NIH ETHICS CONCERNS: CONSULTING

ARRANGEMENTS AND OUTSIDE AWARDS

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MAY 12, MAY 18 and JUNE 22, 2004

Serial No. 108–88

Printed for the use of the Committee on Energy and Commerce

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NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND

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NIH ETHICS CONCERNS: CONSULTING

ARRANGEMENTS AND OUTSIDE AWARDS

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MAY 12, MAY 18 and JUNE 22, 2004

Serial No. 108–88

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

2

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN SULLIVAN, Oklahoma

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

TOM ALLEN, Maine

JIM DAVIS, Florida

JANICE D. SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

BUD ALBRIGHT, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

RICHARD BURR, North Carolina

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

Vice Chairman

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

JOE BARTON, Texas,

(Ex Officio)

PETER DEUTSCH, Florida

Ranking Member

DIANA DEGETTE, Colorado

TOM ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Hearings held:

May 12, 2004 ..................................................................................................... 1

May 18, 2004 ..................................................................................................... 261

June 22, 2004 .................................................................................................... 487

Testimony of:

Alberts, Bruce, President, National Academy of Science .............................. 26

Augustine, Normal, Co-Chair, Blue Ribbon Panel on Conflict of Interest

Policies ........................................................................................................... 25

Azar, Alex, II, General Counsel, U.S. Department of Health and Human

Services .......................................................................................................... 505

Barker, Anna D., Deputy Director, Advanced Technologies and Strategic

Partnerships; Maureen O. Wilson, Assistant Director; and J. Carl Barrett, Director, Center for Cancer Research, National Cancer Institute ... 570

Glynn, Marilyn L., Acting Director, U.S. Office of Government Ethics ....... 273

Heller, Jonathan C., Vice President, Information and Project Planning,

Predicant Biosciences ................................................................................... 545

Kington, Raynard S., Deputy Director, National Institutes of Health ........ 290

Levine, Peter J., President and Chief Executive Officer, Correlogic Systems, Inc ........................................................................................................ 538

Liotta, Lance A., Chief, Laboratory of Pathology; accompanied by J. Carl

Barrett, Director, Center for Cancer Research; Anna D. Barker, Deputy

Director, Advanced Technologies and Strategic Partnerships, National

Cancer Institute ............................................................................................ 341

Maskell, Jack, American Law Division, Congressional Research Service ... 291

Petricoin, Emanuel, Lead Microbiologist, Center for Biologics Evaluation

and Research, Food and Drug Administration ........................................... 346

Swindell, Edgar M., Associate General Counsel, Ethics Division, Department of Health and Human Services .......................................................... 281

Varmus, Harold, former Director, NIH, President and Chief Executive

Officer, Memorial Sloan-Kettering Cancer Center ..................................... 304

Zerhouni, Hon. Elias, Director, National Institutes of Health

May 12, 2004 ............................................................................................. 16

June 22, 2004 ............................................................................................. 497

Additional material submitted for the record:

Food and Drug Administration, prepared statement of ................................ 376

(III)

(1)

NIH ETHICS CONCERNS: CONSULTING

ARRANGEMENTS AND OUTSIDE AWARDS

WEDNESDAY, MAY 12, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2322, Rayburn House Office Building, Hon. James C. Greenwood

(chairman) presiding.

Members present: Representatives Greenwood, Bilirakis, Walden,

Ferguson, Barton (ex officio), Deutsch, DeGette, and Allen.

Staff present: Mark Paoletta, majority counsel; Alan Slobodin,

majority counsel; Ann Washington, majority counsel; Casey

Hemard, majority counsel; Billy Harvard, legislative clerk; David

Nelson, minority investigator; and Jessica McNiece, minority research assistant.

Mr. GREENWOOD. Good morning, everyone. This hearing of the

Oversight and Investigations Subcommittee will come to order. I

apologize for being a few minutes late. The Chair recognizes himself for an opening statement and, welcome to our guests. Thank

you for being with us.

For years in America and American political history there was

quote ‘‘honest graft’’ described by William Safire as ‘‘money made

a result of political power without doing anything illegal, no longer

considered permissible.’’

Later as described by Safire the practice ‘‘honest graft’’ became

known as the revolving door. Government officials when they retire

take jobs with private industry. In an article appearing on December 7, 2003 in the Los Angeles Times detailing the decade long

practice of high level scientists at the National Institutes of Health

receiving hundreds of thousands of dollars in fees to consult for private drug or biotechnology companies revealed yet a new form of

honest graft, what I call the swivel chair. Now the government official does not have to retire, he can take outside consulting jobs

with the drug industry as a scientific expert yet still have the privilege of being on the inside of the NIH, the crown jewel of the American biomedical research enterprise.

This swivel chair at NIH is still defended, to some extent, in the

name of retention, recruitment and moral, to some extent as an entitlement of the scientific class. The controversial nature of this

swivel chair policy at NIH is perceived when one considers its analogy in the context of Congress. I do not believe the American people would tolerate for one moment the notion that Members of ConVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 93973.TXT HCOM1 PsN: HCOM1
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gress could be allowed outside income to consult for private entities

doing business before the Congress. In fact, the Congress eliminated the practice of members receiving outside income such as

cash gifts for speeches. It took the straightforward approach of

raising our salaries and eliminating outside income that raised conflict of interest issues.

Today this subcommittee examines the issue of outside income

for NIH scientists posing conflict of interest concerns such as consulting for drug companies or cash gift awards to NIH senior managers from grantee institutions receiving or seeking substantial

funds from that official’s institute. As we pursue the facts over the

nature and extent of these outside income practices one question

is worth wondering: If this kind of reform was good enough for the

Congress, why is it not good enough for the National Institutes of

Health?

As I have noted before as the chairman of the subcommittee, the

scandal is often finding out what not what is illegal, but what is

legal. Consider NIH’s policies on cash awards and outside consulting. Under current policies an NIH Institute director is permitted to accept a cash gift from a grantee or cooperative agreement holder with his institute provide it is presented as a ‘‘bona

fide award’’ and meets the minimal criteria for such an award. If

a grantee wants to reward or influence an NIH official, it can do

so if the cash is called an award as long as there is adequate financial backing for such endeavors.

If a university seeking NIH funds wants to attract reward or influence an NIH official whose salary is paid by taxpayers to give

a speech by paying cash to that official for his speech, that is otherwise part of his taxpayer supported official duties. He can do so

without running afoul of criminal felony statutes and noncriminal

ethics regulations by calling the event a lecture award.

For outside consulting by NIH scientists with drug or biotechnology companies under current policies established by then

NIH Director Harold Varmus in 1995, there is no limit on the

amount of compensation or the number of hours. On December 7,

2003 the Los Angeles Times revealed that high level NIH scientists, including some institute and center directors, received hundreds of thousands of dollars in compensation for consulting with

drug and biotechnology companies. The next day, this committee

began its own detailed investigation of these outside consulting arrangements only to discover that high level NIH scientists making

higher salaries than that of the Vice President of the United States

were not even required to file public financial disclosure reports.

Equally astonishing, this committee learned that prior to our investigation NIH employees were not required to provide the

amounts of compensation they were receiving through their drug

company consulting, not required to provide it to the public.

Even though the NIH has complied in providing a substantial

amount of information in documents in response to the committee’s

request, as a result of these nondisclosure policies and slow rolling

by HHS lawyers, to this day we still lack complete information on

the amounts of compensations received by individual NIH scientists in many consulting arrangements over the last 5 years. We

have been told that NIH only has the authority to request NIH emVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 93973.TXT HCOM1 PsN: HCOM1
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ployees to voluntarily produce information on past consulting

agreements, and many have reportedly not responded.

If NIH scientists are too embarrassed to have these details publicly known, then that reluctance to divulge this information is a

message in itself about the propriety of these arrangements. Thus,

because of the HHS and NIH inability to respond, I am announcing

today that the committee will be sending request letters to drug

companies to get the amount data for individual NIH scientists

consulting arrangements.

The controversy over outside consulting with drug companies is

further underscored when one considers what has happened in the

last few years to make working at the NIH more attractive, exciting and important. Many scientific personnel at NIH have boosted

their salaries well beyond the caps in the Federal Civil Service System by converting themselves into consultant employees through

the widespread use of what are called special compensation authorities under Title 42 of the Public Health Service Act. Not only

can annual salaries be boosted by an extra $50,000 or $60,000, but

under an arcane Office of Government Ethics legal ruling, highly

paid Title 42 personnel are exempt from filing public financial disclosure reports, although recently some have been required to be

public filers.

Through Federal technology transfer policies, NIH can now pay

royalty income to NIH inventors for technologies they have discovered that have been commercialized. Congress has completed the

doubling of NIH’s budget, vastly enlarging the universe of unique

and intellectually enlivened research opportunities at NIH.

Finally, in the post September 11th world, the NIH occupies a

key leading role in assisting our bioterrorism defense efforts. But

to proponents of outside consulting, notwithstanding all these developments, moral at the NIH will be damaged if the freedom to

be put on a drug company’s payroll is not preserved, even though

we are told very few NIH employees engage in outside consulting.

The committee begins its consideration of these NIH ethics concerns by receiving testimony about the report of the NIH Blue Ribbon panel on conflict of interest policies released last week after 66

days of work. This panel was appointed by the Director of the NIH

shortly after the December 2003 Los Angeles Times Article and the

beginning of the committee’s investigation on outside consulting.

The co-chairs of the panel were Dr. Bruce Alberts and Normal Augustine, who will be testifying before us today.

The Blue Ribbon panel assessed the current status of conflict of

interest policies with particular attention to outside consulting and

made recommendations for improving. The panel states its recommended improvements are ‘‘needed to assure the continue deserved public confidence in the work of NIH.’’

We welcome our very distinguished witnesses from the NIH Blue

Ribbon panel. And thank you for your public service and the quick

response you delivered to the NIH Director.

By definition and by your description the panel’s work was limited by a relatively short timeframe and by limiting yourselves to

not investigating specific allegations or reviewing individual cases

under investigation. The panel’s work was a useful step, but it is

4

only the first step as the NIH, the Congress and the American public and interested stakeholders sort out the facts and the issues.

In general, the panel recommended that high level employees at

the NIH should not engage in consulting activities with pharmaceutical or biotechnology companies, but that some NIH employees

should be allowed to consult, but be limited to an amount equal to

50 percent of the employee’s annual salary with no one source accounting for more than 25 percent of annual salary.

The panel also called for relaxing restrictions on earnings from

outside teaching, writing and speaking engagements.

I look forward to discussing this report with the co-chairs, since

I have many questions and I am troubled by some of aspects of the

report.

For example, the report maintains that very few NIH employees

engage in consulting agreements with drug or biotechnology companies. It also found ‘‘an extremely complex set of rules governing

conflicts of interest at NIH. These rules are widely misunderstood

by some of the very people to whom they are intended to apply,

thereby creating uncertainty as to allowable behavior and adversely affecting moral.’’

If so few NIH employees engage in outside consulting, why allow

it in any form replacing one confusing set of rules with another?

Why not a blanket prohibition on the swivel chair?

While some of the rules may be confusing, it needs to be acknowledged that some rules are clear. The committee has investing

NIH ethics concerns for over a year, along with several other NIH

oversight activities. Unlike the Blue Ribbon panel, we have been

looking case specific practices. It is clear from the cases we have

reviewed that some NIH scientists are either very close to the line

or have crossed the line.

We are serious about upholding the highest ethical standards at

the NIH, and NIH scientists should not even be close to the line.

Yet this has been the persistent problem at NIH for years, not because of confusion but because of a deliberate permissive attitude

reflected in some NIH employee comments received by the Blue

Ribbon panel.

In a June 1987 letter to HHS David Martin, the Director of the

Office of Government Ethics wrote of the ethics program at NIH

‘‘My greatest concern, however, relates to the area of outside activities such that there occasionally appears to be a blurring of the distinction between what should be properly authorized as official

business and outside activities.’’

In a November 22, 1991 letter to HHS Secretary Lewis Sullivan

the Director of the Office of Government Ethics Steve Potts wrote

‘‘I am concerned, however, about the persistent weakness in the

NIH outside activity approval system as it relates to scientists and

doctors and NIH.’’

And in December 22, 1991 letter to NIH Director Bernadine

Healy Mr. Potts wrote ‘‘We believe also that the permissive attitude of NIH toward outside activities has led to certain activities

being approved without adequate documentation to support such

decisions. Less than 1 percent of over 4,000 requests for approval

of outside activities were denied. Moreover,’’ he said, ‘‘approxiVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 93973.TXT HCOM1 PsN: HCOM1
5

mately 40 percent of the 553 requests we received were approved

after the activity had already taken place.’’

In it’s 1991 audit OGE reviewers wrote: ‘‘The permissive attitude

at NIH toward outside activities and its fear that further restrictions of outside activities may hinder recruitment and retention of

scientific personnel has also played a major role in the problems

and issues we identified.’’

One NIH official stated that if OGE is saying that NIH employees who are on the cutting edge of biomedical research are like

other Federal employees and should be denied the right to talk

about their expertise even though the subject matter is related to

agency responsibilities and programs, then NIH does not agree.

The official contended that NIH is unique and should be exempt

from this restriction.

From its February 1992 report on employee conduct standards,

the General Accounting Office found that NIH was one of five out

of 11 agencies audited that because of overly permissive policies

approved outside activities such as speaking and consulting that it

appeared to be violated the standard of conduct prohibiting the use

of public office for private gain. Keep in mind, these permissive

practices took place under rules on outside consulting that are in

some respects more restrictive than what the Blue Ribbon panel is

recommending. In November 1995 NIH Director Howard Varmus

loosened these consulting restrictions to ‘‘strengthen our ability to

recruit.’’

The Blue Ribbon panel report seems to handle the conflict of interest issues gently and seems almost blithely to accept the retention and recruitment arguments for maintaining some form of outside consulting and compensated scientific activities by NIH scientists. But as I constantly hear on oversight issues from the NIH

and the FDA, do not give me anecdotes, give me data. Are there

facts or information that back up these arguments about NIH’s

ability or inability to retain or recruit? What are the turnover rates

of the Title 42 personnel? What have the turnover rates been over

the year for NIH scientists? Was NIH less of a research institutions before the November 1995 lifting of consulting restrictions?

What have been the benefits to society from the consulting? What

new drugs were developed?

Some questions are unanswerable, but are certainly with considering. What new drugs were not developed because the NIH scientists were devoting more energy about the drug company research and not the NIH research?

As Josephine Johnson of the Hastings Center noted in the March

12, 2004 issue of Science ‘‘If a scientist’s desirably as a consultant

stems from her NIH post, can be sure that the advice and time she

sells to industry does not already belong to NIH? Nevertheless,

given the sometimes six figure sums involved, concerns should persist about whether salaried individuals can give their primary job

the effort and attention it deserves while also understanding considerable consulting work given similar consulting arrangements in

many of the Nation’s public and private universities the real question of the moment is should we abandon the idea of impartial disinterested science or should NIH be the last stronghold of this

ideal?’’

6

I am disappointed by the Blue Ribbon panel’s lack of substantive

analyses of the issue of bona fide awards. While the panel acknowledges that scientists who receive these awards are frequently required to prepare a lecture as an acceptance speech, it left unexplained the conflict of interest issues arising from the fact that

these speeches are required in order to get the cash by a private

entity possibly with substantial interests before NIH and are official duty activities of NIH scientists. I believe this matter of what

constitutes a bona fide award and the serious conflict of interest

issues raised by receipt of cash awards from prohibited sources

warranted further consideration and thought by the panel.

In addition, if these awards are so important in raising the visibility of NIH scientists and recognizing the value of NIH research,

why does NIH not collect and publish information listing these

awards to promote itself and its importance?

We are all eager to hear from the Director of NIH, Dr. Elias

Zerhouni. Since the committee has been engaged on these issues

over the last year, I have had the pleasure of working with him.

I believe Dr. Zerhouni has been a man of good intentions throughout and I hold him in the highest esteem. He has been earnestly

attempting to respond to the committee’s concerns and to help us

to reach a conclusion of this investigation, if for no other reason

than to lift the cloud of uncertainty felt by some NIH employees

about this probe. When he has been adequately advised by the department, he has taken decisive steps to address the problems, but

more needs to be done.

In my discussions with Dr. Zerhouni, I had hoped to complete

our investigative work on NIH ethics concerns by the hearings to

be held today and on May 18th. Unfortunately, the delays and obstinacy principally at the HHS Office of General Counsel in getting

amount data on the individual consulting arrangements will extend

this investigation beyond May 18th as we are now forced to pursue

this data from the drug companies. As I have learned from experience, the truth will ultimately come out.

This hearing will be Dr. Zerhouni’s first public response to the

Blue Ribbon panel report and recommendations.

Dr. Zerhouni, I look forward to your testimony and working with

you on mutual issues of concern, including the improvement of

NIH’s ethics program worthy of a great scientific agency with talented and valued employees.

And I now recognize the ranking member, the gentleman from

Florida, Mr. Deutsch for an opening statement.

Mr. DEUTSCH. Thank you, Mr. Chairman. With unanimous consent put in Mr. Dingell’s statement and Mr. Waxman’s statement

into the record.

Mr. GREENWOOD. Without objection.

[The prepared statements of Hon. Henry A. Waxman and Hon.

John D. Dingell follow:]

PREPARED STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

Last December, the Los Angeles Times revealed that a handful of high-ranking

NIH scientists had accepted hundreds of thousands of dollars in consulting fees

from pharmaceutical companies. The story, and this subcommittee’s subsequent investigation, caused NIH to reexamine many of its conflict of interest policies, and

7

rightfully so. NIH is respected around the world for its scientific leadership and the

high quality of its research. Probably the world’s greatest biomedical research establishment, NIH’s reputation for scientific integrity and independence is unmatched.

It is therefore particularly disturbing that NIH scientists should give even the appearance of being influenced by the pharmaceutical industry in their decisions.

I have no doubt that most NIH scientists are carrying out their jobs according

to the highest ethical standards. But some of what this subcommittee’s investigation

has exposed is very troubling. Dozens of NIH scientists have accepted very substantial sums of money from drug companies with few checks on whether those relationships posed conflicts of interest. All public servants must be sensitive to the reality

and even the appearance of such conflicts, and an institution of NIH’s scientific

standing must be especially vigilant. America and the world must feel confident that

NIH’s research results are not biased by drug company influence. Because if we

allow NIH’s credibility to be compromised, we have all lost.

I commend Dr. Zerhouni for the steps he has taken to change the ethical rules

that guide NIH. And I recognize that the ‘‘Blue Ribbon Panel’’ has made a good faith

effort to minimize potential conflicts of interest. But more needs to be done. I am

particularly concerned that some potential conflicts of interest will still go undisclosed. Full disclosure is essential for ensuring public confidence in the work of NIH.

I’ve asked the GAO to analyze the work of the Blue Ribbon panel, and I hope that

GAO will be able to provide a roadmap to enhance the Panel’s recommendations.

Many argue that if we don’t allow NIH scientists to accept large payments from

the drug industry, we will lose them to higher paying jobs in industry or academia.

I am not ready to accept this conclusion. One heartening finding of the subcommittee’s investigation is that the vast majority of NIH scientists are willing to do their

jobs without receiving supplemental income from drug companies. Of the thousands

of scientists employed by NIH, only a small percentage were found to be receiving

money from drug companies. Apparently, the rest of NIH’s scientists have found sufficient compensation in their government salaries and the opportunity to work at

the world’s leading biomedical research facility.

We are justifiably proud of NIH’s long tradition of scientific achievement. We’ve

always been able to trust the science that comes out of NIH. This is a legacy we

need to defend and protect. Americans need to know that when NIH reaches a conclusion, that conclusion is based on hard evidence and the scientific method. We

need to act now to impose appropriate conflict of interest standards so that America

and the global scientific community can continue trusting in NIH.

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Mr. Chairman, you are to be congratulated on this investigation into conflicts of

interest at the National Institutes of Health (NIH). NIH is a national treasure, the

flagship for scientific research into the causes and cures for diseases that have ravaged mankind through the ages and others that have arisen with devastating effect

in more recent times. It has been so successful in fulfilling its missions that Congress, on a bipartisan basis, has increased its budget four-fold over the past two decades. Along with the increased funds have come increased tasks.

In general, we have been very careful not to earmark funds for research into specific diseases, trusting the NIH scientists to pursue the most promising research as

they see fit. We have also passed legislation to permit private/public partnerships

in the hopes of making promising cures available to the American people in an expeditious manner. This makes sense.

Unfortunately, certain scientists have been trusted to determine when their personal financial involvement with drug and biotech companies poses a conflict of interest with their responsibilities to the public. And those scientists have not been

subject to rigorous review or full disclosure. Now we see that at least three Administrations have not only tolerated, but encouraged, the acceptance of monies, in some

cases extraordinarily large sums, by NIH scientists from private companies with

substantial interests in the decisions at NIH. The secret purchase of information

and influence must stop.

Mr. Chairman, another activity that must stop is the lack of cooperation with this

important inquiry. I agree with you that this investigation has been slow-rolled and

stonewalled from its onset a year ago. We have yet to receive all the requested documents and interviews. It is my understanding that the Department of Health and

Human Services has refused to supply at least one witness you requested for the

hearing next week.

8

Moreover, the Department has broken with past practice in order to monitor, if

not hinder, the inquiry. As you are aware, this Subcommittee has had a longstanding agreement with the Department that it could provide personal counsel to

individual employees during staff interviews on particularly sensitive investigations,

provided that no information from those interviews would be revealed outside the

interview room. That agreement spans three Administrations and control of the

Committee by both parties. Two weeks ago we discovered that the attorneys accompanying all department employees to these interviews were reporting back the contents of those interviews, and had informed the employees that they were in the

interviews not to represent the individuals but for the purpose of reporting the content of the interviews back to the Department. This came as a surprise to both majority and minority staff and undermines the credibility of our work. I offer you the

full support of the minority in whatever steps, including formal process, you may

take to acquire the necessary cooperation from the Department.

This investigation is important—both to protect the integrity of the scientific work

at NIH, and to protect the credibility of the work of this Subcommittee. Mr. Chairman, you have my thanks and my support as we continue the bipartisan work on

this matter.

Mr. DEUTSCH. Thank you.

Thank you, Mr. Chairman, for holding this very important hearing into conflicts of interest at the National Institutes of Health.

NIH is truly a critical agency that enjoyed bipartisan support for

its work fighting diseases and cripple and kill millions of Americans. Yet it appears that the leadership of NIH may have fallen

victim to a disease itself, and that is creed.

It is important to differentiate between the current and former

leadership of NIH that have encouraged the option of corruption,

the HHS lawyers that have facilitated the payoffs from drug and

biotech companies and the thousands of the dedicated scientists

that do such brilliant work solely for the benefit of their employers,

the American people.

While the full extent of the corruption is unknown largely because of the stonewalling of the Department of HHS, there appears

to be only 114 employees out of 17,526 that currently admit to providing consulting services to drug and biotech companies.

Today we hear from a so called Blue Ribbon panel appointed by

the Director of NIH Dr. Elias Zerhouni, as well as Dr. Zerhouni

himself.

The panel represented by its co-chair today, made 18 recommendations to reform the ethics program at NIH. They issued

these recommendations in a 68 page report released last week.

To say that the report constitutes nothing more than an apology

for the status quo does it a disservice. It is a report from a panel

that blatantly refused to consider the most important facts. The

panel apparently felt compelled to base its recommendation on

their misplaced need to excuse the inexcusable.

I cite the executive summary, and I am quoting, ‘‘The panel did

not investigate specific allegations or review individual cases.’’ Nor,

apparently, did it do much else except hear testimony from 32 witnesses over 4 days of public hearing, some 28 of which had a direct

financial interest in maintaining the status quo. Three others are

lawyers that developed or defended the rules that perpetuated the

corruption. And finally, the former head of NIH that removed virtually all obstacles to acceptance of gratuities at NIH.

It would appear that the panel had at least some substantial

amount of help in drafting this report from HHS General Counsel.

Mr. Chairman, that office has facilitated destruction of much of the

9

legal basis for ethical standards in NIH and it has been largely responsible for the attempt to cover up the extent of the corruption

at NIH from this subcommittee. Nonetheless, the panel members

are responsible for this public report, and Dr. Zerhouni is the official who will be responsible for cleaning up the corrupt practices

at the agency.

Again citing from the report section 5 recommendations page 60,

‘‘The panel believes that with careful oversight and monitoring the

potential conflicts of interests can be effectively avoided.’’ This is

clearly not the case.

I am anxious to hear from the panel representative just how NIH

is supposed to effectively monitor and oversee the for profit activities of its thousands of employees. I suggest that the report really

proposes is the existing quality control system that might accurately be described as a system of careful twisting of the rules and

an overlooking of the consequences.

I submit for the record a summary of what the panel should have

had but did not consider, specifically: A spreadsheet prepared by

NIH of the employees with current consulting contracts with drug

and biotech companies; a series of PowerPoint slides prepared by

the subcommittee staff off the information contained in that

spreadsheet, and; a series of articles by David Williams from the

L.A. Times that explores some of the stories in detail.

Dr. Zerhouni, I have two recommendations for you. If you are indeed serious about restoring the pristine reputation of NIH research, suspend every ethics official in the NIH that has approved

a consulting agreement between a drug or biotech company and an

NIH employee until real investigations, perhaps from the Office of

Inspector General, confirmed that they made a vigorous effort to

determine the extent of any potential conflict. Staff review of the

documents in our possession today suggests that these ethics officer, by in large, saw their role as facilitating the consulting arrangements rather than protecting the government from conflicts of

potential conflict. The NIH’s own spreadsheet suggests that their

facilitation was a success.

Finally, I would urge you in the strongest possible terms to end

the practice today of NIH researchers taking anything of value

from a drug a biotech company. The conflict is not defendable short

of NIH having supervised each review and every task undertaken,

every work product produced, every piece or advice provided the

drug company and comparing them against current and former

tasks that need to be taken by the Federal Government. Even then

it is hard to imagine how the American taxpayer could possibly be

assured that the employee on the payroll of a drug or biotech company is always acting in their best interest.

Mr. Chairman, again, I want to thank you for holding this hearing. I look forward to the witnesses.

I yield back any remainder of time.

Mr. GREENWOOD. The Chair thanks the gentleman and notes the

presence of the chairman of the full committee, Mr. Barton. And

we are pleased to have him here, and he recognized for his opening

statement.

Chairman BARTON. Thank you, Mr. Chairman.

I want to commend you for holding this hearing.

10

I am going to ask unanimous consent that my formal statement

be put into the record.

Mr. GREENWOOD. Without objection it will.

Chairman BARTON. I am just going to speak extemporaneously.

The NIH is an important asset to our Nation. As such, we doubled its budget over the last 5 years to I think a little over $28 billion. There is not a member of this subcommittee or the full committee, or I would even possibly like the House and the Senate,

that does not want the NIH to be absolutely totally successful.

I have the privilege to have a private meeting with Mr. Zerhouni,

and everything that I know about you personally and the information that we exchanged indicates to me that you really want to do

nothing but enhance the reputation of the agency that you head.

Having said that, NIH has not been reauthorized in over 10

years. There are some very controversial issues that your agency

deals with, and the Congress has been reluctant to wade into the

fray and engage in the policy debates that need to be debated if we

are going to reauthorize the Institute.

It is my intention in this Congress to reauthorize the NIH, and

I have been working on a bipartisan basis with Ranking Member

Dingell, and I think we are going to be able to do that. We want

NIH to succeed. But we are also concerned that as our staffs have

worked on the policy side and as the oversight investigation staffs

have worked together on this side, the administrative side, we have

found NIH to be less than cooperative, and that’s going to change.

Now, you can go back to your agency and you can tell your directors and all that the administrative officials that they can cooperate, you know, cooperatively or we will make them cooperate coercively, you know. We are going to get the information that this

staff has asked for and we are going to share it on a bipartisan

basis, and then we are going to see what recommendations, if any,

need to be made.

I am very concerned about the fact that there are large honorariums and consulting fees being paid without any internal or external requirements for disclosure. There was a time in the Congress where a Member of Congress could accept an honorarium, I

think we were capped at $2,000 per speech and I think $30,000 or

$35,000 per year. And those all had to be reported. They could be

used for personal use, but they had to be reported and they had

to be capped.

Apparently within your agency there are little, if any, controls on

that and at least anecdotally there are stories of at least one individual getting a half million dollars. I do not know if that is true

or not. But if that is true, at a minimum it needs to be reported

and disclosed, and it might need to be banned.

Now the Blue Ribbon panel that Dr. Augustine chaired, I believe,

held seven hearings over a 2 or 3 month period and made some recommendations that apparently have not been agreed with. Now,

that could be wrong and you may bring that out in testimony. But

we have to have transparency. We have to have accountability. And

we simply must have the faith of the American people that the research grants that are given at NIH are given because of the merit,

not because somebody got a big honorarium or speaking fee.

11

So, this is not a hearing that is being convened for a witch hunt.

Again, we want the NIH to succeed, but we do want to put into

place the proper checks and balances to make sure that the full

faith and trust of the American people can be placed in the agency.

With that, Mr. Chairman, I would yield back.

[The prepared statement of Hon. Joe Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Thank you, Chairman Greenwood for holding this important hearing. The ethics

concerns and the lack of public accountability associated with much of the outside

consulting fees and cash awards received by NIH scientists is yet another reason

the NIH needs to be reauthorized by this Committee.

It has been over a decade since the NIH has been reauthorized. Since that time,

the restrictions on outside consulting have been lifted entirely. Rules on public disclosure have been weakened to the point that the Los Angeles Times reported that

94% of NIH’s highest paid employees were not required to publicly disclose their

consulting incomes. These highly paid employees included some scientists who were

paid more than the Vice President of the United States. At the same time restrictions were lifted and public disclosure was minimized, the NIH did not even require

the employees to tell the agency the amounts proposed or actually received in order

to get the outside consulting approved.

I am well acquainted from my years as Chairman of this Subcommittee with the

attitude often found at the NIH: the rules don’t apply to us. Now I sense we are

hearing a variation on this theme: If the rules do apply to us, they shouldn’t. Such

permissive attitudes and practices can no longer be tolerated. One can only wonder:

if NIH can be so permissive about the most basic ethical rules in the Federal government, what does this say about NIH’s ability to manage taxpayer dollars and,

most importantly, ensure that taxpayer-supported research gets translated into

cures?

The NIH is the premier medical research institution with nearly a $28 billion appropriation. There must be greater transparency of NIH activities to hold this agency accountable for the taxpayer investments made. It is an enormous agency requiring much constructive oversight and the strong support of this Committee.

Continued public confidence in the work of the NIH must be assured, especially

at a time when public-private partnerships should be strengthened. Technology

transfer activities of the NIH have helped speed research from the bench to the bedside. These efforts have been successful without the need to place NIH scientists on

industry payrolls.

The productive collaborations in clinical research of the Federal government, academia, and industry have recognized the distinct roles that each of these entities

is best suited for. These roles should not be blurred.

Chairman Greenwood is to be congratulated for his leadership. In this hearing

and others to come, I expect this Subcommittee to reveal the full nature of the problem of the NIH ethics program. This effort should be considered part of the broader

work of this Committee to modernize and improve the authority of the NIH.

I especially want to welcome Dr. Elias Zerhouni, the Director of the NIH, and I

thank all the witnesses for appearing before the Subcommittee. I look forward to

your testimony.

Mr. GREENWOOD. The Chairman thanks the gentleman and recognizes for an opening statement the gentle woman from Colorado,

Ms. DeGette.

Ms. DEGETTE. Thank you, Mr. Chairman.

And in the interest of time, I would ask unanimous consent to

put my entire opening statement in the record.

Mr. GREENWOOD. Without objection it will be put in the record.

Ms. DEGETTE. I just would like to mention one thing that really

struck me when I was reading the background materials for today’s

hearing and also a number of the newspaper articles and other materials about this issue. The Chairman and I had been working for

some time on legislation around human subject protection, as you

know, Dr. Zerhouni. And what struck me was in previous years

12

some of the NIH researchers who were on the NIH payroll also had

financial interests in drugs that were being provided to people who

were in these studies. And this was not disclosed to the individuals

in those studies and, in fact, a couple of people died as a result of

some of the drugs they were given in the studies.

The reason I bring this up is because I have always assumed,

and I think Mr. Greenwood has too, that when we are talking

about human subject protection and our legislation, we are sort of

talking about some of these renegade researchers. And what struck

me was these are NIH researchers. These are researchers, the very

top tier researchers in our Nation, and yet they were conducting

human subject research without full disclosure to the patients.

I understand since those studies, which were in recent years, the

NIH has subsequently instituted a rule that prohibits such conflicts. But that has only been in recent years. And it just strikes

me, Mr. Chairman, that a little part of us, a little footnote to this

whole investigation is the issue of human subject protection because if this can happen at our flagship institution in this country,

think about what is going on everyplace else.

And with that, Mr. Chairman, I will yield back the balance of my

time.

[The prepared statement of Hon. Diana DeGette follows:]

PREPARED STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF COLORADO

I want to thank the Chairman for holding this hearing today. Conflicts of interest

issues are so important, particularly in the realm of health and science because of

the vast research potential that can help mankind and the direct impact on individuals. I am very glad to be here today to try to get at the bottom of what I think

is a real scandal.

This issue is of particular interest to me and in fact I have legislation, that I have

worked on in cooperation with our esteemed Chairman, that aims to put key protections in place for human research subjects. In working on this bill, one of the things

that has become clear is that addressing conflicts of interest issues are crucial; not

only is it important to inform patients whenever conflicts of interest exist that could

directly affect them, but we need to work towards eliminating such conflicts especially in clinical trials.

I commend Dr. Zerhouni for recognizing that problems exist at the NIH and for

convening the Blue Ribbon Panel (BRP) to look into the situation. I think this was

an important first step. However, I will be honest and let you know right from the

start that I think very serious shortcomings exist within this report and it doesn’t

give me much confidence that the changes I think need to happen will be made.

Just this morning there was a Los Angeles Times article alleging that although

the Blue Ribbon Panel found permissive practices at the NIH, they were not detailed in its final report. I don’t understand why the BRP did not consider it important to, at the very least, outline a few examples of the problem. I will be very interested in our witness’s explanations as to why they made this choice and how they

think they can solve a problem, if the depths of the problem are not illuminated.

This is just one of the reasons that I believe the proposed changes in the BRP

report are seriously flawed. Let me cut to the chase about why else the recommendations aren’t going to help. Mr. Chairman, unless there is a blanket restriction on outside compensation serious conflicts of interests will continue to exist.

For example, currently honoraria, as such, is not allowed. This ban is essentially

meaningless because NIH employees are allowed to receive thousands of dollars in

consulting fees, awards that come with significant monetary prizes, etc. So if the

BRP recommendations are followed and certain restrictions on consulting fees are

instituted for certain employees, but there is no change to regulations regarding receipt of bona fide cash awards, then surely we will see a shift to more and larger

cash awards being given to NIH employees from outside companies. The money influx won’t change; it will just shift around so that it fits the new rules.

One of the things that struck me in reading the report is the notion that many

employees, including senior level scientists are increasingly demoralized by the scruVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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tiny and criticism the NIH has received recently in regards to this issue. This is

really too bad because these staff members are simply doing what the rules allow

them to do. However, I think that there is an implication in the report that somehow it is the media and Congressional condemnation that is the problem, rather

than the issue itself. It is not the fault of the scientists that they are under a ‘‘cloud

of suspicion’’ as it is characterized in the report, it is the unethical system that has

created this situation.

The good news is there is a very easy solution. Clean up the system entirely and

the ‘‘cloud’’ and all the investigations and news stories all disappear. It seems crystal clear to me. Remove big money from the equation entirely and the integrity of

that great institution that is the National Institute of Health is restored.

Mr. Chairman as you may be aware two Members of this Committee, Mr. Brown

and Mr. Waxman wrote ten drug companies in March asking about payments to

NIH employees. Only two provided responsive answers, Schering Plough and Abbott

Labs.

I ask that both responses be added to the record because they contain several instances of payments that are apparently current but that NIH did not include on

its spreadsheets. This may be because the employees did not report the income as

required or it may be because the information collection apparatus at NIH failed

to include those consulting payments in response to your request.

In either case it is disturbing that an Agency that makes the sanctity of data collection an article of faith seems does not seem to be up to supplying data requested

to Congress. Apparently, this Committee should seek information directly from

firms in the pharmaceutical and biotech industries since the government agency

cannot provide a complete record.

Thank you again for holding this hearing and I look forward to hearing the testimony of our witnesses.

Mr. GREENWOOD. The Chair thanks the gentlelady, and recognizes the gentleman from Oregon, Mr. Walden, for an opening

statement.

Mr. WALDEN. Thank you very much, Mr. Chairman.

I have a prepared statement I would like to insert in the record.

And I just want to say, like my other colleagues, I think we are

all very supportive of the NIH and the great work that is done by

your extraordinary scientists to bring us cures to disease and illness and new research for drugs and other techniques to improve

the lives of Americans. And just as NIH is on the cutting edge of

research, I think what we are saying is you need to be on the cutting edge of ethics, too. And the problems that have come up are

serious and they are ones that need to be addressed. And I know

that you have inherited these as you have come on board only recently, and a lot of changes occurred upwards of 10 years ago. But

they are now out there and we are going to look at them closely,

and we should. Because the research needs to be above question

both at NIH and every other institution in America, as well as in

journals where they publish medical research, too. We need to

know that the information being provided, the research that is

being done is above question when it comes to the ethics. And I

know you agree on that. So look forward to working with you on

this.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Greg Walden follows:]

PREPARED STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OREGON

Chairman Greenwood, thank you for holding this hearing.

I am an enthusiastic advocate for the National Institutes of Health. NIH research

yields miraculous breakthroughs that save lives and dramatically improve the quality of life for those with once-untreatable diseases and medical conditions.

14

I am proud that Congress kept its commitment to doubling the NIH budget. I supported this ambitious endeavor every step of the way.

One thing that we have been abruptly reminded of by recent news accounts is

that the questionable actions of a few can tarnish the good, honest work being done

by others. Additionally, even the appearance of impropriety and conflict-of-interest

can have a devastating affect. Congress and the American taxpayer have invested

in NIH, and in a way, we place our hopes and wishes in the hands of NIH researchers. These hopes for a cure and wishes for loved ones to recover from illnesses are

more valuable than any cash award or stock option that NIH researchers and staff

might receive from extramural consulting agreements.

I applaud NIH Director Zerhouni’s initiative in forming a Blue Ribbon Panel on

Conflict of Interest Policies. Now that the Blue Ribbon Panel’s report has been released the hard work begins. Do the Panel’s recommendations go far enough? Will

the recommendations truly avert conflicts of interest—both real and perceived? If

the answers to these questions are not ‘‘yes,’’ then work remains to be done. The

report’s recommendations are a good start. I am interested to hear how these recommendations will be put into practice. Finally, I challenge NIH to press forward

and continue to find ways to strengthen these policies, so that the hard-earned and

well-deserved image of NIH is not tarnished.

Mr. GREENWOOD. The Chair thanks the gentleman, and recognizes the chairman of the Health Subcommittee, the gentleman

from Florida, Mr. Bilirakis for an opening statement.

Mr. BILIRAKIS. Thank you. And thank you very much, Mr. Chairman. And, again, my gratitude, too, for you holding this hearing

and for all the investigations you all have conducted.

Drs. Zerhouni, Alberts and Augustine, we thank you of course for

taking time to be here and for all the work you have done leading

up to this hearing.

I had not intended to make an opening statement. I had intended

to come in here and just sort of listen to you all before jumping to

any conclusions. And I would like to think that I have not jumped

to any conclusions.

We hold these hearings to learn, and we certainly should not be

prejudging before we listen to you and have an opportunity to ask

you questions. But I would say that you have got to know that we

are besieged by our constituents and by disease, many many disease-specific groups.

I have chaired the Health Subcommittee for quite a few years.

I do not think I knew that there were so many diseases out there.

It is just amazing. I sometimes feel, I do not know, like maybe an

undertaker or whatever it is and particularly so when the constituents will come in or, as I said before, representatives of diseasespecific groups with a child who is ill with a certain disease. And

so many comes in, ALS, and whatnot. And what do they ask for?

They beg for an increase in research funding at the NIH.

And I have to tell that we formulated a sort of a policy here

sometime ago, going back to when the other party was in charge,

where you know we did not think that this ivory tower of the Congress should make decisions on how much money should go to research for a specific disease. We do not know. We figured, you

know, they might be on the cusp of a real breakthrough in a particular disease and we are we to basically say. And Dr. Zerhouni

have discussed this. And who are to basically say that you have got

to shift dollars from this to this, or whatever the case may be.

And yet these same people that are already heartbroken after

they have sat down and talked to me and other people on this comVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
15

mittee and in this Congress, and they pick up the newspaper and

they read some of these things that are taking place.

Now, you know, is it truly a conflict of interest in terms of does

it play a part in the decisionmaking in terms of where the dollars

go for research, which specific disease and which specific research?

I do not know. But I am here to tell you, and I know you are intelligent enough to realize this, that perception and image is really

sometimes a hell of a lot more significant than fact. So how much

these families feel when they pick up these newspaper articles and

read about this stuff and whatnot.

So this is critical. And as Chairman Barton said, you know, we

double funded. We made a promise back in the mid-’90’s, and I

guess there are quite a few promises that we do not fulfill; I think

we intend to but we do not. But that is one that fulfilled. And yet

I just do not think that the people at NIH are doing their share

in terms of fulfilling promises to the sick people of our country regarding their disease and whatnot.

I have often been very concerned and curious, and curious underlined, as to how NIH allocates the funding and whatnot and what

criteria they use. And I am not sure that we have ever really gotten a handle on specifically how what criteria you use. But some

of these things that are taking place, the consulting fees and the

speaking fees and whatnot, playing a part in all that, well whether

they are or not, I don’t know. But it sure as heck is a perception

out there, reasonably so, that that is taking place.

So I hope that you do a good job here this morning trying to explain to us, maybe answer all of these concerns that we have. But

not only for ourselves, but also for the sick people out there in

America who depend on you so very much. Thank you.

Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman for his insights.

Prior to introducing our panel, the Chair would ask unanimous

consent that this binder be incorporated into the record. It includes

several pieces of correspondence from the Department of Health

and Human Services, a series of articles from the Los Angeles

Times and the Blue Ribbon report is incorporated in here, as are

spreadsheets supplied to this subcommittee from the NIH concerning outside consulting agreements. And without objection, that

will be incorporated into the record.

[The information referred to appears at the end of the hearing.]

Mr. GREENWOOD. And now I have the privilege to introduce our

panel. Thank you for your patience and listening to our opening

statements.

And the first of our witnesses is the Honorable Elias Zerhouni.

Dr. Zerhouni is the Director of National Institutes of Health. And

let me say again and for the record, I think you are the best thing

that ever happened to the NIH. I think the skills that you have

brought toward reorganizing the NIH, to making its mission clear,

the administration of the NIH, your vision are exemplary and I

think your commitment to ethics is second to none.

And I regret that—I know that you would have liked to have

been spending a lot more time working on the mission of NIH than

responding to our requests, and I am sorry for that. We have imVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
16

portant work to do. We are going to get it done. And I am very optimistic when this process is over, we all will be better off for it

and so will the NIH, and so will all of the patients, that Mr. Bilirakis has just referred to.

We also have with us Dr. Bruce Alberts who is President of the

National Academy of Science. And we welcome you. We thank you

for your service in heading up this Blue Ribbon Commission.

And we also have Dr. Normal Augustine, Ph.D, Co-Chair of the

Blue Ribbon Panel on Conflict of Interest Policies for the NIH.

Welcome to all of you.

It is the practice of this committee to take its testimony under

oath, and so I need to ask if any of you have any objections to giving your testimony under oath? I see no objections.

I need to advise you that pursuant to the Rules of the House, you

are entitled to be represented by counsel. Any of you request to be

represented by counsel? I would think not. Okay.

In that instance would you rise and raise your right hands,

please.

[Witnesses sworn.]

Mr. GREENWOOD. Okay. You are under oath.

And Dr. Zerhouni, the floor is yours for your opening statement.

TESTIMONY OF HON. ELIAS A. ZERHOUNI, DIRECTOR, NATIONAL INSTITUTES OF HEALTH; BRUCE ALBERTS, PRESIDENT, NATIONAL ACADEMY OF SCIENCE; AND NORMAN AUGUSTINE, CO-CHAIR, BLUE RIBBON PANEL ON CONFLICT OF

INTEREST POLICIES

Mr. ZERHOUNI. Thank you very much, Mr. Chairman and members of the subcommittee, ranking member.

I am pleased to have this opportunity to be here and testify

about our agency’s ethics program. And before I do, I would like to

really tell you that my intent and the intent of the agency is to

work in parallel with you and your concerns and address them

fully. I do not think the American people can afford to have an

agency like NIH with any taint, shadow, or cloud over its head. So

you have my commitment, and I think you have the commitment

of all of NIH to do it as quickly, as effectively as we can within the

constraints that you well know are always around a complex agency like the NIH.

So having said that, I believe that NIH has had great success in

improving public health thanks to the resources you mentioned

provided by the Congress and the President and the talent of our

scientists. But without the trust of the American public, there is

no progress that will be possible, and we need to address that.

This trust must be sustained. This committee, the subcommittee

has raised questions about the NIH ethics process. Your questions

must be answered because our public health mission is too important to have it undermined by any real or perceived conflicts of interests.

I want to personally thank you, Mr. Chairman and members of

the subcommittee, for helping me in identifying what you perceive

as weaknesses in NIH’s ethics policies and systems. The Chairman

has supported our efforts to review and reform ethics rules and

procedures of the agency. Mr. Chairman, I also appreciate very

17

much your leadership, your fairness and the constructive guidance

that you have provided me and NIH throughout this process. We

are looking forward to continuing to work with the subcommittee

in a process that I agree cannot be finite because this situation

evolves, in that the relationship of science, industry, development

of new treatments, and new cures is one that is constantly changing and we need to be able to be adaptive to that reality.

First, let me tell you how we internally within the authority of

the agency, started to address these issues before the media reports. In July of 2003 as we started looking because of your inquiry

into awards. We then immediately realized, I realized and I made

the observation that the consistency of our rules across the complex

agency were not what they should be. And when I learned of that

and evaluated that, we immediately moved to develop a trans-NIH

ethics advisory committee that would report directly to me in my

own office to review the activities of all high level officials and of

all relationships related to industry, biotech, or any relationship

that could be construed as influencing a granting decision or a resource allocation decision. That was step one.

Let me give you an example. Because of this panel, we were able

then to instruct that all existing consulting relationships with

pharmaceutical or biotech firms be stopped and resubmitted to this

trans-NIH ethics advisory committee to address this issue of blur

that some of you have mentioned and resubmit it to the advisory

committee for review and reapproval before they could proceed.

Working through the Department of Health and Human Services, we looked at the issue of disclosure. Chairman Barton raised

the issue of a $500,000 award, I am not clear about what that is.

I suspect this is a prize that was given to one of our directors, and

I believe that was disclosed publicly. But when you looked at the

disclosure levels, you realized that because of Office of Government

Ethics rules related to the payment mechanism that we used, that

through this mechanism you could have internal disclosure—and

let me make sure everybody understands.

We always have internal disclosure of these activities as they occurred. But external disclosure would not occur.

So we immediately asked the HHS and the Office of Government

Ethics to close this inadvertent loophole in ethics regulation that

does not require public disclosure of financial statements of some

of NIH’s most senior and highest salaried personnel. OGE approved our request and extended a number of public filers at NIH.

As a result, all senior scientific personnel within the jurisdiction of

the NIH Director are now required to file. That includes directors

of institutes and all their deputies and anyone in charge of a granting program.

This week we submitted a second request to the Office of Government Ethics. Following the Blue Ribbon panel reports, I felt that

it was time to move and extend because we heard the recommendation. We are now asking that all policymakers and those who marshal any resource in the public interest be required to file public

financial disclosure reports. Our request to the Office of Government Ethics relates to 500 new additional positions that we would

like to have disclosed.

18

As a result of your inquiries, we learned that the majority of NIH

scientists who consult for pharmaceutical or biotechnology companies are not required under current rules to disclose the specific

amounts and type of compensation. They have to disclose the relationship. But because of the rules that we are under, which are not

NIH rules, these are government-wide rules, we could not request,

supposedly, that amount. We have changed that in the context of

current agreements. I asked that this rule be changed, and we

were able to have employees submit these compensation amounts

for all current and future consulting arrangements. And I think we

submitted all of that information to your committee, subcommittee,

Mr. Chairman, in March.

The issue of not being able to provide you all of the information

that you needed, frankly, goes beyond my own authority to do. And

it relates to the balance between the Privacy Act and the regulations that we can effect. And I think your staff has been well informed of that, and you have my commitment that whatever I can

do within the rules and regulations and the advice that I receive,

I will do. And this is my promise to you.

Finally, I created a Blue Ribbon panel because I realized, as you

did, that in fact these issues were not just of marginal changes or

misinterpretation. I believe personally, given my previous experience, that when you see a situation like this it is not just an accident. A system is designed to produce the results that you observe.

So I believe right away that what we needed to do was do a system

review. And I asked that the Blue Ribbon panel be formed to review existing laws, regulations, policies and procedures under

which NIH operates. And I asked the committee to leave no stone

unturned. I put no limits on their ability to obtain data, obtain information except that I felt that it was very important, and as I

expressed to you Mr. Chairman, it was very important in this situation to state correctly what the problem is and continue in the

work of the investigative process of all of the other things that

have happened, that I do not think we can have the period of time

while we deliberate glaring deficiencies will remain uncorrected.

So that was my goal here, and I think we have made some

progress. And I agree with you that we have to look at balancing

issues that come from that. I told the Blue Ribbon panel that the

principles that we, NIH, myself wanted to apply, and we have been

public on that.

No. 1 is transparency. No. 2 is full disclosure, and there is a difference between the two. Full disclosure internally is not fully

transparent. Transparency to me relates to the interaction with the

public. Full disclosure means do you have the exact content of the

relationship well understood by the third component, which is an

independent peer review mechanism that understands the science,

not just ethics officers who may be well versed in the law of ethics

but not well versed in the details of how science gets done.

And fourth, a monitoring process that will allow us to make sure

that we are not going to deviate in the future from those principles.

I also have to tell you as NIH Director that although it would

be easier, quicker, more satisfying to basically create a blanket prohibition, the reality of science is such that you do need to have

interactions between scientists and their colleagues both within

19

academia and within industry. It is also a public interest, a policy

interest of the United States to have translation of these findings

be effective. And we have heard that through the many admonishments that Congress has asked our agency to follow. And yet, at

the same time, we cannot forget that the primary interest is the

public trust.

So we have three interests; public trust first, making sure the

translation is effective. But to make that translation effective, you

do need the best people that you can recruit. Those three things

are very hard to balance, and I want to testify to the fact that we

should keep the dialog open. And I am more than happy to provide

the data and the information that would enlighten all of us together into what is the best policy framework that we need to develop.

I have reviewed the panel’s recommendations. I find them to be

constructive and it’s a good approach to improve the NIH ethics

program. I think that we need to implement the recommendations

of the Blue Ribbon panel which improve the trajectory of where we

want to be, and do it as diligently as we can either within my authority and if it’s not within my own authority, I will work with

the department, and the Office of Government Ethics to implement

these recommendations as we go forward; modified, obviously, by

the process that we’re undergoing with you, Mr. Chairman.

In sum, I think these actions have strengthened NIH, the actions

we have taken have strengthened NIH’s process not to the point of

perfection. But let me state here just as in a concluding portion of

my testimony, what I think is essentially different about what is

being proposed.

One, policy interest No. 1 is public trust. How can we ensure

public trust? Well, make sure that no individual who is responsible

for program funding decisions and recommendations or professional

management of grants or review of grants—we have a very balanced process at NIH with multiple levels of checks and balances.

It’s very hard for me to see how someone alone can have a granting

capability. However, that being said, I think that the recommendation of the Blue Ribbon panel that excludes any and all officials

that have those responsibilities from any consulting with not just

pharmaceutical and biotech companies, but also paid consulting

from academia, is a good recommendation. I think we should implement it and it will preserve, give me, Director of NIH the assurance that there is a layer of government scientists which is completely immune to any potential interference. So that I think is a

step that we need to do. This is pretty different than whatever happened before and whatever happens in universities or any other institution. This is an innovative step and I think it’s a good step.

And I think we need to take that.

I will reaffirm the prohibition against NIH scientists conducting

research involving human subjects having financial relationships

with any organization whose interest could be effected by their research. We have always used that rule. I am not sure that transgressions occurred. We should look at that. Nonetheless, the principle should be implemented as we speak today and we should be

reaffirming this principle making sure it sticks.

20

I will propose that employees engage in compensated outside activities be prohibited from compensation in the form of stock or

other forms of equity ownership. This is a major departure from

prior policy. This is a recommendation of the Blue Ribbon panel

that does not apply just to employees with responsibilities, but it

will apply to every employee of NIH. This is, I think, a major move

and I think we should give credit where credit is due, and that is

the Blue Ribbon panel giving us a clear recommendation in that regard.

I will set in place policies and procedures which give full consideration of the appropriateness of recusals. I personally believe that

recusals should be used only in the most limited circumstances

when the employee has an unavoidable conflict, like for example a

spouse working for an organization. But recusals that relate to the

authority of the employee should be limited to the most extreme

exceptions. There may be some, but we have to be very careful.

Principle two is increase transparency. In this case, working with

HHS and OGE, as I told you, we have increased the public disclosure requirements. I will aggressively seek additional authorities to

require more employees to disclose their outside activities where

appropriate, including disclosure of relevant outside relationships

and financial holdings in connection with research, publications,

speeches, inventions, clinical research. The Blue Ribbon panel has

considered this issue.

And let me just state the principle, I think, that we, NIH Director and my own directors, have stated publicly in a testimony in

the Senate when asked whether there is any reason why you would

not want to disclose an existing outside relationship. My answer to

this is there should be no reason. If you cannot disclose that relationship, then you should not have that relationship. That is a

clear principle I want to be on the record to tell you that this is

what I believe in, this is what my scientists believe in. It is the

rules and regulations, complex as they are as pointed out by the

Blue Ribbon panel, that prevented this clarity from occurring.

Let me tell you, I am committed to make sure that whatever we

need to do we will do, so that in the context of relationships with

industry, biotech, any conflicting relationship; and that we find

ways of making sure that that relationship is publicly disclosed.

I understand the Privacy Act issues. I understand that people in

their outside time on their own time have the right to privacy. But

when it comes to activities that are so closely related to their government function, I think we should exclude that from the general

government ethics rules under which all agencies of the government are working. So we will look forward to find creative ways of

making sure that that principle of full transparency be implemented, however, we need to get there. It may take us some time.

We can do what we can do today, but frankly this is a principle

that I want to be clear about: increasing the transparency.

There is no doubt also that the rules do prevent, as they stand

today, fair, good, honest scientific interchange in the form of writing and teaching and reviewing and conferencing with colleagues.

This is something that the Blue Ribbon has looked at. For activities

under very limited dollar amounts and other activities, I think as

Director of NIH, as a scientific manager, we have to be very careful

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to not put that in the same category as drug company business relationships. That’s the bread and butter of scientific interactions. I

hear your comments, I understand your concerns but I plead with

you to be open minded about the academic activities of our scientists. They are important to science.

And last, we will establish effective monitoring and oversight

mechanisms. We want to have a central data base that will record

all of those activities. One of the issues we found is the disconnect

sometimes between the very complex forms. And I have to tell you,

the Blue Ribbon panel got an education in the law of ethics about

this. If you knew the number of forms and requirements; 520’s,

278s, 450s and all of those things, you can see how the employees

really become confused. We need to clarify and simplify it and have

it in one place so that the recusal, if it ever exists for that individual, is in the same place as the disclosure from that scientist.

We want to commit to build probably a paragon, an example, of

how you can manage ethics with a transparent fashion by having

this central data base and full disclosure.

So I just wanted to convey to you that we want to work with you.

I cannot afford, nor can our scientists afford, any sense that we are

transparent and not willing to reform as deeply as we need to reform so that this taint that you are worried about, concerned about

disappears.

With that, Mr. Chairman, I’m ready to answer any of your questions.

[The prepared statement of Hon. Elias A. Zerhouni follows:]

PREPARED STATEMENT OF ELIAS A. ZERHOUNI, DIRECTOR, NATIONAL INSTITUTES OF

HEALTH, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

NIH’s mission is to generate new knowledge to improve health. The outcomes of

NIH research affect the lives of every American and increasingly people around the

world. Medical research leads to new diagnostics, treatments and prevention strategies—and these medical interventions must be founded on the veracity of the data

and on the unimpeachable integrity of the individuals who conduct the research and

oversee the research enterprise.

Recently Congress has questioned the relationships of some NIH employees with

outside organizations. Our public health mission is too important to have it undermined by any real or perceived conflicts of interest. And to this point, I am aggressively developing and implementing new conflict of interest policies, revamping review of activities with outside organizations and working to increase transparency

by expanding the number of employees who file internal and public financial disclosure reports.

I want to personally thank Chairman Greenwood and Members of the Subcommittee for helping me to identify potential weaknesses in NIH’s ethics policies

and systems and for supporting my efforts to review and reform ethics rules and

procedures at the Agency. I appreciate both your leadership and the constructive

guidance you provided on this very important issue.

New and Ongoing Changes to NIH’s Management of Conflict of Interest:

I want to describe actions I have taken in response to concerns about NIH’s management of conflict of interest.

I began reviewing ethics rules, policies and practices last July, when this Subcommittee raised questions about NIH employees receiving lecture awards. I believe

NIH scientists must remain eligible to receive recognition for their work in the form

of legitimate awards. However, NIH scientists should not be accepting awards that

are merely a ruse to provide compensation, and we will develop a system to increase

uniformity and track the determinations of NIH’s senior ethics officials as to whether an award can be accepted by NIH employees.

On November 20, 2003, I wrote to all senior managers at NIH advising them to

exercise great prudence in entering into any arrangement that could reflect poorly

22

on NIH or could create the appearance of conflict, even in cases where the arrangements are permitted by law (emphasis added).

In the same memorandum, I announced the creation of the new NIH Ethics Advisory Committee (NEAC) in the Office of the Director to provide independent peer

review of activities involving outside organizations. The NEAC, which conducted its

first meeting on January 20, advises the NIH Deputy Ethics Counselor (DEC) on

conflicts of interest and helps to ensure that activities involving acceptance of compensation from outside sources receive uniform oversight at the NIH. NEAC reviews

applications for proposed activities with outside organizations that stand the greatest chance of posing risks to NIH’s objectivity, or appearances thereof, including,

where an award is valued at $2,500 or more; where total income from an activity

with an outside organization exceeds $10,000 or is unknown; where outside compensation is in the form of equity; where the activity involves a drug or biotech company; or where the activity involves senior NIH leaders (e.g., scientific and clinical

directors).

Co-chaired by the NIH Deputy Ethics Counselor (DEC) and Deputy Director for

Intramural Research, the NEAC consists of ten rotating members and two ex-officio

ethics advisors, all of whom are full-time federal employees. The rotating members

are nominated by IC Directors and appointed by the Co-chairs. Membership represents the categories of employees submitting proposals to the NEAC, including IC

Directors and Deputy Directors, Scientific Directors, Clinical Directors, Extramural

Directors, OD Senior staff, and others.

During the centralized NIH review, committee members review each proposed activity to help assess whether it creates an actual or apparent a conflict of interest.

The committee reviews the proposals based on criteria set forth in the Standards

of Ethical Conduct for Employees of the Executive Branch promulgated by the U.S.

Office of Government Ethics (OGE) and the supplemental Department of Health and

Human Services (HHS) regulations.

To ensure oversight of activities that had already been approved prior to the creation of NEAC, we also instructed that all existing consulting relationships with

pharmaceutical or biotechnology firms be stopped and resubmitted to NEAC for its

review and input, before they could be reapproved, if appropriate, by the NIH DEC.

The Inspector General of the Department of Health and Human Services and the

General Accounting Office also initiated their own, separate reviews of ethics processes at NIH. In addition, OGE accelerated its regularly scheduled review of the

NIH ethics program. We welcome these inquiries and are cooperating with the various reviewers.

On January 12, 2004, at my request, Dr. Raynard Kington, the Deputy Director

of NIH, was appointed to be the new Deputy Ethics Counselor for the Agency. Commensurate with his appointment, the role of the NIH DEC has been expanded beyond the staff of my office and the Institute and Center Directors to include Institute and Center Deputy Directors, Scientific Directors, Clinical Directors and Extramural Program Directors.

Regarding the important issue of public disclosure, working through the Department of Health and Human Services, I asked that the Office of Government Ethics

grant approvals to require increased public disclosure of financial statements of

some of NIH’s most senior and highest-salaried personnel. OGE approved the request on February 6, and as a result, all senior scientific personnel within the jurisdiction of the NIH DEC are now required to file public financial disclosure statements. Although many of these individuals were already filing public financial disclosure forms, they will now be required to do so. Recently, a second request was

submitted to OGE to require additional high-level personnel at NIH to file public

financial disclosure reports.

In addition, because the majority of NIH employees who file financial disclosure

forms are required to use the OGE-450 financial disclosure form, which does not request the amounts of compensation paid by outside organizations, and because the

approval process focuses on the nature of the activity and the identity of the outside

organization rather than the compensation paid, the amounts paid to NIH employees in connection with their activities with outside organizations has in many cases

not been collected or reported either internally or externally. I requested that the

Department ask OGE to revisit this approach and, as a result, NIH employees are

now required to submit these compensation amounts for all current and future consulting arrangements in their request for approval of activities with outside organizations. Furthermore, to the extent that additional NIH employees will be required

to file public financial disclosure forms, these amounts will be collected and reported

on such forms.

As part of our internal policy review, we are also asking employees to disclose

compensation amounts for expired activities with outside organizations. I personally

23

believe we should know those amounts, and so I requested that the Department

work with OGE to find a way, consistent with the Privacy Act, which places limits

on collection of identifiable information by the federal government, to ask for these

amounts. The Department was successful in doing so, and so we have been able to

ask employees for these dollar amounts. We have carefully considered, including internal discussions with legal counsel and others, to what extent we can and should

order that employees must provide this information instead of voluntarily requesting it. After such consideration, it is our understanding that asking for this information on a voluntary basis is the most appropriate and prudent way to proceed. We

have also been cooperative in providing this information we have collected for our

internal policy review to the Subcommittee where it has asked for the information.

The Blue Ribbon Panel:

Finally, I created the Blue Ribbon Panel on Conflict of Interest Policies to review

existing laws, regulations, policies, and procedures under which NIH operates regarding real and apparent financial conflicts of interest where compensation is received by employees. I also charged the Panel with reviewing public financial disclosure rules and procedures. The panel began its review on March 1 and made its

recommendations to the standing Advisory Committee to the NIH Director May 6.

The recommendations were adopted by the Advisory Committee and submitted to

me on the same day.

The Blue Ribbon Panel operated with extraordinary speed. Norm Augustine and

Bruce Alberts, the panel’s co-chairs, as well as all the panel members, served with

distinction and performed a great public service. They deserve gratitude and respect, and I thank them for their extraordinary efforts. Dr. Alberts and Mr. Augustine are here to testify and answer your questions.

In reviewing the Panel’s report, I was impressed with the degree to which they

looked closely at both NIH policies and its procedures. The Panel also explored regulations of other Agencies and the rules, regulations, and laws set in place by the

HHS, the Office of Government Ethics (OGD), and the Congress. And in making recommendations, they did as I asked—they did not limit themselves to what was in

my authority to change—rather I asked them to make any and all recommendations

that would improve NIH’s management of conflict of interest. I told them that

where I did not have the authority to implement change, I would seek the help of

HHS and OGE.

I have reviewed all of the Panel’s recommendations and plan to move ahead as

appropriate.

In sum, these actions have already significantly strengthened NIH’s internal oversight of ethics matters and continue to do so in the future.

Next steps: Principles and Policies

After nine months of review and listening to the concerns of the public, and after

examining the recommendations of the Blue Ribbon Panel, I want to unveil my

plans for further improving NIH’s ethics program. My plans are based on four main

principles:

1) Enhance public trust in NIH by preventing conflicts of interest through the restriction of financial relationships employees may have with outside organizations;

2) Increase levels of transparency in the NIH ethics program by requiring much

more internal as well as public disclosure of the details of financial relationships employees have with outside organizations, including consulting arrangements and awards;

3) Balance NIH’s ability to recruit and retain the best scientific expertise while expediting the translation of research advances;

4) Establish effective monitoring and oversight of employee activities.

I will seek to implement actions in response to these principles, as appropriate,

through administrative actions, and supplemental regulations.

Principle One: Enhance Public Trust

• I will seek to prohibit NIH senior management and NIH extramural employees

who are responsible for program funding decisions and recommendations, and

professional staff managing grants and contracts and publication review from

consulting with pharmaceutical or biotechnology companies or from paid consulting for academia, except in the case of the clinical practice of medicine.

• I will reaffirm the prohibition against NIH scientists participating in research involving human subjects where the scientist has a personal or imputed financial

interest in an organization whose interests would be directly and predictably affected by his research, except in those exceptional cases where the interest is

24

not so substantial as to be deemed likely to affect the integrity of the employee’s

services to the Government or is otherwise subject to regulatory exemptions.

• I will propose that employees engaged in compensated activities with outside organizations be, in future, prohibited from compensation in the form of stock or

other forms of equity ownership in the companies for whom they are working.

• I will set into place polices and procedures to fully consider the extent to which

the recusals necessitated by an approved activities with outside organizations

have an effect on the ability of senior scientific managers and decision makers

to conduct their government work. NIH will clarify the use of recusals that are

required because of financial relationships with outside organizations. We will

require a uniform policy for informing relevant personnel of who is recused and

establish a new process for monitoring recusals.

Principle Two: Increase Transparency

• NIH, working with HHS and OGE, has already increased the number of senior

managers who must publicly disclose their compensated activities with outside

organizations and the amounts received. These are interim steps. I will aggressively seek additional authorities to require more employees to disclose their activities with outside organizations, where appropriate, including disclosure of

relevant relationships and financial holdings in connection with research publications, speeches, inventions, and clinical research. As I have said previously,

public disclosure and transparency will be the cornerstone of the NIH ethics

program.

• I will ask NIH employees to voluntarily disclose all relevant relationships with

outside organizations and financial holdings in their work products, such as

publications, speeches, and invention disclosures. And I will seek changes to

regulations to make such disclosures a requirement.

Principle Three: Recruit and Retain Best Scientific Expertise While Expediting Translation of Research Advances

• I will propose that regulations allow NIH scientists to receive compensation for

teaching, speaking or writing about their research, but only if the information

is shared in a public forum and has already appeared in published literature.

• NIH will continue to allow certain types of consulting arrangements, teaching and

lecturing opportunities, receipt of bona fide awards, and collaborations with the

private sector, but only under clear, rigorous rules meant to eliminate real and

appearances of conflict of interest. Consulting, collaborating and teaching must

continue in order to expedite the translation of research advances, but only

under clear guidelines.

Principle Four: Establish Effective Monitoring and Oversight Mechanisms

• I will seek to limit the amount of time spent on consulting and the amount of

compensation received annually. The limits proposed by the Blue Ribbon Panel

will be considered as the draft regulation is developed.

• NIH will improve its ability to manage and track approved activities with outside

organizations by increasing the accountability of managers, creating a centralized data base, centralizing review of senior managers and scientists, conducting random audits of files pertaining to activities with outside organizations, and continuing the rigorous peer review conducted by the NEAC.

• NIH will develop and implement a new, more understandable method of training

employees on ethics rules, and we will establish a web site that displays rules

in plain language, updates employees on regulatory trends and changes and discusses—anonymously—ongoing cases as examples of best practices or unacceptable practices.

Much of the discussion about ethics policies and procedures at NIH has been unnecessarily negative. NIH employees have great integrity. In retrospect, the policies

and rules could have been even stricter, their implementation could have been more

efficient and oversight could have been more rigorous. But for better or worse, this

was the system NIH employees had to negotiate.

As we move forward, all of us, the NIH leadership, HHS, OGE, and the Congress,

will have to strike a careful balance between maintaining public trust in NIH and

allowing appropriate interactions between NIH scientists, industry, academia and

all elements of the research community.

Collaborations with the non-governmental research community are vital, not only

for understanding and advancing science, but for translating our knowledge into actual medical practice and treatment. We should be more transparent, more vigilant

about oversight, and we need to tighten the rules. But it would be a mistake to ban

all compensated activities with outside organizations. Such an action would be bad

25

for science, unfair to the employees, and ultimately hinder our efforts to improve

the nation’s health.

Mr. GREENWOOD. Thank you very much, Dr. Zerhouni.

Dr. Alberts, you are recognized for an opening statement. And

Dr. Augustine, you are going to speak for the Commission.

TESTIMONY OF NORMAN AUGUSTINE

Mr. AUGUSTINE. Yes, please. We will share our remarks. I’ll

begin.

Mr. Chairman and members of the committee, we welcome the

opportunity to share with you our findings in our review of conflict

of interest policies at the NIH.

We are very well aware of the support that this committee has

given to NIH over the years, and also the expectations you have

for the NIH and I might add that we, as private citizens are sharing those expectations.

Dr. Alberts and I today appear on behalf of the entire members

of our panel, a list of which is attached in the submittal. And we

do appreciate your including our formal statement for the record.

Dr. Alberts and I will briefly summarize it in a more informal fashion this morning with the committee’s permission.

Our panel, as you know, was established at the request of Dr.

Zerhouni. We were asked to complete our work in 90 days because

of the urgency that the NIH assigned to this particular issue.

As has been mentioned, we were asked to focus on policy issues,

not on specific cases. And the reason for that was that there are

least three other investigations underway by official government

agencies into specific matters.

During our efforts we had over 30 witnesses appear before us

from a variety of perspectives. We established a website at NIH

which we received responses from over 300 employees of NIH with

respect to a series of questions we had asked of them. We spoke

one-on-one generally, often by telephone with the director of all 27

institutes and centers of NIH and we put the notice in the Federal

Register that we would welcome input from the public.

NIH, as has been pointed out several times this morning, is indeed a great national asset, a treasure. Its impact on health, not

only in America but throughout the world, has clearly been profound. The more we learned about NIH the more apparent it became to us that NIH’s principal asset, far above anything else,

were the scientists and the clinicians that worked for the institutes

and the centers.

The easiest thing in the world for us to have done would have

been simply to have put an outright ban on all consulting, to insist

that everybody’s related personal activities, emphasize related, be

placed on the web. But we were also mindful of the fact that there

were at least two ways that we could damage NIH even though our

efforts would be well meaning.

The first of those would be that if we were to recommend policies

with regard to conflicts of interest that were too liberal, too easy

and the NIH were to continue to suffer from publicity of apparent

conflict of interest violations, that this could be very damaging to

the support for the NIH by the public, damaging to its science and

damaging to those who put their faith in the NIH. On the other

26

hand, we also realized that if we placed recommended rules that

were so restrictive and some analytical to common accepted practices in the scientific community, we truly believed that it would

be very hard to hire the world class scientists, many of whom have

decades of education, to serve the NIH’s role.

Similarly, we encountered the fact that NIH researches, as all

other citizens, have certain rights to privacy in their private life.

By the same token, those of us who depend upon NIH researchers,

the public, have every right to be aware of what activities there are

in their private lives that might impact their impartiality of carrying out their responsibilities as public servants.

Further, we were well aware that it’s inappropriate for a private

organization to benefit from government sponsored work in a discriminatory fashion. At the same time, we realized that it’s almost

through the activities of commercial firms that the basic research

conducted at NIH is able to impact the health of America’s citizenry.

Considering these factors, we arrived at three principal findings,

which I will just generalize and Dr. Zerhouni has really touched on

them very thoroughly.

The first is that we recommend that the NIH conflict of interest

policies be substantially tightened, they be made more restrictive

particularly for the senior leadership at NIH.

Second, we believe that more disclosure by more people both public and private is very much needed.

And third, we believe that in cases where there are not conflicts

of interest, that steps should be taken to give scientists the latitude

to participate in the accepted cultural approaches practiced by the

scientific community at large.

Well, that is a brief introduction. Let me ask Dr. Alberts to use

our remaining 5 minutes to summarize some of the specific instructions.

Mr. GREENWOOD. Dr. Alberts, you are recognized.

TESTIMONY OF BRUCE ALBERTS

Mr. ALBERTS. Thank you, Mr. Chairman.

There are 18 recommendations in our report, and you have them

and I have no time to really go over them in detail here. Let me

just point out a few essential recommendations that I want to pay

special attention to in view of the comments already made.

Recommendation one at the top deals with the senior leadership

issue and would prohibit any paid consulting for a set of senior employees and those having responsibility for program decisions. And

Dr. Zerhouni has already spoken eloquently about accepting those

recommendations, and I don’t think I need to say anything more

about them, except that this is a change in policy from a 1995 policy that was implemented at the NIH.

The issue of whether we should abandon any kind of contact with

industry by the majority of the 5,000 scientists who work at the

NIH who are just pure researchers and have nothing to do with

any resource decisions or allocations or recommendations is one

that you’ve addressed here and one that we took very seriously. We

came down the side, as Mr. Augustine said, of allowing those interactions where they are appropriate after an appropriate screening

27

and specifically said these people should be able to consult for either industry or academia where there is no conflict and wherever

it makes sense after the decision is made centrally at the NIH.

Why?

Well, let me say, I have 30 years in the universities at a research

scientist before I came to Washington 10 years ago. I was at the

UCSF, which is the place where all this biotech stuff started. And

at the beginning, I was very much against any academic involvement with industry. And personally, I had never had any. But I

have talked to many, many scientists including the young scientists

at NIH who are coming there to do public service and have no actually plans or actually activities yet with industry. But the fact is

that this is very much a two way street. People who do this often

tell me that they gain more from knowing about what industry is

doing and enlarging their thinking by seeing what these people are

doing in new kinds of ways. They are often ahead of academia. I’m

talking about colleagues at UCSF now. That in fact these kinds of

interactions changed the ambitions and often the effectiveness of

the research that people are doing both in universities and by analogy at the NIH. And so that’s the basic reason why I personally

came down on the side of allowing it where appropriate.

However, we are very concerned about what we call conflict of

commitment. We talk about this as a shower test. What are you

thinking about when you’re in the shower? Are you thinking about

your NIH job or are you thinking about something else? And so we

wanted to make sure that it’s the NIH job that you’re thinking

about, and we therefore have recommendation three which puts

real limitations on both how much compensation you could receive

and how many hours you can spend and, I think very importantly,

whether you could take equities. Equities, we feel, creates a different kind of sense of involvement than money received. You

would become, in a sense, an owner and you tend to get a lot of

attention, may get a lot of attention from an employer that we

don’t want. We don’t want them to be primarily concerned with

their outside activities.

Now these recommendations, obviously, represent restrictions

from current policy. We also have recommendation five, which is

designed to promote more interactions between NIH scientists and

their colleagues elsewhere; we move in the direction of more leniency. This involves a change recommended in OGE regulations allowing them to behave like other scientists and receive small

honoris where they go to speak about their work and be able to

speak about their work in a public forum and provided it’s been

published already in the literature freely.

We found these restrictions had come from—the regulations are

very confusing. In fact, I was very surprised by them. And I think

it hampers the ability of scientists to, again, interact with the scientific community, do the best they can to disseminate what they’re

doing and also get information back from their colleagues. Because

science is very much a highly cooperative interactive activity.

Then we go on to recommendation ten which deals with ensuring

a complete internal disclosure of financial interests and other potential conflicts of interests. This has to do with form 450. I learned

28

all these facts. I am hoping I can erase all this information that

I have learned.

Form 450. We want more form 450 filers. That may be limited.

If not, we want NIH to get it some other way so they know every

possible conflict of interest and can regulate it more efficiency.

The other issue which of course we’re very concerned, for Dr.

Zerhouni and for the panel, is transparency. Transparency we

would mean public availability of information. Disclosure we use

NIH’s accessibility to the information.

And we supported the idea that this Title 240, it is sort of bizarre, regulation that prevents NIH from getting information from

people publicly who they want to have information for should be

changed somehow, either by OGE regulation or by law if necessary.

And the NIH, as Dr. Zerhouni said, has now requested some 500

people be put under that regulation and we’ll see what happens.

We would certainly support that.

We also would produce transparency in a different way by requiring an employee in recommendation 13 to publicly disclose all

relevant outside relationship and financial holdings in their work

products; that is their publications, speeches and invention disclosures. So it is another form of public disclosure.

Finally, we looked at the comparative salary scales of academia

and NIH for scientists. And we found that at the lower levels, the

scientists are well compensated. They are fairly compensated. The

problem comes at the higher levels of the leadership where, for

whatever reason, the marketplace is at much higher salary levels

for many of the people you would like to have as senior leaders

than NIH can actually pay. And so because leadership is so crucial,

it is crucial to have the right leaders in the organization, we have

recommendation 18 that the NIH Director working with Congress

should ensure that the agency has authority under Title 42 or some

other hiring mechanism to recruit senior scientific staff in a highly

competitive market and asking the HHS to also to review and if

appropriate, raise the current annual salary caption of $200,000 for

the most senior Title 42 employees at NIH. We are concerned that

the present ceiling is limiting the agency’s ability to retain and recruit the very best leadership. And, again, I cannot emphasize the

leadership issue.

Let me just go through this transparency issue, because personally I would be very much in favor of having all the information

that you want posted on our public website. In fact, our panel was

leaning strongly in that direction when we encountered the Privacy

laws. That was at our last meeting. And, in fact, we have learned

that this would, or what we believe is that some government wide

legislation would be needed to change the Privacy law in order to

do what the panel was heading for in our recommendations. And

so we concluded in the end that the strong governmental policy

protecting personal information against disclosure would be a formidable challenge to overcome and thought there was no use in

recommendations that are meaningless and instead we have constructed several recommendations to the end of making more effective both the internal disclosure, as I said, and public disclosure

through the public disclosure at speaking and work products stage

that I mentioned, and finally by requested an agency wide public

29

report that annually summarizes the amount and the nature of the

outside activity of NIH employees, which is recommendation four

which I didn’t have a chance to mention.

Thank you very much.

[The prepared statement of Norman Augustine and Bruce

Alberts follows:]

PREPARED STATEMENT OF DR. BRUCE ALBERTS AND MR. NORMAN AUGUSTINE, REPRESENTING THE NATIONAL INSTITUTES OF HEALTH BLUE RIBBON PANEL ON CONFLICT OF INTEREST POLICIES

Mr. Chairman and Members of the Committee, thank you for this opportunity to

share with you the findings of our Panel which evaluated Conflict of Interest Policies affecting the National Institutes of Health (NIH). We are, of course, well aware

of the support given by this committee to the NIH over the years and of the high

expectations you, and indeed the American people, hold for NIH.

We appear today on behalf of the members of the Panel, a complete list of whom

is attached to this testimony. Our Panel was established at the request of Dr. Elias

Zerhouni, Director of NIH, and was requested to complete its work within 90 days

because of the urgency of the matter at hand. Administratively, we were formed as

a Working Group of the Advisory Committee to the Director of the National Institutes of Health. We should note that our assignment was forward-looking; that is,

we were concerned with policy rather than with specific cases that occurred in the

past. As you are aware, there are a number of on-going investigations of prior matters being conducted by entities within the government. Other than providing our

basic charter, which was to review existing conflict of interest policies and to propose new policies where appropriate, no constraints were placed by NIH on the content of our work.

In carrying out the Panel’s responsibilities we met a total of five days and held

one telephone conference. We heard testimony from over 30 individuals, including

members of the public, and established an internal web site which received over 300

responses from NIH employees. In addition, we interviewed the Directors of all 27

NIH Centers and Institutes. Notices of meetings were placed in the Federal Register.

The National Institutes of Health represents a national and global treasure. Its

principal asset is the truly remarkable scientists and practitioners who choose to

serve as its employees. In many ways the future health of our nation depends on

a robust and productive NIH. But if care is not taken, the ability of NIH to continue

to serve the public’s health could be severely damaged in either of two ways by

issues affecting conflict of interests. On the one hand, if the science NIH conducts

or its funding decisions are, or even appear to be, biased or corrupted, the public,

the broader scientific community, and the government’s funding officials could lose

faith in the institution’s credibility. On the other hand, if a unique set of rules were

to be enacted that is so inconsistent with the established practices of the scientific

community, it could drive talented individuals away from NIH as an employer and

at the same time discourage the dissemination of knowledge.

Developing sound policies for managing and preventing conflicts of interest requires the balancing of several sometimes competing values and considerations.

First, government employees, like all citizens, are entitled to a life of their own with

reasonable privacy—but at the same time, the public has a right to complete assurance that outside activities will not inappropriately influence an employee’s judgment or commitment to public service. Second, although sound arguments can be

made for the enactment of consistent and uniform conflict of interest rules across

the federal government, each agency, including NIH, has unique circumstances and

needs. Third, it is clear that a government employee should not receive personal financial gain for outside activities by exploiting knowledge gained through his or her

government position, yet much of the accumulated knowledge and value of a scientist might well have resulted from efforts made and accomplishments achieved

outside of government service. The Panel has sought diligently to balance these

sometimes conflicting considerations as it developed its recommendations.

In its deliberations the Panel found an extremely complex set of rules governing

conflicts of interest at NIH and, in fact, across the federal government. In the context of NIH, with its unique mission to conduct and support biomedical and healthrelated research on its own campus, across the country, and internationally, these

rules are widely misunderstood by some of the very people to whom they are intended to apply. This has created uncertainty about allowable behavior and has enVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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gendered fear that inadvertent transgressions could occur—significantly damaging

morale.

The Panel found that most of NIH’s policies and procedures for managing conflicts

of interest are reasonable and appropriate and it believes that the agency has been

responsive to direction provided to it in this area by the Department of Health and

Human Services (HHS), the Office of Government Ethics (OGE), and Congress.

However, significant improvements can be made, including imposing greater restrictions on some types of activities, relaxing some restrictions that are inappropriate

and counterproductive, enhancing disclosure and transparency, and improving the

overall management of these issues at NIH through better training, education, and

resource management.

We believe the existing conflict of interest policies affecting NIH do not sufficiently discriminate among groups of employees who have widely differing responsibilities and therefore widely differing susceptibility to conflicts of interest. In particular, we conclude that the policies affecting senior officials of NIH should, as a

matter of policy, be tightened—that is, made more restrictive. It is our view that

greater internal and, in some circumstances, public, disclosure can be beneficial in

assuring the continued quality of the NIH’s work and the confidence the public can

place in that work. In particular, some senior NIH staff members, absent case-bycase approval authority, are, under present interpretation of the relevant laws, not

expected to file public disclosure forms.

On the other hand, we found that many well-intentioned constraints that have

been placed on researchers at NIH who perform purely scientific work have been

counterproductive. As but one example, NIH scientists are generally prohibited from

indicating their affiliation with NIH when giving lectures, even when those lectures

are accompanied by appropriate disclaimers.

At present, only a relatively small number of NIH employees are engaged in consulting arrangements with industry. In contrast, a substantial number of NIH employees are involved in outside activities with professional societies and with academic and research institutions—primarily in the forms of teaching, speaking, or

writing (including editing). In addition, NIH scientists who are recognized for outstanding scientific achievements, leadership, or public service are sometimes the recipients of awards, which may be accompanied by a cash prize. The Panel believes

these are important—even essential—activities for NIH scientists, since they are

part of the tradition of science and provide evidence of the value and significance

of the NIH research community to the larger scientific community. For example,

speaking at academic institutions or other similar public fora is a critical part of

being a productive and contributing scientist. It provides an important avenue for

the exchange of scientific ideas, and both the speakers and the audiences benefit.

What did the Panel not accomplish that we sought initially to do? During our initial meetings, and in the first full draft of the report that was used to frame our

Panel discussions at our April 5-6 meeting, we seriously considered proposing that

selective information from the Form 520 be posted on a publicly accessible portion

of the NIH website. (Form 520 must be submitted to obtain permission for any outside activity). More specifically, we discussed the possibility of requiring, as part of

the permission process, the public posting of both the nature of each paid outside

activity, as well as the exact amount of the compensation received each year. The

Panel was thinking that such compete transparency could serve as a ‘‘disinfectant’’

to remove suspicions that might otherwise persist concerning the internal NIH disclosure and permission system.

In the course of these deliberations, we encountered the federal Privacy Act and

other relevant federal statutes and regulations. We asked the lawyer on our Panel,

Dorothy Robinson, to consider these matters further and to discuss them with NIH

legal counsel. She reported that the federal Privacy Act presents a serious barrier

to virtually any agency-mandated public disclosure of the sort we were considering,

other than the public disclosure mandated for those senior level employees designated as Form 278 filers—including those so designated through equivalency rulings by the Office of Government Ethics. (See also Letter from Marilyn L. Glynn,

Acting Director of OGE, to Bruce Alberts and Norman Augustine, April 19, 2004,

attached).

The Panel considered the possibility that the Privacy Act might be amended to

allow for this type of disclosure, but concluded that the strong governmental policy

protecting personal information against disclosure would be a formidable challenge

to overcome. Instead, as you will hear, the Panel constructed recommendations

aimed at augmenting and making more effective internal disclosure within NIH. We

want NIH to have all of the information and abilities it needs to make thorough

and effective conflict of interest reviews. We have also recommended enhanced public disclosures in connection with all speaking and publications by NIH personnel,

31

as well as an agency-wide public report that annually summarizes the amount and

nature of the outside activity by NIH employees.

Our recommendations are as follows:

Recommendation 1: NIH senior management and NIH extramural employees who

are responsible for program funding decisions and recommendations, and professional staff managing grants and contracts and application review should not engage in consulting activities with pharmaceutical or biotechnology companies or in

paid consulting for academia. The Panel considers speaking for compensation at an

industry site as equivalent to consulting for industry. In addition, the Panel does

not include in this prohibition time spent in clinical practice by health care practitioners, if approved as an outside activity free of conflicts.

Recommendation 2: The Panel reaffirms current federal law that intramural scientists conducting research with human subjects—for example, investigators and research team members involved in patient selection, the informed consent process,

and clinical management of a trial—should not be allowed to have any financial interest in or relationship with any company whose interests could be affected by their

research or clinical trial, except with an appropriate waiver or authorization.

Recommendation 3: In addition to existing requirements for engaging in outside

activities, the following additional requirements should be in place for employees directly involved in the administration or conduct of NIH research programs and who

are not subject to the restrictions posed in Recommendations 1 and 2:

a. The total amount earned annually from compensated consulting with industry or

academia should not exceed an amount equal to 50 percent of the employee’s

annual salary, and no one source should account for an amount in excess of 25

percent of annual salary.

b. Employees eligible to engage in compensated outside professional activities

should not:

i. receive compensation in the form of stock options or other forms of equities

for their services

ii. spend more than 400 hours per year on these activities (writing excepted).

c. An exclusion to the above limits should exist for NIH employees who are health

care practitioners. For these employees, there should be a more flexible time

limitation and the capitation for compensated outside medical care and patient

services should be 100 percent of base pay, with the one-source limitation removed.

Recommendation 4: To improve NIH’s ability to manage and track approved outside activities:

a. all requests for outside activities (Form 520) should be updated on an annual

basis (with such updates indicating only those changes that have occurred)

b. supervisors should be held accountable for the evaluation and approval of outside

activity requests, and this supervisory function should be a component of a supervisor’s performance evaluation

c. NIH should publish an annual institute-wide statistical report on the number and

types of outside activities approved for its employees.

Recommendation 5: NIH should seek a change to OGE regulations so as to allow

NIH scientists to receive compensation for teaching, speaking, or writing about their

research, only if the information is to be shared in a public forum and it has appeared in the published literature.

Recommendation 6: NIH intramural scientists should continue to be allowed to

engage in compensated speaking, teaching, and writing for professional societies and

for academic and research institutions as an outside activity as long as all ethics

review and approval requirements are met.

Recommendation 7: NIH should seek a change to OGE regulations to permit employees to be identified by their title or position (and institutional affiliation) when

engaged in teaching, speaking, or writing as an approved outside activity. Disclaimers should be provided that the activity is not being conducted in the employee’s official capacity as an NIH employee and that the views expressed do not necessarily represent the views of NIH.

Recommendation 8: There should be no restrictions on royalties received on works

written, edited, or published or on income received from patents licensed by any

NIH employee who conducted the work as an approved outside activity.

Recommendation 9: The current OGE rules regarding receipt of bona fide cash

awards for meritorious public service or achievement and NIH’s interpretations of

the rules are reasonable and should apply to all employees. There should be no limit

on the amount of money received from a bona fide award. These awards are considered gifts under current law and are not considered outside activities because the

employee accepts the award in his or her official capacity.

32

Recommendation 10: To increase NIH’s ability to manage conflicts of interest, it

should either move immediately to increase the number of employees required to

annually file a confidential disclosure form 450 or find some other means to achieve

comparable levels of internal disclosure.

Recommendation 11: NIH should ask OGE to make a regulatory change or seek

statutory modifications to provide NIH with greater discretion in determining

whether certain Title 42 employees should file public financial disclosure form 278.

This would promote the public interest by increasing transparency and thereby enhance trust in government. In the meantime, NIH should seek additional equivalency rulings from OGE to increase the number of public filers to include all the

senior employees as specified in Recommendation 1.

Recommendation 12: NIH supervisors should be provided with enhanced training

on the criteria to be used for their annual review of financial disclosures so as to

become more effective in managing and avoiding employee conflicts of interest.

Recommendation 13: To preserve public confidence in NIH, the agency should put

in place a policy that requires employees to disclose all relevant outside relationships and financial holdings in their work products, such as publications, speeches,

and invention disclosures. In addition, where relevant, such disclosures should be

made to potential research subjects as part of the informed consent process.

Recommendation 14: NIH employees should be required to submit recusals in

writing to immediate supervisors when a potential conflict of interest emerges. The

supervisor should then be required to inform those who should be aware of the employee’s need to be recused from the official duties for which there is a conflict. As

is currently the case, when an employee must be recused from official duties, those

duties can be reassigned only to someone at an organizational level above the employee. As such, recused employees or their supervisors will need to inform both superiors and affected subordinates of the recusal.

Recommendation 15: The NIH Ethics Office should prepare a user-friendly document and website that displays ethics rules in simple language and emphasizes examples of outside activities and financial interests that are permissible as well as

those that are not. Employees seeking approval of outside activities should, as part

of their submission of form 520 and its supplements, indicate in writing that they

have reviewed these summary materials and have discussed any questions they

have with their relevant ethics official and/or supervisor.

Recommendation 16: The NIH Ethics Advisory Committee should issue a report

of its findings, in the form of anonymous case studies and generalizable principles,

on a regular basis to provide the NIH community with a clear common body of

knowledge by which to understand and interpret ethics rules.

Recommendation 17: NIH management should assure that sufficient resources are

provided for the administrative and management functions of its ethics activities to

guarantee that the expanded program proposed in this report can be implemented.

Recommendation 18: While the Panel has not addressed the application of Title

42 to the hiring and compensation of senior scientific staff, it is clear that some such

hiring and compensation authority needs to be applicable to this group of employees

if NIH is to remain competitive in the market for talent. In addition, the NIH Director should ask HHS to review and, if appropriate, raise the current annual salary

capitation of $200,000 for the most senior Title 42 employees at NIH. The Panel is

concerned that the present ceiling is limiting the agency’s ability to recruit and retain the nation’s best scientists as the leaders of NIH.

Mr. Chairman, since our report is not unduly long and contains substantiation for

these recommendation, we would like, with the committee’s permission, to have it

considered for inclusion in the record as an attachment to this statement.

Among the more significant changes these recommendations, if implemented,

would impose are:

• Senior NIH officials would not be permitted to engage in paid consulting with biotechnology or pharmaceutical companies or academic institutions. • In instances where paid consulting is permitted (i.e., no conflicts of interest exist),

such activity would be subject to a 400 hour annual limitation and a compensation cap of 50 percent of the individual’s annual base salary, with no more than

25 percent being derived from any one source. • The number of individuals filing disclosures, both public and private, would be increased, and all work products would bear a disclosure statement indicating related financial interests or activities of the researcher(s).

• Compensation for outside work in the form of equity would be (prospectively) prohibited.

• Scientists, where no conflicts exist, would be encouraged, not discouraged, in participating in outside activities which are innate to the workings of the scientific

community at large. Thus, scientists would be permitted to receive outside comVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
33

pensation for speaking or writing about their work without having to wait one

year after that work has been completed and published.

• The salary ceiling for employees hired under Title 42 authority would be increased to an extent which would assure that the NIH is competitive in the

marketplace for world-class scientists and managers of science.

In arriving at its findings and recommendations, the panel noted that for virtually

every policy it could conceive it could also identify extraordinary circumstances

under which the application of that policy would be counterproductive to the accomplishment of the NIH mission. For this reason, it is important that, within the constraint of applicable laws, the NIH Director be granted the authority to make carefully considered exceptions when deemed appropriate.

In conclusion, the Panel believes that the recommendations presented in our report can correct many of the concerns that have in the past been expressed about

conflict of interest practices at NIH. We urge that the recommendations be adopted

as quickly as possible. This is needed to assure the continued, deserved public confidence in the extraordinary work of NIH, to enhance the continued quality of the

scientific staff at NIH, and to rectify what the Panel perceives to be a growing morale problem among an excellent NIH staff.

Thank you, and we would be pleased to answer your questions.

NIH BLUE RIBBON PANEL ON CONFLICT OF INTEREST POLICIES

A WORKING GROUP OF THE ADVISORY COMMITTEE TO THE DIRECTOR, NIH

ROSTER

Bruce Alberts, Ph.D. (Co-Chair), President, National Academy of Sciences, Washington, DC

Norman R. Augustine (Co-Chair), Chairman, Executive Committee, Lockheed

Martin Corporation, Bethesda, Maryland

Christine Cassel, M.D., President, American Board of Internal Medicine, Philadelphia, Pennsylvania

Thomas H. Murray, Ph.D., President, The Hastings Center, Garrison, New York

Phillip Pizzo, M.D., Dean, School of Medicine, Stanford University, Stanford, California

The Honorable Stephen D. Potts, Chairman, ERC Fellows Program, Ethics Resource Center, Washington, D.C.

Dorothy Robinson, Esq., Vice President and General Counsel, Yale University,

New Haven, Connecticut

Lawrence Sadwin, President, Lifestyle Security, L.L.C., Warren, Rhode Island

James Siedow, Ph.D., Vice Provost for Research and Professor of Biology, Duke

University, Durham, North Carolina

Reed V. Tuckerson, M.D., Senior Vice President, Consumer Health & Medical

Care Advancement, UnitedHealth Group, Minnetonka, Minnesota

Mr. GREENWOOD. We thank you, both Dr. Augustine, Dr. Alberts.

And the Chair would recognize for questioning the chairman of

the full committee, the gentleman from Texas Mr. Barton.

Chairman BARTON. Thank you, Mr. Chairman. I appreciate the

courtesy. I have got a hearing downstairs, too, on a telecommunications issue. So I appreciate be able to go out of turn.

Dr. Zerhouni, I am told that in the last 5 years there have been

about 1500 agreements covering over 500 of NIH employees that

cover some sort of outside consulting or compensation agreement

with someone who has business with the NIH. Does that number

seem approximately correct to you?

Mr. ZERHOUNI. I agree with your 1500 and 500 employee over 5

years. All outside activities that we were able to record. I am not

sure that all of them had relationships with people that had business with the agency.

Chairman BARTON. Okay.

Mr. ZERHOUNI. I am not sure of that.

Chairman BARTON. Some sort of an agreement, maybe not a

business relationship?

34

Mr. ZERHOUNI. Right. It may be all kinds of agreements, and we

have reported that in detail to the committee.

Chairman BARTON. Okay. With some sort of a drug company or

a biotech company?

Mr. ZERHOUNI. Some of them would have relationship with drug

companies, but not necessarily that the drug company had business

with NIH.

Chairman BARTON. Okay.

Mr. ZERHOUNI. If the company has official business with that scientist, our current rules prohibit outside activities in that context.

Chairman BARTON. Okay.

Mr. ZERHOUNI. Okay.

Chairman BARTON. Well, just as an example, this is a director

who is no longer with the agency. I will not list the gentleman’s

name. But while he was a director of NIH, just as an example, this

particular individual, director of the institute, he served on the

board of directors of a private company, a biotech company and

held one-half of the stock equity in that company. So I would think

that was some sort of relationship. Now that gentleman is no

longer with us. No longer with the NIH I should say. He is still

alive and healthy.

On December 8 the committee staff sent a request to NIH that

asked for details on all these agreements covering 5 years. And a

funny thing happened. Apparently a lot of those agreements that

were in effect were terminated on the date of the letter. We don’t

know the exact number, but it could be as many as half of the

agreements just coincidentally all of a sudden were terminated.

Does that strike you as a little bit odd?

Mr. ZERHOUNI. Well, first of all, I think the relationship that you

pointed out first with the Director, I think should be off limits. I

said that the very first time. I consider stock ownership, fiduciary

duties in an outside entity when you have a responsibility, that

should be off limits. And I think the rules address that.

The second about the numbers. At the time of the December 8

subcommittee request we recorded about 228 agreements at that

time—no, 228 scientists involved in about 300 agreements. Now do

not hold me to the numbers. Then I requested, I said if you want

to continue you have to put a hold on all your agreements and

come to the newly formed—the one that I formed in November—

the NIH Ethics Advisory Committee. In that process, two of the directors that had been reported in the L.A. Times out of the 27 directors we have, the two that were involved, terminated their

agreements. And as we requested, the review—the uncertainty I

think and perhaps what you are, I think, alluding to that perhaps

some scientists were not so happy or were not so comfortable with

this being reviewed by an independent panel. It says two things.

One, the system failed and two, the new system is sending a

message that if you want something at NIH, you are going to come

to an independent panel that is not related to your institute or

your ethic’s advisor, it is in the Director’s office and you had better

be sure about what you are doing before you come forward.

So you can look at it two ways, Mr. Chairman.

Chairman BARTON. Is it also true that when you talked earlier

in your oral testimony that there is some things that you do not

35

have the authority to require that, that there is some Privacy rules

that apparently apply to the entire government that overrule your

ability to get information, but when you request legal opinion from

the Office of General Counsel at HHS—I do not want to put words

in your mouth. But did the Office of General Counsel encourage

you to find a way to encourage your agency to cooperate with this

committee or did the Office of General Counsel at HHH encourage

you to find a way to not cooperate? Put that in your own words.

Mr. ZERHOUNI. Right.

Let me just says this, that my instructions to my staff and my

interactions with the Office of General Counsel, reflected a desire

to find every possible way to cooperate. And if there is, and you

mentioned the cooperation——

Chairman BARTON. I want to make sure.

Mr. ZERHOUNI. Right.

