Depatiment of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

TECHNOLOGY TRANSFER 

AND THE PUBLIC INTEREST: 

COOPERA~ RESEARCH AND


DEVELOPMENT AGREEMENTS 

AT NIH 

NOVEMBER 1993

OFFICE OF INSPECrOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services’ (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG ope:ating components: the Office of Audit Services, the 

Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs 

the Secretary of HHS of program and management problems and recommends courses to 

correct them. 

OFFICE OF AUDIT SERVICES 

The OIG’SOffice of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors in 

carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIG’S Office of Investigations (01) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 

unjust enrichment by providers. The investigative efforts of 01 lead to criminal convictions, 

administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AND INSPECHONS 

The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department, 

the Congress, and the public. The findings and recommendations contained in these inspection 

reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, 

and effectiveness of departmental programs. 

This report was prepared in the Boston Regional Office, under the direction of Mark R. 

Yessian, Ph.D., Regional Inspector General, and Martha B. Kvaal, Deputy Regional Inspector 

General, Region I, Office of Evaluation and Inspections. Participating in this project were the 

following people: 

BostonOffice Headquarters 

Dana L. Miller, Project Leader Mary Beth Clarke 

Timothy J. Corbett 

Fm additionalcopies of this repo~ please contact the Boston regionalo@ee by telephone, at 

(617) 565-1050, or by Fe at (617) 565-3751. 
Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

TECHNOLOGY TRANSFER


AND THE PUBLIC INTEREST:


COOPERA~ RESEARCH AND 

DEVELOPMENT AGREEMENTS 

AT NIH 

NOVE~ER 1993 oEI-01-92-Olloo 

EXECUTIVE SUMMARY 

PURPOSE 

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

Health protects the public interest in its establishment and oversight of Cooperative 

Research and Development Agreements. 

BACKGROUND 

The National Institutes of Health (NIH) is one of the world’s premier biomedical 

research institutions. Its mission encompasses both the pursuit of basic scientific 

knowledge and the application of that knowledge to the provision of health care. h 

fulfilling this mission, NIH intramural scientists have long collaborated with outside 

organizations in the research and development of biomedical discoveries and 

inventions and in the transfer of Federal technologies to industry. This collaboration 

ranges from undocumented exchanges of research materials, to informal compoundscreening efforts, to clinical trials conducted by NIH with private organizations. 

In 1986 Congress passed the Federal Technology Transfer Act (FITA), which 

established the Cooperative Research and Development Agreement (CRADA) as a 

new collaborative mechanism intended to foster the private commercialization of 

Federal technology. Of the 125 CRADAS administered by the U.S. Department of 

Health and Human Services in 1992, 93 were at NIH. Sixty-nine percent of these 

were concentrated within three institutes: the National Cancer Institute (NCI), the 

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

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

Our report examines the usefulness of the CRADA as a collaborative mechanism and 

identifies important challenges to the future success of the NIH CRADA program. 

We conducted this study in response to a request from the Chairman of the United 

States Senate Special Committee on Aging. 

Our findings are based primarily on a review of documents for the 61 CRADAS 

established at NCI, NIAID, and NIDDK in 1990, 1991, and 1992, and on interviews 

with NIH principal investigators and administrators, and industry representatives 

involved in the 24 CRADAS established in those 3 institutes in 1992. 

FINDINGS 

Govemrnent and indksby ptuiici@nts h NZH CRALMS repn&d that the CRAL?A is a 

uwjid mechanirm for colkbomtin 

.� The CRADA can facilitate the pooling of NIH and private-sector intellectual 

and financial resources, equipment, facilities, and research materials. 

i 
.� ~eCWAcan protect theintellectual proper~tights of thegovementin 

inventions that result from collaborative efforts. 

�	 The CRADA can facilitate the transfer of technology from NIH laboratories to 

the private sector for development and commercialization. 

A/onetheleiw, several chalkngtx to the efective management of the NH ClL4DA progmm 

coukl jeopani&e its fidure success. 

9	 Many CIWDA projects may not be well-suited for the CRADA mechanism 

because they do not focus on the transfer of Federal technology to the private 

sector for commercialization, which is the central intent of the FITA. 

�	 The process of establishing a CIL4DA is lengthy and complex. This may 

discourage participation in CRADAs, and may undermine the intent of the 

FT7’~ which calls for an expeditious review and approval process. 

�	 The NIH does not have guidance that adequately addresses the complexities of 

providing fair access to CRADA opportunities. Failure to ensure fair access-­

and the appearance thereof--could deter industry participation in CRADAs, 

impede market competition, and undermine public support for the CRADA 

program. 

�	 Limited NIH oversight of CRADA projects may inhibit the ability of NIH to 

ensure that CRADA work is consistent with the intent of the FTTA and NIH 

policy. 

�	 The pricing of CR4DA products is a matter of considerable controversy that 

reflects NIH’s difficulty in achieving a balance between protecting the p-ublic 

investment in CRADAs and maintaining industry’s incentive to participate in 

them. This controversy threatens to undermine support for the NIH CRADA 

program. 

RECOMMENDATIONS 

The NIH has already identified and begun to address several of these challenges. In 

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

enhancing the protection of the public investment in CRADAs and preserving interest 

in CRADA participation among NIH scientists and in industry. Such a response must 

also be consistent with the decentralized and expeditious CRADA management called 

for by the FITA. With these considerations in mind, we offer the following 

recommendations to strengthen the management of the NIH CIUDA program: 

l%e NH should tipkment guidelines that ckariy indicate the ~pes of reseadt pmjectr 

that are approptite for the CRADA mechanism 

ii 
The NIH should buiki upon its cument florts to clarijJ and streamline the CRADA 

review and appval process. 

The h?ZHshould jiuther deveihp the fail acce.w guidelines to rejlect the jhll range of iwmx 

involved 

l%e NE? should develbp and maintain a central database system to tmck all ongoing 

CRADA WOk 

l%eIWH, wotigwith the 0f7iceofti Seme~dti Oj&eofthe As@@ti 

Secreti~ for Hea~ shouki seek a consensus on how to resolve the reasonable pricing 

Contmvmy. 

COMMENTS ON THE DRAFT REPORT 

We solicited and received formal comments on our draft report from the Public 

Health Service (PHS). The complete text of these comments appears in appendix C. 

The PHS concurred with four of our five recommendations and indicated steps it has 

taken and plans to take to implement them. The PHS did not concur with our 

recommendation that NIH should implement guidelines that clearly indicate the types 

of research projects that are appropriate for the CRADA mechanism. 

The agency believes that restrictions on the use of the CRADA are already explicitly 

addressed in current CRADA guidelines, that there is no legal requirement for further 

restrictions, that there is no inconsistency between the intended and current uses of 

the CRAD~ and that NIH laboratories and public access to CRADA inventions are 

adequately safeguarded by current NIH policy and procedures. 

We continue to believe that it is important for NIH to provide further guidance 

regarding the types of research projects that are appropriate for the CRADA 

mechanism. Our concern focuses on fulfilling the intent of the FITA rather than on a 

narrowly defined compliance with the letter of the law. We are particularly concerned 

that basic-science research projects and NIH routine testing of industry-patented 

inventions may not be well-suited for the CRADA mechanism. 

The PHS can best protect the public investment in NIH and its scientists by providing 

clear guidance now, before CRADA activity becomes more prevalent, before more 

public resources are expended, and before more CRADA products reach the market. 

... 

111 

TABLE OF CONTENTS


PAGE 

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...’. ““””””i 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..”. .o ”.”..” 1


FINDINGS 

� Government and industry CRADA participants reported that


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


� Nonetheless, several challenges tothe effective management of


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


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


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


f% Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-l 

B:� A Statistical Profile of CRADAS established 

at NCI, NIAID, andNIDDl& 1990-92 . . . . . . . . . . . . . . . . . . . . . . . . .B-l 

c Complete Comments onthe Draft Report . . . . . . . . . . . . . . . . . . . . ..C-1


D: Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-l 

INTRODUCTION 

PURPOSE


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


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


Cooperative Research and Development Agreements (CRADAS).


BACKGROUND


Collaboration between the NIH and Non-Federal Organizations


The NIH is one of the world’s premier biomedical research institutions. It has as its


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


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


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


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


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


support of extramural research conducted by scientists who are not Federal


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


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


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


Intramural researchers have long collaborated with organizations outside of the


Federal government in the research and development of biomedical discoveries and


inventions and in the transfer of Federal technologies to industry for


commercialization. Intramural scientists publish their research findings, present their


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


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


compounds for research purposes with outside laboratories, screen chemical


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


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


agreements.


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


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


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


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


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


Legislation in Support of Technology Transfer


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


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


1 
increase U.S. productivity by fostering collaboration between academic institutions, 

Federal laboratories, and private industry in the development of new technology. The 

Stevenson-Wydler Technology Innovation Act of 1980 (P.L. 96-480) was intended 

“(l) to build links between generators of knowledge (universities and Federal 

laboratories) and users of knowledge (indust~ and State and local governments); and 

(2) to build into the Federal Government a positive concern for the welfare of 

industry.”s The Federal Technology Transfer Act (F7X’A) of 1986 (P.L. 99-502) 

amended the Stevenson-Wydler Act with provisions specifically designed to “improve 

the transfer of commercially useful technologies from the Federal laboratories and into 

the private sector.”b 

The CRADA 

The FTTA established the CRADA as a new mechanism for collaboration between


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


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


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


nonfederal organizations for the conduct of specific collaborative research and


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


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


stipulates that all collaborative partners must make significant intellectual contributions


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


small and domestic businesses when choosing CRADA partners.


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


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


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


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


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


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


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


CRADAS and calls for expedited central-agency consideration of proposed


CRADAS.1O


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


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


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


percent were concentrated within three institutes: the National Cancer Institute


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


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


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


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


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


CRADAS at the three institutes increased from 14 in 1990 to 23 in 1992. The number

of NIH principal investigators entering new CRADAS increased from 13 in 1990 to 20 

in 1992. (See table 2 in appendix B for more information.) 

concerns about NIH CRA.DAS 

Policy and procedures on CRADAS continue to evolve as NIH experience with this 

relatively new collaborative mechamsm grows. Several recent studies have found, 

however, that problems persist in the choice of CR4DA research topics, the 

identification of CRADA partners, the specifics of CRADA documents, and the 

oversight of CRADA work. The Office of Inspector General, through the Office of 

Audit Semites, issued a report in March 1992 that identified problems in the 

management of NIH technology transfer efforts and in the management of NIH 

patents and royalty income. 13 Several NIH administrators have themselves indicated 

concern over the need for improved CRADA management.14 

As the Federal investment of resources and personnel in CRAD& increases, it is 

imperative that NIH protect the public interest with practices that adequately guard 

against potential vulnerabilities. In order to satisfy the intent of the FIT& however, 

these practices cannot be so cumbersome as to discourage either industry or NIH 

researchers horn collaborating through CRADAS. 

