Office  of the  Assistant  Secretary  for Health, 
December  1992. 
The  NIH  recently  completed  a review  of its Office  of Technology  Transfer  and 
is expected  to release  a report  summarizing  its findings. 
14.	 In 1989, one  CRADA  administrator  cited  a need  to strengthen  the 
management  structure  of our  internal  organizations  responsible  for training, 
patenting,  indust~  liaison,  licensing,  and  overall  technology  management. 
(Testimony  of Dr.  Philip  S. Chen,  Jr., Associate  Director  for Intramural  Affairs 
and  Chairman  of the  Patent  Policy Board,  National  Institutes  of Health,  before 
the  U.S. House  of Representatives  Small  Business  Subcommittee  on 
Regulation,  Business  Opportunities,  and  Energy;  October  5, 1989.) 
In  1991, another  administrator  emphasized  that  collaboration  between 
government  laboratories  and  nongovemment  entities  must develop  under 
carefully  crafted  guidelines  to ensure  that  the  fundamental  mission  of ND-I is 
presemed  and  that  industry,  academia  and  government  work  together 
honorably  to ensure  the  publics  trust.  (Testimony  of Reid  G. Adler,  J.D., 
Director,  Office  of Technology  Transfer,  National  Institutes  of Health,  before 
the  U.S. House  of Representatives  Science,  Space  and  Technology, 
Subcommittee  on Technology  and  Competitiveness;  May  30, 1991.) 
D-3
 In  1992, the  chairman  of the  CRADA  Subcommittee  noted  that,  In attempting 
to formulate  CRADA  policies  and procedures,  three  topics  must  be  considered: 
(1) What  is the  definition  of a CRADA?  In other  words,  what  are  appropriate 
research  activities  for  a CRADA  and what  are  not?  (2) What  policies  need  to 
be  formulated  to preseme  the  intellectual  and  scientific  integrity  of the  NIH, 
while  fostering  technology  transfer? ... (3) What  are  the  actual  mechanics 
required  for  the  initiation,  consideration,  and  approval  of a CIL4DA?  (Dr. 
Dinah  Singer,  Chairman  of the  CRADA  Subcommittee  of the  NIH  Technology 
Transfer  Board,  Policy Statement  on Cooperative  Research  and  Development 
Agreements  (CRADAS),  draft,  October  20, 1992, pp.  1-2.) 
15.  The mean approvedindustrfyi nancicaoln tributitoo na
 CRADA  project  during 
the  1990-92 period  ranged  from  $48,000 at NIDD~  to $162,000 at NCI,  to 
$837,000  at NIAID.  The  median  approved  contribution  ranged  from  $6,000 at 
NIDD~  to  $45,000 at NCI,  to $54,000 at NIAID.  The  actual  contributions 
may have  differed  from  the  approved  amounts. 
These  figures  refer  only to the  cash contribution  to be  transferred  from  the 
industry  partner  to  NIH.  The  total  value  of the  industry  partners  contribution 
of materials,  personnel,  etc.,  may have  been  higher. 
16.  NIH/ADAMHA/CDC  Technology  Transfer  Manual,  February  1992, p.  16. 
17.	 Nonetheless,  only one  marketed  product  has been  developed  through  the 
CRADA  mechanism  to date.  The  NIH  has not  yet earned  any royalty  income 
from  CRADA  inventions. 
18.  Senate  Report  99-283 on Public  Law 99-502, p. 11. 
19.  The 1992NIH/ADAMHA/CDC  TechnologyT ransfemra
 nual,p.1.

20.	 In consultation  with the NIH Technology  Development  Coordinators  (TDCS), the 
Office  of Inspector  General  developed  the  following definitions  to be used  by the 
TDCS in their  categorization  of the  nature  of CRADA  research: 
Basic  research:  The  partners  are  exploring  a  basic  research  question  with  no 
expectation  of a near-term  commercial  application. 
Pre-clinical  research:  The  partners  are  conducting  laboratory  and  animal  testing 
aimed  at  developing  a commercial  product. 
Clinical,  pre-approval  research:  The  partners  are  conducting  clinical  research 
aimed  at securing  FDA  approval  for a new compound  that  is anticipated  to have 
commercial  applications. 
Clinical,  post-approval  research:  The  partners  are  conducting  clinical  research 
aimed  at  establishing  a new  use for an FDA-approved  compound. 
D-4  Laboratory  technique,  machine,  etc.:The  partners  aredeveloping  a laboratory 
process,  technique,  procedure,  ormachine. 
21.	 Nine  of the  13basic-research  CRADAsentailed  atransfer  of funds  from 
industxy.  Of the  26 NIHscientists  involved  in the  CRADAS  established  at NCI, 
NIAID,  and  NIDDKin  199~,9made  apointof  expressing  concern  about 
industry  funding  of basic-research  CRADAS. 
The  chairman  of the  CRADA  Subcommittee  of the  NIH  Technology  Transfer