Chairman BARTON. You said the Office of General Counsel told

you to find every way to cooperate?

Mr. ZERHOUNI. No, I said that.

Chairman BARTON. Oh, you said that.

Mr. ZERHOUNI. I said that. I said please——

Chairman BARTON. I did not ask what you said. I want to know

what their attitude was when you asked them for——

Mr. ZERHOUNI. The first event was that NIH could not change

its rule without new regulations. That was the advice we received.

That is why we created this NIH advisory committee.

After the December 7 media reports, we did a full analyses of exactly what happened in 1995. The Office of Government Ethics at

the time had set some rules.

When we were asked to provide the information you needed,

Chairman Greenwood called me because we did not have the compensation amounts. So I immediately said, well, frankly we need to

have them. I do not have——

Chairman BARTON. But apparently those are not required under

current regulation——

Mr. ZERHOUNI. They are not required under government——

Chairman BARTON. [continuing] and so we have no clue what

some of these people are being compensated for.

Mr. ZERHOUNI. But, Mr. Chairman, I would like to point out this

is not an NIH specific issue. This is Government Ethics 1993. And

I think you will have the acting director of OGE and you will ask.

I can assure you, this was not an option of NIH. In 1998 we requested that that disclosure be made so that we could have more

disclosure.

Chairman BARTON. Well, let me ask, has it to your personal

knowledge at anytime has NIH been able and actually request and

receive compensation figures from individuals who have outside arrangements that result in financial enumeration or stock enumeration? Have you ever asked for and been able to receive that? Not

you, but I mean NIH?

Mr. ZERHOUNI. To my knowledge between 1995 and now, I do not

think so. I do not know before 1995, Mr. Chairman. I will check

and let you know.

Chairman BARTON. Could you find that out?

Mr. ZERHOUNI. I will find that out for you.

36

Chairman BARTON. Okay. Well, my time is getting close to expiring.

If you were to make a recommendation to the Office of General

Counsel at HHS to testify before this subcommittee voluntarily,

what would you recommend?

Mr. ZERHOUNI. That they should.

Chairman BARTON. Are you aware that we asked them and that

particular individual said no.

Mr. ZERHOUNI. No, I am not. I am not aware of that.

Chairman BARTON. Do you think that shows an attitude of cooperating or noncooperating with this committee?

Mr. ZERHOUNI. I cannot comment, Mr. Chairman, on what they

decide. I was not aware of that.

Chairman BARTON. Because it is no, does that indicate cooperation? You came.

Mr. ZERHOUNI. And I will come again.

Chairman BARTON. Yes. I would say you are cooperating.

Mr. ZERHOUNI. I will cooperate to the greatest extent I can, and

I think we should all do that.

Chairman BARTON. All right.

I could go, Mr. Chairman, but I am going to excuse myself to go

downstairs. But I want this panel to understand this is the first

hearing and NIH, to some extent, is the first agency. But this will

not the last hearing and this will not be the last agency. We are

going to have accountability.

This committee is going to reestablish the oversight responsibility that former Chairman John Dingell was noted for, and we

are going to do it on a bipartisan basis. And I would encourage you

to encourage the people in your agency that if we ask for information, they can do it voluntarily or involuntarily, but they will do it.

We are going to get to get to the bottom of this.

And with that, I would yield back to the distinguished subcommittee chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes for 10 minutes for purposes of inquiry, the gentleman from

Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman.

Dr. Zerhouni and the other panelists, I have been thinking about

something for a few days, which is of course the Blue Ribbon panel

recommendations. And the whole idea, the premise you all seem to

be coming from now is that we really should not eliminate this outside income and payment, so instead what we should try to do is

have transparency. And I frankly, I will be honest like the Chairman, have some questions about that fundamental premise.

Dr. Zerhouni, you said that a blanket prohibition might not be

the most satisfying thing to do because scientists need to interact

with others and outside groups in order to do their work. Would

that be a fair summary of your statement, Doctor?

Mr. ZERHOUNI. I said a blanket prohibition would be the easiest.

Ms. DEGETTE. Right.

Mr. ZERHOUNI. And most superficially satisfying. But I think if

you look into it more, remember NIH has two functions. One is to

do the research in its own laboratories and then granting.

37

Ms. DEGETTE. But the button line is you feel that these scientists

need to interact——

Mr. ZERHOUNI. Right.

Ms. DEGETTE. [continuing] with outside groups and industry to

do their research, right?

Mr. ZERHOUNI. To enhance their ability to understand research

and translate that research into real tangible benefits.

Ms. DEGETTE. Okay. Right. Why do they have to be paid large

amounts of money to have that interaction.

Mr. ZERHOUNI. Okay.

Ms. DEGETTE. I mean, the money is not central to the interaction, right?

Mr. ALBERTS. We looks into this. If you want to consult with industry, we were talking about that very seriously on the panel, you

have to sign a confidentiality agreement with industry that you

will not disclose their private information. If you are government

employment doing it as an official duty, you are not allowed to sign

any such agreement.

So one of the things we explored could this contact with industry

occur purely as unpaid official duty activity.

Ms. DEGETTE. Right.

Mr. ALBERTS. What we concluded was it wouldn’t happen.

Ms. DEGETTE. Why? Why.

Mr. ALBERTS. Because industry would refuse it.

Ms. DEGETTE. You mean industry just wants to force these people to take money for cooperating like this?

Mr. ALBERTS. Well, you can only do——

Ms. DEGETTE. You have the top research scientist in the country

at NIH cooperating with private companies. And I would assume

there is also a mutual confidentiality agreement that they will not

disclose governmental proprietary information as well.

Mr. ALBERTS. Of course. That’s true, yes. That is right. We were

told that industry will not——

Ms. DEGETTE. Who told you that, Doctor?

Mr. ALBERTS. Various witnesses. I cannot remember their names.

Ms. DEGETTE. Would you supplement responses?

Mr. ALBERTS. Legal people.

Basically that if you are going to be on a scientific advisory

board, for example, for a biotech company they will not have you

do that as your official duty activity unpaid because you cannot—

it is illegal for you to sign any confidentiality agreement that you

will not reveal trade secrets that you learn in this relationship.

So——

Ms. DEGETTE. Okay. Doctor, could you supplement your answers

with the names of the individuals who told you that it was illegal

to——

Mr. ALBERTS. We will submit that afterwards, yes. I cannot remember.

Ms. DEGETTE. Thank you.

Dr. Zerhouni, did you want to clarify that?

Mr. ZERHOUNI. Basically when industry works with a government employee under official duty activity, essentially anything

that is done within that work product, the employee cannot receive

any compensation. The product of that interaction is owned in part

38

by the government. So what industry wants is to have a scientist

on his or own time, because you know, the rules are such that if

you are doing this on your own time, the current government ethics

rules say that this is your own work product. And that is why I

think industry prefers to work with scientists on their own

private——

Ms. DEGETTE. I completely understand that.

Mr. ZERHOUNI. Right.

Ms. DEGETTE. That does not go to the issue of why they have to

be paid large amounts of money to do that, sir.

Mr. ZERHOUNI. The large amounts of money, I think we can give

you the data since we have it. We have the current data——

Ms. DEGETTE. I have some data right here that I am going to

talk about in a minute.

Mr. ZERHOUNI. Okay.

Ms. DEGETTE. And I have some slides. But before we put those

up, I would like to ask Dr. Augustine something. Because you

something about it is hard to hire top tier scientists at the NIH

without this compensation. Is that really what we are talking

about. I mean, is that the unspoken message in this room that

really the money we are paying these scientists, as the Chairman

said, some of them—many of them are paid more than the Vice

President of the United States. One of them made $290,000 on the

government payroll last year. Is what we are really saying is we

do not think we can hire these scientists unless we allow them to

get private contracts for substantially more money? Is that really

what we are saying, sir?

Mr. AUGUSTINE. Well, you start out exactly where we were. With

regard to compensation, the higher level scientists are clearly underpaid compared with their marketplace.

Ms. DEGETTE. Right. But you know something? I am clearly underpaid compared to lawyers of my level of experience in the private market. I mean, people go into these jobs for public interest,

not for the salary, I would assume. Is that not an assumption you

thought of, too?

Mr. AUGUSTINE. I was going to finish. I would respectfully submit that these people are within their marketplace, the academic

community, they are significantly underpaid. We also found that

that probably is not the principal driver in this issue. The principal

driver we found was their desire to be treated as other members

of the academic community who are permitted to do consulting,

who are permitted to interact with industry and have this two way

exchange.

The difficulty, if I could take a moment, as I understand it is

that if they do this as an official duty—let me back up. If they do

consulting with a firm, the firm obviously wants a confidentiality

statement. You are not allowed to sign that if you are on official

duty. Furthermore, if you are on official duty, you are not allowed

to give preference to a single company. It would be unfair.

Ms. DEGETTE. Right. I understand those are the rules. And I am

sorry to be rushing. I only have 10 minutes to question.

And I understand all of those concerns. But one thing we have

found, and I know we are going to have more investigations, is that

some of the payments that are being made by these private compaVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
39

nies when the researchers are on their own time, aside from their

NIH research, are disproportionate to the amount that people, say,

at the University of Colorado Health Sciences Center are being

paid, because they are the NIH and they do control big grants. In

other words, you know, the payments they are getting may not be

in not direct correlation to the actual work you are doing. Do you

share that concern, Doctor?

Mr. AUGUSTINE. We do.

Ms. DEGETTE. I would think so.

Mr. AUGUSTINE. The reason we put on the limit on as to the

amount they could receive was exactly that consideration. But it

should also be noted that these people that are allowed to consult

under our recommendation are not involved in making grants.

They have nothing to do with grant making.

Ms. DEGETTE. Well, I understand that. But that may not be

what some of the private companies are thinking.

Here is why I am concerned. If we can show slide No. 1, we have

some slides here to talk about the extent—now these are individuals. And I think these are in your notebooks, too. Are they in the

notebooks? No, they are not in the notebooks. We will hand you a

copy of it.

These are agreements that have been authorized under NIH procedures. I think some of these may be unauthorized under the new

procedures Dr. Zerhouni is talking about and the Blue Ribbon

panel, however those rules have not yet been enacted. So these financial agreements could happen right now.

The first one is Michael Brownstein who is the Chief of NIMH

Genetic Lab. He has received almost $2 million from four biotech

firms. In each case, he is either a member of the board or the scientific advisory board or both.

Here is my question: How can the public be assured that nothing

he knows from his work at NIH, nothing he learns about the

projects of competitors of these firms from his work at NIH or any

subject involving his work at NIH will not be brought up at these

meetings? Anybody have any idea? How do we know because he is

making all this money from four biotech firms that there is not

going to be any kind of crossover? Doctor——

Mr. AUGUSTINE. Well, you raised the concern we had, namely

that we place a limit on what they can take and we ruled out stock.

Ms. DEGETTE. But, Doctor, you have recommended a limit. That

limit has not been enacted.

Mr. AUGUSTINE. Well, we recommended it about a week ago.

Ms. DEGETTE. Right. Okay. Yes, last week.

Mr. AUGUSTINE. Hopefully, it will be.

Ms. DEGETTE. With this hearing coming up this week.

Well, let me ask you a question Dr. Zerhouni. What do you think

Michael Brownstein is thinking about in the shower? Seriously,

that is what you all said the standard is.

Mr. ZERHOUNI. Well, I think that, and again I said that publicly

before the Blue Ribbon panel, I say it again. I think people have

stock, stock ownership, board positions in private entities, I do not

think that should happen for senior officials. Even, I mean for anybody. I mean we are prohibiting that for everybody.

Ms. DEGETTE. Is that part of the rules you are enacting?

40

Mr. ZERHOUNI. Yes.

Ms. DEGETTE. And when do you intend to enact those rules?

Mr. ZERHOUNI. ASAP. As soon as I can.

Ms. DEGETTE. Okay. Let us take a look at slide No. 2. This is

about consulting arrangements between NIH employees and drug

and biotech firms. This is Dr. Germain, who is the Deputy Chief

of Lymphoma Bio Section of the NIAID. Now, he is receiving

$430,000 roughly, a little more, plus stock of an unspecified value

from seven different companies. Even if there is no actual conflict,

and it sure looks like there might be to me because apparently all

he stated on his ethics forms is he is a consultant to these firms,

how do we know that he has time to do his work and manage his

section?

Mr. ALBERTS. Okay. That is the——

Mr. ZERHOUNI. First of all, I think that Dr. Germain was the object of the media reports, so we looked very carefully at that.

Fundamentally what we have looked at is this conflict of commitment, how much time do you really spend on these things within

your own time as a scientist. It turns out that if you look carefully

at Dr. Germain these are long—I mean this total for example that

you are reporting is for over 10 years. So that what you really need

to look at is not just the ethics consideration, and this is why we

think we need independent peer review for every one of these

agreements and this is what the new system is doing.

Ms. DEGETTE. Okay. Just one last question. And first of all it is

over 4 years, not 10 years at least in this slide. But second, and

this is my question, the Blue Ribbon panel recommendation is

$100,000 compensation and no more than 400 hours per year. That

adds up to an 8-hour day every week of the year. I want to ask

all of you, do you think that is reasonable for our research scientist

at a place like NIH who are well compensated compared to other

people who are in the public service, do you think one work day,

or I guess Saturday, every week would be a reasonable amount of

time for these people to be spending on outside activities?

Mr. ALBERTS. That is basically the academic standard. Most universities allow that kind of effort.

Ms. DEGETTE. So your answer is yes?

Mr. ALBERTS. That is the limit. And I was at Princeton for 10

years, we were allowed this. But not on Princeton time, but we

were allowed to spend as much as 1 day a week on outside activities.

Ms. DEGETTE. But Dr. Augustine, when you were over at Lockheed Martin—you were at Lockheed Martin, right?

Mr. AUGUSTINE. I retired.

Ms. DEGETTE. Did they let the people their researchers take 1

day a week for outside activities?

Mr. AUGUSTINE. We would not.

Ms. DEGETTE. Thank you.

Mr. GREENWOOD. I just want to follow up on that. I just want

to understand something before I get into my inquires here.

One day a week for outside activities, does that leave 4 days a

week for the NIH?

Mr. AUGUSTINE. Extra days.

Mr. ZERHOUNI. Extra days. On their own time.

41

Mr. GREENWOOD. That seems that they have 5 days a week that

they are giving to us, of course.

Mr. ZERHOUNI. Yes.

Mr. GREENWOOD. And how do they account for that?

Mr. ALBERTS. It depends. In universities they have to account in

different ways depending on the university.

Mr. GREENWOOD. Did you recommend that there be an accounting process so that when I take that day, I——

Mr. ZERHOUNI. Right. And that is what I refer to in my fourth

opening statement about the need for monitoring and oversight. In

other words, the system as it stands today, Mr. Chairman, I could

not tell you that I know for sure Dr. X is spending so many hours

doing whatever they do. But I know for a fact that you can manage

that if you have a data base that’s managed centrally where you

have the requisite review not of what the scientist says, but of the

original documents that say you should work 1 day a week at this

place or that place so you can accumulate them in one place.

Universities have done that. I came from a university that implemented such a system. And I think you can do it if you really centralize it.

Mr. GREENWOOD. I have questions. I mean, there are a lot of

questions that that raises. When I talk about the swivel chair, I am

talking about somebody sitting at a desk and saying okay, Doctor,

you have a call from XYZ company. He takes the call or he cannot

take the call and he calls later on an NIH phone and spends 2

hours. Is that a system to account for all of that?

Mr. ZERHOUNI. Mr. Chairman, I would sleep so much better if I

just gave you what you want, what you are expressing, which is

total separation firewall between the Federal agency and the private sector.

Mr. GREENWOOD. I think there needs to be.

Mr. ZERHOUNI. You know, and that would be much easier to do,

much easier to—but having been myself a scientist at managing a

university—Lockheed Martin is not a university. And I think we

need to really look at that carefully and make a decision. But,

frankly, I would be where you are if I had my full drothers, make

my life easier.

Mr. GREENWOOD. All right. Let me pose another question to you.

Today’s Los Angeles Times reports that internal documents show

that the Blue Ribbon panel was concerned about how little is

known about the extent of financial ties between drug companies

and NIH personnel. According to minutes of a closed door meeting

early in April of that Blue Ribbon panel, the panel was ‘‘was surprised to learn that many people do not disclose at all. The panel

thinks there needs to be an internal review that picks up significant financial interests.’’

The question is, I guess I should address this to Drs. Alberts and

Augustine, do these minutes reflect the fact that many NIH employees are not disclosing their outside consulting even to their institutes to get approval?

Mr. AUGUSTINE. Yes, and I will begin if you look.

We were concerned. There are two basic mechanisms for disclosure at NIH that you are aware of that really apply to the governVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
42

ment as a whole. One has private disclosure within the agency, the

other is more public disclosure.

With regard to the former, which is the form 450, only people

who are specifically prescribed to submit that form have to submit

it. There is not a blanket group that has to submit. And so we were

concerned that there are a large number of people that do not submit at all, and they comply with the rules as they are written

today.

With regard to the latter form, the 278, the public disclosure

form you have already heard this problem with the artifact of the

interpretation of the legislation denies the NIH leadership the ability to compel people to file. And that we recommended be changed

or at least the interim steps be taken of the type that Dr. Zerhouni

has already taken to cause more people to have to file public disclosures.

The bottom line is that they are basically complying with the

rules as they are written, but they need much more latitude to

have more people disclose both publicly and privately.

Mr. GREENWOOD. And we are disclosing: (a) the fact that they

have a private consulting arrangement or; (b) the income derived

therefrom?

Mr. ALBERTS. I think this needs some clarification. There is yet

another form, 520. So the outside activities require review process

in the form of filing the form 520 for any new outside activity, and

every employee as far as I know has gone through that process. So

outside activities are covered.

What we were talking about in our panel was well suppose a re- searcher inherited $10 million worth of Merck stock and held it

and was doing something that might effect his or her activities,

bias them by that holding. Well, there was no way unless that person was filing a form 450 for the NIH to know about that holding.

And so what this recommendation that I talked about, recommendation ten, focused exactly on this issue. We think the NIH

must know the financial holdings that might be relevant as well as

the outside activities.

They do know about the outside activities because of form 520.

450 deals with the financial interests, and we are not sure that

OGE will actually allow enough 450 filers. So we recommend if

they do not, then find some other way to get the information.

Mr. GREENWOOD. Well, OGE ultimately is going to follow the

laws and the committee is going to help the rest.

Mr. ALBERTS. Yes, of course. We encourage that.

Mr. GREENWOOD. But let me understand one other issue here.

There are two ways to gather information of this kind. One is to

say if you are engaged in this activity or if you own these stocks,

then you need to submit a form.

Mr. ALBERTS. Yes.

Mr. GREENWOOD. The other one is to say everybody needs to submit a firm. And you either affirmatively declare these things——

Mr. ALBERTS. Yes.

Mr. GREENWOOD. [continuing] or you declare that you have no

such entanglements.

Mr. ALBERTS. The latter would be our recommendation.

Mr. GREENWOOD. And the latter is your recommendation?

43

Mr. ALBERTS. Yes.

Mr. GREENWOOD. Okay. All right.

What is the factual basis for your statement that there are ‘‘approximately 120 of NIH’s employees currently involved in consulting agreements?’’ How reliable is that statement?

Mr. ALBERTS. It was mentioned, we had an extensive interaction

with NIH staff to get information. And as you can see from the report, we started from zero knowing about any of these things except for a few people. Steven Potts who is the former Director of

OGE understood these things, but most of us for the first time ever

encountered all this complex set of forms and regulations.

And so in preparing our report, we relied on request for information back and forth to NIH staff to give us the information. That

was one of the specific requests we made, and that was the number

we got back from——

Mr. GREENWOOD. So that was 120 employees affirmatively said,

yes, I am doing that?

Mr. ALBERTS. That was for the NIH data base. We did not contact the employees directly, we asked the NIH what they knew.

Mr. GREENWOOD. And when you say 120 employees have these

arrangements, that is a minute in time?

Mr. ALBERTS. That is a minute in time.

Mr. GREENWOOD. Right. So it could be that the next day, 40 more

start consulting agreements. What is your sense of over the course

of a year how many employees at NIH are involved in these consulting arrangements.

Mr. AUGUSTINE. Mr. Chairman, we were told that there were 118

employees in March of 2004; that’s the moment in time, involving

196 different activities. We were told that that number is probably

suppressed because of the attention that has been given to the

issue at this time. It could be higher or lower.

We do not have a projection for the future, but it was higher in

the past.

Mr. GREENWOOD. Well, did you consider asking for information

as to the state of affairs 6 months previously or a year previously

so that you would nullify this suppressing effect?

Mr. AUGUSTINE. I do not have the specific data with me. I would

be glad to provide it for the record, if possible.

Mr. GREENWOOD. After reviewing the spreadsheet of consulting

agreements data and the accompanying documentation, the committee staff found at least 90 instances where a consulting agreement appears on an employee’s financial disclosure form, yet did

not appear on the spreadsheet which was supposed to contain a

comprehensive list of all agreements. Does the Blue Ribbon panel

have any reason to believe that not all consulting agreements have

been and are being disclosed to the agency? How can you be ceratin

that all employees are making full disclosure?

Mr. AUGUSTINE. I believe that the answer to that is that you

have to depend upon the employees to comply with the rules. And

I think one failing probably has been that the rules have not been

adequately explained and understood by the employees. In addition, it is probably appropriate to conduct spot checks to be sure

that the compliance is there.

44

Mr. GREENWOOD. In my first question I referred to today’s L.A.

Times story and there was a quote that was taken from minutes

according to the L.A. Times. And that was the quote that I read

that says that the panel was ‘‘was surprised to learn that many

people do not disclose at all’’ etcetera.

The NIH provided the committee the minutes of the panel’s

closed sessions and the staff did not find any such quotes in the

minutes. Are there draft meeting minutes that the NIH has not

provided to the committee?

Mr. ZERHOUNI. I can check into that.

Mr. GREENWOOD. Either we did not get that or the L.A. Times

made it up.

Mr. ZERHOUNI. I do not know, but I can shed some light to that.

After the article I asked Dr. Kington our Deputy where did that

come from. And emails were the source of that, not minutes to my

knowledge.

Mr. GREENWOOD. So when the L.A. Times says that these were

from minutes of a closed door meeting in April, you are saying that

that is not the case. That they were from——

Mr. ZERHOUNI. Mr. Chairman, give me some time to look into

that. Because this happened this morning. I really cannot—but I

will follow up with you and tell you what our best guess is where

that information is from.

Mr. GREENWOOD. In the same L.A. Times article today it is reported that the Deputy Director Raynard Kington wrote in an

email that he feared the panel members did not understand ‘‘that

there is not a bright line’’ between those involved with intramural

research and those involved with outside extramural research.

Kington also wrote ‘‘I think, and I think many outside people would

agree, that our IM, intramural scientists, should not consult with

universities and other institutions that are funded by us,’’ Kington

added.

Dr. Zerhouni, do you agree with Dr. Kington?

Mr. ZERHOUNI. I asked Dr. Kington to see if he had the email,

and again I have the email here. I would be happy to give it to you.

If you look at the discussion that went back and forth, you will

see that the context of the quote and the context of the email are

a little different. That Dr. Gottesman was talking about teaching

writing and academic activities. Dr. Kington was talking about

having influence over granting mechanism. And you can see

through the email the conversation.

I think it is healthy to have good debate about these issues, but

I think that is the source, and I would be happy to give you the

copy of the email I have, Mr. Chairman.

Mr. GREENWOOD. Yes, we will ask you to submit that email for

the record.

My time has expired. And the gentleman from Maine, Mr. Allen

is recognized is for 10 minutes.

Mr. ALLEN. I thank you. Thank you all for being here.

And, Mr. Chairman, I thank you very much for holding this particular hearing.

I did not hear all that you said at the beginning, so I want to

make sure I am understanding where you are recommending we

go. I take Dr. Zerhouni’s point about an academic institution and

45

the need for in academic institutions, most of the academics I know

are doing something else on the side as well. But clearly this is an

area of great concern because of the reputation of NIH, because of

the function as an independent body doing research and yet in the

private sector today it is pretty clear that the pharmaceutical and

biotech industries are large, and certainly at least the pharmaceutical industry is very profitable and has these networks of relationships are being formed. And I think as Members of Congress

we really have to be concerned about the issues that you are all

dealing with today.

But it sounds to me, correct me if I am wrong, there are different

ways to go at this problem of whether or not there is a conflict of

interest. And it sounds to me from what I picked up that one way

is to have a review of the content of the agreement so we know

what the agreement itself is.

A second way would be to put some sort of cap on the amount

of money that can be earned by any NIH employee.

A third way is the amount of time that the employee could

spend, and we have already discussed that.

And a fourth way, which I do not think has been mentioned yet,

is to really look at the nature of the outside entity, whatever corporate entity it is, whatever subsidiary relationships that it may

have.

So let me ask you about a few of those. The time spent, Dr.

Zerhouni, I think you said the 400 hours a year is what is traditional in the academic world. Do you have any idea whether for

NIH employees who are doing consulting today that 400 hours is

what they do, I mean 400 hours a year is sort of typical of what

many employees are doing so far or is it more or less? And, you

know, are we really reining them in or not when it come to the

hours they actually would do one form of consulting or another?

Mr. ZERHOUNI. I do not have this information right in front of

me, but my experience with that is that 90 percent probably spend

20-30 hours, 1 or 2 interactions. And then a small percentage may

be at the 400 hours or more.

So typically the percentage of individuals who have discoveries or

real advances in science that would be of greater interest is very

small in a university as well as a Federal agency.

Mr. ALLEN. So a 400 hour a year restriction for NIH employees

would be the kind of restriction that would only effect a few people

today is what you are saying?

Mr. ZERHOUNI. My sense would be that based on my experience

people who have the opportunity to provide 400 hours are those

who would typically have made a breakthrough discovery, know

something that no one else knows, something like that. Well, you

know that in a research institution it is not going to be 100 percent

of the people, but more like 10 percent or 15 percent of the people.

But that is my guess, and I can certainly look it up for you.

Mr. ALLEN. When it comes to the review of the content of the

agreement, I am a little bit curious about is that going to be done

by independent panel or the NIH Ethics Advisory Committee, is

that going to be involved in doing a sort of peer review of agreements?

46

Mr. ZERHOUNI. That is the idea. It should be done independently

by individuals who are not in the reporting relationship to the person who is requesting this and are directly reporting to the director

of the agency, so that you do not have a conflict there.

Mr. ALLEN. Do you expect the committee to meet on a regular

basis? And if so, will it make its judgments as a committee and not

as individuals? I mean, how——

Mr. ZERHOUNI. The committee will meet on a regular basis. It is

managed by the Deputy Director of NIH, Dr. Kington, and will

make its recommendation on a regular basis as well as keeping a

case history of every single case that comes to their attention so

that we can over time identify patterns if we need to.

Mr. ALLEN. Okay. I would like if we have time to put up some

slides. Slide A dealing with Pfizer. You have that?

This is one slide that basically looks at some of the more prominent drug and biotech companies that are currently paying NIH

employees. I wanted first to note that really only Abbott Labs and

Schering Plough cooperated with Mr. Waxman and Mr. Brown. But

we got information on the other firms.

This one dealt with Pfizer.

Just looking at this, you cannot see that, but Mr. Brewer the

chief the molecular disease branch, Dr. Brewer, is receiving

$19,000 a year in 2001, $16,500 in 2002, $20,000 in 2003 and

$18,000 a year fee for the future.

I mean, my understanding, correct me if I am wrong, is that the

recommendation in the report is that people would be—I mean employees would be limited to earning no more than 50 percent of

their current income per year outside. Is that a restriction that is

going to have a material bearing on many of the people who are

currently NIH employees or is it a restriction that will effect only

a tiny fraction of the current consultants?

Anyway who would like to.

Mr. AUGUSTINE. Mr. Allen, if I might respond. I think there is

a fifth criterion on your list of four. I think the four were very good.

The fifth one we felt has to do with responsibility of the individual at NIH. And so we would differ between a person in a leadership role, a person who is performing human subject work, a person who is overseeing an allocation of grants to the outside, and

finally what I would call the bench scientist working entirely in the

laboratory.

And so I think the restrictions, the more important restriction

rather than the dollar amount is that we would simply preclude

those first few groups from having any outside consulting and it

would only be the latter group that we would permit under our recommendation to have consulting. And only then when it did not

pose a conflict of interest with ongoing work.

Mr. ALLEN. I see. So the higher up the chain you go, the less you

can do by way of outside consulting?

Mr. AUGUSTINE. And at the upper levels the answer is one.

Mr. ALLEN. None.

Mr. ALBERTS. There is also the 25 percent from any one source

restriction that we are recommending.

47

Mr. ALLEN. Okay. Okay. But your position is that you think the

50 percent of income for those to whom it applies is a restriction

that should deal with part of this particular problem, anyway?

Mr. AUGUSTINE. I think we would characterize it much as Dr.

Zerhouni did. I think it will not effect the average person. But the

person who is trying to do something extreme, I think we have

stopped them.

Mr. ALLEN. Okay. Thank you.

Let me just check one more slide here. Slide B for Wyeth, do you

have that? Just calling your attention to a couple of the people.

I mean, there you have—no, these are not broken out quite the same way. But Melissa Kitner Triolo, almost $120,000 over 3 years.

And Germain, the past is spread out, but the future $25,000 a

year.

I mean, those are numbers that you are comfortable with for people in their positions? Excuse me 1 second.

I do not know where they are in the chain.

Mr. ALBERTS. I do not either, so I cannot answer that question.

Mr. ALLEN. Dr. Zerhouni, do you know where they are in the

chain?

Mr. ZERHOUNI. Yes. I mean, Dr. Germain is a laboratory chief.

He’s a chief of the biotech. So he is an intramural scientist.

Mr. ALLEN. Yes.

Mr. ZERHOUNI. Am I comfortable with them making $25,000 a

year or half of their salary? The answer is yes, as long as it is completely reviewed, completely disclosed and that we understand the

content of the relationship.

Dr. Germain is a world class immunologist who invented, discovered many of the fundamentals of immune system response. He is

basically in the Nobel Prize equivalent category. Many people want

to talk to him about his knowledge of immunology.

It is going to be the case that if you look at this, many of them

are 2500 or 10 or 15; there is a relationship between the amount

of activity and the importance of the research of that person, typically.

Mr. ALLEN. Okay.

Mr. ZERHOUNI. So that is where we need to cap. That is where

we have to have clear rules of only so much.

Mr. ALLEN. Thank you very much.

I yield back.

Mr. GREENWOOD. The Chair would announce that we face a series of four votes now. Dr. Zerhouni, I know that you need to be

back at NIH to meet with the President. What time do you need

to leave here, sir?

Mr. ZERHOUNI. Right now.

Mr. GREENWOOD. About now?

Mr. ZERHOUNI. About now, Mr. Chairman.

Mr. GREENWOOD. Pardon me?

Mr. ZERHOUNI. About now, Mr. Chairman.

Mr. GREENWOOD. About now. Okay.

In that case, what we will do is we will recess for these votes.

We will return in about a half an hour. Drs. Alberts and Augustine, I assume you can remain with us?

Mr. AUGUSTINE. Yes.

48

Mr. GREENWOOD. You will have time to grab some lunch. We will

be back here as soon as the series of votes are over, which should

be 30 minutes or so.

And then, Dr. Zerhouni, we are probably going to ask you to

come back at another time and drill you all over again.

Mr. ZERHOUNI. Absolutely. I am sorry about the event today.

Mr. GREENWOOD. So the committee will stand in recess until the

series of votes is completed.

[Brief recess.]

Mr. GREENWOOD. Mr. Bilirakis for 10 minutes.

Mr. BILIRAKIS. Thank you, Mr. Chairman.

Let me ask you gentlemen since the Director is not here, you

heard him make his statement where he talked about reviewing

and he had certain steps to try to address this problem, this situation and whatnot. I guess my question has to go with does he have

the authority to do what is needed to be done, whatever he may

decide? Does he have the authority?

Mr. AUGUSTINE. Mr. Bilirakis, I think our answer to that would

be that he does not have the total authority he needs. Part of it

relates to his ability to compel additional people to file form 450,

the private disclosure form. In addition, the interpretation of Title

42 is such that it makes it very difficult for him to compel people

to file form 278, the public disclosure form. In each case there probably is a way around it, but in each case that way is cumbersome.

And in the case of the form 278, he can file exceptions by positions,

but it is a major undertaking. And every time you reorganize NIH,

you would have to refile.

Mr. BILIRAKIS. And apparently his lawyers advised him that he

did not have the authority necessary, as I understand it.

Mr. AUGUSTINE. Our sense has been very much that Dr.

Zerhouni has tried mightily to comply with the rules as he understands them and the constraints that are placed on him, including

the Privacy Act.

Mr. BILIRAKIS. Well, he has told us the same thing about the allocation of research dollars to what disease and that sort of thing

that he does not—I mean my impression is at least that he does

not have the authority to do anything about that. So here he is a

director and he is being held responsible for these particular acts

that we are talking about and, you know, some of the other areas,

apparently the allocation of the dollars and whatnot.

But let me ask you then, should he have that authority?

Mr. AUGUSTINE. The two specific authorities that I mentioned we

believe he should have. And we tried to stand back and understand

the context of the problem. And the issue, I think, begins with

some years ago when there were dissimilarities throughout the

government in conflict of interest rules. And there was a feeling

that that was unfair to the employees and there should be more

standardization. And as a result of that standardization, we do not

reflect properly the uniqueness of the NIH. And I think the rules

that are there or the intention was probably good, but they just do

not apply very well to NIH’s situation.

Mr. BILIRAKIS. So, yes. And the staff just reminded me, certainly

your people have spent an awful lot of time on your study and your

49

recommendations and whatnot. So are we saying then that he does

not have the authority to put all those into effect?

Mr. AUGUSTINE. I think that some of the recommendations he

would have to get relief from OGE and from HHS. Many of them

he could put into place, and some he could put in temporary circumventions, if you will.

Mr. ALBERTS. Could I also refer you to the letter that we submitted with our testimony that was addressed to Norman and I

from Marilyn Glynn, who is the Acting Director of the Office of

Government Ethics that deals directly with the transparency question and it would imply that he doesn’t have some authority he

needs.

Mr. BILIRAKIS. Well, all right. You heard the Chairman say earlier that we want to certainly make every effort to reauthorize

NIH. We have not done that in a long time. It hasn’t, at least from

a financial standpoint, adversely affected the working of NIH.

Maybe in other areas it has, but the point of the matter is that it

has continued to function and function relatively well. But we

would like to think that we will reauthorize this year. It is a tough

year. It is a tough year to reauthorize or legislate or anything. But

hopefully we can work that out.

So, I guess it is an opportunity I think to do a lot of things in

reauthorization, and that Dr. Zerhouni previously in the hearing

testified that he needed some congressional authority to be able to

put his road map into effect. Somehow we are talking about in the

other areas of authority here. So that being the case, we need your

help. And you may have covered it in your recommendations, I do

not know, but I do not think your recommendations have really

gone into well the director has the authority for this, does not have

authority for that.

So we plead with you on behalf of the committee, I am sure the

chairman would agree, that inputs from you in that regard would

be very, very helpful. And, again, this year is fleeting with elections

and that sort of thing, so sooner rather than later, obviously, in

that regard. So there is an opportunity too, for you all to basically

say hey, Congress this is what is needed.

I said this, sort of tried to say it I guess in my opening statement, we do not want to do anything here to hurt the research effort. This entire hearing and some of these problems and whatnot,

or potential problems, the perception as we have already indicated

is awfully important. And so, you know, keep that in mind, too.

I had a hearing yesterday that looked like it was kind of a clear

cut hearing, and boy we found out that we conceivably could be

doing an awful lot of harm without realizing it as a result of

digging into things and listening to some of the testimony. So I

think the same thing is true to here.

And I hesitate to do this, but I guess I am—I am trying to figure

out in my mind in the NIH, in this booklet—well, there are spreadsheets but they are not numbered, and that is the problem. They

are not numbered. But toward the end we have the list of ongoing

consulting arrangements for IC employees. I guess it would probably be page 4 if it were numbered.

Mr. AUGUSTINE. I do not believe we have a copy.

50

Mr. BILIRAKIS. All right. Let me just go over this with you and

see if you can respond without having it before you.

There is a William Paul. It is funny, but I have a good friend

back home by that name, William Paul. And his brother is a staff

member of mine. But it is not why I picked on this.

But he is the laboratory chief. That is his position title. outside

organization Suntory Pharmaceuticals Research Lab LLC, and

then also Novartis Pharmaceutical AG Science Board. The former

or biotech is Formac Pharmaceutical. The nature of activity, member. What does that mean, member? He is a member of those companies?

Mr. ALBERTS. It means he is a member of the scientific advisory

board of a corporation.

Mr. BILIRAKIS. A corporation?

Mr. ALBERTS. Yes. Yes. Novartis is a big pharmaceutical company and they obviously have a special board to advise them on

science. And he—I do not know often they meet, but several times

a year, at least.

Mr. BILIRAKIS. Right. And that is against his being a consultant,

right? Because a consultant also is on there but not in this particular case.

Mr. ALBERTS. Yes. Norman could probably explain it better than

I can.

Mr. AUGUSTINE. Well, I think if he was paid to serve on a advisory board, we would group that basically as being a consultant, in

our view.

Mr. BILIRAKIS. Yes. Okay. Well, and really I want to make it

public, no reflection on Mr. Paul. I mean a person, I hate to say

innocent until proven guilty but this is not a criminal thing. But

my point in the manner is that he has conducted himself in the

way he should have ethically conducted himself unless proven to

the contrary.

Mr. AUGUSTINE. Yes.

Mr. BILIRAKIS. And so I don’t insinuate anything.

What I am trying to understand here. He is a member or consultant with these two companies. His fee in one case from 5/1/00 to

present was $280,000. His fee in the other case with Novartis 2/

1/01 to present fee is $100,000. And his travel here. And then it

says future fee, in the first case $350,000, travel $8,000. And future

fee in the Novartis case $120,000 over 5 years, travel expenses

$40,000.

And, again, I am not saying there is anything wrong here. We

Members of Congress are accused all the time by people that are

well, you know, I have to live on $15,000 a year and you guys are

making X amount of government money and you are overpaid. And

we hear that all the time. And we are accused of getting campaign

contributions, political action committee money or whatever the

case may be. And in 22 years there I can think of one case when

I had a Member of Congress said to me that he had looked when

someone was making an appointment, he looked at the rooster to

see if that person or that association—it would not have been an

individual—would have contributed. So I understand. We are not

here throwing stones.

51

But can you tell me if you can, not whether this money is more

than it should be, but what role could this person play? I mean he

is a member, a consultant to these organizations. Pharmaceutical,

he is also the laboratory chief. What could go wrong in terms of

conflict, in terms of things that we are all concerned about?

Mr. ALBERTS. I can answer that. First of all, I do know William

Paul. He is a distinguished immunologist and a member of the National Academy of Science.

Mr. BILIRAKIS. I am sure he is and I hope everybody will take

it the right way.

Mr. ALBERTS. He is a senior member of the National Academy of

Sciences and internationally known leader in the field of immunology.

According to the rules that allow him to do this, he cannot use

any specific knowledge from his research at NIH in advising the

corporation or whoever he is advising about science. He can only

use his general knowledge of immunology. That is an important

point. He is not allowed to take any of his official duty information

and get compensated for it. And that, obviously, was cleared by the

NIH review——

Mr. BILIRAKIS. Yes, but how could——

Mr. ALBERTS. So now what is he doing?

Mr. BILIRAKIS. Yes, what is he doing? Who knows what kind of

knowledge is——

Mr. ALBERTS. Okay. so these companies are obviously trying to

produce drugs that will either prevent auto-immune diseases or

deal with bacterial and virus infections. And if you are doing that,

this is actually my field of cell biology, it is very important to know

and deeply understand how the immune system works. So I am

quite sure he is there because he has a deep understanding, a

broad understanding of all of the very complex molecular interactions that make the immune system work, and he brings that to

the corporation in ways that they cannot otherwise get. Because

their employees, presumably, are not as distinguished and do not

know all the things that he knows. So that would be the general

nature of what he would be doing there.

He would hear from them what they are trying to develop and

say well here is what I know from my field of immunology that

would enable you to do it better or here is why it will not work.

And so they go through different projects one at a time with the

scientific advisory board and get scientific advice on what the best

direction for them to go.

Mr. BILIRAKIS. All right. But if he were not the person that you

say he is and that I would assume he is, and wanted to misuse his

position with the NIH on behalf of these companies who are compensating him pretty darn royalty, I would say, could he do so and

basically who would find out about it, etcetera?

Mr. ALBERTS. I suppose anybody could be dishonest. I do not

think there is any way of monitoring that from the NIH side exactly what he says inside that room. You would have to rely on his

integrity.

You should ask the same question to Dr. Zerhouni when he is

here.

Mr. BILIRAKIS. Yes, I would have to. Of course, he is not here.

52

Well, how much authority—could Dr. Zerhouni say, hey, no, you

cannot do this?

Mr. ALBERTS. Well, the NIH has all the authority to prevent any

outside activity and it has the responsibility of preventing any outside activity that poses a possible conflict of interest. And that is

why before anybody could do any of these outside activities, they

must file a form 520. And every time they have any new activity,

they must file that form. And we are recommending that even if

nothing has changed, they must file it at least annually. that is the

new recommendation.

Mr. BILIRAKIS. Yes.

Mr. ALBERTS. So they have the full authority to prevent him

from doing that. They have to say yes before he could do that.

Mr. BILIRAKIS. I guess my time is up, trying to interpret that

clock up there. But would it be better that should we not be paying

these people maybe more and not basically allowing things like this

to take place? Because of the perception out there as far as Members of Congress are concerned, we have had to cut out honorariums and just so many of these things, gift laws, gift ban laws

and things of that nature. There have been some changes to the

campaign finance whatnot because of the concerns of perception

and image.

Mr. ALBERTS. Well, there is a perception problem. We are very

worried about that. I do not actually know William Paul’s responsibility at the NIH. If he has any responsibility for making funding

decisions, then the answer is no according to us. If he has no such

responsibilities, is purely a scientist, then we are recommending

that he should be allowed to continue with the limitations. I mean,

we have limitations. And I mean, he may be exceeding the limitations on income and hours; I do not know anything about that. But

this would be generally allowed if it had no conflict in other standards; no stock options, no equities, not more than 25 percent of his

income from one source, you know all those things.

Mr. BILIRAKIS. In a number of these it does say stock. That

means they have got stock options.

Mr. AUGUSTINE. Yes. About one-fourth hold some kind of equity.

Mr. BILIRAKIS. Well, on that I say wow very loudly.

Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman, and he recognizes the gentlelady from Colorado for 10 minutes.

Ms. DEGETTE. Thank you, Mr. Chairman.

You had better watch out whenever Mr. Bilirakis says ‘‘wow’’

very loudly.

I want to go back to this example of Dr. Paul, not to pick on him

because it is really just an example of what I think are some of the

ethical issues folks are facing.

He sits on the scientific advisory board of Novartis and other organizations. And I think what you testified, Dr. Alberts, is that he

as part of his NIH duties, he can share his generalized scientific

knowledge but not specific proprietary knowledge that he might

have as a result of his activities at NIH, correct?

Mr. ALBERTS. Right.

Ms. DEGETTE. You need to say words.

Mr. ALBERTS. Pardon?

53

Ms. DEGETTE. You need to speak for the record. Say yes or no.

Mr. ALBERTS. That is, if you are sharing knowledge as part of

your job that you have developed in your laboratory——

Ms. DEGETTE. Right. Yes or—I mean is that an accurate summary of your statement that I did?

Mr. ALBERTS. That is right. That is accurate.

Ms. DEGETTE. Okay. The concern I have is this: I do not have

such a concern about someone like Dr. Paul being dishonest. My

concern is, first of all, he is an expert in his field. How is he going

to know as he is sitting there giving this information whether or

not it is proprietary information of the NIH or not? I mean, if it

is in his field of information and he is asked to reply on something,

is that not a very, very fuzzy line?

Mr. ALBERTS. Well, I would be in exactly the same position. I am

not in exactly that field. But I could imagine myself in the same

position.

Ms. DEGETTE. Right.

Mr. ALBERTS. And I could clearly distinguish what I had done in

my own laboratory from general knowledge——

Ms. DEGETTE. But what about knowledge that you had received

from things you had done in your laboratory that then entered into

your knowledge?

Mr. ALBERTS. It is very hard to explain. But I could separate that

personally.

Ms. DEGETTE. Okay. But let me ask you a further question from

that then. Let us say that Dr. Paul or someone else is sitting on

one of these advisory boards, and let us say that Novartis or some

other organization comes to them with an issue, a study they are

going to do, and Dr. Paul has specialized knowledge of his work at

NIH that would effect what Novartis was planning to do with that

study, and maybe in a way that is detrimental to patients. Who is

Dr. Paul’s fiduciary and ethical responsibility to at that point? Is

it to Novartis to give them the information he knows that might

affect a patient study or is it to NIH?

Mr. ALBERTS. It is to NIH. And this is why we——

Ms. DEGETTE. Well, the what happens if Novartis goes forward

with a study that might be detrimental——

Mr. ALBERTS. Oh, I am sorry, I missed you. Detrimental, I see.

I am sorry. You are saying prevent something bad from happening.

Ms. DEGETTE. Right. Well, let us say that they’re doing some

kind of a human——

Mr. ALBERTS. Well, if I was in that position and I was being very

careful, I would say I think you need to talk somebody, I would recommend somebody else to talk to who knew the same thing.

Ms. DEGETTE. But what if he is the one that knows it because

he is the one that did the study at NIH? That is the problem

with——

Mr. ALBERTS. He would give somebody who actually knows it.

Nobody in science who——

Ms. DEGETTE. You can see why we are concerned about some of

these ethical concepts.

Mr. ALBERTS. Right.

Ms. DEGETTE. I mean if you look at the L.A. Times series that

we saw, why you have so many blurring of lines, correct?

54

Mr. ALBERTS. Yes. But I am just saying that if I was in that position, I could like make my way out of that without preventing——

Ms. DEGETTE. Do you have a 100 percent view that everyone else

can figure that——

Mr. ALBERTS. Of course not.

Ms. DEGETTE. Of course not. Okay.

Now, I want to talk about some more parts of the panel recommendations. I am not meaning to pick on you all. I think we are

just really concerned this be clarified.

In recommendation four of the Blue Ribbon panel the report

states: ‘‘A research clearly should not consult with a company that

has applied for or received a research contract from the employee’s

own laboratory or branch.’’ My question is should a researcher consult with a company that is a subsidiary of the company has applied for or received a research contract form the employee’s own

laboratory or branch?

Mr. AUGUSTINE. I would view the subsidiary as being the parent

company itself in that regard.

Ms. DEGETTE. Okay. Should a researcher consult with a company that is partnered with a company that has applied for or received a research contract from the employee’s own laboratory or

branch?

Mr. AUGUSTINE. If it is partnered on the specific issue at hand,

the answer would be no. If it was a partner in the other area, the

answer might be yes.

Ms. DEGETTE. Why the distinction between a subsidiary and a

different company that is partnered with it?

Mr. AUGUSTINE. Well, a subsidiary would be owned by the company, whereas a partnership would be for a specific purpose. And

you might have partnerships for different purposes and one purpose may have nothing to do with what this employee does.

Ms. DEGETTE. Okay. That makes sense.

Should a researcher consult with a company that has a direct financial interest in a company that has applied for or received a research contract from the employee’s own laboratory or branch?

Mr. AUGUSTINE. If I understand that question correctly, I think

the answer would be no unless it was a de minimis issue.

Ms. DEGETTE. Well, how would you know that?

Mr. ALBERTS. I am not clear about the question.

Ms. DEGETTE. But the question is let us say company A has a

direct financial interest in company B but they are not a subsidiary, but they have got a big investment. And the employee has

a contract with company B. Can they also have one with company

A?

Mr. AUGUSTINE. My answer would still be no the way you described it.

Ms. DEGETTE. Okay. Now do ethics officers generally conduct

background checks to identify subsidiary partner and/or shared interest companies?

Mr. AUGUSTINE. I do not know the answer to that.

Mr. ALBERTS. I do not know the answer either. But we heard

that NIH wanted to make a extensive data base that would provide

that information.

Ms. DEGETTE. Right. Because here is the problem——

55

Mr. ALBERTS. We heard people say that.

Ms. DEGETTE. You do not know that, and it is hard to know. It

would be hard for an ethics officer to find that out. But here is why

it is important. You know from all of the publicity Dr. Katz, who

were talking about, was consulting with AG Schering when his institute had dealings with Burlac which is a U.S. subsidiary of Schering, right?

Mr. AUGUSTINE. Well, without addressing the specific case, which

we did not do, clearly it is up to the individual who is doing the

consulting to know who owns your company and who has interest

in it.

Ms. DEGETTE. Right. And in this case, Dr. Katz disclaimed

knowledge that his institute was a subsidiary. So you can see how

this would be a problem. And I guess my view would be what are

we going to do about that?

Mr. ALBERTS. I think that is a good question for Dr. Zerhouni.

Dr. Katz would not be allowed to do any consulting in the new

regulations that Dr. Zerhouni is supporting, because he is too high

a level. But——

Ms. DEGETTE. Well, okay.

Mr. ALBERTS. But we were——

Ms. DEGETTE. But let us take it somebody else. I mean, under

your proposed regulations someone is going to have to figure out

all of these relationships out.

Mr. AUGUSTINE. Well, it is really up to the individual who wants

to do the consulting to know——

Ms. DEGETTE. But how are they going to know? Because, see, Dr.

Augustine, you see what I am saying. Is like I am asking you,

okay, can someone have these relationships and it is yes/no, yes/

no. But that is not in the recommendation. And who is going to

educate these researchers about what they have to do?

Mr. AUGUSTINE. Yes. I would draw the parallel to the SEC rules

where you are expected to know who you are investing in. And

there are enforcement procedures to run tests to make sure that

you are being honest.

Ms. DEGETTE. But these rules are not similar to the SEC rules

in the sense we are talking about institutional researchers. I do not

think you can draw those parallel at all, because a lot of the relationships they have people probably would not be able to have in

the financial services industry without full disclosure.

Mr. AUGUSTINE. I think the employer would go to the prospective

firm that wanted to hire them as a consultant and say give me a

list of the firms that you own or have financial interest in.

Ms. DEGETTE. Okay. Maybe you could make that in your recommendations or maybe Dr. Zerhouni can put it in his rulemaking.

Mr. ALBERTS. Yes. We did not get to that detail. We said the NIH

should take care of this problem.

Ms. DEGETTE. Well, it is a thorny problem and believe me, I will

bring it up with him.

Let me just ask about one more of your recommendations. Recommendation two suggests that the NIH intramural scientists

should not be allowed to have any financial interests in or relationship with any company whose interest could be effected by their research or clinical trial ‘‘except in special circumstances.’’

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What types of special circumstances does this exception refer to?

Mr. AUGUSTINE. Well, you picked a terrific example of the sort

thing you struggled with. It seemed that for every policy we could

prescribe, we ourselves could think of exceptions.

Ms. DEGETTE. Right.

Mr. AUGUSTINE. This is a great example. The example of the case

where a medical researcher has developed a new technique that

only that researcher has practiced or new instrument that only

that researcher has learned to us, and to deny them participation

in the trial would increase the risk of the trial. And so in our view

there would be an exception in a case like that, but the exception

would stipulate that there were special steps to be taken where

others would monitor the work of this individual and further the

patient would be informed.

Ms. DEGETTE. Right. But the issue really is not the participation,

it is the payment for the participation, right?

Mr. ALBERTS. There is no payment here. These are people doing

official duty work.

Mr. AUGUSTINE. Yes.

Ms. DEGETTE. Well this is called financial interest. Your recommendation two is financial.

Mr. ALBERTS. I mean there is no payment. They are doing clinical trials at the NIH.

Ms. DEGETTE. Right.

Mr. ALBERTS. They must not have any outside financial interest

that could effect them. And so if this is the inventor of the technique, they may have the patent for the technique.

Ms. DEGETTE. Right.

Mr. ALBERTS. There is no way you can get around that.

And we strongly support——

Ms. DEGETTE. But who is going to decide—my question was——

Mr. ALBERTS. The director of the NIH has to decide.

Ms. DEGETTE. Dr. Zerhouni is going to decide——

Mr. ALBERTS. Well, eventually he has to.

Ms. DEGETTE. Well, what do you mean ‘‘eventually’’?

Mr. ALBERTS. Well, it goes to this special panel that he set up,

NIH Ethics Advisory Committee. There is a new committee, a central committee which he spoke about. If they had any trouble, they

would obviously bounce it to him.

Ms. DEGETTE. What do you mean if they had any trouble?

Mr. ALBERTS. The ultimate decisionmaking has to be him. If they

thought it was ambiguous. You would have to ask them how they

would actually do it, but let me just make the one point.

The American Association of Medical Colleges put out a major report, I think about a year ago, which was a surprise to all—recommendations on exactly this issue, human subject research, which

was a very thorough well done report.

Ms. DEGETTE. Yes, I am aware of it. I work a lot in human subject research.

Mr. ALBERTS. William Danforth was the Chair, I believe.

At any rate, the panel in our report strongly supports that report

and its recommendations, and for the NIH as well. And they have

a specific set of procedures to be gone through in exactly this case,

this kind of case with an oversight panel. And we would support

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exactly those recommendations. And we could submit those recommendations to the record, if you like?

Ms. DEGETTE. I would love it.

Mr. ALBERTS. Okay.

Ms. DEGETTE. And, Mr. Chairman, let me just say, I am more

confused now than when we started the day and I am really glad

we are having a whole series of hearings on this. Because I think

it is critically important to the research of this country, and I have

a lot more questions.

Thank you.

Mr. GREENWOOD. The Chair thanks the gentlelady. And without

objections, the slides presented by the gentlelady will be entered as

part of the record.

[The information referred to follows:]

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Mr. GREENWOOD. And the Chair recognizes himself for purposes

of inquiry.

It seems to me, gentlemen, that I have identified two reasons

why we need to be permitting NIH employees to have extra income, whether that income is pursuant to Title 42, whether that

extra income is derived from consulting, whether it is from speaking fees and so forth. And one of them is retain and recruit good

people, and the other is to advance the science because you do not

necessarily want the NIH science to be insular, and there is a two

way education streaks that occurs between the scientists and private sectorsphere, which is good for both. Good for America. Good

for the patients that benefit from the cures that come from all of

that shared knowledge.

So let us look at recruitment and retention. The question is, does

the NIH or the Blue Ribbon panel have any actual evidence that

NIH scientists have left because of consulting fees being cut? Was

such data requested by the panel? Was such data requested by the

NIH? What I am trying to get it is sort of an undischarged assumption that if you do not provide these extra enumeration, that somehow we will lose quality people. How do we discharge that assumption? What is the evidence of that?

Mr. AUGUSTINE. Well, we did not gather statistical data. I am not

sure what is available. One reason we did not, is there are so many

other factors that bear on people leaving and not leaving.

We did in our conversations that I mentioned that we had with

each of the center and institute directors ask if they have encountered situations where they had trouble recruiting a senior scientist

or retaining a senior scientist due to salary issues and also due to

conflict of interest issues. And with regard to the former, there

were a number that had indicated they had had such circumstances. So our evidence is anecdotal, but fairly convincing.

Mr. GREENWOOD. Well, it would be fairly human nature to say

hey boss if you do not pay me more I am out of here. But that may

be the truth.

Mr. ALBERTS. Let me just say a word about, we talked to some

young scientists in closed session. We were worried they would not

speak completely frankly in open session. We also talked to some

in open session, so we tried both ways.

And the young scientists who came were basically focused on

doing public service and they were—I could tell that these were

really outstanding people you want at the NIH.

And one of the things—none of them were doing any outside consulting. But we asked them specifically whether they thought it

was important that they sometime in the future have this opportunity, and they said that it was important to them. They did not

want to be treated as second class citizens compared to all their

colleagues. And so from that I would take it that it would have an

affect on their long range career plans if they thought they could

never engage in the kind of activities that other colleagues——

Mr. GREENWOOD. Because of the money or because of the opportunity, experience?

Mr. ALBERTS. I do not think it is really the money, actually.

Mr. GREENWOOD. Well, that is an interesting point. Because I am

sure that there are—I would guess that there are lots of employees

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at the NIH who are receiving excess compensation because of Title

42 who in fact would not leave if it were not for that.

Mr. ALBERTS. I do not know. I do not know.

Mr. GREENWOOD. Right. But how is that determination made. In

other words, if I am at NIH and I see all my friends are on Title

42 and they are making an extra $50,000 a year more than I am,

I want that. So I, how did you get that? Well, I filled out this Title

42 form and then it got signed off by my director. In your study

of this, is there any actual criteria used to determine who is deserving of the extra cash and whether it is necessary to give that

to them to be retained?

Mr. ALBERTS. We were looking forward at policies. We did not

have the opportunity. I must emphasize, 66 days, we all have full

time jobs. It was a killer already. And we did not have time to look

into——

Mr. GREENWOOD. You did not look into that. I mean, it is an important point because that goes to Mr. Bilirakis’ question of resources that the taxpayers put into NIH, is it going to cure diseases or is it going to pay salaries that are in excess of what is necessary in order to keep those folks there.

Obviously, 42 does not allow the most menial tasks, because the

assumption is you can get the menial tasks done without paying

the extra salary, but I have not encountered any actual criteria

that anyone uses to decide whether someone should or should not

qualify.

Do you know what the turnover rates for scientists is at NIH?

Mr. ALBERTS. I’m sorry, what rates?

Mr. GREENWOOD. The question is what are the turnover rates for

NIH scientists? Do we know anything about that? Do we know

what they were 10 years ago? Do we know what they are now?

Mr. ALBERTS. I do not know.

Mr. GREENWOOD. Do we know whether if Title 42 has in fact

made a difference? I mean, has anybody ever looked to see whether

the turnover rate is lower after Title 42 was put in place to provide

these extra salaries?

Mr. ALBERTS. There is one thing I can say. I do not know the

turnover rates, but as a scientist I could say something about the

quality of the work being done at the NIH. And the quality of the

scientists that are there since I came to Washington, there has

been a major change. I came to Washington in 1993. It corresponds

with Title 42. I cannot say it was the cause. But I was once offered

a job at the NIH a long time ago and I did not want to go there.

So I know what it was like then and I know what it is like now.

And I think the quality of the science has vastly improved.

Mr. GREENWOOD. Why did you not want to go?

Mr. ALBERTS. Pardon?

Mr. GREENWOOD. Why did you not want to go?

Mr. ALBERTS. I was at the University of California, San Francisco, and I preferred to stay there.

Mr. GREENWOOD. It was not a financial decision?

Mr. ALBERTS. No. No.

Mr. GREENWOOD. On page 4 of your report it says ‘‘employees in

a position to influence the financial interests of an outside entity

such as current or possible future recipient of an NIH grant or conVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
86

tract should neither receive financial benefits from the organization

nor have a significant financial interest in it.’’ And Ms. DeGette

was inquiring about this kind of thing.

Does the term ‘‘financial benefits’’ as used in this statement include financial benefits associated with an award?

Mr. AUGUSTINE. That is a good question. If the organization—let

me back up a little bit.

That is a very detailed question in a specific case here. But applying our general rule if the award were to be made by an organization that was seeking a contract with that employee’s work

group, we would view that as being inappropriate. And I think——

Mr. GREENWOOD. But let us be specific about that. Does that

mean they have to have a current pending application in for that

budget year, or could it be that their potential contenders down the

road? I mean, suppose I decided that my university wants to start

getting into the NIH game and we have not been in it much, or

we opened up a new center for a particular kind of disease and we

say who is the center director there, let us pay him $25,000 to

come on out. And then maybe a year or 2 hence, we will make application.

Mr. AUGUSTINE. I think the current rules on that say that if

there is a likelihood of a future application, you cannot take a position with that firm or you cannot consult for it.

Second, if unforeseen they do turn in an application for a grant,

you then have to disqualify yourself with regarding the terms of

the award of that grant.

Mr. ALBERTS. My understanding, I guess Dr. Zerhouni should be

here to answer that. You cannot form a new award and give it to

an NIH employee. It has to be an award that has been around for

a while and have a drawn track record.

Mr. GREENWOOD. All awards start somewhere.

Mr. ALBERTS. Yes, yes. But my position if I was director, I would

not allow a new award to be given to an NIH employee.

Mr. GREENWOOD. Although that has happened?

Mr. ALBERTS. I do not know anything about it.

Mr. GREENWOOD. Yes. We have got plenty of evidence to that affect.

Also on page 4 your report states ‘‘In addition, NIH scientists

who are recognized for outstanding scientific achievements, leadership or public service are sometimes the recipients of awards which

may be accompanied by a cash prize. The panel believes these are

important, even essential activities for NIH scientists, because they

are part of the tradition of science and provide evidence of the

value and significance of the NIH research community to the larger

scientific community.’’

If awards are an important part of the tradition of sciences,

raises the visibility of NIH and NIH scientists, why hasn’t the NIH

posted a listing of the scientists who have received awards, the

names of the awards and the citation of the award what the scientists is being honored for? Why did the Blue Ribbon panel not

recommend that NIH post such award listings?

Mr. AUGUSTINE. It is a terrific idea, and I wish we had thought

of it.

Mr. GREENWOOD. Okay.

87

Mr. ALBERTS. I did not know they did not do it.

But, you know, I mean in general at my university, University

of California San Francisco they advertise every award as much as

they can. So I would assume that the NIH does that as well, but

we did not receive any information about that.

Mr. GREENWOOD. You now, if Boeing decided to give awards to

the defense Pentagon employees, and that became the tradition, I

mean I am sure that health care is not the only place where scientists are really smart and want to do good things. I mean, DuPont could give awards to EPA employees. What is the difference?

Mr. AUGUSTINE. I think there are distinctions. I have struggled

with your questions in the past.

One distinction is that the NIH has as part of its mission to

spread the knowledge that develops outside, whereas Boeing——

Mr. GREENWOOD. But you do not have to get paid for that.

Mr. AUGUSTINE. I am sorry?

Mr. GREENWOOD. But you do not have to get paid for that.

Mr. AUGUSTINE. But that is a separate issue can come back to.

Mr. GREENWOOD. Yes. But I am talking about awards.

Mr. AUGUSTINE. Okay. I again think there are two distinctions.

One is that Boeing has no desire to build a particular—to spread

its information; NIH does. Second, Boeing pays a competitive salary and the NIH at the senior levels does not.

Mr. GREENWOOD. I guess what I am trying to get at is if I am

an employee of the Environmental Protection Agency, just like

somebody at NIH wants to save the world from some dread disease, somebody over at EPA wants to save the world from some

dread toxin. Same thing in terms of both altruistic, okay. And yet

we seem to have one whole set of rules and traditions that the people who are saving the world through medicine, that they are so

special that you have to treat them differently and give them prizes

and awards and consulting fees. But some smock who is over at the

EPA who is just trying to save the world from pollution, maybe he

is trying to save the world from catastrophic global climate change,

shut up do your job and take your Federal salary.

Mr. AUGUSTINE. The question we addressed was why not just

rule that you cannot accept awards given by companies, firms. And

we are told that there are a number of awards that are very prestigious, long established that scientists in this field would like to

have. There are not in the aerospace field, and I do not know about

the EPA.

Mr. ALBERTS. General Motors Cancer Fund is one such prize.

Mr. GREENWOOD. In recommendation one the Blue Ribbon panel

proposes that in addition to NIH senior management, NIH extramural employees who are responsible for program funding decisions and recommendations should not engage in outside consulting. Is the rationale for this recommendation that these extramural program administrators are high level officials who are responsible for making funding decisions on grants, contracts and cooperative agreements?

Mr. AUGUSTINE. Really it wa the latter. It was not necessarily

that they were high level, it was just that anybody who has responsibility for grants or contracts we felt should not be prevented to

consult.

88

Mr. ALBERTS. We specifically took some case studies and discussed them. The initial review of grants is done by a panel of outside people, maybe 12 people from outside. It’s called a study section. And it has an NIH extramural employee who is staffing that

evaluation, initial evaluation of event. And we said specifically, the

panel agreed, that it should extend to that level. That is not a very

high level, but it is a very important level because it is where the

first judgments are made about scientific quality, even though the

staff member is just managing a group of outside scientists. The

thought there was a possibility of perceived conflict. And so we took

some case studies. We were not able to go through every position,

but it does reach pretty low in that part of the NIH.

Mr. GREENWOOD. Okay. In recommendation 11 you state that the

NIH should seek additional equivalency rulings from OGE to increase the number of public filers to include the senior employees

specified in recommendation one.

On January 12, 2004 the HHS associate general counsel for ethics requested the Office of Government of Ethics to determine if the

following positions be required to file public disclosure reports: Institute, center directors, IC deputy director, IC scientific directors

and IC clinical directors. The Office of Government Ethics granted

this request the following month.

Does the Blue Ribbon panel consider NIH extramural employees

covered by HHS request and OGE determination?

Mr. AUGUSTINE. Did we consider them?

Mr. GREENWOOD. The question does the Blue Ribbon panel consider NIH extramural employees to be covered by the HHS request

and OGE determinations.

Mr. ALBERTS. The senior employees.

Mr. GREENWOOD. Pardon me?

Mr. ALBERTS. Certainly the senior employees.

I understand from Dr. Zerhouni’s testimony they just asked for

500 more positions, and I assume that’s mostly what those are. I

do not know what they are. But Dr. Zerhouni can answer.

Mr. GREENWOOD. Since NIH extramural program administrators

have high level responsibilities, why aren’t they covered in the January 2004 HHS request to OGE to cover senior Title 42 officials

under public disclosure requirements?

Mr. AUGUSTINE. My understanding is that that was a first step,

but that he has got additional ones he is going to ask for exceptions

on.

Mr. GREENWOOD. Okay. All right.

I have got four more questions that I am trying to get in here.

What did the Blue Ribbon panel mean in recommendation 18 that

‘‘the NIH director working with Congress should ensure that the

agency has authority under Title 42?’’

Mr. AUGUSTINE. It was our view that some mechanism was needed to pay senior scientists beyond what’s allowed exclusive of Title

42. We are also aware of the issue that has gone back and forth

between the committee and the HHS as to the applicability of Title

42 at all.

We did not enter into that. Most of us are not lawyers. We do

not know which side has the merit. The one thing we know is that

there needs to some mechanism, whether it is Title 42 or some

89

other mechanism, to be sure that these people can be paid adequately.

Mr. GREENWOOD. Title 42 authority used by the NIH to compensate NIH institute directors and other senior officials at annual

salaries of up to $225,000 is section 209(f). This section provides

that under certain circumstances special consultants may be employed ‘‘to assist and advise in the operations of the Public Health

Service’’ without regard to Civil Service laws. Do you believe that

the statutory provision was intended to authorize the compensation

of NIH officials already occupying continuing full time positions in

order to evade the pay caps under the Federal Civil Service pay

scale?

Mr. AUGUSTINE. I think neither of us are lawyers and would not

be qualified to opine.

Mr. GREENWOOD. Without being lawyers, the question is having

looked at this issue, we are seeing what appears to be a gap between the intent of the law, which is to bring in special people to

assist and advise in the operations of the Public Health Service,

and that is a very different model than somebody who has been

working there for years, going to continue to work there for years

and that is their job as opposed to somebody we have to bring in

a special consultant and that person is going to need more money

to give us his or her time.

Mr. AUGUSTINE. I could certainly understand that point of view

could be defended. I could understand the point. But we really did

not examine it at any depth.

Mr. GREENWOOD. Okay.

Last question. Does the Blue Ribbon panel have concerns that

NIH did not work with the Congress previously on clarifying Title

42 authority?

Mr. AUGUSTINE. In 1985 you mean or currently?

Mr. GREENWOOD. Heretofore. Recent.

Mr. AUGUSTINE. The hiring authority of Title 42 or the pay of

Title 42?

Mr. GREENWOOD. Both, I think.

Mr. AUGUSTINE. I guess with regard to hiring authority, we really did not involve ourselves with that.

With regard to compensation, our view was that the Director of

NIH would work with whoever it takes to try to seek relief for the

more senior employees.

Mr. GREENWOOD. Okay. Thank you. You have been very generous with your time, not only today but for the 10 weeks that you

spent doing this work. And the committee and the country owes

you a debt of gratitude. Thank you for your time.

Mr. ALBERTS. Thank you.

[Whereupon, the subcommittee at 2:08 p.m. was adjourned.]

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(261)

NIH ETHICS CONCERNS: CONSULTING

ARRANGEMENTS AND OUTSIDE AWARDS

TUESDAY, MAY 18, 2004

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2322 Rayburn House Office Building, Hon. James C. Greenwood

(chairman) presiding.

Members present: Representatives Greenwood, Stearns, Walden,

Ferguson, Barton (ex officio), DeGette, and Waxman.

Staff present: Alan Slobodin, majority counsel; Bud Albright,

staff director; Ann Washington, majority counsel; Casey Hemard,

majority counsel; William Carty, legislative clerk; William Harvard,

legislative clerk; David Nelson, minority investigator and economist; and Jessica McNeice, minority staff assistant.

Mr. GREENWOOD. A quorum being present, this hearing of the

Oversight and Investigations Subcommittee will come to order. The

Chair recognizes himself for purposes of making an opening statement. Good morning to everyone.

In this hearing the subcommittee turns from last week’s focus on

the lofty aims of the NIH Blue Ribbon Panel on Conflict of Interest

Policies to the ignoble case specific realities of how ethics issues

have been handled at the NIH. We will look mostly at what led to

the weaknesses in the NIH ethics program and what can be

learned from this examination to increase the chances for success

and improving NIH’s ethics program. This examination will highlight two cases illustrating conflicts of interest, concerns rising

from consulting agreements and election reports.

Consider the case of Correlogic Systems, a small bioscience company in Bethesda, Maryland, developing diagnostic disease tests.

Although a small company, Correlogic attracted the partnership of

the Food and Drug Administration, the National Cancer Institute,

to develop a test by Correlogic based on an innovative way that attempts to detect diseases by looking at patterns of proteins in the

blood as opposed to single biomarkers, the conventional method

used by researchers.

Correlogic’s test takes a single drop of blood from a patient and

scans for patterns of protein fragments through a mass spectrometer. The test was able to detect ovarian cancer in 50 of 50 patients

who participated in the study, 100 percent, including patients with

earliest stage cancers. Ovarian cancer is the fifth leading cause of

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cancer deaths of U.S. women but the survival rate is near 95 percent when ovarian cancer is detected in stage one.

The data produced in this study was a joint effort of Correlogic,

the FDA, and the NCI through the FDI, NCI clinical proteomics

program. Correlogic’s partners were Dr. Emanuel Petricoin of the

FDA and Dr. Lance Liotta of the NCI.

In light of these encouraging results in April 2002 the joint effort

of Correlogic and the FDA and NCI was converted into a cooperative research and development agreement called a CRDA involving

the NCI, the FDA, and Correlogic. A CRDA is an agreement that

allows the Government to collaborate with outside organizations on

research and development. Dr. Liotta and Dr. Petricoin became the

co-principal investigators of CRDA. This was a research created to

allow Dr. Liotta and Dr. Petricoin to test Correlogic’s software.

One of the purposes of this joint collaboration was to develop

technology and develop a strategy that would lead to the prompt

commercialization of protein pattern recognition tests first for ovarian cancer patients. Now, at this point, this could have been a

great public health story.

A public/private partnership saving the lives of ovarian cancer

patients by expediting development of these diagnostic tests. Unfortunately, this story took a different path. Sometime in the spring

of 2002 NCI decided to unilaterally sponsor clinical trials on the

ovarian cancer test instead of executing a clinical research CRDA

with Correlotic.

Since the time that NCI has wanted to unilaterally pursue clinical trials, Correlogic and NCI have been engaged in negotiations

for about 2 years now over whether to pursue the clinical trial

CRDA.

In the fall of 2002 a company called Biospect recruited Dr. Liotta

and Dr. Petricoin to consult for them. Biospect is a competitor of

Correlogic. Its mission statement, ‘‘Development technology for

identifying and assaying protein biomarker pattern,’’ is virtually

identical to Correlogic’s.

At this time Dr. Richard Clausner, former Director of NCI, was

a board member of Biospect. Dr. Carol Dahl, former Chief of the

Office of Technology and Industrial Relations at NCI, served as

Vice President for Strategic Partnerships. In addition to hiring

Liotta and Petricoin, the two co-principal investigators on the

Correlogic CRDA and co-inventors of Correlogic’s test, Biospect also

hired the technology transfer officer from NCI and the person with

whom Correlogic had to negotiate its CRDA.

FDA scientists like Dr. Petricoin are subject to stricter ethics regulations than NIH scientists because the FDA is a regulatory agency and would be prohibited from consulting with biotechnology

companies. Nonetheless, Dr. Petricoin’s request to consult with

Biospect was approved in October 2002. Dr. Liotta’s request was

approved in December 2002. His consulting agreement covered the

areas of diagnostic devices, serum handling, and microfluidics but

not areas involving data pattern analysis.

Sometime in 2003 Correlogic learned that Liotta and Petricoin

were consulting for Biospect. In July 2003 a representative for

Correlogic raised concerns that Dr. Anna Barker, the Deputy Director of NCI, about Dr. Liotta’s consulting arrangement with

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Biospect. As a result of this complaint, the NCI re-reviewed Dr.

Liotta’s consulting arrangement and reapproved it.

NCI recognized that Biospect and Correlogic did business in the

same area, but Dr. Carol Barret, Liotta’s supervisor, determined

that the consulting was limited to areas that did not overlap with

Liotta’s official duties.

In the days before this hearing Dr. Petricoin and Dr. Liotta have

ceased their consulting arrangements with Biospect but the damage has been done to a promising partnership. Dr. Zerhouni has

stated that all public/private partnerships such as cooperative research and development agreements must be transparent but the

Correlogic case proves that such transparency can be a fiction.

The NIH and the FDA allowed Government scientists who are

co-inventors and creative partners with Correlogic to secretly provide consulting services without the knowledge or consent of

Correlogic to Correlogic’s competitor which had already hired the

NCI tech transfer specialist from the CRDA. What happened to the

public trust?

Every day private companies negotiate provisions in business

contracts to protect themselves from employees or consultants who

might later try to work for a competitor. Indeed, there was such

a provision in the Biospect consulting agreement with Dr. Liotta.

Yet, in a case like Correlogic a private company entering into a

CRDA with NIH cannot protect itself. It risks its Government partners taking the insight, knowledge, and prestige gained from the

CRDA to consult with the competition and all under the cover of

an ethics approval.

Even under the so-called limited consulting agreement with

Biospect, Dr. Liotta was permitted to advise Biospect on what

seemed to be commercialization strategies, the very heart at what

CRDA was all about. There are a few situations more destructive

of public/private partnerships than this one. What company will

want to enter a CRDA with NIH if this is the way conflict of interest issues are managed? This isn’t transparency. This is an outrage.

In addition to the Correlogic case, the subcommittee will look at

the strange story of how NIH officials got to live under a permissive policy for receiving cash gift awards from entities doing business with their institutes. In 1996 Dr. Richard Clausner, who was

the Director of the NCI, was notified by the University of Pittsburgh that he had been awarded the Dixon Prize of Medicine associated with a $30,000 cash gift.

However, ethics officials at the NIH advised him that he could

not accept the prize. There were three reasons for this advice. (1)

an ongoing lawsuit by famous cancer researcher Dr. Bernard Fisher against the University of Pittsburgh, the NCI, and other co-defendants; (2) an ongoing contract dispute between Pittsburgh and

NCI; and (3) the University of Pittsburgh status as a major entity

doing business with the NCI, receiving and seeking substantial

funding for grants, contracts, and agreements.

In giving this advice, one of the NIH ethics officials conferred

with an attorney at the Office of Government Ethics who supported

the advice and indicated that Dr. Clausner still could not accept

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the award even if he disqualified himself from all matters involving

Pittsburgh.

On August 27, 1997, Dr. Fisher and the defendants announced a settlement of the lawsuit which involved a $2.7 million payment

from Pittsburgh to Fisher. However, most of this $2.7 million actually came from other defendants, not Pittsburgh. One of those defendants was the NCI and available evidence indicates that Dr.

Clausner orally approved a $300,000 payment from the Government as a contribution to the settlement.

At about the same time, the Dixon Prize Awards Committee

made up of faculty members of the University of Pittsburgh, decided to recommend Dr. Clausner again for the award. This time

the cash gift was increased from $30,000 to $40,000. Although the

rules for the prize state that the award should be given to the individual who made the most progress in medicine for the year in

question, Dr. Clausner was honored for achievements that occurred

prior to becoming NCI director in 1995.

Giving the prize to Dr. Clausner in 1997 was like giving the

Academy Award to a well-liked actor who just didn’t happen to

make any movies that year. Within days after the settlement, Harriet Robb, the HHS General Counsel and Presidential appointee,

asked Edward Swindell, the Acting Director of the Ethics Division,

to see if there was a way Dr. Clausner, Presidential appointee,

could receive the prize from Pittsburgh now that the litigation was

settled.

Notwithstanding the past guidance from OGE and the concerns

raised by the NCI ethics advisor, Mr. Swindell wrote the legal opinion that interpreted the ethics regulations to allow an NIH official

to receive a cash gift award from a grantee as long as there wasn’t

a pending matter in the official’s in-box at the time the award was

tendered. This interpretation has bound HHS and NIH to this day

preventing Dr. Zerhouni from taking immediate steps to place restrictions on awards.

I am pleased that the Office of Government Ethics recognizes in

its testimony for this hearing that the HHS interpretation was

overly permissive. Although the University of Pittsburgh insist that

Dr. Clausner was selected on his merits, serious appearance questions are raised because of the timing and the circumstances of the

award.

In addition, it is amazing that the highest ranking ethics official

at HHS ignored these appearance questions, disregarded OGE’s advice, and may have provided a permissible but incorrect interpretation of ethics regulations to please political appointees.

We invited both Dr. Clausner and Dr. Michael Lotts of the University of Pittsburgh who chaired the awards committee at the

time to testify at this hearing. Both indicated that they would be

unable to testify. We also invited the NCI’s ethics advisor Dr.

Maureen Wilson to testify but she had a long-standing personal

commitment that prevented her from appearing today. We may

have her as a witness at a future hearing.

The subcommittee will hear from two panels of witnesses today.

The first panel includes representatives from OGE, HHS, NIH, an

ethnics specialist, Congressional Research Service, and Dr. Harold

Varmus, the former director of the NIH. The second panel features

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witnesses from the NCI, the FDA to discuss the Correlogic case

study.

Through this hearing it is my hope we will learn about the problems of day-to-day implementation of NIH ethics issues and in so

doing understand what must be done to assure that the good intentions of Dr. Zerhouni are actually carried out.

The Chair welcomes these witnesses and looks forward to their

testimony and recognizes the gentlelady from Colorado for an opening statement.

Ms. DEGETTE. Mr. Chairman, I would ask unanimous consent

that Mr. Waxman be recognized out of order. He has an obligation

on the Senate side.

Mr. GREENWOOD. Without objection, Mr. Waxman is recognized

for an opening statement.

Mr. WAXMAN. Thank you very much.

Mr. GREENWOOD. Try to keep it as brief as mine was.

Mr. WAXMAN. If I did, Mr. Chairman, I would forget about my

obligation on the Senate side completely. I thank both of you for

allowing me to make this statement. Last week the subcommittee

held its first hearing on revelations that dozens of NIH scientists

had accepted large consulting fees from drug companies. Not only

were NIH officials accepting money from companies where interest

might have been in conflict, but many of these arrangements were

being kept secret from the public.

NIH has a long and proud tradition of scientific independence

and integrity. Because NIH is the source of some of our Nation’s

most important biomedical research, it is essential that America

and the world continue to feel confident that NIH’s grant decisions

and research results are not biased in any way.

Today we will hear from the Government agencies and others directly responsible for enforcing department and Government-wide

conflict of interest rules. I am deeply troubled that these groups in

whom we have placed responsibility for ensuring the highest ethical conduct from public servants are the very people who sanctioned the loose ethical rules that resulted in the questionable financial relationships we have uncovered.

This subcommittee’s investigation has revealed a series of actions

by the Office of Government Ethics and by HHS ethics advisors

that seem designed not to protect against conflicts of interest but

to ease the way for such conflicts. It was the Office of Government

Ethics which advised Dr. Varmus in 1995 that NIH was free to life

existing caps on the amounts that NIH scientists could receive

from drug companies. As a result of that advice, there is no limit

on the amount of money NIH scientists can accept from drug companies.

It was the Office of Government Ethics that drafted the legal

opinion concluding that scientists hired under Title 42, including

those in senior positions, could not be required to publicly disclose

their financial dealings with drug companies. It was HHS ethics

advisors who signed off on the huge consulting fees paid to highranking NIH officials that triggered this investigation in the first

place.

These decisions are the opposite of what people have the right

to expect from our Government ethics officials. Unfortunately these

266

decisions appear to be part of the dubious pattern of covering up

conflicts of interest rather than trying to avoid them. This is a pattern also reflected in HHS’ highly questionable decision to permit

Tom Scully, the head of CMS, to continue to negotiate the Medicare

drug benefit legislation while at the same time looking for a new

job with the very interest most affected by that legislation.

I want to close on a positive note. Last week I expressed in my

statement in the record a particular concern that under the Blue

Ribbon Panel’s proposal some NIH scientists would still have no

obligation to disclose financial relationships with drug companies.

NIH testified that despite the agency’s own desire for a full disclosure, it had been advised by Federal ethics officials that full disclosure could not be required.

This week I have learned that Dr. Zerhouni has decided to seek

new rules to require public disclosure of potential conflicts of interest for all NIH employees. I applaud Dr. Zerhouni for his insistence

on full disclosure. Only with full disclosure can we continue to ensure public confidence in the work of NIH. I hope that we hear

from today’s witnesses that they will not throw up any barriers to

Dr. Zerhouni’s very appropriate decision. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and ask

unanimous consent to enter into the record a letter dated May 17

to Ms. Dara Corrigan, Esq., Acting Principal Deputy Inspector General at the Department of Health and Human Services. This is a

bipartisan letter signed by Chairman Barton, ranking member Dingell and myself and the ranking member of this subcommittee Mr.

Deutsch asking for a review of the Petricoin case mentioned in my

opening statement. Without objection it will be entered into the

record.

The Chair recognizes and welcomes the chairman of the full committee for his opening statement, Mr. Barton.

Chairman BARTON. Thank you, Mr. Chairman. This is a very important hearing. I am glad to be a part of it and I appreciate you

holding it.

As I said last week, this committee will get the information that

it needs to do its oversight. Last week because of the failure of the

HHS Department and NIH to produce certain information that this

committee had requested on consulting agreements we had to announce that we would seek it from the drug companies.

I am pleased to learn that immediately after our hearing last

week the NIH director suddenly discovered the ability to get that

information. This committee is now getting the information and we

will continue to do so. Let us hope that HHS and NIH have learned

that it is absolutely pointless not to provide information and force

this committee to force them to cooperate, as I said last week, coercively.

This hearing today will show that the committee is doing more

than getting information. We are starting to achieve positive

changes in NIH ethics policy both for consulting and for awards.

For example, because of the committee’s investigation HHS has ordered all of its agencies, including the NIH, to collect an amount

of information as part of the approval process for outside activities.

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Because of this committee’s investigation, the Office of Government ethics is now providing additional guidance on the issue of

awards. Finally, the committee has already played a role in spurring efforts by HHS and the Office of Government Ethics to expand

the number of NIH employees that will be covered by public financial disclosure requirements. Much more needs to be done, quite

frankly, but the committee has played an important role in getting

the process moving.

We are also exposing abuses and questionable practices. This

subcommittee will examine a remarkable case today in which the

NIH and FDA scientists who were collaborating with a private

company on a joint invention under a public/private partnership

which we call a CRDA were secretly consulting with their private

partners competitor.

Incredibly the FDA scientist who worked at the FDA Center for

Biologics was allowed to consult with this competitor which was

about technology company. Such consultations are prohibited under

the stricter supplemental regulations that apply to the FDA but did

not apply to NIH. As a result of these secret deals, progress appears to have slowed on a public/private partnership that could

lead to prompt commercialization of a lifesaving ovarian cancer diagnostic test. Public trust has been damaged.

In another astonishing case that we will go into today, a permissive HHS policy allowed an NIH director to collect cash gift awards

for major grantees under very questionable circumstances. In 1997

Richard Clausner, who was then the NCI director, appeared to be

personally involved in approving a $300,000 payment from the

Government to settle a lawsuit filed against both U.S. Government

and the grantee with great financial benefit to the grantee.

The grantee almost at the same time offered Dr. Clausner a $40,000 cash prize. Yet, the official for overseeing the HHS ethics

program did not even address the appearance issue and disregarded advice from the Office of Government Ethics. Instead, this

official wrote a legal interpretation that would allow Dr. Clausner

to accept the prize.

It will be a hallmark of my chairmanship, at least I hope it will

be, that we are going to hold agencies responsible for their actions

and produce better results in Government ethics and better services and better policies for the American people. That is the purpose of oversight. We will continue to look at NIH. We will also

focus our efforts on the FDA.

I want to congratulate Chairman Greenwood for his work on this

investigation. I want to thank the ranking members on the minority side for their participation and the staffs on both sides. We are

doing this on a bipartisan basis and we are beginning to see results. I look forward to having a productive hearing today, Mr.

Chairman. I yield back the balance of my time.

Mr. GREENWOOD. Thank you, Mr. Chairman. The Chair recognizes the gentlelady from Colorado, Ms. DeGette, for an opening

statement.

Ms. DEGETTE. Thank you, Mr. Chairman. Before I make my

opening statement, I would ask unanimous consent that Mr. Dingell’s opening statement and the rest of the opening statements of

the committee be made part of the record.

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Mr. GREENWOOD. Without objection.

Ms. DEGETTE. Thank you for holding this hearing, Mr. Chairman. I found the hearing last week to be very illuminating and I

think this issue is so important and has such ramifications for the

integrity of medical research and public health. I am glad that you

are having a series of indepth hearings on this issue.

I want to begin by reiterating the statement that I strongly expressed at the last hearing which is I have grave concerns about

the Blue Ribbon Panel recommendations. I believe, Mr. Chairman,

that we need to consider not only full disclosure and limits on outside compensation, but also even a blanket restriction on outside

compensation because of the serious conflicts of interest and the

appearance of conflicts of interest.

At least week’s hearing we heard the same argument being made

over and over by the witnesses. That view is that allowing lucrative

contracting agreements between NIH scientists and outside companies in addition to allowing the acceptance of awards that come

with a hefty amount of cash attached to them, to name two examples, are key to recruiting and retaining quality scientists and researchers.

Now, a fact that everybody knows but no one really talked about

too much is that the current rules did not always exist. The caps

on outside compensation were lifted in the mid-1990’s, something

I think Dr. Varmus will talk to us about.

Up to that point there were monetary restrictions on what these

Federal employees could receive from outside groups, for example,

and there was certainly more public disclosure in this regard. I

think what we really need is more information about the situation

at NIH before the restrictions were done away with. Did the NIH

have serious problems with recruiting and retaining high-level talent? Was the NIH a lower quality institute before 1995 due to this

problem? If so, was the problem because of the outside compensation?

If that is the case, I would like to get some factual evidence to

support this because it has been repeatedly given as the reason

that this is so important to the integrity of the NIH. We also need

to see if limitations on outside compensation and awards, as well

as disclosure, will go far enough to prevent the kinds of conflicts

that the Chairman himself highlighted in his opening statement.

One of the things that has been reported on, and was also include in the Blue Ribbon Panel Report, is that many employees including senior level scientists at the NIH are increasing demoralized by the scrutiny and criticism that this issue has cost lately.

In addition, it has been alleged that the confusing nature of the

current roles is also confusing and dispiriting to staff. I think this

is really too bad because these staff members are simply trying to

wade through the rules and do what the rules allow them to do.

However, I think that there is an implication in the report that

somehow it is the media and congressional examination that is the

problem rather than the issue itself.

It is not the fault of the scientists that they are under a cloud

of suspicion as it is characterized in the report but it is the system

that has created this situation. There has also been a lot of talk

about perceptions of conflicts of interest and how it has been a moVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00276 Fmt 6601 Sfmt 6601 93973.TXT HCOM1 PsN: HCOM1
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rale problem at the NIH. The fact of the matter is there are serious

conflicts of interest issues. We heard this last week. We are going

to hear it again today. Those conflicts of interest must be scrutinized for everyone’s sake including, and perhaps most importantly,

the NIH scientists that they apply to.

The resolution of this problem, which means completely cleaning

up what is currently happening, is to preserve the reputation of the

NIH and the integrity of everybody who works there.

Now, there is one solution that from our perspective would be

really simple. If we completely banned outside compensation there

would be a bright line and the confusion would disappear. In the

absence of persuasive evidence that this policy would seriously

hamper the science, I believe we should seriously consider this option.

I also want to say one thing that won’t help the situation is if

we keep layering onto the current system and revamp it in a way

that causes even more confusion, especially for the scientist, and

making changes that will surely allow for future transgressions

will not help either.

For example, if as proposed by the Blue Ribbon Panel certain restrictions on consulting fees are instituted for certain employees

but there is no change as to regulations regarding receipt of bona

fide cash awards, then surely what we will see, and we see this

with campaign finance reform all the time, is a shift to more and

larger cash awards in other places like for prizes. The money influx

won’t change. It will just shift around and it will be very confusing

for all involved.

I think what we need to do is try to get a grip on this and we

need to challenge all of our assumptions including the assumptions

that we simply can’t get good people without these large amounts

of outside compensation. I think that is the nub of the issue and

I really look forward to hearing all of our witness’ view on this.

Again, Mr. Chairman, thank you for holding this hearing and I

look forward to hearing the testimony.

Mr. GREENWOOD. Thank the gentlelady. I recognize the gentleman from New Jersey, Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. Thank you for holding this hearing and for your diligence in pursuing this investigation of possible conflicts of interest at NIH.

NIH provides our country and the world with world-class research done by the best scientists and doctors our country and the

world has to offer. Although it is important that NIH attract and

retain the best and the brightest in the fields of medical research,

we must be assured that the professionals at NIH are conducting

themselves according to the highest standards.

Last week we heard from Dr. Zerhouni and the members of the

Blue Ribbon Panel about the recommendations to establish policies

against conflicts of interest. I look forward to hearing from today’s

witnesses concerning two examples where the line may have been

crossed and the best interest of medicine may have been compromised. This committee and Congress must do all that it can to

ensure that NIH maintain a spotless reputation free from any

question as to the mission and goals of the professionals at NIH.

270

Just before I close, I just had a group of advocates for ALS research in my office. They are fanning out across Capitol Hill today

and making a very persuasive argument for increased NIH funding

for ALS research. Clearly it is something that needs to be done and

we in the Congress want to advocate for that.

But whether it is the hearings we had some months ago about,

frankly, scientifically dubious grants that are awarded sometimes

by NIH, frankly, sometimes morally objectionable grants that are

sometimes made by NIH, or whether it is a conflict of interest

issues that we are dealing with now, it is extremely important that

NIH maintain its stellar reputation and its spotless reputation for

doing research and for conducting itself with the highest standards

possible.

People’s lives depend on it. The lives of our children, our grandchildren, and their grandchildren depend on the research that you

do. The only way you are going to be able to continue to do that

important research is to keep folks like us out of your hair. We can

only stay out of your hair if we know for certain that you are doing

your job in a way that we don’t need to be getting involved in your

business.

That is one of the reasons I feel so strongly about these hearings

and one of the reasons I appreciate the Chairman and the ranking

member of the full committee and the subcommittee for encouraging this investigation.

We are big fans, I anyway am, and I know we all are fans of NIH

and the research and the important work that NIH does. That is

why it is so important for NIH to maintain its reputation for integrity. Thank you, Mr. Chairman. I yield back.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes the gentleman from Florida, Mr. Stearns, for an opening

statement.

Mr. STEARNS. Good morning and thank you, Mr. Chairman. Obviously this is a very important hearing and I appreciate your calling it. I think last week we sort of looked at this from a helicopter

and I guess we could say we are looking at it this morning perhaps

on the ground. We are trying to understand some of the details

about this.

We talk about the field of science being one inherently cooperative and collaborative. Scientists and physicians and researchers

need to share and study alongside one another. I think we all understand that. Of course, we saw in the 1980’s and 1990’s and that

we were losing good researchers to the private sector. For the Federal Government obviously to compete for these scientists we provided some financial incentive so Congress took the step to try and

create some competition and allow us to keep these scientists.

Perhaps, as we see today, Mr. Chairman, the pendulum has

swung too far. We hear different exploits about arrangements between NIH and high-level researchers and industry. I am concerned about perhaps some of the smaller universities or the midlevel universities not getting an opportunity to participate in NIH

grants because they can’t get their foot in the door because of the

ties of maybe these prestigious universities or scientists are not directing or not allowing some of these mid-level or small colleges to

get involved with some of the grants.

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All this calls into question what can we do here in Congress. Can

we allow this continuing incentive for scientists to remain in place?

At the same time, obviously, like my colleague from New Jersey,

we have supported increased funding for NIH and we think it is

important in the long run to get this ground breaking detection on

ovarian cancer. I think all of us are a little disturbed about this

and that is why I think this hearing will get to the bottom of it

and will bring out some good examples of things it will show us

that we probably need some action. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. MICHAEL BILIRAKIS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF FLORIDA

Thank you, Mr. Chairman. I appreciate all the work that you and your staff have

done to examine these two specific cases of consultation fees and outside awards before us today. Last week’s hearing focused on what the NIH is doing to create greater oversight of this important matter, and I think that we can all agree that Dr.

Zerhouni’s creation of the Blue Ribbon Panel is a step in the right direction. However, I don’t know that it is enough. While I am not interested in laying blame

today, I am glad to having the opportunity to discuss these two specific cases, and

find out how severe this problem was.

I appreciate both panels of witnesses taking the time to come here today, even

though I’m sure you all will be asked some difficult questions. I’d like to extend a

special thanks to Dr. Harold Varmus, former Director of NIH, for his testimony

today. Dr. Varmus has testified before my subcommittee several times, and I am

anxious to hear his thoughts.

The ethical concerns being raised today in this hearing are worrisome to me. However, during this discussion, I also believe it is critical we remember that the NIH

is the world’s leader in conducting important research that will unlock critical information and lead to discoveries beneficial to patients suffering from many diseases.

We don’t want to hinder those efforts. But because of the tradition of excellence, the

NIH is also held up to a certain standard. That standard should not be tainted by

the thought that the research conducted at NIH is influenced by private companies

giving money to institute directors.

My Subcommittee on Health has held four hearings during the 108th Congress

to highlight research activities at the NIH and educate Members and others about

the work that the NIH is doing so we can better assess how to help NIH better meet

its stated mission. One of the reasons my Subcommittee has held these hearings is

that, while NIH does exemplary research, their transparency and accountability in

the approval process of investigator-driven grants at the NIH could be improved.

Many times it is difficult for Members of Congress to get a quick answer about research activities, let alone the general public.

The lack of transparency of the NIH processes could be one of the reasons that

we are holding this hearing today. If there were more transparency with respect to

these consulting fees and awards, such as making the information public, then

maybe there wouldn’t be the need for a high level of concern.

As I said last week, the fact that some NIH officials have received cash, stock,

and stock options from consulting arrangements with drug or biotechnology companies really gives me pause. While I understand that there is importance in allowing

scientists the opportunity to pursue their independent work, I have concerns with

tying the financial success of an individual to a particular company’s stock. If outside consultation fees and award grants in any way affect the grant approval process and the budget priority setting at NIH, then that taints the entire NIH process,

including the research.

I am glad that we have this forum today to speak to officials from NIH, and hear

the comments of other agencies, such as the Food and Drug Administration (FDA)

and Ethics offices. I am curious to hear how the NIH has managed possible conflicts

of interest, and the degree that they have been effective.

Thank you, Mr. Chairman. I yield back the balance of my time.

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PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Mr. Chairman, again let me commend you for conducting this investigation and

holding this hearing, as well as the one last week, into conflicts of interest at the

National Institutes of Health (NIH). The scientists at the NIH campus, and the

grantees that use NIH funds for their biomedical research, are critical to this Nation’s fight against disease. These hearings are being held because several NIH researchers have decided to supplement their taxpayer-funded salary with monies provided by drug and biotech companies, firms whose vital interests are tied to the research performed at the NIH.

Today we will hear from Dr. Harold Varmus, a Nobel laureate and a former Director of NIH. He was the responsible official in 1995 when all effective administrative

controls were lifted from the consulting practices of NIH employees and public disclosure was virtually removed as well. Dr. Varmus has much to account for, as does

the current NIH leadership and the Department of Health and Human Services

(HHS) lawyers who have systematically undermined the application of any meaningful ethical standards to the consulting arrangements of NIH employees.

As a direct result of this investigation and one conducted by the Los Angeles

Times, some changes have been made or have been agreed to by the current Director. This is a good thing, but not nearly enough. Last week, Dr. Zerhouni and the

co-chairs of the so-called Blue Ribbon Panel testified that, except for the highest

level employees and those administering grants, all other NIH researchers would be

free to continue to serve two masters provided that they received the approval of

something called the NIH Ethics Advisory Council (the NEAC). This Council was

supposed to apply the most rigorous standards to its review of outside consulting

arrangements.

All NIH employees with current outside arrangements with drug or biotech firms

were supposed to suspend those arrangements in February and reapply to the

NEAC. While over half the NIH employees engaged in these apparent conflicts

chose not to reapply, about 120 did. Several NIH researchers have been approved

by NEAC to receive payments from companies that had agreed to pay them hundreds of thousands of dollars (one researcher had received almost $2 million from

biotech firms in recent years). This is not acceptable.

Finally, I cannot help but note an even worse case of an ethical violation approved

by the Department. One of the witnesses scheduled to appear today is an employee

not of the NIH, but the Food and Drug Administration (FDA). He signed a contract

to receive thousands of dollars from a biotech company whose products could be regulated by his employer, the Center for Biologic Evaluation and Research. This appears to be in direct conflict with the Supplemental Regulations for FDA that forbid

receipt of monies by any employee from any regulated entity.

Ethics officials at FDA and/or HHS apparently approved this ‘‘outside employment.’’ FDA has told the Subcommittee staff that any approval was an error without

precedent elsewhere in that Agency. I certainly hope that is the case but intend to

join with you, Mr. Chairman, in asking for an expedited review of all outside employment by FDA employees as well as the HHS and FDA review of the consulting

arrangement that we will discuss today.

Thank you again for holding this hearing, and for the bipartisan manner in which

this entire inquiry has been handled.

Mr. GREENWOOD. The Chair thanks the witnesses for your patience for half an hour of opening statements, 15 minutes of which

was mine, I think. We welcome each and every one of you. Let me

introduce our first panel.