Our report examines the usefulness of the CRADA as a collaborative mechanism and 

identifies important challenges to the future success of the NIH CRADA program. 

We conducted this study in response to a request from the Chairman of the United 

States Senate Special Committee on Aging. 

METHODOLOGY 

Our findings are based primarily on a review of documents for the 61 CRADAS 

established at NCI, NIAID, and NIDDK in calendar years 1990, 1991, and 1992; and 

on interviews with NIH principal investigators, NIH administrators, and industry 

representatives involved in the 24 CRADAS established at these three institutes in 

1992. We gathered supplemental information from a review of relevant legislation, 

Congressional testimony, literature, NIH memoranda and training materials on 

CRADAS, and minutes from the meetings of the NIH Technology Transfer Board and 

its CIUU3A Subcommittee. (See appendix A for more detail on our methodology.) 

We conducted our review in accordance with the Quality Standardsfor hspections 

issued by the President’s Council on Integrity and Efilcienq. 

3

FINDINGS


GovmNMENT AND INDUSTRY PARTICIPANTS IN NIH CRADAS 

REPORTED THAT THE CRADA IS A USEFUL MECHANISM FOR 

COLLABORATION. 

l%e CR4DA can facilitate the pooling of NLH and private-sector intellkctud and 

financihl resounxx, equipm@ facilitia, and reseaxh matenlds. 

Investigators at NIH reported that the CRADA is a useful means by which they can


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


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


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


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


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


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


pursuit of common research goals.


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


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


investigator explained, “most CRAD& don’t arise out of a single brilliant idea from an


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


something to the table. It’s a real merger of talents.” Several NIH investigators


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


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


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


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


available at NIH.


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


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


development and commercialization of new products. One industry investigator


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


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


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


great benefit.


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


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


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


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


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


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


in appendix B for more information.)


4

17te CRADA can prvtect the intellectudpmpdy tights of the government h inventions 

that reindi jivm collabomtive q$oms 

Investigators at NIH noted that the legal protections of the CR4DA serve well to 

safeguard the government’s interest in the potential outcomes of their collaborative 

efforts. These protections give the scientists a sense of security, allowing them to 

share materials and work freely. Tne CRADA serves as what one investigator 

described as a “seal of approval” on their collaborative arrangements, allowing them 

demonstrate that they have covered all the bases in their dealings with an industry 

partner. 

While scientists continue to conduct tests and to share information and materials 

to 

outside of the CRADA framework, NIH policy requires that investigators establish “a 

formal CWA upon determination that interactions with outside collaborators might 

result in an invention or commercial product.”lG As one institute scientific director 

described it, the CRADA is “a tool to use when your research has brought you to the 

point where it looks as though you have something that might work.” One investigator 

described another commonly noted advantage: Although scientists can no longer 

share information and materials with their peers outside NIH as quickly or as readily 

as they could before the CRADA mechanism was introduced, they can actually share 

such things more widely and freely once the paperwork is done. They can be 

confident that the government’s interests are protected. 

The CRADA can facilitate the transfer of technology @m N~ bbomtories to the #vati 

sector for development and commercialization 

In 10 of the 32 CR4DAS established at NIAID and NIDDK during the 1990-92


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


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


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


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


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


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


technologies.”1’


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


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


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


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


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


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


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


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


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


use. 

5

NONETHELESS, SEVERAL CHALLENGES TO THE EFFECITVE 

MANAGEMENT OF THE NIH CRADA PROGRAM COULD JEOPARDIZE l’lS 

FUTURE SUCCESS. 

Many CMA pmjecti may not be welhuited for the CRADA rnechaniwn because they 

db not foctu on the tmr@er of Fe&ml technology to the @vate sector for 

COIW?W?ChhdiOq which i$ the C(??lfTd ihtent of the ~~ 

According to Congress, “the primary purpose of the [CRADA] agreements is to take 

technologies that originate in the [Federal] laboratories and to stimulate or support 

their development and commercialization. ”lg The NIH policy finther states that the 

CRADA is designed to “facilitate the transfer of technology from Federal labs into the 

private sector for further development and commercialization. ”lg 

Many of the 61 CRADA projects established at NCI, NIAID, and NIDDK between 

1990 and 1992, however, do not adhere to the central intent of Congress and NIH. In 

particular, this is true of those CRADA projects that center on either basic research 

or NIH routine testing of industry-patented inventions.m (See tables 8 and 9 in 

appendix B for more information.) 

Thirteen of the 61 CRADA projects focused exclusively on basic research. Such 

research involves the investigation of fundamental biological structures and 

mechanisms. The purpose of one basic-research CRADA was to determine the 

tumor-producing mechanism of an industrial chemical. The goal of another was to 

discern the structure of a chemical found in the body. While some basic-research 

CIL4DAs may yield results which provide a foundation for future endeavors with clear 

commercial relevance, this kind of research is not intended to transfer commercially 

useful technology to the private sector. Accordingly, while it is not prohibited by law, 

it is inconsistent with the central intent of the FfTA and with NIH CRADA policy. 

None of the scientists with whom we spoke cited this inconsistent as a source of 

worry. Several, however, made a point of noting that industry funding of basic 

research through CRADAs could bias the choice and direction of NIH research. 

These scientists were concerned that future NIH research budgets might be reduced 

by an anticipated amount of CRADA funding and that their laboratories might, as a 

result, become dependent on “soft” industry funding.zl 

Of the 12 preclinical and clinical CRADAs for which we were provided patent 

information, 2 focused on NIH performing routine testing of industry-patented 

inventions.n In one such CRADA project, NIH coordinated clinical trials for 

regulatory approval of a new therapeutic agent that is patented by industry. In 

another, NIH conducted clinical trials to evaluate a new use for an already-marketed, 

industry-patented drug. Here again, even though the CRADA might result in 

expedited drug development and approval, and even though the CRADA might allow 

NIH to obtain unique resources or important data, no transfer of technology from the 

6

and 

Federal laboratories totheprivate sector is intended. Thus, these CR4DAs are 

inconsistent with the central intent of the FTTA and NIH CIUiDA policy.~ 

Five of the 26 NIH CRADA scientists with whom we spoke made a point of 

expressing concern about this type of CIV%DA. The scientists’ apprehensions were 

summarized by one, who explained that “it seems less a scientific collaboration than a 

service.” A few CRADA administrators also expressed unease about such routinetesting CIU4DAS. They did not want to sacrifice scientific advancement by committing 

the finite intellectual and financial resources of NIH to clinical trials that would 

otherwise be conducted by industry. 

Why, then, do NIH scientists collaborate with their industry counterparts in CRW& 

if they do not focus on technology transfer as envisioned by Congress and NIH? The 

most basic explanation we were able to derive from our intemiews is that, amidst 

concerns about conflict of interest and intellectual property rights, the CRADA 

mechanism provides unique and valuable formal protection for both governmental and 

industry partners. Thus, some collaborations that might well have been undertaken 

informally in prior years are now more likely to be formalized through CRADA 

agreements, even if they do not involve the transfer of Federal technology to the 

private sector. 

l’he pmces of establishing a CR4DA is lengthy and complex Th& may d&coumge 

p-tin in CRAD& & ~ undmnhwtheintentofthe~~ which calkforan 

*U review and appvalpmcas. 

� For the 24 CRADAS established at NC~ NMID, and NIDDK in 1992, the median 

length of time from initial contact between the NIH and indus~ parmen to final 

approval was 330 days. T7ukwas an increase from a median of 259 days in 1990. 

The NIH CRADA approval process requires several levels of review, and a CRADA 

can be reviewed more than once at each level for revisions .x The final stage of this 

process entails a central review by the CRADA Subcommittee of the NIH Technology 

Transfer Board. This step allows the central NIH administration an opportunity to 

disapprove or require modification of proposed CRADAS; the F’TTA allows a 

maximum of 30 days for such review. Of the 24 CRADA approved at NCI, NIAID, 

and NIDDK in 1992, however, only 2 received this central review within 30 days. The 

median time required for this step was 69 days.X (See tables 6 and 7 in appendix B 

for more information.) 

Despite ongoing efforts to improve the process, X it continues to be complex and 

confusing. The institute technology development coordinators recently noted their 

“frustration and concern with the number of individuals and organizations which 

review the CRAD~ the often repetitive nature of the review, ... ~1 the excessive 

time horn submission to final approval of a negotiated CRADA.” 7 

7

Private-sector collaborators alsoconttibute tothelen@h of the process. Several 

industry contacts with whom we spoke noted that their organizations often require 

considerable time to make both scientific decisions about the content of projects and 

business decisions about the legal obligations of the agreement. 

� Many NIH and industrypartnem describe the process as inefficient and view it as a 

dtiincentive to their continued parn”clpationin the NIH CRADA program. 

Twelve of the 24 NIH investigators and 11 of the 15 indust~ partners with whom we 

spoke made a point of noting that the process was not time-efficient. One NIH 

investigator summed up the frustrations of many, noting that “things take a very long 

time; if you’re not really interested in a project, forget it.” Several NIH investigators 

noted that it is easy for the “science to get stale” after a lengthy wait for approval. 

One investigator described his project as a “hot topic,” and expressed great 

disappointment that the research had been delayed 14 months because of CIU4.DA 

paperwork. 

Several of the NIH investigators with whom we spoke reported that they would avoid 

doing collaborative research through the CRADA mechanism again because of the 

delays involved. One investigator noted that, on seeing what “a hassle” the process 

had been for him, his colleague in an adjacent lab decided never to do a CRADA. 

Another NIH investigator pointed out that “some good projects don’t happen because 

the process is too long;” the process may actually discourage collaboration that might 

otherwise be undertaken informally. 

At the time of the passage of the FTT’~ Congress noted that “lengthy headquarters 

approval delays can cause businesses to lose interest. . . .’tu Indeed, several of the 

industry partners with whom we spoke suggested that, although they were currently 

involved in CRADAs, they regarded the length of the process as a great disincentive 

to participation. The technology development coordinator at one institute told us of 

three major drug firms that will not participate because of the time required by the 

process. 

The Nm does not have guidance that adequately adhsses the compldies of pmviiiihg 

fair access to CWA opprtunitk. Faihue to ensure fau access-and the appeamnce 

thereof<ouki deter indusby putic@ation in CUALMs, im. mdet comptitiorq and 

undkmhepublic support for the CIL4DA pmgrarm 

Ensuring fair access to NIH CRADAs is a complex matter that raises many difficult 

questions. Under what circumstances should the institutes advertise specific CRADA 

opportunities? How should they take into account prior collaboration between NIH 

scientists and potential CRADA partners? How broad should they allow the scope of 

a CRADA research plan to become? How many CRADAs should they allow any one 

company to enter in a specific field of research at NIH? How should they provide 

8

preference to small and domestic businesses as potential CRADA partners, as called 

for by the FTTA? 