Board  has  suggested  that  research  activities  whose  only immediate  purpose  is

tobroaden  our  base  of fundamental  knowledge  and  understanding  are

inappropriate  for CRADAS.  She proposes  that,  to protect  NIH  scientists  from

umecessarily  committing  NIHs intellectual  property  rights  orrestricting  their

own research  programs,  basic-research  CRADAS  should  be  allowed  only in

instances  inwhich  there  is no funding  from  industry  for the  research  and  no

provision  for intellectual  property  rights  for the  indust~  partner.  (Dr.  Dinah

Singer,  Policy Statement  on Cooperative  Research  and  Development

Agreements  (CRADAS),  draft,  October  20, 1992, pp.  2-3.)

The  NIH  administrators  who  oversee  the  CRADA  approval  process  have

become  increasingly  critical  of basic-research  CRADAS,  and  the  percentage  of

CRADAS  that  focus  exclusively on basic  science  has dropped  over  the  past

threeyears  from  48 percent  to13 percent  (see  table  8 inappendix  B for more

information).

22.	 Twenty-nine  of the  61 CRADA  established  atNCI, NIAID,  and  NIDDK 
between  1990 and  1992 focused  exclusively on either  preclinical  orclinical 
testing.  For  12 of these,  NIH  reported  touswhether  industry  or NIH  held  the 
patents  necessa~for the  CRADA  research.  For  the  remaining  17, patent 
information  was unavailable. 
23.	 Although  inconsistent  with  the  central  intent  of  the  FTTA  and  NIH  CRADA 
policy, this type  of research  is allowed  by both. 
24.	 These  levels  usually include  the  laboratory  chief,  the  institute  director/scientific 
director,  the  institute  technology  development  office,  the  NIH  Office  of 
Technology  Development,  the  Office  of the  General  Counsel,  and  the  CRADA 
Subcommittee  of the  NIH  Technology  Transfer  Board. 
25.	 The  CRADA  Subcommittee  of the  NIH  Technology  Transfer  Board,  which 
conducts  the  NIH  central  review  of CRAD&  and  serves  asthe  advisor  tothe 
NIH Director,  does  notapprove  proposed  CRADAS,  but  rather  recommends 
nondisapproval  or modifications  tosuch proposals;  authority  for final  approval 
resides  attheinstitulteev el.A ftertheSubcommitteem akesa decisioonf
  
nondisapprovatlh,e CRADA  mustbesignedbytheNIH Directoorra

D-5
 designee.  We found  that  inalmostallcaseswe reviewedt,h isoccurrewdi thin5

daysoftheSubcommitteedecision.

26.	 The  institutteec hnologdye velopmentcoordinatoarnsd theCIWDA
Subcommitteearecurrentleyx plorinwga ysoffurthesrt reamlinitnhge
 process.
Inparticulatrh,e yarefocusinogn bringinbge tterd efinititoont
 herolesand

responsibiliotfitehse varioupsl
 ayers.