Ms. Marilyn L. Glynn is the Acting Director of the U.S. Office of

Government Ethics. Welcome and thanks for being with us this

morning.

Mr. Edgar M. Swindell, Associate General Counsel, Ethics Division, Department of Health and Human Services. Good morning,

sir.

Dr. Raynard S. Kington, Deputy Director of the National Institutes of Health. Good morning, sir. Thank you for joining us.

Mr. Jack Maskell is with the American Law Division of the Congressional Research Service. Thank you for your service.

273

And, finally, Dr. Harold Varmus, M.D., Former Director of the

National Institutes of Health and is currently the President and

Chief Executive Officer of the Memorial Sloan-Kettering Cancer

Center in New York. Good morning, sir. Welcome to all of you.

It is the custom and practice of this committee to take testimony

under oath so I would begin by asking if any of you object to giving

your testimony under oath. Seeing no objection, it is then my responsibility to inform you that you are entitled to be represented

by counsel if you wish. Do any of you choose to be represented by

counsel this morning? Okay. In that case, if you would rise and

raise your right hands, I will give you the oath.

[Witnesses sworn.]

Mr. GREENWOOD. You are under oath. Ms. Glynn, we will begin

with you and you are recognized for 5 minutes for your opening

statement.

TESTIMONY OF MARILYN L. GLYNN, ACTING DIRECTOR, U.S.

OFFICE OF GOVERNMENT ETHICS; EDGAR M. SWINDELL, ASSOCIATE GENERAL COUNSEL, ETHICS DIVISION, DEPARTMENT OF HEALTH AND HUMAN SERVICES; RAYNARD S.

KINGTON, DEPUTY DIRECTOR, NATIONAL INSTITUTES OF

HEALTH; JACK MASKELL, AMERICAN LAW DIVISION, CONGRESSIONAL RESEARCH SERVICE; HAROLD VARMUS,

FORMER DIRECTOR, NIH, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MEMORIAL SLOAN-KETTERING CANCER CENTER

Ms. GLYNN. Thank you for the opportunity to appear today to

discuss executive branch ethics rules relating to consulting activities and awards. Mr. Chairman, you asked that I particularly address these issues, consulting and awards, as they pertain to the

situation at NIH.

By way of brief background, let me explain that my office, the

Office of Government Ethics, or OGE as it is called, is the executive

branch agency responsible for directing policies relating to the prevention of conflicts of interest on the part of executive branch employees.

Of particular relevance to the issue before the subcommittee

today are OGE’s standards of conduct regulations. Pursuant to an

Executive Order issued by the first President Bush, these standards of conduct are intended to be a uniform set of ethics rules for

the entire executive branch. However, agencies may add special

provisions to address any agency specific needs. My office must approve these so-called supplemental agency regulations.

First I would like to say a few things about the awards issue.

The OGE standards of conduct contain a provision authorizing employees to accept certain bona fide awards for meritorious public

service or public achievement. This awards rule is an exception to

the usual prohibition of acceptance of gifts from prohibited sources

or gifts given because of your official position.

There are two key questions about this rule that have a bearing

on the issues you are examining today. First, what are the permissible sources of these awards, particularly where the award recipient is the head of an agency or the head of an office or a large comVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00281 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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ponent in an agency. And, second, how do you distinguish between

real awards and mere speaker’s fees.

In my written statement I have set out in some detail how OGE

would analyze both of these questions and I would be happy to answer any questions you might have about those tests we set out.

The second issue you asked me to speak about concerns rules

governing outside activities such as consulting for compensation.

The rules are designed to be reasonably flexible and they reflect a

balance between the rights of employees to have a life outside of

work with the need for the Government to demand the highest ethical standards from its employees.

Generally speaking, the rules permit compensated consulting unless the activity would require recusal from matters center or critical to the employee’s position, or if the activity would violate a

particular statute or regulation such as the OGE rules prohibiting

the use of public office for private gain.

There are essentially two approaches that an agency can take to

implement this rule. First, an agency can review outside activities

of each individual employee on a case-by-case basis in light of the

general standards found in the OGE rules. Or an agency can seek

approval from OGE to issue a so-called supplemental regulation restricting certain specific outside activities for all employees at that

agency or certain groups of employees.

Since 1995 NIH has followed the case-by-case approach. However, though, recent accounts in the media and elsewhere about

NIH consulting activities raise concerns about the nature and extent of consulting arrangements that have been approved under the

case-by-case approach. I think it becomes clear that either the system for reviewing the proposed activities on this case-by-case approach should be strengthened by NIH or NIH should develop specific supplemental regulations tailored to the circumstances of NIH.

We have received the report of the Blue Ribbon Panel on conflicts

of interest policies and note that it recommends the adoption of

some additional restrictions. OGE is ready to help NIH and its parent, HHS, implement whatever restrictions they think would be

necessary to ensure public confidence in the important work of

NIH.

My written statement provides further details concerning these

rules relating to outside activities and I would be happy to answer

any questions you may have.

[The prepared statement of Marilyn L. Glynn follows:]

PREPARED STATEMENT OF MARILYN L. GLYNN, ACTING DIRECTOR, OFFICE OF

GOVERNMENT ETHICS

Mr. Chairman and members of the subcommittee: Thank you for the opportunity

to appear today to discuss Executive Branch ethics rules pertaining to consulting

activities and awards from outside sources. Mr. Chairman, you asked in particular

that I address issues that have arisen at the National Institutes of Health with respect to employees’ consulting activities and outside awards. I will discuss these

subjects and provide OGE’s views on the general legal questions. Before discussing

these specific topics, I want to provide the Subcommittee with background information about OGE and its role in the Executive Branch ethics program.

THE EXECUTIVE BRANCH ETHICS PROGRAM AND OGE’S ROLE

Established by the Ethics in Government Act of 1978, OGE is the executive

branch agency responsible for directing policies relating to the prevention of conVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00282 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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flicts of interest on the part of Federal executive branch officers and employees.

OGE develops rules relating to ethics and conflicts of interests, establishes the

framework for the public and confidential financial disclosure systems, develops

training and education programs for use by executive branch ethics officials and employees, and supports and reviews individual agency ethics programs to ensure they

are functioning properly.

As the supervising ethics office of the executive branch, OGE has developed and

issued various executive branch-wide regulations in Title 5 of the Code of Federal

Regulations, including the Standards of Ethical Conduct for Employees of the Executive Branch (Part 2635), rules that implement the financial reporting requirements

in the Ethics in Government Act (Part 2634), and rules that implement criminal

conflict of interest laws (Parts 2635, 2637, 2640 and 2641). Pursuant to the Ethics

in Government Act and Executive Order 12674 (as modified by E.O. 12731), regulations interpreting the provisions of sections 207, 208, and 209 may be promulgated

only with the concurrence of the Attorney General, while regulations establishing

a single set of executive branch standards of conduct and a system of nonpublic financial disclosure are promulgated in consultation with the Attorney General and

the Office of Personnel Management.’’

Many of the rules bearing on the issues of concern to the Subcommittee today are

found in OGE’s Standards of Ethical Conduct. OGE issued these rules originally in

1992, pursuant to the order of the first President Bush to ‘‘establish a single, comprehensive and clear set of executive-branch standards of conduct that shall be objective, reasonable, and enforceable.’’ E.O. 12674, § 201(a). In keeping with the

President’s goal of promoting uniformity in the application of ethics requirements

across the executive branch, the OGE standards were to supercede any agency-specific standards, unless an agency sought and obtained approval from OGE to issue

supplemental regulations ‘‘of special applicability to the particular functions and activities of that agency.’’ Id. at § 301(a).

While OGE provides direction and overall leadership to the executive branch ethics program, the head of each agency has primary responsibility for the ethics program at his agency. Each agency head appoints a Designated Agency Ethics Official

(DAEO) to manage the ethics program and act as a liaison to OGE. The DAEO and

his staff ensure that the required ethics program elements are accomplished. Basic

elements and responsibilities of an agency ethics program include effective collection

and review of financial disclosure reports; ethics training that meets the requirements of OGE’s training regulations; an employee counseling program; and prompt

and effective action for violations of the ethics rules. With respect to the issues of

concern to the Subcommittee today, I would note that the duties of agency officials

also include the approval of certain kinds of outside awards and the review and approval of certain outside activities.

OGE provides training and guidance to agency ethics officials in numerous ways.

Among other things, OGE: publishes advisory opinions and issues memoranda to

ethics officials; conducts periodic national and regional training courses; communicates regularly with ethics officials through an electronic list service; provides consultative services to agency officials through the OGE desk officer system and

through telephonic and written advice from OGE legal staff.

OGE also monitors and evaluates the executive branch ethics program through

periodic reviews of the ethics programs at each agency. The purpose of these reviews

is to ensure that agencies have developed effective ethics systems and procedures,

in compliance with OGE regulations, to prevent conflicts of interest and other violations of ethics laws and regulations. Typically, the focus of these reviews is on agency systems, rather than instances of misconduct by individual employees. Individual

misconduct by employees is investigated by the Office of Inspector General responsible for each agency.

AWARDS

OGE understands that the Committee has two primary questions about the receipt of outside awards by employees. The first question pertains to the permissible

sources of such awards, and the second question pertains to the distinction between

an award and an honorarium for giving a lecture. In order to address these questions, it is first necessary to set out the purpose and requirements of OGE’s awards

rule.

The awards rule, 5 C.F.R. § 2635.204(d), is actually an exception to certain statutory and regulatory gift prohibitions. See 5 U.S.C. § 7353; 5 C.F.R. part 2635, subpart B. Generally, employees are prohibited from receiving gifts from certain prohibited sources and gifts given because of an employee’s official position. Prohibited

sources include any person who: (1) is seeking official action by the employee’s agenVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00283 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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cy; (2) does business or seeks to do business with the employee’s agency; (3) conducts activities regulated by the employee’s agency; (4) has interests that may be

substantially affected by performance or nonperformance of the employee’s official

duties; or (5) is an organization a majority of whose members are such persons. 5

C.F.R. § 2635.203(d).

The awards rule provides an exception to these gift prohibitions where the gift

is a ‘‘a bona fide award or incident to a bona fide award that is given for meritorious

public service or achievement.’’ An important limitation on the exception is that the

donor must not be a particular type of ‘‘prohibited source,’’ i.e., a person who has

interests that may be substantially affected by the employee’s duties (or an association or organization in which the majority of members have such interests). Moreover, if the gift has an aggregate value in excess of $200 or is in the nature of cash

or an investment interest, an agency ethics official must make a prior written determination that the award is part of an ‘‘established program of recognition’’ that

meets additional criteria specified in the rule.

1. The source limitation

One question that has been raised is whether the head of an office, such as the

Director of one of the Institutes at NIH, may receive an award from an entity that

has grants, contracts or other business with the same office. In other words, is

someone doing business with a particular office always going to be a person who

has interests that may be substantially affected by the duties of the head of that

office, even if the head of the office has delegated the relevant functions to subordinates and does not currently have any personal involvement in matters affecting

that source?

OGE has not issued written guidance on this question. One possible reading of

the regulation might be that the head of an office ‘‘may’’ have duties that could affect any person doing business with that office. The theory would be that the head

of the office has authority over every matter pending in his office and therefore has

the power, whether exercised or not in any given instance, to intervene in any such

matter. Regardless of any delegations or other attenuating circumstances, the office

head always ‘‘may’’ still perform the duties that would affect the source.

While this may be a reasonable interpretation, OGE declines to adopt such a

broad reading. For one thing, we think it important that the source limitation uses

terms such as ‘‘performance’’ and ‘‘duties,’’ which suggests that some actual involvement by the employee must at least be reasonably foreseeable. Other ethics provisions expressly cover matters that are merely under an employee’s ‘‘official responsibility,’’ and we could have used such language in the awards rule, but did not. See,

e.g., 5 C.F.R. § 2637.202(b)(2)(all matters pending in agency are under official responsibility of agency head). Moreover, since the awards rule intentionally carves

out only a particularly problematic subset of prohibited sources, it would be somewhat peculiar to say that the agency head and other senior management essentially

may never receive an award from anyone involved with the agency; again, we have

drafted other rules that expressly apply special provisions to agency heads and

other senior officials, but that was not the course chosen in the awards rule. See,

e.g., 5 C.F.R. §§ 2635.102(b)(conduct of agency head); 2635.807(a)(2)(i)(E)(3)(activities

of high level political appointees).

Perhaps most important, we think the broad interpretation would lead to unreasonable results. Under this interpretation, virtually every person doing business

with an office would be an impermissible award source for the office head, regardless of the size of the office or the nature or importance of the business. For example, a relatively autonomous component of a very large agency might make a significant number of modest grants to various associations, universities, and other nonprofits to fund meetings or other informational events on a wide range of noncontroversial topics, with such grants being handled routinely by employees several

levels below the agency head and without any foreseeable intervention by higher

level officials. Under these circumstances, we do not believe it would make sense

to say that an association whose sole connection to the agency is one of these lower

level grants would be an impermissible source for an otherwise legitimate award to

the agency head. The broad interpretation of the source limitation could produce

even more extreme results. For example, a component of an agency may procure

paper products from a supplier; even though the head of the agency may have the

legal authority to participate in this purchase, there is very little likelihood that the

agency head would become involved in such matters, and it would seem unreasonable to say that the paper supplier would be an impermissible source for an award.

At the same time, however, we do not believe it is necessary or desirable to limit

the reach of the source restriction to those situations where the donor currently has

matters before the head of an office personally. Nor do we think the restriction can

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be avoided merely because the head of an office usually or normally leaves such

matters to subordinates. In our view, the word ‘‘may’’ in the source limitation does

not mean that it must be ‘‘more likely than not’’ that the office head will intervene

in a matter substantially affecting the source. If there is at least a reasonable prospect that the office head may become involved in a matter, we do not believe that

a donor who could be substantially affected by such involvement should be allowed

to grant an award, possibly with the hope of building good will with the office head

in the event that his intervention may be needed or desired.

The approach we would follow, therefore, is one of reasonableness: is it reasonable

to assume that the office head may become involved in a matter substantially affecting the interests of the donor, or is the chance of such intervention simply a remote

and speculative possibility? To assist agency ethics officials in making such determinations, we have identified several factors they should consider, in light of the

totality of the circumstances:

• How have such matters been handled historically by the office? For example, is

there precedent for the office head becoming involved in matters of this type

and/or matters involving this particular donor in the past? • Are matters of this type typically handled at a level far below the office head, or

are they handled at an intermediate level somewhat closer to the agency head? • How large is the office for which the employee is responsible? • Is there a multitude of similar matters pending somewhere in the office at any

given time, such that the matter affecting the donor may be less likely to have

any particular prominence? • How important or sensitive is the matter? For example, does the matter involve

a significant dollar amount or is there any particular controversy or novelty?

On the other hand, is the matter relatively routine and one that does not call

for the exercise of significant discretion? • Is the office head typically apprised of such pending matters and any attendant

issues, for example, through status reports that identify the affected source? • Can it be said that the donor is a regular ‘‘constituent’’ or ‘‘stakeholder’’ with respect to the programs and operations of the office? For example, does the particular donor have a number of matters pending in the office or does the donor

regularly seek business or official action from the office?

The foregoing list of factors is not intended to be exhaustive, and ethics officials

should consider any information indicating that it is more or less foreseeable that

an office head would be in a position to exercise duties substantially affecting a particular donor.

Finally, OGE wants to emphasize that the awards exception is subject to the same

general limits as all the other gift exceptions in the OGE standards of ethical conduct. Among those limitations is the caveat that employees may not ‘‘[a]ccept gifts

from the same or different sources on a basis so frequent that a reasonable person

would be led to believe the employee is using his public office for private gain.’’ 5

C.F.R. § 2635.202(c)(3). Although it is not feasible to specify a bright line test for

frequency of awards, we do think that ethics officials should be cautious where high

level employees have a history of accepting awards of significant monetary value,

as such circumstances can increase the risk that an official may appear to be using

public office for private gain.

2. Awards vs. compensation for services

A second issue pertains to the relationship between the awards exception and

other ethical limitations concerning the receipt of earned income and compensation.

In particular, questions have been raised about whether certain ‘‘lectureships’’ or

‘‘lecture awards’’ are permissible awards, or more appropriately should be treated

as outside earned income or compensation for speaking. In certain instances, there

have been concerns that impermissible outside earned income or compensation for

speaking related to the employee’s official duties may have been misidentified as

permissible awards. OGE shares these concerns and recognizes that agency officials

must exercise judgment to distinguish true awards from what are essentially speaking fees.

Quite apart from the rules pertaining to awards and other gifts, there are ethical

restrictions that focus on the receipt of earned income or compensation in certain

situations. Certain Presidential appointees are prohibited from receiving ‘‘any

earned income for any outside employment or activity performed during’’ their Presidential appointment. Executive Order 12731, § 102. Similarly, a provision in the

Ethics in Government Act limits the annual amount of outside earned income that

certain high level political appointees, such as noncareer members of the Senior Executive Service, may receive to 15 percent of the annual rate of basic pay for level

II of the Executive Schedule. For these purposes, earned income generally means

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‘‘compensation for services.’’ 5 C.F.R. § 2636.303(b). This includes compensation for

an employee’s services as a speaker, such as ‘‘honoraria.’’ Id. Earned income does

not, however, include items that may be accepted from a prohibited source under

the gift rules in the Standards of Ethical Conduct. § 2636.303(b)(1).

There is another restriction that focuses specifically on compensation for speaking.

Under 5 C.F.R. § 2635.807(a), all employees—not just Presidential appointees or

other noncareer personnel—are prohibited from accepting compensation for speaking that is related to their official duties. Like the restrictions on earned income discussed above, section 2635.807(a) covers payments for an individual’s activities or

services, specifically ‘‘any form of consideration, remuneration or income... given for

or in connection with the employee’s teaching, speaking or writing activities.’’

§ 2635.807(a)(2)(iii). Similar to the definition of earned income, the definition of

‘‘compensation’’ in section 2635.807(a)(2)(iii)(A) does not include ‘‘items that could be

accepted from a prohibited source under Subpart B’’ of the Standards of Ethical

Conduct.

It should be apparent from this discussion that the rules governing awards and

the rules governing compensation or earned income serve different purposes and

have different requirements. On the one hand, a bona fide award for meritorious

public service or achievement is a gift, which may be received notwithstanding the

gift prohibitions, under certain circumstances. Payments for speaking activities, on

the other hand, are not considered gifts but compensation for a service or activity,

and the permissibility of such compensation is judged by different standards than

those governing the receipt of gifts. The exclusion of certain gifts governed by Subpart B of the Standards of Ethical Conduct from the definitions of earned income

and compensation underscores the distinct treatment of gifts and compensation or

earned income.

Nevertheless, OGE recognizes that it may not always be immediately apparent to

employees and agency officials whether a particular offer from an outside source

should be viewed as a gift subject to the awards exception or as compensation for

a speaking activity. This is especially true where an employee is offered something

of value in connection with a ‘‘lectureship’’ or ‘‘lecture award’’ sponsored by an outside organization. In some instances, it may not be clear whether the real intent

of the payment is to honor the employee for meritorious public service or achievement, or to compensate the employee for providing a speech on a subject of interest

to the sponsor or the intended audience.

The question is further complicated by the fact that even clearly bona fide awards

programs sometimes involve the recipient giving a substantive speech, i.e., not

merely a brief ‘‘thank you’’ or acceptance remarks. For example, recipients of the

Nobel Prize for Medicine—which is cited specifically in the OGE rule as an example

of a bona fide award—deliver a ‘‘Nobel Lecture’’ which can be of significant duration

and scientific content. E.g., www.nobel.se/medicine/laureates/2002/horvitz-lecture.html (one of three co-recipients in 2002 delivered 51 minute lecture, complete

with data and graphs). Plainly, the delivery of a speech by an award winner is not,

in and of itself, enough to convert an award into earned income or compensation

for speaking, for purposes of the ethical restrictions discussed above.

By the same token, invitations to engage in speaking activities often are motivated by the speaker’s past accomplishments. The fact that the sponsor of a

lectureship extends an offer of compensation based on the prospective speaker’s curriculum vitae does not, in and of itself, mean that the lectureship is an award as

opposed to a compensated speaking engagement. Even if the lectureship itself carries a certain prestige within a particular profession or discipline, the primary intent of the sponsor still may be to obtain the services of a well-qualified speaker

for an event.

OGE has not had occasion to issue written guidance on this question, but we believe that the appropriate approach to such questions is to determine whether the

primary purpose of the arrangement is to honor the employee for meritorious public

service or achievement, or to compensate the employee for services as a speaker. In

a somewhat analogous area of federal income taxation, we note that authorities

have focused on whether an award is ‘‘intended primarily to provide gratuitous honorific recognition of achievement’’ or instead is ‘‘primarily compensatory in nature.’’

Rogallo v. United States, 475 F.2d 1, 2, 5 (4th Cir. 1973); see generally Kogan, The

Taxation of Prizes and Awards: Tax Policy Winners and Losers, 63 Wash. L. Rev.

257 (1988)(historic concern for awards as disguised compensation). Given the range

of award and lecture programs, this analysis inevitably involves a case-by-case consideration of any factors bearing on the purpose or intent of the particular program.

OGE has identified several factors that can be relevant to such determinations.

The list that follows is by no means intended to be exhaustive. Moreover, in many

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cases, no one factor will be determinative, and agencies will have to discern the primary purpose of the program from the totality of the circumstances. • How has the sponsor historically characterized the program? It would be relevant, for example, if the sponsor’s written materials traditionally have referred to

the program as ‘‘an award’’ or, alternatively, as a ‘‘lecture series.’’ • How is the event promoted by the sponsor? For example, extensive publicity by

the sponsor advertising the speech as the draw for attendance at an event could indicate that the speaker was invited primarily to attract an audience for a lecture.

Of particular concern would be publicity by the sponsor in which the event is portrayed as an opportunity for the audience to receive specialized information or

unique insights from the speaker. • Is it the policy of the sponsor to make the delivery of a speech a condition of

receiving the award? If the award winner has the discretion to accept the full award

but decline to make a speech, then the arrangement almost certainly would be an

award rather than a compensated speaking activity. As noted above, however, the

fact that an award winner may be expected to make a speech does not necessarily

mean that the award is primarily intended as compensation for speaking. • What is the nature of the expected speech? If the speech consists of little more

than brief acceptance remarks, the award can hardly be characterized as compensation for speaking. It also may be relevant whether the anticipated speech would convey new or previously unpublished information, or focus in significant part on new

or ongoing work of the speaker; this could suggest an intent to compensate the recipient for the content of the speech rather than to honor the recipient for past

work. On the other hand, a speech merely reviewing the past work for which the

speaker is being honored could well be consistent with a purpose to honor the recipient gratuitously for past achievement.

CONSULTING ACTIVITIES

One of the major areas that can give rise to conflict of interest questions is outside

activities. Two basic issues must be addressed when an employee proposes to engage

in an outside activity: whether the employee may participate in the outside activity

at all, and, if so, what limitations apply to such participation.

a. Conflicting Outside Activities and Appearance Problems

OGE’s Standards of Ethical Conduct for Employees of the Executive Branch prohibit an employee from engaging in an outside activity that conflicts with his official

duties. 5 C.F.R. § 2625.802. An outside activity will conflict with an employee’s official duties if it is prohibited by statute or an agency supplemental regulation, or

if the disqualification required to avoid a conflict of interest is so central or critical

to the performance of the employee’s official duties that his ability to perform his

job is materially impaired.

There are two substantive provisions that may require disqualification or recusal.

A criminal statute, 18 U.S.C. § 208, prohibits employees from participating in certain matters affecting their personal and imputed financial interests. An OGE regulation, 5 C.F.R. § 2635.502, provides for employees and agency officials to consider

recusal from matters involving persons with whom the employee has certain business and personal relationships. When an employee wishes to participate in an outside activity that will require recusal under either of these provisions, agency officials must exercise informed judgment to determine whether the scope of any

recusal will materially impair that employee’s ability to do his job. Such management determinations take into account a variety of factors, including the nature of

the employee’s duties, the needs of the office, and the ability to reassign projects

in the office.

Even if an outside activity is not prohibited under this standard, it may nonetheless violate other principles or standards and therefore be prohibited. One important

standard is that employees may not use their public office for their own private gain

or the private gain of others with whom they have certain relationships. 5 C.F.R.

§ 2635.702. Certain outside activities may be prohibited under this standard, whether or not the activity would require the employee to recuse from matters that are

central or critical to the position. For example, even if the head of an office reasonably can recuse from a matter affecting an entity with which he has a consulting

arrangement, there still could be an appearance that the entity is benefiting from

the employee’s official position: depending on the circumstances, one might reasonably question, for instance, whether subordinates involved in the matter would feel

subtle pressure to favor the entity with which their supervisor has a substantial

business relationship. Moreover, some outside consulting relationships may involve

a subject matter that is so closely related to an employee’s official work that the

overlap would give rise to an appearance that the employee took advantage of his

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official position to obtain the outside consulting opportunity or that the employee

is providing insights obtained on the job only to those willing to pay.

The Standards provide that whether ‘‘particular circumstances create an appearance that the law or these standards have been violated shall be determined from

the perspective of a reasonable person with knowledge of the relevant facts.’’ 5

C.F.R. § 2635.101(b)(14). Agencies are undoubtedly in the best position to determine

if an outside activity is permissible under these Standards generally, and with respect to appearances in particular. Some things that an agency should consider in

making a decision about whether participation in an outside activity will create the

appearance that an employee is using public office for private gain are the level of

the employee’s position and the nature of his duties; the subject of the outside work

and its relation to agency programs and operations; the identity of the outside employer and its relationship to the agency, including whether it receives grants or

contracts; and the timing of the offer of employment.

Although the standards mentioned so far generally require a case-by-case consideration of the proposed outside activity, the OGE Standards also permit agencies

to promulgate blanket prohibitions on certain outside activities. These prohibitions,

called supplemental agency regulations, must be approved by OGE, pursuant an Executive Order requiring OGE concurrence in any departures from or additions to the

uniform standards of conduct applicable to the entire executive branch. The Department of Health and Human Services, in fact, has promulgated certain supplemental

prohibitions on outside activities. 5 C.F.R. part 5501.

We note that a 1995 OGE review of the NIH ethics program discovered that NIH

had a series of restrictions on outside consulting that were not promulgated in accordance with the procedures prescribed in the Executive Order. OGE directed that

NIH either remove these restrictions or propose them for inclusion in the HHS supplemental regulation. At that time, NIH chose to remove the restrictions and did

not propose any additional outside activity restrictions in the HHS supplemental

regulation. As we understand it, NIH decided to rely on case-by-case evaluations,

under the general standards applicable to all executive branch employees.

Subsequently, questions have arisen concerning the current NIH system and the

need for more specific restrictions on certain kinds of outside activities. In this connection, we understand that NIH now is considering recommendations from the

Blue Ribbon Panel on Conflict of Interest Policies, which panel is a Working Group

of the Advisory Committee to the Director, which was appointed by the Director of

NIH. The Panel report makes numerous recommendations, including proposals for

supplemental regulations governing certain outside activities, such as consulting.

OGE has received a copy of this report and is in the process of reviewing it. If the

Department of Health and Human Services decides to request amendments to its

supplemental regulation, in response to any recommendations of the Panel, OGE

stands ready to assist the Department and act expeditiously on any request.

b. Limitations When an Outside Activity Is Undertaken

The Standards of Ethical Conduct provide that an employee who is engaged in

an outside activity must comply with all applicable provisions set forth in the ethics

rules and statutes. This includes rules that prohibit the misuse of official title, authority, resources, information, and time in connection with outside activities. There

are also important restrictions on representing others before the Government and

serving as an expert witness in matters affecting the Government. Additionally, certain noncareer employees are subject to limitations on outside earned income, compensated service on boards of directors, and involvement with entities providing professional services of a fiduciary nature.

Particularly relevant in the context of the present inquiry are the rules that require employees not to participate in certain Government matters when their own

interests, or the interests of certain others, are affected by such matters. As mentioned above, disqualification or recusal from certain matters may be required under

18 U.S.C. § 208 or 5 C.F.R. § 2635.502. The obligation to recuse when necessary and

to ensure that a disqualification is observed always remains the personal responsibility of the individual employee subject to the disqualification. An employee should

notify his supervisor when he becomes aware of the need to disqualify himself from

certain matters because of a potential conflict of interest. Once it is determined that

the outside activity is permissible, the employee’s supervisor has a responsibility to

facilitate the disqualification by ensuring that the employee is not assigned to work

on matters from which he is disqualified. Agency ethics officials obviously have an

important role through direct counseling to, and education of, employees and supervisors to ensure that they understand when a recusal is required and how to effectively implement a required recusal.

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OGE PROGRAM REVIEWS AT NIH

As I stated earlier, OGE conducts systemic reviews of all executive branch department and agency ethics programs to determine whether agencies have developed effective ethics systems and procedures, in compliance with OGE’s regulations, to prevent conflicts of interests. OGE typically has conducted reviews of approximately 35

agencies annually, with major agencies being reviewed approximately every 5 to 6

years. Agencies are selected for review based on the length of time since their last

review, OGE staff concerns about an agency’s program, and news media reports of

ethical concerns.

These reviews generally focus on several ethics program elements, including the

structure and staffing of the ethics program, the financial disclosure systems, the

ethics education and training program, the advice and counseling services, the outside activity approval process, ethics systems for advisory committees, acceptance of

travel payments from non-Federal sources under 31 U.S.C. § 1353, ethics staff relations with the Office of Inspector General, and ethics issues unique to that agency.

In large agencies or departments, OGE may look at how the ethics program is managed in its individual components rather than the entire agency. The reviews do not

typically look at individual employee cases of conflict. On occasion concerns about

an individual employee will arise in the course of a review, and OGE will consider

the facts giving rise to the concern and make appropriate recommendations.

Since 1990, OGE has completed three program reviews at NIH. These prior reviews focused on, among other issues, NIH practices and policies pertaining to

teaching, speaking, writing and other outside activities. OGE has initiated a 2004

review of the NIH ethics program. This review is being performed at the Office of

the Director, NCI, NIAID, and the Clinical Center. The focus of the current review

is on the structure and staffing of NIH’s ethics program, the public and confidential

financial disclosure systems, the criteria and process for approving outside activities, and the criteria and process for approving the acceptance of awards. The review is ongoing.

CONCLUSION

In closing, I would like to emphasize that OGE stands ready to work with you,

the Committee, HHS, and NIH to ensure that the public has the highest confidence

in the important work of all the components at NIH.

I would be happy to answer any questions you may have.

Mr. GREENWOOD. Thank you very much, Ms. Glynn.

Mr. Swindell.

TESTIMONY OF EDGAR M. SWINDELL

Mr. SWINDELL. Mr. Chairman and members of the subcommittee,

thank you for inviting me to speak with you today. I also have a

prepared statement that I will submit for the record.

I am the Assistant General Counsel for Ethics at the Department

of Health and Human Services and as such my principal role is to

provide legal advice to the Secretary and the General Counsel on

Government ethics and related issues. In addition, I serve as the

designated agency ethics official for HHS under the Secretary’s direct appointment.

Today I was the primary point of contact with the Office of Government Ethics and we have a program within HHS that is decentralized. There are deputy ethics counselors that run ethics programs within the Department.

Based upon these qualifications I am here today to speak to the

committee. I would first like to emphasize to the committee that

the goal of ensuring public confidence and the integrity of NIH is

one that the Department shares very much with the committee and

a goal which we can work together to accomplish.

As NIH moves forward with the help of the Department to address areas of concern, the Department values the committee’s inVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00289 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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formed views. Secretary Thompson has a goal of making HHS the

leading cabinet agency on ethics matters.

However, I understand that concerns have been raised by the

committee about a perceived lack of the responsiveness on the part

of the Department or on the part of the Office of General Counsel

within the Department with particular attention to information requested by the committee regarding outside consulting arrangements involving NIH employees.

I would like to assure you that the Department is fully committed to cooperating with the committee. In response to the NIH’s

request to ask employees for information regarding outside compensation. The Department through OGC has worked extensively

to identify and resolve legal issues that are relevant to pertaining

this information.

When the committee first asked NIH to obtain amounts of compensation for outside activities, these amounts were unavailable for

those individuals who file a confidential OGE 450 financial disclosure form or who do not file any financial disclosure form at all.

This is because OGE has historically viewed the form as serving

a conflicts of interest purpose rather than a disclosure purpose. The

conflicts analysis for reviewing potential outside activities has historically focused Government-wide on the type and source of compensation rather than the amount.

HHS strove to help NIH find a way to collect the information and

was successful in doing so. This information is critically important

and so I have taken steps consistent with the privacy act to obtain

this data in the future for all outside activity requests.

HHS advised NIH about the privacy act and its requirement that

collection and maintenance of identifiable information be for purposes authorized by statutes, regulations, or executive order. Although the interest of Congress alone would not be a sufficient

legal basis to collect and maintain the information, an agency interest pursuant to statutes, regulations, or executive order would

be an appropriate basis. Accordingly, the Department sought to

identify such a legal basis.

On January 27, 2004, I issued a directive informing the DECs,

the ethics counselors, that in the context of any agency evaluation,

of any previously approved ongoing outside activity for continued

compliance with existing law, and in order to request prior approval for any new outside activity employees would be required to

provide both retrospective, if applicable, and prospective compensation information. Such amounts were to be noted on the HHS 520

and this allowed NIH to collect compensation amounts for all ongoing outside activities.

I would note that the form we have been using is from 1982 and

we have canvassed other departments and agencies and found out

that of the other cabinet departments about nine of them don’t

even have such forms that we have. Then five of them have forms

and they don’t ask for this type of amount of information either.

We are going to be working to make sure that our form is the best

possible form for dealing with outside activities that we have.

HHS explained to the committee staff the potential difficulties in

collecting information pertaining to completed and closed outside

activities. Referencing these discussions in its February 25 letter to

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the Department, the committee said, ‘‘The Department is attempting in good faith to assist the committee.’’

In addition, HHS continued to work to develop an interpretation

of the Ethics in Government Act that would support the collection

of information for completed outside activities. In so doing, we discussed the legitimate and important need for NIH to collect the information NIH and OGC felt was important for the agency to collect.

As a result, OGE agreed with us that the Ethics in Government

Act and its implementing regulations providing the DAEO, and

therefore the Agency, with authority to evaluate the agency’s supplemental ethics regulations to determine their continued adequacy

and effectiveness in relation to current agency responsibilities. This

determination supported the collection of information regarding

completed and closed activities with pharmaceutical and biotechnology companies.

As a result of these efforts, Dr. Zerhouni was able to write to the

committee on March 12, 2004, that ‘‘We consider this collection [of

information] authorized by the Ethics in Government Act of 1978

and Executive orders mentioned above.’’ It is my understanding

that NIH decided to manage litigation risk from NIH employees

who might not wish to comply with a required collection of information by first attempting to collect the information on a voluntary

basis.

However, I understand that Dr. Zerhouni is now going to instruct

all NIH employees who had consulting arrangements since January

1, 1999 to report the compensation amounts received pursuant to

the consulting as a requirement and condition of their employment

subject to discipline.

The Department has also worked with NIH and the committee

to facilitate an appropriate and timely response to other aspects of

the committee’s investigation. The issue of appropriate ethical oversight is critically important to the Secretary. In fact, under the Secretary’s and the General Counsel’s leadership the ethics division

that I head has undertaken a series of efforts to enhance its functions but particularly to institute systematic oversight of components ethics programs, review of financial disclosure forms, and

training to employees.

Our staff has been small. We have a large agency. It has operated decent programs. We have had little ability to be able to know

what is going on absent situations that come up like this or the

OGE reviews that occur every 4 to 6 years. We are going to do

what we can to make sure that we have internally the knowledge

to know what is going on.

Our staffing will more than double from 11 in my office to 25.

This, to my knowledge, will make us the largest single legal office

devoted exclusively to Government ethics outside of OGE. The

steps we are undertaking will enhance the Department’s operations

and work on behalf of the public. Therefore, the Department will

continue to cooperate with the committee as it addresses these important issues. In this manner working together our two branches

of Government can achieve our collective goal of ensuring public

confidence in agency programs and operations through whatever

means that will best accomplish that objective.

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I will be pleased to answer any questions you have.

[The prepared statement of Edgar M. Swindell follows:]

PREPARED STATEMENT OF EDGAR M. SWINDELL, ASSOCIATE GENERAL COUNSEL FOR

ETHICS, OFFICE OF THE GENERAL COUNSEL, U.S. DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Mr. Chairman, Mr. Deutsch, and members of the subcommittee: Thank you for

inviting me to speak with you today to discuss the ethics issues relating to the National Institutes of Health (NIH).

The goal of ensuring public confidence in the integrity of NIH is one that the Department very much shares with the Committee B and a goal which we can best

accomplish together. The Committee’s oversight in this area has been edifying and

helpful in identifying areas of concern. As NIH moves forward, with the help of the

Department, to address those concerns, the Department values the Committee’s informed views and welcomes the Committee’s suggestions regarding steps that can

be taken to ensure that the tremendous trust that the Congress and the public place

in NIH is as unquestioned as the vast contributions NIH has made towards advancing the nation’s health and the promise it holds to continue doing so. To this end,

we believe the recommendations of the Blue Ribbon Panel provide an important perspective and serve as a helpful starting point.

As Associate General Counsel for Ethics, my principal role is to advise the Secretary and the General Counsel on government ethics, restrictions on political activity by federal government employees, and related issues. Concurrently, under an appointment directly from the Secretary, I serve as the Designated Agency Ethics Official (DAEO) for the Department. The DAEO is the point of contact with the Director

of the Office of Government Ethics (OGE). That office sets ethics policy for the entire executive branch under an Executive Order issued by the first President Bush

replacing a system of individual agency regulation of employee conduct.

I understand that concerns have been raised by the Committee about the role of

the Office of General Counsel, within the Department, in responding to the Committee’s oversight, with particular attention to information requested by the Committee

regarding payments, expenses, and stock options paid to NIH employees for consulting arrangements since January 1, 1999. NIH proposed asking employees for information regarding compensation for outside activities. Accordingly, the Department, working through OGC, has worked extensively with NIH and the Committee’s

staff, as well as other federal agencies, to identify and resolve legal issues relevant

to obtaining this information.

When the Committee first asked NIH to obtain amounts of compensation for outside activities, these amounts were unavailable for those individuals who file the

confidential OGE 450 financial disclosure form or who do not file any financial disclosure form. This is because OGE has historically viewed the form as serving a conflicts of interest purpose rather than a disclosure purpose. And the conflicts analysis

for reviewing potential outside activities has historically focused, governmentwide,

on the type and source of compensation rather than the amount. For the same reason, the HHS 520 form, used for review of potential outside activities, did not, until

my January 27, 2004 memorandum, request the amount of compensation. Historically, OGE has advised that it did not view the dollar amount as normally relevant

to the outside activity conflicts analysis.

HHS strove to help NIH find a way to collect the information and was successful

in doing so. This information is critically important and so we have taken steps, consistent with the Privacy Act, to obtain this data in the future for all outside activity

requests.

HHS advised NIH about the Privacy Act, and its requirement that collection and

maintenance of identifiable information be for purposes authorized by statutes, regulations, or Executive Order, and that such authority must be cited in the Privacy

Act statement accompanying the request for information. Although the interest of

Congress alone would not be a sufficient legal basis to collect and maintain the information, an agency interest pursuant to statutes, regulations, or Executive Order,

would be an appropriate basis. At first, we hoped that the Ethics in Government

Act, administered by OGE, could serve such a basis. The difficulty was that OGE

did not historically believe that amounts of compensation were normally relevant to

conflicts analyses.

OGC worked with OGE to devise an interpretation of the authorities provided in

the Ethics in Government Act that would support the collection of compensation

amount information for ongoing activities as well as activities being reviewed for

compliance with the relevant rules. At that time, OGE did not believe that the auVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00292 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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thorities in the Ethics in Government Act could support the collection of compensation amount for completed and closed outside activities.

On January 27, 2004, I issued a directive informing Deputy Ethics Counselors

[DECs] that in the context of any agency evaluation of any previously approved, ongoing outside activity for continued compliance with existing law and in order to request prior approval for any new outside activity, employees would be required to

provide both retrospective (if applicable) and prospective compensation information.

Such amounts were to be noted on the HHS 520. This allowed NIH to collect compensation amounts for all ongoing outside activities.

HHS explained to Committee staff the potential difficulties in collecting information pertaining to completed and closed outside activities. Referencing these discussions in its February 25, 2004 letter to the Department, the Committee said ‘‘the

Department is attempting in good faith to assist the Committee.’’

In addition, HHS continued to work to develop an interpretation of the Ethics in

Government Act that would support the collection of information for completed outside activities. In so doing, we discussed the legitimate and important need for NIH

to collect the information NIH and OGC felt was important for the agency to collect.

As a result, OGE agreed that, in this case, the Ethics in Government Act and its

implementing regulations providing the DAEO with authority to evaluate the agency’s supplemental standards to determine their continued adequacy and effectiveness in relation to current agency responsibilities, supported the collection of information regarding completed and closed activities with pharmaceutical and biotechnology companies. OGC further applied the same reasoning to all for-profit entities.

As a result of these efforts, Dr. Zerhouni was able to write to the Committee on

March 12, 2004, that ‘‘We consider this collection [of information] authorized by the

Ethics in Government Act of 1978 and Executive orders mentioned above.’’ It is my

understanding that NIH decided to manage litigation risk from NIH employees who

might not wish to comply with a required collection of information by first attempting to collect the information on a voluntary basis.

However, because of inadequate response, I believe that Dr. Zerhouni is now going

to instruct all NIH employees who had consulting arrangements since January 1,

1999 that are now closed to report the compensation amounts received pursuant to

the consulting as a requirement and condition of their employment.

Background. HHS has a workforce of more than 60,000 individuals, of which approximately 1,000 file public financial disclosure reports and 25,000 file confidential

financial disclosure reports and receive annual ethics training. These 60,000 employees safeguard the nation’s health and provide essential human services through

myriad programs, policies, and initiatives that affect countless stakeholders and a

large part of the American economy. Whether in allocating grant funds, awarding

contracts, entering into public-private partnerships, approving lifesaving drugs, protecting patient privacy, or reducing health care costs, our employees must address

the concerns of the many while avoiding the appearance or fact of undue influence

by the few. To assist those who bear that responsibility, the Ethics Division advises

on how to ensure these duties are carried out impartially and unimpeachably. This

is largely accomplished through legal advice to agency decision-makers and ethics

officials, guidance to employees, education of the workforce, development of guidance documents, and, when necessary, liaison with OGE.

In HHS, as in most large Cabinet Departments, the DAEO oversees and coordinates a decentralized Departmental ethics program. As DAEO, I appoint Deputy

Ethics Counselors (DECs) chosen by each operating division, such as the Food and

Drug Administration (FDA), the Centers for Disease Control and Prevention (CDC),

and NIH. Each of these DECs, along with agency heads and management in each

component, are responsible for running ethics programs tailored to the needs of extensive, geographically dispersed workforces composed of many professionally

trained employees with varied responsibilities that range from insuring the health

care needs of the elderly and disadvantaged to ensuring the safety and efficacy of

drugs and medical devices.

The DECs are senior management officials within each component, and they have

staff who assist them in carrying out the ethics functions, either as collateral duties

or as members of an ethics program office. NIH in particular has such an office

under its DEC. As managers closest to day to day operations, they are equipped and

responsible for identifying and evaluating the relevant ethics issues in their component. Additionally, the DECs and their staff possess the scientific and technical expertise necessary to identify and resolve ethics issues in situations involving science,

medicine, and other complex fields. Within their respective operating divisions, the

DECs are responsible for establishing a system for reviewing public and confidential

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vice to individual employees, initiating ethics education and training programs, and

ensuring that violations of the conflicts statutes or the conduct standards are reported to investigatory authorities and where appropriate, seeing that disciplinary

action is taken. Individual employees are, of course, ultimately responsible for their

own actions.

In addition, the Ethics Division has responsibilities similar to those of a DEC but

for the Office of the Secretary and with respect to political appointees. Staff lawyers

within the Ethics Division provide legal advice to the DECs to assist them in their

role in making ethics decisions. Furthermore, we conduct training such as an all day

DEC workshop each year to keep DECs current on ethics law, and approximately

thirty ethics officials from across the Department attend the annual OGE conference

and its various break-out sessions or classes conducted on a wide variety of ethics

topics. OGE’s periodic program reviews or audits provide us with a sense of how

well the Department’s components meet their ethics responsibilities. In these reviews, OGE has recognized that the Ethics Division provides sound guidance and

instruction and that a clear ‘‘road map’’ is in place.

Ethics Initiative. Based upon a process begun by the General Counsel in December, the Ethics Division has undertaken a series of efforts to intensify our ability

to scrutinize and oversee the Department’s ethics activities. We are dedicating additional resources to enhance the Ethics Division. As part of this initiative, the Department will institute systematic oversight of the ethics programs within the various operating divisions of the Department through regularized compliance auditing

and program review, as well as dramatically strengthen our ability to provide guidance to these programs and their officials. The initiative will increase component accountability for ethics program implementation, augment financial disclosure review

and training development, and enhance the capabilities of the Ethics Division and

the authority of the DAEO. Our staffing will more than double from 11 to 25. To

my knowledge, this will make us the largest single legal office devoted exclusively

to government ethics, outside of OGE. We will create two units within the Ethics

Division: the Advice and Financial Disclosure Branch and the Education and Program Review Branch. These branches will be staffed by a mix of attorneys, paralegals, computer/training developers, legal resource analysts, auditors, and support

staff.

The steps we are undertaking will enhance the Department’s operations and work

on behalf of the public. Specifically, this initiative will strengthen the Department’s

identification and prevention of employee actions that would or would appear to be

motivated by private, pecuniary, or associational interests, rather than an impartial

assessment of the public interest.

Historical Context. To provide further background to the Committee in connection

with its review of these issues, following is an understanding of how we came to

where we are on the issues of financial disclosure, outside consulting arrangements,

and awards at NIH.

a. Financial Disclosure. The degree to which the public may have access to the

personal financial information of employees at NIH is governed by federal law and

OGE regulations. The Ethics in Government Act and implementing regulations in

5 C.F.R. part 2634 provide for two types of financial reporting: (1) public disclosure

of detailed information about assets, income, liabilities, and outside affiliations on

a report form called the SF 278; and (2) a less intrusive, confidential version known

as the OGE 450. On the SF 278, filers must disclose income amounts and asset values within broad categories, by checking, for example, a block indicating a figure

between $1,001 and $15,000, and so on. The OGE 450 does not ask for any disclosure of amounts, only the identity of holdings and income sources, in other words,

the information necessary at a minimum to assess conflicts.

By statute, the public SF 278 filing requirement is reserved exclusively for highly

paid, senior employees, such as Senate confirmed Presidential appointees, non-career and career members of the Senior Executive Service, Schedule C political appointees in the General Schedule, uniformed service officers in the Public Health

Service Commissioned Corps at pay grade O-7 or above, Administrative Law Judges,

and employees in other pay systems if the lowest rate of basic pay for that pay plan

exceeds $104,927 per year. The confidential OGE 450 basically is filed by career employees in the General Schedule, generally at grade levels 12 or above, and by special Government employees who do not serve beyond 60 days. Under current law,

increased public disclosure can occur only through a process of demonstrating to

OGE that the duties of a particular position B that would not ordinarily be required

to file publicly under the existing rules B is nevertheless equivalent to the positions

that do file. This process is required because many of the alternative pay systems

at NIH do not have minimum rates of basic pay that exceed the threshold.

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In 1997, the Ethics Division wrote to the Director of OGE asking for an interpretation of the law to require employees hired under the authority of Title 42, Section

237, establishing the Senior Biomedical Research Service (SBRS), to file SF 278s if

the actual annual salary received by the employee was equal to or above 120% of

the rate of basic pay for GS-15, Step 1. The letter urged that these employees be

required to file public financial disclosure forms and argued that not doing so would

be ‘‘inconsistent with what would seem to be the prevailing rule in the post-employment context [and] appears contrary to the purpose of the public financial disclosure

requirement. Conceivably an... employee with a salary equivalent to an Assistant

Secretary would not be required to file a Public Financial Disclosure Report...[A]ll

SBRS employees with such salary above 120% of the GS-15, step 1, level should be

automatically required to file a Public Financial Disclosure Report.’’

On February 11, 1998, the Director of the OGE declined that request and responded that for purposes of the public financial disclosure requirement, the term

‘‘rate of basic pay’’ was defined as ‘‘the lowest level of pay authorized for a position’s

pay grade.’’ Director Potts opined that the definition of ‘‘rate of basic pay’’ for SBRS

employees is the lowest step or entry level pay authorized for a particular pay grade

or range. Thus, since the entry level minimum pay authorized for SBRS positions

is set by statute as the minimum rate payable for GS-15, and since that will always

be less than the Ethics in Government Act SF 278 threshold of 120% of GS-15, Step

1, the SBRS employees would not be required by the Ethics in Government Act to

file public financial disclosure reports. Like the SBRS employees hired under the authority of Section 237, the employees hired under the authority of section 209(f)

(who do not have any fixed rate of basic pay) have a ‘‘rate of basic pay’’ that is less

than the statutory SF 278 threshold.

Although, for the reasons stated above, ‘‘Title 42’’ employees are not statutorily

defined as SF 278 public financial disclosure report filers, it is our understanding

that all of the NIH Institute and Center Directors who were appointed under section

209(f) continued to file public financial disclosure form SF 278s even during the

time they were not required to do so. To ensure that this continues to be the case,

as well as to increase transparency with respect to the next level of senior employees identified by NIH, we have been successful in securing an OGE equivalency determination for 93 positions that requires, as of February 6, 2004, the Directors,

Deputy Directors, Scientific Directors, and Clinical Directors within each NIH Institute and Center to file publicly available SF 278s. This determination was in response to our letter of January 12, 2004. Following our request that NIH identify

other positions with equivalent authority and responsibilities that meet the statutory test, we recently forwarded to OGE a list of another 506 positions for this special classification.

b. Outside Consulting and Financial Interests. HHS employees currently are required by an agency supplemental regulation to seek prior approval only for professional or consultative activities, teaching, speaking, or writing, and board service.

They submit an HHS Form 520 that solicits detailed information about the proposed

activity, and each operating division may specify various levels of review, which may

start with the supervisor and end with the DEC.

The HHS Form 520, which was designed in 1982 and has since remained virtually

unchanged. It does not require the applicant to specify the amount of compensation

to be received in connection with the outside activity. Until recently, it was not understood that this information would be relevant to the outside activity approval

process because the requisite legal analysis focuses on the identity of the payor and

the nature of the outside activity. This information is critically important and so I

have taken steps, as DAEO, consistent with the Privacy Act, to obtain this data in

the future for all outside activity requests.

Approval requires an assessment of whether the proposed outside activity violates

any statute or regulation, including the OGE Standards of Ethical Conduct for Employees of the Executive Branch or the HHS supplemental ethics regulation. Included in the OGE Standards is the requirement that the proposed activity cannot

create an actual or apparent conflict that would result in recusals that would materially impair an employee’s ability to do his job.

In evaluating conflicts, the reviewer must address two provisions that form the

core of Federal ethics law. A criminal statute, 18 U.S.C. § 208, deals with an ‘‘actual

conflict’’ due to the employee’s own or imputed financial interest in the resolution

of a government matter. A regulatory provision in the OGE Standards, 5 C.F.R.

§ 2635.502, principally addresses disqualifications called for when an ‘‘appearance of

a conflict’’ arises from a ‘‘covered relationship.’’

Under section 208 of the criminal code, to avoid a conflict of interest that results,

for example, from stock ownership or outside employment, a federal employee must

not participate personally and substantially in a particular matter that, to his

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knowledge, directly and predictably affects his own financial interest or that of his

outside employer. To prevent an ‘‘appearance of a conflict’’ that results from serving

in a role short of employment, for example, as an advisor, consultant, or other type

of independent contractor compensated with fees and expenses, a different rule

applies[6 CFR 2635.502].

Both sections are disqualification provisions in that they do not prohibit the acquisition of an asset or relationship, rather they bar actual ‘‘participation’’ in a potentially conflicting matter, either personally or through the direct and active supervision of the participation of a subordinate. However, neither section is triggered by

mere knowledge of, or official responsibility for, a particular matter. In short, under

5 C.F.R. § 5501.106(d)(4), prior approval to engage in an outside activity ‘‘shall be

granted,’’ provided there are no other statutory or regulatory impediments.

In addition, a number of statutes and regulations do preclude certain outside activities. For example, if an employee sought approval to be a lobbyist, the anti-representation statutes, 18 U.S.C. §§ 203 and 205, would be implicated. If the activity

were clearly one that should be done as an official duty, then approval would be

denied, under 18 U.S.C. § 209, as an improper salary supplementation. Another regulation prohibits the use of public office for private gain 5 CFR 2635.702.

Another regulation, 5 C.F.R. § 2635.807, precludes compensation, subject to certain exceptions, if an employee wants to teach a course, deliver a speech, or write

a book that relates to his official duties. (Consulting, technically, is not covered by

this section, but the analysis does provide guidance in evaluating many outside activities.) For career employees, compensation is precluded if, among other things,

the teaching, speaking, or writing deals in significant part with any current assignment (or one completed within the last year) or any ongoing policy, program, or operation of the agency. However, the provision contains an important explanatory

note. A career employee may receive compensation for ‘‘teaching, speaking, or writing on a subject within the employee’s discipline or inherent area of expertise based

on his educational background or experience even though the [activity] deals generally with a subject within the agency’s areas of responsibility.’’

Finally, there are also special ethical restrictions that focus on the receipt of

earned income by political appointees. Under Executive Order 12,731, issued by the

first President Bush and modifying Executive Order 12,674, certain Presidential appointees may not receive ‘‘any earned income for any outside employment or activity

performed during’’ their Presidential appointment. Similarly, the Ethics in Government Act limits the annual amount of outside earned income, including honoraria,

that highlevel political appointees such as noncareer members of the Senior Executive Service may receive. This year, that limit is $23,715.

As noted earlier, outside activities must also comply with applicable provisions

governing the avoidance of actions creating an appearance of violating the ethical

standards, including the prohibition against use of official position for an employee’s

private gain or for the private gain of any person with whom the employee has employment or business relations or is otherwise affiliated in a non-governmental capacity.

As can readily be seen, supervisors, ethics program officers, and the DECs, in particular, have difficult assessments to make when reviewing outside activity requests.

For example, at NIH, review of the requests often necessitates an ability to analyze

the relationship between technically complex official scientific duties and similarly

complex outside activities, both of which might be in the same general field of expertise. Even when the activities are approved, individual employees remain personally

responsible for abiding by their recusal obligations and avoiding violations of any

other applicable provisions. These responsibilities are exacerbated by mergers, acquisitions, joint ventures, partnerships, and even name changes, within industry

that, on any given day, may make it difficult to know whether one has a conflict

to avoid.

As outlined in the Blue Ribbon Panel report, prior to 1995, NIH had stringent

internal policies that barred certain outside activities, limited the amount of outside

compensation, capped the number of hours that could be spent in outside work, and

precluded the receipt of stock or stock options as compensation. However, during a

program review conducted in 1995, OGE notified NIH that its requirements went

beyond the 1993 executive-branch wide Standards of Ethical Conduct. By Executive

Order, OGE was required to ensure uniformity within the executive branch with respect to the core ethics requirements. OGE did not permit agencies unilaterally to

impose ethics requirements or policies that were more restrictive than the OGE

Standards, absent the submission to OGE for its approval a supplemental regulation with adequate justification. The then NIH Director did not pursue that option,

and the internal policies at NIH were changed to conform to the case-by-case evaluation process prescribed in the OGE regulations.

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Therefore, whether NIH employees can hold ‘‘drug or biotech’’ stocks or consult

with companies in these industries is governed by the application of OGE regulations. Currently, conflicting stock holdings are subject to a de minimis exception

that allows employees to work on specific party matters as long as the value of the

affected stock does not exceed $15,000 and on a general matter if the value of any

one affected holding does not exceed $25,000, subject to a $50,000 cap when cumulating all affected interests. Also, NIH employees can consult with various companies involved in scientific research, if the legal requirements are satisfied. c. Awards. Another important issue is whether NIH employees should be allowed

to receive bona fide awards from outside entities with interests affected by NIH programs and operations. Depending upon the resolution of these questions, it is conceivable that the NIH Director might be barred from receiving the Nobel Prize in

Physiology or Medicine because, as we understand, the awarding entity on behalf

of the Nobel Committee is the Karolinska Institute, which collaborates in research

matters with NIH.

Bona fide awards for meritorious public service or achievement are conceptualized

as gifts. Gifts to executive branch employees are governed by 5 U.S.C. § 7353, which

bars the solicitation or acceptance of anything of value from persons or entities defined as prohibited sources, subject to such reasonable exceptions as the supervising

ethics office for the executive branch, by regulation, deems appropriate. OGE implemented this statute in the Standards of Ethical Conduct for Employees of the Executive Branch at 5 C.F.R. Part 2635, Subpart B. These rules expressly permit employees to accept bona fide awards and cash incident thereto from most prohibited

sources, e.g., contractors, grantees, regulated entities, applicants for governmental

action, etc., including organizations a majority of whose members are of the enumerated type, provided that the award is determined by agency ethics officials to be

part of an established program of recognition, as defined in regulatory criteria. Specifically, under 5 C.F.R. § 2635.204(d)(1), the reviewer must ascertain whether the

award is made as part of an established program of recognition for meritorious public service or achievement:

(1) Under which awards have been made on a regular basis or which is funded,

wholly or in part, to ensure its continuation on a regular basis; and

(2) Under which selection of award recipients is made pursuant to written standards.

This exception to the prohibited gifts rule is unavailable, however, if the awarding

entity is a special type of prohibited source, i.e., a person or entity who ‘‘has interests that may be substantially affected by the performance or nonperformance of the

[award recipient’s] official duties.’’

As OGE notes in their testimony today, ‘‘one possible reading’’ of this phrase could

be to bar an agency official from receiving an award from any entity that has matters pending under that individual’s official responsibility, i.e., from any entity or

person doing business with the recipient’s office, or it could specify a ‘‘situational’’

approach predicated on the interpretive assumption that the use of terms such as

‘‘performance’’ and ‘‘duties’’ suggests that some actual involvement by the official

must at least be reasonably foreseeable. Included with the Committee’s initial inquiry on this subject was an opinion of the Congressional Research Service that suggests the former interpretation. When NIH asked for help in preparing a response

to the Committee’s inquiry and the Congressional Research Service analysis, I drafted a White Paper describing the existing policy and its derivation.

That paper pointed out that, because the above-quoted phrase appears in OGE’s

regulation, the phrase’s meaning is ultimately a matter for OGE deliberation, that

OGE has not formally opined on it, and that OGE may well choose a different approach than that of the Department. Furthermore, the paper observed an alternative to OGE clarification: that AFederal departments and agencies were authorized to issue, jointly with OGE approval, supplemental ethics regulations to establish prior approval procedures for outside activities, to impose prohibited financial

holdings requirements, and to address ethics issues unique to the programs and operations of the respective agencies.@

Today, the Acting Director of OGE provides in her statement the first definitive

written guidance on the subject. OGE’s analysis articulated in her testimony today

does not adopt a bright line. Moreover, some of the factors relied upon by HHS are

factors she has articulated. We are required to implement the OGE interpretation,

of course, absent a change in law, OGE regulation, or, one other important possibility. As mentioned in the White Paper provided to NIH and, in turn, to the Committee last July, agencies are ‘‘authorized to issue, jointly with OGE approval, supplemental ethics regulations to... address ethics issues unique to the programs and

operations of the respective agencies.’’ Therefore, if NIH policymakers decided to go

so far as to outright prohibit the receipt by all or certain NIH officials or employees

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of all or some awards from outside entities with which NIH interacts, a request for

such a provision could be included in a supplemental regulation submitted for OGE

approval.

In addressing the issue of awards, it is necessary to guard against monetary

awards and prizes that may appear to be little more than a payment for delivering

a speech. As noted earlier, federal employees cannot receive compensation for speaking that relates to their official duties within the meaning of a very detailed regulation, 5 C.F.R. § 2635.807. Moreover, a criminal statute, 18 U.S.C. § 209, bars federal

employees from receiving a supplementation of salary for performing their official

duties, and another, 18 U.S.C. § 201, proscribes illegal gratuities tied to an official

act. But a bona fide award for meritorious public service or achievement and any

money that is associated with the honor are considered gifts, rather than compensation. As you can readily see, there is a continuum between the permitted activity

on the one hand B accepting a prestigious award with the prize money and then

delivering the speech that is routinely expected of the honoree at the award presentation B and the prohibited activity on the other B accepting money to deliver a

speech in the guise of receiving an award.

Unfortunately, the ethics rules do not provide us much guidance in distinguishing

between the two scenarios. Fortunately, the Acting Director of OGE in her written

statement submitted today has endeavored to tackle these issues and has even sent

us in the direction of tax law for help in determining whether an award is ‘‘intended

primarily to provide gratuitous honorific recognition of achievement’’ or is instead

‘‘primarily compensatory in nature.’’ I am grateful to Director Glynn and her staff

for providing this valuable assistance.

It must be considered that even though particular conduct may be permitted

under the applicable statutes and regulations, and even where employees sincerely

believe there is no appearance of impropriety in the conduct, there may be instances

where employees should exercise common sense and prudence to abstain from the

conduct. However, ethics officials are not empowered to compel that abstention.

In conclusion, the Blue Ribbon Panel’s recommendations are certainly a helpful

starting point. But we remain open-minded and interested to hear from NIH regarding its evaluation of the recommendations. As the Department moves forward with

respect to the recommendations and requests from NIH, we will carefully consider

what steps should be taken. At the same time, HHS, and, in particular, the expanded Ethics Division [of the Office of General Counsel], will continue accelerating

and implementing our plans to independently audit ethics programs in the Department’s components, ensure extensive education and training, increase transparency

in the form of thorough and accurate disclosure, and provide advice and ethics counsel to the nation’s premier professionals in the ever-changing field of biomedical research.

We would also very much welcome hearing from the Committee about what

changes it believes are required to strengthen the ethics rules, policies, and procedures at NIH. HHS will continue to cooperate with the Committee as the Committee

addresses these important issues. In this manner, working together, our two

branches of government can achieve our collective goal of ensuring public confidence

in agency programs and operations through whatever means will best accomplish

that objective. The objective is especially meaningful and important because so too

is the mission of NIH to generate knowledge which will advance our ability to care

for human ailments and improve the lives of all Americans.

Thank you for the opportunity to speak with you today. I would be pleased to answer any questions that you may have.

Mr. GREENWOOD. Thank you, Mr. Swindell.

Dr. Kington, good morning.

TESTIMONY OF RAYNARD S. KINGTON

Mr. KINGTON. Good morning. Mr. Chairman, members of the

subcommittee, I am the Deputy Director of the National Institutes

of Health. I am also the Deputy Ethics Counselor at NIH as well

as co-chair of the NIH Ethics Advisory Committee.

The Director of NIH appointed me as the DEC, Deputy Ethics

Counselor, on January 12, 2004. At the time of my appointment

the Director expanded the role of the DEC’s jurisdiction over the

immediate senior staff and institute and center directors to include

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institute and center deputy directors, scientific directors, clinical directors, extramural program directors.

In regard to this group of the most senior managers at NIH, I

am directly responsible for reviewing and approving applications to

permit various outside activities pursuant to the ethic regulations.

As Dr. Zerhouni testified before this subcommittee last week, he

created the NIH Ethics Advisory Committee, or NEAC, in the Office of the Director to provide independent peer review of activities

involving outside organizations.

The NEAC, which conducted its first meeting on January 20 of

this year advises the NIH Deputy Ethics Counselor on conflicts of

interest and helps to ensure the activities involving acceptance of

compensation from outside sources receive uniform oversight at the

NIH.

NEAC reviewed applications for proposed activities with outside

organizations that stand the greatest chance of posing risks to

NIH’s objectivity or appearances thereof including where an award

is valued at $2,500 or more, where total income from an activity

from an outside organization exceeds $10,000 or is unknown, where

outside compensation is in the form of equity, or when the activity

involves a drug or biotech company or where the activity involves

any senior NIH leadership such as scientific or clinical directors.

The committee is co-chaired by myself and the Deputy Director

for Intramural Research, Dr. Michael Gottesman. It consist of 10

rotating members and two ex officio ethics advisors all of whom are

full-time Federal employees. The rotating members are nominated

by the institute and center directors and appointed by myself and

Dr. Gottesman.

Membership represents the categories of employees submitting

proposals to the NEAC including two IC directors, deputy directors,

scientific directors, clinical directors, extramural directors, and

other OD, Office of the Director, senior staff. During the centralized NIH review committee members review each proposed activity

to assess whether it creates an actual or an apparent conflict of interest. The committee reviews the proposals based on criteria set

forth and the standards of ethical conduct for employees of the executive branch promulgated by the U.S. Office of Government Ethics and the Department of Health and Human Services Regulations.

To ensure oversight activities that had already been approved

prior to the creation of NEAC. We also instructed that all existing

consulting relationships with pharmaceutical or biotechnology

firms be stopped and resubmitted to the NEAC for its review and

input before they could be reapproved and, if appropriate, continued by the NIH ethics counselor.

I am pleased to answer any additional questions you might have

about the current NIH ethnic program. Thank you.

Mr. GREENWOOD. Thank you, Dr. Kington.

Mr. Maskell.

TESTIMONY OF JACK MASKELL

Mr. MASKELL. Mr. Chairman and members of the subcommittee,

thank you for the invitation to present testimony in this matter

today. I am a legislative attorney with the American Law Division

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in CRS and have worked there on legal and legislative issues concerning ethics and Government for about 30 years.

I began working with the subcommittee staff a year ago concerning the legal issues of large cash awards or prizes being given

by private laboratories or clinics for the directors of the Institutes

of NIH. In the course of that work the scenario that developed was

as follows:

An agency of the Federal Government makes grants for research

or clinical studies to a private facility totaling millions of dollars

a year. That private facility then gives a substantial cash award or

prize of several thousand dollars to the Director of the very Federal

agency making those grants.

One does not need to have an intricately detailed knowledge of

Federal law and regulations on ethics to see the obvious appearance problems and potentials for more serious consequences in that

scenario. Beyond any mere appearance problem, however, this scenario raised specific questions of violations of Federal ethics regulations, and the statutes underlying them.

I prepared a fairly detailed analysis of some of the legal and ethics issues involved for the subcommittee, and with the subcommittee’s permission, I have appended that analysis to my statement

today.

Simply put, it appears that an agency head, with administrative

and operational authority over all aspects of that agency’s functions

and programs, should not under Federal law and regulation be accepting cash gifts, awards or prizes from a private grantee of his

own agency, that is, a private source that is dependant upon and

so interested in the official duties, responsibilities and powers of

that administrator.

The regulatory exception to the general gift ban for bona fide

awards or prizes for meritorious service applies only when the

donor of the award is a sufficiently independent source. The standard is that the donor may not ‘‘have interest that may be substantially affected by the performance or nonperformance of the employee’s official duties.’’ The example specifically given in the Office

of Government Ethics regulations of a permissible award is an NIH

official receiving the Nobel Prize. The Department of Justice, analyzing the awards issue under a related criminal statute, explained

that acceptable bona fide awards must come from donors who are

‘‘detached from and disinterested in the performance of the public

official’s duties.’’

I believe it would strain credibility to argue that a grantee regularly receiving millions of dollars in grants from a Federal agency

is ‘‘detached from’’ or ‘‘disinterested in’’ or ‘‘independent of’’ the duties, powers, and responsibilities of the Director of that agency.

Even when the agency head or other supervisory personnel are

not directly participating in the award of a grant, or actually participating in certifying the private entity as a ‘‘comprehensive’’

treatment facility, the actual authority over those subordinate employees making the decisions, promotion, pay and work assignments and other things, the inherent influence of supervisors and

agency heads over such subordinate employees, and the natural inclination of employees to want to please their superiors, all counsel

293

against such agency heads and management personnel receiving

cash awards from these private grantees under the regulation.

While there certainly may be some leeway in the interpretation

of the language of the regulation, the Supreme Court, in a unanimous decision authored by Justice Scalia in 1999, has given some

guidance by explaining fairly clearly that a private entity has interests that ‘‘may be substantially affected by the performance of’’ an

official’s public duties when that official ‘‘has the capacity to exercise governmental power or influence in the donor’s favor,’’ regardless of whether there is any specific, particular matter on the desk

of the official relating to that private entity.

In fact, if there is a particular matter pending before the official

relating to the private entity at the time of the cash payments,

questions of both the application of criminal laws as well as ethics

violations could be implicated.

That Supreme Court decision, known as the Sun-Diamond case,

related to criminal charges concerning the then Secretary of Agriculture for accepting gifts of travel and entertainment from private

entities regulated by his Department. The indictment charged the

parties ecretary with the giving of ‘‘illegal gratuities’’ under the

Federal bribery statute. There were no allegations that the Secretary ever did any official act for the donors, or that any specifically identified official matter was pending before the Secretary involving those donors.

The Independent Counsel argued before the Court that the mere

position of the Secretary, and the authority and power of the Secretary to affect the interests of the donor were enough to invoke

the felony ‘‘illegal gratuities’’ prohibition upon making or accepting

gifts or payments from them.

The Supreme Court, however, disagreed with the Independent

Counsel, and Justice Scalia, writing for a unanimous Court explained in dicta that there is a multi-layered web of ethics laws

and regulations in place for Federal officials, and that while such

so-called ‘‘status gifts’’ are not necessarily ‘‘illegal gratuities’’ (because they can not be tied to any specific, identified official act),

they do violate the language of the express regulation that we are

discussing today, that is, they are gifts from a donor who has interests that may be substantially affected by the public duties of the

official because the public official ‘‘is in the position to act favorably

to the giver’s interest,’’ that is, the official has the ‘‘capacity to exercise governmental power or influence in the donor’s favor.’’

It is obvious that a Director of a Federal agency has the official

capacity, position and authority to exercise governmental power or

influence which may affect the fortunes and interests of a grantee

of that agency. Merely because a Director might have ‘‘delegated’’

certain grant functions to subordinates does not relieve or divest

the officer of his official authority and responsibility. This is how

the levels of responsibility and accountability are constructed in the

Federal service.

If we are to err on the side of caution, the overall public interest

would seem to dictate broadly prohibiting those ultimately responsible for grant decisions from personally benefiting from cash

prizes, awards, or other such gifts given by grateful recipients of

those Federal grants.

294

Thank you and I am willing to answer questions that you may

have.

[The prepared statement of Jack Maskell follows:]

PREPARED STATEMENT OF JACK MASKELL, LEGISLATIVE ATTORNEY, CONGRESSIONAL

RESEARCH SERVICE

Mr. Chairman and Members of the Subcommittee: Thank you for the invitation

to speak to you today on the matter of ‘‘awards’’ from private sources. My name is

Jack Maskell, and I am a legislative attorney with the American law Division of the

Congressional Research Service. I began working with the subcommittee staff a little more than a year ago concerning the legal issues of private cash ‘‘awards’’ or

‘‘prizes’’ being given to the directors of the Institutes of the National Institutes of

Health from private laboratories or clinics. In the course of that work, the scenario

that developed was as follows:

An agency of the Federal Government makes grants for research or clinical

studies to a private laboratory/ clinic in the sum of tens of millions of dollars

a year. That private laboratory/clinic then gives a cash ‘‘award’’ or ‘‘prize’’ of

several thousand dollars to the Director of the very federal agency making those

grants.

One does not need to have an intricately detailed knowledge of federal law and

regulations on ethics to see the obvious ‘‘appearance’’ problems and potentials for

more serious consequences in that scenario. In fact, preventing appearances of impropriety and increasing confidence in the public’s perception of the fairness of the

administration of federal programs is one of the principal purposes behind federal

ethics regulations and laws. Crandon v. United States, 494 U.S. 152, 164-165 (1990);

H.R. Rpt. No. 748, 87th Cong., 1st Sess. 4-6 (1961); 5 C.F.R. 2635.101(a).

Upon further research and analysis it became clear that even beyond any mere

‘‘appearance’’ problem, however, this scenario raised specific questions of violations

of federal ethics regulations, and the statutes underlying them. I prepared a fairly

detailed analysis of some of the legal and ethics issues involved for the subcommittee, and with the subcommittee’s permission, I have appended that analysis

to my statement today.

Simply put, it appears that an agency head, with administrative and operational

authority over all aspects of that agency’s functions and programs, should not under

federal law and regulation be accepting cash gifts, ‘‘awards’’ or ‘‘prizes’’ from a private grantee of his own agency, that is, a private source that is dependant upon

and so interested in the official duties, responsibilities and powers of that administrator. This is particularly the case with certain private clinics and laboratories

which have a continuing ‘‘certification,’’ as well as a substantial and continuing

grant, relationship with the agency.

As a brief background, federal law now prohibits the receipt of ‘‘gifts’’ by federal

officials from ‘‘interested parties,’’ or what are also called ‘‘prohibited sources.’’ In

the executive branch there are two general categories of interested parties. The first

are those that are prohibited sources agency-wide, that is, for everyone in the agency, and includes those private entities seeking official action from, doing business

with, or that are regulated by one’s agency. 5 U.S.C. § 7353(a)(1); 5 C.F.R.

§ 2635.203(1)-(3). The second category are those that are prohibited sources for a

particular officer or employee in question, that is, a restriction which is personal to

the particular official—and that includes those ‘‘whose interests may be substantially affected by the performance or nonperformance of the individual’s official duties.’’ 5 U.S.C. ’7353(a)(2); 5 C.F.R. § 2635.203(4).

While most gifts may not be accepted from either category of interested parties

(agency-wide or personal), there is a specific exception in executive branch regulations for the receipt of a bona fide award or prize for meritorious public service,

when the donor of the award is a sufficiently independent source. Specifically, the

awards exception allows an official to accept a bona fide award under certain circumstances from someone who is not in that second, ‘‘personal’’ category of interested parties, that is, an entity which does not have ‘‘interests that may be substantially affected by the performance or nonperformance of the employee’s official duties.’’ 5 C.F.R. 2635.204(d)(1). The example specifically given in the Office of Government Ethics regulations, is an NIH official receiving the Nobel Prize. 5 C.F.R.

2635.204(d), note. The Department of Justice, analyzing the ‘‘awards’’ issue under

a related criminal statute, explained that acceptable bona fide awards must come

from donors who are ‘‘detached from and disinterested in the performance of the

public official’s duties.’’ 8 Op. O.L.C. 143, 144 (1984).

295

It would strain credibility to argue that a grantee regularly receiving millions of

dollars in grants from a federal agency is ‘‘detached from’’ or ‘‘disinterested in’’ or

‘‘independent of’’ the duties, powers, and responsibilities of the Director of that

agency. Even when the agency head or other supervisory personnel are not directly

participating in the award of a grant, or actually participating in certifying the private entity as a ‘‘comprehensive’’ treatment facility, the actual authority over those

subordinate employees making the decisions, the inherent influence of supervisors

and agency heads over such subordinate employees, and the natural inclination of

employees to want to please their superiors, all counsel against such agency heads

and management personnel receiving cash awards from these private grantees

under the regulation.

While there certainly may be some leeway in the interpretation of the language

of the regulation, the Supreme Court, in a unanimous decision authored by Justice

Scalia in 1999, has given some guidance by explaining fairly clearly that a private

entity has interests that ‘‘may be substantially affected by the performance of’’ an

official’s public duties when that official ‘‘has the capacity to exercise governmental

power or influence in the donor’s favor,’’ regardless of whether there is any specific,

particular matter on the desk of the official relating to that private entity. United

States v. Sun-Diamond Growers of California, 526 U.S. 398, 405-511 (1999). In fact,

if there is a particular matter pending before the official relating to the private entity at the time of the cash payments, questions of both the application of criminal

laws as well as ethics violations could be implicated.

That Supreme Court decision, known as the Sun-Diamond case, involved a 31-

count criminal indictment against the then Secretary of Agriculture for accepting

gifts of travel and entertainment from private entities regulated by his Department.

The indictment charged the Secretary with the acceptance of ‘‘illegal gratuities’’

under the federal bribery statute. There were no allegations that the Secretary ever

did any official act for the donors, or that any specifically identified official matter

was pending before the Secretary involving those donors. The Independent Counsel

argued before the Court that the mere position of the Secretary, and the authority

and power of the Secretary to affect the interests of the donor were enough to invoke the felony ‘‘illegal gratuities’’ prohibition upon accepting gifts or payments from

them. The Supreme Court, however, disagreed with the Independent Counsel, and

Justice Scalia, writing for a unanimous Court explained in dicta that there is a

multi-layered web of ethics laws and regulations in place for federal officials, and

that while such so-called ‘‘status gifts’’ are not necessarily ‘‘illegal gratuities’’ (because they can not be tied to any specific, identified official act), they do violate the

language of the express regulation that we are discussing today, that is, they are

gifts from a donor who has interests that may be substantially affected by the public

duties of the official because the public official ‘‘is in the position to act favorably

to the giver’s interest,’’ that is, the official has the ‘‘capacity to exercise governmental power or influence in the donor’s favor . . .’’ Sun-Diamond, supra at 408, 411.

It is obvious that a Director of a federal agency has the official capacity, position

and authority to exercise governmental power or influence which may affect the fortunes and interests of a grantee of that agency. Merely because a Director might

have ‘‘delegated’’ certain grant functions to subordinates does not relieve or divest

the officer of his official authority and responsibility. As noted by the United States

Court of Appeals, the head of an agency who delegated authority to a subordinate

official Adid not, however, divest... himself of the power to exercise his authority

or relieve him of his responsibility for action taken pursuant to the delegation.’’

Skokomish Indian Tribe v. G.S.A., 587 F.2d 428, 432 (9th Cir. 1978), see NLRB v.

Duval Jewelry Co., 357 U.S. 1, 7-8 (1958). As stated simply by Professor Bayless

Manning, one of the drafters of the model federal conflict of interest laws in the

1960’s: ‘‘[T]he head of a department or agency would have ‘under his official responsibility’ all matters in the department or agency.’’ Manning, Federal Conflict of Interest Law, at 207-208 (Harvard University Press 1964). That is how the system of

responsibility and accountability is constructed in the federal service. Because of the

actual authority over subordinate employees and their promotions and pay, the inherent influence of supervisors and agency heads over such subordinate employees,

and the natural inclination to please one’s superiors, it would appear that the reasons behind the ethics rule do not necessitate the actual or the reasonably foreseeable active participation in a specific matter by such supervisory personnel for them

to fall outside of the narrow ‘‘awards’’ exception.

Financial disclosure. The framework of the public financial disclosure issues is

that certain personnel in the Institutes earning up to $200,000 a year in federal salary are seen as exempt from the statutory requirements for public financial disclosure. This has apparently come about by virtue of the Institute’s authority under

42 U.S.C. § 209(f) and (g) to hire ‘‘special consultants’’ and experts without regard

296

to civil service rules. The pay established by the agency for such positions ranges

from $38,000 to $200,000. Under this authority the Institutes have reportedly hired

high-level administrative personnel, including apparently directors, but since the

‘‘pay range’’ under this authority begins at $38,000, below the statutory threshold

for disclosure, the agency has exempted those hired under this authority from public

financial disclosure. Report of the National Institutes of Health Blue Ribbon Panel

on Conflicts of Interest Policies, Draft of May 5, 2004 at 20, 29-31.

The exemption from filing for those in a ‘‘pay range,’’ when the lowest amount in

the range is below the statutory threshold, is not necessarily required by the language of the federal law, but is rather an interpretation of the law by the Office

of Government Ethics. The federal law merely says in relevant part that public disclosure is required from:

each officer or employee in the executive branch... who occupies a position . . .,

in the case of positions not under the General Schedule, for which the rate of

basic pay is equal to or greater than 120 percent of the minimum rate of basic

pay payable for GS-15 of the General Schedule . . . 5 U.S.C. appendix, § 101(f)(3).

The law itself does not specifically say anything about pay bands, or the lowest

level in any given pay range. The Office of Government Ethics has determined, however, that the statutory language and intent of the law means that the ‘‘basic pay’’

for a ‘‘position’’ is the lowest possible pay, that is, the so-called entry level or beginning pay, for any particular pay range, rather than the pay actually received by a

particular incumbent in that position.

It should be mentioned here that in the legislative branch we do not follow OGE’s

particular interpretation of the law (with respect to similar language) applying to

legislative branch employees, and that when an employee in the legislative branch

reaches the actual annual rate of pay that is comparable to the statutory threshold

(120% of a GS-15), then that employee must file a public disclosure, regardless of

any minimum pay possible for that ‘‘pay band’’ or ‘‘pay range.’’

The Office of Government Ethics has explained that the intent of the disclosure

law was to cover a ‘‘position’’ rather than a particular employee, and that the coverage of the disclosure law ‘‘is determined by the employee’s level of responsibility’’

and that the lowest level of pay possible defines that responsibility (OGE Letter to

DAEO’s, No. 98 x 2). In most cases, this is perfectly logical and effective, particularly where there may be a number of ‘‘positions’’ in an occupational series, and several corresponding pay bands to which an employee may be progressively promoted

or appointed. The pay ranges may then be fairly correlative to responsibility and,

of course, ‘‘level of pay’’ is a more easily determined and definable standard than

is ‘‘level of responsibility.’’ However, where there is merely an authority to hire and

no positions and pay statutorily defined, or merely a maximum rate of pay, then

the lowest permissible pay rate may not fairly describe the responsibility of those

in the upper echelons of pay and authority. In some cases a rigid application of the

‘‘lowest possible pay’’ interpretation does not conform to the actual facts on the

ground. Under their title 42 authority, for example, it has been explained that the

Institutes hire managers, supervisors and even directors. Clearly, their positions

and levels of responsibilities are significantly different from and greater than ‘‘consultants’’ and advisors at the lower end of that possible pay range.

Policy makers must, of course, balance the interest of full disclosure for public officials with the privacy interests of federal employees and officials, and the possible

‘‘nuisance’’ factors of public disclosure and its effect on recruitment and retention

of qualified personnel. However, these policy decisions should not be confused with

any constitutional ‘‘rights to privacy’’ of public employees with regard to financial

matters. The federal courts examining the issue of privacy rights have determined

that an implied right to privacy exists under several possible provisions of the Constitution when there is involved ‘‘intimate’’ family and personal relationships and

decisions, such as the decision concerning procreation and child-rearing. Whalen v.

Roe, 429 U.S. 589 (1977). The courts have not, as of yet, expressly extended any

constitutional right to privacy, however, to a public official’s financial matters or interests, noting that ‘‘[f]inancial privacy is not within the autonomy branch of the

right to privacy,’’ that is, it is not within the Asphere of family life constitutionally

protected by the right of privacy.’’ Duplantier v. United States, 606 F.2d 654, 669

(5th Cir. 1979), cert. denied 449 U.S. 1076 (1981) [upholding the federal Ethics in

Government Act public disclosures for federal judges], citing Plante v. Gonzalez, 575

F.2d 1119, 1132 (5th Cir. 1978), cert. denied 439 U.S. 1129 (1979).

Memorandum December 4, 2003

TO: House Committee on Energy and Commerce, Attention: Alan Slobodin

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1 5 U.S.C. § 7353(a)(2); 5 C.F.R. §§2635.202, 2635.203(d), 2635.204(d); 8 Op. O.L.C. 143, 144

(1984); Office of Government Ethics [OGE] Advisory Opinions Nos. 83 x 11 (July 26, 1983), and

92 x 7 (February 26, 1992); see United States v. Sun-Diamond Growers of California, 526 U.S.

398, 405-411 (1999). 2Office of Government Ethics, Opinion 81 X 31, October 2, 1981, in Informal Advisory Letters

and Formal Opinions, 1979-1988, at 210; Paul H. Douglas, Ethics in Government, at 45-49 (Harvard University Press 1952); Roswell B. Perkins, ‘‘The New Federal Conflict of Interest Law,’’

76 Harvard Law Review 1113, 1137 (1963), discussing 18 U.S.C. § 209. 3 Id.; the late Senator Paul Douglas, explained in his treatise Ethics in Government, supra at

44, that often ‘‘the corruption of public officials by private interests takes a more subtle form’’

than outright bribes, through indirect financial support which may ‘‘put the public official under

such a feeling of personal obligation that the latter gradually loses his sense of mission to the

public . . .’’ Douglas noted that sometimes subtle ‘‘shifting loyalties’’ from the community to narrow private interests may lead an official to make decisions favorable to ‘‘his private benefactors

and patrons’’ while all the time ‘‘the official will claim—and may indeed believe—that there is

no causal relationship between the favors he received and the decisions which he makes.’’ 4 ‘‘The proper operation of a democratic government requires that officials be independent and

impartial;... and that the public have confidence in the integrity of its government.’’ H. R. Rpt.

No. 748, 87th Congress, 1st Session, 4-6, House Judiciary Committee (1961). The Office of Government Ethics has recognized the imperative to ‘‘ensure that every citizen can have complete

confidence in the integrity of the Federal Government . . . ’’ 5 C.F.R. 2635.101(a).

FROM: American Law Division

SUBJECT: Cash ‘‘Awards’’ and ‘‘Prizes’’ to Agency Heads from Grantees of the

Agency

This memorandum is prepared in response to the Committee’s request, as discussed with counsel Alan Slobodin. The American Law Division previously provided

a legal analysis to your Committee, dated May 20, 2003, discussing federal law and

interpretation concerning the receipt of cash gifts, including ‘‘awards,’’ by an agency

head from a grantee of that official’s agency. In response to the Committee’s subsequent inquiry to that agency, the Committee received an unsigned memorandum (or

‘‘white paper’’) from the Department of Health and Human Services, dated July 11,

2003, which attempted to justify the receipt of cash awards by the head of an agency in the Department, the National Cancer Institute of the National Institutes of

Health, based on a particular exemption to the executive branch gifts regulation.

The Committee has asked for a legal analysis of the HHS response.

The Department memorandum would construe the gifts restriction, and the narrow exemption in it for bona fide ‘‘awards’’ to federal officials from disinterested

sources, in such a permissive manner as to condone the personal enrichment of the

Director of an agency directly from a source receiving significant grant funding from

his agency. The reasoning employed by the Department obscures and overlooks the

obvious and serious ethical implications in this scenario. On its face, allowing the

top administrator and final decision maker of an agency to receive cash ‘‘awards’’

or ‘‘prizes’’ from those private entities concerning whom the agency must make determinations involving millions of dollars in grant funds implicates the precise conflicts of interest and ethical issues that are addressed in various criminal laws, statutes on gifts, and standards of conduct regulations. As developed below, under the

common understanding of the language used in the gift regulations and exemptions,

and under relevant administrative rulings and examples, as well as legal interpretations by the Supreme Court,—a private grantee of the Federal Government clearly

‘‘has interests that may be substantially affected’’ by the official powers and duties

of the Director of the grantor federal agency, and as such, may not be the source

of substantial gifts of cash, even in the form of ‘‘awards,’’ given to that particular

Government official.1

Background. The limitations and restrictions on gifts, and the prohibitions on private salary supplementation of federal employees are, as noted by the Office of Government Ethics, ‘‘aimed at preventing the Government employee from becoming beholden to anyone in the private sector who might affect the independence or judgment of that employee.’’ 2 There is, of course, a grave concern that official decisions

may actually be influenced, even subtly influenced, when a private recipient of federal largess ‘‘awards’’ the responsible federal official with cash in appreciation of his

public duties.3 Such conduct not only provides a potential lucrative reward for those

past decisions favorable to the grantee, but also provides an opportunity for a potentially generous ‘‘incentive’’ for future official conduct favorable to the grantee by that

official and other agency officials who are possible future recipients of such

‘‘awards.’’ In addition to actual influence over official decision-making, however,

there is an extended concern that permitting such conduct diminishes the confidence

of the public in the independent, impartial and even-handed administration of federal programs.4 The Supreme Court has noted the important interest of the Government in adopting rules to avoid even ‘‘potential conflicts of interest in the performVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00305 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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5 Crandon v. United States, 494 U.S. 152, 164-165 (1990). 6 18 U.S.C. § 201(c)(1)(B); 18 U.S.C. § 201(b)(2);18 U.S.C. § 208. 7 18 U.S.C. § 209. 8 8 Op. O.L.C. 143, 144 (1984). 9 As noted by the Supreme Court there is now ‘‘an intricate web of regulations... governing

the acceptance of gifts and other self-enriching actions by public officials.’’ United States v. SunDiamond Growers of California, 526 U.S. 398, 409 (1999). 10P.L. 101-194, Sec. 303, November 30, 1989, 103 Stat. 1746. 11See Executive Order No. 11222, Section 201, May 8, 1965 (now superseded by E.O. 12674,

April 12, 1989), and former regulations, 30 F.R. 12529, October 1, 1965, 5 C.F.R. § 735.202. 12 5 U.S.C. § 7353(b).

ance of governmental service’’ to ‘‘maintain[ ] the public’s confidence in the integrity

of the federal service.’’ 5

To address the ethical issues inherent in the receipt of things of value by federal

officials from private sources when there exists any ‘‘nexus’’ between the interests

of the donor entity and the official duties and responsibilities of the recipient federal

official, there has developed in the Federal Government a multi-layered structure

of criminal laws, general statutes, and standards of conduct regulations which seek

to regulate these situations. The criminal laws include the federal bribery statute

which provides criminal penalties for any federal official who receives something of

value ‘‘in return for’’ being influenced in the performance of an official act; the ‘‘illegal gratuities’’ clause of the same bribery statute which prohibits the receipt of

things of value that are connected to official duties in particular ways,—received

‘‘for or because of’’ a particular official act performed or to be performed by the officer or employee; and a criminal conflict of interest provision which prohibits federal

employees in the executive branch from working on or being involved ‘‘personally

and substantially’’ in any official particular matter in which they have a personal

or imputed financial interest.6 In addition to these provisions of criminal law, it

should be noted that a specific criminal provision of federal law also prohibits the

receipt of money or things of value intended as private ‘‘compensation,’’ or as a salary supplementation, for one’s official duties performed for the United States Government.7 Under this latter provision, 18 U.S.C. § 209, there has been developed and

recognized by the Department of Justice an exemption from the criminal law for

bona fide awards to federal officials for their public service from sources ‘‘detached

from’’ and ‘‘disinterested in’’ the area of responsibilities of the recipient federal official.8

Statute and General Regulations on Gifts. In addition to the provisions of federal

criminal law noted above, there are non-criminal statutes of general applicability,

as well as administrative regulations governing the acceptance of gifts and other

‘‘self-enriching’’ activities of federal officials.9 The principal statutory provision in

federal law regarding gifts from private sources was adopted as part of the Ethics

Reform Act of 1989,10 codifying for the most part somewhat similar ethical rules and

limitations on the receipt of gifts by federal employees which had been in effect for

the executive branch since 1965 by way of Executive Order and agency regulations.11

The current law on gifts from outside sources, codified at 5 U.S.C. § 7353, prohibits the receipt of ‘‘anything of value’’ by a federal official from what have come

to be known as ‘‘prohibited sources.’’ In the current gifts law, the ‘‘prohibited

sources’’ are expressly set out in two separate categories of persons or entities, to

include those persons:

(1) seeking official action from, doing business with, or (in the case of executive branch officers and employees) conducting activities regulated by, the individual’s employing entity; [5 U.S.C. § 7353(a)(1)] or

(2) whose interests may be substantially affected by the performance or nonperformance of the individual’s official duties. [5 U.S.C. § 7353(a)(2)]

Under the gifts statute, the supervisory ethics offices for particular employees and

officials may issue regulations detailing the gift limitations and providing reasonable exceptions to the general prohibitions.12 The Office of Government Ethics has

issued gift regulations under this statutory provision for the executive branch of

Government, setting out numerous restrictions and exemptions to the general prohibition. Under the regulations, the Office of Government Ethics sets out the categories of what constitutes a ‘‘prohibited source’’ from whom things of value may not

be received as follows at 5 C.F.R. § 2635.203:

(d) Prohibited source means any person who:

(1) Is seeking official action by the employee’s agency;

(2) Does business or seeks to do business with the employee’s agency;

(3) Conducts activities regulated by the employee’s agency;

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13 5 C.F.R. § 2635.203(d). 14 8 Op. O.L.C. 143, 144 (1984). 15 5 C.F.R. § 2635.204(d), note. 16OGE, Memorandum, DO-02-016, ‘‘18 U.S.C. § 209 Guidelines,’’ July 1, 2002, see OGE Advisory Letter 83 x 10. Emphasis added.

(4) Has interests that may be substantially affected by performance or nonperformance of the employee’s official duties; or

(5) Is an organization a majority of whose members are described in paragraphs

(d)(1) through (4) of this section.13

Regulatory Exemption for Certain Bona Fide Awards. Based on the guidance and principles developed in the Department of Justice’s exemption for bona

fide awards under 18 U.S.C. § 209, the Office of Government Ethics promulgated an

exception from the gifts prohibitions for certain ‘‘bona fide awards’’ for meritorious

public service given by certain entities to federal officials when the recipient federal

officials are not in positions to affect the interests of the donor of the award or prize.

The current regulatory exemption provides as follows, at 5 C.F.R. § 2635.204:

(d) Awards and honorary degrees. (1) An employee may accept gifts, other

than cash or an investment interest, with an aggregate market value of $200

or less if such gifts are a bona fide award that is given for meritorious public

service or achievement by a person who does not have interests that may be

substantially affected by the performance or nonperformance of the employee’s

official duties or by an association or other organization the majority of whose

members do not have such interests. Gifts with an aggregate market value in

excess of $200 and awards of cash or investment interests offered by such persons as awards or incidents of awards that are given for these purposes may

be accepted upon a written determination by an agency ethics official that the

award is made as part of an established program of recognition:

(i) Under which awards have been made on a regular basis or which is funded, wholly or in part, to ensure its continuation on a regular basis; and

(ii) Under which selection of award recipients is made pursuant to written

standards.

The examples given by the Office of Government Ethics and the rulings by that

agency, as well as the Department of Justice interpretations under § 209, have demonstrated that a bona fide award, to fit the exemption, must (among other qualifications for a cash award) come from a person, group, or entity that is to a certain

degree ‘‘independent’’ of the recipient public official, in the sense that the public official is not in a position to act favorably to the giver’s interests. The Department of

Justice has expressly stated that the exemption from the criminal statute at 18

U.S.C. § 209 that it has recognized for bona fide awards to federal officials from outside sources, must come from donors who are ‘‘detached from and disinterested in

the performance of the public official’s duties.’’ 14

The example expressly provided in the published regulations of the Office of Government Ethics uses the Nobel Prize to illustrate the type of ‘‘award’’ from independent sources that may be received by a federal official:

Example 1: Based on a determination by an agency ethics official that the prize

meets the criteria set forth in § 2635.204(d)(1), an employee of the National Institutes of Health may accept the Nobel Prize for Medicine, including the cash

award which accompanies the prize, even though the prize was conferred on the

basis of laboratory work performed at NIH.15

Similarly, an advisory ruling from the Office of Government Ethics provided another

example of when the receipt of a bona fide award by a particular official would not

raise ethics and conflict of interest concerns, that is, again, when the recipient/

awardee is not in a position to exercise official duties or responsibilities that may

substantially affect the interests of the donor:

A nonprofit organization presents its annual award consisting of $5,000 and a

medallion for ‘‘Greatest Public Service Performed by an Elected or Appointed

Official’’ to an employee of the Bureau of Prisons. The organization applied

long-standing written criteria in judging all of the candidates. The organization

has no relationship with the Bureau of Prisons. Because it is a bona fide award

for public service, it is not intended to compensate the employee for his services

to the Bureau of Prisons and would not violate section 209.16

Where there existed apparent or potential conflicts of interest for employees of an

agency with respect to the donor entity, however, because those employees worked

in a subject ‘‘area’’ of interest to the donor, the Office of Government Ethics, in applying an earlier version of the exemption, found that the requisite independence

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17OGE Opinion 83 x 11, July 26, 1983. 18 ‘‘Analysis of Ethics and Related Issues Concerning the Receipt of Lecture Awards by National Institutes of Health Employees,’’ 2-3, July 11, 2003. 19 Id. at 3. 20OGE Opinion 94 x 5, February 7, 1994. 21 In the facts provided by the Committee, one grantee facility which gave the agency Director

a several thousand dollar ‘‘lecture award,’’ the Arizona Cancer Center of the University of Arizona, advertizes itself as a ‘‘National Cancer Institute-Designated Comprehensive Cancer Center’’ (http://www.azcc.arizona.edu). In the relevant time period, in Fiscal Year 1999, for example,

the University of Arizona received grants from the National Cancer Institute in the amount of

$22,193,000, and contracts in the amount of $237,000; and in Fiscal Year 2000 received grants

from NCI in the amount of $25,249,000 and contracts in the amount of $486,000. Fact Book,

National Cancer Institute, 1999, at E-12; Fact Book, National Cancer Institute, 2000, at E-11.

or disinterestedness of the donor was not present, and that the awards could not

be accepted.17

The Office of Government Ethics has not published an interpretation specifically

addressing the issue of the head of an agency receiving cash ‘‘awards’’ from a grantee of that agency. There is, however, no ruling from the Office of Government Ethics

which interprets this narrow exception from the general gifts prohibition for bona

fide ‘‘awards’’ in such a manner as to allow the personal enrichment of a federal

official, such as an agency Director, from any entity, such as a grantee of the Director’s agency, which is so vitally concerned with and connected to the area of official

responsibilities and powers of the intended recipient. Under the general principles

of the administrative and regulatory exemptions, a grantee of an agency can hardly

be said to be ‘‘detached from’’ or ‘‘disinterested in’’ the official duties and responsibilities of the Director of the grantor federal agency. As explained below, such conduct

not only raises general ethics and conflict of interest concerns and appearances, it

appears to specifically violate the express prohibition on gifts from interested parties.

Meaning of Phrase ‘‘Interests That May Be Substantially Affected’’ by the Officer’s

Duties. The regulatory exception for bona fide awards thus does not allow, for obvious ethics and conflict of interest reasons, a public official to receive an award from

an entity which is in the ‘‘fourth category’’ of regulatory ‘‘prohibited sources,’’ that

is, from an entity that ‘‘has interests that may be substantially affected’’ by the performance or nonperformance of that official’s public duties. The Memorandum from

the Department of Health and Human Services admits its confusion and lack of understanding of the plain language of this category of ‘‘prohibited sources’’ in the

OGE regulations.18 The Department ‘‘white paper’’ speculates that this fourth category in the regulations could not mean ‘‘grantees’’ of the agency because, it argues,

such entities are already covered by the regulations in another category of prohibited sources, that is, those doing business with the agency. Such an interpretation,

the Department ‘‘white paper’’ argues, would create a meaningless ‘‘tautology’’ that

an employee could ‘‘accept an award from a ‘‘prohibited source’’ provided that it is

not a ‘prohibited source,’ ’’ 19 and the Department eventually concludes that the provision does not limit an award to the agency’s director merely because the donor

is a grantee of that agency.