Congress, in the FITA gives little guidance on how to answer these questions, except 

to indicate that conflict of interest guidelines should be established for Federal 

employee conduct and that normal procurement contract procedures do not apply to 

CRADAs. The PHS goes somewhat further. In a February 1989 policy statement, 

PHS stresses the importance of both ensuring fairness in access and adhering to 

congressional preferences; it then offers some guidelines for NIH and other PHS 

components to use in fulfilling these goals. 29 The NIH has not elaborated upon 

these guidelines to provide further guidance for its scientists and CRADA 

administrators. 

As a result, NH-I scientists and CRADA administrators in the institutes are 

handicapped in their attempts to answer the myriad difficult questions concerning fair 

access. While the FTTA indicates that the institutes should retain considerable 

independence and flexibility in establishing CRADAs, central operational guidance is 

necessary to address such a sensitive and complicated matter as fair access. At 

present, the institutes lack such guidance regarding at least four central dimensions of 

providing fair access: 

(1) They lack sufficient guidance regarding the circumstances in which they 

should advertise specific CRADA opportunities. The 1989 PHS fair access 

guidelines call for specific announcements when it is anticipated that a 

‘substantial numbe~ of private sector organizations are likely to be interested in 

the opportunity.”w Neither the PHS fair access guidelines nor NIH, however, 

identify the types of CRADAs that might elicit interest from multiple 

organizations. As a result, individual institutes address the need for special 

amouncements according to their own policies or on a case-by-case basis. 

Many of the scientists with whom we spoke were uncertain of their 

responsibilities regarding the provision of fair access. Of the 61 CRADAs 

established at NCI, NIAID, and NIDDK between 1990 and 1992, 8 were 

advertised as specific CRADA opportunities.31 For 33 of these 61 CRADAs, 

we were provided information on which CRADA partner had initiated the 

collaboration; in 8 of these, the industry partner had done so.32 It might be 

inappropriate for NIH to advertise such CWA. 

(2) They lack sufficient guidance regarding what relationships may exist 

between NIH scientists and their CRADA partnem prior to the establishment 

of a CRADA. The PHS fair access guidelines do not address this issue. The 

NIH requires all NIH CRADA participants to submit a “Conflict of Interest 

and Fair Access Survey” as part of the CRADA approval process, but the 

individual institutes have different procedures to manage conflict of interest 

concerns. At least one institute requires a six-month “cooling-off” period 

between the termination of a consulting relationship between an NIH scientist 

9

and a company and the establishment of a CRADA between the two; other 

institutes have no such requirement.33 

Many of the scientists with whom we spoke expressed confusion as to what 

preexisting relationships between themselves and their CRADA partners were 

acceptable. Of the 61 CRADAS established at NCI, NIAID, and NIDDK in 

1990, 1991, and 1992, 20 grew out of prior working relationships between the 

partners.~ 

(3) They lack sufficient guidance regarding the fair access implications of the 

breadth of CRADA research plans or the number of CRADAS that a company 

is allowed in a specific area of research. Narrowly defined work plans allow 

greater competition and are less likely to enable any single company to 

monopolize a given field of NIH research. Similarly, controlling the 

circumstances in which a company is allowed multiple CIV%DASin a given field 

is a means of both promoting competition and limiting opportunities to 

monopolize NIH research. Neither the PHS fair access guidelines nor NIH, 

however, explicitly address these issues. 

(4) They lack clear, operational definitions of the terms “small business” and 

“domestic business” to assist them in their compliance with the FTTA In 

December 1992, the Office of the Secretary, OffIce of the General Counsel 

provided the CRADA Subcommittee with an opinion about the meaning of 

these terms. From the perspective of many in the institutes, however, much 

ambiguity remains.35 In addition, because neither the PHS fair access 

guidelines nor NIH offer guidance regarding the means by which this 

preference is to be provided, the individual institutes have inconsistent 

practices. One institute advertises each CRADA for which a foreign industry 

partner is being considered; others do not. 

Unfair access to CIWDA opportunities--or even the appearance of it--could have 

serious detrimental effects. It could result in certain companies gaining advantaged 

access to patentable new technologies and expedited product development, while 

others lose interest in what they regard to be a closed process. It could discourage 

competition in emerging markets and therefore contribute to higher prices and/or 

reduced access to products. Furthermore, it could undermine public support for a 

collaborative mechanism intended by Congress to promote the public interest. 

Limited ALE?oversight of CRADA pmjecti may inhibti the ability of NH to emxue duzl 

CRADA WOk k CO~ with the hat of the K17A and N~poiYcy. 

The F’TTA indicates that CRADk should be managed largely at the institute level. 

Nevertheless, some central-NIH oversight is necessary to protect both the government 

and its industry partners by providing coordination and consistency in the 

10

administration of CRADAS among the many NIH institutes. Indeed, the FITA clearly 

states that each agency is to maintain a record of all CRADA agreements. 

The NIH has established a central structure to coordinate CRADA activities among 

the institutes. Central-NIH oversight of CRADAS is handicapped, however, because 

NIH has not implemented a central system to track approved CRADAS, the 

involvement of indust~ partners in CRADAS at more than one institute, or the NIH 

investment of funds, resources, and personnel in CRADA projects.% 

The central-NIH administration is not apprised of the status of ongoing CRADA 

projects. Some CRADAS expire and are terminated without the knowledge of the 

central-NIH administration. Companies fund multiple CFL4DAS with different 

institutes, and no central-NIH record documents the extent of their full involvement 

with NIH. It has been the practice to allow significant amendments to previously 

approved CRADAS without the knowledge of the central-NIH administration. For 

example, one CRAD~ which was originally approved in 1987 as a one-year project, 

has been renewed annually without central NIH review. Other CRADAS, which began 

as preclinical research projects, have progressed to clinical trials without central-NIH 

oversight.37 

This lack of information at the central-NIH level limits NIH’s ability to make prudent 

decisions about the allocation of its resources and the commitment of its intellectual 

property in newly proposed CRADAS. This information gap also limits NIH’s ability 

to ensure that approved CRADA projects are being conducted in a manner that is 

consistent with NIH policy and the intent of the FITA. 

% prichg of CRADA p&tY is a matter of consiierabh controve.my that refikcts NE?% 

_
 ~ achievikg a baihnce between protecting the pubilc irwestment in CRADAS and 

mahtaining indurbyk incentive to participate in them l%k contmvemy threatens to 

udmnine suppti for the NH CRADA pmgmrm 

Congress, in the FTT~ did not address the pricing of products emerging from


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


clause in the “NIH Policy Statement on Cooperative Research and Development


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


into the model CRADA. It expresses NIH’s interest that there be a “reasonable


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


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


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


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


CRADAS, it is widely regarded as inadequate.


A industry representatives, Congressional representatives, academics, and NIH


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


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


11 
information from industry partners and the requisite expertise to analyze such data. 

The NIH director reported to Congress that “NIH is not equipped, either by expertise, 

or programmatic or legislative mission, to undertake an analysis of the ‘reasonableness’ 

of private-sector product pricing decisions.”39 

Consumer advocates have pointed out that, as a result, NIH is unable to protect the 

public’s investment in products which result from CRADAS. Such advocates have 

argued that the public is left in a position in which it might be forced to pay 

inappropriately high prices for drugs whose research and development they have 

financed as taxpayers. 

Indust~ views the clause as being too broad and too threatening to companies’ 

proprietary interests in a highly competitive marketplace.w Industry partners argue 

that they must agree to the clause without knowing how NIH w-illattempt to 

implement its intent when it comes time to market a product. Some companies have 

cited it as the basis for their refusal to participate in CRADAs.41 Many who have 

participated have done so on the condition that specific limitations or assurances be 

reflected; the clause has been modified in 13 of the 61 CIU4DA established at NCI, 

NIAID, and NIDDK between 1990 and 1992.42 

To date, only one CRADA product has reached the marketplace and been priced--an 

anti-cancer agent, Taxol. 43 In this instance, however, the model “reasonable pricing” 

clause was modified and NIH did not attempt to ascertain that there was a reasonable 

relationship between the price of the product and the public investment in its 

development.a Instead, to promote the establishment of a “fair market price,” NIH 

asked its industry CRADA partner to set the price of the drug below the median for 

other recently approved anticancer drugs. In addition, NIH entered into a CRADA 

with another company to develop a product that will provide market competition for 

Taxol.45 

In the months following the pricing of Taxol, controversy regarding the NIH approach 

has resulted in three Congressional hearings.a While NCI and its CRADA industry 

partner are apparently satisfied with the approach taken to ensure a fair price for the 

drug, Congressional representatives, consumer advocates, and academics have raised 

strong objections.47 They contend that the method employed was inappropriate, that 

the data used were seriously flawed, and that NCI had insufficient information to 

ascertain that the price set was, indeed, fair.a 

During the next few years additional CIU4.DA products are likely to come to market. 

Left unresolved, the controversy concerning the pricing of these products could 

escalate to such a point that it jeopardizes the entire NIH CRADA program. 

12

RECOMMENDATIONS


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


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


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


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


as Congress intended.


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


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


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


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


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


between enhancing the protection of the public investment in CRADAS and


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


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


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


offer the following recommendations to strengthen the management of the NIH


CRADA program:


17zeN~ shdd bnpliment guidehkes that clem$ indicate the ypes of research projects 

that are apppiate for the ClL4DA rnechaniwn 

To address the apparent inconsistency between the intended and current uses of the 

CRAD~ NIH should build upon its current efforts to develop and implement clear 

criteria for determining if proposed collaborative research projects are appropriate for 

the CRADA mechanism. The NIH should clarify under what circumstances, if any, 

projects that are not intended to transfer technology to the private sector for 

commercialization--such as those that primarily involve either basic research or NIH 

performing routine research on industry-patented compounds--are appropriate for the 

CRADA. 

In order to facilitate the CR4DA management process and to reduce confusion 

among potential CRADA participants, it is important that NIH inform its scientists 

and potential industry CRADA partners about the appropriate uses of the CRADA 

mechanism. With this clarification, NIH could better ensure that its CRADA projects 

are consistent with the central intent of the FITA and with NIH CR4DA policy. 

Because collaborative basic-research efforts and projects in which NIH performs 

routine testing of industry-patented compounds c-an be of benefit to the-public and are 

consistent with the NIH rn~ssion, NIH could pursue the development of alternative 

mechanisms to formalize these collaborations. The NIH might consider whether or 

13

not legislative amendments are necessary to support the development of these 

alternative mechanisms. 

The NIH should bui.ki upon its cument @orts to clmijj and strearnhke the CRADA 

reviinv and appval process. 