The OfficeoftheAssktantSecretarfyo
 rHealthhasnotedthatNIH hasmade

substantiparlo gres.s. .inbringinsgt ructurteo theCRADA  process.R eport

ontheAdministratioofnC ooperativRee
 searchandDevelopmentAgreements
(CRADAS) withinP
HS, December  1992. 
27.	 Memorandum  from  the  Chair,  Ad Hoc  Technology  Development  Coordinators 
Committee  on CRADA  Policy, to the  Chair,  Patent  Policy Board, 
September  11, 1992.  (The  Patent  Policy Board  was renamed  the  Technology 
Transfer  Board  intheSpringof1993.) 
28.  Senate  Report  No.  99-283 on Public  Law  99-502, p. 4. 
29.	 Memorandum  from Robert  E. Windom,  MD, Assistant  Secretary  for Health,  PHS 
Policy for Ensuring  Fairness  of Access in Cooperative  Research  and Development 
Agreements,  February  1, 1989. 
30.	 Memorandum  from  Robert  E. Windom,  MD,  Assistant  Secretay  for Health; 
pp.  1-2. 
According  to the  memorandum,  NIH  should  make  routine  periodic 
announcements  of the  general  subject  areas  in which  NIH  offers  collaborative 
opportunities.  Suggested  media  for these  routine  announcements  include  the 
Federal Register, the  Commerce  Business DaiZy, industry  collaboration  forums, 
and  directory  listings.  The  NIH  does  make  routine  periodic  announcements  of 
general  collaborative  opportunities  using these  media. 
Specific  announcements  are  also indicated  when  a laboratory  does  not  know  of 
a suitable  CRADA  partner  and  when  a laboratory  has not  yet made  a routine 
announcement  of the  CRADA  opportunity. 
The  NIH/ADAMHA/CDC  Technology  Transfer  Manual  states  that  a 
competitive  process  is generally  not  required  in choosing  a CRADA  partner, 
although  it is required  by PHS  fair  access  guidelines  under  limited 
circumstances.  (p.  114) 
31.  Of these  eight,  one was  advertised  intheFederalRegister. 
32.  We were  not provided  with initial  contact  information  for the  other  28 CRADAS. 
D-6
 33.	 The  NIH  does  not  allow a scientist  to consult  for  a company  while  participating 
in a CRADA  with  that  company. 
General  guidelines  from  the  Office  of Government  Ethics  have  directed  NIH 
considerations  of conflict-of-interest  issues  and  the  relationships  that  NIH 
scientists  may have  with a CRADA  partner,  either  prior  to the  establishment  of 
a CRAD~  or concurrent  Wllhparticipatiinoan
 CIUDA
The  Interagency  Task  Force  on Technology  Transfer  is now developing 
Technology  Transfer  Act  Interagency  Conflict  Of Interest  Guidelines  which 
will offer  guidelines  about  permissible  activities  for government  employees 
involved  in CRADAs. 
34.	 To  many  of these  scientists,  fair access seemed  beside  the  point:  They 
reported  that  their  CRADAs  developed  as a result  of ongoing  discussions  or 
informal  collaborations  with industry  scientists,  and  that  their  industry  partners 
expertise  or  proprietary  materials  qualified  them  as appropriate  CIU4DA 
partners.  Some  NIH  scientists  told us that  they  preferred  to conduct  research 
with partners  with whom  they  knew from  experience  they  could  work well. 
35.	 When  asked  how to differentiate  between  a small  business  and  a big business, 
one  CRADA  administrator  acknowledged  the  absence  of clear  definitions  and 
suggested  that,  if the  company  president  is involved  in the  CRADA 
negotiations,  then  its a small business. 
The  CIL4DA  administrators  expressed  further  concern  about  the  FITA 
stipulation  that,  for a company  to be given preference  in consideration  as a 
domestic  CRADA  partner,  it must  manufacture  CRADA  products  substantially 
in this  country.  They  noted  that,  in an age  of muhinational  businesses,  it is 
sometimes  not  possible  to ascertain  where  CRADA  products  will be 
manufactured. 
36.	 The  Technology  Transfer  Board,  its CRADA  Subcommittee,  and  the  Office  of 
Technology  Transfer  all develop  policy and  procedures  for NIH  CRADAs.  The 
CRADA  Subcommittee,  the  Office  of the  General  Counsel,  and  the  Office  of 
Technology  Transfer  review  proposed  CRADAs  to assure  their  acceptability, 
appropriateness,  and  legality.  According  to the  NIH/ADAMHA/CDC 
Technology  Transfer  manual,  the  Office  of Technology  Transfer  also has  the 
responsibility  to coordinate  a comprehensive  CRADA  database  to serve  as a 
central  information  repository. 
37.	 The  Office  of Technology  Transfer  keeps  a record  of those  CRADAs  that 
provide  for  intellectual  property  rights.  This record,  however,  is not  often 
updated.  Further,  there  are  inconsistencies  between  this record  and  those  kept 
b~the  individual  institutes.  The  OTT  intends  to develop  a more 
comprehensive  database. 
y. 
D-7
 Technology  Development  Coordinators  (TDCS)  in the  individual  institutes 
follow the  progress  of approved  CRADAS.  Both  NCI  and  NIAID  have 
developed  computer  tracking  systems  to assist  their  monitoring  efforts.  The 
TDC  offices  also document  amendments  to approved  CRADAS. 
In February  1993, the  CRADA  Subcommittee  of the  Technology  Transfer 
Board  set out  to determine  the  types  of amendments  that  it should  review. 
Until  new policy is set, the  Subcommittee  has  asked  that  the  TDCS in the 
individual  institutes  bring  fonvard  for Subcommittee  review  all proposed 
amendments  that  the  TDCS consider  to be  significant. 
38.  The  NIH  model  CRADA  agreement,  Section  8.3, states: 
... NIH/ADAMHA  have  a concern  that  there  be  a reasonable  relationship 
between  the  pricing  of a licensed  product,  the  public  investment  in that 
product,  and  the  health  and  safety  needs  of the  public.  Accordingly,  exclusive 
commercialization  licenses  granted  for NIH/ADAMHA  intellectual  property 
rights may  require  that  this relationship  be  supported  by reasonable  evidence. 
The  NIH  model  exclusive  patent  license  agreement,  Section  4.02, states: 
... PHS  may require  LICENSEE  to submit  documentation  in confidence 
showing  a reasonable  relationship  between  the  pricing  of a Licensed  Product, 
the  public  investment  in that  product  and  the  health  and  safety  needs  of the 
public.  This  paragraph  shall not  restrict  the  right  of LICENSEE  to price  a 
Licensed  Product  or Licensed  Process  so as to obtain  a reasonable  profit  for its 
sale  or use.  This  Paragraph  4.02 does  not  permit  PHS  or any other 
governmentagencytosetordictatper icefso rLicensedP roductso
rLicensed