The Department’s expressed confusion concerning the categories of ‘‘prohibited

sources’’ may be substantially clarified, in the first instance, by looking at the explanations of the Office of Government Ethics in its advisory opinions and rulings.

OGE has explained that the first three categories of ‘‘prohibited sources’’ in its regulations (which correspond to the first category of prohibited sources in the statute,

5 U.S.C. § 7353(a)(1)) are intended as ‘‘agency-wide’’ prohibited sources of gifts.20

That is, that such entities in the first three categories are ‘‘prohibited sources’’ from

whom gifts may not be received by everyone employed in the particular agency, regardless of the employee’s duties, responsibilities or functions. The ‘‘fourth category’’

of prohibited sources in the OGE regulations (which corresponds to the second, separate category in the statute, 5 U.S.C. § 7353(a)(2)), however, is not merely a repetitious statement of, or another, agency-wide limitation, but rather is intended to be

a restriction which is personal for the particular public official in question, and is

dependant upon the incumbent’s official authority, powers and duties.

Thus, an entity such as a research laboratory and treatment facility which receives grants from a federal agency and has a continuing relationship with that

agency,21 would be a ‘‘prohibited source’’ of ‘‘gifts’’ generally for every officer and employee in the agency under one of the first three regulatory categories of prohibited

sources (those seeking action from, doing business with, or regulated by the agency).

However, that laboratory would also be a ‘‘prohibited source’’ under the fourth category of the regulations, and thus a ‘‘prohibited source’’ even of ‘‘awards,’’ only if

the particular officer in question were in a position to exercise governmental authorVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00308 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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22 Employees in the agency who are in jobs that do not involve the making, evaluation, approval, or oversight of grants to that laboratory/facility, nor supervising those who have such

responsibilities, would still be prohibited from receiving ‘‘gifts’’ from that facility (merely because

of its status as a grantee of the agency), but would not be prohibited from receiving a bona fide

award from that laboratory/facility because their particular responsibilities do not affect its interests. 23 United States v. Sun-Diamond Growers of California, 526 U.S. 398, 405-411 (1999). 24 United States v. Niederberger, 580 F.2d 63, 69 (3rd Cir. 1978), cert. denied, 439 U.S. 980

(1978)(golfing trips for I.R.S. officer paid for by Gulf Oil Corp. when officer was merely ‘‘in a

position to use his authority in a manner which could affect the gift-giver’’); United States v.

Allessio, 528 F.2d 1079, 1082 (9th Cir. 1976), cert. denied, 426 U.S. 94 (1976)(gift to prison administrator). 25 526 U.S. at 405-406. 26 526 U.S. at 406. 27 526 U.S. at 408.

ity which could substantially affect the interests of that grantee.22 Clearly, a laboratory/facility which is a ‘‘grantee’’ of a particular agency may be a ‘‘prohibited source’’

for general ‘‘gifts’’ for every officer and employee of the agency (merely because of

the laboratory’s status as an agency ‘‘grantee’’) and, at the same time, may also be

a ‘‘prohibited source’’ for the Director of that agency for an ‘‘award,’’ because the Director’s general supervisory, administrative and operating authority relative to all

of his agency’s decisions may, obviously, have a substantial effect on the interests

of the laboratory/facility. It is thus the ‘‘status’’ of the position that the intended recipient holds, and the incumbent’s ability or capacity to exercise governmental authority affecting the donor entity, that is the relevant measure of the application

of the fourth ‘‘prohibited source’’ category.

In further clarification of the phrase used in the regulatory exemption, the Supreme Court of the United States clearly explained that for a particular public official, this ‘‘fourth category’’ of ‘‘prohibited sources’’ in the Office of Government Ethics regulations, from whom things of value may not be received because the donor

has ‘‘interests that may be substantially affected’’ by the duties of the official, relates to those situations where the public official ‘‘is in a position to act favorably

to the giver’s interests,’’ that is, where the public official has the ‘‘capacity to exercise governmental power or influence in the donor’s favor,’’ regardless of whether

there is a particular, identifiable matter immediately before the official.23 The clause

in the ethics regulation thus clearly is directed at the powers and responsibilities

of the office of the incumbent recipient, rather than the immediacy of any particular

matter and, in the case of a grantee of a federal agency, would obviously be applicable to the Director of the agency who has final statutory, administrative and operational authority over the agency decision-making vitally affecting the interests of

the donor entity.

In United States v. Sun-Diamond, the Supreme Court analyzed a prosecution of

a federal official, the Secretary of Agriculture, under the ‘‘illegal gratuities’’ clause

of the bribery statute for his receipt of various gifts from business entities which

could be affected by the exercise of the Secretary’s official duties because they had

businesses that were regulated by the Department. It should be noted that for a

number of years, in several federal circuits, so-called ‘‘status gifts’’ were successfully

prosecuted as ‘‘illegal gratuities.’’ 24 Status gifts were things of value received by an

official which were given because of that employee’s official position in the Government, that is, given to an officer or employee who ‘‘was in a position to benefit’’ the

private donor entity. The United States Government in Sun-Diamond argued unsuccessfully for that specific interpretation in the case of the Secretary of Agriculture:

The Independent Counsel asserts that ‘‘section 201(c)(1)(A) reaches any effort

to buy favor or generalized goodwill from an official who either has been, is, or

may at some unknown, specified later time, be in a position to act favorably to

the giver’s interests.’’ Brief for United States 22 [Court’s emphasis]. The Solicitor General contends that § 201(c)(1)(A) requires only a showing that a ‘‘gift

was motivated, at least in part, by the recipient’s capacity to exercise governmental power or influence in the donor’s favor’’ without necessarily showing that

it was connected to a particular official act. Brief for United States Dept. of Justice as Amicus Curiae 17 [Court’s emphasis].25

The Supreme Court, however, found that for a violation of the ‘‘illegal gratuities’’

provision, there must be some particular, identifiable ‘‘official act’’ to which the gift

is connected.26 The Supreme Court noted in Sun-Diamond that so-called ‘‘status

gifts,’’ that is, gifts to a federal official which were prohibited ‘‘by reason of the recipient’s mere tenure in office’’ because they were in a position to act favorably on

the donor’s behalf,27 were not necessarily ‘‘illegal gratuities,’’ but rather would come

within, be regulated by, and would violate the OGE regulations on gifts. Specifically,

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28 526 U.S. at 411, citing to the gifts regulations at 5 C.F.R. § 2635.203(d)(4). 29 526 U.S. at 405, 411. 30The timing of the offer and receipt of things of value, in relation to a particular official matter actually pending before a recipient Government official is a relevant circumstantial consideration in determining the requisite ‘‘intent’’ needed for an ‘‘illegal gratuity,’’ that is, the intent

to be rewarded or compensated for a particular official act. United States v. Biaggi, 853 F.2d

89, 99-100 (2nd Cir. 1988), cert. denied 489 U.S. 1052 (1989), evidence of required intent to reward may be inferred from the size of gift, and ‘‘the nature and sequences of events’’; United

States v. Jennings, 160 F.3d 1006, 1014, 1017-1018 (4th Cir. 1998), (referring to federal bribery

law at 18 U.S.C. § 201 and similar language at 18 U.S.C. § 666, regarding bribery and gratuities

in federally funded programs): ‘‘Direct evidence of intent is not necessary,’’ but may be inferred

from circumstances including timing and sequences of gifts and acts. Note also 18 U.S.C. § 209,

where donor’s interest in immediate official matter, although clearly not necessary for a violation, may arguably provide further evidence of ‘‘intent to compensate’’ and ‘‘appearance of a conflict of interest... sufficient to violate § 209.’’ United States v. Moore, 765 F.Supp. 1251, 1254

(E.D.Va. 1991). The law at § 209 has been described as a conflict of interest statute ‘‘in the

strictest sense,’’ that is, an ‘‘employee does not have to do anything improper in his office to

violate the statute,’’ but rather his special status as a government employee ‘‘makes an

unexceptionable act wrongful—wrongful because of the potential dangers in serving two paymasters.’’ Association of the Bar of the City of New York, Special Committee on the Federal

Conflict of Interest Laws, Conflict of Interest and Federal Service, at 55-56 (Harvard University

Press 1960). There may also be other considerations of felony violations when a public official

actually participates ‘‘personally and substantially’’ in a particular agency matter in which the

official has his own personal, financial interest. 18 U.S.C. § 208. 31 42 U.S.C. §§285a-1, 285a-2. 32 According to the NCI web-site (http://www3.cancer.gov/mab/hnc1.htm), the Office of the Director ‘‘(1) Serves as the focal point for the National Cancer Program; (2) develops a National

Cancer Plan and monitors implementation of the plan; (3) directs and coordinates the Institute’s

programs and activities; and (4) develops and provides policy guidance and staff direction to the

Institute’s programs in areas such as program coordination, program planning, clinical care and

administrative management.’’

the unanimous court found such gifts, that is, things of value given to a public official who has the capacity to act favorably on the donor’s behalf at some time, to

be gifts which would violate the regulations expressly prohibiting the receipt of gifts

from anyone who ‘‘has interests that may be substantially affected by performance

or nonperformance of the employee’s official duties:’’

[I]t is interesting to consider the provisions of 5 C.F.R. § 2635.202 (1999), issued

by the Office of Government Ethics...The first subsection of that provision, entitled ‘General prohibitions,’ makes unlawful approximately (if not precisely)

what the Government asserts [the statute] makes unlawful: acceptance of a gift

‘‘[f]rom a prohibited source’’ (defined to include any person who ‘‘[h]as interests

that may be substantially affected by performance or nonperformance of the employee’s official duties . . .’’ 28

The Supreme Court in Sun-Diamond thus explicitly explained that the prohibition

in the executive branch regulation on accepting gifts from one who ‘‘has interests

that may be substantially affected by the performance or nonperformance of the employee’s official duties,’’ is a prohibition on receiving things of value from private

sources by a federal official who is merely ‘‘in a position to act favorably to the

giver’s interests,’’ that is, that the recipient public official has the ‘‘capacity to exercise governmental power or influence in the donor’s favor.’’ 29 There need not be any

identifiable, particular governmental matter currently before, or ‘‘on the desk of,’’

the official to violate this provision of ethics regulation under the Supreme Court

explanation. In fact, if there is a particular, identifiable matter involving the donorentity immediately before the Government official who is at the same time receiving

significant cash ‘‘awards’’ or other gifts from that entity, there may very well be

more than merely an ‘‘ethics’’ violation of the gift regulation, but rather potential

felony violations of federal criminal law.30

Authority of Agency Director. As a general matter, it is obvious and beyond reasoned argument that a Director of a federal agency has the official capacity and authority to exercise governmental power or influence which could have a favorable

or unfavorable impact on the interests of a grantee of that agency, particularly an

entity with a continuous grantee and certification relationship with that federal

agency. In fact, under federal law, the Director of the agency in question, the National Cancer Institute, has express administrative control and statutory authority

over all of the relevant functions of the Institute,31 and thus oversees the grant

functions, administration and oversight of grantee programs.32

One may not convincingly argue, under either general or conflict-of-interest-specific legal principles, that an agency grantee has no interests which may be substantially affected by the official authority, duties and responsibilities of that agency’s

Director merely because the Director has ‘‘delegated’’ certain functions regarding

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33Skokomish Indian Tribe v. General Services Administration, 587 F.2d 428, 432 (9th Cir.

1978). 34Skokomish Indian Tribe, supra at 432. For conflict of interest purposes it may be noted that

the act, decision and discretion of delegating certain authority or not delegating authority, to

whom such authority is delegated, and the nature—reviewability, timing, extent—of such delegation may involve, in themselves, the exercises of official duties that may substantially affect

a grantee. 35 NLRB v. Duval Jewelry Company, 357 U.S. 1, 7-8 (1958); Equal Employment Opportunity

Commission v. Exchange Security Bank, 529 F.2d 1214, 1218-19 (5th Cir. 1976). 36See, for example, definition of ‘‘official responsibility’’ for purposes of certain criminal conflict

of interest laws as including ‘‘direct administrative or operating authority, whether intermediate

or final, and either exercisable alone or with others, and either personally or through subordinates, to approve, disapprove, or otherwise direct Government action.’’ 18 U.S.C. § 202(b). Emphasis added. 37 Bayless Manning, Federal Conflict of Interest Law, at 207-208 (Harvard University Press

1964). 38While not requiring ‘‘personal and substantial’’ participation in a particular governmental

matter affecting the donor to incur the prohibition on ‘‘awards,’’ even that much stricter criminal

standard of responsibility and duties would not, as discussed by Roswell Perkins, ‘‘create a loophole for the lazy executive in the chain of command who may not have bothered to dig into the

substance’’ of a particular matter. Roswell Perkins, ‘‘The New Federal Conflict of Interest Law,’’

76 Harvard Law Review 1113, 1128 (1963). 39 United States v. Mississippi Valley Generating Co., 364 U.S. 520, 549 (1960). The language

of the regulatory limitation prohibiting an ‘‘award’’ when the donor entity has interests that

‘‘may be’’ influenced by the official duties of the recipient indicates a focus on potential performance or influence. The Supreme Court noted in another ethics context, that the Government ‘‘appropriately enacts prophylactic rules that are intended to prevent even the appearance of wrongdoing . . .’’ Crandon v. United States, 494 U.S. 152, 164 (1990).

grants to subordinate officials. A delegation of authority by a federal official is not

a divestiture of official authority or responsibility.33 As noted by the United States

Court of Appeals, the head of an agency who delegated authority to a subordinate

official ‘‘did not, however, divest... himself of the power to exercise his authority or

relieve him of his responsibility for action taken pursuant to the delegation.’’ 34 In

fact, the Supreme Court has found that an official may not administratively divest

himself of statutory authority.35

A superior thus clearly has ‘‘official responsibility’’ for, as well as ‘‘official authority’’ over, the actions of those subordinate officials in the chain of authority and command in his federal agency.36 The assignment, review, oversight, and supervision of

official actions of subordinate employees, as well as the express authority retained

by that official to direct the overall functions and programs of the agency, are all

among the official responsibilities and duties of a federal officer such as an agency

Director. In explaining the conflict of interest principles in the concept of the ‘‘official responsibilities’’ of a federal officer, Professor Manning expressly noted that:

‘‘[T]he head of a department or agency would have ‘‘under his official responsibility’’

all matters in the department or agency.’’ 37

It should be emphasized that there is not a requirement under the gifts prohibition/‘‘award’’ restriction that the recipient official must actually participate ‘‘personally and substantially’’ in any current governmental matter affecting the donor/

grantee for the prohibition on awards to apply, as there is under several criminal

conflict of interest laws.38 As noted, the restrictions on awards from interested parties is concerned, for obvious ethical and conflict of interest reasons, with the power

to exercise governmental authority in the donor’s favor, that is, it is concerned with

the status of the recipient official vis-a-vis the donor, and not with whether such

authority is actually exercised in a particular, identifiable matter. Like many conflict of interest rules, this regulation does not require actual corruption, loss by the

Government, or wrongful official acts, but rather is preventative and prophylactic

in nature, and thus is, as the Supreme Court noted concerning another conflict of

interest law, ‘‘directed not only at dishonor, but also at conduct that tempts dishonor.’’ 39 Under the relevant legal and administrative interpretations of, and the

plain meaning of the language employed in the gifts/‘‘award’’ limitations, therefore,

an entity such as a cancer research and treatment facility which has a continuing

grant and certification relationship with a federal agency such as the National Cancer Institute, clearly has interests that may be substantially affected by the actual,

statutory operational, administrative and supervisory duties, responsibilities and

authorities of the Director of that agency, and may thus not be a source of cash

‘‘awards’’ to that Director.

SUMMARY/CONCLUSION

1. A federal official in the executive branch may not, under federal ethics regulations, receive a cash ‘‘award’’ or ‘‘prize,’’ even a ‘‘bona fide award,’’ from a donor

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40 5 U.S.C. § 7353(a)(2); 5 C.F.R. §§ 2635.202, 2635.203(d), 2635.204(d). 41 United States v. Sun-Diamond Growers of California, 526 U.S. 398, 405-411 (1999); 8 Op.

O.L.C. 143, 144 (1984); OGE Advisory Opinions Nos. 83 x 11 (July 26, 1983), and 92 x 7 (February 26, 1992). There need not be a particular identifiable matter before or ‘‘on the desk of’’

the official for the regulation to apply, and if there is such an official matter immediately before

the officer while he is receiving things of value, gifts and cash from that entity, then other, more

serious criminal violations may be implicated. 42 42 U.S.C. §§285a-1, 285a-2. NLRB v. Duval Jewelry Company, 357 U.S. 1, 7-8 (1958);

Skokomish Indian Tribe v. General Services Administration, 587 F.2d 428 (9th Cir. 1978). An

official need not have ‘‘personal and substantial’’ participation in a particular matter for the regulation to apply (Compare to 18 U.S.C. § 208).

which has interests that may be substantially affected by the performance or

nonperformance of the official’s governmental duties.40

2. An entity is not a ‘‘disinterested’’ nor ‘‘detached’’ source, and specifically has interests that ‘‘may be’’ substantially affected by the performance or nonperformance

of the official duties of a federal officer when that officer is ‘‘in a position to act

favorably to the giver’s interests,’’ that is, when he has the ‘‘capacity to exercise

governmental power or influence in the donor’s favor.’’ 41

3. The Director of a federal agency has the official authority, responsibility and duty

to direct, oversee, manage and supervise the agency decisions regarding the

making of grants and the continued certification of certain grantee entities, may

not divest himself of such authority and responsibility by way of delegation, and

thus, obviously, has significant federal authority, power, capacity and official responsibilities that may substantially affect the interests of such a grantee of

that agency.42

4. The federal gift restrictions, therefore, prohibit the Director of a federal agency

such as the National Cancer Institute from personally enriching himself by accepting large cash ‘‘awards’’ or ‘‘prizes’’ from grantees of his own agency.

Mr. GREENWOOD. We thank you very much, Mr. Maskell.

Dr. Varmus.

TESTIMONY OF HAROLD VARMUS

Mr. VARMUS. Thank you, Mr. Greenwood. Thank you and your

colleagues for holding this hearing and giving me an opportunity

to speak. I agree with you that if there are concerns about ethics

practices of the NIH that the vit unshanum on those practices will

be useful to maintain the integrity and utility of the NIH.

I have been asked to speak about some historical matters so I

will be addressing some of the questions Ms. DeGette raised in her

opening statement and not the specific cases that you mentioned

in your opening comments, Mr. Chairman.

What I would like to do is give you a brief historical review of

the situation, comment a bit on the evolution of views about management of conflict of interest and ethics matters, and comment on

the current status of issues at the NIH.

My current opinions are based on three phases of my career.

First, as a faculty member at the university of California during

the 1970’s and 1980’s; second, as Director of the NIH from 1993 to

1999; and, finally, in my current capacity as the head of an academic health center in New York.

Some brief history. During the 1970’s and 1980’s biomedical research was profoundly transformed by the birth of the biotechnology industry. This enterprise, as you know, has generated

some remarkable products, hepatitis B vaccines, human insulin,

hormones that we use to protect patients undergoing chemotherapy, major advances the public welcomes.

The growth of this industry was also remarkable because it depended heavily on an unusually intimate relationship between industry and the nonprofit sector, especially scientists and academic

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institutions. These scientists are largely supported by Federal

funds. They are often in State universities, receive public salaries.

They are nearly always beneficiaries of Federal research grants.

They were not simply the authors of information that was used

by the biotech industry. They were also intimately involved in the

development of that industry as founders, consultants, board members, collaborators, and the source of newly trained employees.

Now, in that period there was no uniformity of practice with respect to how academic institutions managed the many potential

conflicts and outside activities conducted by their employees. Government scientists, especially those working as bench scientists in

the intramural program of the NIH were subject to much more severe limitations.

Despite the fact that they are neither regulators of non-Government research nor responsible as bench scientists in the intramural

program for awarding grants and contracts in distinction to scientists of the NIH who work in the extramural program that

awards grants and contracts.

In fact, you could argue that Government scientists in the intramural program have position descriptions very similar to those of

academic scientists at universities and health centers.

Now, when I came to the NIH as director in the fall of 1993, it

was quite clear from a number of sources that the intramural research program was held in relatively low esteem by outside scientists and morale was low. That is well documented by a long article that appeared in Science Magazine in August 1993 and other

pieces of evidence that included the inability to recruit scientists

from the outside. Nearly all recruits were people who had been

trained within the NIH, and it was also apparent from the welldocumented loss of many of the most prominent scientists at the

NIH to academic or industrial sectors.

This was not simply due, in my view, to the restrictions on outside activity interactions but that certainly was a component, both

the limitations on industrial interactions and restrictions on other

outside activities including bans and honoraria and so forth. One

of the things that I did when I came to the NIH was to try to restore the NIH, especially the intramural program, to its former

high regard.

We brought together a distinguished group, our own Blue Ribbon

Panel, to look at issues of management, evaluation procedures, facilities.

Then in 1995 when we were advised by the Office of Government

Ethics that NIH had dramatically improved its oversight of outside

activities which had been critically reviewed several years earlier,

and that we were advised that NIH had come into compliance with

less restrictive policies employed by other Federal agencies, I lifted

the restrictions as another step toward making the NIH intramural

program more welcoming to outside scientists.

Included in that lifting of restrictions was the explicit directive

that all outside activities would be carefully reviewed by ethics officers to ensure they did not interfere with the conduct of official duties.

Later I also sought permission from the Department to expand

the use of alternative pay scales, again as part of a multi-factored

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approach to improving the intramural research programs assigned

to equality.

I believe that in the aggregate those steps have been successful.

The intramural program does have the very high regard in these

scientific communities that it had 20 years ago. It competes effectively with academic institutions for outstanding job candidates at

the junior level. Many of its current leaders have been brought to

the NIH in the last decade in the extramural community.

It is difficult to know how much to ascribe that to changes in

compensation, policies governing outside activities, to new buildings, to the altered reputation itself, or to improved management

practices. But to give you one example, the vaccine research center,

a brand new entity on the campus, has successfully recruited 10

new outstanding staff to conduct research in the pursuit of an

AIDS vaccine and the director of the vaccine research center advises me that if he did not have the salary capabilities conferred

by Title 42 and the ability to offer the possibility of outside activities, that he would have had a very difficult time in making those

recruitments.

There have been many changes in the approach that the extramural community has made; that is, the academic community has

made to issues of outside activities over the last 41⁄2 years since I

left the NIH. A number of important cases and meetings have

brought to the attention of this community the need for clear definitions of what conflicts of interest are when they pertain to individuals and institutions.

More attention has been given to conflicts of commitment; that

is, situations in which excessive reimbursement or unusual

amounts of time given to an outside activity may deflect attention

to the prime interest of an academic scientist. We are paying more

attention to appearance of conflict of interest. Complicated cases

are now reviewed by conflict of interest committees composed of

scientists, administrators, lawyers, and many informed lay persons.

I have testified, of course, to Dr. Zerhouni’s Blue Ribbon Panel.

I agree largely with the recommendations the Blue Ribbon Panel

has made. I have emphasized the continued importance of allowing

participation in outside activities including consulting for industry

to maintain the vibrancy of the intramural research program to ensure that the talents of its members are fully utilized for the benefit of society, and to provide the tools necessary for effective recruitment and retention of outstanding scientists.

I have also argued in contrast to the policies we have put in

place in the mid-1990’s that rules of engagement now need to be

more explicit, more restrictive. We have learned something over the

last several years. Some reasonable limits in the number of hours

devoted to and the amount of compensation received from an outside activity.

I have suggested that senior personnel such as institute and center directors who are responsible for the award of grants in the development of programs be barred from certain activities. I have applauded Dr. Zerhouni’s creation of his trans-NIH committee, the socalled DEAC. I commend him for trying to enlarge the group of intramural scientists who must provide full general disclosure. I believe in disclosure.

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Final actions by the Director of NIH on these and other matters

addressed in the panel’s report should take into consideration your

deliberations here, public comments on the report, the views of

NIH employees and others. I appreciate the efforts you are making,

Mr. Chairman, to study these complex issues and I will be pleased

to respond to any questions you might have. Thank you for indulging me with my slightly overlong presentation.

[The prepared statement of Harold Varmus follows:]

PREPARED STATEMENT OF HAROLD VARMUS, PRESIDENT, MEMORIAL SLOANKETTERING CANCER CENTER

Mr. Chairman and Members of the Committee: Thank you for an opportunity to

speak with you about rules governing the outside activities of scientists employed

by the National Institutes of Health (NIH) and about my views of the recommendations recently made to the NIH Director by the panel he established to review practices related to conflicts of interest. I welcome the public discussion of these topics,

because the NIH is of such importance to the future of biomedical research and

health care, and the conduct and management of its research program are therefore

matters of general concern.

My current opinions about the complex issues being addressed at your hearing

today are based on my experiences in three phases of my career—first, as a faculty

member at the University of California, San Francisco, Medical School from 1971

to 1993; second, as the Director of the NIH, from 1993 to the end of 1999; and,

third, as the current head of the Memorial Sloan-Kettering Cancer Center (MSKCC)

in New York City. Each of these phases offered lessons that are pertinent to our

important discussion here today.

Phase 1: Birth of the biotechnology industry

It helps to begin with some history. During the 1970’s and 1980’s, biomedical research was transformed by advances in molecular biology and genetics that led to

the development of recombinant DNA technology. Once the government and the scientific community reached agreement about reasonable means to monitor the safety

of these new methods, an industry based on them—the biotechnology industry—was

born and grew rapidly, especially in the Bay Area, where I was working. Soon this

new enterprise generated and began to manufacture some of its now numerous

products—such as human insulin, hepatitis B virus vaccine, and hormones that protect the bone marrow after cancer chemotherapy—major advances in health care

that help to justify to the public the major investment that our country has made

in basic biomedical sciences.

The growth of the biotechnology industry was also remarkable because it depended heavily on an unusually intimate relationship between the industry and the

non-profit sector, especially scientists in academic institutions. These academic scientists, largely supported by public funds (often salaried by state universities and

nearly always beneficiaries of Federal research grants), were not only the authors

of the published knowledge on which the biotechnology industry was built; they

were also the founders, the consultants, the board members, the collaborators, and

the sources of newly trained employees for the companies. Different academic institutions displayed a wide range of attitudes towards these activities, without consensus on the nature or seriousness of any potential conflicts and often without

clear guidelines for preventing or governing them.

One indisputable feature of this change was the enhanced fertility and frequency

of relationships between the academic and industrial sectors. In contrast, government scientists, such as those working in the intramural program (IRP) of the National Institutes of Health, were more likely to be subject to limitations to their participation in these productive and interesting interactions, despite the fact that they

were neither regulators of non-government research nor responsible for awarding

grants and contracts. In fact, in most ways, the government scientists in the IRP

could be viewed as having position descriptions very similar to those of academic

scientists at universities, health centers, and research institutes: to perform not-forprofit research, largely with public funds, with the intention that the findings will

be useful for the control of disease. (The major differences between IRP and academic scientists are related to funding mechanisms, review procedures, and the

speed of the IRP’s response to new health threats.)

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Phase 2: Strengthening the NIH IRP

The governmental restrictions, however, on industrial interactions and other ‘‘outside activities’’ (such as bans on honoraria for speaking, editing, and writing), combined with less generous salary scales and many concerns about the management

of research activities in the Federal agency, contributed to the relatively low esteem

in which the IRP was held by outside scientists and to the low morale in the program when I arrived at the NIH as Director in the fall of 1993. Worrisome consequences of these attitudes included ineffective recruiting of new staff from the external scientific community (it was reported that 70% of recently recruited staff had

been trained in NIH laboratories) and the recent loss of some of NIH’s most prominent scientists to the academic or industrial sectors. (Some of these issues are discussed in a lengthy news article that appeared in Science magazine in August, 1993;

J.Cohen, ‘‘Is NIH’s Crown Jewel Losing Luster,’’ Science 261: 1120, 1993.)

As a proud product of the NIH intramural training program in the late 1960’s,

when it was considered to be in an extraordinarily productive phase, I was intent

on trying to return the IRP to its earlier stature in my new position. To achieve

this, my colleagues and I energetically and successfully followed the recommendations made by a panel of distinguished investigators that we convened to address

concerns about management, evaluation procedures, and facilities in the IRP (Report of the External Advisory Committee of the Director’s Advisory Committee and

Implementation Plan and Progress Report, November 17, 1994). I sought permission

from the DHHS, again successfully, to expand the use of alternative pay scales, including the Senior Biomedical Research Series, and alternative hiring authorities,

such as Titles 38 and 42. When advised by the Office of Government Ethics in 1995

that NIH had dramatically improved its oversight of outside activities, following a

critical appraisal in 1991, and should come into compliance with the less restrictive

policies employed at other Federal agencies, I lifted the restrictions as another step

towards making the NIH IRP more welcoming to outstanding scientists, with the

explicit understanding that all outside activities would be carefully reviewed by ethics officers to insure that they did not interfere with the conduct of official duties.

In my estimation—and, I believe, in the estimation of most of the scientific community—the IRP has largely regained its stature and its productivity. It competes

effectively with academic institutions for outstanding job candidates at the junior

level, and many of its current leaders have been brought to the NIH campus in the

past decade from the extramural community. It is difficult, of course, to know how

much to attribute the improved status of the IRP to changes in compensation, policies governing outside activities, new buildings, altered reputation, or improved

management practices. But, to offer one example, the Director of the new Vaccine

Research Center (VRC) has told me that he would have been unable to recruit most

of the seven junior and three senior scientists he has hired at the VRC since his

arrival in 1999 if he did not have Title 42 authorities to offer salaries competitive

with those provided at outside institutions; furthermore, while his new staff members fully understand the need for careful review of their outside activities for conflicts of interest and commitment, they would have been discouraged from coming

to the NIH if it were considered unethical to use their general knowledge to advance

the practical use of new information by consulting for industry.

Phase 3: Growing sophistication of approaches to outside activities

During the nearly four and a half years since I left the NIH for MSKCC, I have

closely observed and participated in the evolution of attitudes at academic health

centers towards outside activities, particularly those that involve the for-profit, industrial sector. In view of the dangers posed by conflicts of interest in clinical research, many academic health centers—acting alone and through their associations—have re-examined their rules for the conduct of clinical research. They have

also sought clear definitions of conflicts of interest that affect individual investigators or entire institutions, and they have applied them to the conduct of basic laboratory research as well as clinical research. As a by-product of these deliberations,

more attention is now also given to the conflicts of commitment that result from the

devotion of relatively extensive time to, or the receipt of relatively generous reimbursement from, an outside activity. Furthermore, academic institutions increasingly appreciate the importance of even the appearance of conflicts of interest or

commitment, since a perceived potential for conflict can undermine public confidence

in medical research.

Importantly, the accumulated experience with a wide variety of outside activities

undertaken by employees at many non-profit research institutions indicates that

complicated cases are generally uncommon, but difficult to judge by a simple rule

book. For this reason, many academic centers, including our own at MSKCC, have

established conflict of interest committees, composed of scientists, administrators,

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lawyers, and informed laypersons, to review unusual and complex situations on a

case-by-case basis and make recommendations to institutional leaders for the management of those cases.

Advice to the Blue Ribbon Panel

These more sophisticated approaches to management of outside activities in academia should also be applied to the NIH IRP, as I maintained when I testified before the Blue Ribbon Panel that Elias Zerhouni, Director of the NIH, recently assembled to advise him about conflict of interest policies. More specifically, I emphasized the continued importance of outside activities, including consulting for industry, to maintain the vibrancy of the IRP, to ensure that the talents of its members

are fully utilized for the benefit of society, and to provide the tools necessary for

effective recruitment and retention of outstanding scientists. I also argued that

rules of engagement need to be more explicit and frequently revisited—and revised

if necessary—while remaining consistent with the cardinal principle of non-interference with the performance of official duties. I applauded Dr. Zerhouni’s creation

of a trans-NIH conflict of interest committee and his already successful efforts to

enlarge the group of IRP scientists required to provide full public disclosure, not just

internal disclosure, of their compensated outside activities. I also argued that some

reasonable limits should be placed on the number of hours devoted to and/or the

amount of compensation received from an outside activity. Finally I recommended

that senior NIH personnel, such as Institute and Center Directors, who are responsible for the award of grants or the development of extramural programs and who

are unable to recuse themselves in favor of an appropriate superior should not be

permitted to engage in outside activities involving potential or actual beneficiaries.

(I also proposed some of these policy changes in written testimony submitted to the

Labor-HHS Subcommittee of the Senate Appropriations Committee on January 15,

2004.)

In general, I agree with the Blue Ribbon Panel’s recommendations, as presented

to your Committee last week by Bruce Alberts and Norman Augustine, with a few

qualifications. I believe that exclusion of senior Institute and Center personnel from

consulting for industry or academia should be based on function (namely, formulation or funding of extramural programs as opposed to direction of intramural research), rather than seniority or title. I also believe that exemptions should be permitted from the ban on reimbursement with equities if reviewed favorably by the

trans-NIH conflict of interest committee. Final actions by the NIH Director on these

and other matters addressed in the Panel’s report should take into consideration

public comments on the report, the views of NIH employees and grantees, and the

opinions formed by this Committee and the Congress as a consequence of these

hearings.

I appreciate the efforts you and your colleagues are making, Mr. Chairman, to

study these complex issues by holding this series of hearings. Your actions and

views can have important consequences for one of the world’s most esteemed research organizations.

I would now be pleased to respond to any questions you might have.

Mr. GREENWOOD. That is quite all right. Thank you, Dr. Varmus.

The Chair would recognize the Chair of the full committee, Mr.

Barton, for purposes of inquiry for 10 minutes.

Chairman BARTON. Thank you, Mr. Chairman. I may not have

10 minutes of questions but I do have a few. I want to start with

Ms. Glynn. On page 4 of your testimony you say, and I am quoting

from it, ‘‘It would be somewhat peculiar to say that the agency had

and other senior management essentially may never receive an

award from anyone involved with the agency.’’ Well, I am not sure

I think that is so peculiar so why would it be peculiar if we just

had a blanket categorization that you couldn’t receive a cash

award?

Ms. GLYNN. I think you have to remember that the rule we are

talking about, the one promulgated by my office, is an executive

branch-wide rule so it would have similar applicability at DOD, for

example, and NIH. We are very concerned when we promulgate

these rules that we don’t go overboard while trying to address the

issues that are present at one particular agency.

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For example, at DOD you would have to assume that virtually

every company in the country would be a prohibited source for Secretary Rumfeld to receive an award from because virtually every

major corporation in the country——

Chairman BARTON. I may be misinterpreting your testimony but

I am talking about cash awards. I am not talking about getting a

plaque for good guy of the year.

Ms. GLYNN. That is right, sir.

Chairman BARTON. Where there is a cash stipend that goes with

it.

Ms. GLYNN. Yes, sir. I understand that. That is the reason we

came up with this test that affords at least a small modicum of

flexibility. Frankly, I would say, for example, in the DOD example

I just gave there is no way that Secretary Rumfeld would ever be

approved to accept an award from Northrup Grumman or Lockheed

Martin. But by contrast, Coca Cola or Disney does do business with

DOD and they might conclude that any matters involving Coca

Cola or Disney is far removed from any of the work that he would

do.

Chairman BARTON. I am checking with the House Ethics Committee and the Congressional Research but I am not aware that a

Member of Congress while he or she is in Congress can receive any

kind of a cash award. It is just not done and there are 435 of us

so there are 434 watchdogs. At least whatever the other party is,

you know they are going to watch us like a hawk and we watch

them.

Ms. GLYNN. Sure. The President in an executive order has issued

an outside earned income ban for all Presidential appointees. But

one exception to that ban is our regulation that allows these bona

fide awards. Once again, I think the head of NIH, if he were eligible to receive a Nobel prize would probably not want to have to

turn that prize down even though it involves a cash award.

Chairman BARTON. Well, not just in NIH and FDA but Government-wide how many Federal employees each year either receive or

are offered cash awards? Are we talking about hundreds, thousands, tens of thousands?

Ms. GLYNN. We have no data on that, but I’ll be honest, with my

informal discussions with agency ethics officials in preparation for

this hearing, awards at other agencies are infrequent.

Chairman BARTON. Infrequent?

Ms. GLYNN. Yes, sir.

Chairman BARTON. Could you ask your staff to compile whatever

inquiries you have—is it a requirement that if one is offered a cash

reward, they have to touch base with your department?

Ms. GLYNN. No, it is not a requirement but we certainly could

do a sort of informal survey of major agencies.

Chairman BARTON. Should it be a requirement? Should we require by statute that any Federal employee that is offered a cash

award has to have it cleared by your office or some office?

Ms. GLYNN. I hate to invite that little bit of extra work. Maybe

perhaps for a certain level of employee; I am not sure that I would

want every GS-9 who gets offered a cash award to have to clear

it through our office.

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Chairman BARTON. So under current statute someone—there is

no requirement that any person offered a cash award touch base

with your group?

Ms. GLYNN. No, sir.

Chairman BARTON. So it is all voluntary?

Ms. GLYNN. They have an ethics official. Remember the ethics

program is a decentralized program so there is a designated ethics

official at every agency. That person would normally be involved in

the approval of such awards.

Chairman BARTON. But do they——

Ms. GLYNN. They are not required to consult with us, though.

Chairman BARTON. So yours is purely——

Ms. GLYNN. Anecdotal evidence.

Chairman BARTON. [continuing] a service that is available if they

want to use it.

Ms. GLYNN. Yes.

Chairman BARTON. It is not mandatory.

Ms. GLYNN. Yes, sir.

Chairman BARTON. Okay. Now, Mr. Swindell, you are the person,

I believe, that on Dr. Clausner’s request to receive the award from

the University of Pittsburgh, you are the one that said that was

okay. Is that right or wrong?

Mr. SWINDELL. Yes, sir. I am the one that signed that approval

and it is not a decision that I look back on with fondness or pride.

Chairman BARTON. Okay.

Mr. SWINDELL. I think the situation was one where I relied too

uncritically on the direction and information provided to me by

General Counsel Rabb at that time. In that regard, let me provide

some background of how we had to operate back in that prior administration.

We and other attorneys in the Office of General Counsel at that

time had been specifically instructed to provide advice and evaluate

issues based on whether any reasonable argument could be made

that a particular course of action was legally supportable. The view

was that the decisionmakers, the political appointees and other

senior officials were to be responsible and accountable themselves

for the choices that they made. To say no to anything the lawyers

would have to demonstrate that was the only real possible answer.

Chairman BARTON. Now, wait a minute. That is the political

guidance that came to you or that is your——

Mr. SWINDELL. I will read to you, Mr. Chairman, a copy of a note

to a file that I wrote 10 years ago in 1994. I was a staff attorney

in the Ethics Division at that time. I provided the committee a copy

of the note. If you will permit me to quote from it because I think

it is pretty interesting.

Chairman BARTON. These are your words?

Mr. SWINDELL. These are my words written to a note to the file

in 1994.

Chairman BARTON. Okay.

Mr. SWINDELL. This is 3 years before the Clausner award. It

said, My supervisor indicated to me that the General Counsel instructed him to confine ethics advice to purely legal answers. We

are no longer to provide observations about the wisdom of particular actions or policy or how things may appear on the front

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page of the Washington Post or possible political ramifications of

options.

These matters are for policymakers. The General Counsel does

not desire career objective view as a check on official actions. We

are to decide only if there is a legal objection, i.e., whether the action or option is legally supportable under the law and regulations.

My supervisor, in turn, instructed me to carry out the General

Counsel’s wishes. He said that he had written a note to the file to

document this instruction and advised me to do the same. There

may arise situations where when we comply with these instructions and are prevented from providing full counsel——

Chairman BARTON. I have the gist of it. So what you are basically saying is as long as at some point in the past you have written a note to the file to cover your bottom, it is okay. Whatever the

guys on top tell you to do, you are going to find a way to do.

Mr. SWINDELL. Well, essentially——

Chairman BARTON. Tell us your title at HHS right now.

Mr. SWINDELL. It is Associate General Counsel.

Chairman BARTON. For what?

Mr. SWINDELL. For ethics.

Chairman BARTON. For ethics?

Mr. SWINDELL. That is right. I can assure you that we do not operate under this type of advice under the current administration.

Chairman BARTON. And what was your title in 1994?

Mr. SWINDELL. I was a staff attorney in the ethics division.

Chairman BARTON. For ethics.

Mr. SWINDELL. Yes, sir.

Chairman BARTON. Okay.

Mr. SWINDELL. The problem is——

Chairman BARTON. So, as I understand that note, though, the direction is even though you are in the ethics division, you are not

supposed to use any ethics. You are supposed to use your legal

training to render the decision that the political higher ups ask you

to render.

Mr. SWINDELL. It is a fair criticism to render the precise answer

and allow the individual to take the risk of the appearance.

Chairman BARTON. Okay. Does an associate general counsel or

an assistant general counsel in HHS and ethics, is it ever ethical

to just resign or to say, ‘‘I can’t do that,’’ and give you what my

real opinion is?

Mr. SWINDELL. Well, there was a restrain on us. I checked my

bar rules to make sure. The bar rules require lawyers to provide

counsel on ethics, political, social, and so forth. They also say the

client waive those.

Chairman BARTON. Do you view the job of the Ethics Division as

a watchdog for the integrity of the American people or as a lapdog

for whoever the superiors happen to be at the time? That is a serious question.

Mr. SWINDELL. It is a very serious question. Unfortunately, I do

not view it the bad way. I view it as we want to do the right thing.

I have devoted a dozen years of my career to working on ethics. I

was very concerned about the restraints on us. I kept being reassured that the officials would be responsible for the risk of their assessment of what people think about them.

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Chairman BARTON. My time has expired. I want to ask a question of Dr. Varmus very quickly.

You were an NIH director in the mid-1990’s and my briefing

book says you are the one that made the decision to life the restrictions on consulting at NIH. Is that true?

Mr. VARMUS. Yes. Of course, in consultation with other people.

Chairman BARTON. But it was your ultimate decision. In hindsight do you think the decision you made then, if you had to make

it today knowing what you know now, would you make the same

decision?

Mr. VARMUS. As I have indicated, I think we have learned a lot

about the problems of managing this kind of—these outside activities and the difficulties of appearance of conflicts and I would do

it somewhat differently as I have indicated in my testimony.

Chairman BARTON. Okay. Thank you, Mr. Chairman.

Mr. GREENWOOD. If the gentleman will yield, I want to clarify

one thing. I know he has no time to yield but, Mr. Swindell, you

said you received those directions from your superior. Would you

identify your superior?

Mr. SWINDELL. My superior at that time, his name was Jack

Kress.

Mr. GREENWOOD. Jack Kress with a C or a K?

Mr. SWINDELL. K-R-E-S-S.

Mr. GREENWOOD. And did Mr. Kress indicate to you what motivated him to render that advice to you, whether he had been chastised from someone in a superior position to him or what the genesis of that was?

Mr. SWINDELL. It was my understanding that this came after a

performance review that he had. In fact, about 6 months——

Mr. GREENWOOD. And who would have been reviewing his performance?

Mr. SWINDELL. The General Counsel Harriet Rabb. In fact, about

6 months later my supervisor shared with me a criticism he had

received from the General Counsel about a memorandum that I

had drafted for the supervisor’s signature that stated that certain

conduct would not be prudent. She said that this was our old problem of giving opinions about appearances rather than just stating

legal conclusions backed by law.

Mr. GREENWOOD. Did you ever have a sense of what motivated

Ms. Rabb to do that, whether someone in a superior position to her

had——

Mr. SWINDELL. I don’t know.

Mr. GREENWOOD. Okay. The gentlelady from Colorado is recognized for 10 minutes.

Ms. DEGETTE. Thank you, Mr. Chairman. Mr. Swindell, you had

mentioned with the Chairman’s example that that waiver was

given under the previous administration but the waiver that was

given to Tom Scully was given under this administration. Correct?

Mr. SWINDELL. Are you talking about a conflict of interest?

Ms. DEGETTE. Yes, sir.

Mr. SWINDELL. Yes, the Scully waiver.

Ms. DEGETTE. Right. That was the one on May 12, 2003. Right?

Mr. SWINDELL. I am not sure.

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Ms. DEGETTE. Okay. Now, in that situation basically you recommended that HHS Secretary Thompson issue a waiver to Tom

Scully who was the head of CMS—we all know him—so that he

could negotiate employment with persons having matters before

Mr. Scully which included lobbyist and law firms with drug companies and health care companies as their clients. Is that right?

Mr. SWINDELL. Yes, I prepared the document that the Secretary

signed.

Ms. DEGETTE. Now, Mr. Scully told you in his memo, and I am

quoting, ‘‘These entities are likely to have substantial interest in

matters pending before the Department and Mr. Scully has responsibility for such particular matters that may affect the financial interest of the firms with which he may seek employment.’’ Is that

correct?

Mr. SWINDELL. I will be able to explain in a moment the process.

Ms. DEGETTE. Okay. I understood but that is what he said to you

in his memo. Right?

Mr. SWINDELL. I am not sure there was a memo to me.

Ms. DEGETTE. Okay. Actually, this is your memo.

Mr. SWINDELL. This is my memo to the Secretary.

Ms. DEGETTE. Right. So did you write those words?

Mr. SWINDELL. If they are in the document I wrote those words.

Ms. DEGETTE. Okay. Now——

Mr. SWINDELL. Actually, a staff attorney prepared it.

Ms. DEGETTE. The HHS regulations on post-employment restrictions state that current employees who have begun seeking or negotiating for non-Federal employment must recuse themselves from

participating in any official matter that involves the perspective

employer including a legislative initiative or policy initiative that

affects the perspective employer as a member of a defined class. Is

that right?

Mr. SWINDELL. If it is in the document, that is right.

Ms. DEGETTE. Now, have you ever given the kind of waiver you

gave to Mr. Scully to a Senate confirmed official while he was the

agency lead on a major piece of legislation?

Mr. SWINDELL. I don’t know about the specifics about legislation

but there have been many waivers like that granted in the past including one approved by President Clinton with regard to Donna

Shalala when she was head of HHS and talking to universities. Of

course, universities——

Ms. DEGETTE. Well, but at this time this was right in the middle

of Mr. Scully’s negotiations with Congress on the Medicare bill,

right?

Mr. SWINDELL. As it turns out——

Ms. DEGETTE. May 2003.

Mr. SWINDELL. I think afterwards that was the case.

Ms. DEGETTE. Right.

Mr. SWINDELL. By the time he came to me I was not aware of

what all he was involved in.

Ms. DEGETTE. He didn’t tell you he was involved in those? Didn’t

your memo exactly say that he had substantial interest pending

before——

Mr. SWINDELL. That is a presumption that would be the case,

that there would be industries——

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Ms. DEGETTE. Now, did anybody tell you to give Mr. Scully this

waiver? You said before your boss told you. That was your decision?

Mr. SWINDELL. No. The manner in which we deal with conflicts

of interest when someone leaves the Government, I will be happy

to explain the process and why it is important.

Ms. DEGETTE. Okay. Briefly, please.

Mr. SWINDELL. Section 208 of the criminal statute and some regulations require employees to recuse from matters once they start

talking about employment.

Ms. DEGETTE. Right. Did Mr. Scully recuse himself from negotiating the Medicare bill?

Mr. SWINDELL. I don’t know whether he recused from negotiating

the Medicare bill. The key point is there are some narrow distinctions in the law itself that talk about two types of matters, the particular matters of general applicability and particular matters involving specific parties.

The ethics concerns for the particular matters of general applicability are less than they are for a particular matter involving specific parties. The idea is if you are someone like the head of an

agency and you are talking with someone in the agency that you

regulate, then you are going to be recused from doing your job totally. It means that you——

Ms. DEGETTE. Well, not really. Only if you are looking for another job and there is a major bill pending before Congress that affects lots and lots of people to whom you are applying for a new

job. Right?

Mr. SWINDELL. If the same situation was with Donna Schlala,

the idea is that the agency head, if they start talking with someone

when they are trying to leave the agency, they will have recusal

obligations that are very, very extensive and basically can’t do their

job.

Ms. DEGETTE. Okay. Well, I understand but when Donna

Shalala—I really do understand but here is the thing. Did you then

as part of your waiver to Mr. Scully say, ‘‘Now, don’t negotiate specific pieces of legislation with Congress in which these folks may

have a financial interest.’’

Mr. SWINDELL. No, because a piece of legislation is a particular

matter of general applicability which is what the waiver covered.

Ms. DEGETTE. So how many times have you given those types of

waivers to senior government officials like the one to Mr. Scully?

Mr. SWINDELL. Well, first of all, they are issued by management,

not me. These are signed by the Secretary or Assistant Secretary.

Ms. DEGETTE. Okay. So it was the Secretary.

Mr. SWINDELL. The Secretary approved it.

Ms. DEGETTE. Okay. But it was your recommendation?

Mr. SWINDELL. Sure.

Ms. DEGETTE. Okay. I am sorry. Maybe we will have another

round and we can explore this further.

Mr. SWINDELL. I would be happy to provide the Congress with

a statement explaining the law.

Ms. DEGETTE. That would be super. That would be great.

Now, Dr. Kington, I actually got all the different statute books

that had the different ethical rules in it. It seems to me there are

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lots of ethical rules, Ethics in Government Act, Privacy Act, Freedom of Information Act, the internal NIH rules. Is this causing

some confusion and angst among your researchers as to what they

can and can’t do right now?

Mr. KINGTON. Fortunately, we have a large staff of attorneys

mostly who advise us on compliance with the law. There are multiple laws involved and it is challenging to get the precise answer.

Ms. DEGETTE. Right. I am sure the attorneys love that. I used

to be an attorney. My question is about the researchers. Are they

feeling confused about——

Mr. KINGTON. Certainly now when we are in this period of transition, yes. We try to give them as much direction as we possibly

can given what we know about the law.

Ms. DEGETTE. Okay. Dr. Varmus, when you assumed the directorship of the NIH, did you find that the institutes were populated

with second-rate scientists?

Mr. VARMUS. There were some, yes. There were many reasons to

believe the review processes had not been stringent enough. NIH

had not been able to recruit the best people to come into these staff

positions. There was much reason to believe based on both conversations and reportage that the NIH intramural program did not

have the—was not held in the esteem which it was held 10 to 20

years earlier.

Ms. DEGETTE. And do you think that was mainly or solely because of the issue of outside compensation?

Mr. VARMUS. As I have indicated in my testimony and in my

statement, Ms. DeGette, only partly. There are many other reasons

having to do with management and review processes. It is a complex situation and we tried to deal with matters across the board.

Ms. DEGETTE. And, you know, you probably wouldn’t be surprised to hear last week in our hearing some of the testimony was

that the younger scientists, the people doing a lot of the basic research at NIH right now, and since you came in in the mid 1990’s,

morale is pretty good now. Also interestingly, most of these researchers aren’t receiving this outside compensation. Would that

surprise you?

Mr. VARMUS. That doesn’t surprise me, no. I think the issue is

not simply whether you are active in that process but whether the

intramural program scientists who don’t have responsibilities for

regulation, for making grants, whether they have the opportunities

that their equals on the outside have. I think it is a simple

matter——

Ms. DEGETTE. And it is not so much for them about compensation as about research opportunities. Wouldn’t that be fair to say?

Mr. VARMUS. Well, it is a mixture. What kind of atmosphere obtains the intramural program. Do people feel like they are secondclass citizens. Do they not have the opportunity even if they don’t

use it to undertake consultations to carry out outside activities.

Remember that not all of the outside activities are concerned

with industrial relations. In many cases this is just a matter of

honoraria for talks and special publications. When I came to the

NIH the whole intramural program was called the honorarium ban

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ing lectures could not be compensated as they were for people on

the outside. It created an atmosphere——

Ms. DEGETTE. You know, I have got to say this happens to Members of Congress all the time. I get invited to speak to groups and

they might invite somebody from private industry or something to

speak and give them a cash award. When I go, I get a really nice

placque. We all have rooms full of them. But for me it is the honor

of going and speaking to the group. I know that someone else from

a university or somewhere else might be allowed to take a cash

award. Truly, most of these folks it is about the prestige of the

event.

Mr. VARMUS. As a former Presidential appointee, I feel your pain

about not getting awards.

Ms. DEGETTE. It is actually not painful for me.

Mr. VARMUS. We have to also recognize that an intramural scientist is very different from a legislator or very different from

someone who runs an agency. It creates an atmosphere that people

don’t find attractive when they are making choices of jobs when

they can go to a place where the world seems open to them where

very similar kinds of work are being done at a university laboratory, for example, as opposed to going to the NIH. The NIH is

just——

Ms. DEGETTE. I just have one more question because under this

Blue Ribbon Panel recommendation, the senior appointees at the

NIH would not be able to accept these kinds of awards as I understand it. It would just be the more junior researchers who aren’t

getting them right now. My question is why not make a more

bright line rule and at least set some pretty clear standards so people wouldn’t be confused about it.

Mr. VARMUS. Because I think we have to distinguish not between

juniors and seniors. We have to distinguish between those who

have certain kinds of functions. Every opportunity has a risk and

I don’t deny that there are risks. That is why we have the NIHEAC

and why we have rules. I, too, now would argue that it is useful

to have some guidelines that will prevent conflicts of commitment

and outright conflicts of interest. I don’t think it is appropriate to

ban all these activities because they do have utility. It is not difficult to imagine someone saying, ‘‘Gee, it seems a shame to have

all these talented people at the NIH who are unable to provide any

advice.’’

Ms. DEGETTE. Let us be clear and then I am finished. I appreciate the Chairman’s indulgence. No one is suggesting that we ban

all these outside activities. What we are talking about is what we

do about compensation. We can explore that further. Thank you.

Mr. GREENWOOD. If the gentlelady would yield, certainly a CRDA

is a perfectly acceptable manner by which the scientists at NIH get

to work collaboratively with private sector scientists to produce excellent results for the public for which there is no compensation.

Mr. VARMUS. I agree.

Mr. GREENWOOD. I have not come to the point where I am prepared to say there should be no outside compensation but I think

it is important to note that even if we did, that would certainly not

be an impediment to the NIH scientists working collaboratively in

the private sector for the good of mankind.

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Ms. DEGETTE. And reclaiming the time that I don’t have, I concur with the Chairman which is I am not to the point where I

think we should ban it but I think there are so many issues here

and they are very complex that I think it should be a real consideration.

Mr. VARMUS. And they are concerned. Even those of us who are

outside of Government now in the academic sector feel this very

acutely. We have all been revising our rules, changing the way in

which we monitor our investigators to avoid the same kinds of conflicts you are worried about because, indeed, many of our people

are supported, almost all of them are supported with public money

they receive from the NIH and many of them at public institutions

like State universities have other kinds of public monies. These are

major concerns.

Mr. GREENWOOD. The Chair thanks the gentlelady. The Chair

would note—first, the Chair would ask unanimous consent that the

document binder be incorporated into the record. Without objection

it is.

The Chair would note that there is a series of votes in process

right now so we are going to have to recess probably until 12:30.

We apologize to the witnesses for keeping you that much longer but

it will take us that long to get through the series of votes and get

back here. The committee is in recess until 12:30.

[Whereupon, at 11:37 a.m. the subcommittee recessed to reconvene at 12:37 p.m.]

Mr. GREENWOOD. A quorum being present, the hearing will reconvene, and the Chair recognizes himself for 10 minutes for purposes of questions. And I am going to begin with you, Mr. Swindell.

Your testimony on page 4 states that HHS employees must address the concerns of the many while avoiding the appearance or

fact of undue influence by the few. Is that correct?

Mr. SWINDELL. I don’t have a copy.

Mr. GREENWOOD. And you agree that HHS employees attempt to

accomplish avoiding appearance of undue influence in part through

legal advice provided by your division, or, if they are political appointees, from you as the HHS designated agency ethics official. Is

that correct?

Mr. SWINDELL. Yes, I am.

Mr. GREENWOOD. Okay. Well, I didn’t ask you if that is who you

were. I said, ‘‘And you agree that HHS employees attempt to accomplish avoiding the appearance of undue influence in part

through legal advice provided by your division, or, if they are political appointees, from you as the HHS designated agency ethics official.’’

Mr. SWINDELL. The HHS Ethics Division—its principal clientele

are the political appointees. The DECs who run the programs within the Department do the ethics in those components, and as needed, and they consult the Ethics Division.

Mr. GREENWOOD. Okay. So, for example, in 1996 when Dr. Clausner was offered a $30,000 award from the University of Pittsburgh, he sought advice on whether to accept this award. Is that

correct?

Mr. SWINDELL. He came to the General Counsel to seek advice

about that.

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Mr. GREENWOOD. Okay. In 1996, the first time out.

Mr. SWINDELL. The first time out.

Mr. GREENWOOD. When the answer was no.

Mr. SWINDELL. Okay. I was not the head of the office then, but

you are right, I do recall. That is right.

Mr. GREENWOOD. Okay. And the advice he was given was that

he could not accept the award, is that right?

Mr. SWINDELL. That is correct.

Mr. GREENWOOD. Okay. If you go to Tab 10, that binder right in

front of you there, you will see a memo by the Ethics Advisor at

the National Cancer Institute, Dr. Maureen Wilson, advising Dr.

Clausner to decline the award because the University of Pittsburgh

was a prohibited source. Can you identify that?

Mr. SWINDELL. Yes.

Mr. GREENWOOD. Okay. Am I characterizing that document correctly?

Mr. SWINDELL. Correct.

Mr. GREENWOOD. It is a memo by Wilson advising Clausner to

decline the award, because the University of Pittsburgh was a prohibited source. Okay.

Do you know who Michele Russell Einhorn is?

Mr. SWINDELL. She was an attorney in the Ethics Division at

that time.

Mr. GREENWOOD. Okay. If you go to Tab 12, you will see Ms.

Russell-Einhorn sent you an e-mail on October 7, 1996, that included another e-mail. Do you see that?

Mr. SWINDELL. Yes.

Mr. GREENWOOD. In the message she sent to you and others she

writes about a phone call with the Office of Government Ethics and

the OGE which said Dr. Clausner could not accept the award for

three reasons: an ongoing lawsuit involving Pittsburgh and the National Cancer Institute, a contract dispute between Pittsburgh and

the National Cancer Institute, and the fact that Pittsburgh is a

grantee contractor in a cooperative group trial participant funded

by the NCI. Do you see that? Okay.

Mr. SWINDELL. Yes.

Mr. GREENWOOD. So you were aware that Ms. Russell-Einhorn

had consulted the Office of Government Ethics and was told that

Dr. Clausner could not accept the award from the University of

Pittsburgh. Is that right?

Mr. SWINDELL. I was an addressee among all of the staff members. I was not focusing on NIH issues at that time, but I obviously

know about this.

Mr. GREENWOOD. I didn’t ask you if you were the only one who

knew about it. I was asking you if you knew about it.

Mr. SWINDELL. I would have received the message. I don’t know

if I would have focused on it at the time.

Mr. GREENWOOD. Would you have read it?

Mr. SWINDELL. I would assume I would have read it.

Mr. GREENWOOD. Okay. In 1997, you were aware about OGE’s

past advice when the University of Pittsburgh offered the award

again to Dr. Clausner but this time with a $40,000 cash gift. Is

that right?

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Mr. SWINDELL. Yes, I looked—asked the staff to look and to see

what had happened.

Mr. GREENWOOD. Okay. Did you confer with the Office of Government Ethics regarding the 1997 Pittsburgh award?

Mr. SWINDELL. That is something I have tried to think whether

we did or not. I have a visual impression in my mind that a staff

member was talking to me about some aspect of the opinion, about

the reasonably foreseeable language, but no one can indicate that

we made any—no record that we talked with them.

Mr. GREENWOOD. What would be the routine, standard operating

procedure?

Mr. SWINDELL. It varies, depending upon what the issue is, if

there is confusion. Obviously, when I looked at this, I thought we

were going in the right direction with the concept about what we

call a bad prohibited source, something that is—there is really

something going on precisely at the time, the timing—and, yes, it

talks about being a grantee, but I am afraid I didn’t really pick up

on that.

Mr. GREENWOOD. I mean, isn’t that a huge red flag?

Mr. SWINDELL. If that had been the answer——

Mr. GREENWOOD. Isn’t the fact that Pittsburgh—the University

of Pittsburgh was a grantee, isn’t that a gigantic red flag?

Mr. SWINDELL. Of course it is. But it is an exception to the gift

rules for getting gifts from grantees, to get a bona fide award.

Mr. GREENWOOD. Right.

Mr. SWINDELL. So the concept exists that one could get a bona

fide award from a prohibited source. This is the crux of the issue

that the General Counsel and the Acting Director of OGE has now

given us guidance as to what—how we analyze this.

You know, trying to think back 7 years and what was in my

mind with the General Counsel asking—there were about six lawyers working on this issue, asking questions, trying to find out

about what the University of—the Dixon Prize was, its connection

to the University of Pittsburgh.

If the answer had been the mere fact that it was a grantee, that

would have been the end of it from—OGE could have said, ‘‘It is

a grantee; that is the end of it.’’ So in grappling——

Mr. GREENWOOD. Why was that difficult to find out?

Mr. SWINDELL. It is not difficult to find out. As I said, I am not

sure whether we called or not. I just don’t have any records that

we did.

Mr. GREENWOOD. Were you aware that Dr. Wilson sent a memo

dated October 1, 1997, to Dr. Clausner raising concerns about the

Pittsburgh award? If you look at Tab 22, it might refresh your

memory.

Mr. SWINDELL. I assume she is giving the results of whatever we

have been finding out about the University of Pittsburgh.

Mr. GREENWOOD. Did you talk with her regarding your recommendations in the memo?

Mr. SWINDELL. I don’t recall.

Mr. GREENWOOD. Did you agree with her recommendations?

Mr. SWINDELL. I guess the recommendation is that Dr. Clausner

would have to assure that he didn’t have matters pending in front

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of him that were consistent with the opinion. So to the extent that

that is the case, I would agree with it, but——

Mr. GREENWOOD. So you would agree with her?

Mr. SWINDELL. Mr. Chairman, as I explained earlier, the whole

result of this opinion was very technical, trying to see. The General

Counsel was obviously interested. We were under an obligation to

take a look at this, and if there was no legal way to stop this

award, then it was not our duty to stop it. The individual was supposed to take the heat for this kind of decision and the appearance

of this kind of decision.

Mr. GREENWOOD. Wait a minute. Wait a minute. You are not allowed to take money from prohibited sources, correct?

Mr. SWINDELL. You are not allowed to receive a gift from a prohibited source.

Mr. GREENWOOD. Right. Okay. And a source becomes prohibited

de facto if the source is a recipient of the entity headed by the guy

who is going to take the money, right?

Mr. SWINDELL. It is a——

Mr. GREENWOOD. What is the hard part?

Mr. SWINDELL. Well, I will defer to the Office of Government

Ethics to explain better than I can. But there is an exception to

this idea that you can’t get gifts from prohibited sources. It focuses

on whether the entity is a—whether the offeror of the award is an

entity that has interest that can be substantially affected by the

performance or non-performance of the——

Mr. GREENWOOD. All right. Where is the cloudy part in that?

Mr. SWINDELL. Well, it doesn’t say agency head. If the idea is you

are going to—if that means the same thing as grantee, then it is

a circuitous argument. You can’t have—they can’t be the same. It

can’t be just a grantee, because you have got an exception to a rule

for grantees. So it had to mean something different.

Mr. GREENWOOD. Let me ask Mr. Maskell. Do you think there is

anything cloudy about this? Maybe I am missing something. It

looks like a no-brainer to me.

Mr. MASKELL. I understand I am preaching to the choir here, but

no, I—the problem is you have two sets of prohibited sources. The

first three you have are agency-wide prohibited sources. That is

someone who does business with, is regulated by, or seeking action

from the agency—everybody—that includes grantees and contractors.

But the other prohibited source, the fourth prohibited source, is

personal to the individual. That is why it is not duplicative, and

that is why it is not circuitous. The fourth one is personal, and it

says if that source can be—has interest that can be affected by the

performance and non-performance of that individual’s official duties, then they cannot accept even an award from them. I thought

it sounds pretty clear to me that——

Mr. GREENWOOD. I will bet it is crystal clear to you.

Mr. MASKELL. [continuing] an agency head has that authority.

Mr. GREENWOOD. And if you were told don’t—if it was your job,

if you had Mr. Swindell’s job at the time, and you were told—I

know this is hypothetical——

Mr. MASKELL. I know.

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Mr. GREENWOOD. [continuing] but if you were told, ‘‘You can’t say

no’’—even if they put this incredible restraint on you, which is,

‘‘You can’t say no, if there is any legal reason—there has to—using

the letter of the law is the only guidance here.’’ Would you still find

any difficulty in the letter of the law prohibiting this?

Mr. MASKELL. I can’t speak to the political pressures that Mr.

Swindell felt at that time. But that is——

Mr. GREENWOOD. I am not asking you to. I am just saying, is

there any question——

Mr. MASKELL. That is probably another reason to have a bright

line. I personally would have cited that rule, and I would have

cited 18 U.S.C. Section 209 and said you are not allowed to——

Mr. GREENWOOD. Mr. Swindell, do you think there was any political pressure involved here?

Mr. SWINDELL. There was pressure, obviously, to provide the advice that—according to the instructions. Obviously, the person who

renders that advice, to tell us how to give advice, obviously was a

political appointee. But I don’t think politics entered into it.

I think what we have——

Mr. GREENWOOD. You don’t think Clausner was trying to get

friends of his to give him a green light on this?

Mr. SWINDELL. That is certainly possible, but I don’t have any

facts to know that. I think——

Mr. GREENWOOD. Dr. Wilson wrote—let me interrupt you. She

wrote, ‘‘Given that the litigation was only recently settled, the

major issue to be overcome is the appearance that the NCI agreed

to cooperate with Pittsburgh to settle the litigation, including the

monetary payments, as well as other tangibles and intangibles, and

that this award is being made as a result of that agreement.’’ Did

you see that memo?

Mr. SWINDELL. Yes, and that is what—that is the point, is that

he is going to have to assess those appearance situations personally

and assume those risks. I think it is very good that Jake Wilson

wrote that.

Mr. GREENWOOD. Well, let me just finish here. Just a second.

Whether you read this memo or not, do you agree with the NCI

Ethics Advisor that there is an appearance issue to be overcome?

That you got, right?

Mr. SWINDELL. I got that.

Mr. GREENWOOD. And you had it then. You knew that there was

an appearance issue.

Mr. SWINDELL. Yes. I was very—a number of us were concerned

about the looks of that. Sure.

Mr. GREENWOOD. Okay. As the designated agency ethics official

for the Department of Health and Human Services, did you advise

Dr. Clausner about the appearance of undo influence or conflict of

interest in his accepting a $40,000 cash gift from a grantee institution involved in a lawsuit with the National Cancer Institute that

had recently been settled?

Mr. SWINDELL. I didn’t personally give him advice other than

what was in the opinion.

Mr. GREENWOOD. Do you know whether anyone said to him,

‘‘This looks like hell, but we are not going to’’——

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Mr. SWINDELL. The communications with Clausner were from the

General Counsel. I don’t know what she would have said.

Mr. GREENWOOD. Did you address the appearance issue in your

memorandum to Dr. Clausner?

Mr. SWINDELL. I think it stresses in there—it is very careful. It

stresses in there about the fact that he is going to have to make

his determination in accordance with the limitations and what the

meaning of it was.

Mr. GREENWOOD. Wait a minute. Did you address, did you say,

did you indicate anything about the appearance problem?

Mr. SWINDELL. I don’t recall what is in the memo precisely.

Mr. GREENWOOD. Go to Tab 23 and look at your memo there.

Mr. SWINDELL. Okay.

Mr. GREENWOOD. My question is: in your memo to Clausner, did

you say—did you address the appearance issue, or did you just address the strictly legalistic—give a strictly legalistic response, pursuant to what you had been instructed to do——

Mr. SWINDELL. Right.

Mr. GREENWOOD. [continuing] by your superior, a la per the note

in the file?

Mr. SWINDELL. You are correct. It doesn’t look like that I really

stressed that issue with him.

Mr. GREENWOOD. You weren’t supposed to, right? You had just

been told—you had been told——

Mr. SWINDELL. That is right. I mean, I wanted to make sure that

he attested to things. I remember that was one important thing to

me, that he—that we apprised him what the law was that we understood, and that he was supposed to attest to the facts, that he

didn’t have anything, you know, within the meaning of the rule in

front of him, because I wanted to make sure that he was understanding that.

Mr. GREENWOOD. But basically you said technically—technically,

the Emperor has clothes on, but the fact that you appeared to everybody else to have no clothes on, you didn’t bother to incorporate

that into your memo.

Mr. SWINDELL. Well, certainly, as I said, this is—I was in a difficult situation back then. I was new. I was an acting person only

there for just, you know, a few months when this occurred. I agree

this could have been done a lot better.

Mr. GREENWOOD. Okay. The gentlelady from Colorado is recognized.

Ms. DEGETTE. Well, I just wanted to—are you yielding to me?

Mr. GREENWOOD. No, it is your turn.

Ms. DEGETTE. Oh, great. But following up on the chairman’s

questions, Mr. Swindell, you have said several times that in a situation like Dr. Clausner’s situation it is a personal determination.

And, in fact, in your memo, after going through all of the standards, on page 5 of your memo you do say you will need to apply

this interpretive guidance to your own situation. But here is——

Mr. GREENWOOD. I am sorry. I made an error.

Ms. DEGETTE. Go ahead.

Mr. GREENWOOD. Mr. Stearns has not had a first round.

Ms. DEGETTE. Okay.

Mr. GREENWOOD. So——

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Ms. DEGETTE. Can I just follow up on your question just with

this—on your questioning, Mr. Chairman?

Mr. GREENWOOD. In think in fairness——

Ms. DEGETTE. Okay.

Mr. GREENWOOD. [continuing] do that on your time. We will give

Mr. Stearns his shot now. We will give you as much time as you

would like.

The gentleman from Florida is recognized.

Mr. STEARNS. Thank you, Mr. Chairman. Are we have 5 minutes

or——

Mr. GREENWOOD. Ten minutes.

Mr. STEARNS. Ten minutes. Okay, good. I have three questions.

Let me just start—I have a subcommittee that deals with oversight on financial accounting standards, and we are having a debate on whether stock options should be expensed. And I guess last

week’s advisory—Blue Ribbon Panel of the Advisory Committee to

the Director examined the conflict of interest that NIH employees

eligible to engage in compensation outside of professional activities,

should they receive compensation in the form of stock options or

other equities for their service.

And so, Dr. Kington and Ms. Glynn, these are questions for you.

And I will start with you, Ms. Glynn. It seems to me that offering

these stock options to these individuals creates some problems. The

Financial Accounting Standards Board would like to expense all of

these, so that the people who invest in these companies know what

stock options are being provided.

And lo and behold, these have all been kept pretty silent. And

so I guess my question is—the current compensation involving

stock options, is that ethical? Is it protecting the stockholders, the

taxpayers, the patients? I guess everybody involved.

And then for you, Dr. Kington.

Ms. GLYNN. I think the major problem in permitting acceptance

of either stock or stock options as a form of compensation is that

it creates a kind of continuing financial interest in the company,

so that even after your consulting work is completed you continue

to have a conflict of interest with anything affecting that company,

because, in effect, you are sort of an owner of the company.

So from that perspective, what that means is that once your consulting concludes you must continue to be recused from matters involving the company. What we have is, then, a potential for not

only recusal during the consulting period but a continuing recusal

once the consulting is finished, and that is problematic.

I have heard—and, you know, from OGE’s perspective we are

certainly not experts on this, but I have heard that one of the problems in barring stock options or stock as compensation is that it

tends to favor payers that are from bigger established organizations that can afford to pay scientists cash versus the smaller startup types that don’t have any cash to pay, and this is all they can

afford.

Now, understand, I am not taking any position on that, because

it sort of begs the question of whether the consulting was proper

to begin with, whether it is paid in cash or stock or stock options.

Mr. STEARNS. Dr. Kington?

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Mr. KINGTON. Well, NIH fully recognizes the problem with payment to employees who consult with stock options, and we were

very receptive to the Blue Ribbon Panel’s recommendation that

that not be allowed.

Mr. STEARNS. Yes. Because, you know, these people that have the

stock option then will try to promote the company. And the ways

they can do it are varied and multiple, and you can’t—no one

knows about it.

Mr. VARMUS. Can I comment just briefly on that, Mr. Stearns?

Mr. STEARNS. Sure.

Mr. VARMUS. First of all, NIH employees are allowed to own

stock.

Mr. STEARNS. Oh, no, no. Yes, they can own stock in a——

Mr. VARMUS. So if you buy stock, you become interested in——

Mr. STEARNS. Well, we are talking about stock options that are

given to you.

Mr. VARMUS. I understand. I understand. But I think that the

holding of stock—I am just commenting on Ms. Glynn’s remark—

you know, that doesn’t necessarily create a conflict of interest. It

just means you have an interest in——

Mr. STEARNS. But this is your own money that you make after

the bottom line, after you pay taxes, you invest. This is compensation that is part of the——

Mr. VARMUS. It is an alternative means of compensation, and I

think——

Mr. STEARNS. Do you disagree with these two people?

Mr. VARMUS. I do a little bit, in the sense that I think one of the

reasons that the NIHEAC was established, the NIH Ethics Advisory Committee, is to look at issues of that kind, because there are

instances in which companies simply don’t have much capital to

spend on consultants, and——

Mr. STEARNS. Well, if these people are—why should they be

working for the NIH when they get—they are consulting for this

company and they are getting stock options?

Mr. VARMUS. Well, if we do entertain the idea of consultation,

and we think that is potentially valuable in both directions, it

seems to me that the——

Mr. STEARNS. Well, let me give you a hypothetical.

Mr. VARMUS. Yes.

Mr. STEARNS. You are working for NIH, and you are under retainer with a company to advise them—Company X. And they have

ground-breaking technology, and they offer you stock options. And

they are paying you, and you are getting paid by NIH, and you are

sharing the information from them with the NIH. Should you get

stock options from them without making it public that you are getting these stock options? Is that what you are saying, it should

be——

Mr. VARMUS. No, I am not.

Mr. STEARNS. [continuing] private?

Mr. VARMUS. No, I am all for disclosure——

Mr. STEARNS. I think we are talking about——

Mr. VARMUS. [continuing] and I am all for discussing each of

these instances on a one-by-one basis. I think there could be conditions under which reasonable people would say that the fraction of

326

the total stock being held by the employee is extremely small, that

the——

Mr. STEARNS. It depends upon what the stock does, whether it

is small or not, and it depends upon the stock option.

Mr. VARMUS. Well, as a fraction of the total company stock issue,

that—I think that——

Mr. STEARNS. I mean, if they gave them $100,000, eventually it

could be worth $4 million. That would be quite an incentive for this

person.

Mr. VARMUS. Well——

Mr. STEARNS. How does he keep his conflict of interest separate?

Mr. VARMUS. Well, the conflict of interest, of course, would arise

if there were some situation in which the conflict arose. The assumption is that——

Mr. STEARNS. So you disagree with the Blue Ribbon Panel of the

Advisory Committee to the Director on this.

Mr. VARMUS. I think that being cautious about stock is very appropriate, and I am just arguing for what I think we have all been

arguing for in a sense, that in some cases the nature of the compensation should be a matter for, in a sense, case adjudication. And

that the reason we have at all our institutions committees to look

at these is to try to be sure that we don’t write a blanket rule that

obviates the possibility of——

Mr. STEARNS. So you think if the company gives a flat fee that

is the same as stock options.

Mr. VARMUS. No, I am not saying that.

Mr. STEARNS. I mean, wouldn’t a flat fee be more ethical than

getting a stock option, which is based upon the performance of the

company?

Mr. VARMUS. All of these—as we learn from these experiences,

they are all different. And I—you know, I take your point, and I

think the stock options are more problematic. But I would opt in

my ideal world for a more flexible policy, that is all.

Mr. STEARNS. Have you taken stock options in a situation like I

just described?

Mr. VARMUS. Not at the NIH, of course, but I did as a——

Mr. STEARNS. When you were working for NIH, did you get——

Mr. VARMUS. No, no. No, absolutely not.

Mr. STEARNS. Okay.

Mr. VARMUS. I, as a Presidential appointee, gave up everything

that could remotely be considered——

Mr. STEARNS. That is my point. As a Congressman, I——

Mr. VARMUS. But I was in charge of the NIH.

Mr. STEARNS. I mean, I don’t get stock options, and there is no

one in this room that gets stock options. And if you are working

for NIH, you are advocating they should get stock options with a

company they are consulting instead of—that is what you are advocating.

Mr. VARMUS. What I am arguing is that people at NIH have different functions. The Director of NIH——

Mr. STEARNS. Well, they are Government employees, though.

Mr. VARMUS. Yes, but some—but Government employees who

work in the intramural program as——

327

Mr. STEARNS. Well, why should we make an exception for NIH

if we don’t make it for the Congressmen and Senators and Presidents?

Mr. VARMUS. I think the functions are very different. This is obviously a complicated issue, but it is one that I think is important

to bring up, that——

Mr. STEARNS. Well, I think you can get into conflict of interest,

and I think the Blue Ribbon Panel and the Advisory Committee to

the Director made that clear.

Let me move on. I just have so much time. I have to stop you.

Mr. VARMUS. They didn’t say conflict of interest. They said conflict of the commitment.

Mr. STEARNS. Let me say I—the question I have now—on February 10, the NIH Office of Management Assessment forwarded a

final advisory report from the HHS Office of Inspector General for

review of a conflict of interest allegation concerning a Board of Scientific Counselors ad hoc reviewer.

NIH Deputy Director Michael Gutzman and NCI Director Andrew von Eschenbach were among the recipients of this report. In

this report, the IG recommended that the National Cancer Institute modify its process for selecting ad hoc reviewers to allow a

principal investigator to object in writing directly to the Board of

Scientific Counselors’ Executive Secretary if he or she believes the

selected BSC ad hoc reviewer has a conflict of interest.

I guess the question is: has this recommendation been implemented? Anybody?

Mr. KINGTON. This is the first I have heard of that recommendation.

Mr. STEARNS. Okay. Another question is, based upon this report,

we know that NIH intramural researchers know in advance. I

think the staff has advised—probably advisable, Dr. Kington, that

you should follow up in writing on this, since this was provided in

writing with the recommendation. And I guess we in the Oversight

Subcommittee see—think not only should you know about it, but

it should be implemented.

So I guess the fact that you, one, don’t know about it, is a concern of ours. And then, two, give you a chance to answer, come up

to speed, and then see if you can implement it.

Mr. KINGTON. We would be happy to respond.

Mr. STEARNS. Okay. And last, Mr. Chairman, if you bear—forbearance here, based on this report we know that NIH intramural

researchers know in advance who is on the list of ad hoc reviewers

and who can object if they think a proposed reviewer has a conflict

of interest.

This is like the preemptory challenges in courts where each side

gets a chance to strike against a potential juror they don’t like.

Given that intramural researchers have this right, why shouldn’t

a private partner negotiating a CRADA with intramural researchers know if those researchers are consulting for the competition?

Let me repeat that—with intramural researchers know if those

researchers are consulting for the competition. Shouldn’t a private

partner in the CRADA have the right to know and the right to object to a perceived conflict of interest? Dr. Kington? It is a little

hard to understand the question. It is sort of laid out as—someVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00335 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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times we lay these questions out to get them on the record, and

that is the way this question is, so——

Mr. KINGTON. I will refrain from commenting.

Mr. STEARNS. Well, no, we are asking you to comment. You are

forced to comment here.

Mr. KINGTON. Clearly, any time there is a situation in which the

Government has entered into a CRADA with another private company, we have decided that is the best way that we can achieve

some scientific goal. And, obviously, we should be very concerned

if there is a possibility of an appearance of conflict with an employee who might be involved with a competitor. So, yes, there

should be some—that is of concern.

Mr. STEARNS. I guess it is just public information that the intramural researcher knows this information, whereas a private partner in CRADA does not. And I guess we are saying that shouldn’t

this private partner have this right, too, so we have transparency

here? Does that make sense?

Mr. KINGTON. On the face of it, yes. I mean, we absolutely want

our partners to have faith that we are reasonable partners, that we

are actually committed to working with them. So, yes, we would be

concerned about appearance of—we should be concerned about appearance of conflict of interest.

Mr. STEARNS. And so that this private partner should be told,

should have the right to know, and the opportunity to object if

there is perceived conflict of interest?

Mr. KINGTON. I am not sure if that necessarily has to be—and

I want to make that comment as a policy. There is no question that

we should do whatever is necessary to remove the possibility of a

serious conflict or appearance of conflict of interest, and we are

committed to that, however we could achieve that.

Mr. STEARNS. Yes. Well, I honestly feel you are—you want to do

that. So if you don’t mind, you might tackle this question, too——

Mr. KINGTON. I would be happy to.

Mr. STEARNS. [continuing] in your reply, and we can look at it.

I thank the chairman.

Mr. GREENWOOD. Now the gentlelady from Colorado is recognized.

Ms. DEGETTE. Thank you, Mr. Chairman.

Okay. Mr. Swindell, if you will recall, we were having this discussion about who—how we decide what standards to apply. In

your memo, you had said to Dr. Clausner, ‘‘You will need to apply

this interpretive guidance to your own situation.’’

And I think you said in response to the chairman’s questions

that his interpretive guidance would be sort of how would it look

to the public or would it pass the smell test? Would that be accurate?

Mr. SWINDELL. That is essentially what the General Counsel

said. The smell test or The Washington Post test was something

that we don’t advise about.

Ms. DEGETTE. Now, at this time, Dr. Clausner was the Director

of the National Cancer Institute, right?

Mr. SWINDELL. That is correct.

Ms. DEGETTE. But, you know, so one would hope he might have

a press liaison to help him figure that out. But how is everyone

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else going to figure that out? It seems to be a very, very nebulous

standard.

Mr. SWINDELL. That is a very good point, and that is the problem

with it.

Ms. DEGETTE. Right.

Mr. SWINDELL. And that is why we are not going to operate

under that and haven’t operated under that kind of analysis about

these questions.

Ms. DEGETTE. But even under the new guidelines there seems to

be a lot of personal discretion as to whether there are conflicts that

I am not sure any ethics board could address.

Mr. SWINDELL. It is difficult. I mean, the idea is is that the statutes and the regulations to some extent are intended to codify what

an appearance is. And we have tried to, in our advice-giving now,

since the very beginning of this administration when I spoke with

Governor Thompson’s people when they came in and actually discussed how we would give advice in the problems we had, that

what we will do is we will counsel what we believe the law means,

what the regulations mean, and the regulations themselves in

part—some aspects of what an appearance is, but that we will try

to also give advice about what we will call perception or optics.

Ms. DEGETTE. But which is a moving target, isn’t that fair to

say?

Mr. SWINDELL. It is.

Ms. DEGETTE. Yes. Now, Dr. Varmus and others have talked

about how employees at NIH, while public employees, are different

than, say, Congressional employees. And I should add for the

record it is not just Members of Congress, it is our staffs, it is all

of the employees of the U.S. Government.

I wanted to ask you, Ms. Glynn, because I got to thinking, what

are the ethical standards with respect to outside compensation and

award, say, for the EPA employees? Because we have employees

over there who are doing scientific environmental research.

Ms. GLYNN. Right. Can I address something else before I answer

that question?

Ms. DEGETTE. If we have time at the end, you can address that.

Ms. GLYNN. Okay. I mentioned in my oral statement, there is one

broad, bright line rule for the entire executive branch, and that is

in the rule published by my office. And as far as outside employment or activities is concerned, that rule is that the outside activity

can’t be such a conflict with your job that it would require recusal

essentially from most important aspects of your job.

But a second part of that rule is that the outside activity can’t

be prohibited by a statute or any other regulation, and another regulation is that it can’t be an appearance of a conflict of interest.

It can’t be use of public office for private gain——

Ms. DEGETTE. So do researchers over at the EPA get outside income? Do you know?

Ms. GLYNN. And, remember, each agency is allowed to implement, supplement——

Ms. DEGETTE. Right.

Ms. GLYNN. [continuing] more difficult, you know, more stringent.

Ms. DEGETTE. Yes, I understand.

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Ms. GLYNN. Okay. EPA, for example, does—for certain categories

of employees—does have more stringent rules. It is not exactly

across the board, but it does have more stringent rules.

My impression is that this is not a problem—this compensation

issue is not a problem at most science agencies, however.

Ms. DEGETTE. Okay. What about the NSF or the CDC? Do you

know if they have supplemental rules?

Ms. GLYNN. Mr. Swindell can speak better than I can about

CDC, but NSF definitely has supplemental rules as well.

Ms. DEGETTE. And do they allow their researchers to take this

type of outside compensation?

Ms. GLYNN. There is no broad prohibition on it. There are some

prohibitions, but not an across-the-board prohibition. However,

once again, based on my conversations—informal—with ethics officials at these agencies it is not that common to permit employees

to receive compensation there.

Ms. DEGETTE. Okay. Mr. Chairman, I think it would be very

helpful—maybe Mr. Maskell or someone could supplement the

record by giving us the standards at all of the Government agencies about what kinds of outside compensation are allowed for the

employees.

Ms. GLYNN. Sure. I mean, you can actually find them in the Code

of Federal Regulations——

Ms. DEGETTE. Yes, we have got that.

Ms. GLYNN. [continuing] you have back here. But they are all

listed there.

Ms. DEGETTE. That would be helpful.

Mr. VARMUS. It is important, Ms. DeGette, to note who is——

Ms. DEGETTE. Yes, sir.

Mr. VARMUS. [continuing] what functions are being performed by

the agency. So the NSF, for example, makes grants but doesn’t

have the equivalent of an intramural research program. There are

no scientists doing scientific work in the National Science Foundation. They are developing grant programs and administering

grants.

Ms. DEGETTE. That is a really good point. Thank you, Dr.

Varmus. But, you know, and that kind of leads into my next level

of questioning, which is the researchers at NIH are primarily doing

basic research. Is that right?

Mr. VARMUS. It depends what you mean by ‘‘basic.’’ There are

many who are doing clinical research, if you are contrasting laboratory and research with patients. But it is—I think we have to define the term ‘‘basic research.’’

Ms. DEGETTE. Well, okay, let me put it in a different way.

Mr. VARMUS. They are not doing applied research.

Ms. DEGETTE. Most of the private companies don’t have a big investment in basic research.

Mr. VARMUS. Actually, many of them do now. That is a major

change that actually came about during the growth of the biotechnology industry, and many fundamental findings have been

made in the biotech industry. And now large pharmaceutical

houses have acquired those companies, have engaged themselves in

basic research. The continuum is much more complex than it was

30 years ago.

331

Ms. DEGETTE. You know, it is interesting because I was talking

to, actually, some of the pharmaceutical representatives who said

that the bulk of the basic research is still being done at NIH, and

that——

Mr. VARMUS. Or with NIH dollars, because that——

Ms. DEGETTE. Or with NIH dollars, and that——

Mr. VARMUS. [continuing] over 80 percent of our money—of

NIH’s money goes to universities and academic health centers and

colleges.

Ms. DEGETTE. Right. So I guess my question is, for some of the

scientists coming in, especially the newer scientists who are the

ones that theoretically these new ethical rules would apply to, I am

not sure I buy the fact that these people would not be—these top

flight folks would be attracted to NIH if their outside compensation

were greatly constrained or even eliminated, because many of them

are doing basic kinds of research and not the advanced kinds of research. Would you disagree with that?

Mr. VARMUS. Well, the choice that most are making is whether

to go to the NIH intramural program to do research or to do essentially very, very similar work under somewhat different terms. And

I don’t mean simply financial terms, but in terms of review and response to a different kind of system of organizing research at universities, academic health centers, colleges, universities. That is

the usual choice.

Ms. DEGETTE. With NIH dollars in many cases at those academic

centers.

Mr. VARMUS. And salaries being set independently and different

sets of rules. So it is a different environment, and it has seemed

I think—and especially in the 1980’s—more favorable to most to

work in the extramural community as opposed to the NIH.

Ms. DEGETTE. Now, when you were—I assume you participated

in trying to recruit folks to come to NIH when you——

Mr. VARMUS. Absolutely.

Ms. DEGETTE. [continuing] were there. And did these folks tell

you that their decision of where to go was in part—I mean, how

important was the outside compensation?

Mr. VARMUS. Very important, especially for the people I was recruiting, because I was recruiting people at the upper end of the

spectrum.

Ms. DEGETTE. Right. Who now, of course, won’t be entitled to

that, many of them.

Mr. VARMUS. Pardon me?

Ms. DEGETTE. Now many of those folks won’t be entitled to that

compensation. So do you——

Mr. VARMUS. Well, but the——

Ms. DEGETTE. [continuing] think now we are going to——

Mr. VARMUS. Ms. DeGette, we have two issues on the table with

respect to compensation. One is the outside activities, and we are

all agreeing that for certain high-level people those should be prohibited or restricted.

Ms. DEGETTE. Right.

Mr. VARMUS. But there are also salary issues, which we are not

discussing today, that are very important with respect to using pay

scales such as those that are allowable under Title 42 that make

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compensation more competitive with the kinds of salaries that we

have talked about.

Ms. DEGETTE. You know, I used to sit on a college board, and

we used to have these big debates vis-a-vis the economics department and say, ‘‘Well, you know, these people could go to private industry, and maybe we should pay the economics professors, you

know, $200,000 a year, and we should pay the classics professors

$20,000 a year.’’

And those were really tough discussions that we had, and I think

those discussions are endemic throughout the academic world, and

particularly difficult when you are talking about biotechnology and

all kinds of cutting edge research.

But, you know, the problem I think we have is that, No. 1, I

don’t think we can make the assumption that people are simply

going to the NIH because of outside compensation. And, No. 2, I

think we have continuing tough, tough issues about conflicts of interest which only get murkier, not clearer, the more levels of ethics

rules that we try to place, especially because of the nature of research.

And this is really, I think, what we are struggling with now. And

I don’t know the solution, but I just don’t fundamentally agree with

the premise that this outside—if we really constrain this outside

compensation, so long as we continue to allow collaboration, that

that is going to severely affect the quality of research scientists at

NIH. That is just my view.

Mr. GREENWOOD. The Chair thanks the gentlelady.

The gentleman Mr. Walden is recognized for 10 minutes.

Mr. WALDEN. Thank you, Mr. Chairman.

Mr. Swindell, you were Acting Director of HHS Ethics Division

at the time Dr. Clausner requested to receive the Dixon Prize in

1997, weren’t you?

Mr. SWINDELL. That is correct.

Mr. WALDEN. Okay. And as I recall, in your testimony you said

there was sort of an edict from up above about not giving anything

more than just a description of the law, correct? I mean, that——

Mr. SWINDELL. That is correct.

Mr. WALDEN. [continuing] may not be the lawyerly—that is correct?

Mr. SWINDELL. That is correct.

Mr. WALDEN. Was there a reason to believe that if you didn’t follow the instructions, to ignore appearance issues, that that might

affect you getting a permanent appointment? Was it that kind of

a feeling in the——

Mr. SWINDELL. No. At the time, there was actual concern within

the whole Ethics Division that it would be dissolved and moved

into another division. I had no desire to have to give any advice

to the General Counsel for the purpose of personal advancement.

The Ethics Division at the time, they were going to merge it into

what was called the Business and Administrative Law Division.

Mr. WALDEN. Why would they want to do that? What was the

talk?

Mr. SWINDELL. Well, there were difficulties I think with my supervisor about how we gave ethics advice, which, of course, precipitated this direction of how we were supposed to get——

333

Mr. WALDEN. And who was your supervisor then?

Mr. SWINDELL. Jack Kress.

Mr. WALDEN. And who did Jack Kress work for?

Mr. SWINDELL. Harriet Rabb.

Mr. WALDEN. And was this coming from both Mr. Kress and Ms.

Rabb?

Mr. SWINDELL. I read into the record earlier today, Congressman,

that—I wrote a note to the file that indicated that my supervisor

had told me that the General Counsel directed us to provide precise

legal issues, that we weren’t supposed to give advice about the appearances of things.

Mr. WALDEN. I mean, I just find that amazing. You know, when

I get counsel, I want to know all of the potential ramifications, so

I know——

Mr. SWINDELL. As I mentioned earlier——

Mr. WALDEN. With ethics, it is about appearance as much as legality in public service.

Mr. SWINDELL. Obligation, yes. And it was a difficult circumstance to be in.

Mr. WALDEN. Was Harriet Rabb the one who contacted you about

the Pittsburgh award regarding Dr. Clausner?

Mr. SWINDELL. Yes.

Mr. WALDEN. And she was, what, the General Counsel?

Mr. SWINDELL. She was the General Counsel.

Mr. WALDEN. Is it standard operating procedure for the HHS

General Counsel to get involved in award receipt requests of this

nature?

Mr. SWINDELL. I would not normally think so.

Mr. WALDEN. Did it happen any other time with her?

Mr. SWINDELL. No, not that I can recall.

Mr. WALDEN. Do you recall any other HHS General Counsel ever

getting involved in other requests of this nature?

Mr. SWINDELL. No, I don’t recall another one.

Mr. WALDEN. What made this one so special, do you think, that

it rose to the level of——

Mr. SWINDELL. I do not know why this was so special, but it was

obviously—she wanted an answer. It was very difficult to—she was

somewhat inscrutable, because she also seemed to understand that

this was unseemly. But nevertheless—so I don’t know what her directions were.

Mr. WALDEN. What makes you say that she seemed to understand it was unseemly?

Mr. SWINDELL. She would frown about the fact, you know, he is

trying to make a big deal about getting some money. You know, I

just think——

Mr. WALDEN. Mr. Clausner.

Mr. SWINDELL. Yes.

Mr. WALDEN. Dr. Clausner.

Mr. SWINDELL. Dr. Clausner.

Mr. WALDEN. Do you recall Harriet Rabb contacting you on behalf of any other official for this kind of award? Or was this just

a very unique situation?

Mr. SWINDELL. I thought it was very unique, yes.

334

Mr. WALDEN. Did you or anyone else ever inquire as to why she

was involved in this?

Mr. SWINDELL. Why she was in this? No, did not.

Mr. WALDEN. Just one of those things that came down from

above, and you read the law and gave your interpretation?

Mr. SWINDELL. We had lawyers and a couple of divisions looking

at it—the Public Health Division, Ethics Division—and trying to

evaluate the nature of the award, because there were some issues

about whether it was coming from a foundation or whether it was

coming from a university, and so forth.

Mr. WALDEN. Were they under the same constraints that you

were in terms of not being able to offer opinion outside of just the

strict statutory reading?

Mr. SWINDELL. That was generally the way the lawyers were

supposed to operate in the Office of General Counsel was we—I assumed they felt that lawyers were making policy—you know, making decisions that were left to decisionmakers.

Mr. WALDEN. And was the theory that if you put something in

writing that showed there might be evidence—or it might have the

appearance, let us say, of conflict, that, therefore, that would be

taken into account.

Mr. SWINDELL. I think that would be a problem if we did. As I

said, we had an earlier circumstance where I had drafted a memorandum where I said some conduct would not be prudent, trying

to get into the appearance of it. And my supervisor was told it—

I had drafted it for my supervisor’s signature.

And he had come back from his performance appraisal saying

that was the same old situation of us giving advice about appearances. And, you know, he was rebuked for that, and told me as

well. So there was clear understanding how we were supposed

to——

Mr. WALDEN. And that was Jack Kress?

Mr. SWINDELL. Yes.

Mr. WALDEN. Okay. So he was rebuked, and I assume by that

he was rebuked by Harriet?

Mr. SWINDELL. Harriet Rabb.

Mr. WALDEN. Harriet Rabb. Do you think this went all the way

up to the secretarial level?

Mr. SWINDELL. I can’t speak to that.

Mr. WALDEN. Did you also approve Secretary Shalala’s appearance in that famous milk mustache ad?

Mr. SWINDELL. That was done not only with my looking at the

issue but the Public Health Division lawyers—the idea being that

the Government ethics rules don’t govern the conduct of an agency

acting as an agency.

Mr. WALDEN. Yes.

Mr. SWINDELL. And that, therefore, this had been vetted through

the agency, it was part of a joint initiative with the National Cancer Institute dealing with child and immunization diseases, and so

forth. And so it came up through that vetting. The determination

was that there was legal authority under the Public Health Service

Act, so the Associate General Counsel for Public Health Service

was also involved.

335

It had come up earlier in the administration—and I concurred

with my boss at the time, Jack Kress—that we didn’t think that

it was legal for her to do it at that time.

Mr. WALDEN. Why?

Mr. SWINDELL. As I recall, the milk mustache text of the ad had

some language in it that talked about health care reform at the

time, and it almost was the point of lobbying with respect to pending legislation. So we had that concern.

Obviously, the appearance concerns that she would have to take,

and she was advised about, that obviously people could criticize

her.

Mr. WALDEN. So it was somewhat controversial in the Ethics Division?

Mr. SWINDELL. Controversial in the Ethics Division and the ethics community and the press. But bare minimum legality, the Public Health Division—the Public Health Service Act, you know,

says—it says a lot of language in there about the Secretary having

authority to encourage health promotion activities, you know, and

it was thought that this would be a method of reaching teenagers.

It was popular to make them drink milk, and, therefore, you know,

have strong bones.

Mr. WALDEN. Builds bodies in seven ways.

Mr. SWINDELL. Yes.

Mr. WALDEN. Or whatever it is. Is it true that you framed the

milk mustache ad and hung it on your office on your wall?

Mr. SWINDELL. It was everywhere, and it was there to remind me

that that was the kind of advice that I was supposed to provide.

Every day we would sit up there and see the Secretary’s milk mustache.

Mr. WALDEN. Now, what do you mean by that, that it was the

kind of advice you were——

Mr. SWINDELL. Well, it is a precise—it is another example of a

legal determination and allowing the policymaker to take, you

know, whatever responsibility for——

Mr. WALDEN. And they take the heat.

Mr. SWINDELL. [continuing] adverse perception.

Mr. WALDEN. Okay. Is that ad and picture still on your wall?

Mr. SWINDELL. Of course not.

Mr. WALDEN. When did it come down?

Mr. SWINDELL. The very first day of the new administration.

Mr. WALDEN. All right. Okay. I think that is all the questions I

have at this point, Mr. Chairman. Thank you.

Mr. GREENWOOD. Milk grows strong bones, but something else

has to draw—create strong backbones. There wasn’t a lot of that

going on.

Dr. Varmus, how did you get authorization—actually, is it—yes,

it is my turn, isn’t it?

Ms. DEGETTE. I guess.

Mr. GREENWOOD. Yes, okay. I get a second round.