To reduce the length and complexity of the CRADA review and approval process, 

NIH should build upon its current efforts to better define this process. The NIH 

should determine which reviews are necessary and the exact purpose of each. The 

NIH might clarify the circumstances in which particular classes of CRADAs--perhaps 

those in which options to negotiate exclusive licenses have been waived--might be 

exempted from particular stages of review. The NIH should determine the 

appropriate participants in each stage of review. In defining this process, it is 

important that NIH pay particular attention to avoiding possible redundancies. 

As an additional step to increase the timeliness of the CRADA review and approval 

process, NIH could establish timeframes for completing each stage of the approval 

process. Review teams that currently meet on a monthly basis could meet more 

frequently or on an as-needed basis to complete their work within the established 

timeframes. 

Providing greater definition to the CRADA review and approval process would both 

expedite that process and reduce confusion--and resulting frustration--among CRADA 

participants and administrators. 

The NH shoukl@the-r develhp the fair access guidelines to reflect the jidl range of iwues 

blvohwd. 

To better ensure the consistent provision of fair access to NIH CRADA opportunities 

in all institutes, NIH should build upon the current PHS guidelines regarding 

amouncements of specific CRADA opportunities. In particular, NIH should clearly 

define the circumstances in which a substantial number of companies are likely to be 

interested in a CRADA opportunity. For example, NIH might determine that there is 

likely to be wide interest in CRADAS that include clinical trials which are not 

primarily dependent on indust~-patented inventions. The NIH could indicate other 

circumstances that warrant announcements of specific CIUM3A opportunities. For 

instance, NIH might determine that special announcements are called for whenever a 

foreign partner is being considered for a CIU4DA project that is not primarily 

dependent upon industry-patented inventions. 

The NIH should build upon the “Technology Transfer Act Interagency Conflict of 

Interest Guidelines” now being developed by the Interagency Task Force on 

Technology Transfer. With this as a basis, NIH could clarify appropriate procedures 

for managing prior relationships between NIH scientists and their CRADA partners. 

14

It is also important that NIH provide guidance to its scientists and CIUDA 

administrators regarding the fair access implications of the breadth of CRADA 

research plans and the circumstances in which a company might be allowed to enter 

into multiple CRADAS in a given field of NIH research. To assist its scientists in 

their efforts to ensure fair access, NIH might provide examples of overly broad 

research plans and amended, more narrowly focused research plans. 

Finally, the NIH should seek to establish clear, operational definitions of the terms 

“small business” and “domestic business” so that Federal scientists and CRADA 

administrators will be better able to comply with the intent of the F’TTA. 

A detailed compendium of rules and regulations would be counterproductive in an 

organization such as NIH, in which flexibility is central to the nature of the work. 

More fully developed guidance, however, would ensure a greater degree of consistency 

among institutes in the provision of fair access. It would also ease confusion and 

frustration on the part of CRADA participants, and diminish misunderstandings on the 

part of both indust~ and the public. 

lk NH should devebp and maintain a central dktabase syflem to track all ongorng 

CRADA WO?k 

To assist central and institute administrators in their efforts to ensure that CIUDA 

projects are appropriate and acceptable, NIH should develop a central CRADA 

database that is frequently updated and readily accessible by Technology Transfer 

Board members, CRADA Subcommittee members, and the TDCS in all institutes. In 

developing this system, NIH could build upon its experience with CRADA databases 

in the individual institutes and the OTT. 

The database might include information on several different dimensions of CRADA 

research, perhaps including the name of the principal investigator the name of the 

nonfederal CRADA partner; the subject of the research; a classification of the 

research as basic, preclinical, clinical, involving the development of laboratory 

techniques or equipment, or other; the original approval date and intended term of 

the CRADA, CIUDA renewal dates and renewed terms; any other amendments to 

the originally approved CRADA and their dates; CRADA expiration or termination 

dates; the funds that have been approved for transfer from industry the funds that 

have actually been transferred; the NIH investment of funds, personnel, and resources 

in CRADA projects; who holds the patents necessary for the CRADA research; a 

listing of all patents, licenses, and products that have resulted from the CIUH)A, and 

a listing of any unresolved problems with the CRA.DA. 

Such a database would support NIH in its efforts to ensure both that CRADA work is 

consistent with the intent of the FITA and NIH policy, and that newly proposed 

CRADAS are appropriate in the context of the NIH-wide CRADA portfolio. 

15

TheNET, wotigti ti~eofti Semetiydk@eofti~ 

Secretq for Hea~ should seek a consennM on how to resolve the reasonable prkhg 

contmveny. 

The pricing of CRADA products is an extremely complex and volatile matter--one that 

involves issues extending well beyond NIH’s own domain. It is intricately related to 

the current deliberations on national health care reform. It involves basic 

considerations about the prices of all pharmaceuticals, whether or not they are 

produced through the CRADA mechanism. It raises questions about wha$ if any, 

access government should have to private-sector cost data and the criteria it should 

use in determining what is fair. It triggers still other questions about the expertise 

necessary to determine what is a fair price and about where such expertise should 

reside. 

These are questions and considerations which NIH can not resolve itself. Nonetheless, 

NIH has an important role in helping the broader policy community recognize that the 

entire CRADA effort is dependent on resolving them in a manner that lowers the 

level of controversy and allows the Department to achieve a balance between the 

competing objectives of protecting public investment in NIH CRADAS and preserving 

industry’s incentive to participate in them. 

Obtaining such resolution is urgent. In the next few years many of the CRADA 

projects now underway are likely to result in marketable products. Some of these may 

raise pricing controversies every bit as intense as the one surrounding Taxol. At 

present there is a window of opportunity that could be used to help ensure the future 

success of NIH’s CRADA efforts. 

16

COMMENTS ON THE DRAFT REPORT


We solicited and received formal comments on our draft report from PHS. We 

respond here to the major themes contained in the comments. We first summarize 

the comments, and then provide our response in italics. We include the complete text 

of the agency’s comments in appendix C. 

The PHS concurred with four of our five recommendations. The agency did not 

concur with our recommendation that NIH should implement guidelines that clearly 

indicate the types of research projects that are appropriate for the CIUDA 

mechanism. 

The PHS believes that restrictions on the use of the CRADA are already explicitly 

addressed in current CRADA guidelines, that there is no legal requirement for further 

restrictions, that there is no inconsistency between the intended and current uses of 

the CRAD~ and that NIH laboratories and public access to CRADA inventions are 

adequately safeguarded by current NIH policy and procedures. 

In our report jindings, we note that many NIH CRADA projects may not be well-suited 

for the CRADA mechanism because they are inconsktent with the central intent of the 

FTZA. 77ukintent is arh”culatedon page one of the Legislative Hkto~ of the Act (Senate 

Repoti No. 99-283), where it k stated “the pupose of this bill [the FIXA] k to improve 

the transfer of commercial~ Usefil technologies j?om the Federal laboraton”es and into the 

private sector. ” XJu3pupose is reiterated throughout the legklative hhto~ of the Act. 

We are pam”cularly concerned that basic-science research projects and NIH routine testing 

of indushy-patented inventions may not be intended to transfer commercial/y usefil 

technologies from the Federal laboraton”es to the pn”vate sector. We recognue that none 

of the NIH CRAEA projects we reviewed k prohibited by the FITA. Our concern focuses 

on jidfilling the intent of the Act, rather than on a nanowly defined compliance with the 

letter of the law. 

In our recommendation, we utge NIH to implement guidelines that clearly indicate the 

types of research projects that are appropriate for the CRADA mechanism. We suggest 

that NIH clanfi under what circumstances, if any, projects that are not intended to 

tran.$er technology to the private sector for commetcialuation are appropriate for the 

CRADA. 

We continue to believe that it k important for NIH to implement such gutielines. As the 

draft NIH CR4DA Manual Polikiks and l%ocedures acknowledges, “only a segment of the 

broad spectrum of all NIH research activities may be appropriate for consideration for 

CRADAS.” We uge NIH to elaborate on thk statement by providing further guidance to 

potential CRADA participants and CRADA administrationas to the dejlnition of the 

segment of NIH research that may be appropn”atefor conduct as a CRADA. l%e NIH 

can best protect the public investment in NIH and its scientkts by providing clear 

17 
guidance now, before CRADA activity becomes more prevalent, before more public 

resources are expended, and before more CRADA products reach the market. 

The PHS concurred with our recommendation that NIH build upon its current efforts 

to clarify and streamline the CRADA review and approval process. The PHS referred 

to a committee that has been formed to address this task and to a policy document 

that it is developing to fulfill this recommendation. 

The PHS concurred with our recommendation that NIH further develop the fair 

access guidelines to reflect the full range of issues involved. To fulfill this 

recommendation, NIH has established an ad hoc committee to evaluate fair access 

issues and to develop a revised PHS policy for fair access to CRADAS. 

The PHS concurred with our recommendation that NIH develop and maintain a 

central database system to track all ongoing CRADA work. The PHS outlined steps it 

will take to develop a plan for such a database system and noted that there is not yet 

a date for completion of either the plan or the database system. In addition, PHS 

noted that it is difilcult to quanti~ the value of personnel and resources that NIH 

devotes to CRADA projects. 

We recognize that it is dificult to quantifi the value of the NIH investment in CRAMS. 

We suggest, howeve~ that the importance of being able to do so outweighs the burden of 

the work involved. The NIH responsibilityfor public accountability necessitates that the 

agency be prepared to provide a ji.dl report on the allocation of public funds. In addih”on, 

an undenrtandingof the NIH investment in the development of commercial products to be 

sold for profit by indushy h critical to any consideration of pricing for those products. 

The PHS concurred with our recommendation that NIH, working with the Office of 

the Secretary and the Office of the Assistant Secretary for Health, seek a consensus 

on how to resolve the reasonable pricing controversy. The PHS noted the steps it has 

taken and plans to take in response to our recommendation. 

In addition, PHS provided three technical comments on our report. We have revised 

our report to reflect these comments. 

18

APPENDIX A


METHODOIXIGY 

Our findings and recommendations are based on five main sources of information: 

1. A review of NIH documentation for the 61 CRADAs established at N~ NIAID, 

and NIDDK in calendar years 1990, 1991, and 1992 These three institutes accounted 

for approximately 69 percent of all NIH CRADAs in 1992. Each file included the 

legal CIWDA document, correspondence, and various patent and licensing records. 

From each file, we collected information on the length of the CRADA term, the 

amount of money to be transferred to NIH by the CRADA partneq and whether or 

not a clinical trial was being conducted, the collaborative opportunity was advertised, 

the industry partner was categorized by NIH as a small or foreign business, the 

reasonable-pricing clause was modified or deleted, and an option for a nonexclusive or 

exclusive license to CRADA inventions was provided. 

In addition, we asked the technology development coordinators in each of the three 

institutes we reviewed to provide us with additional information for their respective 

1990-92 CFL4DAs, including the type of research involved, and whether patents were 

held by NIH or the indust~ partners. 