Processes.

39.	 Testimony  of Bernadine  Healy,  MD,  before  the  U.S.Senate  Special  Committee 
on Aging, February  24, 1993. 
Others  who  have  addressed  the  limited  capacity  of NIH  to implement  the 
reasonable  pricing clause  include  Senator  David  Pryor,  Congressman  Ron 
Wyden,  Associate  Professor  Peter  Amo  of the  Albert  Einstein  College  of 
Medicine,  Professor  Steven  Schondelmeyer  of the  University  of Minnesota 
College  of Pharmacy,  and  several  of the  NIH  CRADA  administrators  with 
whom  we spoke. 
40.	 Twelve  of the  15 industry  representatives  with whom  we spoke  reported  serious 
concerns  about  the  clause. 
Industry  partners  noted  that,  were  the  clause  to be  implemented,  it would  be 
necessary  to take  into  account  the  following:  the  cost  of the  specific  product, 
D-8
 the  average  development  costs  for the  companys  products,  the  companys 
opportunity  costs,  the  average  industry  margins,  the  relative  contributions  of the 
partners,  the  marketing  and  distribution  costs, presence  and  prices  of similar 
competing  therapies,  Iikehhood  and  timing  of market  entry  for additional 
competing  products,  projected  time  to recover  development  costs, and  special 
discount/access  programs. 
Industry  partners  further  suggested  that  various  other  factors  serve  to keep 
prices  reasonable,  including  anti-trust  laws, market  forces,  and  competition 
created  by the  granting  of nonexclusive  licenses  for products  with large 
potential  markets. 
41.	 Testimony  of Bruce  Chabner,  MD,  Director,  Division  of Cancer  Treatment, 
NCI, before  the  House  Small  Business  Subcommittee  on Regulation,  Business 
Opportunities,  and  Energy,  January  25, 1993. 
In interviews  with  the  OIG,  several  NIH  CIL4DA  administrators  also observed 
that  some  pharmaceutical  companies  refused  toparticipate  in CRADAs 
because  of the  reasonable  pricing  clause. 
42.	 Examples  of the  specific  modifications  to the  CRADA  documents  we reviewed 
include  the  following: 
Addition  of the  phrase:  nothing  in this article  . . . shall be  construed  to 
	
restrict  the  right  of the  collaborator  to price  a licensed  product  so as to 
obtain  a reasonable  profit  for its sale  or use. 
Addition  of the  phrase:  This CRADA  shall not  affect  the  collaborators 
	
right  to recover  its research,  development,  and  marketing  costs. 
Replacement  of the  phrase  require  evidence  with request  evidence; 
	
and  addition  of the  following:  [the company]  may decline  to provide 
such  evidence  in which  event  NIH  . . . may convert  the  license  to a 
nonexclusive  one  . . . 
Addition  of the  following:  The reasonable  evidence  to be submitted  in 
	
support  of the  relationship  shall include  but  not be  limited  to evidence 
on (i) the  cost of the  collaborators  development  of the  product;  (ii) the 
cost of the  collaborators  overall  research  and  development  efforts  and 
the  need  to fund  past  and  future  efforts  through  commercialization  of 
the  successful  research,  and  (iii) the  potential  liability  to which 
collaborator  is subjected  by commercialization  of the  licensed  product. 
Explicit  clarification  that  the  clause  does  not  give NIH  or the 
	