How did you get authorization to convert NIH directors from fulltime continuous positions into Title 42 special consultants?

Mr. VARMUS. I don’t remember all of the details, Mr. Chairman,

but there was definitely consultation with the Department to interpret the existing rules. I know that there was a fairly severe time

336

limit on Title 42 classification, and we couldn’t work this very well

on a 1-year basis, and we were given the authority from the Department to make appointments, non-tenured appointments for 5

years under Title 42.

So this was the result of discussions that I and the Office of

Human Resource Management had with the Department.

Mr. GREENWOOD. Did that include the Office of General Counsel?

Mr. VARMUS. Yes.

Mr. GREENWOOD. Were you advised——

Mr. VARMUS. And presumably with the Office of Personnel Management at the Department. I don’t remember exactly what conversations occurred, but we were able to make a few appointments

in that category I believe as early as 1997, late 1997 or 1998.

And then I—one of my last acts before leaving was to write a letter to Kevin Therm, who was then the Deputy Secretary, asking for

permission to extend the use of Title 42 for incoming people who

we thought might be more easily recruited with the higher pay

scale that we could pay under Title 42.

And there was a legal interpretation of whether people under

Title 42 would be—could act as opposed to just being consultants,

and I believe the language says ‘‘assist and consult’’ or ‘‘assist and

advise,’’ and that was viewed as reason to allow——

Mr. GREENWOOD. Didn’t that feel like a circumnavigation of the

intent of the law to you?

Mr. VARMUS. Not to me. I thought that—and we were looking for

flexibility to adapt to circumstances that were making it very difficult to——

Mr. GREENWOOD. But didn’t that exist—doesn’t Title 42 exist,

and wasn’t its origin the notion that sometimes you need to bring

in specialists for a limited period of time to consult? And that is

why Congress created that opportunity, and that was—it was never

Congress’ intent to say, ‘‘Well, the new guys come in under Title

42.’’ I mean, I——

Mr. VARMUS. Well, it wasn’t my idea that it would be all of the

new guys either. So we were trying to find—it seemed to me that

the language was consistent with an interpretation that would say

we were bringing in people to do high-level positions who would not

be tenured, would come in perhaps for a few years, and would

serve as experts. Obviously, I didn’t make this decision singlehandedly.

Mr. GREENWOOD. Well, what you were advised as to the position

of the HHS General Counsel for widespread use of Title 42 conversion?

Mr. VARMUS. That it was a legal application of the provision.

Mr. GREENWOOD. Who advised you of that?

Mr. VARMUS. I can’t remember all of the people involved, but certainly the General Counsel herself, and Kevin Therm as I recall.

I don’t remember specifically, and I don’t want to——

Mr. GREENWOOD. Okay.

Mr. VARMUS. [continuing] since I am under oath. But I know

the——

Mr. GREENWOOD. Do you have any idea how many people in NIH

are under Title 42 now?

337

Mr. VARMUS. I am told it is a lot—it is many more than were

on Title 42 when I left. I don’t know the exact number.

Mr. GREENWOOD. Do you know order of magnitude?

Mr. VARMUS. It is probably in the range of several hundred or

a thousand.

Mr. GREENWOOD. Would you be surprised if I told you it was

more like minimally 1,400? Or, actually, 4,000?

Mr. VARMUS. I am somewhat surprised, but until I heard the circumstances I wouldn’t react to it.

Mr. GREENWOOD. You wouldn’t be shocked to know that the policy that you enacted on your way out has enabled 4,000 people

to——

Mr. VARMUS. Well, I didn’t enact the policy, Mr. Chairman. I

asked for permission to enlarge——

Mr. GREENWOOD. That is what I mean. That is what I mean. I

am not—we don’t need to parse words here. I am just—it was your

idea, correct?

Mr. VARMUS. I supported it, yes.

Mr. GREENWOOD. It wasn’t your idea?

Mr. VARMUS. Well, I didn’t know a lot about Title 42 to begin

with. But I began to learn about it, and it looked like a reasonable

mechanism for us to use in specific circumstances to recruit people

who were being paid very high salaries in academia and——

Mr. GREENWOOD. I understand that. But the text of the law says

special circumstances. Okay? And when I tell you that there are

4,000—we think there are 4,000 people at NIH who are now salaried, paid under special—for special—special consultants, does that

seem to you—does that not strike you as something run amok?

Mr. VARMUS. I would say it is a number that surprises me. I

wouldn’t have thought it would be that large.

Mr. GREENWOOD. Okay. When you became the NIH Director in

1993, were you aware that NIH was collecting information on compensation amounts for outside consulting arrangements?

Mr. VARMUS. I am not sure I understand the nature of the——

Mr. GREENWOOD. When you became Director in 1993, were you

aware that the NIH was collecting information on compensation

amounts for outside consulting arrangements, that they were routinely gathering that information?

Mr. VARMUS. There was a limit on the amount that could be acquired, so I assume that—I don’t know what you mean by the term

‘‘collection.’’ That is what I am interested in. I assume it was being

monitored because there was a restriction, especially on money

from consultation from single source.

Mr. GREENWOOD. Okay. In May 1991, the scientists published a

story entitled ‘‘NIH Struggling to Regulate Employees’ Outside Income.’’ The article states that at the time NIH had begun to collect

followup information from scientists about what they were paid for

outside activities.

The information was to be used as part of a review of the NIH

salary structure to compare incomes of NIH scientists with their

counterparts in the private sector. Dr. Philip Chen, then Associate

Director for Intramural Affairs to NIH, stated, ‘‘We may use that

information as an argument in favor of the need to modify the salary structure to become more competitive with the outside world.’’

338

NIH has been unable to provide the committee the amounts NIH

employees receive from past outside activities. In fact, NIH was not

collecting this information until recently, but NIH did collect this

information in the past as the article discusses. NIH was using the

information to determine whether salaries needed to be adjusted.

At the time, outside consulting was allowed to help make employee income competitive with the outside, although it was capped

at $25,000. Isn’t it true that the consulting was viewed as compensation for the employee?

Mr. VARMUS. Yes, but not Government compensation. But yes,

part of the compensation package.

Mr. GREENWOOD. And wasn’t the collection of this information

discontinued when the cap was lifted?

Mr. VARMUS. As far as I know, it was.

Mr. GREENWOOD. And isn’t it true that NIH came up with another way to compensate employees in order to make their salaries

competitive with the private sector Title 42? In other words, in the

good old days, in the old days, they collected information to see

how much people were making from consulting agreement, so they

could show that, in fact, how needy they must be to have to go out

and collect these outside—arrange this outside consulting. And

then that information was then used to support the notion that we

needed to use Title 42 to increase the compensation.

Mr. VARMUS. My sense was from the discussions that I had that

the Title 42 pay scale was advocated in part—in greater part by

comparison of NIH salaries with salaries that people were receiving

in academic institutions from which we were trying to recruit

them.

Mr. GREENWOOD. Well, where I am trying to go with this is the

NIH gathered information about outside activity in order to bolster

the argument that the scientists at NIH—the intramural scientists—were underpaid, and it did that and justified the Title 42

application.

And then the question is, so that being the case, why continue—

why is it a good policy to continue with the outside consulting

agreements when we have already attempted to solve the problem

through Title 42?

Mr. VARMUS. Well, I see where you are going, Mr. Chairman. But

to the best of my recollection, most of the arguments that we made

were not based on compensation, because, in fact, a moderately

small amount—number of NIH employees were engaged in consulting. What troubled me more was the difficulty of recruiting to

the NIH people who were making amounts that were considerably

in excess of what we could offer in the conventional GS or SES pay

scales.

Mr. GREENWOOD. Now, when you were Director, did you employ

retention bonuses?

Mr. VARMUS. Occasionally.

Mr. GREENWOOD. Could you describe a retention bonus and how

that system works?

Mr. VARMUS. It was quite a rare phenomenon, but it usually

would occur when someone was being offered a job on the outside

and had a written demonstration that a job was honestly offered,

not simply an idle comment. We would then apply for a retention

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bonus to help retain that person, and these were usually fairly

modest sums.

Mr. GREENWOOD. Give me an example.

Mr. VARMUS. Oh, it might be—I am conscious of being under

oath. I can’t remember the numbers exactly, but in the range of

$25 to $50,000.

Mr. GREENWOOD. Okay. And you say it was rarely used? Could

you give us an order of magnitude of the number of times that you

think it was used while you were Director?

Mr. VARMUS. Well, used in situations where I would be making

the appeal for the retention bonus, I don’t believe it would be more

than 10 to 20 times perhaps, maybe less than that.

Mr. GREENWOOD. Were you the only person at the NIH that

could approve a retention bonus?

Mr. VARMUS. No. I would have to consult with my former colleagues to know whether—there were some pay scales in which a

retention bonus could be given by an Institute Director. During our

time at the NIH, some personnel responsibilities—some personnel

authorities were delegated to Institute directors.

I mean, it is possible in some pay scales and categories that a

retention bonus could be developed for an employee of an institute,

and I would not have been involved.

Mr. GREENWOOD. You said that you were surprised to hear that

as many as 4,000 NIH personnel could be under Title 42 now. Can

you justify that? Do you think—could you make the argument

today that but for Title 42 that anything like 4,000 employees at

NIH would go walking away because they are underpaid?

Mr. VARMUS. Well, I would have to look—I would have to hear

more about how and why it was done, and whether the pay ranges

are actually different from what people would have been assigned

if they were in the regular GS series. I don’t know the full particulars. I have been away for——

Mr. GREENWOOD. Why else would they be under Title 42 if it

weren’t for salary——

Mr. VARMUS. I don’t know, Mr. Chairman. I know I would—having heard the number, I will be interested to find out. But I honestly can’t tell you I have heard the——

Mr. GREENWOOD. And you said that you had set up the policy so

that new hires could come in under Section 42. Did you—was it

your idea that people would be able to convert their status to Title

42?

Mr. VARMUS. That was a possibility, sure.

Mr. GREENWOOD. Pardon me?

Mr. VARMUS. That would be a possibility, if someone were being

promoted, for example, or doing exemplary work or being lured

away as a retention mechanism. It would seem to me to be a possible use of the Title 42.

Mr. GREENWOOD. If I told you 21 out of 27 Institute directors

converted to Title 42, would that seem like a reasonable occurrence

to you?

Mr. VARMUS. I am less surprised by that than I am by the number itself, because Title 42 is particularly useful in the higher

ranges of the institution.

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Mr. GREENWOOD. Okay. Final question for you, Mr. Swindell.

When did you—you were acting in your position for 3 years. Is that

correct?

Mr. SWINDELL. Yes, sir.

Mr. GREENWOOD. Did you find that extraordinary, to be in an

acting mode for all of that time? I mean, didn’t you feel like—did

you frequently say at yearly reviews, ‘‘When am I going to be permanent instead of under this Sword of Damocles?’’

Mr. SWINDELL. Yes, I certainly felt that it was unusual.

Mr. GREENWOOD. Did anybody ever give you an explanation as

to why you were held in limbo land all that time?

Mr. SWINDELL. No, they never did. And, of course, if I brought

up our future, it is likely the future could have been that we just

were put into another division. So I——

Mr. GREENWOOD. Did you ever feel that your acting status was

a way to make you cooperate?

Mr. SWINDELL. Well, a fair criticism from somebody looking at it

from that——

Mr. GREENWOOD. I am not—I am asking you if you ever felt that

way.

Mr. SWINDELL. Felt?

Mr. GREENWOOD. Did you ever say to yourself, ‘‘I know why I am

only Acting. That is to make me behave’’?

Mr. SWINDELL. Well, I don’t think I felt that directly, no. I mean,

I think I tried to do the best I could.

Mr. GREENWOOD. Did you ever think, ‘‘If I don’t give my superiors what they want, I won’t get to be made—a permanent position’’?

Mr. SWINDELL. Did I ever feel if I don’t give what they want—

I just tried to be a professional, to follow the instructions that were

given me.

Mr. GREENWOOD. Okay. All right. Thank you, lady and gentlemen of the panel. Appreciate your contribution today, and you are

excused.

The Chair would call our second panel consisting of Dr. Lance A.

Liotta, M.D. and Ph.D., Chief of the Laboratory of Pathology at the

National Cancer Institute, Dr. J. Carl Barrett, Ph.D., Director,

Center for Cancer Research at the National Cancer Institute; Dr.

Anna D. Barker, Ph.D., Deputy Director, Advanced Technologies

and Strategic Partnerships at the National Cancer Institute; and

Dr. Emanuel Petricoin, Lead Microbiologist, Center for Biologics

Evaluation and Research, at the Food and Drug Administration.

Welcome. You may have—I don’t know whether you were here at

the beginning of this hearing, but as I told the first panel of witnesses, that pursuant to the custom of this committee we take our

testimony under oath. And so I would request if any of the four of

you object to giving your testimony under oath. Okay. I see no objection.

I also should advise you that. pursuant to the rules of the House

and of this committee, that you are entitled to be represented by

an attorney. Do any of you choose to be represented by an attorney? Dr. Liotta, you are represented by an attorney. Would you

identify your attorney, or would you have your attorney identify

himself into the microphone, please?

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Mr. MORTON. Mr. Chairman, Charles Morton on behalf of Dr.

Liotta.

Mr. GREENWOOD. And Dr. Petricoin, your attorney—would your

attorney please identify himself?

Mr. SCHATZOW. Michael Schatzow, S-C-H-A-T-Z-O-W, on behalf

of Dr. Petricoin.

Mr. GREENWOOD. Thank you.

And I assume Dr. Barrett and Dr. Barker are not represented by

counsel? Okay.

Well, in that case, would you rise and raise your right hand?

[Witnesses sworn.]

Mr. GREENWOOD. Okay. You are under oath, and I believe, Dr.

Liotta, you have an opening statement?

Dr. LIOTTA. Yes.

Mr. GREENWOOD. And you are recognized for 5 minutes to give

that opening statement. Welcome.

TESTIMONY OF LANCE A. LIOTTA, CHIEF, LABORATORY OF PATHOLOGY; ACCOMPANIED BY J. CARL BARRETT, DIRECTOR,

CENTER FOR CANCER RESEARCH; ANNA D. BARKER, DEPUTY DIRECTOR, ADVANCED TECHNOLOGIES AND STRATEGIC PARTNERSHIPS, NATIONAL CANCER INSTITUTE; AND

EMANUEL PETRICOIN, LEAD MICROBIOLOGIST, CENTER

FOR BIOLOGICS EVALUATION AND RESEARCH, FOOD AND

DRUG ADMINISTRATION

Mr. LIOTTA. Thank you, Mr. Chairman, and members of the committee, for the opportunity to appear before you today to discuss

my role as a scientist at the NIH and my various collaborative efforts. I am humbled to contribute to the NCI goal to create scientific knowledge and rapidly translate this knowledge to reduce

suffering due to cancer.

I grew up loving science. My father was a science high school

teacher. Both of my parents encouraged my inquisitiveness and

creativity. I received my Ph.D. and M.D. from Case Western Reserve University in 1976, and then came to the Cancer Institute

immediately as a resident in pathology. I then became Chief of the

Laboratory of Pathology.

And over my 28-year career at NCI the research supported by

the Cancer Institute in my lab has generated more than 500 scholarly publications, 300 in the last 10 years. This productivity is only

a reflection of the wonderful colleagues and collaborators working

in the special environment of the NIH and the NCI, as well as the

vision and support of the leadership.

My research accomplishments span a wide range of scientific and

clinical disciplines all aimed at fighting cancer. Cancer metastases

is the major cause of suffering and death. Scientists in my laboratory discovered a series of novel genes and proteins which regulate

cancer invasion and metastasis. These discoveries are now moving

forward in clinical studies and clinical trials.

My NCI laboratory also invented new technology called laster

capture microdissection, which has enabled investigators for the

first time to pluck out molecules directly from cancer cells in a

human biopsy specimen. This was developed through research creVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00349 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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ated with Arcturus and is now in use in more than 1,000 labs

worldwide and has generated many thousands of publications.

We created a unique joint agency initiative with NCI and the

FDA called the clinical proteomics program. The goal was to translate discoveries about proteins, the functional machinery of the cell,

into direct patient benefit as fast as possible. Under the CPP, the

clinical proteomics program, we developed a new way to study cancer biopsies, which could map the deranged protein circuitry of the

cancer patient’s tumor—individual tumor.

The promise of this approach is improved therapeutic efficacy

with lower toxicity using a panel of drug treatment individualized

for that patient’s tumor, and this technology has already been

translated to research in ongoing clinical trials.

The great hope is that improved detection of early stage cancer

will produce more cancer cures. We set out to develop a new approach to discover markers for cancer. In 1998, under our clinical

proteomics program, we proposed that there existed in blood thousands of previously unknown markers that might reflect what was

shed into the blood from early stage cancer.

We generated data in our lab from an instrument called a mass

spectrometer, and generated large amounts of data that we needed

to analyze with a pattern recognition algorithm. We tried many

pattern recognition algorithms, and then published early results

that showed that our hypothesis might be true.

We then tried Correlogic Systems software, and it looked promising. This resulted in a publication in Lancet and subsequently a

CRADA with Correlogic. I want to point out that that CRADA had

a limited work scope to use Correlogic software, and we were free

to use other software before, during, and after.

We then moved on to discover, in collaboration with our colleagues at NCI Frederick proteomics facility, thousands of new

markers and identified them, never before known in the blood. And

because the U.S. Government is steward of this list of new markers, it is not in the CRADA—of any CRADA we have—we believe

this can have broad public health benefit, which will stimulate the

large diagnostic industry.

This committee is investigating outside activities by NIH scientists. Because I have had outside activities during the course of

my career, let me address this issue. I take my job as a dedicated

public servant very seriously. I believe that I have upheld and

maintained the highest ethical standards in all of my official capacities.

I have consulted with the appropriate personnel and endeavored

to follow the regulations within NIH guidance and obtained guidance at all times when it was needed with respect to such regulations. I would never knowingly engage in a conflict of interest and

would immediately cease such activity if there were a change in

the circumstance that led me to believe that an approved activity

had become one which had a potential conflict.

My only recent paid outside activity has been an approved consulting agreement with Biospect. And I want to assure you, Mr.

Chairman, that I never consulted with Biospect about my CRADAs,

never consulted with them about my Government work, and this

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was explicitly excluded in my consulting agreement, along with

my—the other exclusions in my ethics package.

My work on this consultation was placed on hold during the

NIHEAC rereview of outside activities concurrent with the Blue

Ribbon Panel. Last week I learned new information relative to this

activity that Biospect requested raw data which we make publicly

available to anyone. Because this new information might create

even the slightest potential perception of a conflict, I immediately

withdrew this activity. That is because my Government mission is

sacred to me.

In conclusion, I am honored to serve as a scientist in the intramural program of the NCI. I have cherished the opportunity to participate in the creative intellectual environment that I feel is unparalleled in the world.

[The prepared statement of Lance A. Liotta follows:]

PREPARED STATEMENT OF LANCE A. LIOTTA, CHIEF OF THE LABORATORY OF PATHOLOGY AND CHIEF OF THE SECTION OF TUMOR INVASION AND METASTASES IN THE

CENTER FOR CANCER RESEARCH, NATIONAL CANCER INSTITUTE, NIH

Thank you Chairman Greenwood and Members of the Committee for the opportunity to appear before you today to discuss my role as a scientist at the NIH and

my various collaborative efforts.

I grew up loving science. My father was a science high school teacher. Both of

my parents encouraged my inquisitiveness and creativity. I began inventing things

at an early age. By college I was spending my summers working and inventing solutions for the Dupont Corporation at its Experimental Station in Wilmington, Delaware. I have always had a passion to be an inventor, and today I have over 80 patents and patents pending, which list me as an inventor.

My interest in medical diagnostics and pathology began during my undergraduate

years (1965-1969). At that time I began doing research that led to patents for diagnostic test technology for infectious disease, as well as, general blood and body fluid

testing methodologies. While in medical school, I was employed part time as a medical laboratory technician for the medical student health clinic. I was responsible for

blood, culture and urine analysis, including the report generation. This training allowed me to gain exposure and expertise within the broad field of diagnostic testing

methodology, and pathology diagnostic service labs.

I received my Ph.D. in Biomedical Engineering from Case Western Reserve University (‘‘CWRU’’) in 1974. Two years later, I graduated from CWRU’s M.D./Ph.D.

program with my M.D. My Ph.D. work focused on mathematical modeling and experimental analysis of cancer invasion and metastasis. Cancer metastasis is the

very definition of malignancy and causes this disease to be lethal. My Ph.D. allowed

me to gain broad expertise in instrumentation, computer algorithms, mathematical

modeling, and experimental animal models of cancer and analysis of clinical

pathologic material. The results of my research convinced me that a major medical

need was an improved understanding of when and why cancer becomes malignant.

Because I was enrolled in the M.D./Ph.D. program, my Ph.D. research was supervised by both the Pathology Department of the Medical School and the Biomedical

Engineering Department.

In parallel with my Ph.D. studies, I worked to achieve an M.D. with an eye toward a career as a research pathologist. For this reason, I took special clinical rotations in diagnostic monitoring and diagnostic pathology laboratory services. When

I considered the next stage of my career, the NIH intramural program offered a superb environment that would support my creative freedom to pursue research contributions that could benefit public health.

Within 7 years of joining the NCI, as a pathology resident, I became Chief of the

Laboratory of Pathology and Chief of the Section of Tumor Invasion and Metastasis,

now part of the Center for Cancer Research. In these capacities I have three types

of intramural duties: clinical service, training of research and clinical fellows, and

cancer research. I am very proud of the outstanding clinical service provided by my

laboratory staff to the NIH. We are responsible for all anatomic pathology service

for the entire NIH. Our Lab hosts a world-class residency program. Here we recruit

and train research-oriented pathologists who become academic leaders. My research

contributions, supported by the NCI program, have generated more than 500 scholVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00351 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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arly publications. This productivity is only a reflection of the wonderful colleagues

and collaborators working in the special environment of the NIH, as well as the vision and support of the NCI and NIH leadership.

I am proud to have further served the NIH as the Deputy Director for Intramural

Research under NIH Director, Dr. Bernadine Healy. I played a major role in setting

up the Intramural Human Genome Program. This job gave me a great appreciation

of the significant ways in which the NIH environment has continued to attract topnotch minds.

My research accomplishments to date span a wide range of scientific and clinical

disciplines, including:

Cancer Metastasis—My work along with my collaborators is recognized as a

groundbreaking effort to investigate the process of tumor invasion and metastasis

at a molecular level. In the mid 1970s, we proposed and experimentally demonstrated the linkage between angiogenesis onset and tumor invasion and metastatic dissemination. We proposed the concept of metastasis suppressor genes. Consequently, scientists in my Laboratory of Pathology discovered a series of novel

genes and proteins, which regulate cancer invasion and metastasis, thereby providing new strategies for cancer diagnosis and treatment. As a demonstration of the

originality of these discoveries, all are covered by U.S. government-owned patents,

both issued and filed.

New Technology for Micro Analysis of Tissue—My laboratory has invented

technology in the fields of pathology diagnosis, microdissection and proteomics. Our

group invented Laser Capture Microdissection (LCM), which was developed through

a research CRADA (Cooperative Research and Development Agreement) with Arcturus, Inc. and, thereby, rapidly commercialized. This technology is now in use in

more than 1000 labs worldwide. The technology has enabled investigators for the

first time to make broad discoveries in genomics, functional genetics, and is now extending into personalized medicine. This partnership is a prime example of what the

NIH CRADA mechanism is designed to do: turn bench research into practical applications.

Clinical Proteomics Program—We created the first joint agency initiative between the NCI and the FDA in 1998 to develop new technology for the discovery

of proteins important for cancer diagnosis and therapy, using actual human tissue

and body fluids. Dr. Emanuel Petricoin of the FDA and I serve as co-directors. This

initiative is now called the NCI/FDA Clinical Proteomics Program (CPP).

Individualized Cancer Therapy—Under the CPP, we proposed that LCM, combined with a new type of protein array, also developed in the CPP, constituted a

new paradigm for patient-tailored medicine. The promise of this approach is improved therapeutic efficacy with lower toxicity, using a panel of drug treatments, individualized for the patient’s tumor. This technology has already been translated to

use in patients. It is being applied to patient tissue biopsies, conducted before, during and after experimental therapy, as part of ongoing NCI Clinical Center Trials.

Diagnostic Tools for Detection of Early-Stage Cancer—Another major initiative has been in the field of early detection of cancer. In 1997, based on our initial

studies, we hypothesized that a large number of previously undiscovered and unknown protein markers were generated in the tissue and spilled into the blood, as

a record of the disease state or the physiologic state. This hypothesis predicted that

cancer developing in the tissue contained or shed proteins, which could be used as

a test for early diagnosis. Our challenge was not knowing the identities of these

molecules.

Proteomic Pattern Diagnostics—In 1998, in order to explore the potential existence of this new list of diagnostic markers, we applied mass spectrometry for

fingerprinting analysis of tissue and blood. This was a well-established technology,

but had not yet been applied to microdissected tissue. Even though we did not know

the identity (name, sequence) of the molecules underlying the pattern fingerprints

we recognized that this data supported our hypothesis that a large treasure-trove

of previously unknown diagnostic markers existed. In our early studies, we analyzed

our mass spectral data using visual graphing and the pattern recognition software

that was commercially available. As we reported publicly at the American Association of Cancer Research in 1999, our results indicated the existence of a rich source

of unknown markers in cancer tissue. We also reported on the first evidence of mass

spectral fingerprinting diagnosis of cancer. Prior to this public disclosure, the U.S.

government filed patents on this concept.

Our next step, during the fall of 1998 and spring of 1999, was to look in great

depth at human serum samples from cancer and non-cancer patients, using a variety of analytical methods. We realized, based on our previous findings and expertise,

that a large number of pattern recognition approaches existed for spectral analysis,

including applications to mass spectrometry. Subsequently, under a government maVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00352 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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terial transfer agreement, Correlogic Systems software was employed to analyze our

mass spectral data. The result was a publication in the LANCET, describing the potential research feasibility of using mass spectral fingerprints in serum for early

stage ovarian cancer detection. Based on this reduction to practice, a patent jointly

owned by the U.S. Government and Correlogic was filed. I am named as an inventor

on this application. This promising research collaboration was extended to explore

additional research applications under a research CRADA. This CRADA did not include the identity of the molecules themselves, nor did it constrain the U.S. government from its ongoing evaluation and use of other pattern recognition methods. Instead, the CRADA was aimed at evaluating the use of Correlogic’s software for additional research topics.

The impact of this work from 1998 to 2002 is best exemplified by the fact that

at the latest meeting of the American Association of Cancer Research, hundreds of

scientists reported on exploring this field of proteomics pattern recognition, using

a variety of methods.

An Abundance of New Diagnostic Marker Candidates

Our lab’s consistent goal has been three-fold. 1) identification of the proteins predicted to exist by our original hypothesis, 2) continuous posting of our raw mass

spectral data in the public domain, as a public service and with unfettered, full access (i.e., others have analyzed our raw data with their own pattern recognition

methods and have published excellent results); and, 3) translation of these discoveries to patient benefit with the highest degree of scientific rigor, as rapidly as possible.

To that end, under the CPP, we have recently invented next-generation technology (patent applications solely owned by the Government and advertised in the

Federal Register), which allows us to amplify and identify the new molecules we

proposed to exist. Through the use of this government technology, and in collaboration with colleagues in the NCI-Fredrick proteomics facility, we have now identified

thousands of specific proteins with diagnostic potential, which were previously unknown to exist in the blood. Because the U.S. government is the steward of this information, we believe that it can have broad public health benefits and will stimulate the large diagnostic industry of the U.S.

I have been the recipient of over 30 awards for achievement in cancer research

and translational medicine. In addition, I have received numerous PHS Commissioned Corps awards, including the NIH Director’s award, the Merit Award, the Distinguished Service Medal, the Meritorious Service Medal, the Surgeon General’s Medallion, and the Surgeon General’s Exemplary Service medal. Mr. Chairman, with

the committee’s permission, I would like to include my C.V., which provides further

details concerning my publications, patents, and related career information.

According to published information, this committee is investigating outside activities by NIH scientists. Because I have had outside activities during the course of

my career, let me address this issue. I take my job as a dedicated public servant

very seriously. I believe that I have upheld and maintained the highest ethical

standards in all of my official capacity over the years as Chief of the Laboratory

of Pathology, Chief of the Section of Tumor Invasion and Metastasis, and former

Deputy Director for Intramural Research. At all times, I have endeavored to follow

the regulations governing outside activities. I have consulted with the appropriate

personnel within the NIH when guidance was needed with respect to such regulations. I would never knowingly engage in any conflict of interest and would immediately cease such activity if there were a change in circumstance that would lead

me to believe that an approved outside activity had become one which involved a

conflict.

The research CRADA with Correlogic was signed in April 2002. At that time,

Correlogic was a software company with an established proprietary pattern recognition software using a genetic algorithm with a lead cluster analysis. The purpose

of the CRADA was to study the application of Correlogic’s specific algorithm to analyze spectral data that had been generated and would be generated by the NCI/FDA

Clinical Proteomics laboratory (‘‘the Lab’’) from blood samples run on the commercially available SELDI-TOF mass spectrometer that the Lab had purchased in 1998.

The CRADA’s goal was to find unique discriminating patterns of unknown entities

revealed by Correlogic’s proprietary algorithm applied to raw mass spectral data the

Lab had generated, and would generate. I began an NCI approved consulting with

Biospect in December, 2002. My understanding was that Correlogic was a software

company, in contrast with Biospect, that I understood to be a scientific instrument

company. When I began consulting with Biospect, I understood Biospect was in the

early stages of developing a new instrument and scientific technology which employed its proprietary chemistry to separate and identify molecules. I understood

346

Biospect desired to explore the use of blood and body fluids from animal and human

sources with the goal of discovering molecules for biological and medical applications.

In view of new information obtained within the last week, I ended my outside activity with Biospect. This activity had been approved repeatedly by my supervisor

and the NCI Deputy Ethics Counselor. During this past week I specifically learned

that Biospect requested certain information from the NIH. For me, this caused concern. As a result, I terminated my relationship with Biospect effective immediately.

When I first came to the Cancer Institute at the NIH in 1976 to join the pathology

residency program, I was fresh out of medical school. I so loved the climate of intellectual freedom there, that I decided to stay. Here it is 28 years later. I am very

proud to be a part of the NIH and the NCI. I am humbled in my hope that any

of my contributions may have added to the international renown of those institutions. I have always been thrilled to work with colleagues who are so very dedicated

to save lives and reduce suffering through the advancement of scientific knowledge.

In closing, Mr. Chairman, I wish to express my gratitude to the CCR, NCI, NIH

and PHS for giving me the opportunity to serve the public benefit within a special

creative environment that respects its scientists as individuals. Here at the NIH a

critical mass of scientists from multiple agencies can work together to further scientific knowledge and employ this knowledge for the common goal of saving lives.

Mr. GREENWOOD. Thank you, Dr. Liotta.

Dr. Petricoin, do you have an opening statement, sir? Okay. You

are recognized for 5 minutes.

TESTIMONY OF EMANUEL PETRICOIN

Mr. PETRICOIN. Thank you, Mr. Chairman. Mr. Chairman, I am

pleased to be here today, so that I may provide answers to the best

of my ability to any questions that you may have and to share with

you any relevant insights.

My name is Dr. Emanuel F. Petricoin, and I am a senior investigator in the Office of Cell, Tissue, and Gene Therapies in the Center for Biologics Evaluation and Research at the U.S. Food and

Drug Administration.

I have been a U.S. Government employee since 1993, and I have

been honored to spend the entirety of my post-graduate career in

the Public Health Service. I understand from the news coverage

and your letter of invitation that you are investigating NIH ethics

concerns, consulting arrangements, and outside awards.

I appreciate the seriousness with which you are taking this investigation. I hope that I can provide information that will help

you. I believe that my outside activities, all of which were submitted, reviewed, and approved, according to the procedures in

place, were performed to the highest ethical standards.

I believe I followed, to the best of my ability, not only instructions but also the intent of the ethics guidelines. On May 7, 2004,

I was informed that Biospect, with whom I had an approved outside activity, had been recently and now considered based on a rereview to be a significantly regulated entity. As a result of this new

classification, this approval had been revoked.

Upon notification of that decision, I immediately and without

hesitation, ended this outside activity. I want to note that my approved outside activity with Biospect was listed on all of my filed

OGE 450 forms, the executive branch confidential financial disclosure report. And even that as of the last review cycle, in the winter

of this year, this activity was found not to be in question.

Mr. Chairman, I heard your opening statements, and I wanted

to assure you that at no time did I directly consult with Biospect

about the work and our research created with Correlogic, or proVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00354 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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vide them with any secret or non-public information. Moreover, I

believe that my consulting agreement prohibited that very specific

activity conducted with Correlogic under our research CRADA.

Mr. Chairman, ever since I can remember, I have wanted to be

a scientist. My family always jokes with me about how they never

recall me wanting to do anything else. From the time I won my

first science fair ribbon in the fourth grade until today, I have

never envisioned myself doing anything else.

I am also Washington, D.C. local. I remember as a child driving

by the NIH and naval hospital and staring in disbelief at the size

of the buildings and that everyone inside were all scientists. I

stand before you today as an individual who I believe has been trying to make a difference in the public health, especially in light of

my father’s death from a sudden heart attack when I was 21 and

my mother’s current battle with breast cancer.

My time spent in high school and college working first as a patient transporter, then in a microbiology and clinical laboratory, solidified my decision to work in an area of science that could directly

affect people’s lives. I could not wait to go to college. I drove headlong into the microbiology major, receiving my Ph.D.—my degree in

3 years and my Ph.D. in 5 years.

My Ph.D. research focused on the analysis of genes, proteins, and

surface molecules for gonorrhea vaccine development. I was immediately drawn to a project that did not seem esoteric but might

allow me to contribute to work that could actually lead to a vaccine

some day.

During my thesis work, I gained expertise in immunology, cell biology, biochemistry, protein chemistry, protein separation and fractionation methodologies, and was introduced into mass spectrometry analysis. During my part-time employment at the Southern

Maryland Hospital, I gained valuable expertise in tissue and body

fluid collection methods, and in clinical sampling, handling, and

storage methods.

Moreover, I became adept and fully trained using a variety of

robotic and microfluidic technologies. This combined experience and

research in diagnostic practice was the basis of my choice to seek

a post-graduate career in translational medicine on my continuing

journey for bench to bedside applications.

From 1990 to 1993, I was a National Research Council fellow in

a post-doctoral position in the Division of Cytokine Biology at FDA.

I was very interested in a career with cancer-based applications,

and because of my Ph.D. training realized that new classes of molecules and proteins were being developed which may really have an

impact some day.

As icing on the cake, I was able to work in an FDA facility at

the NIH, the Nation’s premier research institute and my childhood

fantasy. From my post-graduate work I gained valuable expertise

in signal transduction biology, protein interaction technologies, protein phosphorylation, and cytokine biology.

As I entered the twilight of my post-doctoral training, I was intent on being a research scientist working for direct patient benefit.

My time spent as a post-doctoral student at an FDA facility reviewed a different, but equally important, aspect of the translation

and delivery of medical benefit to the bedside that I had not recogVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00355 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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nized before. And I was impressed by the FDA scientists I

interacted with.

I successfully competed for a publicly advertised, tenured track,

U.S. Government position in 1993 and was tenured in the Center

for Biologics Evaluation and Research in 1998. And I am proud

that my entire post-graduate career has been spent as a U.S. Government scientist working at the Food and Drug Administration.

In 1997, as a result of a series of highly cited publications from

the laboratory of Dr. Lance Liotta, I decided to work with him on

a joint interagency agreement and entered into an agreement

where we were focusing on translation of research at the bench to

bedside practices.

I finally realized my dream job—working at the FDA and learning about the process of delivering safe and effect medicine to the

public. Let me explore and expand my scientific talents which link

back to the times of my laboratory experience at a hospital as a college freshman.

Mr. Chairman, I certainly receive many outside activity requests

every year. Almost all of these are dismissed immediately, because

they are invitations which directly relate to my official duties as an

FDA employee and my ongoing U.S. Government scientific research.

I consider only those requests that invite me to participate not

because of my U.S. Government position and FDA expertise, but

because of my general scientific expertise built up over the years.

In those instances where I choose to pursue the opportunity, I always submit an HHS 520 form, Request for Outside Activity.

This approval form—request form is then approved or declined

after due diligence under currently established procedures. I would

never knowingly pursue any activity which I felt would run counter

to this process. And I certainly would never knowingly pursue or

continue any outside activity which I felt was in conflict with a career spent as a scientist in the pursuit of public and patient benefit.

In closing, Mr. Chairman, I wish to express my gratitude to

CBER, the FDA, and the Public Health Service, for providing me

a working environment and research funding support for a body of

work which I believe is highly successful and is one that I am extremely proud of.

I will answer, as best I can, any questions you and the panel

have for me.

[The prepared statement of Emanuel Petricoin follows:]

PREPARED STATEMENT OF EMANUEL F. PETRICOIN, SENIOR INVESTIGATOR, OFFICE OF

CELL TISSUE AND GENE THERAPIES, CENTER FOR BIOLOGICS EVALUATION AND RE- SEARCH

Mr. Chairman, I am pleased to be here today so that I may provide answers, to

the best of my ability, to any questions that you may have and share with you any

relevant insights. My name is Dr. Emanuel F. Petricoin III, and I am a Senior Investigator, in the Office of Cell, Tissue and Gene Therapies in the Center for Biologics Evaluation and Research, within the US Food and Drug Administration. I

have been a US Government employee since 1993, and have been honored to spend

the entirety of my post-graduate career in the Public Health Service.

I understand from the news coverage and your letter of invitation that you are

investigating NIH ethics concerns, consulting arrangements and outside awards. I

appreciate the seriousness with which you are taking this investigation. I hope that

I can provide information that will help you. I believe that my outside activities,

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all of which were submitted, reviewed and approved according to the procedures in

place, were performed to the highest ethical standards. I believe I followed, to the

best of my ability, not only the instructions but also the intent of the ethics guidelines. On May 7th, 2004, I was informed that Biospect, with whom I had an approved outside activity, had been recently and now considered, based on a re-review,

to be a significantly regulated entity. As a result of this new classification, this approval had been revoked. Upon notification of that decision, I immediately and without hesitation ended this outside activity. I want to note that my approved activity

with Biospect was listed on all of my filed OGE 450 forms (Executive Branch Confidential Financial Disclosure Report), and that even as of the last review cycle, this

activity was found not to be in question.

BACKGROUND REGARDING MY CAREER

Ever since I can remember, I have wanted to be a scientist. My family always

jokes with me about how they can never recall me wanting to do anything else.

From the time I won my first science fair ribbon in the 4th grade until today, I have

never envisioned myself doing anything else. Mr. Chairman, I am a Washington DC

local. I remember as a child, driving by the NIH and the Naval Hospital and staring

in disbelief at the size of the buildings where everyone inside were all scientists!!

I stand before you today as an individual who I believe, has been trying to make

a difference in the public health, especially in light of my father’s death from a sudden heart attack when I was 21 and my mother’s battle with breast cancer. My time

spent in high school and college working first as a patient transporter, then in a

microbiology and clinical laboratory, solidified my decision to work in an area of

science that could directly affect people’s lives.

I could not wait to go to college. While many of my friends and dorm mates waited

until their sophomore years to declare a major, at the University of Maryland I

charged headlong into the Microbiology major, received my degree in 3 years, and

received my PhD in Microbiology in five years in 1990. My PhD research focused

on the analysis of genes, proteins and surface molecules for gonorrhea vaccine development. I was immediately drawn to a project that didn’t seem esoteric, but might

allow me to contribute to work that could actually lead to a vaccine some day. During my thesis work, I gained expertise in pathogenic microbiology and infectious disease analysis, immunology and cell biology, biochemistry and protein chemistry, protein separation and fractionation methodologies, and mass spectrometry analysis of

molecules within complex biological and bacterial samples. I successfully identified

and characterized the first gene for a gonorrhea surface molecule that later became

considered for a potential vaccine target. We employed a variety of protein analytical techniques, and were one of the first scientific groups to successfully employ

mass spectrometry to analyze the sugars attached to lipids on the surface of diseasecausing bacteria. Moreover, as a consequence of my PhD studies, I became facile in

the handling of clinical specimens and body fluids as well as diagnostic testing

methods for bacterial characterization. During my part-time employment at Southern Maryland Hospital, I gained valuable expertise in tissue and body fluid collection methods, clinical sample handling and storage methods, and clinical diagnostic

technology. Moreover, I became adept and fully trained using a variety of robotic

and microfluidic technologies. This combined experience in research and diagnostic

practice was the basis of my choice to seek a post-graduate career in translational

medicine—on my continuing journey for bench-to-bedside applications.

POST-DOCTORAL CAREER

From 1990 until 1993 I was a National Research Council Fellow in a post-doctoral

position in the Division of Cytokine Biology, CBER/FDA. I was very interested in

cancer-based applications, and because of my PhD training, realized that new classes of molecules and proteins were being developed which may really have an impact

someday. However, the scientific community lacked knowledge about the way these

proteins communicated with cells and what really caused cells to grow, die and

spread uncontrollably. I was drawn to a laboratory which was focused on trying to

understand how a widely known protein, interferon, actually worked and caused

cancer to die or quelled viral infections. As icing on the cake—I was able to work

at an FDA facility that was at the NIH—the Nation’s premier research institute and

my childhood fantasy. During my post-graduate work, I gained valuable expertise

in signal transduction biology, protein-protein interaction methodologies, protein

phosphorylation, and cytokine biology. For the first time, our laboratory identified

and characterized members of a signaling pathway that later became the well

known ‘‘JAK-STAT’’ pathway. This pathway is now thought to regulate and be involved in viral disease, inflammation, and cancer. Additionally, during my post-docVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00357 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
350

toral fellowship, I was able to extend my graduate expertise using mass spectrometry and protein separation methods by employing new proteomic technologies.

Using these tools, I identified and sequenced a new protein, produced by many different cancer cell lines. This protein was experimentally demonstrated to interfere

with interferon activity.

JOINING FDA/CBER

As I entered the twilight of my post-doctoral training, I was intent on being a research scientist working directly for patient benefit. My postgraduate work on the

NIH campus made me realize that the unique environment provided by a vibrant

scientific community all striving for translational medical benefit was the place I

wanted to stay. My time as a post-doctoral student in an FDA facility revealed a

different but equally important aspect to the translation and delivery of medical

benefit to the bedside that I had not recognized before. I was intrigued and impressed by the FDA scientists I interacted with. I was intrigued by their unique

combination of bench-side research talents as well their understanding of what it

took to get a biologic approved for clinical benefit. I decided that I could blossom

in such a role and was ecstatic that in 1993, I successfully competed for a publicly

advertised tenure-track US Government position. I was tenured in the Center for

Biologics Evaluation and Research in 1998, and am proud that my entire post-graduate career has been spent as a US Government scientist working at the US Food

and Drug Administration.

FDA/NCI COLLABORATION ESTABLISHED

In 1997, as a result of a series of highly cited scientific publications from the laboratory of Dr. Lance A. Liotta of the NCI, I contacted Dr. Liotta to discuss potential

collaborative opportunities to use proteomic analysis of laser capture microdissected

human cancers. This discussion resulted in the first joint Interagency Agreement

(IAG) between the FDA and the NCI. The focus of this IAG was to work jointly together to develop and test new proteomic technology for clinical and translational

applications. I had finally realized my dream job. Working at the FDA and learning

about the process of delivering safe and effective medicine to the public let me explore and expand my scientific talents which linked back to my times as a college

freshman working in a hospital lab.

Based on our combined research and clinical expertise, we embarked on a variety

of research projects that employed a variety of emerging proteomic technologies for

discovery of diagnostic biomarkers and therapeutic targets. The overarching goal

was to develop and evaluate methods for personalized medicine and early detection

of cancer as a means to provide translational public health impact with a high degree of scientific rigor and an eye towards rapid patient benefit. This goal has been

a consistent cornerstone of our joint collaboration. During the past 6 years, our program has successfully developed a number of new exciting proteomic technologies,

with over 90 publications to our credit. These publications are the direct result of

a talent pool of highly creative scientists both within the program itself as well as

our fantastic set of scientific collaborators outside the program. We have entered

into several documented US Government Material Transfer Agreements (MTA) and

US Government Cooperative Research and Development Agreements (CRADA) that

have proved highly successful. Within each of these agreements and arrangements

we sought a clear path to facilitating and translating our work to public benefit

without constraining our ability to maintain the necessary independent and creative

freedom that has served us so successfully. In addition to the need to maintain creative freedom to operate, we are driven by a transparent process of proteomic data

dissemination into the public domain. We are proud that as US Government scientists, we were the first group to offer all of our mass spectral data in the public

domain, and continue to provide all of our data to the entire scientific community

as a public service. This public dissemination of data and transparency has been

commended by the National Cancer Advisory Board. We are also proud that while

we were the first group to demonstrate the use of mass spectrometry based protein

fingerprinting for cancer applications in the spring of 1999, recently hundreds of scientists at the latest meeting of the American Association of Cancer Research (April

2004) are reporting independent success using a variety of different approaches. Our

raw data has been downloaded over 500 times in the past two years, and scientists,

from around the world, including a 2002 National Medal of Science Winner, named

by President Bush as one of the nation’s leading scientists, have published extremely exciting results using our raw data as the basis of their own pattern recognition methods and tools.

351

Our ongoing work continues to accelerate. We have recently invented new technology that is wholly owned by the Government and has been advertised in the Federal Register. This has allowed us to identify thousands of new biomarker molecules

that may be useful for cancer and disease diagnosis. We believe that this new diagnostic information archive, never before known to exist in the blood, may contain

important information for the detection of many diseases—not just cancer. We hope

that this information can translate into broad public health benefit.

I certainly receive many outside activity requests every year. Almost all of these

I dismiss immediately because they are invitations, which directly relate to my official duties as an FDA employee and my ongoing US Government scientific research.

I consider only those requests that invite me to participate not because of my US

Government position, but because of my general scientific expertise which encompasses my lifetime as a scientist, and whose activities are directly unrelated to my

government job. In those instances where I chose to pursue the opportunity I always

submit an HHS 520 form for approval. This approval form is approved or declined

after due diligence under current established procedures. I would never knowingly

pursue any activity which I felt would run counter to this process, and I certainly

would never knowingly pursue or continue any outside activity which I felt was in

conflict with a career spent as a scientist in the pursuit of public and patient benefit.

In closing, Mr. Chairman, I wish to express my gratitude to CBER, the FDA and

PHS for providing for me a working environment and research funding support for

a body of work which I believe is highly successful and is one that I am extremely

proud of. I will answer, as best I can, any questions you may have for me.

Mr. GREENWOOD. Thank you. Am I pronouncing—is it Petricoin?

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Okay. I am advised that neither Dr. Barrett

nor Dr. Barker have opening statements. Is that correct? You do

not have opening statements. Okay. But you are prepared to answer our questions. Very good. Thank you.

All right. And before I begin, because one could not miss the passion in both of your statements, Dr. Liotta and Dr. Petricoin. There

is no one who is questioning that you are a splendid scientist.

There is no one questioning that you have chosen careers that are

highly valuable to mankind.

It is an unusual phenomena for Federal employees to work—at

the same time they are Federal employees to work in the private

sector as well. And it obviously raises a host of ethical issues. And

what this hearing is about, and what this committee is about, is

trying to sort our way through these ethical issues.

We know things have gone wrong at the NIH ethically. We know

that there are well-document instances of that. We are trying to

understand the underlying rules, policies, culture, that has—that

leads to this, and that is why you find yourselves in front of us

today. I am sure you would rather be almost anywhere else, but

I am going to proceed with questions and hope you will understand

the spirit in which they are given.

Let me start with you, Mr. Petricoin. Some of these questions are

elementary, but I am—just follow with me here. Dr. Petricoin, do

you accept a Government check?

Mr. PETRICOIN. I accept a Government check, sir, is that what

you——

Mr. GREENWOOD. Yes.

Mr. PETRICOIN. Yes.

Mr. GREENWOOD. When do you get paid? You need to pull the

microphone, make sure it is on and close to your mouth. Okay.

When do you get paid? Every 2 weeks?

Mr. PETRICOIN. Yes, sir.

352

Mr. GREENWOOD. Okay. And you put that check in a bank account and you spend the money.

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Okay. And when you joined the FDA, you were

briefed on ethics, is that correct?

Mr. PETRICOIN. Yes. There was ethics training that I attended.

Mr. GREENWOOD. Very good. You have received annual training?

Mr. PETRICOIN. Yes.

Mr. GREENWOOD. Okay. You have received ethics counseling?

Mr. PETRICOIN. Ethics counseling, sir? The annual ethics training.

Mr. GREENWOOD. Have you ever spoken to Vincent Tolino in the

Ethics Office?

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Okay. Was that for counseling from Mr. Tolino?

Mr. PETRICOIN. Yes, sir. There was times when Mr. Tolino would

advise me.

Mr. GREENWOOD. Right. So I am just trying to distinguish that

between routine—that and routine training. Are you with me?

Okay, sir.

You knew the restrictions included—and you knew that there

were restrictions on certain outside activities, correct?

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Okay. And you knew that restrictions include

no outside consulting with significantly regulated entities like Biotechnology companies, is that correct?

Mr. PETRICOIN. Yes, sir. I realized there were restrictions on

these significantly regulated entities.

Mr. GREENWOOD. Is Biospect a biotechnology company?

Mr. PETRICOIN. When Biospect approached me in 2002, it was my

understanding that they were an instrument company that was developing technology for protein separation, fractionation, and identification. I looked at the FDA yellow book, which lists the significantly regulated entities. They were not listed.

And according to what was on the Ethics homepage, the next

step was to see if greater than a certain percentage—I think—I believe to the best of my recollection it is 10 percent—of their gross

revenues were regulated by the FDA. Since this was apparently a

new company, a startup company, the focus of their efforts was, in

fact, to find out applications for this tool.

Mr. GREENWOOD. Did you decide it was not a biotechnology company?

Mr. PETRICOIN. Yes, sir, based on the fact that the next determination was on my looking at the FDA website.

Mr. GREENWOOD. Was there any question in your mind that it

was a technology company?

Mr. PETRICOIN. Yes. I think it was a technology company.

Mr. GREENWOOD. Why do you think it called itself biotechnology—Biospect?

Mr. PETRICOIN. Well, the determination of a significantly regulated entity, when there isn’t a revenue stream, is that to the best

of my understanding that all of its activities are solely regulated

by the FDA. And in terms of what my understanding of Biospect

353

was, that did not appear to be the case. There is many areas that

are—of science and technology that the FDA does not regulate.

Mr. GREENWOOD. So you thought it could—I just want to—did

you think it was a biotechnology company?

Mr. PETRICOIN. Not necessarily. I think that——

Mr. GREENWOOD. I mean, not—I am not asking you based on the

yellow book. I am saying, you look at this company, you see what

it does, what its mission is, and you know it is a technology company. You know it uses mass spectroscopy. And it is working with

biological materials, is it not?

Mr. PETRICOIN. Yes.

Mr. GREENWOOD. So, I mean, wouldn’t it seem on the surface to

be a biotechnology company, if ever there was one?

Mr. PETRICOIN. Well, not necessarily, because as I looked at

those companies that were also on the list of approved entities,

there were many entities which did technology that directly related

to biotechnology, for example.

Mr. GREENWOOD. Okay. All right.

Mr. PETRICOIN. And so I submitted the approval to those that

could make the decision better than I. I am a scientist, not a lawyer, so I——

Mr. GREENWOOD. That is fine. Okay. So if you would turn to Tab

27 in that notebook in front of you. That is what you just referenced. That is your request for approval of an outside activity,

which you submitted to the FDA. And you provided information on

the form about Biospect and the agreement you were engaging in

with them.

Okay. Where did you get the information that you needed about

the company to fill that form out?

Mr. PETRICOIN. This was based on an invitation letter and discussions with one of the principals that contacted me to see if I

would be interested in consulting.

Mr. GREENWOOD. Okay. And what was your understanding of

what you were being hired to do?

Mr. PETRICOIN. Basically, the understanding that I was operating under, and I operated under during the entire time, would be

to survey the public domain for applications of their technology, including selling the machine itself all the way to, you know, environmental monitoring to discovering new molecules associated with

disease.

Mr. GREENWOOD. Okay. And did you use the same contract as

Dr. Liotta with Biospect?

Mr. PETRICOIN. Yes. Of course changing the name, things——

Mr. GREENWOOD. Changing the name, of course. Would you

please look at Exhibit A from Dr. Liotta’s contract, which is at Tab

32 of the binder on the table. The second paragraph reads, ‘‘Consulting services will relate to general professional knowledge in

medical diagnostic technology, clinical sample acquisition, preparation, fractionation, separation, storage, and stability, regulatory filings, and regulatory inspections related to clinical pathology laboratories, e.g. CAP, CLIA, GMP inspections, and 510(k) or PMA filings for new diagnostic tests.’’

Dr. Petricoin, are any of these things things that are regulated

by the FDA?

354

Mr. PETRICOIN. Yes, sir. But I would like to point out that my

consulting agreement, which I can provide to the committee, dramatically differs from those statements.

Mr. GREENWOOD. But that is what the company does. The company does those things. I mean, this isn’t—I am not asking you

whether you were doing things for the company that are themselves regulated. Obviously, the FDA doesn’t regulate the looking

up—reviewing material in the public domain, but the FDA regulates many of the things that the company does.

Mr. PETRICOIN. The appearance of what Dr. Liotta would provide

them as a consult does not necessarily to me reflect that they had

solely wanted to do FDA regulatory mission-related work.

Mr. GREENWOOD. Okay.

Mr. PETRICOIN. I think at the time they were exploring every option.

Mr. GREENWOOD. But isn’t it quite abundantly clear that they

were interested in getting a medical device approved by the FDA?

Mr. PETRICOIN. I think they were exploring every option, sir.

Mr. GREENWOOD. They couldn’t use the device, the device

couldn’t be used if it were not approved by the FDA, could it?

Mr. PETRICOIN. Actually, that’s not to my knowledge true, sir. I

think that there are things like home brew testing, which the FDA

does not have regulatory authority.

Mr. GREENWOOD. Home what?

Mr. PETRICOIN. A home brew type testing.

Mr. GREENWOOD. Beer?

Mr. PETRICOIN. Oh, excuse me. It’s a, the home brew is the reference to a diagnostic testing that certain laboratories can perform

if it’s housed in one location. At this definition, I am not an expert.

Mr. GREENWOOD. Okay, but you don’t need a 510(k) for that, correct?

Mr. PETRICOIN. Yes, a 510(k) is an FDA. But CLIA

Mr. GREENWOOD. Was there any, I’m trying to get at, was it not

abundantly clear that this company was interested in getting FDA

approval for its equipment?

Mr. PETRICOIN. It was not abundantly clear to me. My understanding was they were looking at every aspect of science and technology. And science and technology being such a huge field, and the

regulations that I saw in place on the FDA website, where

Mr. GREENWOOD. Wasn’t the wonderful promise, or isn’t the wonderful promise of this technique, this device, that it is going to be

able to allow for us to have very advanced diagnoses of potential

cancer victims? Isn’t that what it’s all about?

I mean isn’t that what they’re, isn’t that the grandeur of their

idea?

Mr. PETRICOIN. Not to my understanding.

Mr. GREENWOOD. Okay.

Mr. PETRICOIN. That they had really no specific application that

they were looking at. They had developed the technology and platform and they were looking at avenues to use them. That’s what

my consultation was, was to look into the public domain at where

any application, where technology such as this could possible by

used.

Mr. GREENWOOD. Why do you think they wanted you?

355

Mr. PETRICOIN. I assume because of my expertise and my reputation.

Mr. GREENWOOD. In general, but not, not because of your expertise in the way FDA works?

Mr. PETRICOIN. Absolutely not.

Mr. GREENWOOD. Okay.

Mr. PETRICOIN. At no time did they ever ask me, nor did I give

any advice on FDA.

Mr. GREENWOOD. I understand that. Did your consulting agreement with Biospect include this language? I think you said it is different. Your consulting agreement with Biospect did not include

the language that I just had you look at in Title 32, Tab 32, rather?

Mr. PETRICOIN. That’s right. And I would be happy to provide the

committee with my consulting

Mr. GREENWOOD. Okay, we would appreciate that. Is Correlogic

working on pattern-recognition based technology?

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Okay. And we—oh, I’m sorry. Is Biospect working on pattern-recognition technology? Pattern-recognition based

technology, is Biospect working on that?

Mr. PETRICOIN. The first time that I heard that Biospect was

working with pattern analysis, was when my Center Director,

Jesse Goodman, brought me into his office.

Mr. GREENWOOD. Who did?

Mr. PETRICOIN. Dr. Jesse Goodman, the Center Director for Center for Biologics Evaluation and Research.

Mr. GREENWOOD. Right.

Mr. PETRICOIN. He brought me into his office and informed me

that, upon a recent re-review, the FDA had determined that

Biospect had become a significantly regulated entity, and he used

the terms pattern analysis that they had found. And that was the

first that I had heard reference to that.

Mr. GREENWOOD. Do you know who Peter Levine is?

Mr. PETRICOIN. Yes, sir.

Mr. GREENWOOD. Who is he?

Mr. PETRICOIN. I believe his title is the CEO of Correlogic Systems.

Mr. GREENWOOD. Do you ever recall having a conversation with

him about his unhappiness with regard to your arrangement with

Biospect?

Mr. PETRICOIN. The recollection that I have of that conversation

was that Mr. Levine was unhappy with the fact that there seemed

to be a lot of former NCI employees in the company.

Mr. GREENWOOD. But he didn’t—was he aware that you were—

had this arrangement with Biospect?

Mr. PETRICOIN. I believe so, sir.

Mr. GREENWOOD. How would he have known that? Did you tell

him?

Mr. PETRICOIN. I

Mr. GREENWOOD. Did you ever tell

Mr. PETRICOIN. No. Mr. Levine had that information because on

one of the instances in which Dr. Liotta and I went up to an office

facility, a temporary facility where we share joint secretarial services, they were both actually shared by Biospect and Correlogic.

356

Maybe even in some ways highlighting how little we—there was

no concern on our part. And so we went up there and Mr. Levine

saw us and asked what we were doing up there, we weren’t having

a CRADA meeting? And we told him that we were up here at a

Mr. GREENWOOD. Why wouldn’t you have volunteered that information to him prior to that time?

Mr. PETRICOIN. I didn’t see any need to. There was no overlap

in my mind. Correlogic, in my mind, sir, was a software company

that was using algorithms to look for hidden patterns in mass spec

data. And those would be fingerprints that could be used for diagnosis. Biospect, my understanding was, it was an instrument company.

It was building a platform of protein separation. It was entirely

different. And thus, in my mind, there was really no reason to talk

to Mr. Levine.

Mr. GREENWOOD. When you were first made aware of these concerns that Mr. Levine had, did you consider terminating your consulting agreement with Biospect?

Mr. PETRICOIN. I know because I thought his concerns really relayed to the number of former NCI employees that were

Mr. GREENWOOD. So he never expressed to you that he was unhappy that you were working with Biospect?

Mr. PETRICOIN. I think he was unhappy that we, that, you know,

Dr. Liotta and I had an outside activity that were perhaps taking

away our time. I, my recollection of the conversation was that he

expressed some question about why there were so many former

NCI employees in the company.

Mr. GREENWOOD. Why do you think he had that concern?

Mr. PETRICOIN. I guess he felt that this, you know, was nepotism

going on here? I don’t know. He just said that didn’t smell right

to him. And I said I didn’t know that that was illegal.

Mr. GREENWOOD. Dr. Barker, Correlogic made a complaint to

NCI, did it not? Could you characterize that?

Ms. BARKER. Yes, in July 2003, actually Dr. Von Eschenbach informed me that Dr. Ren Archer, who was a consultant of

Correlogic’s, actually I think represents them in their, some of their

marketing activities.

He’s with Hill and Knowlton had complained to him that he felt

as though there might be some issues surrounding Dr. Liotta’s

consultancy with a competing company, with which the NCI had a

CRADA. And he represented that company, which was Correlogic.

So I spoke with Dr. Archer and he shared that concern with me,

and I assured him that we would examine Dr. Liotta’s consultancy

agreement and I would actually get back to him on that.

And that’s the only time it’s ever been raised. It hasn’t been

raised in meetings, but it was raised in that conversation.

Mr. GREENWOOD. Dr. Barrett, what was the issue that you were

looking at, at the time?

Mr. BARRETT. Which time are you referring to, Mr. Chairman?

Mr. GREENWOOD. The reference that Dr. Barker just made.

Mr. BARRETT. Oh, okay. So, I had, we had originally approved

the outside activity in 2002. And when Dr. Barker was contacted

by the representative from Correlogic, I then re-reviewed the material that was available, and called Dr. Liotta in.

357

At that point I, the question on the table, as I understood it, was

whether or not there was any conflict between the outside activity

and the ongoing CRADA that we had with Correlogic.

And so I called Petricoin in, as well, to discuss how this might

impact, if at all, the CRADA.

Mr. GREENWOOD. There wasn’t a question of were they or were

they not NCI officials and how many NCI officials, you were interested in the question of whether there is a conflict of interest?

Mr. BARRETT. Right. I was unaware of the NCI former employees

being members of

Mr. GREENWOOD. My time has expired. Now, the gentlelady from

Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman. And Dr. Liotta and Dr.

Petricoin, I want to add to the Chairman’s sentiments. I think both

of you are dedicated public servants and researchers and we do

have to go into this.

But I do not question your dedication to research or ethics. Although I think these case studies are good examples of some of the

concerns we have, Dr. Liotta, starting with you, and also I want

to ask you some of these same questions, Dr. Petricoin.

In your written statement, and you alluded to this in your oral

presentation. You said that when you first came to the Cancer Institute at the NIH, you were fresh out of medical school and you

really loved the climate and intellectual freedom. Is that a correct

paraphrase?

Mr. LIOTTA. Yes.

Ms. DEGETTE. Do you still love that climate of intellectual freedom there?

Mr. LIOTTA. Absolutely.

Ms. DEGETTE. I would assume that’s one of the best things about

being at the NIH is being able

Mr. LIOTTA. I love

Ms. DEGETTE. Is your microphone on, sir?

Mr. LIOTTA. Yes, that’s why I stay at the NIH, because of that

intellectual and creative freedom.

Ms. DEGETTE. Right. Would it be fair to say that you don’t stay

at the NIH because of your ability to do outside consulting or get

speaking fees?

Mr. LIOTTA. I stay at the NIH because I’m dedicated to the mission, particularly of the Cancer Institute.

Ms. DEGETTE. And, Dr. Petricoin, I was also struck both by your

oral testimony and your written testimony. And I actually have a

14 year old daughter who is like this.

Who is so excited by the concept of researching and being a scientist. And you said in your written statement you remember as

a child, driving by the NIH and Naval Hospital, and staring in disbelief at the size of the buildings where everyone inside were all

scientists, right?

And so I’m going to ask you the same question. What you really

love to do is the science, right? Now, I’m sorry, you need to say

words for the record.

Mr. PETRICOIN. Yes.

Ms. DEGETTE. Now, so I have the same question, is you do this

because of the science, is that what makes you stay at the FDA or

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is it because of the outside contracts and speaking fees you’re able

to attain?

Mr. PETRICOIN. No, ma’am, I stay at the NIH and the FDA because of the intellectual freedom and the creative science and the

ability to hopefully make a public health difference.

Ms. DEGETTE. And that’s why you went there a little over 10

years ago, right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. Now, Dr. Liotta, you testified that you ended your

outside activity with Biospect last week, when you learned that

Biospect had requested certain information from the NIH. What

was that information?

Mr. LIOTTA. That was information that was publicly available to

everyone who asked for it, as part of our effort to disseminate the

raw data from our studies to anyone who requests it.

Our goal is to develop new diagnostic technology to fight cancer,

so we want as many people to be working on that as possible.

Ms. DEGETTE. Right.

Mr. LIOTTA. So we provide that data freely.

Ms. DEGETTE. But somehow you thought, because they were requesting that data, that then created a conflict of interest for you?

Mr. LIOTTA. Because I found out, unbeknownst to me, that they

had requested that data, then I could not be completely, absolutely

sure that they weren’t going to studying something that might

overlap in my, with my government work.

Even though my consulting agreement, specifically by name, excluded

Ms. DEGETTE. But because there was then a

Mr. LIOTTA. Because of that potential. And I discussed it with

my, with Dr. Barrett and Dr. Wilson, and I voluntarily withdrew

that outside activity because I didn’t want to have even the slightest possibility.

Ms. DEGETTE. Thank you. How did you find out about that request?

Mr. LIOTTA. Mr. Pugash, from the NCI, told me.

Ms. DEGETTE. And, and just last week?

Mr. LIOTTA. That’s correct.

Ms. DEGETTE. And how, did he say how he learned about it?

Mr. LIOTTA. He said that in preparation for this hearing, the

Technology Transfer Branch had been trying to study everything

that they could, that was relevant. And this, a document came up

that reflected a request by Biospect that came in.

This was part of a turnkey system that I had no decisionmaking

role in, and it just went from one office to the next.

Ms. DEGETTE. Did he tell you if they found anything else that

affected ongoing agreements between NIH Scientists and outside

companies, as a result of the request for this hearing?

Mr. LIOTTA. No, not that I recall.

Ms. DEGETTE. Okay. Well, at least we’re doing some good, Mr.

Chairman, I guess. I, now have you ever learned information in the

midst of a consulting agreement that caused you to withdraw from

the agreement, or was this the first time?

Mr. LIOTTA. This was the first time.

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Ms. DEGETTE. Okay. And this agreement, the original agreement

was approved by ethics officials?

Mr. LIOTTA. That’s right. The original agreement was approved,

and in fact developed in concert with ethics.

Ms. DEGETTE. Okay, so they actually helped you develop the

agreement?

Mr. LIOTTA. That’s right. They added language to it, they reviewed it and worked together with me to develop this agreement.

Ms. DEGETTE. Okay, now, Dr. Petricoin, you work at the FDA.

So your ethics requirements are a little different. I think that’s important to put out at this hearing. Is that correct?

Mr. PETRICOIN. Yes, ma’am. It is a significantly regulated entity.

Ms. DEGETTE. Significantly tighter restrictions, right? And that’s

because your agency is actually approving these drugs, right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. Now you have received honoraria and/or expenses

to speak to a number of groups, including Pfizer, 3M, other private

companies who clients include pharmaceutical and biotech firms,

correct?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. About how many over the last ten or so years?

Mr. PETRICOIN. I believe I have about 20 outside activity requests in my file.

Ms. DEGETTE. About 20 outside activity—are these, now how

many for honoraria for speaking?

Mr. PETRICOIN. I believe I have only a few for, that have given

me honoraria for speaking.

Ms. DEGETTE. Okay.

Mr. PETRICOIN. I have many that, or I have a number for travel

reimbursement.

Ms. DEGETTE. Oh, so you actually went and spoke at some places

but didn’t receive honoraria, right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. Now when you get invited to speak at something,

do you go because of the honor and prestige of speaking, or because

you might receive an honorarium?

Mr. PETRICOIN. It depends on the nature of the invitation. For

me it’s always the ability to learn when I go and give a talk.

Ms. DEGETTE. Okay.

Mr. PETRICOIN. I hope to learn something. And so if they invite

me because of my general scientific expertise, it’s not related to my

FDA expertise or my FDA job, I can, under ethics, submit a request

for approval for both an honoraria and a travel expense.

And I put that request forward and the FDA Ethics Office, and

whatever process

Ms. DEGETTE. Right, but the reason you go is to learn, as you’ve

just said, not because you’re going to get paid, right?

Mr. PETRICOIN. That’s right. My first level decision isn’t how I

can get more money?

Ms. DEGETTE. Right. Well, I’m asking you, I’m not asking you

this to be insulting in any way, because that would be exactly the

way I’d be if I were you. Some people are saying that there won’t

be these collaborations between NIH or FDA Scientists without

money involvement.

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I don’t buy that premise. I don’t know if you do. Do you buy that

premise?

Mr. PETRICOIN. I do not think that anyone should be making a

decision about how they advance their professional career, especially as a Scientist, where the first determinate is am I going to

be making more money.

I believe personally that it should be about learning.

Ms. DEGETTE. And you’re sort of early in your career at the FDA.

Dr. Liotta, you’re sort of mid-career, I’d say. What’s your view on

that?

Mr. LIOTTA. I’m at the NIH, and I stay there because of the medical mission and goal of taking science to the public benefit.

Ms. DEGETTE. And not because of the ability to get outside consulting fees or honoraria, correct? Would that be fair?

Mr. LIOTTA. That is not my primary reason, no.

Ms. DEGETTE. Okay. Now, Dr. Petricoin, every time you spoke at

one of these—now you wouldn’t be allowed to speak, and maybe I’m

wrong. You wouldn’t be allowed to speak at these outside conferences if it did, if it did have a conflict with your FDA job, right?

Mr. PETRICOIN. I was

Ms. DEGETTE. I mean that wouldn’t be, you wouldn’t even put

it in, right? What you’re saying is you’re invited to speak at these

because of your scientific experience outside the FDA, right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. And every time one of these speaking engagements does get approved by—or every time you have one, it’s approved by your superiors, right?

Mr. PETRICOIN. Every outside activity that I’ve ever put in, has

gone into the process of approval.

Ms. DEGETTE. And that would be Amy Rosenburg or Phil

Naguchi, correct?

Mr. PETRICOIN. Yes, those are the two first-line approving officers, because the triage that is supposed to take place, is that you

first discuss your outside activity with your immediate supervisor.

They were my immediate supervisors at that time. Hopefully,

they would best know what I was doing in the government.

Ms. DEGETTE. And they did approve these outside engagements?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. Now I want to talk to you about an activity that

was approved in February of this year. I realize you didn’t actually

end up going, but I think it’s a good case study.

This is an EGFR Seminar sponsored by Imclone Systems, one of

our very favorite groups in this subcommittee, and Bristol Meyer

Squibb, both who have received a good deal of publicity because of,

of course, their submissions to your agency for approval of the drug

Herbatax.

Now, were you aware that Herbatax has come before CBER for

approval?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. And it’s likely to come there again. It’s been there

several times for approval of other indications, because it’s only

been approved for one indication, right?

Mr. PETRICOIN. Yes, ma’am.

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Ms. DEGETTE. Now were you aware of that when you accepted

the invitation to pay for you to participate in the seminar at the

Trump International Beach Resort in Florida?

Mr. PETRICOIN. I was unaware, when I first accepted, that this

was a pharmaceutical sponsored and paid for event. When I

learned that I just simply said I’m not going.

Ms. DEGETTE. Well, with all due respect, I’ve got the program

here, and it says on the top, Imclone Systems, Incorporated and

Bristol Meyer Squibb Company, 2004 EGFR Summit. So, did you

not have that?

Mr. PETRICOIN. To the best of my recollection, I had an e-mail

from Dr. Jose Baselga, who was a Scientist at Vanderbilt University, asking me if I would like to come and talk.

And I said that, you know, it depends on the nature of the talk,

I could give the talk. And he said to me I’ll forward you and agenda

descirbing the nature of the talk that I was to give to him. I understood that I could do this as an outside activity from Dr. Baselga.

Ms. DEGETTE. Oh, okay.

Mr. PETRICOIN. And when he forwarded me the agenda, I attached on this

Ms. DEGETTE. Right. But see, here’s why we’re all a little confused up here. Because you submitted, and she just handed you a

copy of the Request for Approval of Outside Activity. Did you fill

that out?

Mr. PETRICOIN. I did, based on the

Ms. DEGETTE. Based on the stuff from the guy from Vanderbilt,

right? And it was approved here by your supervisors, right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. But if you take a look at Number 16, it says additional information attached, yes, and then it says agenda, and

here’s the agenda, right?

Mr. PETRICOIN. I understand your concern, ma’am. I didn’t go because when I looked at it, when I looked at the agenda, the detail

of the agenda, I said whoa, wait a minute.

Ms. DEGETTE. Well, well, well, well, wait a minute. You put in

for the approval and attached the agenda.

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. So did you later decide that it would be a problem

to go?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. After it was approved?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. Oh, okay. Now, but the other thing I find interesting is you say you later saw an ethical problem because it was

pharmaceutically sponsored, right?

Mr. PETRICOIN. Yes, when I

Ms. DEGETTE. But your supervisors had that information right

in front of them when they approved it, didn’t they? Because they

had the agenda attached.

Mr. PETRICOIN. It appears so, ma’am.

Ms. DEGETTE. Now, right, he just said he did. So now, okay,

here’s the other thing. Another FDA official actually did attend in

your place, right?

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Mr. PETRICOIN. No, ma’am. A Scientist from our laboratory attended on the U.S. Government

Ms. DEGETTE. Right, and they were not paid an honorarium or

expenses, right?

Mr. PETRICOIN. No, ma’am.

Ms. DEGETTE. So that’s a different, that’s even another interesting point from this whole, this whole transaction is, someone

else went to speak and they obviously didn’t do it because there

was payment involved, they did it to present the scientific issues,

right?

Mr. PETRICOIN. Yes, ma’am.

Ms. DEGETTE. And aside from the ethical issues that it was sponsored by pharmaceutical companies, let’s say it hadn’t. Let’s say it

had been sponsored by Vanderbilt University and you had been

asked to speak. Would you have also been willing to go and speak

if there were no honorarium involved in this?

Mr. PETRICOIN. Would I have been willing to go and speak if

there were no honorariums?

Ms. DEGETTE. If the ethical objections weren’t there?

Mr. PETRICOIN. Yes, I would have gone to learn.

Ms. DEGETTE. Okay. I have no further questions. Thank you, Mr.

Chairman.

Mr. GREENWOOD. I don’t want to belabor that, but just tell me

if I have this wrong. You said, Dr. Petricoin, that when you saw,

it was when you saw the agenda, that’s when you realized I can’t

do this?

Mr. PETRICOIN. That’s right. I said I can’t do this because this

has all

Mr. GREENWOOD. Did you see the agenda before or after you attached it to your application for approval?

Mr. PETRICOIN. Well, I obviously had the agenda, I attached it

to my approval. I don’t think I looked at the agenda, to be honest

with you, sir, because I

Mr. GREENWOOD. You understand why that would make us

wince?

Mr. PETRICOIN. Yes. So I believe, to the best of my recollection,

that I filled out the outside activity, stapled the agenda on it

Mr. GREENWOOD. Maybe you were focused on the sunny isle

beach Florida part of the thing and not what it says up here.

Where it says, at the very top line, Imclone Systems Incorporated

and Bristol Meyer Squibb Company.

Mr. PETRICOIN. To me, sir, that would indicate, in my mind, that

I didn’t look at it at all when I attached it, because that would

have been the first thing I would have seen.

To the best of my recollection, no excuse about being busy, we’re

all busy. I probably just stapled it on and

Mr. GREENWOOD. I’m going to buy that, because it’s hard to believe

Mr. PETRICOIN. That it would be there in black and white. And

when I saw that, I basically said, you know, there’s no doubt it

says Imclone Systems Incorporated, so it makes it pretty obvious.

Mr. GREENWOOD. All right. Let me address some questions to Dr.

Barrett and Dr. Barker. There’s an LA Times story out today, I

don’t know if you’ve seen it.

363

It says FDA Chief launches internal inquiry of payments. And

there’s a paragraph that says the Director of the NIH, Dr. Elias A.

Zerhouni, said to a spokesman late Monday that he would not

stand behind one of the arrangements involving Chief of the National Cancer Institutes Pathology Laboratory.

The matter demonstrates the need for systemic review. So this

is referring—pardon me? I’m sorry, systemic reform. And by that

I am relating to Bio—consulting agreement between the Laboratory

Chief, Dr. Lance A. Liotta, and Biospect, Inc., of South San Francisco ended Friday.

So, if this story is to be believed, Dr. Zerhouni, after being

briefed on this subject, said he wouldn’t have approved, or he disapproves of the relationship between Dr. Liotta and Biospect, Inc.

Were either of you present at the briefing with Dr. Zerhouni that

led to this statement?

Ms. BARKER. I was not. Dr. Kington, I assume is still here, he

might want to comment. But I was not, nor was Dr. Barrett, I don’t

believe.

Mr. BARRETT. No, I was not. Dr. Kington came to a meeting we

had at the NCI on Friday, I suppose, and he called me yesterday

to say that this was, they were asked for a quote, basically.

Mr. GREENWOOD. And was it explained to you, was it made clear

to you why Dr. Zerhouni said that he wouldn’t stand behind this

arrangement?

Ms. BARRETT. It was not abundantly clear. I think he certainly

had some concerns and I think there were some caveats, in my

recollection, from my conversation with Dr. Kington about, you

know, if all the circumstances were as portrayed, that Dr. Zerhouni

would make that decision and I think that would be

Mr. GREENWOOD. Do you concur in that decision? Do you both

concur in Dr. Zerhouni’s conclusion, retrospectively?

Ms. BARKER. I concur.

Mr. GREENWOOD. Okay.

Mr. BARRETT. Yes.

Mr. GREENWOOD. Now do you think that this was, these arrangements were approved, and now are disapproved because simply because of new information that had surfaced? Or is it because of

new policy that’s come into play?

Ms. BARKER. Let me just reflect a minute on the way we came

to re-approve this. In responding to your first question, after this

issue was raised, and Dr. Barrett and Dr. Wilson re-reviewed this

at my request. And I think you probably have that re-review.

And based on the information available and what you’ve heard

in terms of the lack of any evidence of overlap, they re-approved

and reported back to me that they were re-approving this.

And I think that, in answer to you question, I think new information in view of what I’ve heard in the last, as little as a week,

actually, that the Biospect scope is certainly expanded, I think, relative to what Dr. Liotta was led to believe the scope of that company was.

Mr. GREENWOOD. In what way?

Ms. BARKER. I think the issue of pattern recognition that you

brought up was never part of what Dr. Barrett actually reviewed

when he re-approved this.

364

Mr. GREENWOOD. You did not know that at the time of the reapproval, Dr. Barrett?

Mr. BARRETT. At the time of the original approval, and the time

of the re-review of that, there were basically three areas that I was

focusing on.

One was whether or not there was overlap with the official duties of Dr. Liotta, with this outside activity. And

Mr. GREENWOOD. And were there?

Mr. BARRETT. There were not. In fact, the consulting agreement

had very explicit, exclusionary language to assure that to be the

case. And when originally is was approved, that was added to the

language to assure that.

And when I re-met with Dr. Liotta, he re-affirmed that that was

true. The second issue was whether it, there was any non-public

information being revealed, and there was not.

And there was not for two reasons, I’m sure. One is because I

trust Dr. Liotta’s judgment, but also we’ve made a very conscious

effort to put this information out to the public domain as part of

our mission to really speed this research up.

So, in fact, there was very little non-public information that

could have been released. And the third issue was whether or not

this influenced his performance or official duties.

And in particular, this related to the CRADA. And it was my discussions with Dr. Petricoin and Dr. Liotta that reassured me that,

in fact, we were doing everything we possibly could to facilitate the

development of the clinical trial to confirm and extend the original

findings of Dr. Liotta and Petricoin.

The issue of the competition, the direct competition between the

two companies, was one that was less clear in the past than it is

currently. So it is really that appearance of potential conflict based

upon that information that I think has led us to be more cautionary.

So it’s a combination of Dr. Zerhouni’s memorandum that, in

fact, we should do everything in our power to assure there’s no appearance of conflict of interest, as well as our standard procedures

where we

Mr. GREENWOOD. Let me ask Dr. Liotta and Petricoin, did either

of you ever tell the folks at Correlogic about your outside activity

with Biospect?

Mr. PETRICOIN. I could answer.

Mr. GREENWOOD. And I think you said no, that we, and the way

they found out was they found you using a common secretary pool,

right?

Mr. PETRICOIN. That’s correct, sir.

Mr. GREENWOOD. And Dr. Liotta, you never told the folks at

Correlogic about your work with Biospect?

Mr. LIOTTA. No, I did not.

Mr. GREENWOOD. Okay. Now it would seem to me, that since

you’re working with these two companies, and they’re doing similar

things, that it would be a natural for you to say, oh, by the way,

yesterday I was up talking to these guys I’m working for at

Biospect, and an interesting point came up.

365

I mean it would seem to me that, in the course of these activities,

that it would be hard to avoid mentioning to the folks at

Correlogic, your work with Biospect, wouldn’t it?

Mr. LIOTTA. No, I didn’t

Mr. GREENWOOD. Help me understand that.

Mr. LIOTTA. I didn’t see any need to, because

Mr. GREENWOOD. No, no, no, no, no, I’m not asking you if there

was a need to. I’m saying it would hard to avoid if you weren’t

under restraint. If you had no reason to not mention to the folks

at Correlogic that you were working for Biospect. It would seem a

natural thing to come up in conversations.

You’re doing—no?

Mr. LIOTTA. No, I felt that they were completely different from

what I know about, what I knew at the time that Biospect was

doing. And even today, I have no information that directly shows

me that Biospect is working in the same area covered by the scope

of the Correlogic CRADA.

At the time my understanding of Biospect, was that it was an instrument company.

Mr. GREENWOOD. Let me ask you this. Did the folks at Biospect

know you were doing the CRADA with Correlogic?

Mr. LIOTTA. I don’t know, I did not discuss that with them?

Mr. GREENWOOD. Same with you, Dr. Petricoin?

Mr. PETRICOIN. Yes, my recollection is I had no discussion with

either of them about each other at all.

Mr. GREENWOOD. And you, and that wasn’t because you were refraining from talking to the two companies about one another, that

was just because it never came up? There was never any

Mr. PETRICOIN. Exactly. I mean, from my side, sir, there was

never, there was never any overlap and the need to even discuss

the science. Correlogic, the software company, had developed a specific algorithm.

Many algorithms were out there. In fact, we were using other algorithms in our U.S. public job. The CRADA with Correlogic gave

us the freedom to use any algorithm.

In fact, President Bush’s National Science Winner, used an algorithm that he developed and published a great paper using our

public data.

So Correlogic’s algorithm was specific to them. I saw no overlap

whatsoever between an instrument company that was basically

building a platform to identify molecules. It just didn’t occur to me,

sir.

Mr. GREENWOOD. And how many papers did you publish with

Correlogic?

Mr. PETRICOIN. We have six, I believe sir. And one that’s coming

out next month. A very high impact journal on our continuing work

for ovarian cancer.

Mr. GREENWOOD. And those are cooperative pieces between the

two of you? When you six, those are all co-authored by Dr. Liotta

and Petricoin?

Mr. PETRICOIN. I believe so, sir. I could get you that exact number, if you would like it.

Mr. GREENWOOD. And did you write papers with the other company, with Biospect?

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Mr. LIOTTA. No.

Mr. PETRICOIN. No.

Mr. LIOTTA. Never say any written material at all from Biospect

concerning the, you know, experiments or their data.

Mr. GREENWOOD. It’s true that your reputations in this area

were a result of your work with Correlogic, is that fair to say?

Mr. LIOTTA. I don’t believe so.

Mr. GREENWOOD. No?

Mr. LIOTTA. Our reputations in this work, with regard to, if

you’re referring to mass spectrometry analyzed by pattern recognition evidence, we began studying that in ‘97 and ‘98, and presented

it at the American Association of Cancer Research.

We used many commercial, several commercial methods of analyzing this data. And then after we had already presented it publicly, we, for the first time, we then entered into a material transfer

agreement with Correlogic.

And then ultimately a CRADA. And that scope of that CRADA

was limited to the use only of their type of software. We remained

free to use any other type of software as we had done in the past

during the CRADA, and continued to do.

Mr. GREENWOOD. Okay.

Mr. LIOTTA. That CRADA was specifically about their software.

And all the data, before, during and after, has been generated by

our Lab.

Mr. GREENWOOD. When the Biospect folks contacted you, did

they tell you why they had selected the two of you? What brought

the two of you to their attention?

Mr. PETRICOIN. I believe they contacted us separately, and I

would hope that it was because of my scientific reputation and expertise.

Mr. GREENWOOD. And how would the folks at Biospect have

known about that?

Mr. PETRICOIN. I would assume looking in the public domain or

talking to people. You know, talking to, you know, due diligence

was probably talking to other scientists. I don’t know, sir, they

didn’t tell me.

Mr. GREENWOOD. Do you have an opinion as to why Biospect

would have hired Dr. Strum from NCI?

Mr. PETRICOIN. I don’t.

Mr. GREENWOOD. She was a technical transfer officer, right?

Mr. PETRICOIN. I, being at the FDA I don’t want to—I’m under

oath

Mr. GREENWOOD. Dr. Liotta, do you know?

Mr. LIOTTA. Yes, that’s right. And ethics, when I reviewed this

with my ethics officer and discussed the outside activity, it was

clearly known and factored into the review that, particularly the

re-review that former Cancer Institute employees were members of

that company.

And, in fact, the person who invited me was a former NCI employee. And that was, that letter and that request and the name

of the individuals on the original request for the outside activity

and it was reviewed and ended up in the approval packet.

Mr. GREENWOOD. Okay. Do you think it was a coincidence that

they hired these three people?

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Mr. LIOTTA. I can’t speak for their motivations

Mr. GREENWOOD. You’re a smart guy. I mean, you’re a smart

man. What do you think motivated them to choose these three employees for their company? To choose you?

Mr. LIOTTA. I really can’t speculate on why they would

Mr. GREENWOOD. They chose you, they chose Petricoin, they

chose Strum. All involved in Correlogic. They chose the three of

you when you were all involved in Correlogic. Did you question

why that would be?

Mr. LIOTTA. I never questioned why that would be, because in

my mind Correlogic and Biospect were completely different companies with completely different missions. And it didn’t even seem

like it would even be relative.

Mr. GREENWOOD. Okay, well let me just wrap up this way, before

I yield to the gentlelady from Colorado. Oh, Mr. Walden, I’ll yield

to him in a moment.

We’re trying to set public policy here. And I’d just like to know,

from all four you, and I just ask you to each go down and briefly

answer this question before I go to Mr. Walden.

And that is, what do you think the policy should be with regard

to the situation in which you have employees working on a

CRADA, as part of their regular function, their regular activities,

and at the same time working for, doing outside activity with a private company, and the CRADA company not knowing about the

work with the potential competitor, with this other company?

Do you think, as a matter of public policy, that they should have

the right to know, while you’re in their shop working with them,

on company time, on taxpayer time, that you’re out moonlighting,

if you will, with another company?

Don’t you think, do you think that they should have the right to

know that? Is it good public policy for them to know it? Or is it

good public policy for them to be kept in the dark?

Mr. LIOTTA. Are you addressing the question to me?

Mr. GREENWOOD. Yes, I’m addressing it to each of you down the

line.

Mr. LIOTTA. I don’t think I can comment on public policy that’s

a higher level than myself. I think that each case should be considered on an individual basis and the ethics office, when they review

Mr. GREENWOOD. Didn’t you testify before the Blue Ribbon Panel

on this subject? Did you not testify

Mr. LIOTTA. I testified before the Blue Ribbon Panel.

Mr. GREENWOOD. On policy? I mean did you suggest any policy

to the Blue Ribbon Panel?

Mr. LIOTTA. I don’t recollect exactly what I said to the Blue Ribbon Panel. I don’t know whether it could be interpreted as policy

or not.

Mr. GREENWOOD. Or recommendations for practice?

Mr. LIOTTA. I gave them my opinion, but I don’t know.

Mr. GREENWOOD. Okay, well that’s all I’m asking for, is your

opinion now. I’m not asking you to set policy, I’m just asking for

your opinion. Tell us what you think about this whole matter that

we’ve been investigating all afternoon?

Do you have any regrets about it? Do you think everything went

perfectly well and we’re making a big stink out of nothing?

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Mr. LIOTTA. In some way I think it shows that the way the ethics

system works, it produces a very good result. Because even when

I did, presented the application for the outside activity to begin

with, normal course of action is for the ethics office to review

whether I have an CRADAs that might relate to the outside activity.

So there’s a checkpoint there, and a series of checkpoints. And

then the way even this was handled recently, I think is the way

the process should work, if new information comes up.

And then another checkpoint that was put in right in the beginning was the extra special delimiters in the consulting agreement,

because we could not predict where a company would go in the future.

And so what I’d be concerned about, is that a CRADA partner

who also can’t predict where some other company would go into,

would just turn down everything because, and that would potentially, you know, cause a lot of new complications in how outside

activities are reviewed.

So I, my opinion is that the way the system works in terms of

factoring that into the individual situation, is one good way to do

it.

Mr. GREENWOOD. Dr. Petricoin, your thoughts?

Mr. PETRICOIN. Well I certainly think we need more advice that

sheds more light than heat. And I think that’s what we’re trying

to do. I do think I’m concerned about the idea of a CRADA partner

knowing what perhaps their NIH comrades are doing on the outside, only to the extent that they would claim that the field of

science and technology is their domain, and therefore, in essence,

if you drew it to the most absurd, there would only be one CRADA,

the very first one.

Because, by nature, there might not even be other CRADAs that

you could do, if you drew it. I just think that we have to be careful,

and I think we were trying to be. You know, trying

Mr. GREENWOOD. Let me—you think that it would be harmful if

the CRADA participants knew about the outside activity of their

NIH CRADA partners?

Mr. PETRICOIN. No, sir, I don’t think it would be harmful. I think

that we should try to instill ideas that basically will allow more illumination, more transparency.

Mr. GREENWOOD. Okay, all right, I misunderstood you. Dr. Barrett.

Mr. BARRETT. The purpose of the NIH and the National Cancer

Institute is obviously to do everything in our possible power to

move forth the science and to reduce the burden of cancer.

The groundbreaking work of Dr. Petricoin and Dr. Liotta which,

and I think it is clearly their work that has been the driver for

these new discoveries, represents a very important work.

And we want to do everything in our power to assure full, expedient development of that work. I think the answer to your question directly is, is should their be a policy? I think absolutely there

needs to be a policy.

There needs to be some definition of conflicts of interest. It’s very

difficult in these relationships to really understand how two entities might be competitive, competitors of each other or not.

369

I think we try to do due diligence in this particular circumstance

and try to define very clearly the scope of the consulting activities,

yet we seem to have this appearance of conflict, and I think that’s

unfortunate and takes away from really the mission of what we’re

trying to do.

So I would be very supportive of some clear guidelines any policy.

Mr. GREENWOOD. Dr. Barker, do you have anything to add?

Ms. BARKER. I can’t add much. I would, just a couple of things.

The Cancer Institute is particularly interested in CRADAs. The

biotechnology industry is really sort of a deliver vehicle for the cancer world right now. And so to improve on the CRADA process

should be our goal.

And I was struck with the amount of review that went into this

ethics review. So it’s, I think there is no fault here relative to our

intent to really look at this very, very carefully.

I think that review worked pretty well. The issue, though, that

you’ve raised is a really complex one.

Mr. GREENWOOD. Didn’t the review occur because there was a

complaint, though?

Ms. BARKER. Yes.

Mr. GREENWOOD. I mean it wasn’t normal activity?

Ms. BARKER. It was no normal activity, that’s correct. But the

issue you raised, which is going to bare, I think, some real consideration in terms of how we might change policy, is going to be critically important.

Because as, I think Dr. Liotta said, you can’t really determine,

I mean having been in the biotechnology industry at some phase

in my life, you never quite know where a company might go from

where they start.

So I think transparency, having our investigators completely reveal who they are working for, who they might be consulting with

or what relationships they might have, and let the companies make

their decisions then on that basis.

But I think we’ve got to be a little careful. This is a very complex

question and

Mr. GREENWOOD. What’s the downside of sharing the information?

Ms. BARKER. I think there is no downside to sharing the information, if in fact we have, we can actually continue the same success

rate with our CRADAs. I think the thing we want to be careful of

is that we don’t actually make it more bureaucratic or more difficult to do a CRADA.

And right now our investigators do disclose actually. You know,

if they have a, they can’t have a consulting arrangement if they

have a CRADA with the same company. They can’t do that.

So we’re saying now, is not only that, but you can’t also be consulting for a company that might be a competitor of a company

you’re going to do a CRADA with.

So making that value judgment is going to be an interesting

challenge for us as we make policy around this. But I think you’re

right, absolutely disclose it, and then basically let the policy drive

the way the CRADAs are going to be developed.

Mr. GREENWOOD. I thank you all. I apologize to my colleagues for

my flagrant abuse of the clock.

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Mr. WALDEN. But it is your clock.

Mr. GREENWOOD. Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman. Dr. Barker, I want to

follow up with you on that point. When did you make the decision

regarding this issue involving competitor agreements not being allowed?

Ms. BARKER. To my knowledge, that decision has not been made.

I think this is the first issue that’s come forward of this nature.

There may be others that I’m not aware of, but this is the first one,

at least, that we’ve seen in the Cancer Institute.

And we examined it very carefully. Dr. Von Eschenbach asked

me to do due diligence on it, we did that. Dr. Barrett re-reviewed

it, Dr. Wilson re-reviewed it. And based on the evidence that was

there, this still basically qualified in terms of our ethical requirements. So, it’s the first one like this that’s come forward.

Mr. WALDEN. Let me make sure I understand what you said. So

you said this still qualifies under your ethics requirements. Does

that mean they could still be working for both companies? Or doing

the CRADA and working for Biospect?

Ms. BARKER. I think that’s what it says, under the current rules,

yes.

Mr. WALDEN. Are you comfortable with that?

Ms. BARKER. I’m not comfortable with that. But, you know, we’ve

said that, I think both Dr. Barrett and myself have said that, given

what we know now, and going back and doing this over again, you

probably would have disapproved this consultancy.

Mr. WALDEN. Do you have, or the people who should have, do

you have the information you need to evaluate other such agreements and conflicts? I mean is the mechanism there to acquire that

information?

Is that information publicly disclosed adequately so that whoever

needs to do the review can get access and make that decision?

Ms. BARKER. I honestly don’t know the answer to that question.

Mr. WALDEN. Does anyone on the panel know the answer to

that? Dr. Barrett?

Mr. BARRETT. I think it’s, we’ve made a very strong attempt at

the NCI, and I would gather that we actually probably do better

than the average Institute does in that context. But, yet, I think

the answer is, it’s still not adequate. And we’ve been actually talking about how to approve access to data bases and, for example,

the disclosure of the confidentiality disclosure agreement that Dr.

Liotta mentioned, you know, was not available to us until just recently.

So I think there are very specific things that can be done to improve the process and we’re trying to do that.

Mr. WALDEN. Thank you. Dr. Liotta, first of all I want to commend both of you for the research that you’re doing. My own mother died of ovarian cancer. I know it’s a very, very, it’s a very terrible form or cancer, and so I commend you for that.

And I don’t want you to go away from here thinking that we

don’t appreciate the research that you’re doing. We’re trying to,

public policy people trying to make sure that research, wherever

it’s done, is done in a way where we don’t have, even by accident,

conflicts.

371

Because I think the integrity of the process is really important.

If you turn to Tab 28, and I think we’ll put this up on the screen,

I believe.

You’ll find your request for approval, the Biospect Consulting

Agreement. And the thing that strikes me is on the form, which I

understand is an HHS Form 520, there’s a question that says do

your official duties relate in anyway to the proposed activity? You

responded no.

Related to professional confidence, but not an official responsibility for the use of government funds. That was your response.

And however, on Dr. Petricoin’s HHS Form 520 for Biospect, when

asked whether his official duties relate in anyway to the proposed

activity, he marked yes, and elaborated, and I quote. Invited because of my scientific expertise. I’m just curious if you can account

for the differences in responses to the same question, and I’d ask

that of each of you.

Mr. PETRICOIN. Well, I can certainly respond from my end, in

that I probably shouldn’t have marked yes. In some ways I was

doing it to even the fullest disclosure because in my mind I am, the

accumulation of my scientific expertise.

Mr. WALDEN. Sure.

Mr. PETRICOIN. And so I simply yes out of the instinct that I

can’t separate my brains. I’m a Scientist that just continues to

learn.

Mr. WALDEN. Only Steve Martin can do that.

Mr. PETRICOIN. Right. So I think in retrospect, I should have

marked no, and put I was invited for my general

Mr. WALDEN. But I think you hit upon an issue. And that is you

have this collection of knowledge and scientific ability. You can’t

park part of it somewhere out of reach, right?

I mean that’s why you checked yes. And doesn’t that kind of, do

you see how we get to where we’re at in terms of is there a conflict

between the CRADA and Biospect.

I mean how could you, when you’re doing whatever you’re doing

with Biospect, sort of park everything you know that may be associated with the CRADA, from playing over here. Now, maybe you

can. I don’t know how.

Mr. PETRICOIN. Well, I think the challenge is when companies

change their business focus without you being involved in that.

Mr. WALDEN. Sure.

Mr. PETRICOIN. My background isn’t a business developer, I’m

just a Scientist. And so I wasn’t asked to participate in Biospect

to determine, you know, their business development.

And so that can change without me even knowing it, and in fact,

it obviously did. And I think that

Mr. WALDEN. So you could get dragged into a conflict outside of

your control and outside of the original decisionmaking process in

the 520.

Mr. PETRICOIN. Certainly a company has every right to do what

it wants to do, and my consultancy was so different from what I

was doing with Correlogic, that there was never, there was the

ability to partition that.

And in fact I never was at a point in any time where I thought

that that was at issue.

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Mr. WALDEN. Dr. Liotta, do you want to comment briefly on this

point?

Mr. LIOTTA. I don’t know about the, you know, the check boxes

relating to Dr. Petricoin, but I would say that his explanation

sounds reasonable to me concerning the fact that he might view a

request for consulting having some, his total body knowledge about

Mr. WALDEN. But you checked no on the same box. I guess that’s

the point. And so you felt nothing you’re doing related.

Mr. LIOTTA. Yes, I had general medical expertise in, and in field

of Pathology and I have a PhD in Biomedical Engineering. And I

have even patents in medical testing.

Personal patents way back before I came to NIH. And so I do

have professional knowledge about some of the topics that might be

relevant.

Mr. WALDEN. I guess that’s what I’m having trouble understanding. Why do you think they even have Question 9 on the form

then? Because it looks to me like, and again you guys are doing

this research, but the two companies had a lot in common.

Let’s go to Tabs 30 and 31, if you want to look in the book, where

you’ll see information from the two companies websites. And I

know, didn’t one of you have something to do with website information or something, working with the company?

Mr. LIOTTA. We were not involved in Biospect’s website but at

the time of the original request for the outside activity, the information about Biospect was surveyed and studied by the Ethics Office, as well as any information that I had.

Mr. WALDEN. Right, but

Mr. LIOTTA. They did an independent review of the two companies if they were looking at the issue about the CRADA, I don’t

know whether they were. But they

Mr. WALDEN. So the Ethics Office looked at both companies and

said given

Mr. LIOTTA. I don’t know whether they looked at both companies.

I know they must have looked at Biospect to see what Biospect did,

because they do their own review and re-review.