2 Interviews with NIH scientists and industry contacts involved in the 24 CRADAs 

established at N~ NTAID, and NIDDK in 1992 We gathered information from each 

contact on his or her experience with the CRADA program. Most of these interviews 

were conducted by telephone. 

3. Other interviews. We interviewed NIH administrators, including institute scientific 

directors, technology development coordinators, members of the Patent Policy Board 

(which was renamed the Technology Transfer Board in the Spring of 1993) and its 

CRADA Subcommittee, and staff in the Office of Technology Transfer and the Office 

of the Secretary, Office of the General Counsel. We also held discussions with 

academics concerned with technology transfer, and with representatives horn the 

Department of Commerce, the General Accounting Office, and the Office of the 

Assistant Secretary for Health. 

4. Review of the literature. We reviewed relevant legislation and literature, NIH 

memoranda and training materials, minutes from the meetings of the NIH Patent 

Policy Board and its CRADA Subcommittee, and CRADA files and database 

information from the Office of Technology Transfer. 

5. Conference and meeting attendance. We attended the October 1992 PHS 

Technology Transfer Forum, tsvo meetings of the CRADA Subcommittee, and a 

public meeting of the Advisory Committee to the Director of NIFI. 

A-1


APPENDIX B


A STATISTICAL PROFILE OF CRADAS 

ESTABLISHED AT N~ NIAID, AND NIDDK 

1990-92


Tables 

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


NIDDK, 1990-92


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


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


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


1990-92


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


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


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


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


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


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


7	 Median elapsed time from institute submission of a CRADA to completion of 

review by the CRADA Subcommittee of the NIH Technology Transfer Board, 

in days; NCI, NIAID, and NIDDK, 1992 only 

8	 Number and percentage of CRADAS involving each type of research, by yeaq


NCI, NIAID, and NIDDK, 1990-92


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


institute; NCI, NIAID, and NIDDIQ 1990-92


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


research; NIAID and NIDDK only; 1990-92


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


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


B-1

Tables 

12	 Number of CRADAS in which the reasonable pricing clause was modified; NCI,


NIAID, and NIDDK; 1990-92


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


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


1990-92


14	 Number and percentage of CIU4DAS that were advertised as specific


opportunities or that grew out of prior working relationships between the


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


B-2

Table 1 

Number of CRADAS approvq by institute and year 

N~ NIAID, and NIDDK 

199(MZ2 

NCI 

NIDDK 

Total for all 

3 institutes I 1 II�

SOURCE:OIGreviewofCRADAfiles 

at NCI,NIAID,andNIDDK 

Table 2


Number of NIH scientists and industry partners 

entering into at least one CRADA 

N~ NIAID, and NIDDK


1990-92


nr!T!g2 F


NH scientists 13 I 18


Industry partners 14 21 23 II 51


SOURCE OIGreviewof CRADAfiles 

at NCI,Nf.AID,andNIDDK 

NOTE:Totalsarenotcumuladvqpartnerswhobegan 

multipleCRADAindifferentyears arecountedonlyonce. 

B-3

Table 3 

Mean approved duration of CRADAS, in years 

N~ NIAID, and NIDDK 

1990-92 

F~F

Mean for all 3 2.0 2.4 3.3 2.7

institutes 

N=61 

SOURCE OIGreviewof CRADAfiles 

at NCI,NIAID,andNIDDK 

NOTE l%e* durationof theseCRADASmay 

differfromtheapprovedduration. 

B-4

Table 4 

MEAN funds approved to be provided by indus~ CRADA partners, 

in thOUSa.IldSof dollars 

N~ NIAID, and NIDDK 

1990-92 

M*H

Meart for all


3 institutes 49 146 724 $348


N=61 

SOURCE:OIG review ofCRADA files at NCI, NL41D, andNIDDK 

NOTE:Theactualcontributionfromtheindust~partner 

maydifferfromtheapprovedamount. 

B-5

Table 5 

MEDIAN funds approved to be provided by industry CRADA partners, 

in thOWilIKiS of doilars 

NC~ NTAID, and NIDDK 

1990-92 

a%1[ i , 

Median for all


3 institutes 39 0 68


N=61 

Median for 

all 3 years 

$45 

54 

6 

$40 

SOURCE: OIG review of CRADA files at NCI, NIAID, and NIDDK 

NOTE: The U contribution from the indust~ partner 

may differ from the approved amount. 

B-6

Table 6 

Median elapsed time from initkd eontaet


between CRADA partners to final CRADA appro@ in days


N~ N_IAID, and NIDDK


1990-92


F~E . 

Median for all


3 institutes 259 333 330 299


N=61 

SOURCE OIG review of CRADA files 

at NCI, NIAID, and NIDDK 

B-7

Table 7 

Median elapsed time from institute submission of a CRADA to completion of 

review by the CRADA Subcommittee of the NIH Technology Transfer Boar& 

in days 

N~ NIAID, and NIDDK 

1992 Only 

I 

INCI 

NIDDK 

Median for all Icthree institutes

N=24 

II 

90 I 

E--_-J 

69 

SOURCE: OIG review of CRADA files 

at NCI, NIAID, and NIDDK 

B-8

Table 8 

and percentage of CRADAS for each typeof research 

[ 

Basic 

II
 Preclinical 

clinical 

Lab technique, 

machine, etc. 

Combinations of Fthe above topics

m 

by year 

N~ N_IAID, and NIDDK 

1990-92 

=lzclrEicl ‘otiford’yem 

6 (38%) 4 (19%) 3 (13%) 13 (21%) 

6 (38%) 10 (4%) 6 (M%) 22 (36%) 

1 ( 6%) 2 ( 9%) 4 (17%) 7 (11%) =RR 1 ( 6%) o ( o%) 3 (12%) 4 (7%)

mpp=


16 (loo%) 21 (100%) 24 (100%) 61 (100%) 

SOURCE: Reports to the OIG from the Technology Development Coordinator 

at NCI, NIAID, and NIDDK 

B-9

Table 9 

Number and percentage of CRADAS for each type of research 

by institute 

N~ NTAID, and NIDDK 

1990-92 

Emrmc 

Basic 5 (17%) 6 (32%) 2 (15.5%) 13 (21%) 

Preclirtical 15 (52%) 4 (21%) 3 (23%) 22 (36%) 

clinical 3 (lo%) 4 (21%) o ( o%) 7 (11%) 

Lab technique, 2 ( 7%) o ( o%) 2 (15.5%) 4 ( 7%) 

machine, etc. 

Combinations of 4 (14%) 5 (%%) 6 (~%) 15 (25%) 

the above topics E E ~ 

EmmmE 

SOURCE Reports to the OIG from the Technology Development Coordinators 

at NCI, MAID, and NIDDK 

B-10

Table 10 

Number of CRADAs for which NTH held a 

preetitig patent necessaq for the research


NIAID and NIDDK Only


1990-92


1990 

Total for both 2 1 7 10 

institutes 

, N=32 

SOURCE Reports to the OIG from the Technology Development Coordinators 

at MUD and NIDDK 

NOTI+ This information was unavailable from NCI. 

Table 11 

Number of CRADAs for which the industry partner held a 

preexisting patent necessary to the research


MAID and NIDDK Only


199(M2


FIFI 

Total for both 1 2 2 5 

institutes 

N=32 

SOURCE Reports to the OIG from the Technolo~ Development Coordinator 

at NIAID and NIDDK 

NOTE This information was unavailable from NCI. 

B-n 
Table 12 

Number of CRADAS in which the reasonable pricing clause was modified 

N~ MAID, and NIDDK


199092


sq+p~
 Total for all 2 4 7 13


3 institutes


N=61 

SOURCE. OIG review of CRADA files at NCI, NIAID, and NIDDK 

B-12

Table 13 

Number and percentage of CRADAS in which the industry partner was 

categorized by NIH as a small or foreign business 

N~ NIAID, and NIDDK 

199W2 

Small Business 24 (39%) 

Foreign Business 8 (13%) 

N=61 

SOURCE OIG review of CRADA files at NCI, NIAID, and NIDDK 

Table 14 

Number and percentage of CRADAS that were advertised as speeific 

opportunities or that grew out of prior informal working relationships 

between the partners 

N~ NIMD, and NIDDK 

1990-1992 

CRADAS that were advertised 8 (13%) 

as specific opportunities 

CRADAS that grew out of prior working 

relationships between the partners 20 (33%) 

N=61 

SOURCE OIG review of CRADA files at NCI, NIAID, and NIDDK 

B-13


APPENDIX C 

COMPLETE COMMENTS ON THE DRAFT REPORT 

FROM THE PUBLIC HEALTH SERVICE 

c-1 
:	.

�S ,, -””-,, ‘, 

*

DEPARTMENTOF HEALTH& HUMANSERVICES PublicHealthService :

2

% “+*+,

$

>*,dw Rockville MD 20857 

OCT -8 1~ 

MEMORANDUM 

From: Assistant 

Sub ject:	 Office of 

“Technology 

Cooperative 

the National 

Secretary for Health 

Inspector General (OIG) Draft Report 

Transfer and the Public Interest: 

Research and Development Agreements at 

Institutes of Health, ” 0EI-01-92-01100 

To: Acting Inspector General, OS 

Attached are the Public Health Service comments on the subject 

OIG draft report. In addition to our comments on the specific 

recommendations in the report, we offer several technical 

comments for your con federation. 

(//’+ L ~ 

Philip . Lee, M.D. 

Attachment 

c-2 
PUBLIC HEALTH SERVICE (FHS 1 COMMENTS ON THE OFFICE OF INSPECTOR


GENEWIL (OIGJ DRAFT REPORT “TECHNOLOGY TWUW3FER AND THE PUBLIC 

INTEREST: COOPEIWTIVE RESEARCH AND DEVELOPMENT AGREEMENTS AT


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


OIG Recommendation 

1.	 The NIH should implement guidelines that clearly indicate 

the types of research projects that are appropriate for the 

cooperative Research and Development Agreexnents (CRADA) 

mechanism. 

PHS COmment


We do not concur. There is no inconsistency between the intended 

and current uses of the CRADA. Also, there is no legal authority 

or compelling policy rationale for the proposition that the CRADA 

mechanism should be limited to any particular category of 

research. 

Pursuant to Section 310(a) of the PHS Act, agencies of PHS, such


as NIH, are authorized to:


u ..conduct. .and encourage, cooperate with, and render 

assistance to other appropriate public authorities~ 

scientific institutions and scientists in the conduct off 

and promote the coordination of, research, investigations, 

experiments, demonstrations, and studies relating to the 

causes, diagnosis, treatment, control, and prevention of 

physical and mental diseases and impairments of man...” 