Government  the  right to set or dictate  price. 
D-9
 43.	 The  first  marketed  product  to be  subject  to the  NIH  reasonable  pricing  clause 
was the  Bristol-Myers  Squibb  AIDS  drug,  Videx  (ddI).  In this instance,  the 
clause  was invoked  as part  of a licensing  agreement,  not  a CRADA. 
The  NCI  entered  into  a CRADA  with Bristol  Myers  Squibb  (BMS)  to develop 
Taxol  as a therapeutic  to treat  ovarian  and  possibly  other  types  of cancer. 
Through  the  CRAD~  BMS received  exclusive  rights  to clinical  and  preclinical 
data  necessary  for FDA  approval;  the  drug  itself  could  not  be  patented.  The 
pricing  clause  was modified  to reflect  the  unique  circumstances  of this product. 
44.	 The modified  clause contained  no mention  of NIH requesting  access to evidence, 
and  read:  Bristol Myers  Squibb  acknowledges  [NIHs] concern,  and  agrees  that 
these  factors  will be  taken  into  account  in  establishing  a  fair  market  price  for 
Taxol; and NIH acknowledges  BMSSconcerns,  and agrees that  these  factors  may 
be  taken  into  account  in establishing  a fair market  price  for Taxol. 
45.	 Testimony  of Bruce  Chabner,  MD,  Director,  Division  of Cancer  Treatment, 
NCI,  before  the  U.S. House  of Representatives  Small  Business  Subcommittee 
on Regulation,  Business  Opportunities,  and  Energy,  January  25, 1993. 
According  to Dr.  Chabner,  a number  of intangible  and  unqualifiable  factors 
contnlmte  to a fair price,  including  the  market  life of the  product,  the  period 
of market  exclusivity, potential  competition  or related  products,  and  anticipated 
market  size, all of which  defy precise  delineation.  Furthermore,  the  CRADA 
did not  require  the  company  to disclose  proprietary  information  regarding  total 
costs  of production  development  and  marketing,  and  the  company  exercised  its 
right  not  to disclose  such information. 
The  industry  partner  did agree  to provide  various  discounts  and  expanded 
access  programs  for patients  who  could  not  afford  the  drug  and  for research 
purposes. 
46.	 These  three  Congressional  hearings  were:  The Pricing  of Taxol  and 
Enforcement  of Fair  and  Reasonable  Provisions  in Cooperative  Research  and 
Development  Agreements  (CRADk),  on January  25, 1993, and  Private-
Sector  Agreements  to Market  Federally  Funded  Research,  on March  11, 1993, 
both  held  by the  U.S. House  of Representatives  Small Business  Subcommittee 
on Regulation,  Business  Opportunities,  and  Ener~,  and  The Federal 
Governments  Investment  in New Drug  Research  and  Development:  Are  We 
Getting  Our  Moneys  Worth?  held  by the  U.S. Senate  Special  Committee  on 
Aging  on Februa~  24, 1993. 
47.	 Opening  Statement  of U.S. Representative  Ron  Wyden,  Chairman  of the  U.S. 
House  of Representatives  Small  Business  Subcommittee  on Regulation, 
Business  Opportunities,  and  Energy  January  25, 1993. 
D-10
 Testimonies  of Abbey  S. Meyers,  Executive  Director,  National  Organization  for 
Rare  Disorders,  and  Stephen  Schondelmeyer,  Ph.D.,  Professor,  College  of 
Pharmacy,  University  of Minnesota,  before  the  U.S. Houseof  Representatives 
Small  Business  Subcommittee  on Regulation,  Business  Opportunities,  and 
Energy  January  25, 1993. 
Opening  Statement  of U.S. benator  David  Pryor,  Chairman  of the  U.S. Senate 
Special  Committee  on Aging;  February  24, 1993. 
Testimony  of Ralph  Nader  before  the  U.S. House  of Representatives  Small 
Business  Subcommittee  on Regulationj  Business  Opportunities,  and  Energy 
March  11, 1993. 
48.	 According  to a March  12, 1993 letter  from  Genentech,  Inc., to Representative 
Ron  Wyden,  NCI  inappropriately  included  a Genentech  product,  Human 
Growth  Hormone,  on the  list of reference  oncology  drugs  for the  pricing  of 
Taxol.  Human  Growth  Hormone  was the  most  expensive  drug  listed,  and  the 
price  cited  is 168 percent  higher  than  the  companys  own estimate.  The 
inappropriate  inclusion  of this product  on the  reference  list and  the  inflated 
price  significantly  increased  the  median  price  below  which  Taxol  was to be 
priced. 
49.	 Office  of the  ksistant  Secretary  for Health,  Report  on the  Administration  of 
Cooperative  Research  and  Development  Agreements  (CRADAS)  within  PHS, 
December  1992. 
The  NIH  Division  of Management  Policy, Office of Technology  Transfer: 
Internal  Control  Review,  draft,  March  26, 1993. 
D-n