Mr. WALDEN. Well, okay. Do you see where maybe we get some

questions coming here. Let me read you Correlogic’s mission statement. It says, and I quote.

Correlogic’s mission is to advance the early identification of various cancers and other disease and to accelerate the new drug discovery process by applying its proprietary software to the development of proteomic and other biomarkers.

Then you turn to Biospect’s website, and it states, and I quote.

Biospect is an emerging life sciences company founded in 2002,

that is developing technology for identifying and assaying protein

biomarker patterns. What’s the difference between the two?

Mr. LIOTTA. I think there still could be, with knowing even that,

that there still could be very big differences. Because from what I

know about Correlogic, Correlogic is a software company.

And they’re applying their specific type of pattern recognition algorithm, at least within the CRADA, to data that we generate.

Mr. WALDEN. And then what’s Biospect do?

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Mr. LIOTTA. And Biospect, to the best of my knowledge, then and

now, is they were an instrument company and they were developing a new, proprietary platform for chemistry separation.

So an instrument company, software company. They seem completely different to me.

Mr. WALDEN. So you don’t see any, they’re in completely different, other than the fact they are both working on this sort of detection, one from an instrument side, one from a logarithm side,

there’s no conflict?

Mr. LIOTTA. One is a software that you use to analyze data that’s

already produced, in this case, by commercially available instruments. The other is a new instrument under development and

measuring proteins is something 30 different kinds of instruments

in a clinical lab do. When you do measurements in any clinical lab,

it’s proteins that you’re measuring.

Mr. WALDEN. All right.

Mr. LIOTTA. So, you know, whatever the instrument was that

Biospect was working on, which they did not reveal to me. I did

not see any schematics, no data, experimental results from any of

their instruments.

So the instrument itself is what they apparently were working

on, and they asked my opinion about what they could use it to test

for, in a generic sense.

And that was my role with Biospect. So I couldn’t see how that

had anything to do with software to analyze patterns.

Mr. WALDEN. I see.

Mr. LIOTTA. And particularly certain specific kinds of software,

which is really what the Correlogic system is.

Mr. WALDEN. All right, Dr. Petricoin, how about your role,

Biospect versus Correlogic?

Mr. PETRICOIN. Sure, my role with Biospect was basically to survey the field of science and biology in a way, looking for potential

applications of their machine, their tool, their discovery tool.

And try to point them in directions where I thought, you know,

they could apply that.

Mr. WALDEN. Why then, Dr. Barker, maybe I can go to you. Why

then, if that’s the case, do you, did you say earlier that you thought

there is a conflict here between the two? What am I missing?

Ms. BARKER. I don’t, I said in light of what we see now, that

Biospect has put up on their website, then I think it’s very, very

difficult considering that this work is focuses around using

Correlogic software for pattern recognition and they are actually

using that word on their website.

Biospect was using those two words on their website. I think it

would make it extremely difficult to prove this, which now looks

like overlapping scopes.

Mr. WALDEN. And, in deed, you backed off the Bio—you with

drew the Biospect agreement?

Mr. LIOTTA. That’s correct, that’s true.

Mr. WALDEN. And that involved both of you?

Mr. PETRICOIN. Yes, sir.

Mr. WALDEN. All right. And when did that occur?

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Mr. LIOTTA. I withdrew it, it was on hold based on the NIHEAC

re-review, and then I learned this new information, discussed it

with my boss and withdrew voluntarily this outside activity.

Mr. WALDEN. When was that?

Mr. LIOTTA. Last week.

Mr. WALDEN. The end of last week, or beginning?

Mr. LIOTTA. Around the 12th?

Mr. WALDEN. May 12? Have you done any consulting with

Biospect since February? Either of you?

Mr. PETRICOIN. Since February, I believe so.

Mr. WALDEN. How recently do you, and on what terms?

Mr. PETRICOIN. The best of my recollection in March, sir.

Mr. WALDEN. Dr. Liotta?

Mr. LIOTTA. I believe that I had no new assignments in the past

2 months that I dealt with, because I was on hold. But I do recall

that I sent one e-mail to Biospect in that timeframe.

Mr. WALDEN. Okay. When did you start consulting with

Biospect?

Mr. LIOTTA. I think it was December, it was approved December,

2003, I think. Or 2002, I started a couple of months later, I actually got the first assignment.

Mr. WALDEN. Dr. Petricoin?

Mr. PETRICOIN. Excuse me, sir?

Mr. WALDEN. When did you start consulting with Biospect?

Mr. PETRICOIN. Approximately the same time. I think my agreement began December 1, 2002, and I believe my first assignment

was in the beginning of 2003.

Mr. WALDEN. Beginning of 2003, first assignment?

Mr. PETRICOIN. Yes.

Mr. WALDEN. Dr. Liotta, there’s some information here under

Tab 33, that lists money earned to date as $49,375 in consulting

fees. Proposed annual rate $39,000 or $3,250 a month. Are those

accurate numbers?

Mr. LIOTTA. Yes, those are accurate numbers.

Mr. WALDEN. Okay. And this is, what period of time does this

cover?

Mr. LIOTTA. I think that was just a summation of what it would

be per year at the rate of whatever the current

Mr. WALDEN. I see. But that’s the annual, $39,000?

Mr. LIOTTA. It’s $3,120 a month.

Mr. Walden. Well, we had $3,250.

Mr. LIOTTA. I mean $3,100.

Mr. WALDEN. The document shows $3,250 a month.

Mr. LIOTTA. $3,250, okay.

Mr. WALDEN. But what about this $49,375 consulting fees, when

was that earned? Do you see where I’m looking on this sheet?

Mr. LIOTTA. Yes. I don’t know how that was calculated, but it

might reflect the fact that in the beginning of the consulting, I was

receiving $5,000, and then it switched——

Mr. WALDEN. A month?

Mr. LIOTTA. A month, $5,000 a month. And then it switched and

it was reduced, and that was reported in my renewal application

of this outside activity.

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Mr. WALDEN. Okay. I think that ends the questions I have,

thank you, gentlemen.

Mr. GREENWOOD. Just a final question for Dr. Liotta and

Petricoin. Your agreement with the company was 1 day a month,

is that correct for both of you?

Mr. PETRICOIN. Yes, sir, initially. I’ll answer for myself. It was

2 days per month, and that was reduced to 1 day per month.

Mr. GREENWOOD. And Dr. Liotta?

Mr. LIOTTA. Yes.

Mr. GREENWOOD. Same thing?

Mr. LIOTTA. Similar.

Mr. GREENWOOD. And how do you do that? Just, how do you do

that? Literally 1 day of the month you, instead of going to NIH or

the FDA, you drive to Biospect and sit in their building all day?

How does that work?

Mr. LIOTTA. In my case, I did all the work for Biospect at home,

on my computer, and surveyed publicly available information to

analyze questions that they had.

And then I synthesized those, that publicly available information, into short reports, which then was presented to Biospect,

maybe once every 2 or 3 months.

Mr. GREENWOOD. Okay, and Dr. Petricoin, how did you manage

it?

Mr. PETRICOIN. Pretty much the same way. My job, as I stated,

was to kind of survey the public domain for opportunity. And I

would do that at home on my computer. And I would synthesize

the information and most often

Mr. GREENWOOD. So what do you do, you call the office and you

say to somebody at FDA or NIH, I’m not going to be in today I’m

working for Biospect? How does that work?

Mr. PETRICOIN. No, most of my work was done on the weekends

or when I got home from work. So it wasn’t like I would take a

whole day off or compartmentalize time.

Mr. GREENWOOD. So you didn’t take any, neither one of you took

time off of your regular work week for this?

Mr. PETRICOIN. Not, so to give you the full story, there was about

three or four times, to my recollection, that we actually went up

to Biospect’s office.

Mr. GREENWOOD. Where was that?

Mr. PETRICOIN. On Democracy Boulevard. This was the shared

office space.

Mr. GREENWOOD. Right. Is that like an incubator or something?

Mr. PETRICOIN. Yeah, it’s where they have like shared secretarial, I guess support for these companies that are either offsite

or—and we met with them and that was usually during the day

or during the end of the day, and I would take annual leave.

Mr. GREENWOOD. You would take annual leave to do it?

Mr. PETRICOIN. Yes, yes, sir.

Mr. GREENWOOD. Dr. Liotta?

Mr. LIOTTA. To the best of my recollection

Mr. GREENWOOD. Pretty much the same thing? And when you’re

at your regular jobs, do you have issues of them calling you at work

or, I mean does that happen?

376

Mr. PETRICOIN. The amount of time spent consulting from my

end, was really to look into the public domain. It was really a relationship of me spending a lot of time kind of synthesizing information at home, looking around, nesting that down and then giving

it to them, and them doing with it what they want.

There was, most of the time when we talked with them, it was

by, they set up a tele-conference. We’d call in from our cell phones,

and that could be even on the drive home. And it might just be

sharing what we found.

Mr. GREENWOOD. So you didn’t find, neither one of you found a

so-called conflict of commitment that occurred in conflict with your

job?

Mr. LIOTTA. If there was even a hint of that I, because in addition to my research duties I have a lot of administrative duties. If

there was a hint of that I wouldn’t have done the activity at all.

Mr. GREENWOOD. Thank you. We thank all four—did you want

to say something Dr. Barker?

Ms. BARKER. I want to add a comment actually on the Biospect

mission statement that was up there, it’s not there now. But Dr.

Barrett when he re-reviewed and approved Dr. Liotta’s consultancy

had a different mission statement for Biospect which we have here,

which is really almost unrelated to the one you have up there.

I mean this one, that one up there speaks to diagnostic

Mr. GREENWOOD. Why don’t you tell us what it says?

Ms. BARKER. I’m sorry?

Mr. GREENWOOD. You can read that to us.

Ms. BARKER. It says basically that Biospect will become the

world leader in identifying and assaying highly informative patterns that reflect in different shape biological states with minimally invasive procedures, to improve clinical management of patient health and the drug development process.

There’s no mention in here of diagnostics. And if you read this,

everything we’re doing in genomics and proteomics today is moving

toward patterns of one sort of the other.

So this was really portrayed at that point as very much a therapeutics support kind of activity. So the mission statement for that

company really, I think, changed significantly between when Dr.

Barrett review and re-approved this consultancy and what we saw

here today.

Mr. GREENWOOD. And did the folks at Correlogic buy that argument?

Ms. BARKER. I haven’t asked them that question.

Mr. GREENWOOD. All right. Thank all of you. I hope you didn’t

feel that the thumbscrews were tightened too much. I appreciate

your assistance in our difficult task, and this committee is adjourned.

[Whereupon, the foregoing matter was concluded at 3:16 p.m.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF THE FOOD AND DRUG ADMINISTRATION, DEPARTMENT OF

HEALTH AND HUMAN SERVICES

INTRODUCTION

Mr. Chairman and members of the Committee, like its sister agencies in the

United States Department of Health and Human Services (HHS or the DepartVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00384 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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ment), the Food and Drug Administration (FDA or Agency) is a public health agency. But FDA is unique in the Department because it is primarily a regulatory agency.

As a result, for more than three decades FDA has had an aggressive disclosure

and review process designed to ensure that its employees do not have any conflict

of interest involving companies and entities that FDA ‘‘significantly regulates.’’ To

maintain the public trust in its public health work, FDA has placed reasonable restrictions on the financial and employment ties between FDA employees and the entities it regulates.

At this time, the Agency is confident that the specific matter described in this

statement is isolated. FDA fully anticipates that, when completed, the review of outside activity requests that we have commenced will determine that the Agency’s professional scientists and administrators uniformly comply with the Agency’s stringent

ethics requirements and that they conduct their regulatory work in fair, unbiased

and impartial manner.

FDA’S HIGH ETHICAL STANDARDS

As a regulatory agency, FDA has a compelling need to monitor and impose reasonable restrictions on the financial and employment ties of our employees. FDA

meets this standard through strict regulations governing financial interests and outside activities for all employees of the Agency. Applicable laws and regulations include the Standards of Ethical Conduct for employees of the Executive Branch (Title

5, Code of Federal Regulations (CFR), section 2635), Title 18, United States Code

(USC) section 202-209, and the Department’s supplemental standards of conduct (5

CFR § 5501).

HHS’s Supplemental Regulations contain FDA-specific provisions that establish

prohibited financial interest rules for employees required to file a public disclosure

report (using form SF 278) or a confidential financial disclosure report (using form

OGE 450), and rules for seeking approval of outside activities. The prohibited interest regulations have been in effect since the early 1970’s and supersede the Office

of Government Ethics’ (OGE) general rules on financial holdings. Under these FDAspecific regulations, employees who are required to file a public or a confidential financial disclosure form are prohibited from holding a financial interest in any organization that is significantly regulated by FDA. This prohibition extends to the employee’s spouse and minor child(ren), since their financial interests are imputed to

the employee under 18 USC 208. These employees also are generally prohibited

from employment with a ‘‘significantly regulated’’ organization.

FDA has established an Ethics Program to help ensure that the decisions employees make in their official capacity are not tainted by a conflict of interest or an appearance of a conflict of interest. FDA’s Ethics Program is an integral part of the

Agency’s overall operations. The program is fully staffed and dedicated to providing

advice and assistance to FDA employees on ethics related laws and regulations. The

Ethics and Integrity Staff are subject matter experts on the laws and regulations

that form the framework of the FDA Ethics Program.

OUTSIDE ACTIVITIES

As a consequence of our strict Supplemental Regulations, employees who are required to file a public or confidential financial disclosure report are prohibited from

having employment with ‘‘FDA significantly regulated organizations.’’ In addition,

public and confidential filers may not participate in consulting activities with any

significantly regulated firm. There is a very narrow exception to this broad prohibition, which is limited to the practice of medicine, pharmacy, dentistry, etc. The purpose of this exception is to allow employees to maintain their professional skills and

licenses.

FDA employees are required to seek advanced approval for all outside employment and certain outside activities with the following exceptions: participation in activities of a political, religious, social, fraternal, or recreational organization (unless

the position held requires the provision of professional services or is performed for

compensation other than the reimbursement of expenses). Outside activities that require approval include, but are not limited to, self-employment activities, office holding in professional societies, teaching, writing and speaking activities, consultant or

contracting work.

BIOSPECT, INC.

Dr. Emanuel F. Petricoin is a confidential filer in FDA’s Center for Biologics Evaluation and Research (CBER or the Center). His duties at FDA do not include reviewing pending applications for approval of new medical products.

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In September 2002, Dr. Petricoin requested approval of an outside activity to provide consulting services to Biospect, Inc. The request was reviewed and approved

in October 2002 by the Director, Division of Management Services, CBER. At that

time CBER reviewed available information on the company to determine whether

FDA regulated Biospect’s activities, and we concluded that they were not FDA-regulated.

During a recent review of outside activity requests, CBER questioned the approval of this outside activity. The Center inquired about the current status of the

company’s business and whether an outside activity with this company is appropriate and approvable. Further review of Biospect, Inc. identifies the company as

an emerging life science company that develops and identifies protein biomarker

patterns. FDA consulted with HHS and subsequently determined that Biospect, Inc.

participates in activities that are significantly regulated by FDA, and therefore outside activities with this company are prohibited for public and confidential filers.

On Friday, May 7, 2004, Dr. Jesse Goodman, Director of CBER met with Dr.

Petricoin and advised that because Biospect, Inc. is now considered significantly regulated by FDA,

Dr. Petricoin must immediately cease all activity with respect to Biospect, Inc.

Upon being informed of this, Dr. Petricoin immediately and voluntarily agreed to

end all activity with Biospect, Inc. Accordingly, approval for this specific outside activity has been withdrawn and this outside activity has ended.

FDA ETHICS REVIEW

Since 1970, review of FDA employees’ requests to participate in outside activities

has occurred within the FDA centers, at levels below that of the Center Director.

This was based on the premise that individual FDA organizations are more knowledgeable about the official duty activities of their employees and therefore are better

able to identify outside activities that may present conflict of interest concerns.

Within CBER, the approving authority was delegated to the Director, Division of

Management Services.

FDA now believes that this delegation should be at a higher level. Consequently,

on May 6, 2004, the Acting Commissioner issued an interim policy regarding the

approval of outside activities. Under this policy, FDA Center Directors must review

and, if an activity is allowed, approve all outside activity requests for employees

within their centers. The Commissioner of Food and Drugs will be the approving

official for employees in the Office of the Commissioner, and the Associate Commissioner for Regulatory Affairs will approve all requests for the employees of the Office of Regulatory Affairs.

In addition, in light of recent questions about possible conflicts of interest involving HHS agencies, the Acting Commissioner of Food and Drugs has directed a comprehensive review of all current outside activity requests for all FDA employees.

Each request is being reviewed for compliance with applicable laws and regulations

by Jeffrey M. Weber, Associate Commissioner for Management, Dr. Norris Alderson,

Associate Commissioner for Science, and the FDA’s Office of Management Programs,

Ethic and Integrity Staff. Once that review has been completed, FDA will issue a

final policy on the review and approval of outside activities.

CONCLUSION

FDA’s commitment to the highest ethical standards in its dealings with regulated

entities remains constant. FDA is confident that the current review of FDA employees’ outside activities will show that the nation is well served by the dedication of

FDA’s expert scientists and physicians and their demonstrated ability to conduct the

public business fairly and impartially. At FDA, we are committed to the maintaining the highest ethical standards to assure that the decisions employees make in

their official capacity are not tainted by a conflict of interest or an appearance of

a conflict of interest.

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NIH ETHICS CONCERNS: CONSULTING

ARRANGEMENTS AND OUTSIDE AWARDS

TUESDAY, JUNE 22, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2123, Rayburn House Office Building, James C. Greenwood (chairman) presiding.

Members present: Representatives Greenwood, Bilirakis,

Stearns, Walden, Rogers, Barton (ex officio), DeGette, Schakowsky,

Waxman, and Dingell (ex officio).

Staff present: Alan Slobodin, majority counsel; Mark Paoletta,

majority counsel; Ann Washington, majority counsel; Casey

Hemard, majority counsel; William Harvard, legislative clerk;

David Nelson, minority investigator and economist; and Jessica

McNiece, minority staff assistant.

Mr. GREENWOOD. The subcommittee will come to order.

The Chair welcomes our first panel and recognizes himself for

the purposes of making an opening statement.

Good morning. This is the third hearing the subcommittee has

convened about NIH ethics concerns. Two earlier hearings were

held last month, in particular the subcommittee has focused on

consulting arrangements and outside awards because of the legitimate important and well recognized public interest in controlling

conflicts of interests.

As the United States Supreme Court noted in its 1990 opinion

in Kramden v. United States restrictions ‘‘designed to prohibit and

to avoid potential conflicts of interest in the performance of governmental services are supported by the legitimate interests in maintaining the public’s confidence in the integrity of the Federal Service.’’

Without appropriate controls on conflicts of interest, the Office of

Government Ethics has stated ‘‘The public’s confidence may be seriously compromised where circumstances suggest public servants

are using their positions for private gain.’’

As Dr. Elias Zerhouni, Director of the NIH has said, the NIH’s

‘‘public health mission is too important to have it undermined by

any real or perceived conflicts of interest.’’

Our previous two hearings established widespread agreement

that the NIH ethics program needs strengthening. At the first

hearing on May 12 the NIH Blue Ribbon Panel on Conflict of Interest Policies presented it report and recommendations. Dr. Elias

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Zerhouni testified about actions taken in response to concerns

about NIH’s management of conflict of interest.

At the second hearing on May 18 the subcommittee highlighted

two cases illustrating conflicts of interest concern arising from consulting agreement and lecture awards. The example of a consulting

agreement we examined to highlight the issue is the case of Dr.

Lance Liotta of the National Cancer Institute, Dr. Manuel Petricoin

of the FDA and their arrangement with Biospect, a south San

Francisco life sciences company.

The subcommittee was concerned that Dr. Liotta and Dr.

Petricoin, the leaders for the U.S. Government in a cooperative research and development agreement known as CRADA with

Correlogic Systems, Inc. of Bethesda, Maryland were allowed to

work as paid consultants for Biospect, a company in the same filed

as Correlogic.

The example we used of an outside award focused on the circumstances surrounding the decision to allow Dr. Richard Lausner,

then the Director of the National Cancer Institute, to receive the

1997 Dixon Prize in Medicine from the University of Pittsburgh.

We learned that the hearing that the concerns of the NCI ethics

officer were disregarded and HHS ethics attorneys were pressured

to allow Dr. Klausner to accept the prize and a check for $40,000.

The award was also of concern because it was offered at a time

when the University of Pittsburgh was both a recipient of NCI

funding as well as a party to a recently settled lawsuit in which

both the NCI and the university were codefendants where Dr.

Klausner had approved the use of $300,000 funding NCI as a portion of the payment in that settlement.

At today’s hearing, the subcommittee will hear testimony and

present information that will provide more insight and greater detail about the NIH ethics concerns on consulting arrangements and

outside awards.

In addition, the subcommittee will hear testimony and examine

new actions and restrictions proposed by Dr. Zerhouni aimed at

strengthening the NIH ethics program.

With respect to consulting arrangements, the subcommittee has

been compiling information provided both by the NIH and a number of drug companies about the financial details of deals that occurred over the last 5 years. The task has proven to be enormous.

It took several months for the NIH and HHS to find a way to provide these financial details in the first place. Without a preexisting

data base, NIH in responding to the committee’s request has had

to rely on each of its 27 institutes and centers to provide information on the agreements. This has also led to problems of accuracy

and reliability.

More significantly, information received from the drug companies

has revealed a significant number of troubling discrepancies. So far

the committee staff has identified about 100 situations in which

the drug company reported a consulting agreement, but the NIH

did not include the agreement in the data given to the committee.

This is essentially disturbing given that the committee sent request

letters to only 20 of the companies that had the most agreements

out of hundreds of companies on the NIH lists. One hundred is a

significant number from such a subsample of 274.

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Consider this example. Pfizer provided information showing that

Dr. Trey Sunderland of the National Institute of Mental Health

had been paid over $517,000 in fees honoraria and expense reimbursement in connections with consulting activities for the period

1999 to the present. So far, however, NIH has reported to the committee that there are no outside activity request forms covering Dr.

Sunderland’s activities, nor are these financial details accounted

for in his financial disclosure reports.

Pfizer has also reported that Dr. Sunderland’s associate, Karen Putman of the NIMH was paid $64,000 in consulting fees and reimbursement from 2001 to 2004. Some of these fees were for assisting Pfizer in its program to study biomarkers of neurological disease. Once again, NIH has no outside activity request documents

accounting for this activity. In fact, NIH has confirmed that Dr.

Sunderland instructed Dr. Putnam not to clear these activities.

These so called outside activities appear related to their government work. Dr. Sunderland and Dr. Putnam in their capacities at

NIMH published a major study in 2003 on the value of potential

markers for identifying people with Alzheimer’s Disease.

These discrepancies between information provided by the drug

companies and the NIH and this example raise the specter of a

substantial number of outside drug company and biotechnology

consulting agreements involving NIH scientists, which were not

even reported or submitted for clearance at NIH. Because of the

grave concerns this presents, the subcommittee will further investigate these agreements that were not reported to the NIH. As a

result, the subcommittee is not yet in a position to release the listing of the NIH consulting agreements today.

The concern that there is a substantial number of outside deals

that are conducted in total secrecy even from the NIH is not implausible. For example, the committee has recently learned that

Dr. Alan Moshell, Skin Diseases Branch Chief and Program Director of the National Institute of Arthritis and Musculoskeletal and

Skin Diseases, was retained as an expert witness reportedly at a

rate of $600 per hour in a number of private product liability lawsuits involving the drug, Accutane, which is used to treat severe

acne. HHS and NIH have reported to the committee that Dr.

Moshell did not file outside activity request forms for these activities, even though HHS and NIH acknowledge that Dr. Moshell

should have disclosed these activities to NIH and should have filed

an outside activity request separately for each expert-witness activity to obtain approval. In 1985, Dr. Moshell filed an outside activity

request and obtained approval to conduct clinical practice as a dermatologist. This request form did not specifically cover service as

an expert witness, but Dr. Moshell has indicated that he did not

believe that a specific request form was needed for that purpose.

In addition to these new concerns on outside activities, the subcommittee has also learned of additional information about the

case study involving Dr. Liotta, Dr. Petricoin, and their outside

agreement with Biospect while working on the Correlogic CRADA.

We will hear about this new information later. But let me provide

one example of our concerns.

At the May 18 hearing, Dr. Liotta testified under oath that his

work at Biospect had been ‘‘placed on hold’’ since February 2004

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pursuant to Dr. Zerhouni’s directive that all existing consulting relationships with pharmaceutical or biotechnology firms be stopped

and resubmitted to the newly created NIH Ethics Advisory Committee known as (NEAC) for review and input, before such activities could be reapproved, if appropriate.

Further, Dr. Liotta confirmed his activities with Biospect were on

hold in response to the following e-mail from the NIH Ethics Director, Holli Beckerman Jaffe, dated May 5, 2004: ‘‘Please also confirm

with him that while he has not received any payments since February (in other words, he was last paid in February), he has not

consulted with Biospect since February; the arrangement has been

put on hold until he receives approval from Dr. Kington. I know

I’m beating a dead horse, but I want to be very clear on the facts.

It’s in the best interest that we have all the facts and no uncertainty.’’

The subcommittee has now recently received records from

Predicant Biosciences, the new name for Biospect. These records

show that Dr. Liotta received and cashed checks from Biospect

dated March 1, April 1, and May 1, 2004. These transactions all

occurred during the period that Dr. Liotta claimed that the

Biospect agreement was ‘‘on hold.’’

Although the subcommittee will not be releasing the consulting

agreements listings at this time, we will be releasing information

pertinent to consulting arrangements and outside awards. That information includes statistical information about: The activities of

the NEAC, use of Title 42 authority, and the list of the 77 scientists who appeared on the NIH consulting agreement list who

are also principal investigators on CRADAs.

I ask unanimous consent to put the binder of hearing documents,

including this information, into the record. Without objection, it

will be included in the record.

On the issue of lecture awards, the subcommittee is releasing the

list of awards that NIH provided to the committee and identified

as responsive to our request for information on ‘‘lecture awards.’’ In

addition to the lecture awards list, the subcommittee has identified

additional issues in connection with award approvals for Dr.

Klausner. For example, Dr. Klausner as the Director of the National Cancer Institute is a Presidential appointee and must have

his award requests approved by the HHS Designated Agency Ethics Official. His award requests cannot be approved by an official

at the NIH. The committee has identified two instances in 1997 in

which the Deputy Director of NIH, not the HHS Ethics Official, approved Dr. Klausner’s awards.

In another case, an award to Dr. Klausner from the University

of Arizona was approved by an HHS ethics attorney who did not

have a written delegation of approving authority for awards of

Presidential appointees. In that same case, the first-class travel for

Dr. Klausner was improperly approved as part of the award-approval process because a first-class travel approval request must go

through a separate approval procedure. This mistaken approval reportedly occurred because the HHS travel manual did not track all

of the applicable requirements contained within the GSA regulations with regard to acceptance of first-class travel from a non-Federal source.

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These additional issues deepen our concerns about what has happened in the NIH ethics program. However, Dr. Zerhouni appears

before this subcommittee to present a comprehensive set of proposed additional restrictions, in addition to other recent actions, to

improve the NIH ethics program. I note that some of the problems,

such as deliberate misconduct, cannot be easily addressed by any

kind of ethics proposals, no matter how strong the restrictions.

That said, this set of proposals has some positive features to commend it. In the area of outside awards, based on my understanding

of the proposals, the combination of the pre-screened list of awards,

the additional guidance from the Office of Government Ethics, the

NEAC review, and the prohibition of any cash to an official responsible for a funding decision with the entity offering the award,

should address the concerns.

In the area of management process changes, I understand NIH

will create an electronic data base for tracking ethics matters and

HHS will have increased resources to conduct random audits.

These are constructive and substantial changes. In the area of

drug-company consulting, Dr. Zerhouni is not proposing a total

ban. However, Dr. Zerhouni is offering a number of substantial restrictions that will curb some of the kinds of cases that are of the

greatest concern. Those restrictions include a prohibition on outside

consulting for senior leadership positions, expanding public disclosure requirements to cover an additional 600 NIH employees,

NEAC review, and limits on income and time. I am withholding

judgment on this part of the package; my position will be based in

part on what I learn at today’s hearing. However, I have already

reached the conclusion that whatever final action is taken on outside consulting, it should take place in the context of legislative

changes regarding the use of Title 42 authority.

The widespread use of so-called ‘‘special’’ compensation authorities intended for consultants in Title 42 to boost the pay of continuing, full-time NIH employees looks highly questionable on policy, if not legal, grounds. The data provided by HHS shows nearly

$5 million in retention bonuses were paid to 444 Title 42 employees

for the period of July 1, 1999 to May 1, 2004. The use of retention

bonuses along with the questionable use of Title 42 is part of the

gaming that has occurred with the salaries of NIH scientists. Recent data shows almost one-third of new NIH employees were hired

under Title 42 authority in 2003. The gaming must end. I am prepared to support a straightforward approach to providing good salaries to NIH scientists, worthy of the crown jewel of the U.S. Government.

Dr. Zerhouni, I know you are ready to work with me. Your proposals and your testimony will receive a respectful hearing from

me. You have shown yourself as a serious and constructive partner

with the subcommittee in addressing these ethics issues.

I welcome Dr. Zerhouni and the other witnesses to today’s hearing. I note on the second panel we will hear from Peter Levine, the

President of Correlogic Systems, and Dr. Jonathan Heller, the Vice

President for Information and Project Planning at Predicant Biosciences, the new name for Biospect.

I note that Mr. Levine, although he is cooperating with the committee, is appearing pursuant to a subpoena.

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Finally, I welcome the witnesses from the National Cancer Institute who will appear on the third panel.

I look forward to the testimony and to making a stronger and

better NIH.

The Chair yields to the gentlelady from Colorado for her opening

statement.

Ms. DEGETTE. Thank you, Mr. Chairman.

This is the Oversight and Investigation Committee’s third hearing on conflicts of interest and the National Institutes of Health.

The significance of this issue cannot be understated, and I expect

that today’s hearing will provide us with a fuller understanding of

the problems.

The first hearing gave this committee the opportunity to hear

from members of the Blue Ribbon Panel and Dr. Zerhouni. At that

time, I expressed concerns with the scope of the Blue Ribbon Panel’s recommendations. I am pleased that Dr. Zerhouni is back again

with us today to talk about the subcommittee and to talk about

some expansions of some of those issues we talked about at that

first hearing.

After reviewing some of the proposed expansions to the NIH ethics rules which are being contemplated, I am pleased that NIH

leadership takes these issues seriously and is endeavoring to restore ethical integrity, but I remain concerned about the challenges

that the absence of what I think is a bright line task for receipt

of outside industry compensation provides. At the same time we

must maintain the integrity of the NIH as our Nation’s premier research institution and to that end, we need to continue to have the

ability to attract the very best and brightest at all levels of the

NIH.

Today we’re going to have the opportunity to look at these additional steps which are being proposed by the NIH regarding conflicts of interest and to learn about one or more of the cases that

we talked about in our last hearing. As I said at the previous hearings, these conflicts of interest deserve scrutiny and they must be

resolved. The ethos of the organization much change, and I know

Dr. Zerhouni and his senior management team agree. These new

recommendations are a necessary step, but there must be a comprehensive effort toward implementation and elimination of inconsistent standards which now exist across the 23 institutes.

I am confident that the scientists at NIH can adequately address

the committee’s concern and put a better system into place. But the

question remains how do we accomplish this? NIH may still need

to strengthen some of the recommendations even further to achieve

this, and I look forward to hearing from our witnesses about that.

I would also add that this subcommittee has a long history of examining these issues and does not take it’s investigative role lightly. The subcommittee’s ability to interview witnesses and uncover

issues is part of its very core mission. I am glad that Mr. Azar is

here today to talk about some of these interviews of government

witnesses and HHS and what transpired.

We have been that conflicts of interest at the NIH are relatively

rare, but even rare cases must be prevented especially when they

are as spectacular as we have heard n our previous two hearings.

The public’s trust in this remarkable institution is at stake. These

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scientists who are entrusted with taxpayer dollars must answer to

their institution and the public and protect its integrity. The scientists also should remember their work is the hope for many

Americans who are ill or who are taking care of a family member

with an illness. Their scientific work for some Americans is the difference between life and death. A conflict of interest or even the

appearance of a conflict of interest could have devastating effects.

NIH’s mission is to uncover new knowledge that will lead to better health for everyone. But when there are conflicts of interest,

how can we make sure this mission is being carried out?

I am still concerned about NIH’s ability to acquire information

and data on hours spent on outside activities and also compensation received from outside activities. This is a very delicate issue

and disclosure is the key. Centralization of ethics review and creation of an electronic data base are going to be very important.

However, as they say the devil is in the details and we need to find

out how exactly outside activities will be monitored. That is why

I go back to the fact that in the absence of a bright line test it will

be very difficult to eliminate some of the abuses we have seen in

the past.

As the committee has discovered and as we will discuss today,

there is an astounding amount of activity that has not been under

scrutiny or even disclosed. This is an unacceptable situation. I

know that Dr. Zerhouni and his team agree with me, and I look

forward to working with them on this issue.

And thank the Chair for continuing this series of hearings. And

yield back.

Mr. GREENWOOD. The Chair thanks the gentlelady and recognizes the chairman of the full committee, the gentlemen Mr. Barton for his opening statement.

Chairman BARTON. Thank you, Mr. Greenwood. And we appreciate your leadership on this important hearing.

I stated at the last oversight hearing on these NIH issues that

the hallmark of my chairmanship will be to hold agencies responsibilities and to produce results in better government and better

services and policies for the American people. I am proud to report

that because of your work and Ms. DeGette’s work this is happening with regard to our investigation at NIH.

The committee continues to uncover more and more troubling information about what has happened in the NIH ethics program.

For example, it appears that there may be a substantial number

of NIH scientists who engaged in outside activities such as drug

company consulting in stealth, that is without any notice at all or

any approval by the NIH. If these suspicions are confirmed, these

unapproved compensated activities would represent a very serious

breach of NIH policy, Federal ethic regulation and possibly in some

cases even criminal laws.

In addition, we are continuing to examine cases. One of the cases

which we reviewed at our last hearing dealing with conflicts of interest arising out of consulting agreements your subcommittee has

heard and will testimony today about a remarkable case in which

the NIH and FDA scientists who were collaborating with a private

company on a joint invention under a public/private partnership

called a CRADA at the same time were secretly consulting with

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their own private partner’s competitor. As a result of those secret

deals progress may have been slowed on the public/private partnership that could have led to prompt commercialization of a lifesaving ovarian cancer diagnostic test.

I also understand that the subcommittee may be presented with

information today that raises serious questions about the accuracy

of some testimony that has been received at the last hearing.

Having said all of that, this subcommittee is getting the facts.

Through oversight we are identifying the issues that provide a

roadmap for solutions. The problems that we are continuing to uncover at the NIH are further justification for why this committee

needs to reauthorize the NIH for the first time in over a decade.

The committee needs to lead the way in restoring NIH’s luster as

the crown jewel for research of the Federal Government. As Chairman Greenwood has noted, during this investigation we have uncovered issues of concern and are continuing to uncover still more.

It is unpleasant to face the harsh truth about the results of the apparently lax ethic culture at the NIH and the poor judgment and

perhaps even misconduct of some individuals at that illustrious institution. Having said that, it is a process that we must go through

to ensure that NIH will continue to be the world’s premier medical

research medical institution. NIH’s work is too important to allow

it to be hindered by questions about the integrity of its scientists,

and therefore the scientific process.

Our oversight is not just about identifying problems. We want to

stimulate solutions. In this regard I am very pleased to read that

both HHS and NIH seem to be getting the message about our concerns over the NIH’s ethics program. And Dr. Zerhouni’s testimony,

which I have read, indicates that he is serious about improving the

ethics at the agency in which he is director of. He is making his

agency responsible to the Congress and to the American people. He

has a plan, and I think it is a good plan, and I think this committee should give it serious consideration. Because of the enormity

of the taxpayer investment in NIH and the enormity of the responsibility entrusted to NIH, it is critical that we, when I say ‘‘we’’ I

mean the Congress and the NIH administration, work together to

make sure that NIH remains the standard for medical research in

the world. I am pleased to say that it looks like we are making

progress in this regard.

While we need to work with Dr. Zerhouni to establish solutions,

we must do all that we can do to stop things like from ever happening again. And just as NIH has enormous responsibility to the

American people, this committee has the responsibility to conduct

the kind of oversight that brings these problems to light and then

helps find solutions to prevent them from happening again.

I want to commend Ranking Member DeGette for her excellent

work and her staff’s work, and Mr. Dingell for the full committee

staff work on this effort. We are doing oversight in the proud tradition of the Energy and Commerce Committee, and I think the end

result is going to be good for the American people.

I also want to compliment Dr. Zerhouni. Your testimony about

proposed solutions is excellent. To the extent that we need to back

you up with legislative language in that statute, we are very willing to do that once we finalize what needs to be done.

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With that, Mr. Chairman, I would yield back.

Mr. GREENWOOD. The Chair thanks the gentleman.

And he recognizes the ranking member of the full committee, the

gentleman from Michigan, Mr. Dingell.

Mr. DINGELL. Mr. Chairman, good morning.

Thank you for recognition, and let me commend you for opening

this inquiry, for holding this hearing and for insisting that Mr.

Azar testify despite the opposition of the Department of Health and

Human Services.

The ethics concerns at the NIH, National Institutes of Health

and the Food and Drug Administration, FDA, merit the full attention of this subcommittee, as do efforts to hinder, obstruct, delay

or otherwise impede the work of this subcommittee.

We are still learning how far and wide the problem of outside

payments goes. When NIH initially refused to compel its employees

to disclose the extent of consulting dollars received from drugs and

biotech companies, you and Chairman Barton surveyed 20 drug

companies for their payments to NIH employees. The companies responded regarding some 264 contracts with scientists employed at

NIH. When comparing these contracts with the information ultimately submitted to us by the NIH, the staff discovered that some

100 of the 264 consulting contracts were not reported to NIH. What

else is out there?

We, as well as NIH and FDA, have a duty to ensure that this

probe does not harm research or regulatory approvals. But ignoring

the problems at FDA and NIH is not an option. The research community, the health care industry and the American people simply

cannot tolerate a system where the state of our technology is sold

to the highest bidder. We cannot tolerate a system where the development of lifesaving drugs and biologics may be delayed while the

auction is being conducted. Nor can we tolerate hinderance and obstruction by the Department of Health and Human Services. Officials in charge of legislative affairs and some misguided government lawyers have tried to stifle the investigation in which we are

now engaged. They have sought to stonewall our requests for documents and interviews and otherwise have sought to prevent the

Congress and the American people from discovering very serious

problems.

This subcommittee over the years has seen to it that the truth

is produced with the cooperation of those who were being investigated or without their cooperation. And there are many who have

had reason to repent in a very real way the failure to cooperate

with this committee. I hope that those who will appear this morning and others who will be inquired of by the subcommittee will

keep this thought in mind.

Moreover, I would note that we find that the curious reluctance

of the Inspector General here to do more than desk audits is unacceptable. The American people have the right to know what is

going over at the Department. I support all efforts to enforce that

right, and I will do everything I can to see to it that there is no

obstruction of the business of this committee.

I thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes the Oregon, Mr. Walden for his opening statement.

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Mr WALDEN. Thank you, Mr. Chairman. I am going to waive my

opening statement.

Mr. GREENWOOD. The gentlelady from Chicago, Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Chairman Greenwood and Ranking Member DeGette for convening today’s hearing, the third in a

series of oversight opportunities to review concerns about ethics at

the National Institutes of Health and the consulting arrangements

and outside awards of NIH personnel.

This issue is so critical because it goes to the integrity of science

and the safety and efficacy of medical technology upon which the

American public and medical community rely. Consumers and their

caretakers in the medical field, rely on sound science for guidance

on the most appropriate types of care. Consumers need to know

that the science upon which their doctors rely is based on legitimate evaluations and not tainted by side deals. I think most American consumers would assume that cash, stock, stock options and

other types of pay for outside consulting arrangements that NIH

personnel have with drug companies and others in industry, would

be against the rules. I know I was surprised to hear that some senior officials at NIH received cash gifts as part of the awards given

to them by some of the same companies that receive funding from

NIH. In some cases, it appears that these deals could amount to

more than the regular salaries of some NIH personnel. It is hard

for me to accept any argument that NIH’s medical scientists or senior personnel need to enter into such agreements. These agreements are not just a question of a little moonlighting, they are daylighting too, with the very prescription drug and medical device

companies whose science NIH is supposed to objectively evaluate.

Why can’t NIH commit to finding scientists who will do their jobs

for the salary they agree to receive without doing lucrative side

deals outside of the office?

Even the appearance of such behavior is damaging and NIH and

other agencies must take action to ensure the proper safeguards

are in place to prevent such activities. So, today, I am looking forward to hearing the response to concerns raised by this subcommittee. I hope the response will include immediate and concrete

steps to remove even the appearance of questionable ethics at NIH.

Anything short will be unacceptable. Thank you.

Mr. GREENWOOD. The Chair thanks the gentlelady.

And recognizes the chairman of the Health Subcommittee, the

gentleman from Florida, Mr. Bilirakis for an opening statement.

Mr. BILIRAKIS. Thank you very much, Mr. Chairman.

The past two hearings you have held on this issue have been extremely informative, to say the least. And I am sure we all appreciate the opportunity to have another chance to discuss these concerns with officials from the NIH.

Dr. Zerhouni, thank you so much for coming here today. You

have always been extremely generous with your time and unbelievably helpful in all of your efforts, and ours I might add. I commend

your efforts to improve conflicts of interest management at NIH by

creating the Blue Ribbon Panel that created guidelines for revamping the review of consulting arrangements and outside awards, and

expanding the number of NIH employees who file internal and pubVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00504 Fmt 6601 Sfmt 6601 93973.TXT HCOM1 PsN: HCOM1
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lic financial disclosure reports. Once again you have taken the initiative to ensure that NIH is operating to the best of its ability.

I have gotten to know Dr. Zerhouni fairly well recently because

just in this Congress alone, my Subcommittee on Health has held

five hearings to highlight research activities at the NIH and to

educate members and others about the work that the NIH is doing

so that we can better assess how to help them to better met their

stated mission.

Now that our hearings have concluded, Chairman Barton and I

are committed to passing bipartisan legislation to reauthorize the

NIH. It is something we have high hopes of being able to do.

One thing that we would like to accomplish with this reauthorization package is to strengthen the role of the Director of the NIH.

And I look forward to hearing from Dr. Zerhouni about how we

could be helpful to him in implementing the recommendation to the

Blue Ribbon Panel.

And, Dr. Zerhouni, if I do not get around to asking you that specific question, I would ask now that you might submit in writing

to us what we can do in the law to strengthen your role.

As I said before, if there are more transparency with respect to

these consulting fees and awards, such as making the information

more public, then maybe there would not be the need for a high

level of concern.

I along with you, Mr. Chairman, would like to thank and welcome the other witnesses here today, and look forward to hearing

particularly this panel’s testimony.

Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman.

And recognizes the gentleman, Mr. Rogers for an statement, who

passes.

That being said, we welcome Dr. Zerhouni and Mr. Azar. Thank

you for being here.

As you know from previous experience, it’s the custom of this

committee to take testimony under oath. And do either of you object to taking testimony under oath? Do either of you wish to be

represented by counsel?

[Witnesses sworn.]

Mr. GREENWOOD. Before I recognize you for your opening statement, Dr. Zerhouni, let me say what I have said in public as many

times as I can. I know that this is not a lot of fun for you and the

NIH to go through this very public process of oversight, but I consider you to be as ethical a person as I know. I consider you to be

a partner with me and with this committee in our efforts to tighten

up the ethics, and I am not proud of our relationship, and look forward to your testimony, and you are recognized to give it.

TESTIMONY OF HON. ELIAS ZERHOUNI, DIRECTOR, NATIONAL

INSTITUTE OF HEALTH; AND ALEX AZAR, II, GENERAL COUNSEL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mr. ZERHOUNI. Thank you, Mr. Chairman, for your kind words,

and you have my commitment to continue to be partners in this

issue. I want to thank the members of the subcommittee.

I am here to testify about my proposal to overhaul the ethics system and its process, its management and its controls. We have

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worked very closely with my colleague, Mr. Azar in the Office of

General Counsel to come up with what we believe could be a proposal that will not only strengthen, but completely overhaul, completely transform the way we manage ethics at our Federal agency.

The events and arrangements that have been the subject of the

subcommittee’s oversight was, as you know, rooted in the significant loosing of NIH ethics rules and policies that occurred in 1995.

These changes were the results of converging interests at the time.

NIH’s desire to strengthen the research enterprise to the use of ‘‘innovative’’ recruitment and retention policies. And the second was

a governmentwide change in ethics policies.

In retrospect I believe that the new rules were not sufficient to

guard against the perception of conflict of interest or reality of conflict of interest.

Further, I have reached the regrettable conclusion that some

NIH employees have violated these lenient rules in that the agency’s ethics system did not adequately guard against these violations, both in the content of the rules, in the process to manage the

rules and in the controls that should have been independent and

formal.

So I am completely committed, and you have my pledge, that any

employees who violated the rules will be subject to appropriate

panels. I am looking forward to work as diligently as we can with

the committee. I know Mr. Azar is also committed to do the same.

We intend to cooperate. We want to cooperate. If there is any perception that we did not, we want to correct that. And you have my

word and my colleagues at the Department who do believe in the

same thing.

It is clear that our public health mission is too important, really,

to have any shadow of a doubt that what NIH does is in the

public’s interest first and foremost. And it is really regrettable to

me and painful to me that the actions of a few may have tainted

the good work of thousands of scientists who have not participated

in any of these actions and who work daily at NIH to solve the

mysteries of disease and advanced treatments and cures for these

diseases. So I think it is important that we move diligently, I believe, to completely change the system of ethics at NIH.

I will summarize, and you have my testimony in writing, but I

would like to summarize the salient points, not to take too much

of your time, of what is it that we are proposing and the core principles that we are trying to follow.

No. 1, in terms of industry consulting. I think it is absolutely important to build a firewall between the employees at NIH who have

any authority whatsoever in grant making or contract making from

any consulting with industry. That means that the entire senior

leadership, including directors, reports to directors, deputy directors, scientific directors, clinical directors and all staff involved in

making decisions for contract and grants in the extramural components of NIH be prohibited, period. And this is a total damp.

We also want to protect the agency from any further perception

of conflict of interest, and we are going to do this by restricting

very strongly the activities of scientists who have no authority over

the extramural activities or granting activities within NIH.

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I would like to point out that NIH is both a Federal agency that

distributes grants, but also a very advanced research laboratory

with scientists who we recruit to do things for the government of

public health interests. It is important to look at that in a different

light, and I know that it would be so much easier to just ban outright the activities. And, as you know, I have made the point that

perhaps we should look at that, and I would like you to keep an

open mind about why we believe it should be done that way.

However, that being said, I think strict restrictions should be put

in place. No. 1, I do not believe that stock or stock options should

be used as payments for any outside activity for anyone at NIH.

And I intend to prohibit any of such relationships.

Stock and stock payments create an inextinguishable conflict,

and I do not wish to have that.

Second, I will prohibit the holding of stock in individual biotechnology and pharmaceutical companies for all employees that

file a public or confidential public disclosure report of any kind and

establish and establish for all employees a $5,000 de minimis in

terms of individual stock ownership of theirs with their direct family for nonfilers. And we will insist that divestiture occur.

I think this will create a scrubbed environment, I believe, for ethics at NIH so that we will no longer have any of these issues.

In addition, because I am concerned about conflict of commitment, who is the employee working for the Government or some

other entity, I will go further than what the Blue Ribbon Panel

proposed. I will limit annual compensation from all outside activities with industry to 25 percent of the employee’s base salary, and

no more than half of such income to come from any one source. And

limit the time spent engaged in all activities with industry to 400

hours annually.

This is a set of rules which will not create a incentive because

the compensation for outside activity will then be equal to the rate

of compensation for official activities.

We will also publicly disclose all outside activity with industry.

We will have a data base, we will find ways to make sure that the

following principle is followed: If you cannot disclose it publicly, it

will not be allowed. Period, end.

We will prohibit membership, and this is a recommendation that

I am making, a proposal I am making which was not part of the

Blue Ribbon Panel. Mr. colleague Mr. Azar helped me tremendously in defining those relationships. Any membership on corporate boards will be prohibited for all employees. I believe that

membership in boards is a conflict of commitment and fiduciary responsibility. I want my employees to be responsible to NIH, period.

However, we will allow limited service on scientific advisory boards

for ad hoc participation, and again, not for any of the senior employees. Only the ones that are in the laboratories. Because there

is value there and we need to make sure that it is reviewed centrally, but it be allowed.

In addition, in terms of rewards I think this is an issue that you

have raised, and I have to say that I reviewed all the cases that

came to my attention, worked with you. And I believe that there

are awards that are very legitimate. There are awards that relate

to the meritorious accomplishments of a scientist, sometimes before

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they came to NIH. I think it would be unwise for us to prevent the

recruitment of a director who may be a potential recipient of a

Nobel Prize or a Laska Award, or many other prices that have a

long established life, that have a process that is independent on

any granting institution in the sense of having a foundation and

a clear process, an open process of nomination, an open process of

awarding the award. But to do so, we are proposing something

pretty novel. We’re going to scrub, essentially, every award out

there. We’re going to create a list, we’re going to submit that list

and the criteria of that list to our independent advisory committee

to the Director of NIH, which is law, in statute. And we’re going

to ask them is the Nobel Prize okay. Is the Laska Award okay? Is

this prize okay? Does it fit the characteristics. And then we’ll create a public registered list, if you will, of acceptable awards for

NIH scientists.

Now, further, if the award is received by an NIH employee, it

will still be reviewed by a central committee, central advisory ethics committee for the following issues.

If the official offered the award is responsible for a funding decision with the entity offering the award, either directly the person,

the employee, or through a subordinate—this is really an extension

of rules that I think is very drastic and very important to understand. And I think we owe it to Mr. Azar who made the recommendation, that the receipt of the award may be prohibited and

indefinitely the receipt of the cash component of the award will be

prohibited.

In determining whether an award creates a real or apparent conflict of interest, the new act will consider how the employee can effect the interests of the entity so that we do not end up with just

formal analysis, but a wider analysis not just directly related to the

entity that offers the award, either directly or through the actions

of a subordinate.

Pre-screened award lists will be maintained by the NIH ethic office publicly posted, updated regularly and the name of any NIH

employee who is a recipient of an award would also be posted publicly.

I think it is important also to impose restrictions not just on relationships with industry, because as I have looked at potential for

both real and perceived conflict of interest, I find also that consulting with nonprofits, grantee institutions can be a concern. So

I am going to propose that we prohibit this for all employees.

You may ask, as Congresswoman DeGette asked me, why are

you more strict for nonprofit grantee universities than you are for

industry? Well, the difference is that grantee institutions come and

ask for public money. Industry pays for the outside activities of the

scientist. And in every case where we need to have science advice

given to our grantees, we will do so after determination by supervisory review under an official duty scheme rather than an outside

activity scheme which will prevent personal rewards of any kind in

that kind of a relationship.

Consulting with nonprofits, nongrantee institutions is another

issue. There we do not have the potential of conflict of interest in

terms of disbursement of funds. In this case we will prohibit it,

nonetheless, for senior leadership, people who have grant making

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or contract making authority, and we will determine by supervisory

review whether there’s any overlap between official duty and that

activity.

So even though you may be director of institute X, if you are to

serve on a nonprofit disease related group, we will prohibit that for

senior leadership but we will allow it for nonsenior, nonauthority

type leaders.

Clinical practice, we do need to maintain the clinical skills of our

doctors at NIH, and the clinical center is hyperspecialized and

there is not enough for them to maintain the general scales, and

we would like to continue to allow that within limits of commitment. Because it doesn’t present a conflict of interest, but also limits of the marketbasket that we will see around the metropolitan

area. If you are a radiologist, you will be allowed to make more

than a radiologist in academic practice in this marketplace.

The reason I want to do this is to avoid what I call the perverse

incentive. If an outside activity is rewarded at a higher rate, you

have the perverse incentive to favor that outside activity. I want

to eliminate that.

Seven, academic pursuits. Pure academic pursuit. Working a

general textbook, editing a journal, writing an article, a peer review article, doing continuing medical education, teaching a course

at the university level; those are the core of the activities of our

scientists. I really do not wish to restrict those activities. I think

it would be unwise to do so.

Public financial disclosure reports, we have already extended our

request to OGE from 93 positions to 508 position that will be publicly filed. We are asking also the recommendation of counsel for

NIH authority to determine 278 filing status for its employees so

that we can adapt quickly to the changes.

In addition, step nine, we will also review all of our employees

with or without authority involved in human subject research. I believe personally that this is a different set of consideration even

more important than conflict of interest with companies because it

involves human lives, it involves advice that we will give to the

American public. So all of those employees will file reports if involved in clinical research. And we will determine who that is and

we will propose that list.

Finally, I think that no set of rules will be successful unless you

build around them a process, a management process with strong

controls. Here is what I propose to do.

I have already established a centralized committee, the NEAC

committee, and it is doing an outstanding job. But in addition to

that, we will centralize the oversight of every NIH ethics activity

in the Office of the Director. There will be ethics officers in the institutes, obviously, to help everybody, but the oversight will be centralized so that there is no conflict of reporting relationship between the person who is making the decision for the director or for

somebody in that institute.

We will ethics functions in the supervisory performance plan. We

will add a central director of ethics who will be—all of the director

of ethics will have performance plans and he deputy director will

be in charge of that.

502

We will initiate random audits, and we are working with our

general counsel to implement that.

In addition to this, I think something that I think is needed as

a tool to in fact provide the response to the concerns that you have,

Congresswoman DeGette, and that is a full electronic data base

that will be cross related between every step of the activities and

every step of the ethics process in one place. So I can respond to

your inquires in 2 weeks rather than 4 months, Mr. Chairman.

And we will extend formal training programs. And you have my

commitment that one of the components of a good control ethics

program is also disciplinary actions. I believe that we have been

lax in making sure that if there is clear violations of existing rules,

that we should really send a message. I intend to send that message and I will be very forceful in that regard.

In closing, I hope that you will take my commitment to you as

a very sincere honest commitment that I will do everything in my

power to make sure that NIH resumes it brilliant destiny as one

of the most trusted agency in the Federal Government. And you

have my commitment that I will work very closely my colleagues

here to collaborate with you.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Elias Zerhouni follows:]

PREPARED STATEMENT OF ELIAS A. ZERHOUNI, DIRECTOR, NATIONAL INSTITUTES OF

HEALTH, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mr. Chairman and Members of the Subcommittee, I am Elias A. Zerhouni, Director of the National Institutes of Health (NIH) at the U.S. Department of Health and

Human Services (HHS). I am here to testify about my proposal to strengthen the

ethics system at NIH by changing our rules, practices, and procedures.

I have reached the conclusion that drastic changes are needed as the result of an

intensive review by NIH of our ethics program, which included internal fact-finding

as well as the external review of a Blue Ribbon panel. This review was prompted

in part in response to the inquiry of this Subcommittee and the bipartisan concerns

of Chairman Greenwood, Ranking Member Deutsch, Congresswoman Degette, and

the full Committee Chairman, Mr. Barton, as well as the Committee’s Ranking

Member, Mr. Dingell, and other members of the panel.

The events and arrangements that have been the subject of the Subcommittee’s

oversight and NIH’s reviews were rooted in a significant alteration of NIH’s ethics

rules and policies that occurred in 1995. These changes were the result of converging interests. The first was NIH’s desire to strengthen the research enterprise

through the use of innovative recruitment and retention policies. The second was

a government-wide standardization of ethics policies, which resulted in a decision

by NIH to change its ethics rules to conform to the new policies.

As we move forward, I regret that the reputation of NIH has been challenged over

ethics concerns and that the conduct of individual scientists who have devoted their

lives to battling disease and easing the suffering of millions of patients has been

questioned. I believe the NIH and its employees were operating within rules that

allowed or did not specifically address many of the arrangements that the Subcommittee has questioned, including lecture awards and consulting with industry.

In retrospect, there was not a sufficient safeguard against the perception of conflict

of interest.

As I have testified previously, our public health mission is too important to have

it undermined by any real or perceived conflicts of interest. It is imperative that

Congress and the American people trust that the decisions made by our scientists

are motivated solely by public health priorities and scientific opportunities, not personal financial concerns.

The first step in maintaining such trust was the creation of the NIH Ethics Advisory Committee (NEAC). The NEAC, an internal NIH committee, is providing a centralized, consistent, and rigorous review of all consulting arrangements with pharmaceutical and biotechnology companies, awards valued in excess of $2500, and all

requests from senior NIH officials. Composed of Institute and Center Directors and

scientific leaders, and with the participation of ethics officials, the Committee proVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00510 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
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vides unprecedented review by peer scientists of applications for outside activities

and awards. NEAC looks carefully at each request under its jurisdiction so that, for

instance, NIH employees are not consulting on matters that are related to their official duties or pose other potential concerns. Only those requests for approval that

have passed muster at the Institute level, by both the employee’s supervisor and the

Institute’s Deputy Ethics Counselor (DEC), are forwarded to the NEAC for review.

Upon NEAC review, it is only those arrangements that do not pose conflict of interest concerns that are recommended for approval and forwarded to the NIH Deputy

Ethics Counselor. As a result of the unprecedented review by peer scientists now

applied to the ethics program, the culture at NIH is already changing.

On May 12, I testified before this subcommittee about four principles for change

in the NIH ethics program:

1) Enhance public trust in NIH by preventing conflicts of interest through the restriction of financial relationships that employees may have with outside organizations;

2) Increase levels of transparency in the NIH ethics program by requiring much

more internal as well as public disclosure of the details of financial relationships that employees have with outside organizations, including consulting arrangements and awards;

3) Balance NIH’s ability to recruit and retain the best scientific expertise while expediting the translation of research advances;

4) Establish effective monitoring and oversight of employee activities.

Today I am announcing that NIH, working with the HHS Office of the Secretary,

will seek a major reform of the Agency’s ethics program by requesting restrictive

rules and by seeking to increase the public availability of information related to outside activities with industry. As you know, this process cannot happen overnight.

We are aggressively working with the Office of the Secretary and OGE to make sure

that we have in place a set of rules that ensures the appropriate ethical oversight

while continuing to encourage scientific creativity. The following framework lays out

our attempts to implement the principles described above.

Principle One: Enhance Public Trust

• Prohibited Holdings: We are working to prohibit the holding of stock in individual

biotechnology and pharmaceutical companies as is done at the Food and Drug

Administration. There, all employees that file either a public or confidential financial disclosure report are prohibited from holding stocks in significantly regulated entities. Non-filers are permitted to hold only up to $5000 of such stock,

which is $10,000 below the current federal rules for de minimis financial interests. • Awards: We are actively pursuing a two-step process. First, any NIH employee

should be prohibited from accepting any award unless the award has been prescreened. Such a process would include an independent advisory committee that

includes non-government individuals and the NIH DEC, and a determination by

the DEC that the award meets the regulatory definition of bona fide. Second,

even if the award has been determined to be bona fide, specific awards to employees still should be reviewed on a case by case basis by the NEAC, and approved by the NIH DEC to ensure that the acceptance of the award does not

create a real or apparent conflict of interest for the employee in relation to official duties. As an additional restriction, NIH will seek to prohibit any official—

including Institute and Center Directors—who are responsible, either directly or

indirectly through subordinates, for a funding decision affecting the entity offering the award, from receiving the cash component of an award. It is my intention that this restriction will not preclude the acceptance of cash in the case

of certain exceptional bona fide awards, such as the Nobel Prize. The list of prescreened bona fide awards would be posted publicly, as will the NIH recipients

of such awards.

• Outside Activities with Industry: While we continue to encourage consultation

with industry as part of official duties, I intend to prohibit senior NIH employees, as well as all employees involved in extramural funding decisions or Cooperative Research and Development Agreements, from consulting with industry

for compensation or any other form of remuneration. Other employees would be

permitted to consult only if the arrangement has been reviewed by the NEAC

and approved by the NIH DEC, and certain restrictions are in place. These are:

1) payment may not include stock or stock options; 2) annual compensation

from all outside activities with industry must be limited, and no more than half

of that limit may come from any one source; and 3) a cap on the number of

hours annually that an employee can spend on all outside activities with industry.

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• Participation on Industry Boards: I seek to prohibit all NIH employees from membership on corporate boards of the pharmaceutical and biotechnology industries.

In addition, employees should be allowed to participate in industry scientific advisory boards as ad-hoc participants only if such participation has been reviewed by NEAC, and approved by the NIH DEC. • Consulting (includes speaking) with Grantee Institutions: While we continue to encourage consultation with grantee institutions as part of official duties, I will

seek to prohibit all NIH employees from consulting with NIH grantee institutions for compensation or any other form of personal remuneration. • Consulting (includes speaking) with Non-profits that are not Grantee Institutions:

I seek to prohibit NIH senior leadership from consulting with these entities. • Clinical Practice: NIH seeks to limit employee annual compensation for clinical

practice.

Principle Two: Increase Transparency

• NIH, working with HHS and OGE, has already increased the number of senior

managers who must publicly disclose their compensated activities with outside

organizations and the amounts received. This has been increased by 93 positions. We are hopeful that OGE will grant HHS’ recent request to extend public

financial disclosure to an additional 508 positions. • I will seek authority from OGE for NIH to determine which of its employees must

submit public financial disclosures. • We are working towards requiring that outside activities with industry be publicly

disclosed. This will include disclosure to CRADA partners. • NIH employees will continue to be required to disclose the amount of compensation earned from outside activities. • I will review the duties and responsibilities of employees who currently do not file

any financial disclosure reports, specifically those involved in human subjects

work, to increase the number of employees who file such reports to avoid any

involvement in a real or apparent conflict of interest.

Principle Three: Recruit and Retain Best Scientific Expertise While Expediting Translation of Research Advances

• I will encourage NIH scientists to continue teaching, speaking or writing about

their research as part of their official duties.

In order to encourage scientific interactions involving the exchange of knowledge

and the exercise of intellectual leadership by NIH scientists, NIH will continue to

allow certain types of outside activities—including teaching and lecturing opportunities and collaborations with the private sector—but only under clear, rigorous rules

meant to eliminate conflicts of interest.

Principle Four: Establish Effective Monitoring and Oversight Mechanisms

• I will continue to require that supervisors fulfill their responsibilities in both reviewing proposed outside activities and, if NEAC ultimately approves the outside activity, in monitoring the effect that the activity might have on the employee’s official duties. Before any proposed outside activity is forwarded to the

NEAC for review, supervisors will be asked to determine whether the activity

can and should be undertaken as part of the employee’s official duties, and if

not, whether the proposed outside activity will cause a conflict, either of interest

or of commitment. In addition, supervisors will be expected to monitor employees’ compliance to ensure compliance with the limitation on hours. • NIH will improve its ability to manage and track approved activities with outside

organizations by increasing the accountability of managers, creating a centralized system, centralizing review of senior managers and scientists, conducting

random audits of files pertaining to activities with outside organizations, and

continuing the rigorous review by peers conducted by the NEAC. • NIH will develop and implement a new, more understandable method of training

employees on ethics rules, and we will establish a web site that displays rules

in plain language, updates employees on regulatory trends and changes and discusses—anonymously—ongoing cases as examples of best practices or unacceptable practices.

We are severely restricting the ability of NIH employees to consult with industry.

However, as I have previously testified, the easiest way to approach this matter

would be to ban all consulting with industry. I do not want to discourage the kind

of intellectual excitement and curiosity that leads our scientists to want to work

with industry. I want to provide an environment for them in which they have the

same kind of professional and intellectual opportunities as their counterparts in academia. I want the intramural program to continue to attract the best and the

brightest. With these principles in mind, I am working to strike a careful balance—

505

whereby those individuals in key decision-making positions will be prevented completely from consulting, while stringent limits will apply to other employees.

Mr. Chairman, Members of the Subcommittee, in summation, I have described the

three core elements of reforming the ethics process at NIH. Number one, we are applying review of applications for outside activities by peer scientists. Number two,

we are requiring full disclosure and transparency in the program. And number

three, NIH is working to reduce, restrict, or eliminate the types of activities about

which this Subcommittee has raised concerns.

Thank you for this opportunity to speak before the Subcommittee on these matters once again. I would be happy to answer any questions you may have.

Mr. GREENWOOD. The Chair thanks the gentleman. And would

wax poetic enough to say that if the NIH is indeed the crown jewel

of research, I think those recommendations will certainly make it

sparkle more than it has in the past.

Dr. Azar, you are recognized for your opening statement.

Did I call you Dr. Azar? Mr. Azar.

TESTIMONY OF ALEX AZAR, II

Mr. AZAR. Thank you, Mr. Chairman. And thank you for inviting

me to speak with you today.

As General Counsel for the U.S. Department of Health and

Human Services my office is responsible for providing representation and legal advice to HHS on a wide range of issues. By providing such legal services to the Secretary of HHS and the organization’s various agencies and divisions, the Office of the General

Counsel supports the development and implementation of the Department’s programs.

OGC has over 400 attorneys and a comprehensive support staff

located across the United States. Our office has a diverse and challenging portfolio, with legal issues about technical rules for agency

programs on topics as disparate as health financing and welfare,

as well as a broad range of general legal issues facing every Federal agency such as administrative law, personnel and employment

law, information law, and, of course, ethics.

OGC’s main role in the area of ethics is through the Ethics Division’s provision of legal advice regarding applicable laws and regulations to the ethics officials who run the agency’s ethics program.

In HHS, the ethics program is overseen by a Designated Agency

Ethics Official, a DAEO, appointed by the Secretary and who, in

our case, also heads OGC’s Ethics Division. The DAEO oversees

and coordinates a decentralized Departmental ethics program. The

DAEO also appoints Deputy Ethics Counselors, DECs, who are senior management officials chosen by each operating division. Each

of these DECs, along with agency heads and management are responsible for running ethics programs tailored to the needs of extensive, geographically dispersed workforces composed of many professionally trained employees with varied responsibilities. As managers closest to day-to-day operations, these DECs are equipped

and responsible for identifying and evaluating the relevant ethics

issues in their respective components. Additionally, the DECs and

their staffs possess the scientific and technical expertise necessary

to identify and resolve ethics issues in situations involving science,

medicine, and other complex fields.

Within their respective operating divisions, the DECs are responsible for reviewing public and confidential financial disclosure

forms, considering outside activity requests, providing ethics advice

506

to individual employees, initiating ethics education and training

programs, and ensuring that violations of the conflicts statutes or

the conduct standards are reported to investigatory authorities and

where appropriate, seeing that disciplinary action is taken. Individual employees are, of course, ultimately responsible for their

own actions.

As an attorney who has devoted over half of my professional career to serving the Federal Government and who attaches great importance to public service, my objective in leading OGC has been

to ensure the best possible legal advice to assist in the accomplishment of HHS’ critical missions. I view the role of OGC not as making policy, but rather as providing those who do set policy with the

best possible legal advice. This means that the function of my office

is to work to identify the Department’s policy objectives and then

to identify the range of permissible legal options to accomplish

those policy objectives and advise on the legal and other risks associated with those options. Of course, legal advice is often accompanied by advice regarding considerations such as appearances,

judgment, and other factors that may be relevant to the agency’s

situation. Where there is no established Government-wide interpretation of a law, it is the Department, then, which decides which interpretation of law to adopt and what course of action to take. In

so doing, the Department can appropriately balance the considerations, among many others, relevant to accomplishing the agency’s

objectives.

I strongly believe that such advice, including advice about appearances, is particularly important in the area of Government ethics; where the law may be arcane and complex, but where other

non-legal factors invariably play a large role.

Consistent with the President’s statement that, ‘‘Everyone who

enters into public service for the United States has a duty to the

American people to maintain the highest standards of integrity in

Government,’’ I have initiated and led a successful effort to obtain

and dedicate additional resources to enhance the Ethics Division in

OGC. This initiative, which is already underway, will enhance the

ability of the DAEO to scrutinize and oversee the Department’s

ethics activities. In addition, it will dramatically strengthen the

ability of the DAEO to oversee these programs and their officials.

As part of this initiative, the Department will institute systematic oversight of the ethics programs within the various operating

divisions of the Department through regularized compliance auditing and program review. The initiative will increase component accountability for ethics program implementation, augment financial

disclosure review and training development, and enhance the capabilities of the Ethics Division and the authority of the DAEO. To

my knowledge, this will make HHS OGC’s Ethics Division the largest single legal office devoted exclusively to Government ethics outside of the Office of Government Ethics.

These efforts will help ensure that the DAEO is in the best position to oversee HHS’ and NIH’s ethics program in the future. The

Department is also committed to helping the committee understand

the past implementation of and compliance with the current ethics

rules at NIH. In this regard, we have worked hard to solve a number of legal issues relevant to the committee’s work and to support

507

NIH’s efforts to identify and rectify areas of concern. The goal of

ensuring public confidence in the integrity of NIH is one that the

Department shares with the committee and a goal we can best accomplish together.

The proposal outlined by Dr. Zerhouni today is an important

fruit of that collaborative effort. The proposal was largely born out

of the work Dr. Zerhouni has led to find ways to build on the recommendations of the Blue Ribbon Panel. The Department was

pleased to see that NIH proposed to take strong steps to provide

additional review of awards and prohibit outside activities with

grantees of NIH by the leadership of NIH as well as employees involved in the grants process. And the Department worked with Dr.

Zerhouni to strengthen the proposal even further. The result has

been a collaborative effort to address the issues raised by the committee, including a proposed prohibition on holding of stock in individual biotechnology and pharmaceutical companies like that in

place at the Food and Drug Administration. There are also proposed prohibitions on outside activities by senior NIH leadership

with industry and extensive limitations for all other employees. As

a lawyer, my predisposition is for bright line rules, such as complete prohibitions, which are easy to administer and interpret.

However, the proposal balances this consideration with the needs

identified by Dr. Zerhouni to ensure that NIH can recruit and retain the Nation’s most talented scientists and allow them to contribute to the march of human scientific progress outside the confines of the workplace.

In conclusion, Mr. Chairman, the Department shares the committee’s commitment to maintaining the highest ethical standards

at NIH and thereby ensuring that the vitality and promise of NIH

is not undermined by any lack of public confidence in the motivations of its employees and their conduct. OGC remains committed

to helping NIH understand applicable laws, further identify legal

options, and give legal advice relevant to NIH’s ethics program.

And the Department remains committed to cooperating with this

committee in its important work.

Thank you for the opportunity to speak with you today. And I

would be pleased to answer your questions.

[The prepared statement of Alex Azar follows:]

PREPARED STATEMENT OF ALEX AZAR, GENERAL COUNSEL, U.S. DEPARTMENT OF

HEALTH AND HUMAN SERVICES

Thank you for inviting me to speak with you today to discuss ethics issues at the

National Institutes of Health (NIH) relating to consulting arrangements and outside

awards.

As General Counsel for the U.S. Department of Health and Human Services

(HHS) my office is responsible for providing representation and legal advice to HHS

on a wide range of health and human services issues. By providing such legal services to the Secretary of HHS and the organization’s various agencies and divisions,

the Office of the General Counsel (OGC) supports the development and implementation of the Department’s programs. OGC has over 400 attorneys and a comprehensive support staff located in many locations across the United States. Our office has

a diverse and challenging portfolio, with legal issues about technical rules for agency programs on topics as disparate as health financing and welfare, as well as a

broad range of general legal issues facing every federal agency such as administrative law, personnel and employment law, information law, and, of course, ethics.

OGC’s main role in the area of ethics has been the Ethics Division’s provision of

legal advice regarding applicable laws and regulations to the ethics officials who run

the agency’s ethics program. In HHS, as in most large Cabinet Departments, the

508

ethics program is overseen by a Designated Agency Ethics Official (DAEO) appointed by the Secretary and who, in our case, also heads OGC’s Ethics Division.

The DAEO oversees and coordinates a decentralized Departmental ethics program.

The DAEO also appoints Deputy Ethics Counselors (DECs), who are senior management officials chosen by each operating division. Each of these DECs, along with

agency heads and management in each component, are responsible for running ethics programs tailored to the needs of extensive, geographically dispersed workforces

composed of many professionally trained employees with varied responsibilities. As

managers closest to day-to-day operations, these DECs are equipped and responsible

for identifying and evaluating the relevant ethics issues in their respective components. Additionally, the DECs and their staffs possess the scientific and technical

expertise necessary to identify and resolve ethics issues in situations involving

science, medicine, and other complex fields. Within their respective operating divisions, the DECs are responsible for establishing a system for reviewing public and

confidential financial disclosure forms, considering outside activity requests, providing ethics advice to individual employees, initiating ethics education and training

programs, and ensuring that violations of the conflicts statutes or the conduct

standards are reported to investigatory authorities and where appropriate, seeing

that disciplinary action is taken. Individual employees are, of course, ultimately responsible for their own actions.

As an attorney who has devoted over half of my professional career to serving the

federal government and who attaches great importance to public service, my objective in leading OGC has been to ensure the best possible legal advice to assist in

the accomplishment of HHS’ critical missions. I view the role of OGC not as making

policy, but rather as providing those who do set policy with the best possible legal

advice. This means that the function of my office is to work to identify the Department’s policy objectives and then to identify the range of permissible legal options

to accomplish those policy objectives and advise on the legal and other risks associated with those options. Of course, legal advice is often accompanied by advice regarding considerations such as appearances, judgment, and other factors that may

be relevant to the agency’s situation. Where there is no established Governmentwide interpretation of a law, it is the Department, then, which decides which interpretation of law to adopt and what course of action to take. In so doing, the Department can appropriately balance the considerations identified by their lawyers

among many others relevant to accomplishing the agency’s objectives.

I strongly believe that such advice, including advice about appearances, is particularly important in the area of government ethics—where the law may be arcane and

complex, but where other non-legal factors invariably play a large role. Consistent

with the President’s statement that, ‘‘Everyone who enters into public service for the

United States has a duty to the American people to maintain the highest standards

of integrity in Government,’’ I have initiated and led a successful effort to obtain

and dedicate additional resources to enhance the Ethics Division in OGC. This initiative, which is already being implemented this year, will enhance the ability of

the DAEO to scrutinize and oversee the Department’s ethics activities. In addition,

it will dramatically strengthen the ability of the DAEO to oversee these programs

and their officials.

As part of this initiative, the Department will institute systematic oversight of the

ethics programs within the various operating divisions of the Department through

regularized compliance auditing and program review. The initiative will increase

component accountability for ethics program implementation, augment financial disclosure review and training development, and enhance the capabilities of the Ethics

Division and the authority of the DAEO. To my knowledge, this will make HHS

OGC’s Ethics Division the largest single legal office devoted exclusively to government ethics outside of the Office of Government Ethics.

These efforts will help ensure that the DAEO is in the best position to oversee

HHS’ and NIH’s ethics program in the future. The Department is also committed

to helping the Committee understand the past implementation of and compliance

with the current ethics rules at NIH. In this regard, we have worked hard to solve

a number of legal issues relevant to the Committee’s work, as well as to support

NIH’s efforts to identify and rectify areas of concern. The Committee’s oversight in

this area has also been helpful in identifying areas of concern. We hope these steps

have aided the Committee’s work and helped provide insight into the relevant processes and issues. The goal of ensuring public confidence in the integrity of NIH is

one that the Department shares with the Committee and a goal we can best accomplish together. As NIH moves forward, with the help of the Department and my office, to address those concerns, the Department continues to value the Committee’s

informed views and welcome the Committee’s suggestions regarding steps that may

be taken to ensure that the tremendous trust that the Congress and the public place

509

in NIH is as unquestioned as the vast contributions NIH has made towards advancing the nation’s health and the promise it holds to continue doing so.

The proposal outlined by Dr. Zerhouni today to strengthen the ethics rules at NIH

is an important fruit of that collaborative effort. The proposal was largely born out

of the work Dr. Zerhouni has led to find ways to build on the recommendations of

the Blue Ribbon Panel, which were a helpful starting point. The Department was

pleased to see that NIH proposed to take strong steps to provide additional review

of awards and prohibit outside activities with grantees of NIH by the leadership of

NIH as well as employees involved in the grants process. And the Department

worked with Dr. Zerhouni to strengthen the proposal even further. The result has

been a collaborative effort to address the issues raised by the Committee, including

a proposed prohibition on holding of stock in individual biotechnology and pharmaceutical companies like that in place at the Food and Drug Administration (whereby

such holdings are prohibited for all employees that file financial disclosure reports,

and there is a $5,000 limit on such holdings by other employees. There are also proposed prohibitions on outside activities by senior NIH leadership with industry and

extensive limitations for all other employees. As a lawyer, my predisposition is for

bright line rules, e.g., complete prohibitions, which are easy to administer and interpret. This Committee’s oversight work has also demonstrated the difficulty in applying complicated rules to real world scenarios. However, the proposal balances this

consideration with the needs identified by Dr. Zerhouni to ensure NIH can recruit

and retain the nation’s most talented scientists and allow them to contribute to the

march of human scientific progress outside the confines of the workplace.

In conclusion, the Department shares the Committee’s commitment to maintaining the highest ethical standards at NIH and thereby ensuring that the vitality and

promise of NIH is not undermined by any lack of public confidence in the motivations of its employees and their conduct. OGC remains committed to help NIH understand applicable laws, further identify legal options, and give legal advice relevant to NIH’s ethics program. And OGC remains committed to cooperating with

this Committee in its important work.

Thank you for the opportunity to speak with you today. I would be pleased to answer your questions.

Mr. GREENWOOD. Thank you very much, sir, for your testimony.

The Chair recognizes himself for 5 minutes.

And let me just again editorially comment that it is probably the

case that the NIH has the most complicated set of circumstances

around which to build an ethical system because of the outside activity and because of some of the recruiting issues. But it is my

sense that with what you have proposed and a couple of things that

we may need to do legislative, I think the NIH will end up with

the tightest ethical standards anywhere in the Federal Government.

Let me just be very clear, Dr. Zerhouni, with regard to outside

activity and disclosure. Is it your proposal that all, every single approved outside activity would be disclosed or is there——

Mr. ZERHOUNI. This is my intent. Obviously, we are going to

have to work with the current laws as to what can or cannot be

done and how it can be done. But that is my intent.

Mr. GREENWOOD. Mr. Azar, what impediments might there be to

full disclosure, public disclosure and to the extent that there, what

might we need to do legislative to overcome them?

Mr. AZAR. Mr. Chairman, we believe that it is possible for us to

get to work to get the—it is called the 520 form on which outside

activities are required and approved, to get those made public. Put

them up on the Internet if the NIH wishes to put them as part of

the data base.

What the agency will have to do to do that, and we have provided them with advice this, will be to either get the Office of Government Ethics to modify their system of records under the Privacy

Act in which the form 520’s kept or something we could ourselves,

510

create our own system of records in which the ethics forms, the

520’s would be kept, and have listed as one of the disclosures when

you create that system of records that it would be disclosed automatically on the Internet once filed.

So these are things that we will work very collaboratively with

NIH to help them achieve their goal, but it is definitely something

that can be done.

Mr. GREENWOOD. My counsel advises me that the Office of Government Ethics thinks that there may be some impediments to that

disclosure. And so I ask you to work with us to the extent that

there are any basis for legal challenge to that disclosure, we would

want to clarify that in the reauthorization statute so that we can

have this full disclosure.

Dr. Zerhouni, given all of the restrictions and controls, let us be

clear. Tell us what kind of outside consulting arrangement do you

envision as being permissible under this system.

Mr. ZERHOUNI. Obviously, outside consulting, outside work for

editorial matters, writing a textbook, getting a contract from a publishing. I am assuming that is not the point of the discussion.

In terms of relationship with industry, for an employee who is

not in the senior leadership, so let us say for example you were an

expert on West Nile virus or the genetics of a particular process.

And that, in fact, it turns out that the same technique and the

same field of science that you are in is important because there is,

for example, a potential to develop an alternative treatment for another disease. You may be asked to consult for that. It is not part

of your official duty; that is where we will define that. And one of

the issues——

Mr. GREENWOOD. Well, clearly, if it is within the scope of your

official duties, you will not be compensated for that?

Mr. ZERHOUNI. That is not allowed. No, you cannot be compensated. And the determination now is not going to be done by an

ethics officer alone. It is going to be done by the NEAC, which has

scientists on its board who understand and can get advice on that

field of science.

A good example would be a plant genetics company that wants

to get advice from a human genome researcher. There is no overlap

there. Would we prevent that advice from being given? No. If some

other company says well I want to know about human genomics in

a field that relates to what, that would be prohibited.

Mr. GREENWOOD. And we have discussed this before, but I think

it is also important to us and for the public confidence, that there

be very clear rules about allocation of time so that if someone is

literally moonlighting, they are working in the evening after their

normal duties, they are working on the weekends, if they are using

their vacation time, you know that is fine. But we do need to be

clear that we are not paying people to be sitting at their desks at

the NIH and doing work for which they are being paid by an outside private entity.

Mr. ZERHOUNI. I take your point. We are establishing a system

that will have, again, recording centrally of the activities. Four

hundred hours is about 6 hours a week; people can do this 1 hour

a day. So it is not very large. It is much less than universities will

do. But I think it is important to allow that and limit on dollars

511

will also restrict that. But we will try to put systems—and I agree

with the devil is in the details comment that you made, Congresswoman DeGette. We will have to work that through, but we intend

to monitor that.

Mr. GREENWOOD. Thank you, Dr. Zerhouni.

The gentlelady from Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman.

Mr. Azar, I wanted to ask you a couple of questions. One concern, I mean OGC has, I think you said in your testimony, over 400

attorneys but they are not all doing ethics. They are doing all the

legal work of HHS, right?

Mr. AZAR. Yes, ma’am.

Ms. DEGETTE. How many of them are concentrating on ethics?

Mr. AZAR. We have eleven individuals currently in the ethics division. The number of attorneys in that, I believe it is approximately six, maybe seven attorneys.

Ms. DEGETTE. So six or seven of the 400 attorneys are doing ethics.

Mr. AZAR. Yes.

Ms. DEGETTE. Now, where are they based? Are they based

throughout the agency or are they based in one office?

Mr. AZAR. The head of that office, the Designated Agency Ethics

Officer and Associate General Counsel for Ethics is located in the

Humphrey Building on the same floor that I am on, right above the

Secretary’s floor as well as several of the attorneys. But two of the

slots are located physically out at NIH to assist NIH directly. And

then another——

Ms. DEGETTE. And there, I would assume, they are located in Dr.

Zerhouni’s office in the administration office?

Mr. AZAR. They are in Building 31, which is where most of the

administrative staff are. Dr. Zerhouni is in Building 1, but they are

with I think most of the center directors in Building 31. And they

are also with—we have a branch of lawyers that assist the NIH

regularly on other substantive matters, and they are now colocated

with them. So there can be some extra support.

I do not mean to say that the only lawyers who ever touch an

ethics issue are the people in the ethics division.

Ms. DEGETTE. Sure.

Mr. AZAR. For instance, the regional chief counsels will assist the

regional administrators on ethics issues. And all lawyers should be

versed somewhat in the ethnic provision——

Ms. DEGETTE. Well, one thing I have been concerned about, and

I shared this with Dr. Zerhouni, is when you have 27 institutes and

you have ethics personnel dispersed through those institutes, part

of the problem they have had, they have had no consistency with

administering ethical rules. Is that correct, Dr. Zerhouni?

Mr. ZERHOUNI. You are correct.

Ms. DEGETTE. And one of the goals I think of these new proposed

rules which is important is to get it all centralized into one office

so there is one set of standards being applied and also so that the

individuals approving or deciding on different requests are not immediately there with the individuals. Correct, Dr. Zerhouni?

Mr. ZERHOUNI. That is correct.

512

Ms. DEGETTE. Now, do you agree with that, Mr. Azar, in terms

of trying to reform the rules here?

Mr. AZAR. That is why I think Dr. Zerhouni’s efforts to create the

NIH Ethics Advisory Committee, a centralized process is very good.

It also provides a peer review background of support for the DEC

for the entire NIH and helps to centralize those decisions. And so

we can also provide our legal advice, which we provide them with

support as they make those decisions, we can provide that centrally

as well as to the DECs at each institute. But I think the more

things are handled centrally, I think that is a very important point.

Ms. DEGETTE. Okay. I want to ask you, I want to turn a little

bit to a different issue. That is the issue of who exactly do these

HHS lawyers who show up at our committee investigations represent? Now, if you take a look at tab 25 in the notebook you will

find a letter dated April 16, 2002 from yourself to Chairman Tauzin and Greenwood. Do you recognize that letter?

Mr. AZAR. Yes, Congresswoman.

Ms. DEGETTE. Now, on page two there is a paragraph at the top.

And that paragraph says in part ‘‘department attorneys who accompany an employee at FDA to an investigative interview will not

inform any department officials about the substance of the interview.‘‘ The first sentence of that is ‘‘It is important to stress that

department attorneys represent employees in their personal capacity.’’ Correct?

Mr. AZAR. That is what the letter agreed. Yes.

Ms. DEGETTE. Yes. And that has actually been the longstanding

policy of the department, correct? When you send attorneys over to

represent an individual, they are there representing the individual?

Mr. AZAR. Actually, if I could clarify that. There was an agreement in 1995 between the prior Administration regarding dealings

with FDA, and it is unclear in the text of it whether they are operating under official capacity or personal, but what information

would be shared. This was a unique——

Ms. DEGETTE. Okay. Yes, I understand. However, your letter to

Chairman Tauzin was dated April 16, 2002. And I have got to say

as a former lawyer myself, this is pretty clear what it says, right?

Mr. AZAR. Well, I was trying to clarify that this is not how the

department operates generally. This was and is a special accommodation that was done with this committee at the committee’s request during the Imclone investigation to do that matter.

Ms. DEGETTE. Can you tell me where in this letter it says that

this policy was only in effect for the Imclone investigation?

Mr. AZAR. It refers to the fact, I believe that if I could look

through this, explaining the role of attorneys from the Office of

General Counsel with respect to interviews of FDA employees in

the Erbitux, the Imclone matter.

Ms. DEGETTE. No. It does not say in the Imclone matter.

Mr. AZAR. I am sorry?

Ms. DEGETTE. I mean it talks about the Imclone matter.

Mr. AZAR. It says the Erbitux matter.

Ms. DEGETTE. That is what was going on then, but it does not

say that this is policy was limited to the Imclone matter.

Plus, why would you have a policy that when lawyers come over

with witnesses that only with respect to one investigation the polVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00520 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
513

icy is this way, but in every other investigation including ethics at

the NIH, that the policy is different?

Mr. AZAR. The department generally when we provide counsel,

provides them as official counsel to assist not only the witness,

often at their request, to assist them in preparing to deal with the

committees, to assist them so that they feel more comfortable in

working with the committee and so that they can be better prepared in assisting the committee.

The committee in the Imclone matter, this was the first dealing

that we had with the committee on this type of matter. The committee had asked that we clarify their role as personal counsel. We

were happy to do that in that instance.

If I could explain, Congresswoman. We subsequently learned

that I had basically gotten bad advice in terms of what the role of

the attorneys could be. That only the Justice Department apparently can authorize the representation of employees in their personal capacity creating a personal attorney/client relationship.

Ms. DEGETTE. Okay. Can I just ask one question, because my

time is up? Did you ever inform committee staff that you had gotten that clarification from the Justice Department?

Mr. AZAR. We believed, and I want to start by apologizing to you

and to the members of the committee.

Ms. DEGETTE. That would be a good start.

Mr. AZAR. I want to apologize. We thought in the context of the

FDA in June 2003, in the context of interviews the next after

Imclone, the next interviews, interactions we had with the committee was regarding an FDA importation proceeding where John

Taylor of his staff were being interviewed. And we had instructed

the line attorneys who were coming over when the committee

asked, you know when they were scheduled to interview, we had

instructed them to make clear to the staff that they were serving

as official counsel, not as personal counsel. Obviously——

Ms. DEGETTE. Well, why did you not write a letter like you wrote

in 2002?

Mr. AZAR. Obviously, I—obviously I apologize that we—that we

were not clear enough. We thought for lawyers when we say we are

representing in the official capacity not personal capacity, that—

that says it all for us. But——

Ms. DEGETTE. But you do not have any idea whether they said

that or not?

Mr. AZAR. It is my understanding that the lawyer did say it at

the interview with Mr. Taylor. But I do want—I do not want to try

to explain this away. As soon as in the NIH interview context, as

soon—I think it was in the context of Dr. Katz’, scheduling of his

interview, as soon as we learned that the committee was operating

under the impression of this Imclone arrangement, we raised it and

said we were not operating under that assumption, and the department sat down with the committee to work out an agreement. We

now have an agreement to serve as official counsel but with a restriction on the sharing of information.

And, again, Congresswoman, I am very sorry if we were not clear

enough in communicating. I had intended that that be clear. I am

sorry that we did not do it clearly enough. And I just hope you will

accept my apology. Certainly it was not from any bad intent. We

514

just—we always want to try to keep our role as counsel clear with

the committee. And I hope that we will be able to work on a going

forward basis in a productive way under the agreement.

But that really was our intent. And I am very sorry for any——

Mr. GREENWOOD. The time of the gentlelady has expired.

The Chair recognized the chairman of the full committee, Mr.

Barton.

Chairman BARTON. Thank you, Mr. Chairman.

Dr. Zerhouni, I want to again compliment you on the recommendations that you have presented to this subcommittee. I

want to ask a question about the National Institutes of Health Ethics Advisory Committee. How long has that been established?

Mr. ZERHOUNI. We established this committee November 2003.

Chairman BARTON. November 2003? So it is not yet a year old?

Mr. ZERHOUNI. No, it is not yet a year old.

Chairman BARTON. And the formal membership are your institute directors? Are you a member of that committee?

Mr. ZERHOUNI. My deputy director, who is the—I have designated as the agency ethics, the DEC for the agency is a member.

My director for intramural science, Dr. Michael Gottesman is a

member.

We have a selection. Not just institute directors. There are scientists also on the grounds and ethics officers of the NIH. We recruited Mrs. Holli Beckerman Jaffe who now works in ethics in my

office to oversee that.

I do not sit personally on the meeting.

Chairman BARTON. Okay. What is the total membership of the

formal board?

Mr. ZERHOUNI. I don’t have that exact number.

Chairman BARTON. Thirty people? Forty people?

Mr. ZERHOUNI. No, it is about—no, it is small. Ten people.

Chairman BARTON. Ten people? Do they have a permanent staff?

Mr. ZERHOUNI. Do they have a permanent—well, as I said, the

ethics division of my office, the Office of the Director, is basically

staffing that committee, Ms. Holli Beckerman Jaffe was recruited.

Chairman BARTON. But that is at your—they have no formal

staff of their own? The staff they have are staff that has been deleted from your office?

Mr. ZERHOUNI. That is correct.

Chairman BARTON. Okay. The recommendation that you presented to this subcommittee I think are excellent. What has been

the response within the NIH of these recommendation? Are people

resistive or are they supportive, or do they feel like they have had

their hand caught in the cookie jar. I mean, what is the general

reaction?

Mr. ZERHOUNI. I would say mixed. I talked to the directors yesterday. I had a special meeting of the institute directors to go over

what I was recommending. I would say that in the issues that relate to clerical practice, for example, they really want that to continue and I do not think there is an issue.

They were very strongly in favor of continuing pure academic activities. I think the restrictions, they are concern about the restrictions having two impacts; one is moral in the troops. And uncertainty of how we solve this issue is also impacting them and their

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ability to recruit, and my own ability to recruit. But most importantly, their concern that over time it would harm recruiting

because——

Chairman BARTON. Did any of them show any concern about

maintaining and restoring the public trust?

Mr. ZERHOUNI. Oh, yes. I should have started with that. Absolutely, positively. I have polled every single one of them and they

told me the following: Do whatever you need to do to absolutely remove this cloud from NIH. We will give you our support.

So I have the total support of all the NIH directors. Goal No. 1

is to reestablish that public trust.

Chairman BARTON. What, if any, legislative action do you need

on these recommendations?

Mr. ZERHOUNI. This is something that we are evaluating, obviously, as we speak. There are things that I think we can implement. There are things that could be handled with supplemental

regulations. I am not clear at this point. This is still, obviously, a

proposal that needs to be worked out. And if there are changes, we

will let you know, Mr. Chairman.

Chairman BARTON. Okay. Well, we want to work with you on

that.

I want to read from your prepared testimony on your bullet that

is headed ‘‘Outside activities with industry.’’ And I quote, ‘‘I intend

to prohibit senior NIH employees as well as all employees involved

in extramural funding decisions or cooperative research and development agreements from consulting with industry for compensation

or any other form of enumeration.’’

What has been the response to that recommendation, which I

think is one of your key recommendations?

Mr. ZERHOUNI. Full support.

Chairman BARTON. Full support. So there is no reluctance on

that?

Mr. ZERHOUNI. No.

Chairman BARTON. What about the next one, participation on industry boards, ‘‘I seek to prohibit all NIH employees from membership on corporate boards of the pharmaceutical and biotechnology

industries.’’

Mr. ZERHOUNI. Full support.

Chairman BARTON. Full support of that one, too.

Okay. My time is about to expire. I want to ask a general question about our next panel. We have a situation where CRADA was

established with a company called Correlogic. And at some point in

time the NIH scientists who were working on that CRADA became

secretly involved or secret employees of a competitive company

called Biospect. Do you have any general comments on whether

that is a concept that should be supported or prohibited?

Mr. ZERHOUNI. This actually was the tipping point for me. When

that happened, that came up to light, I said we need the complete

scrubbing, complete reform. That is not appropriate.

Chairman BARTON. But in your opinion that should not be a general practice that somebody that is working with one company secretly goes to work for another company? You would agree with us

if we wanted to prohibit that by—I do not know that we need to

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do it by statute, but the fact that that should not be allowed is

something that you agree with?

Mr. ZERHOUNI. I agree with that.

Chairman BARTON. Okay.

Mr. Chairman, my time has expired and I yield back.

Mr. GREENWOOD. The Chair is always prepared to be lenient

with the clock with the chairman, but the Chair thanks the gentleman for yielding back and recognizes the gentlelady from Chicago.

Ms. SCHAKOWSKY. Thank you. This is the first of the three hearings that I have attended, so I hope we are not going over some

of the same ground. I want to talk about the basic policy questions

here. It seems to me we are trying to protect the public interest

over the private interest concerns of some employees of NIH. Why

would it be in the public interest to ever allow any Government

employee to sign a contract that would prohibit that employee from

informing the government of exactly what has been asked of him

or her, and what he or she may have done in fact for a profit-seeking entity that hires them?

It is my understanding that scientific advisory boards require

confidentiality as do most if not all employment contracts of any

kind in the biotech or drug development private sector field. How

can that in the public interest?

Mr. ZERHOUNI. Well, first of all, in terms of board membership,

we are prohibiting that. I agree that there is an issue there.

In terms of the public’s interest, I think it is very important that

there is a public interest that is balanced by three different aspects. One, obviously, is the elimination of conflict or the appearance of conflict, which is what we are trying to do.

Second, it is translation of knowledge is encouraged by Congress.

There is a mandate for us to accelerate the translation of whatever

discoveries into real benefit.

Third, I think there is a public interest in having the ability to

recruit an retain the best possible scientists for Government service. And this is the balancing that I have, you know, have had to

do by prohibiting completely activities or interactions with industry

for those who have authority, that accomplishes that goal. However, it does not recognize the dual nature of NIH.

NIH is also a scientific laboratory. And we are recruiting individuals of the highest competence who we are asking to do work for

the public’s interest. So those individuals, you know I have to compete in the marketplace of ideas and in positions with 200 other

universities. So unlike other Government employees whose job in

the Government is specific to Government, like myself for example.

There is not another NIH in the private sector that I could be director of. So for me it is absolutely clear. I am making the choice

to serve the Government. There is no equivalent job.

If I am a scientist with no authority in a pure laboratory who

comes to NIH because we want to work on West Nile virus, for example, that scientist has knowledge which is really very precious.

To prohibit that scientist from having interaction will basically go

counter to the public interest——

Ms. SCHAKOWSKY. I am getting at the confidentiality issue.

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Mr. ZERHOUNI. Okay. Now, in terms of the confidentiality, I

agree with you, and this is what I mean by process change.

In the past what we did is basically there was a self-declared

statement that said well, I am consulting with company X. What

the NEAC is going to do is review the source documents and pass

judgment on the source documents rather than any other document.

Now, in terms of confidentiality of scientists who have no authority and so on, sometimes it relates to intellectual property issues

and protection of intellectual property is a legitimate concern of

both the government and the private industry. So that is the realm

where I think you can see the logic of having confidentiality. But

board membership——

Ms. SCHAKOWSKY. I guess we have a lot of battles about that.

But if you have someone whose mandate is to advance scientific

discovery and who is also working for a company where some of

that discovery may be defined as proprietary, then it seems to me

that you have a conflict that is not resolved in the public interest,

but rather in the private interest.

Mr. ZERHOUNI. Well, in terms of fiduciary responsibilities if you

were a board member or we had an employee relationship with

that company, I would agree with you. We are banning that. There

is no more of these relationships. However, when you talk about

the public’s interest, let me give you an example.

Rare disease, no interest from major pharmaceutical companies.

Some small company is trying to do that. Is it in our best interest

to help that company even though the intellectual property needs

to be protected for that company?

It is the same logic that we have in the CRADA relationship that

was an official one, and we disagree that in that context you should

allow somebody to then work for the competitor. We just had this

discussion with Chairman Barton. It is the same thing in this case.

There are legitimate reasons to help translate technology, and I do

not want to ban them.

Ms. SCHAKOWSKY. My time is up. But let me just say that it

seems to me whatever we put in place, and I think I would be inclined to even go further than your recommendations, what obvious

is that oversight—our oversight capacity—has to really be improved. Because what you are telling us that even the current rules

which we and you have found to be very lax have not been enforced. And, since we are in such sensitive areas, my concern would

also be that, in the implementation of any changes you make, the

public interest is clearly preserved.

Mr. ZERHOUNI. Appreciate it.

Mr. GREENWOOD. The time of the gentlelady has expired.

The gentleman from Oregon, Mr. Walden for 5 minutes.

Mr. WALDEN. Thank you very much, Mr. Chairman.

Dr. Zerhouni, I want to commend you for your efforts to try and

clean up the mess that you inherited that dates back some 9 years.

And I know the work must be difficult trying to balance, making

sure we maintain the best research minds in the world, working at

NIH and not lose them all out to the private sector and yet deal

with these conflicts.

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The Los Angeles Times, I think it was back it was back in December, featured six case studies. I am assuming you are familiar

with that article. How would each of those cases fared under your

proposed restrictions that you have outlined today?