The Federal Technology Transfer Act of 1986 (FTTA) was enacted to 

promote technolo~ transfer by authorizing Govezmnent 

laboratories to enter into CRADAS and conduct other relevant 

activities! such as the patenting and licensing of inventions.


CRADAS are defined as “any agreement between one or more Federal


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


specified research or development efforts which are consistent


with the missions of the laboratory. ”


The legislative history and implementation of the FTTA by various


agencies show no indication that it was the intention of Congress


to limit CRAWJS Only to research that reflects “practical


technology” rather than to generally encourage xnission­


appropriate research. The E’TTA broadly defined the categories of


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


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


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


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


interpretation as it merely paraphrases the FTTA’s preamble.


c-3 
2


We are unaware of any statutory basis for concluding that 

Congress intended to exclude any category of research or 

development within the mission of the agency from the possibility 

of joint efforts with outside entities. Moreover, given that the 

FTTA explicitly encompasses bcth research and development, it 

would be problematic to define basic and non-basic research in 

the context of NII-I’s research mission. For example, although 

clinical trials designed to answer fundamental questions about 

the pathophysiology of a particular disease might be considered 

basic or routine by some people, validly they could be considered 

to be developmental or commercial from the perspective of a 

corporate research partner. 

By way of example, the statutory mission of the National Cancer 

Institute (NC1) includes research, experiments and studies 

related to the treatment of cancer, as well as programs for the 

application of NCI research to clinical practice. Therefore, 

clinical trials with company products that expedite dmg 

development and Food and Drug Administration (FDA) approval fall 

squarely within the mandate of the PHS Act and the FTTA. 

Complicating this picture is the pragmatic concern that the CRADA


is the only statutory mechanism by which research agencies can


make licensing commitments in advance to research partners for


inventions yet to be made. Companies increasingly request CRADAS 

in order to secure patent rights for a wide variety of research


projects. Some companies will not provide materials for clinical


trials conducted at NIH without a promise of patent rights 

related to new methods of using their proprietary compound that 

may be discovered in the course of the study. Additionally, the 

CRADA mechanism is the primary statutory mechanism by which


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


to designated intramural research laboratories.


The PHS is concerned that research laboratories not be “acquired” 

by various pharmaceutical or biotechnology companies. Thus , 

appropriate limits should be placed on the amount of time that 

any one investigator should contribute to any single CRADAr or on 

the number of CRADAS that any company might have with a PHS 

agency or its institutes, centers or divisions (ICD). The 

Technology Transfer policy Board (TTPB) at NIH, which includes 

representatives from the Centers for Disease Control and 

Prevention, FDA, and the Office of the Assistant Secretary for 

Health (OASH), is developing recommendations to address these 

concerns. 

To the extent that a fundamental invention is made under a CRADA 

and licensed to a CRADA partner, the NIH patent licensing 

agreement already contains several safeguards to ensure that 

(I) public access to the underlying technology is permitted, and


(2) the commercial development rights are available to other 

c-4 
3


companies when necessary in the public interest. For example, 

NIH generally reserves the right to grant sub-licenses when the 

licensee cannot demonstrate a capability to respond to public 

health needs when additional uses for the product are identified. 

In conclusion, we believe that the OIG report restricts its focus 

to the direct transfer of practical technology, rather than 

looking at joint research and development efforts that may 

transfer technology as a result of collaborations. We agree that 

interactions with companies involving only routine, conventional 

testing with no collaborative or intellectual contribution are 

not appropriate for CRADAS. For that reason restrictions on the 

use of CRADAS are set forth explicitly in current guidelines. We 

also agree that~ in approving any CRADA, due consideration must 

be given to the possibility that the level of confidentiality 

associated with that CRADA project might inappropriately impair 

the degree of openness necessary to serve the public interest in 

the success of that research. 

OIG Recommendation


2.	 The NIH should build upon its current efforts to clarify and 

streamline the CRADA review and approval process. 

PHS Comment


We concur. An ad hoc CRADA Process Committee, comprised of 

technology transfer staff, began meeting in Janua& 1993 to 

evaluate the CRM2A review and approval process. This committee 

(now called the CRADA Committee) was reauthorized formally at the 

first meeting of the new TTPB in May 1993. A draft policy 

document was presented to the Board in June 1993. 

Their assignment is to develop procedures and policies to 

simplify and facilitate the review and approval of CRADAS. In 

performing this function, they will identify specific review 

criteria as well as delineate the roles and responsibilities of 

reviewers at each level to alleviate duplication of effort and 

expedite processing. Among other charges, the CRADA Committee 

will also analyze the Composition of the CRADA review committee 

in order to ensue the objective review of each CRADA. 

In addition to this formal process, regular consultations take 

place on an on-going bases among the ICD Technology Development 

Coordinators on various aspects of policy and procedural


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


expects to recruit for and fill key CRADA management positions in 

Fiscal Year 1994. Filling these positions will facilitate the 

processing and review of CRADAS.


c-5 
4


OIG Recommendation 

3.	 The NIH should further develop the fair access guidelines to 

reflect the full range of issues involved. 

PHS Comment


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


committee to evaluate issues of fair access to CRADA


opportunities. This committee is charged with evaluating and


developing a reissuance of the February 1989 policy document


entitled ‘*PHSPolicy for Ensuring Fairness of Access in CRADAS. ”


In the course of its deliberations, the committee will consider


related access procedures from other Federal laboratories. The


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


second annual summer meeting of the Association of Federal


Technology Transfer Executives at their meeting last July.


OIG Recommendation


4.	 The NIH should develop and maintain a central database


system to track all on-going CRADA work.


PI-ISComment 

We concur. Effective data management is a vitally important tool


for oversight of the CRADA process and CRADA-related activities. 

The OIG report suggests several appropriate data fields.


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


personnel and resources contributed to a given CRADA by the


participating research laboratory.


In connection with corrective action plans prepared in response 

to a 1992 OIG review of the technology transfer function (A-Ol90-01502), and the organizational and internal controls study 

performed in 1993 by NIH’s Division of Management Policy, an 

information systems assessment and users’ requirements analysis 

is being developed. OTT has developed a prototype for an interim


data system fOr monitoring CRADA activity and is comparing this


system with existing systems developed by NCI and the National


Institute on Aller9Y and Infectious Diseases. lill three systems


will be presented to the ICD Technology Development Coordinators~ 

the TTPB, and the CRADA Committee to solicit their views as to


the preferred interim system pending more comprehensive users’


requirements analysis. A firm date for completion of the overall


information systems management plan for OTT is not yet available.


C-6

5


OIG Recommendation


5.	 The NIH, working with the Office of the Secretary and OASH, 

should seek a consensus on how to resolve the reasonable 

pricing controversy. 

PHS Comment


We concur. The issue of reasonable pricing is a complex matter 

in which the interests of the Government in facilitating 

collaboration and the transfer of technology sometimes appear to 

conflict with its interest in containing health care costs. The 

OIG report correctly notes that the issues raise questions about 

the role of research agencies in regulating or influencing 

private sector pricing decisions as well as the appropriate scope 

of access by the Government to cost and other price-related 

corporate data. NIH notes that it has no legislative mandate, 

programmatic mission, or expertise in the evaluation or 

regulation of drug prices.


On December 2, 1992, the Advisory Committee to the Director, NIH, 

assisted by a group of outside experts, discussed the policy 

implication of the “reasonable pricing” clause in considering the 

general issue of how the public investment in biomedical research 

should be reflected in the cost of products. The topic has also 

been considered at several House and Senate hearings earlier this 

year. 

As a follow-up to the Advisory Committee meeting and the


Congressional hearings, OTT is preparing an options paper for


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


question of how the public investment in Federally-sponsored


biomedical research should be reflected in products brought to


market through joint NIH-private sector efforts. Appropriate


roles for the Department and its research agencies must be


considered in the context of the Administration’s health care


reform efforts.


Technical Comments


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


of NIH and private-sector equipment, facilities, research


materials, as well as intellectual and financial resources.


CRADAs can include academic institutions as research and


development partners.


Paqe 6: The discussion focusses on CRADAs which are inconsistent 

with the “central intent” of the FTTA and NIH CRADA POlicY. The 

statement “although inconsistent with the central in~ent ~f the 

FTTA and with NH-I CRADA policy, this type of research is a1lowed 

c-7 
6


by both” should be stated i.n the body of the report rather than 

in Appendix C. This would clarify that the focus of the finding 

is on the words “central intent.” 

Paqe 9: The report states that NIH advertised as CRADA 

omortunities only eight of the 61 CRADAS which were Part of this 

S ~~dy . The repor~ sh~uld clarify whether all 61 CRAD& were 

initiated by NIH. Any CR?LDAS initiated by the private-sector 

counterpart cannot be included correctly in this statistical 

population because NIH may not advertise them. 

C-8

APPENDIX D


NOTES 

1. “National Institutes of Health Strategic Plan,” April 1993. 

2.	 The President’s Fiscal Year (FY) 1994 Budget for the Department of Health 

and Human Services, pp. 25-28. 

In FY 1993, NIH allocated $5.7 billion (55 percent of its total budget) directly 

to 23,582 extramural research project grants. It allocated $1.2 billion (11 

percent of the budget) directly to intramural research. The remainder of the 

budget was allocated to the centers, research training, R&D contracts, research 

support, the National Library of Medicine, the Office of the Director, the 

Women’s Health Study, the Minority Health Study, other research, and NIH 

facilities repairs. 

3.	 Department of Commerce, “Technology Transfer under the Stevenson-Wydler 

Technology Innovation Act: The Second Biennial Report,” January 1993, p. 1. 

4. Senate Report No. 99-283 on Public Law 99-502, pp. 1-2. 

5. House Report No. 96-1199 on Public Law 96-480, p. 3. 

6. Senate Report No. 99-283 on Public Law 99-502, p. 1. 

Other legislation supporting technology transfer includes the Bayh-Dole Act of 

1980 (P.L. 96-517); the Small Business Innovation Development Act of 1982 

(P.L. 97-219); the Cooperative Research Act of 1984 (P.L. 98-462); the 

Trademark Clarification Act of 1984 (P.L. 98-620); the Japanese Technical 

Literature Act of 1986 (P.L. 99-382); the Malcolm Baldridge National Quality 

Improvement Act of 1987 (P.L. 100-107); the Omnibus Trade and 

Competitiveness Act of 1988 (P.L. 100-418); the National Institute of Standards 

and Technology Authorization Act for Fiscal Year 1989 (P.L. 100-519); the 

Water Resources Development Act of 1988 (P.L. 100-676); the National 

Competitiveness Technology Transfer Act of 1989 (P.L. 101-189); and the 

Defense Authorization Act for Fiscal Year 1991 (P.L. 101-510). Executive 

Orders 12591 and 12618 in 1987 also supported technology transfer efforts. 