Mr. ZERHOUNI. Well, clearly if I recall, three of the cases were

two directors of clinical centers. That would be completely out.

There was a scientific director. That would be completely out.

There were two others that would be just scientists in the laboratories. They would be limited to 25 percent at 400 hours so it would

have drastically limited the amount that would have been done.

Mr. WALDEN. Right.

Mr. ZERHOUNI. And we would have reviewed not just their statement of what the work was, but the specific scientific content

through the NEAC.

So I think that that is pretty much; two of the six would have

been reviewed, three or four of the six would have been prohibited.

Mr WALDEN. All right. Prohibited.

I want to get back to this issue of the 400 hours as well. Because

it seemed to me from one of the prior hearings that I sat through

that those hours are outside of the sort of standard 40 hour work

week, correct?

Mr. ZERHOUNI. That is correct.

Mr. WALDEN. So when we’re talking about somebody can

earn——

Mr. ZERHOUNI. Weekend time, vacation time, personal.

Mr. WALDEN. But it does not eat into the 40 hour work week or

whatever their work week is at NIH?

Mr. ZERHOUNI. No, it does ont.

Mr. WALDEN. Okay. Perfect.

And then after reviewing the data produced to the committee by

the various drug companies, the staff discovered some consulting

agreements between Pfizer and a Dr. Pearson Trey Sunderland to

the tone of $517,000 paid to Dr. Sunderland over a period of 51⁄2

years in six contracts. NIH apparently did not provide the committee with any paperwork on these agreements and the agreements were not itemized on the 520 disclosure forms for Dr. Sunderland.

We have assurances from Pfizer that its reporting of the agreement is correct as far as Pfizer’s internal records are concerned.

When staff questioned the agency about these agreements, they

were not able to provide us with a reasonable explanation. Have

you been made aware of this problem and what, if any, specific

knowledge do you have of the situation?

Mr. ZERHOUNI. Right. I was made aware of that problem Friday,

I believe, just before—Friday past. And since then my staff has

worked, you know, to look up the records and find out exactly what

the essence of the issue is. But from the preliminary report that

I have I think there is grave concern here that neither the public

disclosure forms, because that individual is subject to disclosure requirements or the procedures that should have been in place even

by that time were followed. This is our preliminary evaluation. We

will continue to make sure that what I am saying here is documented.

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Mr. WALDEN. Now if that indeed is the case, would your recommended changes in the ethics standards——

Mr. ZERHOUNI. Okay.

Mr. WALDEN [continuing]. Would they have caught this? Or, I

mean, it sounds like this person if indeed what the preliminary investigation shows is correct, we have got laws in place.

Mr. ZERHOUNI. Right.

Mr. WALDEN. So somebody is still slipping through the net. How

do we do prevent that?

Mr. ZERHOUNI. Excellent question. That is the relevant question,

I think, Mr. Walden.

No. 1, the fact that we will have a centralized data base of all

the activities is very important.

No. 2, the fact that we want to make public disclosure of every

activity. We will allow any third party player out there to know

who is doing what. So competition between——

Mr. WALDEN. But what triggers data into the data base? Is that

the filing of the 520?

Mr. ZERHOUNI. That is right.

Mr. WALDEN. But if the person does not file a 520, how do we

get at that?

Mr. ZERHOUNI. Right. Okay. So the random audit system that we

envision is going to be the sort of try to catch back. Because, obviously, you cannot legislate morality.

Mr. WALDEN. Right.

Mr. ZERHOUNI. And that is hard. But through the random audits

we can Google—that is the word now in the English language—

every scientific activity out there and match it against ours. So any

name of any NIH employee would appear in the Google activity

that we would then look and cross-correlate with our data base.

That is our intent.

Mr. WALDEN. So, okay, with the data base, but again, you see,

you’d be looking for a negative then, because if the person didn’t

file a 520, the data wouldn’t be in the data base.

Mr. ZERHOUNI. Right.

Mr. WALDEN. But your name would show up.

Mr. ZERHOUNI. Right.

Mr. WALDEN. Have you tried that just in this case, for example?

Mr. ZERHOUNI. No. It happened Friday. I haven’t had the time

to look at that.

Mr. WALDEN. It would be interesting, because in essence, if they

didn’t file a 520, they’re not in a data base that doesn’t exist anyway right now.

Mr. ZERHOUNI. But again, the important component of that too

is through good controls and implementation of disciplinary rules.

I think you will send a message to the community that there is a

new era in ethics, new day.

Mr. WALDEN. Well, clearly a half a million dollars over 51⁄2 years

is a pretty big problem, so I’m glad that you’re on it.

Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes the gentleman from California, Mr. Waxman, for 5 minutes.

Mr. WAXMAN. Thank you very much, Mr. Chairman, Dr.

Zerhouni, Mr. Azar. I’m pleased to see you.

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I think it’s an important function of the Congress to oversee how

the Government is operating and whether the President has been

a Democrat or a Republican, one of the most effective ways for

Congress to learn about how the Government is operating is by

talking to Government employees who are actually implementing

the policies.

I’m not alone in this view. Throughout the last century, Congress

has repeatedly passed laws protecting its right to receive truthful

information from Federal employees and the Supreme Court has

repeatedly endorsed that right. Yet, in my decades in the Congress,

I don’t think I’ve ever seen an Administration that has so consistently attempted to deter Government employees from providing

truthful information to Congress.

We’ve already heard about the Administration’s decision to send

Agency attorneys to these interviews and I gather that seemed to

be some kind of misunderstanding, but I would think that employees must feel somewhat reluctant to talk when they are off on their

own. That’s been the subject of a lot of discussion today.

I want to ask about a series of other actions by this Administration whose purpose appears to be to prevent HHS employees from

speaking candidly to Congress and particularly to Democratic

Members of Congress.

I’ve recently learned of an FDA memo informing employees that

they should refuse to speak to Congressional staff if called and that

if forced, should not speak unless an employee from the Administration’s Legislative Office could sit in and monitor the conversation.

Mr. Azar, do you acknowledge, would you acknowledge whether

the Administration has adopted a policy barring Government employees from speaking to Members of Congress or the staff unless

the Administration can hear everything that is said?

Mr. AZAR. Congressman Waxman, other than having read something in the press about that, I’m not terribly familiar with that

particular instance that you’ve mentioned, but I would tell you that

as far as I understand, if an individual wishes to speak to Congress

in that kind of an interview oversight setting, we would not, in

working with this committee, for instance, with official counsel,

force ourselves on them. We view it as a service to the employee.

If the employee wishes to speak to Congress without us being

present, I certainly, it would not be my view that we should inject

ourselves.

And so if you would permit, I’d like to look into that situation

at the FDA and get back do you on the——

Mr. WAXMAN. It’s my understanding that whenever an employee

of the Department of Health and Human Services wants to talk to

a Member of Congress or staff, that someone has to be brought in

from the Department.

Mr. AZAR. We generally, I know that the legislative individuals

generally try to be available to assist and coordinate to make sure

balls don’t get dropped to provide assistance to the employees, but

I can’t imagine that if an employee wished to speak to Congress

about matters like that without Departmental people present, that

we would have any objection to that or want to get in the way of

that, Mr. Waxman.

521

Mr. WAXMAN. I appreciate that and I assume the reverse is also

true of a Member of Congress wants to talk any employee. That

employee would feel that he or she would feel that they’re able to

talk to us without someone from the Department being present?

Mr. AZAR. If that was their desire, yes.

Mr. WAXMAN. Earlier this year, it was widely reported that the

Bush Administration ordered the Chief Medicare Actuary not to respond to requests from Democratic members about the projected

costs of the Medicare Drug Benefit and projected costs of the bill

was absolutely central to the debate about whether the bill was

good or bad policy. And yet, the Administration insisted and I

think is still insisting that Members of Congress were not entitled

to this information. Are you familiar with that situation?

Mr. AZAR. I am, yes.

Mr. WAXMAN. In addition, I want to point out that from the beginning of this Administration, I’ve written to HHS on a number

of occasions seeking information about HHS policies. In past Administrations, whether Democratic or Republican, letters have always received a response. They may not have been the response I

was looking for, but we always got a response.

In this Administration, however, it appears that a new policy of

ignoring congressional inquiries has been instituted. Over 15 of the

letters I’ve sent to HHS since the start of the Bush Administration

have received no response whatsoever, complete silence. And when

my staff has asked for briefings, many of the requests have never

been responded to.

Over 9 months ago, my staff asked for a briefing on the use of

Nonoxynol-9 in condoms. A briefing was scheduled and canceled,

scheduled and canceled and then postponed indefinitely. No information has been provided. And when briefings have been provided,

long time career Government employees who have met with our

staff have been unwilling to speak freely with their political bosses

listening in. Indeed, they’re hardly willing to say anything of substance. It was obviously they were seriously intimidated by Administration’s information gatekeepers.

Do you think it’s appropriate for the executive branch to refuse

to answer letters from Members of Congress or requests for briefings?

Mr. AZAR. I can tell you that the Secretary has made it a priority

since he’s been in office to try to be responsive to correspondence

from Congress. I’d be happy to look into your articles of correspondence that haven’t been responded to. Obviously, we get—the Department does get a very large volume of questions and correspondence from Congress and that has to be handled. But I’ll be happy

to check into that to see what the status is of responses to you.

Mr. WAXMAN. I appreciate that. And the other thing I want to

raise with you is that I’ve heard that specifically an employee was

told at FDA, or all the employees were told at FDA that in 2001

by senior officials that career FDA employees were not to be permitted to speak to congressional staffers and they specified which

ones and if they did, they’d be fired.

Do you think that would be proper? I don’t know if you’re familiar with that incident. But do you think that would be proper?

522

Mr. AZAR. Again, I am not familiar with that and I’d want to

know all of the facts and circumstances around that, but as I’ve

said, as a general matter, I don’t think the Department tries to get

in the way of individuals who would like to speak with Members

of Congress about issues.

Mr. WAXMAN. I’m going to send you more information about that

incident.

Mr. AZAR. Thank you.

Mr. WAXMAN. In conclusion, I just want to point out that one of

the letters that has remained unanswered was a letter to you, January 20, 2004, asking for information about ethics waivers issued

to HHS employees related to negotiations for prospective employment, particularly with regard to Tom Scully.

Is there any reason you haven’t answered that letter?

Mr. AZAR. My understand is that letter was, as all congressional

correspondence, was referred over to the Department where that’s

handled and I had thought that that had been responded to. I will

check on that. I’m sorry if you’ve not gotten a complete response.

I thought you had gotten your response on that.

Mr. GREENWOOD. The time of the gentleman has expired. The

gentleman, Mr. Bilirakis, is recognized for 5 minutes.

Mr. BILIRAKIS. Thank you, Mr. Chairman. Getting back to the

subject matter of this hearing, Mr. Azar, are you the chief ethics

office for the Department of Health and Human Services?

Mr. AZAR. Actually, the way the Government ethics system is operated, the Secretary directly appoints an official to serve as the

designated agency ethics officer and that individual is a direct report to the Secretary. And that is a gentleman named Ed Swindell

who testified at the last hearing before this committee. And he

serves as the point of contact, the liaison, with the Office of Government Ethics and also works with an overseas, a very decentralized ethics process——

Mr. BILIRAKIS. You’re chief counsel?

Mr. AZAR. Exactly, sir.

Mr. BILIRAKIS. So he works in a——

Mr. AZAR. Yes. In his role as Associate General Counsel, providing the legal advice. He does report to me.

Mr. BILIRAKIS. He reports to you.

Mr. AZAR. He does report tome.

Mr. BILIRAKIS. Let me ask the question. Prior to this business

having been really brought out in the open by the newspapers, by

this committee, etcetera, was your office aware of it and if you were

aware of it, did you try—I guess what I’m getting at is is your function or at least the function of the ethics portion of your office, just

to put out fires when fires arise or is the function to sort of try to

keep fires from taking place? I think you understand what I mean.

Mr. AZAR. Yes, I do understand that. It certainly would be our

goal to not just be putting out fires, but to be proactive, if we could.

In this instance, no, I had not been aware of these issues before

the important work of this committee. We’ve tried to be very responsive in working with Dr. Zerhouni and NIH and the rest of the

Department in dealing with——

Mr. BILIRAKIS. Yes, but if we have an Ethics Department there,

or office or whatever you would have called it, I mean what else

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do they do other than take a look at whether there might be

breaches of ethics taking place within the Department?

Mr. AZAR. A large amount of the work is reviewing the financial

disclosure forms that come in and certifying those, as well as providing the day to day ethics advice. But your concern, I think, is

very valid, sir. And as a result, we are implementing a program

that will more than double the size of the ethics office and will for

the first time in—as far as I understand it, within the executive

branch, will for the first time have an oversight function internal

to the Department so that the designated agency ethics officer will

have the capacity to conduct his own audits and oversight of the

performance of the ethics officials throughout the Department.

As I understand it, this would be unique. Currently, there are

periodic edits, periodic audits that happen from the Office of Government Ethics, which is an independent Executive agency. So I

think your point is well taken and we are working to try to make

that more of our capacity, sir.

Mr. BILIRAKIS. Well, let me ask you. You’ve been a public servant

for quite a few years. You didn’t indicate here how many, but still

quite a few.

How much of this takes place, if you know, Dr. Zerhouni, Mr.

Azar, let’s say in the Veterans Administration? They do a lot of research, do a lot of—many of their people do the same sort of thing

where they receive stock options and monies, what not, from some

of the people that they work with. We have universities out there,

some public, some private that do a lot of research. How much of

this takes place? If you could sort of short answer as you can.

Mr. ZERHOUNI. Right. At NIH, as we’ve said over the years it involved about 3 to 4 percent, 5 percent of the employees. I really

can’t comment on how much of it takes place in another Federal

agency. Really, I don’t know. One thing I can say that as a Federal

agency director, the one thing that hurts you is what you don’t

know. So I think we need to put in place mechanisms as Mr. Azar

is suggesting of proactive management.

Mr. BILIRAKIS. That’s the whole point. We haven’t. So are—if it

is taking place to any degree to speak of in the VA and some of

these other, maybe these other Departments and in some of the

universities and what not, are they at least aware of what’s taking

place here, the hearings and hopefully—do you know, Mr. Azar?

Mr. AZAR. Certainly since Friday, I believe, that when this committee has asked for information from other Departments, I think

that they’re certainly aware of it and from press coverage, but like

Dr. Zerhouni, I’m not familiar with whether the same types of opportunities for outside consulting activities and awards present

themselves to people outside of the NIH at other agencies. I don’t

know. NIH tends to be rather a unique entity as the crown jewel

of biomedical research and being run really like a research university. I don’t know that there are any other comparable entities in

the Government that would be so attractive and also where there’s

been a fairly long-standing congressional and administration policy

of encouraging interaction with the private sector to commercialize

interventions.

Mr. BILIRAKIS. Let me ask this just very quickly. Stability, continuity, all very important. I’ve always kind of felt that many of the

524

problems we have up here is that there is a lack of that because

everything seems to be tied into politics and there are changes in

Administrations, changes in the Congress and leadership of the

Congress, etcetera, etcetera.

Dr. Zerhouni, you’ve given us approximately 10 steps which

sound terrific. God forbid there’s a change in Administrations as a

result of November and there would be people here who would disagree with that, God forbid, but in any case, the fact is that that

sort of thing does take place, even if we’re talking about the end

of the 8-year term, 8-year period of time.

Then what happens? With all your good will and your good intentions and everything of that nature, do they conceivably go down

the drain because they’re no longer the cause of the new

person——

Mr. ZERHOUNI. That’s why I work very hard to find proposals

that would be embedded, structural, that will be embedded in supplemental regulations, if we need to. And we’re working very——

Mr. BILIRAKIS. How about embedded in the law?

Mr. ZERHOUNI. And in addition to that, I think there is a potential for, depending on what we find, for your help to be very significant here, and for the questions that you’ve asked. I mean is there

enough authority? Do we have enough process, do we have enough

controls?

Mr. BILIRAKIS. Yes.

Mr. ZERHOUNI. I think that’s what we need to do and we’re committed to——

Mr. BILIRAKIS. We’ve committed to you and we’re trying to do

something with NIH, but we need to also get commitments from

you that you’re going to help us do it correctly to help you do your

job better.

Mr. ZERHOUNI. Yes.

Mr. BILIRAKIS. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman. The gentleman from Florida, Mr. Stearns, is recognized for 5 minutes.

Mr. STEARNS. Good morning, and thank you, Mr. Chairman.

Dr. Zerhouni, I have some slides here in front of me and I think

they’re from the second hearing in which they talk about money received by various scientists at NIH. For example, I have one here

on H. Brian Brewer. He’s Chief of Molecular Disease Branch. Does

this ring a bell at all? If not, I can just have my staff——

Mr. ZERHOUNI. Not really.

Mr. STEARNS. Not really. Can I have someone from our staff take

this down to him and he and I can just go through it?

The purpose of you and I just going over this is to reiterate

again, I think, the whole question does the NIH have any actual

evidence that the NIH scientists have left because of consulting

fees being cut. Before I did that, I just wanted to take you to slide

8 which is Brian Brewer. And this was composed, comprised by

taking information that we could from pharmaceutical companies

and I guess—and other agencies.

But as you can see, Mr. Brewer, I assume he’s a doctor, received almost $200,000 plus stock between his travel and his fees at

Pfizer, Lipid Sciences and all, Eli Lilly and all these companies.

You can see that.

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Now if you don’t mind, I’d like you to go over to one which is a

little bit more prodigious in that slide 1, Michael Brownstein. He’s

Chief of the Lab of Genetics. This shows that he has stock valued

at almost $2 million, that he obtained, plus over $27,000 in fees.

And when you go through this, take slide 2, now. We have Ronald

Germain. Dr. Germain received $430,000 in reimbursable expenses

or consulting fees, plus stock options.

Now it seems to me that you have Government employees that

are working at NIH. They have a pretty significant title, yet they’re

going out into industry and they’re getting not only reimbursed for

consulting fees, they’re getting reimbursed for travel fees and then

they get all these stock options.

Now I mean you can just flip through these different slides. Don’t

you think this is pretty egregious and totally unnecessary? Obviously, your statement is we’re going to reform it, but when you look

at that, isn’t that rather appalling to see all of that?

Mr. ZERHOUNI. Yes, and I think we need to really look at what

you’re referring to and for example, there’s no doubt that in the

case of slide 8, for example, Brian Brewer, with the new rules that

we’re implementing, there will be no service on advisory boards.

None of that will be——

Mr. STEARNS. I think that’s what you can help us through. When

you look at these slides, tell us under your proposal how this would

be prevented?

Mr. ZERHOUNI. Right, that’s exactly what I’m trying to do here.

I think there would be a major difference. For example, the consulting would not reach that sum in any 1 year, that a person can

only do 25 percent, if that person is eligible to do that. Under certain ranks, they wouldn’t be.

Mr. STEARNS. Mr. Brewer, as Chief of Molecular Disease Branch

be able to do it under your proposal?

Mr. ZERHOUNI. Yes, he would. He’s not someone who does——

Mr. STEARNS. He’d still be able to get almost $200,000 plus

stock?

Mr. ZERHOUNI. No, he will not be able to do that. For example,

Lipid Sciences, Astr Zeneca will be out of the new system. He cannot do that.

Mr. STEARNS. Okay.

Mr. ZERHOUNI. With the new system. He cannot receive any

stock in the new system. And then, when you look at his compensation, that compensation will probably be cut in half if the work that

he’s doing is justified and reviewed independently as seen as being

independent of what he does otherwise.

Mr. STEARNS. What about in the idea of stock? What are you proposing?

Mr. ZERHOUNI. Total ban.

Mr. STEARNS. Total ban on stock.

Mr. ZERHOUNI. Total ban, for everybody.

Mr. STEARNS. Okay.

Mr. ZERHOUNI. And limit on any—I mean, we’re totally banning

any compensation in stock or stock options. That’s No. 1. And No.

2, we are scrubbing every employee from owning any individual

pharmaceutical buying that stock that has anything to do with

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ployee to $5,000. Remember, when we put a prohibition it applies

to members of the family too.

So all employees who do not do science, we want to limit that to $5,000 for one stock. But employees who do science, no stock.

Mr. STEARNS. Do you think your proposal should have been done

some time ago to prevent this?

Mr. ZERHOUNI. For the benefit of hindsight, yes.

Mr. STEARNS. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and notifies

the members and their witnesses we are going to do another round

of questioning here.

The Chair recognizes himself.

Dr. Zerhouni, I note that NIH was notified in February 2004

about information indicating that Dr. Moshell, the Skin Disease

Branch Chief, was testifying as a compensated expert witness in

Accutane cases. It’s my understanding that he scheduled to be deposed in a case no later than July 15, 2004. NIH acknowledges Dr.

Moshell did not notify NIH about these activities and that he

should have notified NIH about them. The only action taken has

been to counsel Dr. Moshell, as I understand it.

Is counseling considered a disciplinary action and is that a sufficient management response in this case?

Mr. ZERHOUNI. Yes, in the strategy of managing issues like that,

counseling is part of disciplinary, proactive disciplinary counseling,

if you will. Because I think in this particular case, what I understand is that the gentleman was allowed to do clinical practice

years ago. And in the meantime then, as you know, many clinical

practitioners will also testify on cases and decide to be an expert

witness, not realizing perhaps or not knowing perhaps that we

have a prohibition against being an expert witness for anything

where the Government may have either an interest or an involvement. He was then counseled by our ethics people, I understand.

Mr. GREENWOOD. Is it your intention to allow Dr. Moshell to testify without prior approval in the future?

Mr. ZERHOUNI. No.

Mr. GREENWOOD. So he’ll have to for each and every opportunity,

request that he has to testify.

Mr. ZERHOUNI. Expert witness is an activity that requires disclosure and approval.

Mr. GREENWOOD. Okay. Let me on the same subject, let me go

to you, Mr. Azar.

It’s been noticed that Dr. Alan Moshell, who we’ve just discussed,

the Skin Disease Branch Chief and Program Director, has been—

you heard me talk about the fact that he’s been an expert witness

and it has been alleged that Dr. Moshell has testified that specifically that FDA approved labeling for Accutane is legally inadequate.

Are you concerned that Dr. Moshil’s involvement conflicts with

the public legal position of FDA?

Mr. AZAR. Again, I just learned about this recently and I don’t

know all of the facts, but if they are as you’ve described them, I

am very concerned about that and he first off, he should have

sought approval of an outside activity, but also to serve as an expert witness in a proceeding in which the Federal Government is

527

a party or in which it has a direct and substantial interest which

I would think the legality of the FDA’s approved label would be

such a case the DAEO, the designated agency ethics officer for the

entire department has to authorize that and would consult with

both FDA and with NIH as to what the Government’s interest. But

as described, I’m very concerned about the situation.

Mr. GREENWOOD. And help me understand the ethical issues involved here because I’m not personally clear on this because on the

one hand there are, as I understand it, rules and policies that

would prohibit that kind of testimony. Someone looking at it from

the outside would say that sounds like you’re muzzling a Federal

employee who might have some important information that would

expose something going wrong in the Government.

So walk me through the ethical implications of this.

Mr. AZAR. I think the basis for the rule and the reason for concern is the concern of undivided loyalty to your employer, the Federal Government here, that the Government, United States, not

FDA, but the United States has a position as to the legality of its

label and to have its own agents testifying to the contrary, I think

is very destructive to that position.

And also, there’s always the risk that the individual’s title, their

position within the Government is used against the Government,

the fact that they are a senior individual at NIH is used to essentially lend extra credence to their testimony.

Mr. GREENWOOD. Which makes them more valuable to a Plaintiff’s attorney who would be inclined to pay them handsomely for

that testimony.

Mr. AZAR. Exactly.

Mr. GREENWOOD. So obviously, in circumstances where that FDA

employee might be subpoenaed by the Plaintiff’s attorney, that—

he’s permitted, he or she would be permitted to testify under those

circumstances, but just not as a voluntary paid expert witness. Is

that right?

Mr. AZAR. And actually, in private litigation, if an official of the

Department is subpoenaed in private litigation, the Department actually is under—they’re called the 2-E regulations. The Department decides whether it’s in the interest of the Government to offer

the individual to testify, even if it’s a subpoena in a third party private piece of litigation. So it should always be subject to what’s in

the Government’s best interest.

Mr. GREENWOOD. Dr. Zerhouni, have you been briefed about the

situation involving Pearson Trey Sunderland and Karen Putnam I

mentioned in my opening statement?

Mr. ZERHOUNI. Yes, last Friday I was made aware of that situation.

Mr. GREENWOOD. And I note that Mr. Walden already inquired

about that. My time has expired. The gentlelady from Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman. At the conclusion of

my questioning, Mr. Azar, I believe you had said that there is now

an agreement as to the rule of HHS counsel when they come to

oversight and investigation hearings. Was that what you had said?

Mr. AZAR. Yes ma’am. That’s my understanding, that there had

been a letter from the Assistant Secretary from Legislation to the

chairman of the committee.

528

Ms. DEGETTE. Right, that’s in Tab 1 of your notebook from Jennifer Young.

Now I read that letter. Is Ms. Young an attorney?

Mr. AZAR. I don’t believe so.

Ms. DEGETTE. Well, first of all, would it surprise you to know

that—and staff can correct me. It’s my understanding we got this

letter, but that certainly Democratic staff has not agreed to this

procedure outlined in this letter. Did you know that?

Mr. AZAR. I did not know that.

Ms. DEGETTE. And I’m told that Republican staff has not agreed

to that procedure either. He confirms that.

Mr. AZAR. I’m sorry, then I had a misunderstanding. I had a

misimpression of that. I thought there was.

Ms. DEGETTE. Right, and this is sometimes the problem—this is

why we’re a little worried about the execution of the whole ethics

procedure in general, because communication is a problem.

And one question I have, again, as someone who used to practice,

you know, when the attorney—when an employee, an HHS employee is asked to come in and meet with the committee, and they

say that they want a lawyer to accompany them, whose interest

does the lawyer represent?

Mr. AZAR. Whenever—outside of the original Inclone proceeding,

whenever our lawyers have met with the individual witnesses to

assist them, they should have always and I believe they have, they

should have always made clear to the individual, we are official

counsel. We are representing the Department. We are not your personal attorney.

Ms. DEGETTE. And if you desire personal counsel, then it is your

responsibility to go out and retain that counsel. Did they advise

them of that?

Mr. AZAR. I do not know for a fact whether that has been said,

but that is the case, yes.

Ms. DEGETTE. Well, as someone who has represented a lot of witnesses, I know people, especially people who are concerned, get

very confused about a lawyer shows up and it’s a congressional investigation and it’s under oath. People get very confused about

who’s representing them. So I might suggest to you as part of the

overall departmental reforms that you develop some written guidelines to be given to potential witnesses, explaining the duties and

roles of the HHS attorneys and also explaining that the person is

entitled to outside counsel of their own.

My concern is if you have a witness who has information that

they want to share with the committee, Republican or Democratic

staff, that maybe not in the best interest of HHS or whatever, then

there’s a huge conflict and it’s for that lawyer. You’re nodding. I’m

sure you agree.

Mr. AZAR. I think that’s a very helpful suggestion. I can tell you

when I was in practice, that if I were ever representing a corporation and speaking with an individual witness, I always did make

clear I represent the company. I’m not your lawyer. You can hire

a private lawyer. I just can’t say for a fact that that——

Ms. DEGETTE. I did that too and I always tried to do it in writing

to the witness.

Mr. AZAR. I think that’s a good point.

529

Ms. DEGETTE. My other request of you would be if you would

please sit down personally with Republican and Democratic staff of

this committee and iron out some written procedures so that we

can know when witnesses come in accompanied by an attorney who

they’re representing.

Mr. AZAR. I would be very happy to do that.

Ms. DEGETTE. Thank you very much. I have just one more question for you, Dr. Zerhouni, now that we’re trying to think of how

to iron out these bugs.

I was thinking about Dr. Katz who came in and testified. You

might be familiar with his case. He was the fellow. He was doing

some consulting with a company and the company had a subsidiary

that had business pending, a grand application pending in front of

the NIH and he did not know that this—that there was any connection when he later found out, I believe, after he was subpoenaed

by this committee or came in to talk to this committee, he immediately severed the relationship.

So my question is in all of the ethics oversight that you’re trying

to do with the centralized electronics, how are we going to be able

to—because as you know, corporate America and the pharmaceutical industry, in particular, and biotech, are very—the corporate relationships are very complex. How are we going to be able

to catch those kinds of very real complex?

Mr. ZERHOUNI. Well, first of all, we just prevent them. So in the

rules that I’m proposing, Dr. Katz being a Director of an Institute

will be completely prohibited, period.

Ms. DEGETTE. But let’s say it’s someone who would be eligible

and who honestly himself or herself may not have known about

that. Because Dr. Katz did not.

Mr. AZAR. Again, I’m prohibiting every employee that has any

authority in grant funding, contract making, from any activity of

that sort.

Again, this would not happen under the new rules. There’s no

way for an individual in the line of command and their subordinates to be able to influence——

Ms. DEGETTE. And I guess your testimony is then since you’re

prohibiting those individuals, it wouldn’t matter for someone else

not in that category if there was——

Mr. ZERHOUNI. Right. Again, it’s the dual nature of NIH. It’s a

Federal agency role and it’s sort of a scientific university type activity which has no real power over allocating grants. But we’ll go

further than that. We are saying that our scientists will not consult

with potential grantee institutions so that anybody who would then

come and say I want a grant will not be able, as a university, for

example.

So we’re trying to build as much fire walls as we can.

Ms. DEGETTE. I understand.

Mr. AZAR. Congresswoman, I think, and please correct me if I’m

wrong, Dr. Zerhouni, I think in the instance if the individual has

the grant making function under them, even if they weren’t involved, if there’s any connection to the grant making process, they

would also be precluded.

Ms. DEGETTE. And my time has expired. I’m focusing not on the

individual. I’m focusing on the corporate relationship of the—in

530

particular, the private company that they’re trying to get a grant.

But I understand what you’re saying, Dr. Zerhouni.

Mr. GREENWOOD. The gentleman from Florida, Mr. Bilirakis.

Mr. BILIRAKIS. Thank you, Mr. Chairman. I said in one of the

prior two hearings, maybe in both, I don’t remember, that we’ve always got to be careful that we do no harm. And whereas these

things that have taken place in the past and we should be thinking

more in terms of today and the future and trying to keep some of

those bad things or at least perceptively bad things, put it that

way, straighten that out, clear it up. I think it’s important that we

look to the future.

NIH is so highly thought of in the world. Let’s face it. It’s world

class. In fact, you and I were in Italy not a few months ago where

they’re setting up their own form of the NIH. So we don’t want to

do anything to hurt their effort. And maybe we are doing something to hurt their effort and I hope not.

But let me just put that question to you, Dr. Zerhouni. Are we

doing something here that might be hurting NIH’s effort in terms

of their image, their reputation, in terms of recruitment, in terms

of the research in general? Maybe you could take a full period of

time to respond to that.

Mr. ZERHOUNI. That’s the most difficult question I have to face

because again, I have to do a balancing of the analysis and it is

the appropriate question to ask because many times I get asked

what is the evidence that you have that by having stronger rules

we may not be able to recruit or retain.

My position is what is the evidence that we have that we will

do no harm? Because I think at the end of the day we need to protect that. And I’m trying to find the balance between the two. A

total ban, as I’ve said, would be detrimental to the scientific staff

who is really unrelated——

Mr. BILIRAKIS. Detrimental? Disastrous may be even a stronger

adjective?

Mr. ZERHOUNI. I can’t say that because again I don’t have data

either way, but I can say for sure that we will have people who will

leave the agency and I think it will be a factor in recruiting that

wasn’t as much of a factor to attract someone from the outside who

may have had activities. That person may have to sever them all.

And I think it relates to what the chairman said. I think we need

to balance compensation and the possibility of compensation. The

field of opportunities for our scientists should not be so restricted

so that it will make it much easier to just walk across the street

and go to a university. We have 200 competitors out there. So I’m

concerned about it. But I think these rules strike a right balance

and I wouldn’t definitely say that they would be harmful. They

have the potential to, in some areas, to prevent us from recruiting

and retaining the best, but I don’t believe that at this point, I can’t

say for sure what the impact would be.

Mr. BILIRAKIS. I’m raising the question, but I know that the

chairman, both chairmen, Mr. Greenwood and Mr. Barton, are as

concerned as I am, as I think all of us are in this regard.

What is the morale picture at NIH?

Mr. ZERHOUNI. I would say the morale has been lowered.

531

Mr. BILIRAKIS. Lower as the result of some of the things that

we’re doing?

Mr. ZERHOUNI. In part. Yes. I think there are other factors, obviously. I mean there are budgetary constraints. There are changes

that we’re bringing to the administration of NIH. Obviously, all of

those things play a role, but I think this has damaged the morale,

especially of the over 95 percent of the scientists who have really

given their lives to NIH.

Mr. BILIRAKIS. Yes.

Mr. ZERHOUNI. It pains them to see NIH painted in such a negative light, when in fact, they’ve done all their best to serve NIH

and the country without any of this kind of slide material that

were shown here. That affects morale because really the core value

of NIH is to really serve the public and do it right and all of the

people I know there are really pained by this and would like to get

clarification and let’s move on.

I think my point is performing autopsies on what was is important, we need to do that. But more importantly here is to make

sure the patient is cured and moves forward.

Mr. BILIRAKIS. Thank you, Doctor, and I know the chairman well

enough to know that he is just as concerned about those things as

I am and again, with your help,k we are going to clear this up in

the interest of continuing the best research in the world.

Thank you and thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman. Mr. Stearns

for 5 minutes.

Mr. STEARNS. Thank you, Mr. Chairman. Just following up what

my colleague from Florida was talking about. NIH is the premiere

medical research organization in the world and it will be after it’s

over and I think it will be better because of this and I think bringing some transparency here and also bringing to light some of the

problems will make it even better. So I applaud you for what you’re

doing this morning in this your proposal. I guess in looking at the

activities reviewed by NEAC, they looked at 317 and recommended

approval of 234 of these arrangements.

My question is how many arrangements were there last year for

the whole year? In other words, prior to the Act, prior to NEAC,

the NIH Ethics Commission, how many total arrangements were

there?

Can you put your speaker on? I can’t hear you.

Mr. ZERHOUNI. I’m just going to estimate.

Mr. STEARNS. Oh sure, I’d just like, as much as possible, just a

complete accuracy of how many arrangements there were.

Mr. ZERHOUNI. Yes, I’m trying to—all right, I’m going to give you

the numbers I have.

Mr. STEARNS. Okay, thank you.

Mr. ZERHOUNI. Basically, we had about 365 agreements probably

involving about the same number or more, less employees. That’s

because over 5 years, we’ve had about 1500. So it’s about 300, 350

a year.

Mr. STEARNS. So about 300 a year, approximately.

Mr. ZERHOUNI. A little more.

Mr. STEARNS. How over how many years did we have this arrangement?

532

Mr. ZERHOUNI. Since 1995.

Mr. STEARNS. Okay, so we’re talking about 5, 9, almost 10 years.

So we’re looking at perhaps maybe 3,000 arrangements, separate

arrangements or are we talking about 5,000 or 10,000?

Mr. ZERHOUNI. About 3,000.

Mr. STEARNS. About 3,000.

Mr. ZERHOUNI. Of those we know, but now we’re finding there

are some we don’t know about.

Mr. STEARNS. And would you, could you make an estimate on the

ones you don’t know about, how big that is? Is it 10 percent or 20

percent?

Mr. ZERHOUNI. No, really, I can’t. I mean this is the information

that the chairman was referring to. I don’t have that information.

I don’t know that, but it’s a small amount, obviously, relative to the

total.

Mr. STEARNS. Okay, well, let’s just use your figures and say there

were 3,000 arrangements since 1995.

Mr. ZERHOUNI. Right.

Mr. STEARNS. Now I don’t think all of them fit this presentation,

what is in the slides here, where people are making almost $2 million in stock or they’re making large sums and reimbursement.

Slide 5, Gary Nable made $314,000 in expenses and travel and

things like that.

I guess my question is, Mr. Azar, do you have an Inspector General on your staff?

Mr. AZAR. No sir, the Inspector General is independent and reports directly to the Secretary.

Mr. STEARNS. Do you have anybody on staff that could be an investigator?

Mr. AZAR. We really don’t have any kind of investigative capacity. With this enhanced ethics function, we’ll have some auditors

and the ability to do that.

Mr. STEARNS. That’s my question. Once this is in place, do you

have any way to investigate what’s happening?

Mr. AZAR. The way the ethics program would work is we will

have this enhanced ethics division function for oversight and auditing.

Mr. STEARNS. Okay.

Mr. AZAR. Each deputy ethics counselor in this decentralized ethics program should also—is also responsible for oversight of the

functions and the conduct of the program within their operations.

Mr. STEARNS. So the NIH will have a set of investigators too?

Mr. AZAR. Well, the NIHAC, the NIH Advisory Committee, as

well as the NIH Office——

Mr. STEARNS. So the Commission will have its members and

they’ll have a step group, a subgroup that they can go through for

investigation Because we can put in place all these things and the

Commission can recommend, but the question will be what happens in the future if there’s no one checking it?

Mr. ZERHOUNI. This is a very good question and Item 10 of the

grid that I testified to, we actually mentioned the fact that we’re

going to initiate random audits as part and parcel of the process

of control of the ethics program.

533

Mr. AZAR. But I think also, the Inspector General’s office could

also be used also to come in and do audits and evaluations of the

program, once we get these changes in place.

Mr. ZERHOUNI. My experience with that, Mr. Stearns, is that our

audits are a very good way of identifying vulnerabilities and then

referring them, obviously, to the Department and then to the Inspector General.

Mr. STEARNS. Yes.

Mr. ZERHOUNI. That’s a mechanism we need to have.

Mr. STEARNS. Mr. Chairman, we’ve been through these oversights on the corporate problems and we found that we need accountability was the biggest problem. And we talked about the

CEOs of the corporation ultimately signing their accounting reports

and somehow, Dr. Zerhouni, I would expect you to also interface

and not just leave it to these folks, but you should have some fiduciary responsibility to put your name on some report that this has

all been corroborated and submit accounting because you ultimately have responsibility.

Mr. ZERHOUNI. I agree with you and that’s why in the management process changes list that I propose, we said that we will add

the ethics function to supervisors’ performance plans across the

NIH, add the DEC’s function to the DEC’s performance plan and

by extension, it goes to my performance plan.

Mr. STEARNS. Okay.

Mr. ZERHOUNI. Formally and officially as part of the human resource management system that we currently have, which does not

include ethics oversight as a line responsibility of the people in authority.

Mr. STEARNS. And Mr. Chairman, if I can just have a little bit

of the indulgence. Another question is the people that are appointed to the NIH Ethics Commission, the screening and these individuals I guess, you know, the non-Government appointees to

this Advisory Committee, what type of individuals would be the

non-Government appointees to the Advisory Committee?

Mr. ZERHOUNI. In statute, every institute in the NIH has an advisory council composed of public members, 12 scientists and 6 nonscientists. That’s the general pool. Those are named by the Secretary of Health and Human Services through nominations received by the Secretary that we also can propose and that is basically the source of the appointments on these committees. There’s

a rotation pattern, every 4 years, there’s a change over. And these

members are essentially members of the public.

Mr. STEARNS. Who would make the appointments to the independent advisory committee? Who are going to make these appointments?

Mr. ZERHOUNI. These appointments are already made. This is a

board in statute, already existing, that is already in place to oversee NIH from the public standpoint.

Mr. STEARNS. Okay, thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes himself for 5 minutes.

Dr. Zerhouni, if you turn to Tab 22 in the binder, you’ll find some

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mittee. And it states that of 317 activities and awards received, reviewed by NEAC, NEAC recommended approval of 234.

The question is how does this rate of approval compare to the

rate of activity, approval prior to implementation of the new procedures?

Mr. ZERHOUNI. well, if you look at the totality, 300, 350 this is

about, on the activities, probably about two thirds maybe.

Mr. GREENWOOD. A little more than that. And your question is—

what I’m trying to get at is do you know anything about the current NEAC, your creation is approving a little more than 2 out of

3.

Mr. ZERHOUNI. Right.

Mr. GREENWOOD. Do you know how that compares to previous

rates of approval of——

Mr. ZERHOUNI. I think it’s definitely lower because what I’m getting as reports from the members of NEAC is that every time

they’re looking at a case to say wait a minute, these are activities

that were there before under current rules, so remember the 317

are not new ones. They’re the ones that were there. Of those 317,

some have been terminated. You see what I’m saying?

Mr. GREENWOOD. Right.

Mr. ZERHOUNI. In other words, the pool was the same pool that

was before NEAC, being reviewed by NEAC. And of those, we’ve

cutoff from 317 to 235.

Mr. GREENWOOD. And apparently I’m advised that prior to that,

if you’re now turning down a quarter or a third, it used to be that

only that 1 percent were rejected. So it’s an indication to me that

the NEAC is for real and is making some tough decisions.

Mr. ZERHOUNI. That’s my understanding, Mr. Chairman.

Mr. GREENWOOD. I do note though that in the NEAC, the NEAC

sent to the committee two instances where NEAC recommended

disapproval of two outside activities, but the NIH designated ethics

counselor approved them anyway.

Do you know how that happens?

Mr. ZERHOUNI. Not specifically on the cases that you’re referring

to. I’m not sure what they are, but I will follow up with you, sir.

Mr. GREENWOOD. We’ll do that. According to the data provided

by NIH to the committee, the average—this is not referring to that

tab any more, Dr. Zerhouni——

Mr. ZERHOUNI. Right.

Mr. GREENWOOD. The average turnover rate among scientific

staff for the 1994 to 2003 period, about 10 years, that is in Tab 26

if you want to look at that.

The average turnover rate among scientific staff for those 10

years was 9.24 percent, but the average turnover rate among Title

42 employees for 2000 to 2003 was only 2.4 percent. One could

draw the inference from the turnover rate that the higher salaries

of Title 42 has lowered turnover rates. Would you agree that’s what

we’re seeing there?

Mr. ZERHOUNI. That is correct.

Mr. GREENWOOD. If that’s correct, then why is it important to

still permit consulting when the higher salaries are already, seem

to be addressing and resolving the turnover issue?

535

Mr. ZERHOUNI. Caps, No. 1. There have been caps since 1999, a

figure that doesn’t really look at cost of living and as years go by,

you will see again a decreased competitive for NIH to recruit these

individuals.

Mr. GREENWOOD. Suppose we lifted that cap and gave you the

authority to exceed that cap where necessary. Would you still feel

that the paid outside consulting arrangements, agreements were

necessary?

Mr. ZERHOUNI. I would definitely look at that with favor, if I

could establish a market based compensation system where really

I’m not at a disadvantage. Right now, I’m in a real disadvantage

in recruiting top scientific staff at NIH. I can tell you two anecdotes, that it is not that easy. When I was Vice Dean of Research

and Executive Dean of a private medical school, I had more means

and more flexibility in recruiting scientists or chairs of department

with much lower responsibility levels than those that I’m recruiting

right now at NIH. So it is, actually, a structural problem and I

think there is a balance between compensation and opportunity for

compensation.

Mr. GREENWOOD. And it’s a tradeoff for the taxpayer as well because on the one hand the taxpayer will be adding extra compensation which would diminish your budget, which would take money

from your budget as opposed to the private sector paying for that

activity.

Mr. ZERHOUNI. That is correct.

Mr. GREENWOOD. Paying for the ability, the enhanced ability to

retain that——

Mr. ZERHOUNI. That is correct. And you want to sort of strike a

balance. We don’t want to end up in the situation where we pay

people high rates and their activity on Government time is to basically advise industry for free, because then you’re creating a subsidy really.

Mr. GREENWOOD. Final question for me and I promise this, sometimes when we talk about what the difference is between the 20

percent of the NIH funds that stay intramurally and the 80 percent

that go out to the universities, etcetera, we talk about the reason

because theoretically, you could have a construct where it all went

out in grants. NIH could just be a grant making entity and not do

much research. And part of it is that the NIH does intramural research that no one else is supporting.

So it sort of raises the question in my mind, if that’s the case,

what’s the competition? In other words, if you’re hiring people to

do research that no one else is supporting, is there really that

much competition or is it a question that if they weren’t doing that

they would be doing something else that someone is supporting?

Mr. ZERHOUNI. That’s a good question, but it’s not, the operating

definition is not what no one else will do. I mean we’re not doing

just that. About a third of what we do is really public health, relevant, things that—safety of the blood supply, vaccine development, things that really cannot be done really by the private sector

we need to do and we need to accumulate the science of that. Like

HIV/AIDS is a good example where a lot of the fundamental discoveries had to be made at high speed within an institution where I

536

can control the program. You can’t control the program of 200 universities. So that’s important.

Second, you also want as a Government, scientists who would

work in the same areas that other universities work in, because

you want to have your own experts that are not tied to having the

need for grants, telling you what the real scientific truth is. So in

truth, we maintain a cadre of scientists who are independently

funded at the intramural program to make sure that we have an

understanding of the science that people are asking us to fund. So

that’s the other part of it. And that’s the part that I think you need

to make sure you don’t destroy.

Mr. GREENWOOD. The gentlelady from Colorado, do you wish to

further inquire?

Ms. DEGETTE. I just have, Mr. Chairman, I just have a question

and a comment.

My question is to Dr. Zerhouni, have you thought about what you

would do about post-NIH employment, transfer of knowledge and

issues like that?

Mr. ZERHOUNI. You mean cooling off periods?

Ms. DEGETTE. Yes.

Mr. ZERHOUNI. Yes, we have and obviously, I couldn’t go into all

the details here, but we are looking certainly at these issues of

cooling off.

Ms. DEGETTE. Because it would seem to me that would be an important component of any enhanced ethics program that you would

adopt, would you agree?

Mr. ZERHOUNI. Right, I agree. And this is definitely part of—I

thought it was a detail, but it is part of our consideration.

Ms. DEGETTE. It’s a detail we care about.

Mr. ZERHOUNI. I know.

Ms. DEGETTE. That actually leads beautifully into my comment

which is that I have lots more questions here about how is the

stock option issue going to work and what are we going to do about

this and that. I mean it seems to me going back to my opening

statement the details. I know you’re trying to work those out. I

would hope that you and your staff would continue working with

this committee and our staff as you develop those details and Mr.

Chairman, I would hope you would leave the option open for yet

an additional hearing once those details are worked out. Because

I think we all agree you’re really on the right road here. We just

need to see how it’s all going to be executed and make sure that

the same kinds of excesses that we saw in the past aren’t happening now. And I thank you again for your attendance.

Mr. ZERHOUNI. I really agree with you.

Mr. GREENWOOD. Dr. Zerhouni, I lied about no more questions.

Just one last one.

You’ve referenced going to supplemental rulemaking. Do you

have a timeframe on when you expect to be able to do that and

then based on how long that takes, when these new rules would

take effect?

Mr. ZERHOUNI. We’re working on, I’ll let Mr. Azar comment on

that. We’re working very diligently to sort of create all of the rules

that we need. Some may not need rules. There may be some areas

537

where can act right away. At this time, we’re really doing it within

the quickest amount of time possible.

Now beyond that, there are elements that are beyond my control

or even Mr. Azar’s control. Perhaps Mr. Azar can comment.

Mr. AZAR. It’s my understanding that in the past with supplemental ethics regulations at the Department that they have, once

they have been concurred in by the Office of Government Ethics,

that they can go direct to final, rather than notice and comment

rulemaking.

That would be my goal and I would advocate for that. Whether

the Office of Management and Budget, others who obviously play

a role in the decisionmaking on regulations will permit that in this

case because of impacts on private parties, I don’t know, but that’s

been a past practice and the way I would hope to go so that we

could go quickly once we could secure OGE and any other affected

agencies. It would obviously go through interdepartmental clearance, the Justice Department, others might have views given the

relations. But my office will certainly work fully with Dr.

Zerhouni’s office to provide any assistance getting the regulations

drafted and working to advocate and get them through as soon as

possible and also working with the committee as we work on the

details there.

Mr. GREENWOOD. Thank you, both. Again, I compliment you on

your stellar work. It meets my approval across the board. There

are a couple of details to work out, but I’m very pleased and I want

you to know that and I want everyone at the NIH to know that

as well.

Thank you, again and you are excused.

Mr. AZAR. Thank you.

Mr. ZERHOUNI. Thank you, Mr. Chairman.

Mr. GREENWOOD. And we will now call forward the second panel.

Mr. Peter Levine, President and Chief Executive Office of

Correlogic Systems, Inc. an Dr. Jonathan Heller, Vice President,

Information and Project Planning, Predicant Biosciences.

Gentlemen, we welcome you. Thank you for being here. You may

have heard me say to the previous panel that it is the custom of

this committee to take testimony under oath and I need to ask if

either of you object to giving your testimony under oath?

Okay, seeing no objection, I also need to inform you that pursuant to the rules of this committee and of the House, you are entitled to be represented by counsel. Do either of you wish to be represented by counsel?

You need to put your microphone one and speak directly into it

and identify your counsel, plese.

Mr. HELLER. Counsel for Biosciences is Lenny Burr.

Mr. GREENWOOD. And the gentleman directly behind you, thank

you.

All right, now you stand and raise your right hands, please?

Do you swear that the testimony you’re about to give is the

truth, the whole truth and nothing but the truth?

[Witnesses sworn.]

Okay, you are both under oath.

Mr. Levine, do you have an opening statement? You are recognized for 5 minutes to offer it.

538

TESTIMONY OF PETER J. LEVINE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CORRELOGIC SYSTEMS, INC.; AND

JONATHAN C. HELLER, VICE PRESIDENT, INFORMATION

AND PROJECT PLANNING, PREDICANT BIOSCIENCES

Mr. LEVINE. I don’t want to take up the subcommittee’s time this

morning with a lengthy reading of my written testimony. I would

ask, however, that it be entered into the record.

Mr. GREENWOOD. It will be entered into the record. You may

summarize it as you care to.

Mr. LEVINE. Okay. In brief, Correlogic is a clinical proteomics

company. We’re based in Bethesda, Maryland and we specialize in

the development of technologies and tools and processes that can

assist in the early detection of various cancers.

The focus of Correlogics’ energies over the last several years has

been the development of complete diagnostic system. I think later

in our testimony that will be a very important issue, based in part,

on pattern recognition technology for the early detection of cancer.

Our technologies and processes have a wide range of applications

and can be used in the creation of disease diagnostic models and

biomarker discovery and new drug discovery processes. And we are

also a clinical laboratory regulated under the Clinical Laboratory

Improvements Act of 1988 and currently working with the Nation’s

two premiere clinical diagnostic laboratories, Quest Diagnostics

and Laboratory Corporation of America.

If I had my druthers, this morning, I’d be testifying only about

the accomplishments of Correlogic and the results of our most recent research. I believe we’re on the brink of some fantastic breakthroughs that will translate the research progress that we’ve made

into the ability to provide more accurate and earlier detection of

cancer and other diseases.

And we would not be at this critical and exciting juncture without the considerable talent and resources of the National Institutes

of Health and National Cancer Center, the Food and Drug Administration and the other components of the Public Health Service.

So I hope that my comments will not be taken as a broad criticism of the life saving mission of these agencies or any kind of justification for lessening or reducing the Nation’s financial commitment to the agencies.

I also ask that my testimony not be misconstrued as a critique

of the vast majority of men and women in these agencies that have

dedicated their professional lives and work extremely hard to bring

us the kind of medical science and kind of medical improvements

that we’ve all seen over the last many years and because of their

work thousands, hundreds of thousands of our citizens have had

their lives saved and they give the hope to all of us for bright future.

But as this subcommittee has already heard, all is not well at

NIH. And the experience of Correlogic, these past 2 years, has revealed what I believe are some very serious flaws in the manner

in which the agency implements its licensing, its CRADA and it’s

conflict of interest policies and procedures.

By way of very brief background, Correlogic entered into a research CRADA and a licensing agreement with the National Cancer Institute and the Food and Drug Administration and the Public

539

Health Service to develop a diagnostic testing system for ovarian,

prostate, breast and other cancers. These agreements which we

paid and continue to pay significant royalties were designed to facilitate the development and commercialization of a diagnostic testing system for the benefit of patients.

It’s important to note that we have met all of our obligations and

entered into contractual relationships with other well-established

industry players that have been approved by the Public Health

Service to satisfy the Government’s requirements under our licensing agreements. Unfortunately, since our work first became known

to the public in 2002, what started as a cooperative and constructive research and business relationship has clearly deteriorated.

And knowing now under the light that has been shed by this subcommittee and with the full perspective of hindsight, I can now

really see what has been going on for the last 2 years.

As the balance of my written testimony describes in more detail,

we’ve been caught in a morass of conflicting interests and unilaterally changed agreements and a failure of the Agency to abide by

the letter, much less the spirit of critical research and licensing

agreements.

While preparing for my testimony today, I genuinely struggle to

find a starting place to address the focus on subcommittee’s interest. Reflecting back on the last 2 years and all that’s happened, it’s

the concept of good faith that keeps reoccurring to me. The agencies of the Government must act in good faith.

As the subcommittee continues its work, I would ask that each

and every issue under review be evaluated from this perspective.

And that is, were these actions, were these decisions made in good

faith or facts and legal interpretations made to support outcomes

that were inconsistent with the spirit and the clear intention of

preexisting agreements and relationships? To me, that is really the

heart of the issue here.

And Mr. Chairman, last, let me just comment that I appear

today with great reluctance. I, of course, support wholeheartedly

the efforts of the subcommittee, but I’m concerned about the impact

of my testimony on my company’s ability to continue to do business

with the Public Health Service. We have already experienced what

I believe are some indications that our cooperation may wind up

being rather detrimental to Correlogic moving forward and we do

intend to continue doing research with the PHS. So I only hope

that when the dust has settled and the attention shifts elsewhere

that Correlogic is not penalized, in essence, a second time for its

cooperation with the committee.

I’d be very pleased to answer your questions.

[The prepared statement of Peter J. Levine follows:]

PREPARED STATEMENT OF PETER J. LEVINE, PRESIDENT, CORRELOGIC SYSTEMS, INC.

Mr. Chairman and Members of the Subcommittee: My name is Peter J. Levine.

I am President of Correlogic Systems, Inc., a clinical proteomics company based in

Bethesda, Maryland, that specializes in the development of tools and processes that

can assist with the early detection of various cancers and other diseases. The focus

of Correlogic’s energies has been the development of a complete diagnostic system

based in part on the use of pattern recognition for the early detection of cancer. Our

technologies have a wide range of applications that can be used in the creation of

disease diagnostic systems, biomarker discovery, and new drug discovery processes.

We are also a clinical laboratory regulated under the Clinical Laboratory ImproveVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00547 Fmt 6601 Sfmt 6621 93973.TXT HCOM1 PsN: HCOM1
540

ment Amendments of 1988 and are currently working with the nation’s two premier

diagnostic laboratories, Laboratory Corporation of America and Quest Diagnostics,

to provide an ovarian cancer testing service.

I wish I were testifying today just about the accomplishments of Correlogic and

the results of our most recent research, because I believe we are at the brink of

translating significant research progress into the ability to provide more accurate

and earlier detection of certain diseases, such as stage one ovarian cancer, when the

cancer is organ confined and most curable. Quite frankly, we would not be at this

critical and exciting juncture without the considerable talent and resources of the

National Institutes of Health, the National Cancer Institute, the Food and Drug Administration, and the Public Health Service. I hope my comments today will not be

taken as a broad criticism of the life-saving mission of these agencies or as justification for lessening our financial commitment to them. I also ask that my testimony

not be misconstrued as a critique of the vast majority of men and women who work

there. They have dedicated their professional lives, often at great personal sacrifice,

to the advancement of medical science and the health of our nation. Because of their

work, hundreds of thousands of lives have been saved, and these agencies give hope

to a brighter future for millions of others.

I have been asked to testify about our company’s experience collaborating with

these agencies, including the benefits and dangers for private companies that enter

into contractual relationships with federal health agencies and with federal employees who are permitted to be both public servants and private entrepreneurs. Simply

put, our experience has reflected both the promise and pitfalls of ‘‘being in business’’

with the National Cancer Institute and the Food and Drug Administration. It is my

hope, Mr. Chairman, that your inquiry into weaknesses in the National Institutes

of Health’s ethics policies in general, and what has happened to Correlogic in particular, will lead to a quick resolution of these problems, and our attention can be

returned to what should be our collective objective—fighting cancer and saving lives.

Origin of Our Relationship with FDA and NCI

Correlogic’s relationship with FDA and NCI began in June of 1999 when I had

brunch with Dr. Emanuel F. Petricoin, a senior research investigator at the FDA.

Our wives had been close personal friends for many years, and Dr. Petricoin and

I had met through them. During the meal, as was our custom, we caught up on professional events in our then very different worlds. He described to me the challenges

he and his colleagues were facing in their search for protein biomarkers for cancer,

particularly the difficulty in finding a biomarker in the massive amounts of data

that could be produced by the latest generation of protein separation technologies.

They were literally searching the proverbial haystack not for a needle but a single

protein that might be indicative of the presence of a disease.

I had significant experience in the use of computer-generated data analysis and

suggested using pattern discovery technology to search for patterns of proteins rather than individual proteins for use as a diagnostic. I explained to Dr. Petricoin that

I had been working with Dr. Ben Hitt (now the Chief Scientific Officer of Correlogic)

on other applications of pattern discovery technology in non-medical fields. I suggested that if this type of technology could be developed and applied to cancer research, it might be able to detect patterns of proteins that were indicative of a disease state rather than individual protein biomarkers. Rather than looking for the

needle in the haystack of data, we would look at the configuration of the haystack.

Using my napkin as chalkboard, I sketched out the idea.

Following the brunch, I talked through the idea with Dr. Hitt. He refined the concept and developed a powerful algorithm to test the theory that so-called ‘‘hidden

patterns’’ of proteins, also known as proteomic patterns, could be analyzed to detect

the early stages of a disease. Through 1999 and into the spring of 2000, Dr.

Petricoin, Dr. Hitt and I tested the ‘‘hidden patterns’’ theory and in the spring of

2000, we used the basic pattern recognition algorithm that Dr. Hitt had invented.

Specifically, we applied the pattern recognition technology, and hidden patterns concept to the blood from prostate cancer patients. We were able to accurately perform

a diagnostic assessment based on protein patterns in the blood. At this time we

were collaborating informally with Dr. Petricoin.

Encouraged, we immediately began work on applying our approach to ovarian

cancer and outlining its application to other diseases. Dr. Hitt and I, along with another associate, Marc Giattini, founded Correlogic Systems in May 2000 to further

develop this technology. Dr. Petricoin filed a Public Health Service Employee Invention Report, naming himself, Dr. Hitt, and me as co-inventors. Among other things,

he cited our June 1999 brunch as the date on which the invention was conceived.

541

Formalization of Our Relationship with NCI and FDA

Things progressed rapidly after the formation of our company. Correlogic entered

into a Material Transfer Agreement with the FDA to facilitate the continuation of

research. The company filed a provisional patent application on the core algorithm

invented by Dr. Hitt. After a period of time, Dr. Hitt, Mr. Giattini, and I were able

to supplement our personal funding of the company with additional monies from private investors. Correlogic filed several additional provisional patent applications on

our hidden patterns testing process, naming Dr. Hitt, myself and Dr. Petricoin as

co-inventors. We began negotiations with the Public Health Service on an exclusive

license agreement for our testing process, as claimed in these latter patent applications.

By July 2001, we finalized our patent filings. Correlogic bore all the expenses of

these filings, as it continues to do today. By the time the non-provisional patent was

filed, Dr. Petricoin had brought in his colleague and mentor, Dr. Lance Liotta, who

was the Director of the Laboratory of Pathology at the National Cancer Institute.

Along with the original three of us, Dr. Liotta was added as a co-inventor on the

non-provisional filing of our ‘‘hidden patterns’’ patent application.

In February 2002, the peer-reviewed medical journal, The Lancet, published the

results of the study the four of us (and others) had authored, which demonstrated

that our testing process could detect ovarian cancer, including stage one ovarian

cancer, from a single drop of blood. The actual computational analysis for the Lancet

study was performed by Dr. Hitt alone, based upon raw laboratory data provided

by Dr. Petricoin and Dr. Liotta. Because of the significance of our findings, the report was filed on the journal’s website a week in advance of publication. The publication generated overwhelming interest in the media as well as the scientific community, due to the novel nature of our process, the compelling results and, from the

patient’s perspective, the simplicity of a blood test.

Congress was interested as well. A few months later the House of Representatives

passed a resolution, introduced by Rep. Steve Israel and Rep. Rosa DeLauro, and

co-sponsored by 147 members of the House, encouraging the government to support

proteomic pattern research for ovarian cancer.

In April 2002, we entered into a Cooperative Research and Development Agreement (CRADA) with the NCI and the FDA to ‘‘utilize Correlogic’s proprietary software technology to continue their joint research to identify patterns of protein expression indicative of specific disease states.’’ We also signed an exclusive, worldwide licensing agreement with the Public Health Service to move our protein pattern testing process, the intellectual property rights of which were jointly held by

Correlogic and the government, from the research labs into the hands of health care

providers as soon as possible. The agreement contained explicit milestones and

deadlines for the commercialization of our testing process.

In October 2002, the Journal of the National Cancer Institute published a study

we performed with our federal partners on the use of our technology in the early

detection of prostate cancer. In accordance with the clear purpose of and the deadlines included in the exclusive PHS license agreement to Correlogic, we entered into

agreements with Quest Diagnostics and LabCorp, the nation’s two premier clinical

diagnostic labs, to make our potentially lifesaving ovarian cancer test available to

women across North America. We also expanded our staff and retained experts in

clinical and laboratory diagnostics.

I was thrilled. We were taking an idea that I had first sketched on a napkin and

turning it into, in the words of the National Institute of Health’s Office of Technology Transfer, ‘‘a high-throughput diagnostic apparatus that will apparently be

capable of detecting ovarian cancer in its earliest stages.’’ We had obtained funding

and assembled all of the corporate resources and expertise that we needed to advance the science and technology. Once the ovarian cancer testing device had been

developed, we could do the same for other cancers and other diseases.

In April 2003, NCI announced in a press release, and later in a presentation at

the American Association of Cancer Researchers annual meeting, that our testing

process had enabled NCI, FDA, and Correlogic scientists to improve upon the initial

results published in The Lancet for the detection of ovarian cancer. Later that year,

Correlogic entered into an agreement with Advion Biosciences to use one of their

technologies as a component of our ovarian cancer detection test.

This year, we began the process of finalizing the validation of OvaCheck TM, our

ovarian cancer test service. We are continuing our work with the National Cancer

Institutes’ Laboratory of Tumor Immunology and Biology and Walter Reed Army

Hospital and the Windber Institute on the application of our diagnostic testing system to the development of a breast cancer test.

All of these developments are based significantly on our initial work with the government, and our exclusive licensing agreement. Our success has hinged in no small

542

part on our ability to combine our expertise with that of key government scientists.

We seemed to be a good example of the promise of government-private sector cooperative programs under the Federal Technology Transfer Act of 1986. In fact, I was

invited by the National Cancer Institute to participate in a panel discussion on how

a small company could work with the government to address a critical public health

problem.

Awareness of Potential Conflicts of Interest and Related Issues

On the outside, things could not have appeared better, but internally as we would

discover, there were real problems. Only now, under the light shed by this Subcommittee, and with the full perspective of hindsight can we understand some of

the obstacles that we had come to view as an inherent part of the public-private

partnership.

Back in 2002, a few months after the Lancet study, I was told that despite our

exclusive licensing agreement and ongoing negotiations to expand our CRADA to include clinical testing for ovarian cancer, the National Cancer Institute had decided

to ‘‘sponsor’’ an independent clinical trial on the hidden patterns technology, the

very technology that was the essence of the patents we had jointly filed with Dr.

Petricoin and Dr. Liotta. I was told that the Lancet study had pushed our testing

technology to the forefront and that NCI wanted to move forward as quickly as possible in order to get our test into the hands of doctors and patients. We certainly

agreed with the overall objective and, for that reason, had entered into our original

collaboration with NCI consistent with the goals of the Federal Technology Transfer

Act of 1986. However, rather than continuing along the path with Correlogic, NCI

had unilaterally decided to give a contract to Science Applications International Corporation (SAIC), with which it has a long-standing contractual relationship, to set

up a new laboratory to carry out these clinical trials, and Dr. Gordon Whiteley was

hired to head this project, beginning with the development of a business plan. I was

told not to worry, that Correlogic’s existing contractual agreements ensured that we

would be an integral part of these trials and that our brand new license agreement

would protect our IP and commercialization rights.

Obviously, I was concerned at what was presented to me as a fait accompli. The

Institute’s decision impacted not only on our ability to meet required deadlines in

our exclusive government licensing agreement, but also on the terms and conditions

associated with our negotiations with two national clinical labs, LabCorp and Quest

Diagnostics, as contemplated by the licensing agreement. When I raised these concerns with both Dr. Liotta and Dr. Petricoin, I was told not to be ‘‘paranoid,’’ and

that NCI’s unilateral decision was really in Correlogic’s best interests. Frankly, I

also was concerned—and remain concerned to this date—about the particular components that NCI had unilaterally chosen for the detection system and also about

which entity would take the lead and responsibility for seeking regulatory approval

following successful completion of the clinical trial.

To resolve the myriad problems associated with NCI’s decision, on August 15,

2002, I met with representatives from the Offices of Technology Transfer (and Development) for NCI, FDA and NIH. Leading the negotiations for the government

was Dr. Liotta. Also participating was Dr. Svetlana Shtrom, who had been responsible for negotiating our original CRADA. We reached an agreement on how to proceed with joint clinical trials and our ongoing research CRADA, which was memorialized in a letter dated September 12, 2003, sent to me by Karen Maurey, then Deputy Director of the NCI’s Office of Technology Transfer. In late August, NIH affirmed in writing that our work under this new agreement would be accepted as

compliance with the government’s deadlines in our original licensing agreement. We

began drafting documents to implement the agreement.

Relying upon these agreements by the government, we pushed forward. NIH approved our entering a contractual relationship with LabCorp and Quest Diagnostics

to commercialize our testing technology and turn it into a diagnostic device. We continued our research and preparation for the clinical trials, sharing our work product

and future commercialization plans with FDA, NCI, and NCI’s contractor, Science

Applications International Corporation. In fact, Drs. Petricoin and Liotta began participating in our conference calls with our commercial clinical lab partners, LabCorp

and Quest Diagnostics.

2002 came to an end and there was still no progress, even though supposedly we

were simply turning the government’s September letter into the necessary CRADA

amendments and new clinical trial CRADA. I was troubled, given NCI’s persistent

pattern of not communicating or explaining its intentions with regard to my company, that despite countless drafts and revisions, we were unable to finalize the necessary amendments to our research CRADA and to a new, clinical trial CRADA.

What should have taken a couple of weeks at the longest was now stretching out

543

over months. Every time we got close, NCI’s positions would change, and the agency’s requirements and expectations would be amended. Correlogic agreed to virtually

everything NCI proposed but there was always something else. The goal posts kept

shifting, but I couldn’t find out what was really going on. And every step along the

negotiation path required the approval of Drs. Liotta and Petricoin.

On April 18, 2003, my fears were realized. Kevin Brand, a straightforward and

competent employee in NCI’s Office of Technology Transfer, called me and said, ‘‘I’ve

got some bad news.’’ He proceeded to tell me that NCI had decided to ‘‘go it alone’’

on the clinical trial.

Not only was NCI reversing the position it had agreed to the previous year, it was

placing Correlogic in an untenable position with regard to our contracts with our

commercial clinical lab partners and our ability to satisfy the government’s own contractual deadlines. When I contacted Dr. Petricoin, he told me I was overreacting,

that the September letter made clear the rights Correlogic had to seek regulatory

agency approval following the clinical trials. I wrote a detailed email to NCI’s Technology Transfer Office, copying Dr. Liotta and Dr. Petricoin, explaining my shock

at this new development.

A few days later, Kevin Brand sent me an email proposing that rather than entering into the clinical trial CRADA, which we had been negotiating for nearly a year,

NCI would agree to only a memorandum of understanding (MOU) that would be appended to our research CRADA. The MOU expressed some general and specific provisions and would have provided Correlogic with limited ability to participate in designing the clinical trial, developing the underlying analytical systems and seeking

approval for a marketable diagnostic product.

Once again, just like the summer of 2002, we had no real choice but to acquiesce

to NCI’s evolving position. The NCI had reversed itself, and we could either accept

their latest offer or terminate our relationship with the government. I kept asking

myself, what was really going on? None of this made sense. Why was this so complicated? Why were there so many delays? After all, Correlogic had complied with

every requirement of the prior agreements.

Despite all of the negotiations, two key points were still unresolved. Who would

make the critical decision regarding the selection of the components of the diagnostic system that would be the core of our testing service? And, how were we supposed to reconcile, on the one hand, NCI’s apparent interests in developing their

own testing service through the work being done by their contractor, Science Applications International Corporation, with, on the other hand, the contemplated collaborative clinical trial reflecting benchmarks associated with the patent rights

granted to Correlogic under our licensing agreement?

In late June and early July of 2003, I first learned of one possible explanation

for the confusion and delay. Unbeknownst to me or anyone at Correlogic, Dr. Liotta

and Dr. Petricoin had been working as consultants for Biospect, a direct competitor

of my company. And, as I learned only much later, through the Subcommittee’s May

18 hearing, they had already been doing so for seven months. Also affiliated with

Biospect was Dr. Rick Klausner, whom Dr. Liotta and Dr. Petricoin had briefed

about the Correlogic-NCI-FDA relationship when he was the director of the National

Cancer Institute. Joining these three at Biospect was Dr. Svetlana Shtrom, the NCI

technology transfer specialist who had worked on our original CRADA.

I had also learned that prior to being hired to set up NCI’s clinical lab to conduct

the hidden pattern tests, Dr. Gordon Whiteley had been an employee of a business

run by Dr. Lance Liotta, a company called Immunomatrix.

So, while our negotiations over finalizing our clinical trial CRADA were slowly

going nowhere, Dr. Liotta and Dr. Petricoin had become consultants to our competitor, Biospect, and Dr. Shtrom had become an employee. During our endless discussions with Dr. Liotta and Dr. Petricoin about Correlogic’s research and plans for

clinical trials, I now realized, I would have had no way of knowing, for example,

whether I had been talking to Dr. Liotta, the NCI employee, or Dr. Liotta, the

Biospect consultant, or Dr. Liotta, an owner of Immunomatrix, or Dr. Liotta, the

employer or former employer of Dr. Whiteley. And, these are just the relationships

that I know about.

I first learned about Biospect in May of 2003 in a conversation, followed by an

email, with a biotech industry executive, who described the company as ‘‘your new

competition,’’ rather than from my government research partners. Since Dr.

Petricoin, Dr. Liotta and I routinely discussed our collective ‘‘competition,’’ I forwarded that email about Biospect to both Dr. Liotta and Dr. Petricoin, but they

never responded. And they certainly didn’t bother telling me they had been working

for the company since December 2002. Included in the email I forwarded to Drs.

Liotta and Petricoin were excerpts from Biospect’s website. The website language

544

was so close to our own, that even to a casual reader, it would suggest that this

was a company engaged in very much the same activities as Correlogic.

A few weeks later, I began hearing more from industry contacts about Biospect

being a competitor, but now I was hearing that Drs. Petricoin and Liotta were affiliated with Biospect. In early July of 2003, I reached Dr. Petricoin by phone and

raised the issue directly. I told Dr. Petricoin that I was appalled, and that people

in the industry were talking about a conflict of interest. Dr. Petricoin promised to

share my concerns with his ethics officer.

By this time—having watched NCI drag out our negotiations for nearly a year for

no apparent reason, unilaterally tossing aside existing contractual agreements, and

tolerating what appeared on its face to be a serious conflict of interest—I felt I had

no choice but to ask one of our advisors to raise the conflicts issue with Dr. Barker.

We were already in the process of attempting to meet with her to discuss all of the

other NIH-Correlogic issues.

I raised my concerns about what was happening to my company with Dr. Barker

and other Public Health Service officials in a meeting in September 2003. While I

recognized that Dr. Liotta and Dr. Petricoin would probably not appreciate what I

was doing, I believed strongly that my company was entitled to an objective assessment and oversight by NCI officials who were in a better position to act in an impartial manner. The meeting was relatively short, but was courteous and offered a

promise of appropriate guidance from senior NCI management. I expressed concerns

about actions that appeared to be undermining our exclusive license agreement and

Dr. Barker indicated she would take all my concerns under advisement. The issue

of potential conflicts of interest per se was not discussed as it appeared that NCI

had taken the matter under review.

In October 2003, I received a packet from the National Cancer Institute, proposing, effectively, that we simply abandon all critical rights in our research

CRADA that had been negotiated over the preceding year, eliminate all of the terms

contained in the September 2002 letter of agreement, and enter into a very narrowly

defined clinical trial CRADA. We were expected to agree to language that directly

contravened specific provisions in prior written agreements with the government, including, specifically, our exclusive license agreement. Notably, it also once again left

Correlogic out of the loop with regard to determining the components of the diagnostic testing system.

The Recent Subcommittee Hearings

All of us at Correlogic were disappointed, and surprised, at the testimony given

to this subcommittee by Dr. Liotta and Dr. Petricoin. Their arguments for why no

conflict of interest ever existed depend on minimizing Correlogic through three

themes. First, they claim that Correlogic was ‘‘just’’ a ‘‘software’’ company, attempting to draw a distinction between the scope of Correlogic’s business activities and

those of Biospect. In fact, the National Cancer Institute’s own documents rebut this

assertion. For example, the National Institutes of Health’s Office of Technology

Transfer described what we were seeking to create as a ‘‘diagnostic apparatus.’’ In

various correspondence between NCI, Correlogic, Dr. Petricoin, and Dr. Liotta, the

term most commonly used to describe the system we were building was ‘‘a device.’’

There were many, many meetings devoted to detailed discussions of Correlogic’s

focus on the development of a diagnostic testing system. In fact, the issue of the

selection and assembly of all of the components of a diagnostic testing system was,

and is, at the very heart of the two year-long clinical trial CRADA negotiations. This

is also the kind of information that companies consider to be among their most

closely-held proprietary matters.

Second, they seem to imply that the hidden patterns technology we helped pioneer

for the early detection of cancer was something related to what they had been working on for years. While it is true that Dr. Petricoin and Dr. Liotta had been working

on trying to diagnose cancer for years, our approach to cancer diagnostics was something new. In fact, their own actions undermine their argument. If their assertion

were true, why did Dr. Petricoin file a Public Health Service Employee Invention

Report which clearly states that something novel had been invented? Why did Drs.

Petricoin and Liotta work with us on filing patents in our collective names? Why

did they continue to publish with us results trumpeting our novel approach?

Third, they diminish Correlogic’s role in the development of the technology on the

basis that we lack all the resources and laboratories available to the government

or large companies. No one at my company is suffering under any delusions in this

regard. However, we had an idea that may radically change the way physicians test

for cancers and dramatically improve a patient’s chance for early detection and

treatment. Using our unique abilities, our staff and advisors, as well as the specific

talents of government specialists and the capabilities of well-established industry

545

players, such as Quest Diagnostics, LabCorp, Charles River Proteomics and Advion

Biosciences, we are on the brink of bringing a new testing device to market. We are

hoping to follow in the footsteps of the many innovative small companies that have

made a substantial contribution to the public health. Facilitating this journey is the

very purpose behind the Federal Technology Transfer Act—allowing different entities in the public and private sector to pool their abilities in order to advance medical science.

Mr. Chairman, I hope my testimony today will shed some light on the need for

reform of the consulting and outside activities approval process at the Public Health

Service. As the experience of Correlogic demonstrates, the government’s current ethics, licensing and CRADA processes allow for an inappropriate muddle of intellectual property, licensing, and commercialization rights of government agencies, private individuals, corporations, and public employees acting as private sector entrepreneurs.

It is impossible in such a Kafkaesque morass to have any hope of impartiality or

basic protection of contractual rights such as patent license agreements and

CRADA. It is simply wrong for a single federal employee, whose salary is paid by

taxpayers, to sit in judgment, or influence the outcome of contracts affecting legal

rights and obligations when he or she may have private, pecuniary interests. It is

also wrong for one component of an agency to undermine contractual rights granted

by the parent agency. It isn’t tolerated anywhere else in government. It should not

be permitted at the National Cancer Institute.

Mr. Chairman, I believe the experience of Correlogic is the exception not the rule.

I remain convinced that the vast majority of employees at FDA, NCI and NIH are

upstanding and dedicated public servants who would never put themselves into the

kind of ethical quagmire we have experienced. Moreover, I believe, more than ever,

that every American has a vested interest in the success of the kind of cooperative

relationships that led to our original contract with the Public Health Service, and

I hope that whatever changes the agencies and the Subcommittee feel are warranted do not undermine this critical activity.

I hope the larger ethical issues can be addressed quickly, just as I hope the specific problems facing Correlogic can be resolved expeditiously. I hope, despite my appearance today, that Correlogic will be allowed to finish the work called for in the

various agreements we have signed with the NIH and National Cancer Institute

and the Food and Drug Administration. I hope that the NIH will honor its license

agreements. And, I hope that Correlogic will not be victimized a second time by

being shunned by the NIH when we seek future research collaborations.

All we ask for is a level playing field, where a contract signed on one day cannot

be discarded the next, at the whim of public employees who may have their own

private, business agendas. The small private investors who have funded Correlogic,

and hundreds of other small biotech companies deserve better. The men and women

in our public health service deserve better. And, most importantly, the millions of

Americans whose lives could be saved by the earlier and more accurate detection

of cancer deserve better.

I would be happy to answer any questions you may have.

Mr. GREENWOOD. Thank you, Mr. Levine, and let me assure you,

sir, that even a hint of any kind of retribution or negative response

for your cooperation with this committee will absolutely not be tolerated by this committee.

Mr. LEVINE. I appreciate that very much.

Mr. GREENWOOD. And we would expect for you to inform us of

any such untoward actions occur, because we will be all over it.

Mr. LEVINE. Thank you, sir.

Mr. GREENWOOD. Dr. Heller.

TESTIMONY OF JONATHAN C. HELLER

Mr. HELLER. Good afternoon, Chairman Greenwood and members of the committee. My name is Jonathan Heller and I am Vice

President for Information and Project Planning at Predicant Biosciences, formerly known as Biospect.

Thank you for the opportunity to appear before you today to discuss past consulting arrangements between my company and Dr.

Lance Liotta and Chip Petricoin. With your permission, before I adVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00553 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
546

dress these consulting relationships, I would like to take a few moments to tell you about myself and the company where I am extremely proud to work.

In 1989, I received my Bachelor’s Degree with Honors in applied

mathematics from Harvard University. After college, I joined the

Peace Corps as a volunteer and spent 2 years in Papua New Guinea, teaching science and math. My passion for science and math ultimately led me to graduate school at the University of California,

Berkeley, where I earned a PhD in Biophysics in 1997. The focus

of my graduate work was on biophysical investigations of Prion

proteins, which are responsible for Mad Cow disease.

In 2002, I was offered a wonderful opportunity with a small,

South San Francisco startup company called Biospect. We recently

changed our name to Predicant Biosciences.

I was one of the first scientists to join Predicant, which has now

grown to thirty-five employees. Our goal is and has been to revolutionize patient care by developing a platform that will reliably detect and diagnose the severity of a disease by analyzing protein

patterns in blood.

We are still approximately 18 to 24 months away from having a

diagnostic service ready for sale on the market. As I testify today,

my colleagues in California are hard at work on the company’s integrated system. In very simple terms, our system works in the following way: A drop of blood from a patient is fed into our instrument; the instrument prepares the blood sample for analysis; proteins in the blood are separated into smaller groups; the grouped

proteins are then sprayed into a mass spectrometer, a detection instrument; and finally, the data is analyzed to find patterns that

suggest the presence of a disease. Many of our competitors focus

on one, perhaps two of these steps. We believe that our comprehensive approach sets us apart, which is why we often refer to our system as a complete, ‘‘blood to answer’’ solution.

I manage the informatics department at Predicant. I work with

a team of eight scientists and mathematicians on the last step of

our integrated system, the data analysis step. We develop statistical tools for signal processing and for finding patterns in the data.

These software tools help us cull meaningful information out of

very large and often ‘‘noisy’’ data sets.

We are hopeful that our ‘‘blood to answer’’ solution will become

an important milestone in the field of predictive medicine. We at

Predicant are very hard at work to make that happen. Earlier detection, more accurate diagnoses, and better information on the

acuteness of a disease will optimize treatment selection and have

a dramatic impact on patient care, on outcomes, and on health care

costs.

We understand that the committee recently has held several

hearings on the important topic of ethics at the National Institutes

of Health. Our company applauds the committee for its attention

to this issue.

At the hearing on May 18, the committee considered a ‘‘case

study’’ involving the consulting relationships between our company

and Drs. Liotta and Petricoin. While Predicant was unaware that

the company would be a topic for discussion at that hearing, we are

grateful for this opportunity to participate in this very important

547

dialog and to provide our perspective on the issues raised by the

committee.

Drs. Liotta and Petricoin began consulting on a part-time basis

for our company in December 2002. As this committee has previously heard, they are among the most prominent scientists in the

field of clinical proteomics. Predicant engaged Drs. Liotta and

Petricoin because they are thought-leaders in the field, and we believed that they could assist us in conceiving of and evaluating potential applications for our system and technology. In other words,

we hoped that they could help us identify which diseases to target

first.

At the time that we engaged Drs. Liotta and Petricoin, our company was aware that there are important ethical restrictions that

limit the type of outside activities that can be engaged in by government scientists. As a result, we sought to ensure that we followed all the applicable NIH and FDA guidelines and processes

and were open and transparent in our dealings with those agencies. The consulting agreements were reviewed and formally approved by ethics officials at both the NIH and the FDA.

Because Drs. Liotta and Petricoin are government scientists, our

consulting agreements with them deliberately carved out large

areas as off-limits for consultations or discussions of any kind. For

instance, Drs. Liotta and Petricoin could not tell us about their official government research if their findings had not been made public. This includes any research performed under a CRADA.

One of the concerns raised by the committee was that Drs. Liotta

and Petricoin were consulting for Predicant at the same time they

were engaged in Government work with a software development

company called Correlogic. At the time that we entered into consulting agreements, we asked them to identify all of their outside

activities, and we became aware of their CRADA. In addition, the

fact of the collaboration between Correlogic and the Government

was well known. As a result of the Correlogic agreement, the sharing of any public/non-public CRADA-related information was specifically excluded from the scope of our consulting agreements. Consistent with the agreements, Predicant never sought from Drs.

Liotta and Petricoin, and they never shared with Predicant, any

non-public information regarding their CRADA with Correlogic. In

fact, they never shared any non-public information of any kind

with Predicant.

Another important point to be made here is that, while our company and Correlogic both employ clinical proteomics to detect disease, I think it is fair to say that our two companies are pursuing

different methods—both in terms of the software and technology to

achieve this goal. It is our understanding, based on public information, that Correlogic’s software technology uses self-organizing

maps in combination with genetic algorithms to identify and analyze proteins in the blood. Predicant, on the other hand, has focused on other methods, which we hope will prove more effective.

In addition, as noted, Predicant’s goal is to develop a comprehensive ‘‘blood to answer’’ approach to disease detection, which we believe is not directly comparable to Correlogic’s technology.

In closing, I would like to emphasize on behalf of all of my colleagues at Predicant that we will continue to follow our internal

548

ethical standards and all applicable government requirements as

we strive to create new tools to aid in the detection of cancer and

other diseases. We believe that we followed the rules and acted appropriately in our relationship with Drs. Liotta and Petricoin.

Thank you for the opportunity to appear before you today and to

participate in the important work of the committee. I would be

pleased to answer any of your questions.

[The prepared statement of Jonathan C. Heller follows:]

PREPARED STATEMENT OF JONATHAN C. HELLER, VICE PRESIDENT, INFORMATION AND

PROJECT PLANNING, PREDICANT BIOSCIENCES, INC.

Good afternoon, Chairman Greenwood, Representative Deutsch, and Members of

the Committee. My name is Jonathan Heller, and I am Vice President for Information and Project Planning at Predicant Biosciences, formerly known as Biospect, Inc.

Thank you for the opportunity to appear before you today to discuss past consulting

arrangements between my company and Dr. Lance Liotta of the National Cancer

Institute (‘‘NCI’’) and Dr. Emanuel ‘‘Chip’’ Petricoin of the Food and Drug Administration (‘‘FDA’’). With your permission, before I address those consulting relationships, I would like to take a few moments to tell you about myself and the company

where I am extremely proud to work.

In 1989, I received my Bachelor’s Degree with Honors in applied mathematics

from Harvard. After college, I joined the Peace Corps as a volunteer and spent two

years in Papua New Guinea, teaching science and math. My passion for science and

math ultimately led me to graduate school at the University of California, Berkeley,

where I earned a PhD in Biophysics in 1997. The focus of my graduate work was

on biophysical investigations of Prion proteins, which are related to Mad Cow disease.

In 2002, I was offered a wonderful opportunity with a small, South San Francisco

startup company called Biospect. After a lengthy deliberative process, our company

recently changed its name to Predicant Biosciences because of trademark issues associated with the name ‘‘Biospect,’’ and because we believe the name ‘‘Predicant’’

more closely reflects our mission of identifying and predicting disease.

I was one of the first scientists to join Predicant, which has now grown to thirtyfive employees. Our goal is and has been to revolutionize patient care by developing

a platform that will reliably detect or diagnose the severity of a disease by analyzing

protein patterns in blood. Predicant is just two-years old and still in the development phase. To date, we have been concentrating on developing our technology; refining our business strategy and operational plans; developing scientific and clinical

collaborations; and, most importantly, building a team of dedicated and talented scientists.

We are still approximately 18 to 24 months away from having a diagnostic service

ready for sale on the market. As I testify today, my colleagues in California are hard

at work on the company’s integrated system. In very simple terms, our system

works in the following way: A drop of blood from a patient is fed into our instrument; the instrument prepares the blood sample for analysis; proteins in the blood

are separated into smaller groups; the grouped proteins are sprayed into a mass

spectrometer, a detection instrument; and finally, the protein patterns are analyzed

to differentiate between patterns that suggest the presence of a disease and patterns that do not. Many of our competitors focus on one, perhaps two of these steps.

We believe that our comprehensive approach sets us apart, which is why we often

refer to our system as a complete, ‘‘blood to answer’’ solution.

I manage the informatics department at Predicant. I work with a team of eight

scientists and mathematicians on the last step of our integrated system—the analysis step. We develop statistical tools for signal processing and for finding patterns

in the data. These software tools help us cull meaningful information out of large

and often ‘‘noisy’’ data sets.

We are hopeful that our ‘‘blood to answer’’ solution will become an important milestone in the field of predictive medicine. Many dedicated scientists at Predicant are

working very hard to make that happen. Earlier detection, more accurate diagnoses,

and better information on the acuteness of a disease will optimize treatment selection and have a dramatic impact on patient care, outcome, and healthcare cost.

We understand that the Committee recently has held several hearings on the important topic of ethics at the National Institutes of Health (‘‘NIH’’). Our company

applauds the Committee for its attention to this issue.

549

At the hearing on May 18, the Committee considered a ‘‘case study’’ involving the

consulting relationships between our company and Drs. Liotta and Petricoin. While

Predicant was unaware that the company would be a topic for discussion at the May

18 hearing, we are grateful for this opportunity to participate in this very important

dialogue and to provide our perspective on the issues raised by the Committee.

Drs. Liotta and Petricoin began consulting on a part-time basis for our company

in December 2002. As this Committee has heard previously, Drs. Liotta and

Petricoin are among the most prominent scientists in the field of clinical proteomics,

our company’s area of focus. Predicant engaged Drs. Liotta and Petricoin because

they are thought-leaders in the field, and we believed that they could assist us in

conceiving of and evaluating potential applications for our system and technology.

In other words, we hoped Drs. Liotta and Petricoin would use their knowledge and

experience in the field to assist us in a variety of ways, including by helping us

identify which diseases to target first.

At the time that we engaged Drs. Liotta and Petricoin, our company was aware

that there are important ethical restrictions that limit the type of outside activities

that can be engaged in by government scientists. As a result, we sought to ensure

that we followed all the applicable NIH and FDA guidelines and processes and were

open and transparent in our dealings with those agencies. The consulting agreements between Predicant and Drs. Liotta and Petricoin were reviewed and formally

approved by ethics officials at both the NCI and the FDA. In addition, it is our understanding that NCI officials in fact helped draft the agreement between Dr. Liotta

and Predicant.

Because Drs. Liotta and Petricoin are government scientists, our consulting agreements with them deliberately carved out large areas as off-limits for consultations

or discussions of any kind. For instance, Drs. Liotta and Petricoin could not tell us

about their official government research if their findings had not been made public.

This included any research performed under a Cooperative Research and Development Agreement, or ‘‘CRADA.’’

One of the concerns raised by Committee Members at the May 18 hearing was

that Drs. Liotta and Petricoin were consulting for Predicant at the same time they

were engaged in government work with a software development company called

Correlogic. At the time that we entered into consulting agreements with Drs. Liotta

and Petricoin, we asked them to identify all of their outside activities, and we became aware of their CRADA with Correlogic as a result. In addition, the fact of the

collaboration between Correlogic and the government and its general subject matter

were well known in our field. As a result of the Correlogic agreement, the sharing

of any non-public CRADA-related information was specifically excluded from the

scope of the consulting agreements between our company and Drs. Liotta and

Petricoin. Consistent with the agreements, Predicant never sought from Drs. Liotta

and Petricoin, and Drs. Liotta and Petricoin never shared with Predicant, any nonpublic information regarding their CRADA with Correlogic. In fact, Drs. Liotta and

Petricoin never shared any non-public information of any kind with Predicant. We

were always of the view that they took care to ensure that their work for us did

not breach any ethical or other requirements.

Another important point to be made here is that, while our company and

Correlogic both employ clinical proteomics to detect disease, I think it is fair to say

that our two companies are pursuing different methods—both in terms of software

and technology—to achieve this goal. It is our understanding—based on public information—that Correlogic’s software technology uses self-organizing maps in combination with genetic algorithms to identify and analyze proteins in the blood. Predicant,

on the other hand, has focused on other methods, which we hope will prove more

effective. In addition, as noted, Predicant’s goal is to develop a comprehensive ‘‘blood

to answer’’ approach to disease detection, which we believe is not directly comparable to Correlogic’s technology. As a result, even if it had not been prohibited

by our consulting agreement, Predicant would not have sought confidential information pertaining to Correlogic’s CRADA because such information would have been

of no value to our company.

In closing, I would like to emphasize on behalf of all of my colleagues at Predicant

that we will continue to follow our internal ethical standards and all applicable government requirements as we strive to create new tools to aid in the detection of cancer and other diseases. We believe that we followed the rules and acted appropriately in our relationship with Drs. Liotta and Petricoin.

Thank you for the opportunity to appear before you today to participate in the

important work of the Committee. I would be pleased to answer any of your questions.

550

Mr. GREENWOOD. Thank you, Dr. Heller. I’m going to ask—the

Chair recognizes himself and Ms. DeGette and I have agreed that

I’ll question for both of us, so we’re going to go through a fairly

tight script here.

So if the staff could please play clips two and three, we will hear

Dr. Petricoin’s testimony from last week about discussions he had

regarding this with you, Mr. Levine.

[Tape is played.]

Mr. GREENWOOD. Mr. Levine, in your discussions with Dr.

Petricoin was your frustration, as he recalls, simply over the fact

that Biospect employed so many former NCI employees?

Mr. LEVINE. Not at all, Mr. Chairman. My conversation with Dr.

Petricoin which, in fact, did not occur at the time that Dr. Petricoin

suggested that it did, was a——

Mr. GREENWOOD. When did it occur?

Mr. LEVINE. The actual oral conversation occurred or telephone

conversation, I should say, occurred on or about July 8 or July 9,

2003. And it was explicit at that time that we viewed Biospect as

a competitor. And what’s interesting though is when I look back because of these hearings, it’s very clear that in May 2003, I had sent

an e-mail to Drs. Petricoin and Liotta which included the website

of Biospect. It had been sent to me by an outside industry executive who said this is your new competition, Peter. And I forwarded

that e-mail to Drs. Petricoin and Liotta as sort of an FYI because

we were always talking about the competition out there, in essence.

So I made it very clear——

Mr. GREENWOOD. Mr. Levine, would you turn to Tab 28 in the

binder there. I think that is the e-mail to which you are referring.

I’m going to ask you to read it. Go to Tab 28 and then go to the

second page and I think you’ll find the e-mail to which you just referred.

Would you read that?

Mr. LEVINE. The incoming e-mail is directed to me from an outside industry executive. It says, ‘‘Peter, nice talking with you today.

Here’s some information on your new competition. I’ll be in touch.

Vince.’’ And attached to the bottom of the e-mail is the website, I

assume the website at that time of Biospect which describes the

company. Actually, I think Dr. Heller’s description just now was extremely accurate. And that’s exactly as we perceived Biospect to be

which was again exactly what Correlogic is doing.

I then forwarded this same e-mail with all the background material on Biospect to Drs. Liotta and Petricoin on Thursday, May 22.

And the subject line was ‘‘FYI, Info on Biospect, FYI Rick

Klausner, Lance and Chip, Peter.’’

So I brought this to their attention. I had no idea that they were

consulting for Biospect. Frankly, I had never heard of Biospect before, but again this was brought to my attention by an outside industry executive.

In the 4 or 5 weeks that followed this e-mail, I was informed by

a number of other biotech industry officials that they heard that

Petricoin and Liotta were consulting for Biospect or had some affiliation actually. And I became worried about that. And it was

brought to my attention very specifically in late June, actually, I

think it was over the July 4 weekend and I went to the website

551

for the first time myself and all the pieces came together. I realized

that Biospect was located on the same floor in our building in Bethesda and that I had indeed seen Drs. Petricoin and Liotta there

which always struck me as being rather odd from time to time.

And all the pieces began to come together.

So at that point I called Dr. Petricoin who I considered to be a

friend and I confronted him about it, very directly, and my concern

getting back to your question, Mr. Chairman, my concern was not

that there were all these former NCI folks, the concern was very

specifically that Biospect was a competitor and that they were consulting with a competitor.

Mr. GREENWOOD. Did your discovery of the consulting arrangement between Biospect and Drs. Liotta and Petricoin have an impact on your working relationship within the CRADA?

Mr. LEVINE. Oh, it most certainly did. I immediately instructed

all the scientists at Correlogic to be very careful about the information that we shared with them. And for example, this is at a time

where we were beginning our work on electrospray technology and

again, I don’t know much about the details at Biospect, but it certainly seems to be very much related and this was an area that we

were pursuing aggressively, again, all part of the process of putting

together a turnkey system that goes basically from the patient’s

vein to a diagnostic determination. So we cautioned, I cautioned everybody at Correlogic to be very careful about what was said until

the issue was resolved.

Mr. GREENWOOD. I’m going to ask the staff to play Clip 5 now.

[Tape played.]

Mr. GREENWOOD. First, let me ask you, Dr. Heller, do you consider yourself just a medical device company?

Mr. HELLER. I don’t know exactly what a medical device company

is, Mr. Chairman. I would say that we’re trying to provide a complete solution. It contains an instrument. It contains software. It

contains an application and we plan on delivering that entire system to the market for diagnosis.

Mr. GREENWOOD. Sounds like what Mr. Levine is trying to do.

Mr. HELLER. It does sound like what he has said he is trying to

do. That is not our understanding of what he was trying to do.

Mr. GREENWOOD. Let me go to you, Mr. Levine. Do you agree

with Dr. Liotta’s assertion that you just heard, that what

Correlogic is doing ‘‘seems completely different’’ from what Biospect

is doing?

Mr. LEVINE. No, I was actually amazed at that comment because

at that time, and going back actually as early as April 2002, it’s

very clear from the license agreement that we have with the Public

Health Service and from what has now been a 2-year negotiation,

that the very central issue was the creation of a turnkey system.

That was the content of probably a good two-thirds of our CRADA

meetings. It was the content, in fact, it was the sticking point of

our negotiations with the Public Health Service and particularly

with NCI was the selection of components for a turnkey system.

Mr. GREENWOOD. And is there any question in your mind that

Dr. Liotta understood that?

Mr. LEVINE. Dr. Liotta was intimately involved in all those negotiations. And indeed, one of the other issues that went on in this

552

same time period was that, of course, the Public Health Service approved our contract with Lab Corp. of America and Quest

Diagnostics and again, these are companies that with Correlogic,

were attempting to deliver a turnkey ovarian cancer testing service. So again, the idea that we were only a software company is—

it’s very clear as early as April 2002, that was not the case.

Mr. GREENWOOD. Do you believe that other parties at NIH understood that you were not just a software company as Dr. Liotta

suggested?

Mr. LEVINE. Well, I don’t know where in the hierarchy of NIH

the information was going. I know certainly that Drs. Liotta and

Petricoin were our principal contacts at NIH, at FDA and NCI. So

I don’t know what they were telling their superiors, but clearly, a

large number of people that ranged frankly from Dr. Shtrom of

Biospect to people in the Office of Technology Transfer of NIH to

the people or to the officials in the Office of Technology Transfer

at NCI, all of whom were intimately aware of this. It’s in documents.

Mr. GREENWOOD. Speaking of documents, in Tab 28 again, would

you point out some of the NIH e-mails that show what they understood?

Mr. LEVINE. There are a series of e-mails here and for example,

this is one on July 3, 2003 between Kevin Brandt and myself, cc’d

to Dr. Liotta and Dr. Petricoin.

Mr. GREENWOOD. Explain who Kevin Brandt is.

Mr. LEVINE. I’m sorry. He’s with NCI’s Office of Technology

Transfer. And again, this e-mail is describing the development of

what at this point was a Memorandum of Understanding and the

focus of this e-mail and I believe several others in this same group

is the—for example, choosing of components. And again, the issue

of choosing of components is far beyond software. It was one of the

things that we were focusing on which mass spec. you use, this protein separation or ionization system do you use? Frankly, all the

components Dr. Heller just described. That’s exactly what

Correlogic was doing.

Our business model, however, was a little bit different, apparently, than Biospect’s. We were doing this through collaborations

with Lab Corp. and Quest, with Avion Biosciences, with Charles

River Proteomics. We were doing this by way of license agreement

and contract. But clearly, every one of these e-mails and all of

these negotiations were all centered on that point of developing a

turnkey system.

Mr. GREENWOOD. Do you believe that it would be clear to someone comparing Correlogic to Biospect that the two companies are

competitors?

Mr. LEVINE. Clearly, and in fact, again the way in which I was

alerted to, was that other industry executives, including some senior executives at a very large in vitro diagnostic company that if

I mentioned the name everybody would know, they were the ones

who were bringing it to my attention.