7.	 According to the NIH/ADAMHA “Policy Statement on Cooperative Research 

and Development Agreements and Intellectual Property Licensing,” 

“NIH/ADAMHA may permit their investigators to enter into CRADAS with 

collaborators who will make a significant intellectual contribution to the 

research project undertaken or who will contribute essential research materials 

D-1

ortechnical resources not otherwise reasonably available. While


NIH/ADAMHA welcome contributions to their gift funds for research


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


for sponsored research.”


8.	 The Federal government retains a nonexclusive, royalty-free license to use NIHor collaboratively developed CRADA inventions throughout the world by or on 

behalf of the U.S. government. Additionally, NIH reserves the right to grant 

nonexclusive licenses to make and use any CRADA invention (even those 

developed solely by the collaborator) for purposes of research involving that 

invention. 

9.	 The FITA requires that Federal employees receive at least 15 percent of any 

royalties generated by a CRADA invention for which they are responsible. In 

addition, agencies with internal research and development budgets of more 

than $50 million are required to implement cash awards programs for 

outstanding technical inventions or exemplary activities that promote domestic 

technology transfer. 

10.	 Senate Report 99-283 states that “lengthy headquarters approval delays can 

cause businesses to lose interest in developing new technologies.” (p. 4) 

P.L. 99-502, Section 2. An agency head is allowed 30 days to either disapprove, 

or require modifications to, any CRADA presented by a director of a federally 

operated laboratory. 

11.	 Department of Commerce, “Technology Transfer under the Stevenson-Wydler 

Technology Innovation Act: The Second Biennial Report,” January 1993. 

Appendix B, Table 1. 

12.	 National Institutes of Health, Office of Technology Transfer, “1992 PHS 

Technology Transfer Directory,” 1992, pp. 25-33. This information was 

reported as of July 27, 1992. 

The 93 CRADAS managed by NIH in 1992 included 25 with the National 

Cancer Institute; 21 with the National Institute of Allergy and Infectious 

Diseases; 18 with the National Institute of Diabetes and Digestive and Kidney 

Diseases; 6 with the National Institute on Neurological Disorders and Stroke; 5 

with the National Heart, Lung and Blood Institute; 4 with each the National 

Institute of Child Health and Human Development, the National Institute of 

Dental Research, and the National Institute of Mental Health; 3 with the 

National Eye Institute; 2 with the National Institute on Drug Abuse and one 

with the Division of Computer Research and Training. Additional CIUIDAs 

are also being administered by the Centers for Disease Control and the Food 

and Drug Administration. 

D-2

13.	 “Review of Public Health Service Controls over Technology Transfer and 

Royalty Income” (A-01-90-01502), Office of Inspector General, March 1992. 

Relevant reports from the General Accounting Office include “Technology 

Transfer: Constraints Perceived by Federal Laboratory and Agency Officials,” 

March 1988; “TechnologyTransfer: U.S. and Foreign Participation in Research 

and Development at Federal Laboratories,” August 1988; “Technology Transfer: 

Implementation Status of the Federal Technology Transfer Act of 1986,” May 

1989; “Implementation of the Technology Transfer Act: A Preliminary 

Assessment,” May 1990; “Technology Transfer: Copyright Law Constrains 

Commercialization of Some Federal Software,” June 1990; “Technology 

Transfer: Federal Agencies’ Patent Licensing Activities,” April 1991; “Diffusing 

Innovations: Implementing the Technology Transfer Act of 1986,” May 1991; 

“Technology Transfer: Federal Efforts to Enhance the Competitiveness of 

Small Manufacturers,” November 1991; “Technology Transfer: Barriers Limit 

Royalty Sharing’s Effectiveness,” draft, 1992. 

Other reports include “The Federal Technology Transfer Act of 1986: The 

First 2 Years,” Department of Commerce, July 1989; “Technology Transfer 

under the Stevenson-Wydler Technology Innovation Act: The Second Biennial 

Report,” Department of Commerce, January 1993; and “Report on the 

Administration of Cooperative Research and Development Agreements 

(CRADAS) within PHS,” Office of the Assistant Secretary for Health, 

December 1992. 

The NIH recently completed a review of its Office of Technology Transfer and 

is expected to release a report summarizing its findings. 

14.	 In 1989, one CRADA administrator cited “a need to strengthen the 

management structure of our internal organizations responsible for training, 

patenting, indust~ liaison, licensing, and overall technology management.” 

(Testimony of Dr. Philip S. Chen, Jr., Associate Director for Intramural Affairs 

and Chairman of the Patent Policy Board, National Institutes of Health, before 

the U.S. House of Representatives Small Business Subcommittee on 

Regulation, Business Opportunities, and Energy; October 5, 1989.) 

In 1991, another administrator emphasized that collaboration between 

government laboratories and nongovemment entities “must develop under 

carefully crafted guidelines to ensure that the fundamental mission of ND-I is 

presemed and that industry, academia and government work together 

honorably to ensure the public’s trust.” (Testimony of Reid G. Adler, J.D., 

Director, Office of Technology Transfer, National Institutes of Health, before 

the U.S. House of Representatives Science, Space and Technology, 

Subcommittee on Technology and Competitiveness; May 30, 1991.) 

D-3

In 1992, the chairman of the CRADA Subcommittee noted that, “In attempting 

to formulate CRADA policies and procedures, three topics must be considered: 

(1) What is the definition of a CRADA? In other words, what are appropriate 

research activities for a CRADA and what are not? (2) What policies need to 

be formulated to preseme the intellectual and scientific integrity of the NIH, 

while fostering technology transfer? ... (3) What are the actual mechanics 

required for the initiation, consideration, and approval of a CIL4DA?” (Dr. 

Dinah Singer, Chairman of the CRADA Subcommittee of the NIH Technology 

Transfer Board, “Policy Statement on Cooperative Research and Development 

Agreements (CRADAS),” draft, October 20, 1992, pp. 1-2.) 

15. The mean approvedindustry financial contribution
 to a CRADA project during 

the 1990-92 period ranged from $48,000 at NIDD~ to $162,000 at NCI, to 

$837,000 at NIAID. The median approved contribution ranged from $6,000 at 

NIDD~ to $45,000 at NCI, to $54,000 at NIAID. The actual contributions 

may have differed from the approved amounts. 

These figures refer only to the cash contribution to be transferred from the 

industry partner to NIH. The total value of the industry partner’s contribution 

of materials, personnel, etc., may have been higher. 

16. NIH/ADAMHA/CDC Technology Transfer Manual, February 1992, p. 16. 

17.	 Nonetheless, only one marketed product has been developed through the 

CRADA mechanism to date. The NIH has not yet earned any royalty income 

from CRADA inventions. 

18. Senate Report 99-283 on Public Law 99-502, p. 11. 

19. The 1992NIH/ADAMHA/CDC Technology Transfer
manual,p.1.


20.	 In consultation with the NIH Technology Development Coordinators (TDCS), the 

Office of Inspector General developed the following definitions to be used by the 

TDCS in their categorization of the nature of CRADA research: 

Basic research: The partners are exploring a basic research question with no 

expectation of a near-term commercial application. 

Pre-clinical research: The partners are conducting laboratory and animal testing 

aimed at developing a commercial product. 

Clinical, pre-approval research: The partners are conducting clinical research 

aimed at securing FDA approval for a new compound that is anticipated to have 

commercial applications. 

Clinical, post-approval research: The partners are conducting clinical research 

aimed at establishing a new use for an FDA-approved compound. 

D-4 
Laboratory technique, machine, etc.:The partners aredeveloping a laboratory 

process, technique, procedure, ormachine. 

21.	 Nine of the 13basic-research CRADAsentailed atransfer of funds from 

industxy. Of the 26 NIHscientists involved in the CRADAS established at NCI, 

NIAID, and NIDDKin 199~,9made apointof expressing concern about 

industry funding of basic-research CRADAS. 

The chairman of the CRADA Subcommittee of the NIH Technology Transfer


Board has suggested that “research activities whose only immediate purpose is


tobroaden our base of fundamental knowledge and understanding” are


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


umecessarily committing NIH’s intellectual property rights orrestricting their


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


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


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


Singer, “Policy Statement on Cooperative Research and Development


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


The NIH administrators who oversee the CRADA approval process have


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


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


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


information).


22.	 Twenty-nine of the 61 CRADA established atNCI, NIAID, and NIDDK 

between 1990 and 1992 focused exclusively on either preclinical orclinical 

testing. For 12 of these, NIH reported touswhether industry or NIH held the 

patents necessa~for the CRADA research. For the remaining 17, patent 

information was unavailable. 

23.	 Although inconsistent with the central intent of the FTTA and NIH CRADA 

policy, this type of research is allowed by both. 

24.	 These levels usually include the laboratory chief, the institute director/scientific 

director, the institute technology development office, the NIH Office of 

Technology Development, the Office of the General Counsel, and the CRADA 

Subcommittee of the NIH Technology Transfer Board. 

25.	 The CRADA Subcommittee of the NIH Technology Transfer Board, which 

conducts the NIH central review of CRAD& and serves asthe advisor tothe 

NIH Director, does notapprove proposed CRADAS, but rather recommends 

“nondisapproval” or modifications tosuch proposals; authority for final approval 

resides attheinstitute level. AftertheSubcommittee makes a decision
 of 

nondisapproval, theCRADA mustbe signedby theNIH Directorora


D-5

designee. We found that inalmostallcaseswe reviewed, thisoccurred within5


daysoftheSubcommitteedecision.


26.	 The institute technology developmentcoordinators and theCIWDA

Subcommitteearecurrently exploring waysoffurther streamlining
 theprocess.

Inparticular, theyarefocusing on bringing better definition
 totherolesand


responsibilities ofthevarious
players.


The OfficeoftheAssktantSecretary
 forHealthhasnotedthatNIH hasmade


“substantial progress ...inbringing structure totheCRADA process.” “Report


on theAdministration ofCooperative
 Researchand DevelopmentAgreements

(CRADAS) within
PHS,” December 1992. 

27.	 Memorandum from the Chair, Ad Hoc Technology Development Coordinators’ 

Committee on CRADA Policy, to the Chair, Patent Policy Board, 

September 11, 1992. (The Patent Policy Board was renamed the Technology 

Transfer Board intheSpringof1993.) 

28. Senate Report No. 99-283 on Public Law 99-502, p. 4. 

29.	 Memorandum from Robert E. Windom, MD, Assistant Secretary for Health, “PHS 

Policy for Ensuring Fairness of Access in Cooperative Research and Development 

Agreements,” February 1, 1989. 

30.	 Memorandum from Robert E. Windom, MD, Assistant Secretay for Health; 

pp. 1-2. 

According to the memorandum, NIH should make routine periodic 

announcements of the general subject areas in which NIH offers collaborative 

opportunities. Suggested media for these routine announcements include the 

Federal Register, the Commerce Business DaiZy, industry collaboration forums, 

and directory listings. The NIH does make routine periodic announcements of 

general collaborative opportunities using these media. 

Specific announcements are also indicated when a laboratory does not know of 

a suitable CRADA partner and when a laboratory has not yet made a routine 

announcement of the CRADA opportunity. 

The NIH/ADAMHA/CDC Technology Transfer Manual states that “a 

competitive process is generally not required in choosing a CRADA partner, 

although it is required by PHS fair access guidelines under limited 

circumstances.” (p. 114) 

31. Of these eight, one was advertised intheFederalRegister. 

32. We were not provided with initial contact information for the other 28 CRADAS. 

D-6

33.	 The NIH does not allow a scientist to consult for a company while participating 

in a CRADA with that company. 

General guidelines from the Office of Government Ethics have directed NIH 

considerations of conflict-of-interest issues and the relationships that NIH 

scientists may have with a CRADA partner, either prior to the establishment of 

a CRAD~ or concurrent Wllhparticipation ina
CIUDAThe Interagency Task Force on Technology Transfer is now developing 

“Technology Transfer Act Interagency Conflict Of Interest Guidelines” which 

will offer guidelines about permissible activities for government employees 

involved in CRADAs. 

34.	 To many of these scientists, “fair access” seemed beside the point: They 

reported that their CRADAs developed as a result of ongoing discussions or 

informal collaborations with industry scientists, and that their industry partners’ 

expertise or proprietary materials qualified them as appropriate CIU4DA 

partners. Some NIH scientists told us that they preferred to conduct research 

with partners with whom they knew from experience they could work well. 

35.	 When asked how to differentiate between a small business and a big business, 

one CRADA administrator acknowledged the absence of clear definitions and 

suggested that, “if the company president is involved in the CRADA 

negotiations, then it’s a small business.” 

The CIL4DA administrators expressed further concern about the F’ITA 

stipulation that, for a company to be given preference in consideration as a 

domestic CRADA partner, it must manufacture CRADA products substantially 

in this country. They noted that, in an age of muhinational businesses, it is 

sometimes not possible to ascertain where CRADA products will be 

manufactured. 

36.	 The Technology Transfer Board, its CRADA Subcommittee, and the Office of 

Technology Transfer all develop policy and procedures for NIH CRADAs. The 

CRADA Subcommittee, the Office of the General Counsel, and the Office of 

Technology Transfer review proposed CRADAs to assure their acceptability, 

appropriateness, and legality. According to the NIH/ADAMHA/CDC 

Technology Transfer manual, the Office of Technology Transfer also has the 

responsibility to coordinate a comprehensive CRADA database to serve as a 

central information repository. 

37.	 The Office of Technology Transfer keeps a record of those CRADAs that 

provide for intellectual property rights. This record, however, is not often 

updated. Further, there are inconsistencies between this record and those kept 

b~ the individual institutes. The OTT intends to develop a more 

comprehensive database. 

y. 

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Technology Development Coordinators (TDCS) in the individual institutes 

follow the progress of approved CRADAS. Both NCI and NIAID have 

developed computer tracking systems to assist their monitoring efforts. The 

TDC offices also document amendments to approved CRADAS. 

In February 1993, the CRADA Subcommittee of the Technology Transfer 

Board set out to determine the types of amendments that it should review. 

Until new policy is set, the Subcommittee has asked that the TDCS in the 

individual institutes bring fonvard for Subcommittee review all proposed 

amendments that the TDCS consider to be significant. 

38. The NIH model CRADA agreement, Section 8.3, states: 

... NIH/ADAMHA have a concern that there be a reasonable relationship 

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

product, and the health and safety needs of the public. Accordingly, exclusive 

commercialization licenses granted for NIH/ADAMHA intellectual property 

rights may require that this relationship be supported by reasonable evidence. 

The NIH model exclusive patent license agreement, Section 4.02, states: 

... PHS may require LICENSEE to submit documentation in confidence 

showing a reasonable relationship between the pricing of a Licensed Product, 

the public investment in that product and the health and safety needs of the 

public. This paragraph shall not restrict the right of LICENSEE to price a 

Licensed Product or Licensed Process so as to obtain a reasonable profit for its 

sale or use. This Paragraph 4.02 does not permit PHS or any other 

governmentagencytosetordictate prices forLicensed Products
orLicensed


Processes.


39.	 Testimony of Bernadine Healy, MD, before the U.S.Senate Special Committee 

on Aging, February 24, 1993. 

Others who have addressed the limited capacity of NIH to implement the 

“reasonable pricing” clause include Senator David Pryor, Congressman Ron 

Wyden, Associate Professor Peter Amo of the Albert Einstein College of 

Medicine, Professor Steven Schondelmeyer of the University of Minnesota 

College of Pharmacy, and several of the NIH CRADA administrators with 

whom we spoke. 

40.	 Twelve of the 15 industry representatives with whom we spoke reported serious 

concerns about the clause. 

Industry partners noted that, were the clause to be implemented, it would be 

necessary to take into account the following: the cost of the specific product, 

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the average development costs for the company’s products, the company’s 

opportunity costs, the average industry margins, the relative contributions of the 

partners, the marketing and distribution costs, presence and prices of similar 

competing therapies, Iikehhood and timing of market entry for additional 

competing products, projected time to recover development costs, and special 

discount/access programs. 

Industry partners further suggested that various other factors serve to keep 

prices “reasonable,” including anti-trust laws, market forces, and competition 

created by the granting of nonexclusive licenses for products with large 

potential markets. 

41.	 Testimony of Bruce Chabner, MD, Director, Division of Cancer Treatment, 

NCI, before the House Small Business Subcommittee on Regulation, Business 

Opportunities, and Energy, January 25, 1993. 

In interviews with the OIG, several NIH CIL4DA administrators also observed 

that some pharmaceutical companies refused toparticipate in CRADAs 

because of the “reasonable pricing” clause. 

42.	 Examples of the specific modifications to the CRADA documents we reviewed 

include the following: 

�	 Addition of the phrase: “nothing in this article . . . shall be construed to 

restrict the right of the collaborator to price a licensed product so as to 

obtain a reasonable profit for its sale or use.” 

�	 Addition of the phrase: “This CRADA shall not affect the collaborator’s 

right to recover its research, development, and marketing costs.” 

�	 Replacement of the phrase “require evidence” with “request evidence;” 

and addition of the following: “[the company] may decline to provide 

such evidence in which event NIH . . . may convert the license to a 

nonexclusive one . . .“ 

�	 Addition of the following: “The reasonable evidence to be submitted in 

support of the relationship shall include but not be limited to evidence 

on (i) the cost of the collaborator’s development of the product; (ii) the 

cost of the collaborator’s overall research and development efforts and 

the need to fund past and future efforts through commercialization of 

the successful research, and (iii) the potential liability to which 

collaborator is subjected by commercialization of the licensed product.” 

�	 Explicit clarification that the clause does not give NIH or the 

Government the “right to set or dictate price.” 

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43.	 The first marketed product to be subject to the NIH “reasonable pricing” clause 

was the Bristol-Myers Squibb AIDS drug, Videx (ddI). In this instance, the 

clause was invoked as part of a licensing agreement, not a CRADA. 

The NCI entered into a CRADA with Bristol Myers Squibb (BMS) to develop 

Taxol as a therapeutic to treat ovarian and possibly other types of cancer. 

Through the CRAD~ BMS received exclusive rights to clinical and preclinical 

data necessary for FDA approval; the drug itself could not be patented. The 

pricing clause was modified to reflect the unique circumstances of this product. 

44.	 The modified clause contained no mention of NIH requesting access to “evidence,” 

and read: “Bristol Myers Squibb acknowledges [NIH’s] concern, and agrees that 

these factors will be taken into account in establishing a fair market price for 

Taxol;” and NIH “acknowledges BMS’Sconcerns, and agrees that these factors may 

be taken into account in establishing a fair market price for Taxol.” 

45.	 Testimony of Bruce Chabner, MD, Director, Division of Cancer Treatment, 

NCI, before the U.S. House of Representatives Small Business Subcommittee 

on Regulation, Business Opportunities, and Energy, January 25, 1993. 

According to Dr. Chabner, “a number of intangible and unqualifiable factors 

contnlmte to a ‘fair’ price, including the market life of the product, the period 

of market exclusivity, potential competition or related products, and anticipated 

market size, all of which defy precise delineation. Furthermore, the CRADA 

did not require the company to disclose proprietary information regarding total 

costs of production development and marketing, and the company exercised its 

right not to disclose such information.” 

The industry partner did agree to provide various discounts and expanded 

access programs for patients who could not afford the drug and for research 

purposes. 

46.	 These three Congressional hearings were: “The Pricing of Taxol and 

Enforcement of Fair and Reasonable Provisions in Cooperative Research and 

Development Agreements (CRADk),” on January 25, 1993, and “PrivateSector Agreements to Market Federally Funded Research,” on March 11, 1993, 

both held by the U.S. House of Representatives Small Business Subcommittee 

on Regulation, Business Opportunities, and Ener~, and “The Federal 

Government’s Investment in New Drug Research and Development: Are We 

Getting Our Money’s Worth?” held by the U.S. Senate Special Committee on 

Aging on Februa~ 24, 1993. 

47.	 Opening Statement of U.S. Representative Ron Wyden, Chairman of the U.S. 

House of Representatives Small Business Subcommittee on Regulation, 

Business Opportunities, and Energy January 25, 1993. 

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Testimonies of Abbey S. Meyers, Executive Director, National Organization for 

Rare Disorders, and Stephen Schondelmeyer, Ph.D., Professor, College of 

Pharmacy, University of Minnesota, before the U.S. Houseof Representatives 

Small Business Subcommittee on Regulation, Business Opportunities, and 

Energy January 25, 1993. 

Opening Statement of U.S. benator David Pryor, Chairman of the U.S. Senate 

Special Committee on Aging; February 24, 1993. 

Testimony of Ralph Nader before the U.S. House of Representatives Small 

Business Subcommittee on Regulationj Business Opportunities, and Energy 

March 11, 1993. 

48.	 According to a March 12, 1993 letter from Genentech, Inc., to Representative 

Ron Wyden, NCI inappropriately included a Genentech product, Human 

Growth Hormone, on the list of reference oncology drugs for the pricing of 

Taxol. Human Growth Hormone was the most expensive drug listed, and the 

price cited is 168 percent higher than the company’s own estimate. The 

inappropriate inclusion of this product on the reference list and the inflated 

price significantly increased the median price below which Taxol was to be 

priced. 

49.	 Office of the ksistant Secretary for Health, “Report on the Administration of 

Cooperative Research and Development Agreements (CRADAS) within PHS,” 

December 1992. 

The NIH Division of Management Policy, “Office of Technology Transfer: 

Internal Control Review,” draft, March 26, 1993. 

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