Mr. GREENWOOD. Were you aware, prior to these hearings, that

in August 2002, Drs. Petricoin and Liotta were in discussions with

a company called Signet Labs about becoming members of their

new scientific advisory board?

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Mr. LEVINE. Prior to these hearings, no.

Mr. GREENWOOD. Would you go to Tab 33 and read the June 28,

2002 e-mail from Jeff Livingstone to Dr. Petricoin and Dr.

Petricoin’s response.

Mr. LEVINE. It says ‘‘thank you very much for your kind reply.

We are aware of Dr. Liotta’s excellent work in proteomics and LCN

and has worked with Ben Hitt at Correlogic. I agree he’d be an excellent person to contact in this regard. At present, Signet is a privately owned small business. The core business if profitable. However, the capital necessary for commercialization or new technology

will require outside financing. Our plans are to use outside investment to double our size and research activities. And we will be

starting our road show next month to raise approximately $15 million for successful commercialization of our technology. We expect

this to be done through a combination of corporate and venture investments and some of our corporate partners, Zymarc, Corning,

Life Science, etcetera, have expressed interest in contributing. In

order to preserve capital, we are intending to offer equity compensations to those who serve as members of the SAB. Obviously,

once we close on our first round of financing, this will convert to

cash or cash plus equity basis, depending upon the interest of that

particular SAB member.’’ Dr. Petricoin’s response dated Friday,

June 28 says ‘‘Hi Jeff, I’d be interested in learning more about this.

I’d like to recommend my colleague, Dr. Lance Liotta at the NCI

for consideration for the SAB. I can provide you with his contact

info if you wish. I highly recommend him. We would have to receive outside activity okay from ethics. Can you tell me what kind

of compensation the SAB members receive for their time. Best.

Emanuel.’’

Mr. GREENWOOD. Now read the second paragraph in the e-mail

from Jeff Livingstone to Drs. Petricoin and Liotta and then the

reply e-mail from Emanuel Petricoin dated August 1, 2002. Tab 32.

Mr. LEVINE. The e-mail from Dr. Petricoin to Mr. Livingstone

says ‘‘Hi Jeff, both Lance and I are interested in talking with you

about this. Perhaps a conference call this afternoon would be helpful to us so that we can understand better what you envision our

roles to be, a bit more about your Magellan technology and how to

get ethics clearance. Note that both Lance and I work with

Correlogic as a CRADA partner within our Government jobs. Best,

Emanuel.’’

And then there’s another e-mail here also from Jeff Livingstone

to Dr. Liotta. ‘‘Dr. Liotta, you may be aware of any correspondence

with Dr. Petricoin. I’ve invited him to be a member of a new Scientific Advisory Board we’re putting together. He, in turn, suggested we send an invitation to you. As we’re very aware of your

excellent work in pathology and proteomics and of course, your

background is an ideal fit for a new technology we’ll be launching

at the DDT meeting this coming Sunday. My only concern here is

there may be a conflict of interest between the companies you’re

working with at present, e.g., Correlogic and any companies you

may intend to start. As a professional courtesy, I do not wish to

put you in such a situation. We meant no slight. I trust you understand. However, if this is not the case and you are interested, then

please let me know. We’d be honored to have expertise and perVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00561 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
554

spective available for the development of our Magellan platform.

Plese note, I’ve sent a binder to Dr. Petricoin containing an overview of our company and technology, along with his invitation to

the SAB. Please feel free to review it if you wish. I note you be participation’’—that’s the way it’s written—‘‘in the DDT meetings. See

below. I intend to be at this meeting on Sunday and all day Monday. I’d be happy to meet with you in person if you have the time.

If you’re interested in visiting Signet while you’re here, please let

me know. I’d like to extend this invitation to Dr. Petricoin as well,

if he’ll be here for the meeting. Thank you for consideration.’’

Mr. GREENWOOD. Let me ask you this question. What role did

Svetlana Shtrom play in the CRADA?

Mr. LEVINE. Dr. Shtrom was the NCI technology transfer specialist that I dealt with continuously really from the summer of

2000 through the fall of 2002, both through the development of the

original CRADA and then the attempted amendments that began

in the summer of 2002 and she was also involved indirectly, I will

add though, with the negotiations with NIH’s Office of Technology

Transfer about the license that we had, the exclusive license for the

hidden patterns technology. The reason being is that there was an

overlap, if you will, between the CRADA and the license agreement. Indeed, that’s one of the issues really here that makes this

so complicated. It’s again that we are both co-inventors, along with

Petricoin and Liotta and we are the exclusive licensee of the Government’s interest in that invention and at the same time operating under a CRADA.

So there was a lot of exchange of e-mails, conversations, between

the Technology Transfer Office of NIH that we negotiated with for

the exclusive license and NCI’s Tech. Transfer Office that was responsible for the CRADA.

Mr. GREENWOOD. And when did you learn that Svetlana Shtrom

was involved with Biospect?

Mr. LEVINE. At the same time, essentially, that I learned that

Dr. Petricoin and Dr. Liotta were involved. I was aware that she

was on the floor of our building, but never made the association.

Mr. GREENWOOD. In your testimony, you mention that you’re on

the brink of bringing a new testing device that can improve

chances for early detection and treatment of cancer to market. Has

the process of negotiating with NIH in any way slowed the process

of getting your product to the American people who need it?

Mr. LEVINE. That’s difficult to answer, Mr. Chairman, but certainly the amount of time, energy and effort that a little company

like Correlogic has spent—a 2-year negotiation and of course, the—

as we began to describe the CRADA relationship after July as the

un-CRADA, certainly we could have made much more progress had

there been a genuine collaboration and cooperation with our Government partners.

Mr. GREENWOOD. Okay, Dr. Richard Klausner is listed on

Biospect Predicant’s website as a founder and director of the company. Do you know whether or not Dr. Klausner was aware of the

work being done on Correlogic’s CRADA with NCI?

Mr. LEVINE. Long before any of these issues became aware, became apparent to me, in casual conversations with both Drs. Liotta

and Petricoin, they mentioned to me the great interest that Dr.

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Klausner had in this and indeed, I think when you look back at

all that went on, there was a tremendous amount of publicity in

February 2002 concerning the Lancet publication on our ovarian

cancer work with Dr. Liotta and Dr. Petricoin. So I think the Agency as—I think everyone at the highest levels of the Agency was

very much aware of this work, but again, I was told specifically

that both Petricoin and Liotta had been brought in to talk with Dr.

Klausner.

Mr. GREENWOOD. And do you know if those discussions occurred

before or after his departure from NCI?

Mr. LEVINE. No, I believe they occurred before.

Mr. GREENWOOD. When you learned that Dr, Klausner was involved with Biospect, were you alarmed that the person with whom

the two principal investigators on your CRADA had discussed your

work, was involved with a competitor?

Mr. LEVINE. Well, all that raised troubling questions and again,

the e-mail that I sent to Drs. Liotta and Petricoin on May 22 was

part of that issue. And again, because we routinely over the preceding 2 years had sent e-mails and constantly talked between ourselves about what other institutions were doing, other academics,

other private sector companies, knowing that there were other folks

out there who were sort of racing to fill the same space.

So yes, it was very troubling and in general, the idea that the

former director of NCI and actually there were at least three people that I know from NCI, two rather high positions, plus Dr.

Shtrom who had worked with us directly, were all now members

or were working with Biospect. Certainly, it seemed to be stacking

the deck.

Mr. GREENWOOD. Okay. I will turn to you, Dr. Heller.

When did Biospect hire Dr. Liotta and Dr. Petricoin?

Mr. HELLER. I believe their consulting agreement started in December of 2002.

Mr. GREENWOOD. And how long did the consulting relationship

last?

Mr. HELLER. Up until last month as far as I know.

Mr. GREENWOOD. Last month?

Mr. HELLER. Last couple of months, yes.

Mr. GREENWOOD. And do you know when Dr. Liotta stopped receiving payments?

Mr. HELLER. I don’t have an exact date, but it was some time in

2004.

Mr. GREENWOOD. And did these two doctors work pretty consistently through that time period?

Mr. HELLER. They spent initially about 2 days a month and then

subsequently about 1 day a month working with us.

Mr. GREENWOOD. So Biospect was still compensation Dr. Liotta

for work into May, is that correct?

Mr. HELLER. I believe his last paycheck was May 1.

Mr. GREENWOOD. Look at Tab 41, I think it might help you.

Mr. HELLER. So yes, according to this, Dr. Liotta got paid on May

1, 2004.

Mr. GREENWOOD. Okay, the staff would put up a slide and if you

would turn your attention to the screen, Dr. Heller.

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Is this the canceled check indicative of the last time Biospect

compensated Dr. Liotta?

Mr. HELLER. That looks like it is.

Mr. GREENWOOD. Okay. So he was still doing work for the company during March, April and May. Is that correct?

Mr. HELLER. I do not recall whether we actually had conversations during that time period, but I would say most likely we did,

yes.

Mr. GREENWOOD. Is it likely you would have compensated him

for doing nothing?

Mr. HELLER. As the agreement stood, we compensated them on

the first of every month regardless. They did not have to turn in

time sheets or anything like that. We did a direct deposit essentially.

Mr. GREENWOOD. You don’t know whether he was still doing

work during those 3 months?

Mr. HELLER. In the last couple of months, I was no longer on the

phone calls with Drs. Petricoin and Liotta. I would have to guess

that they were still doing work in February.

Mr. GREENWOOD. You said that you were not on the phone calls.

That presumes that you know that there were phone calls?

Mr. HELLER. I assume there were phone calls.

Mr. GREENWOOD. You assume, based on what do you make that

assumption?

Mr. HELLER. One of my colleagues was responsible for working

with them and setting up such phone calls and he was fairly diligent about that.

Mr. GREENWOOD. Okay. The Chair will yield 10 minutes to the

gentleman from Florida, Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman. If the staff would

please play clip one. Plese listen to a statement of Dr. Petricoin

made at our last hearing.

[Audio file played.]

Mr. STEARNS. I guess the question would be for Dr. Heller.

Based on Biospect’s relationship with Dr. Petricoin, do you believe it is likely that this encounter with Dr. Goodman was the first

time Dr. Petricoin understood that Biospect did data analysis?

Mr. HELLER. With all due respect, I cannot really say what Dr.

Petricoin and Dr. Liotta remember about what we told them. I

have the utmost respect for Drs. Liotta and Petricoin and therefore

it’s actually hard for me to understand the clip that we just heard.

I believe that we had past discussions with them, starting at the

beginning of their consulting relationship with us which made

them aware that the company was doing pattern recognition, pattern analysis and subsequent to that we signed a confidentiality

agreement with the NCI to acquire new data that was publicly

available, but not yet published from Drs. Liotta and Petricoin and

I believe they were aware that we had signed that consulting

agreement and downloaded their data.

Mr. STEARNS. Can I summarize by saying you don’t think that

is believable what you just heard?

Mr. HELLER. I can’t state under oath again that what they were

thinking when they answered that, but it’s not my knowledge.

557

Mr. STEARNS. Let me ask you yes or no, what you heard, do you

think that is believable?

Mr. HELLER. Not to my knowledge.

Mr. STEARNS. Okay, so basically you’re saying you don’t think it’s

believable.

Did Dr. Liotta or Dr. Petricoin offer any advice to Biospect on

how to set up the labs?

Mr. HELLER. I assume by that you mean our reference labs?

Mr. STEARNS. Yes, the reference labs?

Mr. HELLER. I think we, in general, discussed different routes of

bringing a product to market and that included, covered the area

of setting up a clinical reference lab, yes.

Mr. STEARNS. Did they advise you on certification standards?

CLIA certification standards?

Mr. HELLER. One of the main things that the two of them did

is they pointed us to public information because we were a small

company. We didn’t have a lot of resources. We didn’t know exactly

where to look. I believe that one of the things they pointed us to

was a list of CLIA reference lab standards, yes.

Mr. STEARNS. Which Federal agency regulates CLIA standards?

Mr. HELLER. I believe it’s CMS.

Mr. STEARNS. So Dr. Liotta gave Biospect advice on how to implement a CMS standard?

Mr. HELLER. I wouldn’t say that he gave us advice. I would say

that he pointed us in the direction of a document that told us essentially what we would have to do to meet that standard.

Mr. STEARNS. So he advised on how to make the reference lab

CLIA compliant?

Mr. HELLER. Again, he pointed us to documents that described

how we would do that. I wouldn’t say that he actually advised us

how to do that.

Mr. STEARNS. Mr. Levine, has Correlogic attended any clinical

proteomics conferences?

Mr. LEVINE. Yes, we do, sir.

Mr. STEARNS. And were they with Drs. Liotta and Petricoin, did

they make presentations at these?

Mr. LEVINE. Over the last 3 years, there have been a large number of conferences. We have not attended most of those. I believe

there have been at least two or three where either I have been a

speaker along with Dr. Petricoin or Correlogic’s Chief Scientific Officer, Dr. Hitt may have been a speaker along with Dr. Petricoin.

Mr. STEARNS. And when they discussed the work they had done

for Correlogic, did they acknowledge the company’s contribution to

the work?

Mr. LEVINE. In a minimal way. And in fact, over the last 21⁄2

years, there was a series of e-mails that I’ve not provided yet to

the committee, but I’d be happy to do so where we actually complain about that, that basically our contribution is being minimized.

Mr. STEARNS. So the principal investigators, you were collaborating with on this CRADA, weren’t giving the company any credit

for their work?

Mr. LEVINE. I wouldn’t say no credit. I’d say really de minimis

credit and particularly relative to the Lancet publication in which

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the actual analysis, I mean the actual—the meat of the Lancet, the

real discovery is what Dr. Hitt did in the computational analysis.

Mr. STEARNS. But as you mentioned, you are named with Dr.

Petricoin and Dr. Liotta in filing patents in a publication. Is that

correct?

Mr. LEVINE. That’s correct.

Mr. STEARNS. Thank you, Mr. Chairman.

Mr. GREENWOOD. The chairman recognizes Mr. Bilirakis for

questions for 10 minutes.

Mr. BILIRAKIS. Well, Mr. Chairman, I listened to some of their

testimony while I was out in the anteroom. I’m not going to be specific here as Mr. Stearns and others maybe were, but—and I know

in your written statements you basically refer to your experience

at NIH and what not. Mr. Levine, you quite—you’re pretty strong,

I would say quite frankly, would not be at this critical and exciting

juncture in talking about the accomplishments of your company

without the considerable talent and resources of the NIH and NCI,

etcetera.

You’re both health care people. You’re in it, obviously, to make

a profit, but you’re in it also because I think you care and you want

to help people.

And I know you’re involved in the research area and you work

with NIH and some of these other groups. I’m just going to ask you

to maybe complement, if you would, supplement, complement your

written testimony, anything more—you sat through the—how

much time did we take with the prior panel. You sat through all

that.

Let’s start with Mr. Levine, is it Levine?

Mr. LEVINE. Levine.

Mr. BILIRAKIS. With what I get with my last name, you shouldn’t

be——

Mr. LEVINE. I respond either way, I got used to it too.

Mr. BILIRAKIS. Mr. Levine, why don’t you just go ahead and supplement your statement. You heard—your written statement was

written prior to coming in and sitting in during the last panel. And

just tell us how do you feel, I mean, how do you feel about what

has happened? How do you feel about what we are doing here in

terms of research? Are we helping research or are we hurting research, etcetera? Go ahead.

And then Dr. Heller, I would ask you the same thing.

Mr. LEVINE. I think, in general, that the subcommittee’s work is

critical and I think it will create a very significant improvement.

We constantly hear about the job generation, for example, from the

small business sector, well, actually both Biospect and Correlogic

are small companies and if the Government wants to really realize

the great potential of these public/private partnerships, you’ve got

be able to assure that when small companies enter into relationships with the Government that they don’t get crushed. And so I

think the theme that I take away from all of this is that everyone

in America has to abide by their agreements. Everyone has got to

play fair, but particularly the Government, particularly the Government. My God, if a Government agency can just sort of arbitrarily decide to ignore an agreement that’s signed on 1 day because other people in the agency think it’s not correct or because

559

something looks more attractive elsewhere, the whole system falls

apart. So I’m actually very encouraged by what Dr. Zerhouni said.

Mr. BILIRAKIS. Excuse me, a minute, sir. I wanted to ask the

questions. Dr. Zerhouni has left. Are there any NIH people in the

audience? Are there any NIH folks here? Are you all taking notes?

Okay.

I would hope that some of the things that you’re hearing from

these two witnesses will go to Dr. Zerhouni and Mr. Azar.

Okay, go ahead, sir.

Mr. LEVINE. So I’m very encouraged by what I heard this morning. The other suggestion I would make though, I realize that the

focus of these subcommittee hearings are principally on conflict of

interest and the consulting arrangements, but I think that all this

ties into the broader issue that when you have an agency as large

as NIH, and you have this very complicated interaction of licensing

agreements, intellectual property, contracts, CRADAs, essentially

you have the potential and I think Correlogic is caught up in the

middle of this, the potential for an incredibly complicated situation

where rights are being granted and then whittled away or it’s confusing as to which rights were granted. So I’m not sure that I can

offer a solution this morning, but I think certainly someone has got

to be able to be in a position to step back and say and what are

all the conflicting or potentially conflicting and overlapping relationships between this agency, this employee of this agency, this

private sector company, and this is particularly true, particularly

true in the area of biotech.

I have no problem whatsoever with Biospect, what Dr. Heller has

said. We are both working toward the same end point and it’s a

great end point for the public, in general. But if it leaves too small

biotech companies kind of wondering who they’re talking to and

what information they should be sharing and not be sharing, that

can’t be good for the public. So that’s the lesson that I would take

away from all of this.

Mr. BILIRAKIS. Based on your experience with NIH, would you

look forward to working with them or any other part of the Federal

Government again regarding the good work that you’re doing?

Mr. LEVINE. That is a difficult question, Congressman. We do intend to continue working with the Public Health Service. And,

again, in my opening comment, that is one of the concerns I have

is that there are no whistleblower statutes for companies, especially small companies. But, no, we would.

I mean, overwhelmingly, all of the scientists and the executives

that I have dealt with in the Public Health Service are outstanding, so I don’t think that this is a systemic problem. I think

there was a profound lack of common sense applied to all of this.

I mean, when you step back from all of the lawyers and figuring

out where the semi-colons are placed, I mean, basically, you know,

none of this would pass the smell test. It just didn’t make sense.

So, you know, but I don’t think that is the rule.

Mr. BILIRAKIS. I know the chairman basically laid out his admonishment regarding any negative suffering that you might have as

a result of testifying here before you—right at the beginning of

your testimony. So hopefully—I know he was pretty strong and

stern when he made those comments, and I know he means it.

560

Okay. Dr. Heller?

Mr. HELLER. I do. I also encourage the committee’s work. I think

you are doing very good work, and I was encouraged by Dr.

Zerhouni’s plans. I think we come from a different perspective. We

feel like we followed all of the ethical rules and procedures, and

really up until this morning we were under the impression that

Drs. Liotta and Petricoin had as well. We do not feel like we had

any surreptitious or secret dealings with them in any way.

I think it is up to the committee and to Dr. Zerhouni to find the

right balance between what government scientists should be allowed to do in terms of consulting and cooperative research agreements, and what not. I don’t feel like I am in the proper place. I

am not an ethicist in any way.

I will say that I believe that allowing government scientists to

consult encourages new developments in the field, and, in fact, I

believe that Drs. Liotta and Petricoin’s work has really led to the

blossoming of a new industry. And I think that was—that is to be

encouraged in many ways.

Mr. BILIRAKIS. Are you optimistic hearing Dr. Zerhouni’s 10 steps

as he explained them to us? Are you optimistic that those would

work?

Mr. HELLER. I am. I think the transparency is the main issue

within NIH.

Mr. BILIRAKIS. Yes. Do you agree, Mr. Levine?

Mr. LEVINE. I would like to make one more comment on Dr. Heller’s comment, which I agree with generally. But the last part of

your comment, Dr. Heller, that consulting is a way to somehow

spread the—you know, get the technology out, I really reject that

idea completely. The Congress has set up very, very clear mechanisms for the technologies that are developed by government to be

transferred to the private sector, through a CRADA, through licensing agreements, and, of course, both of those are mechanisms

that Correlogic has availed itself of.

And, third, through the peer review and the publications and the

public speaking that government scientists do. So the idea somehow that private consulting by a government scientist, where those

funds go into the pocket of the scientist, and the information goes

directly to the private sector company, I think that is just not—

that is not a methodology for technologic transfer. There are three

very, very good methods for technology transfer, and that is not one

of them.

Mr. BILIRAKIS. Well, Dr. Heller, a response to that? I mean, that

is a little bit of a hornet’s nest there. Go ahead.

Mr. HELLER. I mean, I guess, again, I am not an expert in this,

but I guess I would disagree. I believe that consulting is a valid

way to get information that government scientists have out to industry. And I guess I feel also that there are a huge number of applications for these kinds of technologies.

Although in some senses Correlogic and Predicant may be competitors, in other senses there are hundreds of applications that we

might want to go after. You know, specifically, from the literature

I know ovarian cancer is at the top of Correlogic’s list of diseases

that it is trying to address. That is not on our list. And so I see

561

no fundamental conflict. I feel like government employees can look

at the——

Mr. BILIRAKIS. So do you think that consulting is a pretty significant part of adequate research?

Mr. HELLER. I believe it is a way for government scientists to

make their expertise available to biotech.

Mr. BILIRAKIS. Well, it is kind of a fundamental point I guess.

All right. Thank you very much, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman.

The Chair recognizes the chairman of the full committee, Mr.

Barton.

Chairman BARTON. Thank you, and I appreciate this panel still

being here. I had to go do something else, and I am glad they are

still here.

Dr. Heller, let me ask you a hypothetical. Let us assume that I

move to Colorado, and I move to Congresswoman DeGette’s district. And I know she is a crackerjack campaigner, and I find out

who her consultant is that is helping her on her campaign, and I

decide to run for Congress against her.

And I go to her consultant, and I say, ‘‘Now, I am going to pay

you a lot more, and I want you to continue to work with Congresswoman DeGette, but don’t tell her that you are working for me.

Just every now and then I am going to have a board meeting, and

I want you to come give me information about the campaign.’’

Would you consider that ethical or not?

Mr. HELLER. I would not consider that ethical, but I do not believe that that is the case in front of us today.

Chairman BARTON. All right. Now, you said you don’t consider

that to be ethical. Now, my understanding is that the former head

of NCI, Dr. Klausner, at one time was a member of the board of

your predecessor company, and maybe still is a member of the

board of your—the company as it is currently configured. Is that

correct?

Mr. HELLER. He is.

Chairman BARTON. Okay. Now, Mr. Levine, sitting right next to

you, several years ago according to his testimony had this idea, and

he sketched it out on a napkin at a restaurant, about the way to

find a predictive test for ovarian cancer. And he got some folks at

NIH to collaborate with him and checking it out, and, lo and behold, it appeared to have viability.

And so they created what was called a CRADA, and he had several of the NIH researchers working with him on it, I think a Dr.

Liotta and a Dr. Petricoin. And things were moving along swimmingly, and then, lo and behold, unbeknownst to him, they got retained to work for your company. And my guess is that Dr.

Klausner recommended them.

I don’t know that, but since he was the head of NCI and he had

access to this information, it would—it is speculation on my part,

but it would seem to be logical that if he knew what was going on

that he could have pointed these individuals out to your company.

Is that how it happened, or did you all just pull names out of a

hat and it happened to be these two scientists that were working

on the CRADA with Mr. Levine’s company?

562

Mr. HELLER. Let me explain a number of things. First of all, I

want to address the point that the agreements between Biospect,

now Predicant, and Drs. Liotta and Petricoin, were at no time secret. We never kept that from public information. We divulged that

to people we were working with. It is not my——

Chairman BARTON. So Mr. Levine next to you is just an idiot and

didn’t know?

Mr. HELLER. We never talked to Correlogic or any employees

there.

Chairman BARTON. You honestly think that it is fair game to

hire people that are working for a company that, if not doing exact

research, something in a similar vein. In fact, apparently they are

the ones—this gentleman to your right is the gentleman who had

the idea, and it is okay to go in and retain them and just assume

that it is Mr. Levine’s job to know that they were retained and hire

a private investigator to go out and search them out?

Mr. HELLER. So let me address, again, a couple of issues here.

One, although Mr. Levine and his—the people he works with did

talk to Drs. Petricoin and Liotta, I would call it farfetched to—with

all due respect, to say that they invented pattern recognition as it

comes—you know, with respect to biological data. This is something that was going on in very closely related fields.

The second thing I would like to say——

Chairman BARTON. I assume that you read his testimony about

the dinner conversation that he had and sketching the idea on the

napkin. You dispute that? That didn’t——

Mr. HELLER. No, I completely believe that it occurred. But there

were very closely related fields where people were doing very similar pattern recognition.

Chairman BARTON. Okay.

Mr. HELLER. Not in proteomics but in gene expression analysis,

a very closely related field.

Second of all, I don’t think that it is fair to say that we were

doing exactly the same thing, or we are doing exactly the same

thing as Correlogic. Mr. Levine pointed out that we are approaching the same problem from different ways, and I think there is a

fundamental difference.

Chairman BARTON. Nothing wrong with that. We are not disputing that there is——

Mr. HELLER. No, but let me explain. I think we are trying to develop a complete technology solution. We are not just trying to buy

parts off the shelf and fit them together, and I think that because

of that we are—we think of ourselves as a very integrated company.

Chairman BARTON. Well, but——

Mr. HELLER. We do not think of ourselves as only producing software. And to our knowledge, that was Correlogic’s only——

Chairman BARTON. Well, let me—Mr. Levine, do you consider

yourself the software company only?

Mr. LEVINE. No, I don’t, sir. And the analogy there really I think

falls flat. I mean, there is virtually no company, at least in the

technology world, that manufactures or produces or designs every

single component of a complicated piece of equipment. I mean, if

you look at a Dell computer, you will find the hard drives are made

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by one company in Taiwan, and the motherboards are made by

somebody else in Texas.

Chairman BARTON. Well, we will give Dr. Heller the benefit of

the doubt that his company is looking at this area in a little bit

different way, and maybe a little more comprehensive way.

Mr. LEVINE. Right.

Chairman BARTON. I won’t dispute that. But I want to go back

to how these two scientists at NIH that were under the CRADA

agreement with Mr. Levine got picked to work for your company.

Did Dr. Klausner have anything to do with identifying them as prospective candidates to work for your company?

Mr. HELLER. They were invited to be consultants for our company by our Acting CEO, Jim Tannenbaum.

Chairman BARTON. And how did he find out about it?

Mr. HELLER. He did work with Dr. Klausner. Dr. Klausner——

Chairman BARTON. So Dr. Klausner indicated to your Acting

CEO that these were two individuals that were doing research on

a similar idea and they might be worth talking to.

Mr. HELLER. I believe that would be the case, but let me also

point out that there are a very limited number of people in the

world who are doing this kind of research. You know, we are talking 20.

Chairman BARTON. When these two scientists were contacted by

your company, was it a legal requirement that they notify Mr. Levine’s company? Or was it just their own code of honor that they

should indicate that they have been contacted?

Mr. HELLER. We had very carefully worded agreements. NIH

participated in editing those agreements. All of the agreements

that we have in place were NIH and FDA cleared. I do not know

what NIH and FDA rules are with regard to disclosure. We specifically asked the consultants what other agreements they had, and

we were informed——

Chairman BARTON. While they were in the CRADA with Mr. Levine’s company, they were retained by your company. Were they

compensated by both companies at the same time?

Mr. HELLER. I do not know whether——

Chairman BARTON. Were they compensated by your company?

Mr. HELLER. They were compensated by my company.

Chairman BARTON. All right. Mr. Levine, were they compensated

by your company?

Mr. LEVINE. No, that is absolutely prohibited. The CRADA—we

made a contribution in terms of our——

Chairman BARTON. So we have a situation with the governmentsponsored research, the CRADA. The taxpayer is paying for their

time. But with Dr. Heller’s company, the investors are paying for

their time, and so they have a potential conflict there that they are

actually serving two masters, one of which is the public and one

of which is private.

Now, I don’t know what the compensation package was with Dr.

Heller’s company. I will assume it was on the up and up. But if

it had incentives in it, the incentives would certainly be for them

to give their best shot to Dr. Heller’s company, because they get

more money that way.

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Mr. LEVINE. There were no incentives in it. It was strictly a fee

per month.

Chairman BARTON. Okay. Now, I want to read you a statement,

Dr. Heller, and you tell me what you think about this. This is from

Mr. Levine’s testimony. This is on page 10, and I quote, ‘‘So while

our negotiations over finalizing our clinical trial CRADA were slowly going nowhere, Dr. Liotta and Dr. Petricoin had become consultants to our competitor, Biospect, and Dr. Shtrom had become an

employee. During our endless discussions with Dr. Liotta and Dr.

Petricoin about Correlogic’s research and plans for clinical trials, I

now realize I would have had no way of knowing, for example,

whether I had been talking to Dr. Liotta, the NCI employee, or Dr.

Liotta, the Biospect consultant, or Dr. Liotta, an owner of

Immunomatrix, or Dr. Liotta, the employer or former employer of

Dr. Whitley. And these are just the relationships that I know

about.’’

Do you have any sympathy for Mr. Levine’s plight there that,

you know, he didn’t know which hat his CRADA coordinator was

wearing at the time?

Mr. HELLER. Let me address the fact that Svetlana Shtrom did

and continues to work for Predicant. The first time I was aware

that she actually was involved in establishing this CRADA was

about 2 weeks ago. So we have internally had very high ethical

standards. We have not discussed Correlogic or the CRADA internally at all, and I think that that is an important issue.

Chairman BARTON. Well, my time is about out, so I want to conclude with just an observation. In the political arena, if I am campaigning against Mr. Greenwood or Ms. DeGette, you know, I kind

of know what the rules are. You know, everything is going to be

in the public, and any funds that are raised have to be reported,

and groups that support us have to report the contributions, and,

you know, we fire salvos back and forth. But we kind of know what

the rules are.

But what you are having us believe, that in this research situation funded by NIH, that it was okay for you to go in and retain

or somehow develop some sort of a contractual relationship with

the people that were helping your competitor, and you didn’t have

to tell anybody about it. And it was okay as long as you got some

scientific agreement that got approved and got filed where nobody

could read about it, and I think that is just flat wrong.

I think if the taxpayers are going to enter into a cooperative

agreement, a CRADA, with any company, that anybody who represents the government, if they want to have a relationship with

somebody else in the same line, that has to be transparently reported upfront, proactively, not, you know, if you smoke them out

and he hires a private investigator, or just happens to find out

through the grapevine, and, you know, I respect your academic

background, and I respect the research that your company is doing,

but I absolutely have no respect for the way you have gone in and

retained the services of some of the individuals that at least ostensibly on paper were supposed to be working with Mr. Levine’s company.

I just think that is irresponsible. And if we need to pass legislation to prevent it, or if we can reinforce what Dr. Zerhouni has said

565

in doing it administratively, I am going to encourage this committee to do that.

Mr. HELLER. May I comment on that?

Chairman BARTON. Certainly.

Mr. HELLER. I agree with your conclusion that better transparency is a good thing, and I believe that Dr. Zerhouni’s recommendations will address that. I completely agree with you.

I just want to point out, we did follow all of the NIH and all of

the FDA guidelines. The FDA knew, the NIH knew, exactly what

we were doing. We at no time tried to keep their relationship secret

in any way, and, in fact, that is probably how Peter Levine found

out about this. We weren’t trying to hide this in any way. I feel

like that is a false accusation.

And so I agree that better transparency would be a very good

thing. We feel like we followed the law, and if the laws need to

change, which I believe that you are suggesting they do—and Dr.

Zerhouni is suggesting they do—I believe that is a good thing as

well.

Chairman BARTON. Mr. Chairman, I would ask unanimous consent for 2 minutes, just to——

Mr. GREENWOOD. Without objection.

Chairman BARTON. Mr. Levine, I don’t want to comment on what

Dr. Heller just said, I want to give you a chance to comment on

what he just said. Do you think that there was full disclosure of

the relationship between Drs. Petricoin and Liotta and Biospect/

Predicant and your company that you could have known

without——

Mr. LEVINE. There certainly was not, although I will say I am

sympathetic, actually, to Dr. Heller’s comment. The responsibility

is not on Biospect to be, you know, contacting Correlogic. The responsibility was on the part of Drs. Liotta and Petricoin and NCI

and FDA to make sure the situation couldn’t arise. So we were not

informed at all.

In fact, there were numerous occasions where the opportunity to

inform us was very apparent—for example, when I sent them an

e-mail with the Biospect information in May 2003. So, again, I

think the issue here really is it is the role of the Public Health

Service scientists, it is the role of the ethics officers within those

agencies—and, again, just to stress a point, it is not just the

CRADA relationship. It is the interrelationship between research

that we did with NCI and FDA under the CRADA and the overarching license agreement that we have with the Public Health

Service.

And just one other comment. Dr. Heller mentioned in answer to

your description of my brunch discussion with Dr. Petricoin many

years ago, whether or not the issue of pattern recognition has been

used in other fields, of course it has been.

But the central issue here, though, is that the FDA and the NCI

and the Public Health Service and Correlogic have all filed patents

on these various inventions. And, of course, the central part of the

licensing agreement with Correlogic was to develop a turnkey system, and that is exactly the same business goal that Biospect has.

566

And, again, I have no problem with what Biospect is doing. I

mean, they—you know, if you can get some expertise, go ahead and

do it. The problem lies with the agencies.

Chairman BARTON. So you think that if it is not Biospect’s obligation, then the scientists in question should either recuse themselves, ask to be released from their obligation to your company, or,

at a minimum, report it in an open and transparent fashion.

Mr. LEVINE. That is absolutely correct. In fact, I think the issue

of transparency, which several individuals today have already commented on, I think that is really, really key. And, again, because

I think it is not—it doesn’t take a group of lawyers to figure this

out.

It is really just—it is sort of a—you know, it is sort of a common

sense look at the website of both Biospect at the time, and at the

time from my perspective that is May 2003, perhaps earlier. And

what Correlogic was doing, it didn’t take an ethics officer or a scientist or a lawyer to figure out that these two companies had exactly the same goals and were working on very, very similar technologies.

Chairman BARTON. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair asks unanimous consent to—the

Chair yields himself 5 minutes, and then will just be brief and then

yield to Mr. Bilirakis.

Let me just understand something about your testimony, Dr.

Heller. There are a couple ways to look at this issue. One is that

not to worry because what you are doing is so different than from

what Mr. Levine’s company is doing that even if Liotta and

Petricoin told you everything there was to know about what they

were doing, it wouldn’t have helped you anyway, because you are

doing different things.

The other way to do it is to say, actually, that they didn’t you

anything anyway, and so there was—confidentiality was kept. I

mean, which is it here? I mean, do you want us to believe that if

you knew everything that Dr. Levine was doing it wouldn’t help

you to develop your product?

Mr. HELLER. I actually think that it is sort of both of what you

are saying. We knew nothing from—other than what was in the

public literature about what Correlogic was doing. It was never

shared by Drs. Liotta or Petricoin or anyone else with us.

At the same time, we know specifically from the literature that

they are working on these very specific software algorithms that

are not the focus of what we are working on. We are working on

completely different pattern recognitions and——

Mr. GREENWOOD. So if Dr. Levine wrote everything that he was

doing with his product in a notebook, and you happened to stumble

upon it, you wouldn’t even be interested in looking through it? You

wouldn’t learn anything from reading what Dr. Levine is up to?

Mr. HELLER. I think we would gain some information about what

he was doing. I don’t know that it would be incredibly helpful to

our company in any way.

Mr. GREENWOOD. Okay. Do you concur with that, Dr. Levine?

Mr. LEVINE. No, I don’t. And thank you for the doctor, but it is

only——

Mr. GREENWOOD. Right, Mr. Levine.

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Mr. LEVINE. Unless a J.D., you know, confers doctor status on

me.

The problem I have, Dr. Heller, with what you just said is that—

and, you know, in general with this issue—is that when someone

learns something, whether it is a scientist or just, you know, a citizen, when you learn something, you know, a month or 2 after you

learn it, are you going to remember where you learned it? So

whether or not—I mean, you are not in a position, and Biospect

wasn’t in the position, to know whether or not——

Mr. GREENWOOD. You need to address your questions to the committee.

Mr. LEVINE. I am sorry——

Mr. GREENWOOD. That is okay.

Mr. LEVINE. —Mr. Chairman. The problem is that when we

would say something to a scientist at NIH, if a month later they

are digesting that and then it comes back out in a conversation

with somebody else, are they going to remember that they learned

that or that particular piece of information, maybe not an earthshattering, you know, not a patent pending kind of information,

but the direction that the company was going in or some particular

manipulation of data.

So the issue really is: how do you filter out, and how do you

know that what is in your own mind, and you then provide that

advice to somebody else, is really coming from your own understanding, or is it coming from something that you learned a week

earlier? So that is one concern.

The second issue is that Dr. Heller mentioned, well, they are

using different algorithms. But, again, what we have published,

you know, publicly is one thing. But, of course, the fact that the

work is ongoing with other bioinformatics—and, again, the central

issue, as I mentioned earlier, is that we were developing and working on processes that began with the collection of blood and how

it was handled, stored, prepared, through what kind of robotic machines would handle it, to mass spectrometry, all the way through

to the end result. So it wasn’t just the software issue.

Mr. GREENWOOD. Which is why the standard in ethics is not conflict of interest. It is the appearance of conflict of interest. And by

casting that kind of a net, we avoid all of this—all of these nuances.

The Chair yields to the gentleman from Florida, Mr. Bilirakis.

Mr. BILIRAKIS. All of this hitchhiking on all of these conversations, Mr. Chairman—well, Dr. Heller, I raised the question about

the significance of consulting to the field of research. And you and

Mr. Levine completely disagreed in terms of the significance of it

and the need for it. I guess maybe that is the best way to put it

is the need for it.

Now, you said there is a need for it. Can you take a couple of

minutes and tell me how? I mean, do you want to pick an illustration and tell us how that illustration supports your point of view?

I think it is really, as the chairman just said, a fundamental policy

question. And as long as—you know, maybe bad things have not

taken place. But God knows it certainly contributes to the perception of an awful lot of bad things having taken place.

So can you do that for us in a couple of minutes?

568

Mr. HELLER. Sure. Again——

Mr. BILIRAKIS. And I thank the chairman for the time.

Go ahead, sir.

Mr. HELLER. Again, this is not an area of my experience, but let

me follow on a theme that Dr. Zerhouni mentioned in his testimony. He said, ‘‘Well, what happens if there is an NIH scientist

who is studying West Nile Virus with technology that is obviously

applicable to some other disease?’’ And I think that is a great example of what can happen.

You know, in this case, the technology is not just limited to diagnosis of ovarian cancer and the diseases that Drs. Petricoin and

Liotta and Correlogic are working on. There are a huge number of

diseases out there, and to gain the expertise from people who have

developed it for one particular application in other applications

would be of great value to the scientific industry.

Mr. BILIRAKIS. But isn’t there, Mr.—am I pronouncing your name

correctly when I say Levine?

Mr. LEVINE. No, Laveen is the name.

Mr. BILIRAKIS. Laveen. Dr. Heller has been using Laveen all

along.

But anyhow, Mr. Levine, aren’t there other ways that this important significant information, these breakthroughs and what not,

are available out there for the general public and for these other

industries and what not?

Mr. LEVINE. Yes.

Mr. BILIRAKIS. Other than through the consulting method?

Mr. LEVINE. Yes, absolutely. There are three methods. There is

the CRADA method, which Correlogic is involved in, which, again,

that is very public and it goes through a review process within the

government. There is a licensing procedure where if Public Health

Service scientists invent a technology which has the potential to be

commercialized, it is posted in the Federal Register, and private

sector companies can compete for that technology.

And third, of course, is that most government scientists are obsessed with putting out peer reviewed publications, which are then

available to anyone who buys the magazine or attends a conference. So I think there are very clear methodologies which are

transparent, which are fair to the public at large. And if there is

any, you know, income that comes back from those activities, and

particularly the licensing—whether it is direct licensing or licensing under the CRADA—those funds come back into the Federal

treasury, back to the taxpayer, not into the pockets of the individual scientist.

Mr. HELLER. May I comment on that?

Mr. BILIRAKIS. Yes, Dr. Heller.

Mr. HELLER. I agree. I think that the three methods that Mr.

Levine——

Mr. BILIRAKIS. But you don’t think they are adequate?

Mr. HELLER. I think it doesn’t account for one thing. The scientists at the NIH and the FDA are very busy people. I couldn’t

guess how many e-mails that they get per day. How does a company like us, like Predicant, attract the attention? How do we get

their time, and how do we get their information?

569

The public meetings are one forum for doing that, but, you know,

in general people come to these meetings for a very short period

of time. They fly out. It is hard to attract people’s attention. I think

by being able to get focused—the focused attention through a consulting agreement, I think that is the best way. But I agree that

it should be transparent.

Mr. BILIRAKIS. Yes. So you feel the only way you can get the attention is by paying them, giving them stock options.

Mr. HELLER. I mean, I think there are multiple ways but different people respond in different ways. And we—I don’t think that

stock options are necessarily the right thing, and we specifically

did not give any stock in this case.

Mr. BILIRAKIS. Well, sir, I don’t know what took place here. I

don’t think this committee is saying that you all did anything

wrong or anything of that nature, because we don’t know. I mean,

that is not our job here. But I do think that the perception—and

I am sure you don’t blame Mr. Levin—Laveen, Levine, Levin——

I am sure you don’t blame Mr. Levine for thinking that, because,

boy, what a perception there is there.

Mr. HELLER. No, I do not. Absolutely not.

Mr. BILIRAKIS. So that is why we——

Mr. HELLER. But I believe the transparency would solve the

issue. I think if he was made aware initially that the consulting

agreement was being put in place, I think that would take care of

this issue.

Mr. BILIRAKIS. Well, thanks, Mr. Chairman.

Mr. GREENWOOD. The gentlelady Ms. DeGette wants to comment.

Ms. DEGETTE. Thank you, Mr. Chairman.

I just wanted to comment. I joined in the chairman’s questioning,

so I didn’t ask this round. But listening to the two of you gentlemen speak today, first of all I really want to thank you for coming,

both of you. I know it was an imposition, and it was incredibly illuminating, some of the most illuminating testimony we have had

during these series of three hearings.

What it showed to me is, first of all, the concerns that private

industry has in trying to get folks’ attention over at HHS, and also

to try to get some of the research, which is what leads, in our view,

to some of these conflicts of interest that we are seeing and which

really need to be ended.

And the second thing—and really related—is the completely different motives in needing this information and research that private industry has from HHS and from the government agencies

themselves. So, therefore, it is really clear to me we cannot and

should not expect private industry to conduct the kind of policing

operations that ethics counsel and others should be conducting.

And the final lesson that your testimony taught me is it is—and

I have been saying this all along like—I have just been harping on

it, which is it is very difficult, and it is a huge challenge for the

HHS ethics team and for Dr. Zerhouni to put together some ethics

guidelines that will actually prevent these kinds of conflicts from

happening. So all I would say is I think this has been very illuminating. I thank you for your help and hope you will continue to

work with us as we do this.

570

And to the HHS folks, good luck. I think it is really going to be

hard to put ethics guidelines in place that are going to prevent

these kinds of conflicts.

Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentlelady and thanks

our witnesses.

Dr. Heller, you are excused. Mr. Levine, we are going to ask you

to take a seat but remain with the speakers. We may want to come

back to you as we question the third and final panel.

And I now call them forward. Dr. Anna D. Barker, Ph.D., Deputy

Director, Advanced Technologies and Strategic Partnerships at the

National Cancer Institute; Dr. Maureen O. Wilson, Ph.D., Assistant

Director of the National Cancer Institute; and Dr. J. Carl Barrett,

Ph.D., Director, Center for Cancer Research at the National Cancer

Institute.

Good afternoon. We welcome all of you here. As you probably

know, it is the custom of this committee to take questions under

oath. The first question I have for you is: do any of you object to

giving your testimony under oath? Seeing no such objections, I

would then advise you that you are entitled to be represented by

counsel. Do any of you wish to be represented by counsel?

Ms. BARKER. No.

Mr. GREENWOOD. Okay. In that case, I would ask you to stand

and raise your right hands, please.

[Witnesses sworn.]

Okay. You are all under oath.

TESTIMONY OF ANNA D. BARKER, DEPUTY DIRECTOR, ADVANCED TECHNOLOGIES AND STRATEGIC PARTNERSHIPS;

MAUREEN O. WILSON, ASSISTANT DIRECTOR; AND J. CARL

BARRETT, DIRECTOR, CENTER FOR CANCER RESEARCH, NATIONAL CANCER INSTITUTE

Mr. GREENWOOD. And, Dr. Barker, do you have any opening

statement or any comments you wish to make preliminary to questioning?

Ms. BARKER. We do not have an opening statement. We are here

to answer your questions.

Mr. GREENWOOD. That is true of you, Dr. Wilson, and you, Dr.

Barrett?

Mr. BARRETT. That’s correct.

Okay. In that case, we will—okay. Let me address you first, Dr.

Wilson, and ask you this. And I am going to ask the staff to pull

up the slide for Dr. Wilson’s questioning.

While they are doing that, I will describe it. It is an e-mail dialog

between you—there it is. You may have to turn around in order to

see that. It is an e-mail dialog between you, Dr. Wilson, and Dr.

Liotta and Holli Beckerman Jaffe. Ms. Beckerman Jaffe writes,

‘‘Please also confirm with him that while he has not received any

payment since February’’—in other words, he was last paid in February—‘‘he has not consulted with Biospect since February. The arrangement has been put on hold until he receives approval on from

Dr. Kington. I know I am beating a dead horse, but I want to be

very clear on the facts.’’

Dr. Liotta then responds, ‘‘I confirm this on hold.’’

571

Do you understand his response to mean that Ms. Beckerman

Jaffe asked that he had not received any payment since February

and had not consulted with Biospect since February? Was that

your understanding?

Ms. WILSON. That was my understanding.

Mr. GREENWOOD. Okay. And why would it have been a problem

if he had been consulting for the company beyond February?

Ms. WILSON. At the time of the new NEAC rules, all activities

with Biotech, as well as others that were covered by the NEAC responsibilities were to be resubmitted for approval, and all new activities that were covered under their jurisdiction also were supposed to be submitted for approval. And our regs say you cannot

proceed with an activity without obtaining prior approval.

Mr. GREENWOOD. And let me ask you this. Do you believe it was

consistent with that policy to be able to receive compensation, either if there was no further activity?

Ms. WILSON. It would probably depend on the subject of the

agreement. Payment for prior services would be, in my mind, acceptable. But, again, that would be subject to the agreement.

Mr. GREENWOOD. But if there was a monthly payment to be

made, would you—is it your understanding of the policy that the

employees should not receive payments for ongoing services?

Ms. WILSON. The intent was to cease accepting payment until rereview had gone forward.

Mr. GREENWOOD. Okay. I am going to ask the staff to play clip

6, in which we will hear Dr.—go ahead.

[Tape played.]

Those voices were Dr. Petricoin first and then Dr. Liotta. Was

that clear to you——

Ms. WILSON. Yes.

Mr. GREENWOOD. [continuing] which was speaking when? Okay.

Based on his testimony, do you understand Dr. Liotta to be confirming what he stated in this e-mail, that he stopped working for

Biospect in February?

Ms. WILSON. He indicated that it was on hold . He said he had

one e-mail conversation with them. I do not know what the subject

of the e-mail is, so I wouldn’t know whether to call it employment

or not.

Mr. GREENWOOD. What do you interpret ‘‘on hold’’ to mean?

Ms. WILSON. ‘‘On hold’’ would be——

Mr. GREENWOOD. I am going to ask you to speak a little bit more

directly into your microphone. Thank you.

Ms. WILSON. ‘‘On hold’’ would be performance of no services.

Mr. GREENWOOD. Performance of no services. And, again, receipt

of no payments for——

Ms. WILSON. Yes.

Mr. GREENWOOD. [continuing] services. Okay.

I am going to ask the staff to show the slides. This is a series

of canceled checks indicating that Dr. Liotta was continuing to be

compensated for his work through May. Dr. Wilson, doesn’t that

conflict with what he told you and Ms. Beckerman Jaffe in the email?

Ms. WILSON. Yes, it does.

572

Mr. GREENWOOD. Okay. Doesn’t this suggest that he did not terminate his agreement with the company as he was required to do

by new NIH policies at the time?

Ms. WILSON. The requirement was that the activities be put on

hold until they could be rereviewed, not necessarily that they be

terminated. The NEAC was to determine whether they would be

terminated or not.

Mr. GREENWOOD. Okay. Didn’t terminate his agreement. Certainly did not—it certainly indicates that he did not terminate his

agreement. But what you’re saying was the termination of an

agreement per se was not the policy, it was to suspend services and

payment——

Ms. WILSON. Yes.

Mr. GREENWOOD. [continuing] during that time. And why did you

ask him in that e-mail—or why did the Ethics Directors, excuse

me, ask that—he inquired as to whether he had received any payments and wanted to confirm that he had not received any payments since February?

Ms. WILSON. To assure that, in fact, he was abiding by what NIH

had put in place.

Mr. GREENWOOD. Okay. The former director of NCI, Richard

Klausner, is a member of Biospect’s Board of Directors. Dr. Carol

Dahl, former Chief of the Office of Technology and Industrial Relations at NCI, was Vice President of Strategic Partnerships.

Svetlana Shtrom, who was the Technology Transfer Officer from

NCI with whom Correlogic had to negotiate its CRADA was hired

by Biospect. And the two co-principal investigators on the

CRADA—Drs. Liotta and Petricoin—were hired by Biospect.

And if you will look at Tabs 27 and 37 in the binder before you

there, you will see information from the websites of Correlogic and

Biospect. Do you see them? Tab 27, and then 37. I want you to

compare them.

To me, they look remarkably similar. For example, Correlogic’s

site states, ‘‘Correlogic’s mission is to advance the early identification of various cancers and other diseases and to accelerate the

new drug discovery process by applying its proprietary software to

the development of proteomic and other biomarkers.’’

Turning, then, to Biospect’s website, it states, ‘‘Biospect is an

emerging life science company founded in 2002 that is developing

technology for identifying and assaying protein biomarker patterns.’’

Given the fact that all of these parties have a relationship with

a company that bears a near-same statement of aims to its own,

and is clearly a competitor, isn’t it reasonable for Correlogic to be

concerned that something is amiss?

Ms. WILSON. It is reasonable, yes.

Mr. GREENWOOD. Okay. Let me turn to Dr. Barrett. As you

know, Dr. Richard Klausner, the former Director of the NCI, is on

the Board of Directors of Biospect. Do you know Dr. Klausner? You

need to turn your microphone on and make sure it is up close.

Mr. BARRETT. I do know him, yes.

Mr. GREENWOOD. Okay. And did you advocate having Dr.

Klausner designated as special volunteer in your lab at NCI?

Mr. BARRETT. Yes.

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Mr. GREENWOOD. Okay. If you would turn to Tab 16, you will see

documentation that you submitted in September 2001 to get Dr.

Klausner the special volunteer designation. Do you see that?

Mr. BARRETT. Excuse me. That was 16?

Mr. GREENWOOD. Tab 16, yes.

Mr. BARRETT. Yes, I see that.

Mr. GREENWOOD. Okay. Can I assume that you have had a professional relationship with Dr. Klausner that prompted you to do

this?

Mr. BARRETT. Yes. Dr. Klausner had resigned as the Director of

the National Cancer Institute to take a position, and as other outside people was allowed to be a special volunteer at the NIH. And

so he was doing—continuing to do research at the NIH. He had one

post-doctoral fellow who was continuing to do this research, and

this agreement allowed him to continue to be a special volunteer,

not paid, but actually continue that research.

Mr. GREENWOOD. And did he get that designation?

Mr. BARRETT. Yes, he did.

Mr. GREENWOOD. And does he still have the designation?

Mr. BARRETT. No, he does not.

Mr. GREENWOOD. Okay. When did it end?

Mr. BARRETT. I do not know. It was not renewed, so it certainly

expired after 1 year. But I don’t know if——

Mr. GREENWOOD. Are you still in communication with Dr.

Klausner?

Mr. BARRETT. I have not been in communication with him since

probably June 2002 would be my recollection.

Mr. GREENWOOD. Were you doing Dr. Klausner a favor when you

supported him in his request to be a volunteer?

Mr. BARRETT. I think Dr. Klausner is a noted scientist, a member

of the National Academy of Sciences, and was doing research that

had begun when he was at the NIH. And this appointment allowed

him to complete that research, which I think was in the benefit of

the NCI and the NIH.

Mr. GREENWOOD. Okay. My time has expired. It appears that

there is a series of votes. I am going to recognize the gentlelady

from Colorado for 10 minutes, and at the end of her questioning

we will recess for probably——

Ms. DEGETTE. Ten minutes or 5 minutes?

Mr. GREENWOOD. Five minutes. I am sorry.

Ms. DEGETTE. Okay.

Mr. GREENWOOD. And then we will recess for——

Ms. DEGETTE. Thank you very much, Mr. Chairman.

Mr. GREENWOOD. [continuing] 45 minutes.

Ms. DEGETTE. Dr. Barrett, I wanted to talk a little bit about

some confusion from the May 18 hearing. Our written transcripts

reflect that what you said is, when you were reviewing Dr. Liotta’s

request to consult for Biospect, you were unaware of the plethora

of former NCI employees working at Biospect. Is that correct?

Mr. BARRETT. That is correct.

Ms. DEGETTE. But during the hearing, Dr. Liotta said, ‘‘When I

reviewed this with my ethics officer and discussed the outside activity, it was clearly known and factored into the review that parVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00581 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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ticularly the review, that former Cancer Institute employees were

members of that company.’’

Were you, as you testified, unaware of all of the former NCI employees or officials working at Biospect?

Mr. BARRETT. I was told that there was some relationship with

Dr. Klausner. It is still not clear to me exactly what that relationship was, if he was a member——

Ms. DEGETTE. When were you told that?

Mr. BARRETT. I was told that—I guess I was told that when it

was—back in August when we were rereviewing this. But that

was——

Ms. DEGETTE. Okay. So when you say on May 18 that you were

unaware of former NCI employees, that was incorrect?

Mr. BARRETT. No, I said I didn’t—there was a long list of individuals, and the only ones I knew about were Dr. Klausner and Dr.

Dahl.

Ms. DEGETTE. Okay. But your testimony on the 18th—I am sorry

I am not tracking. Your testimony on the 18th was, ‘‘I was unaware

of the NCI former employees being members.’’ So where is the—

what is the discrepancy there?

Mr. BARRETT. Maybe I didn’t appreciate the question. My understanding was there was some relationship with Dr. Klausner, but

that was not clear to me. And I also knew that Dr. Dahl was a

member of that company, but I was unaware of the other individual.

Ms. DEGETTE. Okay. But that is not what our record reflects that

you said on the 18th. You didn’t specify that you knew about several, Dr. Klausner in particular, but not of others. So is what you

are saying now correct?

Mr. BARRETT. What I am saying now is correct, yes.

Ms. DEGETTE. All right. Now, Dr. Barker, and also you, Dr. Barrett, after hearing Peter Levine testify earlier today about how

Correlogic and Biospect are, in fact, competing companies, do you

now question your decision to allow Dr. Liotta to be involved in a

consulting relationship with Biospect at the same time he was involved in the CRADA with Correlogic?

Ms. BARKER. I said yes to that last time, and I would actually

reaffirm that. I think if the information that one has today was

available when this rereview was done, that it would not have been

approved.

Ms. DEGETTE. Let me ask you what additional tools—and, Dr.

Barrett, do you agree with that?

Mr. BARRETT. Yes, I do.

Ms. DEGETTE. What additional tools would you need to have to

be able to make an informed decision? Because it is pretty clear to

me you didn’t have all of the evidence at the time you were approving both of these relationships. Dr. Barker?

Ms. BARKER. Yes. When I was asked—actually, a colleague of

Peter Levine’s asked that this be reviewed, raising just this issue

in August 2003. And so when I did ask that question, I obviously

asked the question of Dr. Wilson, the Ethics Officer, and she in

turn asked Dr. Barrett to rereview those. And the system that was

in place basically up until I believe the announcements today is

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very, very much dependent on investigators actually giving you information about their consulting arrangements.

And I was new to NCI. I came in actually to look at some of

these issues for Dr. von Eschenbach in the technology area, especially the development area. And having been in the biotechnology

industry myself, I did understand some of the questions that were

being asked, and so I think that—I think Dr. Wilson and Dr. Barrett reviewed it with all of the information that was available to

them then.

Ms. DEGETTE. Well, I am not—yes, I am not disagreeing with

that. What I am asking you is—and what you are saying is the previous system was dependent on the researchers themselves giving

you information.

Ms. BARKER. Right.

Ms. DEGETTE. And probably if Mr. Levine had not contacted you

all, you may have never known about this terrible conflict, right?

Ms. BARKER. Correct.

Ms. DEGETTE. So what is it about the reforms being announced

today that you think will stop these kinds of conflicts in the future?

Ms. BARKER. Well, one of the things that we are doing at the

NCI is to create a data base much like the one for—that Dr.

Zerhouni announced today. We have been working on that.

And I think the issue here with CRADAs is complex, and we

can—you know, you may have more questions about that. But I

think we need to understand clearly the consulting arrangements

of individuals that are going to enter into CRADAs, and they have

to be—I think it has to—the understanding has to be pretty complete, and we really have not had the tools to do that in my opinion.

Ms. DEGETTE. Now, how would that—let me ask this question

and then I will yield to the chairman. How would that system prevent this kind of conflict from happening?

Ms. BARKER. I should probably let Dr. Wilson answer that question, since she would review that request and act on it. But I am

assuming that she would have a great deal more specific information that——

Ms. DEGETTE. Yes. Let us let Dr. Wilson answer.

Ms. WILSON. The one piece that is probably lacking in our system

right now has been a complete recognition of all of the CRADA

technology-type transfer arrangements.

Ms. DEGETTE. If you can speak more closely to the mike.

Ms. WILSON. Sorry. What is missing in our system has been a

direct connection with the technology—all of the technology transfer agreements and with a full knowledge of these pieces. We do,

in our office, look actually at CRADAs, one form of technology

transfer. So in approving the outside activity, we would have

looked at the Correlogic CRADA. We would have known about that.

But we would not have known of any additional——

Ms. DEGETTE. And would you know about that now?

Ms. WILSON. We are putting in place a system that will actually

let us in real time get that information.

Ms. DEGETTE. I will yield to the chairman.

Chairman BARTON. Well, I am going to have my own time when

we come back. But it just—I want to ask Dr. Barker what informaVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00583 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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tion you have today that you didn’t have back on August 20 when

you ruled that Dr. Liotta’s duties were appropriate? What do you

know today you didn’t know then?

Ms. BARKER. Well, I think the—as this process has unwound, actually, we have learned a great deal more about the Correlogic’s

competitor, Biospect, that was actually capsuled here today. And I

think just the simplicity of looking at the change in the website,

which has changed over time—when Dr. Wilson reviewed this request, even back in August of last year, or the fall of last year, the

website was still quite different from the website that we are viewing now. And so——

Chairman BARTON. Well, how was it different?

Ms. BARKER. It basically did speak to the fact that the focus of

the company at that time was really around instrumentation, and

some of the issues that Dr. Liotta has reflected in his request. I

think only in the—in very recent months has the website reflected

this issue of pattern recognition being a major focus of the company. It was news to—I think it was news to Dr. Wilson and

the——

Chairman BARTON. Is Congresswoman DeGette coming back? Because I don’t want to take all of her time if she is—I mean, I want

to——

Mr. GREENWOOD. Help yourself, Mr. Chairman.

Chairman BARTON. Okay. Well, Mr. Levine is out there in the

audience vigorously shaking his head that his website has changed.

I don’t know what the protocol is to——

Mr. GREENWOOD. Mr. Levine is still under oath and is——

Ms. BARKER. Not his website, the Biospect website.

Mr. GREENWOOD. Mr. Levine, would you like to come to the

table, pull up a chair, and——

Chairman BARTON. And as soon as Congresswoman DeGette gets

back, I will——

Mr. GREENWOOD. No, she has gone for the votes. She is not coming back——

Chairman BARTON. Okay.

Mr. GREENWOOD. [continuing] until after the votes.

Chairman BARTON. Have you heard——

Mr. GREENWOOD. And I would advise the chairman that we have

5 minutes and 39 seconds left on this vote.

Chairman BARTON. Mr. Levine, Dr. Barker had said that she

didn’t know now—she knows more now than she knew then when

she approved this, and that one thing that has changed is

Biospect’s website. What is your response to that?

Mr. LEVINE. Well, I can’t comment on what any of the NIH officials knew when. But certainly on May 22, 2003, the website was

very clear, and we have all looked at that earlier. So nothing

changed. In May 2003, the comparison and the similarity between

what we were doing and what Biospect was doing was very clear

at that time. So I am not sure what change the witnesses are referring to.

Chairman BARTON. Well, my—and, again, when I get back I will

have my own time. But my comment to Dr. Barker and to Dr. Wilson and to Dr. Barrett, reading the August 20, 2003, memorandum

from Dr. Wilson to Dr. Barker that Dr. Liotta’s activities were apVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00584 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
577

propriate or acceptable or approved is based on the fact, it appears

to me, that he didn’t have a proprietary interest in the CRADA.

And while he was being paid by Biospect, he didn’t have an ownership interest, so as long as he was being paid in a consulting fashion it was okay.

Now, am I misreading that? But it doesn’t really relate to the

subject. I mean, it is just—it was kind of a technical ruling that,

you know, Biospect was hiring him as a consultant, and so he could

pretty well consult on whatever he wanted, and it was okay.

Ms. WILSON. It would not be true even before that he could consult on whatever he wanted. There were restrictions on what a

Federal employee——

Chairman BARTON. That is not what the memo says.

Ms. WILSON. It is a technical analysis. Is the activity legal? Did

it meet with regulations? And technically it did.

Chairman BARTON. Well, I am—we have to go vote, but we are—

I assume we are going to retain these—this panel, so we can come

back and get into this in more detail.

Mr. GREENWOOD. That is correct.

The committee will now recess until 3.

[Brief recess.]

Mr. GREENWOOD. The committee will come to order, and the

Chair recognizes the chairman of the full committee for 10 minutes

for inquiry.

Chairman BARTON. Thank you, Mr. Chairman, and I appreciate

the panel staying.

I am trying to get a handle on what constitutes a conflict of interest at the time the individuals who were working on the CRADA

were also asked to go to work on the Biospect company payroll as

consultants. And I am looking at this August 20, 2003, memorandum, which is from Dr. Wilson to Dr. Barker, and the subject

is Conflict of Interest Review, Lance Liotta, M.D.

It is Tab 7, if you all have that information.

On page 1 of the memo, it starts—it says—it has the sentence

that, ‘‘Ethical conduct for employees of the executive branch requires that approval be granted,’’ so it is a positive directive that

approval be granted in response to a request for outside employment under the following conditions: that the request is submitted

prior to the beginning, and unless it is determined that the outside

employment involves conduct that is prohibited by statute or Federal regulation.

So if an individual wants to go to work outside the government,

they have to submit it, require it to the beginning of the activity,

and then if you—unless it is determined that the employment

would involve conduct that is prohibited by statute, then you have

to say yes.

On the next page it says that, ‘‘The nature of the consultive services requested’’—this is Dr. Liotta’s request to be a consultant for

Biospect—‘‘are limited in requests deemed to be advisory and unrelated to any HHS matters. These consultive services do not violate

the regulation.’’

Now, my first question is: how was it determined that what Dr.

Liotta was doing for Correlogic was unrelated to any HHS matter?

Because he was doing the same thing, or at least similar work. So

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who determined that it was unrelated? Did you just take Dr.

Liotta’s word at that?

Ms. BARKER. We did actually go through the established process.

Maybe Dr. Wilson should let you sort of hear that review quickly,

and then we can talk about the specifics of this case.

Ms. WILSON. In conducting the review, we look at the scope of

Dr. Liotta’s duties. We look at his personal financial interest, we

look at his CRADAs, we look at the grant and contract activity insofar as we are able to determine it, all of the technology transfer

activities insofar as we are able to identify them. And we also look

at the science.

We look for the purposes of the science—as you know, science is

changing on a daily basis. It is very complex now, and so our office

does rely on experts who know the field much better than anyone

in my office does to give us a review of whether what is proposed

by the scientist is within the scope of the employee’s duties or outside.

Chairman BARTON. But you know when he is asking this—I

mean, he says, ‘‘I am part of a CRADA with Correlogic, and this

is what Correlogic is trying to do. They are trying to find a predictive test for ovarian cancer based on some sort of an analysis of

blood.’’ I mean, you know that, right?

Ms. WILSON. Yes.

Chairman BARTON. Now he wants to go to work for Biospect, and

according to their web page they are doing the same thing. And yet

in this memo it says it is—what he is requesting to do for Biospect

is unrelated to any HHS matter. That just begs credulity that that

would be a statement.

Ms. WILSON. This memo relates to the rereview. The original approval we did not have access to the website. Biospect’s website in

2002 was not available to us. So we relied on the description of the

company, on the description that was provided and the documents

provided from the company as to what he was going to do.

We asked Dr. Barrett to assist us with the science of the matter.

And given that it was limited by the provisions that were put into

the contract, it was determined that those things were matters of

general applicability.

Chairman BARTON. Well, now, so what you are telling me, if I

interpret this colloquially, Babe Ruth was a great pitcher for the

Boston Red Sox. He turned out to be a great hitter for the New

York Yankees. And according to this ruling, he could continue to

do both. He could play right field for the Yankees and hit home

runs. And when he wasn’t playing for the Yankees, he could go up

to Boston and pitch for the Red Sox.

Ms. WILSON. By the same instance, would we have stopped him

from coaching his children’s little league——

Chairman BARTON. Well, I think if you would have told the

owner of the Yankees that he still wanted to go pitch for the Red

Sox, you know, both ownerships would have had a problem with

that.

Ms. WILSON. I do not disagree with that.

Chairman BARTON. All right. Mr. Barrett, what is your take on

this? Dr. Barrett?

579

Mr. BARRETT. Thank you. We reviewed this carefully, but I

must—as we admitted last time I think, knowing what we know

today, we would not have made the same decisions.

Chairman BARTON. But what do you know today that you didn’t

know then?

Mr. BARRETT. Let me explain that to you, Congressman. So at

the time, what we knew was that the Biospect company was a new

company that had a very general description of their activities. It

was not clear that they were involved in the pattern recognition

business. What was also known was that the CRADA with

Correlogic, the Correlogic’s contribution, was in terms of doing the

computational analysis, the algorithm, to actually do the analysis

of the patterns and the proteins.

So what we did to make sure, so it did not appear that there was

any overlap, but we put very clear exclusionary language within

the consulting agreement to try to make it very clear that if there

was any overlap that that would be excluded, and that Biospect in

fact knew that.

Clearly, it should have been the case that Correlogic—Mr. Levine—should have also been aware of this. We admitted that last

time, and I think that certainly is one of the changes that needs

to be——

Chairman BARTON. Well, Dr. Heller, when he was before us in

the previous panel, basically said that you can’t blame his company

because they complied with all of the rules. And you are the people

that are applying the rules, and you are saying you didn’t know.

I mean, the Biospect website shows this capability will be targeted to improve the diagnosis and clinical patient health and enable new approaches to drug development. The Biospect system

will be the foundation for the discovery and detection of patterns

of proteins, protein fragments, that reflect and differentiate various

states of health and disease.

And the Correlogic mission statement—and I am not going to

read the whole thing—they want to create turnkey diagnostic systems that will revolutionize the disease, testing, and screening

market. They will also provide pattern discovery solutions to

biotech and pharmaceutical companies for the use in genomics, if

I am saying that correctly, molecular biology, protein sequencing,

and in new drug identification and toxicity evaluation.

Now, that is not word for word. But I am not a biological scientist, but it sure looks to me like they are doing the same thing.

Mr. BARRETT. Yes, sir. Based upon those two descriptors, I would

agree fully with you. The——

Chairman BARTON. Well, they didn’t look at that. I mean——

Mr. BARRETT. I don’t know when that was available. If it was

available and we did not look at it, that was certainly——

Chairman BARTON. I mean, isn’t the truth is that—and this is

speculation on my part—but it appears to me that prior to this subcommittee getting involved in this, after 1995 the environment at

NIH was to either encourage these sort of arrangements or to give

it only the most perfunctory and technical analysis. And this particular arrangement just took it a little bit too far.

But, I mean, I don’t see that any effort was really made to check

what was going on. You all basically took Dr. Liotta at his word,

580

or whatever he put into writing, and gave a very technical analysis

of it, and based on that said it is okay. Now, how far off the mark

am I on that?

Mr. BARRETT. I think you have a lot of merit in what you say.

I think what we did do was to look, obviously, at the scope of the

CRADA. And the scope of the CRADA is much more narrow than

the scope of the overall mission of the company. And so within the

scope of the CRADA there was very clear language in the consulting agreement that that was excluded.

Chairman BARTON. Now, as a layman, do you feel that it would

be appropriate at any time for somebody in your—the three of your

positions, the government positions that are reviewing this, to let

the first company know that Dr. Liotta had acquired this ability to

be a consultant for what appears to be a competitor? Should the

law require or internal regulations require that before that approval is granted, even if it looks okay on paper, the original company ought to be notified?

Mr. BARRETT. We fully agree with Dr. Zerhouni’s conclusion that

these things should be transparent and should be——

Chairman BARTON. Well, you agree with it today, but you didn’t

at the time. Did anybody bring that up? Did anybody sit around

the table or by e-mail say, ‘‘You know, we ought to let those saps

at Correlogic know that the two principal people they are working

with at NIH are about to have a consulting arrangement with what

appears to be a competitive company’’? Did anybody even think

about that?

Ms. BARKER. In the concept of the Privacy Act, which we believe

this outside activity to be covered by, we would not have made that

personal income relationship known to the public. And from this

perspective——

Chairman BARTON. Well, I am not saying make it known to the

public, but, for gosh sake, why can’t you make it known to the company that started the process first? I am not saying put an ad in

The Wall Street Journal. But why couldn’t you have notified confidentially Mr. Levine’s company? That is not protected by the Privacy Act.

Ms. BARKER. We would have—we would have checked with legal

counsel to determine whether they were in the chain of command,

and whether they were covered by the Privacy Act or not, whether

we had the ability to. Absent that, we would not have made it

known.

Chairman BARTON. Well, my time has expired, and I apologize

for that. But at some point in the process, if you folks are the people responsible for ruling on ethics applications, you need to step

back and look at the broader picture. I don’t see any attempt in the

documentation to really look at what we would consider to be right

and wrong.

And, you know, Dr. Zerhouni, to his credit has come around to

the view that we need to change the system. And apparently you

folks also agree that the system needs to be changed, which is to

your credit. But in the interim, Correlogic has had two of the people that it thought were assigned by the government to work with

their company have behind the scenes been working with another

company, at least along a similar track.

581

And my analogy to Babe Ruth is kind of corny, but it is very real.

You know, there is no way the New York Yankees would have let

Babe Ruth go back and pitch for the Red Sox. There is absolutely

no way, but yet by the approval of this application that is essentially in the research sphere what was allowed to happen.

With that, Mr. Chairman, I would yield back.

Mr. GREENWOOD. The Chair thanks the chairman and recognizes

the gentleman from Florida, Mr. Stearns, for 10 minutes.

Mr. STEARNS. Thank you, Mr. Chairman.

Let me just continue along what the distinguished chairman of

the Energy and Commerce Committee started to talk a little bit

about this—what appears to be two scientists involved with a company, and sort of—Biospect and sort of working for NIH at the

same time, not—Mr. Levine not aware of that, and then he finally

became aware of it.

Mr. Levine, I went through your testimony here, and I thought

I would go through and ask for some further clarification of your

statements. On page 7 of it you say when you raised concerns to

Dr. Petricoin and Dr. Liotta, you said they told you—‘‘I was told

not to be paranoid.’’ And that NCI’s unilateral decision was really

in Correlogic’s best interest.

And, frankly, I was also concerned, and remain concerned to this

day, about the particular components that NCI had unilaterally

chosen for the detection system, and also about which entity would

take the lead in responsibility for seeking regulatory approval following successful completion of the clinical trial.

When they said to you not to be paranoid, what did that mean

to you?

Mr. LEVINE. Well, Congressman, two issues here. The first is

that the reference I was making there was not to the conflict of interest, which I didn’t know about at the time. The reference there

was really to NCI’s decision to proceed with the clinical trial and

to essentially take over this area that had otherwise just been

granted to Correlogic in April 2002.

So the reference really was to the activities of NCI going forward

toward the clinical trial and all of those issues, although throughout my conversations over the last 3 years with Drs. Petricoin and

Liotta they would continuously tell me that I was paranoid. Every

time I questioned an activity or a decision coming out of NCI, they

thought I was rather paranoid. And I think in hindsight I wasn’t

paranoid enough.

Mr. STEARNS. Well, and then you go on—‘‘a few weeks later I

began hearing more from industry contacts about Biospect being a

competitor.’’

Mr. LEVINE. Yes.

Mr. STEARNS. ‘‘By now I was hearing that Drs. Petricoin and

Liotta were affiliated with Biospect. In early July 2003, I reached

Dr. Petricoin by phone and raised the issue directly to him.’’ Tell

us what you said to him.

Mr. LEVINE. In that call—and I was friends with Dr. Petricoin,

so I was able to be pretty blunt with him, I said that it had come

to my attention through industry contacts that he and Dr. Liotta

were consulting with Biospect, and I was shocked. I was appalled.

582

Mr. STEARNS. What was his response when you said to him, ‘‘I

have heard through the industry grapevine that I am now—you are

advising me—you are telling me not to be paranoid, yet I am finding you are part of my main competition.’’ What was their response? And were you talking to both of them or to——

Mr. LEVINE. The conversation was only with Dr. Petricoin.

Mr. STEARNS. Okay. And what was his response?

Mr. LEVINE. His response was first and foremost that this was

to approve the outside activity. And I, again, expressed genuine

shock at that. I asked him how that could be so because the two

companies were so clearly competitors, and I reiterated to him at

the time the way in which I found out, which was through other

people in the biotech industry, so that others perceived it as a conflict of interest, others outside of government, others outside of

Correlogic.

And I then made the point to him—and this is very, very clear,

since I actually wrote an e-mail shortly after my conversation with

him—I made the point that, as I said earlier in the testimony, that

the information that he was picking up and Dr. Liotta picking up

from their collaboration with Correlogic, where that information

began and where their own understanding ended, it would be very

hard to tell.

So that if they were then consulting with a competitor, the fact

that they might think that they are not revealing confidential information I thought became a very difficult line to determine.

Mr. STEARNS. Well, then you say later on, ‘‘I raised my concerns

about what was happening to my company with Dr. Barker.’’ And

let me ask Dr. Barker: were you aware of this, too?

Ms. BARKER. Let me explain a little bit about how I became involved.

Mr. STEARNS. Okay.

Ms. BARKER. I joined the NCI in January or December actually—

or January 2003, and I actually came to the NCI to join Dr. von

Eschenbach to sort of work on these kinds of issues. So——

Mr. STEARNS. I need you to be brief, just because——

Ms. BARKER. Okay. Not long after I arrived, I received a call that

said—from a colleague of Dr. Levine’s saying that he was engaged

in a CRADA with us, and he felt as though there was a potential

conflict of interest for the investigators. So that is when I asked

that Dr. Wilson and Dr. Barrett rereview the case and readvise us

on whether or not there was a conflict of interest, so we could proceed to negotiate this.

Mr. STEARNS. Was there a conflict of interest detected?

Ms. BARKER. You know, we have just heard from Dr. Wilson and

Dr. Barrett that using the guidelines they had at that time——

Mr. STEARNS. Right, okay.

Ms. BARKER. [continuing] they concluded that there was not a

conflict of interest.

Mr. STEARNS. Okay.

Ms. BARKER. I think we have all agreed in retrospect that there

was.

Mr. STEARNS. Okay. That is all I wanted to hear.

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NCI and Correlogic have been in negotiations on the clinical

trials for CRADA for a long time. Is it customary to take that long,

Dr. Barker?

Ms. BARKER. In a word, no.

Mr. STEARNS. Okay.

Ms. BARKER. We have 100-plus CRADAs. This is the only one actually that has taken this amount of time to negotiate. But I will

honestly say in sorting this out, it is a very complex CRADA. And

by that, it involves some laboratory discoveries that are quite profound, a clinical trial, a licensed——

Mr. STEARNS. Let me put it this way. How close are we to fruition on these negotiations? Are they 1 week away, a year away,

a month? Where are we right now?

Ms. BARKER. They depend actually on—a confounding factor in

this has been that we started out with a technology that was developed in collaboration on the CRADA. Dr. Levine’s company has actually pursued another line of investigation. He would like to add

that to the CRADA, and I think the only thing that is missing here

is to see the data from that technology so we can proceed to make

a decision about this CRADA in terms of doing——

Mr. STEARNS. Let me see if Dr. Levine understands this negotiation the same way you do. Dr. Levine?

Mr. LEVINE. I have to respectfully disagree. The negotiations——

Mr. STEARNS. I mean, have you started something else here and

it is making——

Mr. LEVINE. Well, it is not something else. It was work that we

were developing——

Mr. STEARNS. It was part of the initial negotiations.

Mr. LEVINE. Exactly, part of the initial CRADA. Also, let me just

add, Congressman, that there has been constant reference to how

narrow the original CRADA was. Well, that was one of the issues

beginning as early as August 2002 that we are attempting to

change, because I can show you we have a year’s worth of CRADA

notes here taken by the NCI’s contractor that have—perhaps 25 or

30 percent of these meetings were about software. The bulk of it

was about sample preparation, mass spectrometers, turnkey systems.

So what was happening was that the research—the joint research under the CRADA was in fact going exactly down the road

that I described earlier, which is the development of a turnkey system. So the goal of the negotiations was to both convert the research CRADA and eventually the clinical trial CRADA to match

what was actually going on.

So in terms of where we are today, no, we——

Mr. STEARNS. Okay. So we have a little disagreement, Dr. Barker, in your—you have heard him, I have heard you. Dr. Barrett or

Dr. Wilson, is there anything you would like to contribute here? We

have this negotiation we all agree is going on much too long. You

indicate that it is going to perhaps go on, Dr. Barker, longer because of some changes that have taken place, and Dr. Levine says

no. Just, Dr. Wilson or Dr. Barrett, anything you folks want to add

here?

Mr. BARRETT. Let me——

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Mr. STEARNS. If you can be brief, because I have got a

summary——

Mr. BARRETT. Right. I know it is—actually, there are several

issues that do need to be put on the table——

Mr. STEARNS. Okay.

Mr. BARRETT. [continuing] which won’t be brief. But let me make

one point. That is, the ability to execute a CRADA is not something

that Dr. Barker or I or the NCI has.

Mr. STEARNS. No, I understand that.

Mr. BARRETT. It goes through the NIH.

Mr. STEARNS. Just your interpretation.

Mr. BARRETT. Part of the discussion has been, what would be appropriate to put into a CRADA that would be satisfactory to all

parties, most importantly the NIH? And that is part of the complexity of this.

The comment that Dr. Levine made—Mr. Levine made about us

taking over an area given to Correlogic I take great exception to,

because I think this is, in fact—we are continuing to do the research that the NCI is supposed to do and which we are paid to

do by the public, and that is to try to understand how to improve

clinical trials for ovarian and other cancer patients.

We have started a clinical trial. There is no delay in that trial.

That is going along. That will collect the samples that will be used

by a variety of sources for doing this analysis. We have welcomed

Dr. Levine to participate in that activity and offered him unlimited

access to these samples, but not necessarily through the CRADA.

The CRADA requires, again, a contribution of both parties, so

there are other mechanisms. He mentioned earlier that he was also

collaborating with another laboratory at NCI through a material

transfer agreement, which is a very legitimate way of doing this

transfer.

So there is lots of ways to move this forward, but the important

thing is it is moving forward, even while these negotiations are underway.

Mr. STEARNS. I guess, Dr. Barker, can you assure us that NCI

will treat Correlogic fairly in the future as they seek to work with

the agency on research?

Ms. BARKER. Absolutely. I have made—I have gone to great

lengths to ensure that that is the case. And just to clarify the point

on—I have seen all the pieces of this now, and it took some time

to sort this out, actually. But I think the point I was raising before

is we do have—we have reached the point of having an agreement

on I think—and I think NCI and Correlogic agree on the basics of

the agreement.

I think the one question NCI has raised is: could we see some

data for the other proposed technology? And we are awaiting that.

Mr. STEARNS. Thank you, Mr. Chairman.

Mr. GREENWOOD. Mr. Levine, you looked like you were about to

say something.

Mr. LEVINE. Yes. The problem with the observations made just

now are that we reached agreement with NCI in August 2002, and

that agreement was reduced to writing on September 12 by NCI’s

technology transfer office. And we have now spent the last 2 years

watching every part of that agreement be unravelled.

585

So now to say, ‘‘Well, if we show them data, we can come and

be part of this trial’’ is—I mean, frankly, it is sophistry. I mean,

we had an agreement 2 years ago to move forward together, and

NCI basically has negotiated us to death. It is very difficult when

you are a small company to be negotiating with all of NIH at one

time.

Mr. GREENWOOD. Thank you.

The gentlelady from Colorado is recognized for 10 minutes.

Ms. DEGETTE. Thank you, Mr. Chairman.

Dr. Barker, when Mr. Levine was just giving his response, I saw

on your face you disagreed with that. You know, what can be done

here to move this along?

Ms. BARKER. First of all, I think Dr. Levine’s comment is a point

well taken. When I say this was difficult to sort out, there were a

lot of things on the table that had been worked out over time. And

I think because of the speed of the technology, the movement of the

technology, issues that arose due to the tests that Correlogic was

proceeding with, the desire of NCI to proceed along a different line

of technology, when I started looking at this we really had to start

over. I mean, it was—no one sort of within the NCI I think was

where they were a year earlier, and so—and the technology had

moved along.

So I think that the agreement we have on the table now is I

think appropriate, and I think it would allow Correlogic to be—to

really get a 510K, and be probably first to get a 510K, and they

hold a license for this technology. So I think if we can agree on this

one single point in terms of using two technologies versus one, I

think we could close this fairly quickly.

Ms. DEGETTE. Okay. And, Mr. Levine, does that—do you think

it could be closed fairly quickly, too, given Dr. Barker’s statements?

Mr. LEVINE. I will certainly give it my all, and hopefully it will

be less than 2 years.

Ms. DEGETTE. And, Dr. Barker, I think I know the answer to

this, but I just want to get it on the record. There are some—is

there any indication that Correlogic will suffer because of its complaint to this committee or the proceedings that we have going on

with respect to these issues or the clinical follow-on to the agreement we have?

Ms. BARKER. I speak on behalf of myself, Dr. von Eschenbach, all

the folks at this table, and the National Cancer Institute in saying

that we are most interested in this relationship, and we are very

interested in CRADAs. We are desperate in Cancer to get these

technologies into patients, so, trust me, we are absolutely—if this

is a relationship that can and should be closed and pursued, it will

be done.

Ms. DEGETTE. And there will be no retaliation against——

Ms. BARKER. Absolutely not. There will be—no. I think, actually—I think this is an interesting and I think very revealing case

study, and I think that Dr. Zerhouni has taken it to heart and

changed some things that needed to be changed from this case

study.

It is—you know, there are some unfortunate things here, but I

think we have learned some things in the system that has been in

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place. And I think it is actually directing us to a new system, and

the NCI has—had already begun to initiate some of these changes.

Ms. DEGETTE. So you are happy for the information they have

brought forward.

Ms. BARKER. I think it has been very informative, and I think

it is also going to help us in the future as we negotiate our

CRADAs and put them in place to be very clear on conflict of interest. And I—that has not been a simple issue before.

Ms. DEGETTE. Dr. Wilson, I just wanted to follow up on the discussion we were having in my previous line of questioning when I

yielded to the chairman. I think you had testified, and several of

the others had testified, that these new systems that are being put

into place—in particular, the computer systems—should function to

raise a red flag to help us avoid conflicts of interest like this in the

future.

And I guess I would like it if you would describe for me with a

little more precision how it is these types of conflicts of interest will

come up, and how your office is going to identify them in the future.

Ms. WILSON. With regard to the data that we can collect on our

own employees, it will allow us to link together everything that we

know that they are doing. Certainly, we have much better descriptions of what their official duties are, their current projects, contracts, grants, anything that the might be involved in. With regard

to CRADAs, we have the same information, or will very shortly, accessible in real time, including more documents than we have had

before, including such things as confidential disclosure agreements,

which were not accessible to us before.

Ms. DEGETTE. Who were they accessible to before?

Ms. WILSON. They were on record in technology transfer offices.

And we received copies of CRADA listings, but not of those other

documents. And so it indicates a dealing that we have with the

company as part of our official duty activities. Being able to link

those together will, in fact, alert us to a number of relationships

that we wouldn’t have been aware of before. It will give us better

description.

With regard to what Dr. Zerhouni said this morning about

Googling various companies, clearly, what we can obtain from the

web is subject to what is available on the web, and that——

Ms. DEGETTE. Right.

Ms. WILSON. [continuing] will continue to be a limitation. For

small startup companies——

Ms. DEGETTE. So let me stop you. Is it your intention, then, anytime someone comes forward with a proposal for outside contracts

that you are going to Google all of the proposed—I mean, how is

that going to work mechanically? I am still grappling with how this

new proposed ethical system is going to work.

Ms. WILSON. With regard to outside activities, what we actually

do now when an activity is proposed, as I said, we review all of the

data bases about the employee and their activities, and the Institute’s involvement with whatever the proposed outside partner is.

Again, they are limited by the systems that we have in place,

which are being improved. We do also search the web for anything

that we can find related to the companies.

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Ms. DEGETTE. And then, is there some—but, I mean, if you had

done that in this case, the information would have—I mean, would

you have known from the web that there was a conflict between

these two companies?

Ms. WILSON. There is one piece of information that was available

to us in August 2003 that we had not known about before. There

was a confidentiality disclosure agreement executed between

Biospect and the NCI for access to the data, which is now public,

that has been generated as part of the CRADA.

That certainly would have immediately signaled an interest of

the company in pursuing the same direction, perhaps exactly, that

the Correlogic CRADA was going down.

Ms. DEGETTE. Okay. So that—you would have caught that based

on the provision of getting the confidentiality agreements. You

wouldn’t have caught that by surfing the web.

Ms. WILSON. No. We would have caught that within our own system.

Ms. DEGETTE. Okay. All right. I don’t think I have any further

questions, and I yield back.

Mr. GREENWOOD. The Chair thanks the gentlelady and recognizes himself for 10 minutes for questioning.

I am going to ask you, Dr. Wilson, to go to Tab 28. And if you

go to the second page, you’ll see an e-mail from Peter Levine. Do

you see that?

Ms. WILSON. Yes.

Mr. GREENWOOD. Now, actually, the e-mail in question here is

the address below that where it says Vince Simmon, sent Wednesday, May 21, to Peter Levine, subject Info on Biospect. Do you see

that?

Ms. WILSON. Yes.

Mr. GREENWOOD. Okay. And the date is May 21, 2003. I think

earlier in your response to questions you said that the information

that you would have needed to demonstrate that Biospect was really involved and engaged in the same kind of activities as Correlogic

wasn’t available in 2003, didn’t you?

Ms. WILSON. As a group, we indicated that the website was not

available. The website was available, and in our 2003 analysis my

office did look at that website.

Mr. GREENWOOD. Oh, did not look at it.

Ms. WILSON. We did look at it.

Mr. GREENWOOD. Right.

Ms. WILSON. It was attached to our documents.

Mr. GREENWOOD. Okay.

Ms. WILSON. Which I believe were submitted to your committee.

It appears to have been an oversight, and may very well have been

my office’s fault that it was not provided to Dr. Barrett. So he may

very well have been unaware of the——

Mr. GREENWOOD. Because clearly the—what he says, ‘‘Peter, it

was nice talking with you today. Here is some info on your new

competition. I will be back in touch. Vince.’’ And then it goes on

from the website there—a description of the—a complete description of Biospect, which talks—describes exactly what it does, which,

of course, is very much what Correlogic was doing. You don’t disagree with that in retrospect?

588

Ms. WILSON. I don’t disagree with it in retrospect. I would have

asked for—being that I would have done a technical analysis, I

would have asked for further information about the nature of biological fluids analysis, and so forth, and are they truly related? Are

they that close?

Mr. GREENWOOD. And wouldn’t you have referred that to—that

question to Dr. Barrett, since it is a scientific question?

Ms. WILSON. Yes.

Mr. GREENWOOD. Okay. I think here is what is troubling us. Mr.

Levine comes in and says, ‘‘Holy God, I am upset. I am working

with these guys on my CRADA, and I find out that they have never

told me they are working for Biospect. I view Biospect as a competitor, and this I find appalling.’’ Okay?

So you have the information, but the guy at Correlogic, he

thinks—he thinks that his company’s secrets are at risk. Okay?

And one would assume that if there was no risk, no potential risk

because they were in very different fields of endeavor, Mr. Levine

wouldn’t come in so upset and asking for a rereview, right? So you

have got some—I mean, you have got a pretty good red flag going

in the person of Mr. Levine. Okay? So then you rereview.

And the thing that worries us, that causes us to spend so much

time on this issue, is out there at Biospect you have got on the

Board the old boss of the NCI, the big man, the big dude, Klausner.

Right? Knows all you guys, you worked with him and for him and

all of that, and you have got Dahl out there, and you have got

Shtrom out there.

And the concern is we think—we worry that in the face of the

obvious concern of Mr. Levine you scanned over the horizon to look

at Biospect to see if this is a problem, and there is the old gang

out there making money at Biospect. And that we worry that that

would have clouded your judgment.

Did you have any discussions with any of those three people—

Dr. Klausner, Dr. Shtrom, Dr. Dahl? Did you have conversations

with any of them during the time that you were rereviewing this

agreement?

Ms. WILSON. To my knowledge, no. I know I didn’t—I have not

talked to Dr. Dahl I believe since she left. I could be wrong. I would

have to check notes to see if we had anything. I have not talked

to Dr. Shtrom. I have had a few conversations with Dr. Klausner

on various situations, but not on this.

Mr. GREENWOOD. Not with regard to this, okay.

Ms. WILSON. No.

Mr. GREENWOOD. And does that apply to you as well, Dr. Barrett?

Mr. BARRETT. Absolutely, yes. I mean, absolutely not.

Mr. GREENWOOD. Okay. You haven’t had any conversations

with——

Mr. BARRETT. No conversations.

Mr. GREENWOOD. I mean, in retrospect, do you think that your

judgment may have been clouded by the fact that former friends

and associates——

Mr. BARRETT. It did not enter into my decision at all. I was told

that Dr. Klausner had, you know—what I was told, as I understood, was he was part of the venture capital group that had fundVerDate 11-MAY-2000 12:16 Aug 31, 2004 Jkt 000000 PO 00000 Frm 00596 Fmt 6601 Sfmt 6602 93973.TXT HCOM1 PsN: HCOM1
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ed this, and he was not directly involved in the management of this

company. I actually overlooked the fact that Carol Dahl was the

signature on one of the letters that we had, so I actually did not

even make the connection until much later when it was brought to

the attention of this committee.

I reviewed the statement of work and the consulting agreement.

I used my knowledge of the CRADA that we had with Correlogic,

and those did not seem to overlap, and that was the sole basis for

the decision.

Mr. GREENWOOD. If you would turn to page—to Tab 34, you will

see e-mails sent from Carol Dahl to Petricoin, and then below that

is—actually, I always forget these things go in reverse order—an

8:06 a.m. message from Dr. Petricoin to Carol Dahl. Do you see

that, Dr. Wilson and Dr. Barrett?

Mr. BARRETT. Yes.

Ms. WILSON. Yes.

Mr. GREENWOOD. If you look at the address that Dr. Petricoin’s

e-mail emanated from, it is FDA—it is seiber.fda.gov, which clearly

indicates he is using his government computer to be sending emails with regard to his outside paid consultancy. Would you come

to that conclusion?

Ms. WILSON. Yes, he is using it to confirm what appears to be

a scheduling arrangement.

Mr. GREENWOOD. All right. And he is also sending it—if you look,

it went to Dr. Liotta at mail.nih.gov.

Ms. WILSON. Yes.

Mr. GREENWOOD. That is not necessarily grand larceny, but, I

mean, it does violate the rules, does it not? My understanding from

previous conversations with others at NIH and at the FDA indicates that these private consultancies are not supposed to involve

the use of government computers, telephones, equipment, etcetera.

Is that correct?

Ms. WILSON. The conduct of personal business should not be

done using government equipment.

Mr. GREENWOOD. Right. And certainly not on government time

either.

Ms. WILSON. Yes.

Mr. GREENWOOD. Okay. Turn to Tab 11 now, please. If you would

look at—would you identify that document, Dr. Wilson?

Ms. WILSON. That is a cover sheet that is generated by our computer recording the Biospect activity with the comments that my

office added in submission to the NEAC committee.

Mr. GREENWOOD. Okay. And money earned to date, it says

$49,375 consulting fees, proposed annual rate of $39,000, or $3,250

per month. Where would that information have—how would that

have been inputted into the system so that that would appear on

this computer-generated form?

Ms. WILSON. There is—what you cannot see is a blank field next

to—you can see a field that says ‘‘fee.’’ Next to it would have, in

fact, been the dollar amount. And our system is limited right now.

It was intended to reflect an annual rate, and if we begin to put

in cumulative rates we are going to have to make some changes in

the system. So it is done manually at the moment.

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Mr. GREENWOOD. Okay. So that $49,375, was that—did somebody enter that, or was that—did the computer do math—do

multiplication——

Ms. WILSON. We received that information from Dr. Liotta himself, because we weren’t collecting the data on that at the time.

Mr. GREENWOOD. I understand. So Dr. Liotta provided that information.

Ms. WILSON. Yes.

Mr. GREENWOOD. Okay. Now, go to Tab 41, please. Okay. If you

look at—can you identify that document? Well, I will identify it.

This document I don’t think you have seen. But this is a document

provided to the committee by Predicant Biosciences, formerly

Biospect, and it is a vendor quick report, January 1, 2002, through

June 5, 2004.

And the numbers on that—this is for Dr.—it is what they paid—

what they report that they paid to Dr. Lance Liotta. And you will

notice that the rate started out at $5,000 per month and then was

reduced to $3,125, and that adds up to, the staff tells me, $70,000.

And so does that—would that indicate a discrepancy between the

$49,000-plus figure that we just were discussing and this $70,000

figure that the company indicated that it paid Dr. Liotta?

Ms. WILSON. There is clearly a discrepancy. I believe what—the

dollar amount Dr. Liotta furnished us may have been what he had

on his W-2 equivalent form. I would have to check what he——

Mr. GREENWOOD. Do they submit the W-2 form?

Ms. WILSON. No, they are not required to.

Mr. GREENWOOD. They are not required to. Okay. But you can’t

explain how this discrepancy would have occurred?

Ms. WILSON. The number we used is what he provided to us.

Mr. GREENWOOD. Okay. We understand that Dr. Liotta and Dr.

Petricoin were involved in helping Predicant Biosciences set up a

CLIA lab, which is regulated by the Department of Health and

Human Services. Is there an ethical conflict there where they are

being paid to provide guidance in an endeavor that would be regulated by the Department?

Ms. WILSON. The issue I would have looked at, and I may not

be looking at all of the issues, would have been whether they were

engaged in a matter that would become the subject of a submission

of documentation or discussions with HHS. The mere establishment of a lab according to known processes or standards would not,

in my mind, fall under that, but I would have verified——

Mr. GREENWOOD. So it would be the preparation of documents

themselves that would then be reviewed that would cross an ethical line.

Ms. WILSON. Communications become the subject of dealings.

Mr. GREENWOOD. Okay. How about if they—where is the line between actually doing the paperwork where you are sitting and

inputting the data onto the—into the computer to print out the report or actually writing a document versus advising a client to

pay—a client who is paying you how to do that or advising a client

how to—a strategy for getting a new device approved through the

FDA? Is there a—is that a gray area, or is there a fine line there?

Ms. WILSON. I would have to say it is a gray area in my mind.

I would defer it to better legal counsel. I am not a lawyer.

591

Mr. GREENWOOD. Okay. Finally, Dr. Barker, you heard Dr. Levine in the very beginning of his testimony express concern and

worry that the NIH and/or the FDA would act in a prejudicial form

because of his role in making the committee aware of his concerns

about this. How can you assure Dr. Levine and this committee that

that will certainly not be the case, at least as it concerns the NIH?

Ms. BARKER. Well, I think we will proceed in good faith. And I

think there have been some missteps here, but I think most of the

things that have been done on this negotiation have been done in

good faith. Doing it over, we probably would do it differently I

think, at least the first—up to the point I think Dr. Levine described to you.

I think since then we have been—you know, we have been moving along at a reasonable rate, not rapidly enough I think, but I

think in the future some of these new processes that we have already started to put in place will assure anyone actually entering

into these relationships that not only will you be able to proceed

I think more quickly and more efficaciously, I think you are also

going to proceed without the kinds of issues that Mr. Levine has

raised.

I mean, I think this new system of actually looking at everything

an individual is doing, especially those folks who are entering into

CRADAs, is going to be critical. And as I said before, I think one

thing this case has pointed up is that we do have to very carefully

consider that.

In terms of, you know, fair treatment from the NIH, FDA, and

I can certainly only speak for the NCI, we will certainly make very

effort to ensure that Mr. Levine and anyone else who comes to deal

with us, in terms of these very important relationships, will get fair

and equitable treatment.

Mr. GREENWOOD. You are not critical of Dr. Levine for his testimony today, are you?

Ms. BARKER. Not at all, actually. As I say, as I sat there, I think

both Dr. Barrett and Dr. Wilson and all of us, we learned a lot

today. And I think it is learning that will help us in the future.

And the biotechnology industry is actually very, very important to

the National Cancer Institute. So many of our products are smaller

markets; that is very attractive to this industry. And so we have—

and, actually, cancer is the major focus of most of the biotechnology

companies that are being formed today.

So we are going to endeavor to do everything we can to build the

very best relationship with this industry we can. There are about

1,500 biotech companies in the country today, and we see that as

being an absolutely exploding area for the future. So it behooves

the NCI and the NIH to actually work, as Dr. Zerhouni said this

morning, to really make these relationships effective areas of translation of technology for the American public.

Mr. GREENWOOD. I think on that very positive note the committee will thank you very much for spending the day with us and

for your testimony. It has been a big help.

Mr. Levine, we thank you particularly.

And the committee is adjourned.

[Whereupon, at 3:57 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

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