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74–079 PDF 2012

THE IMPACT OF MEDICAL DEVICE AND DRUG 

REGULATION ON INNOVATION, JOBS, AND PATIENTS: A LOCAL PERSPECTIVE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SEPTEMBER 26, 2011 

Serial No. 112–90 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chairman 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDOLPHUS TOWNS, New York 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Brian P. Bilbray, a Representative in Congress from the State of California, opening statement .................................................................................... 2 

Prepared statement .......................................................................................... 4 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 6 

Prepared statement ................................................................................................. 8 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, prepared statement ........................................................................... 114 

WITNESSES

Bill Walton, Executive Chairman, CONNECT San Diego Sport Innovators ...... 10 

Prepared statement .......................................................................................... 15 

David L. Gollaher, President and Chief Executive Officer, California 

Healthcare Institute ............................................................................................. 27 

Prepared statement .......................................................................................... 29 

Sharon Stevenson, Director, Okapi Venture Capital, LLC, on behalf of the 

National Venture Capital Association ................................................................ 41 

Prepared statement .......................................................................................... 44 

Steven J. Mento, President and Chief Executive Officer, Conatus Pharmaceuticals, Inc., on behalf of Biotechnology Industry Organization ................... 57 

Prepared statement .......................................................................................... 59 

Donald M. Casey, Chief Executive Officer, West Wireless Health Institute ...... 72 

Prepared statement .......................................................................................... 75 

Joe Panetta, President and Chief Executive Officer, BIOCOM ........................... 82 

Prepared statement .......................................................................................... 85 

Kevin T. Larkin, President and Chief Executive Officer, TherOx, Inc. .............. 91 

Prepared statement .......................................................................................... 94 

SUBMITTED MATERIAL

Statement, dated September 26, 2012, of Hon. Darrell E. Issa, a Representative in Congress from the State of California, submitted by Mr. Burgess ...... 26 

Letter, dated August 4, 2010, from Mr. Waxman, et al., to Kathleen Sebelius, 

Secretary, Department of Health and Human Services, submitted by Mr. 

Waxman ................................................................................................................ 115 

(1) 

FIELD HEARING ON THE IMPACT OF MEDICAL DEVICE AND DRUG REGULATION ON 

INNOVATION, JOBS, AND PATIENTS: A 

LOCAL PERSPECTIVE 

MONDAY, SEPTEMBER 26, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 11:28 a.m., at the 

Scripps Seaside Forum, Scripps Institution of Oceanography, 8610 

Kennel Way, La Jolla, California, Hon. Michael C. Burgess presiding. 

Members present: Representatives Burgess and Bilbray. 

Staff present: Clay Alspach, Counsel, Subcommittee on Health; 

Carly McWilliams, Legislative Clerk; Allison Corr, Minority Policy 

Analyst. 

Mr. BILBRAY [presiding]. Let’s go ahead and move it a little earlier. In the tradition of George Marshall, we will start the proceedings 5 minutes early. Those of you who don’t understand that 

can pull up your history books and find out about the Supreme 

Court Justice. 

I want to thank everybody for being here. Let me say, clearly, we 

want to thank Dr. Burgess for showing up. The Congressman took 

a long flight to come out here. I think we all owe him a real thanks 

for not just caring but acting on his concerns, bringing his expertise in. 

And I want to thank you very much, Doctor, for taking the time 

to come over here. Next time, we will try to arrange these hearings 

during February, where you might appreciate it a little more. 

[Laughter.] 

And I bet you the turnout will be much larger, too. 

I think that one of the things that we want to point out is that 

San Diego, obviously, is not just the land of sun and sea and sand. 

It is definitely a generator of major medical breakthroughs and a 

major employer; 40,000 people in the life sciences here. 

I think, though, too often, those of us in Washington take a look 

at the life sciences and medical research and see it as an abstract. 

And this is not just an issue, again—and I will say this again and 

again—we are not just talking jobs. We are talking lives. 

And this is an industry that needs to be addressed from both 

sides. But we always have to remember, the endgame is to save 

lives, and not just an elderly mother or grandmother, but, more imVerDate Aug 31 2005 08:53 May 15, 2012 Jkt 037690 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\112-09~1\112-90~1 WAYNE
2 

portantly, make sure that, in the future, our grandchildren can 

have their most prosperous and healthy life possible, because we 

did the right thing. 

One of the biggest challenges I want to point out is that getting 

a team to work together—and Tony? Where is Tony? Did he leave? 

Mr. BURGESS. He is making a phone call. 

Mr. BILBRAY. OK, I always love to thank the guy who allowed 

us to come hang out in these digs, so we will get to him. 

OPENING STATEMENT OF BRIAN P. BILBRAY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

But let me just start off, right off, that what we need to talk 

about here is what are the opportunities and the challenges of 

making sure that we not only maintain a research capability in 

this country that creates jobs, but one that can—we can change our 

operations to be able to make sure of those breakthroughs. 

And one of the biggest frustrations I have had is that everybody 

thinks medical research is all about spending money, and that in 

Washington, it is easy for us to write checks and throw money at 

a problem. And I think some of the latest scandals you have seen 

coming out of Washington, directed at certain assumptions, was 

thinking just spending money will cure a problem. And I really 

want to go back to the fact that in our lifetime, we saw a major 

success for the AIDS epidemic, and too many people think it was 

just because we threw money at the problem, don’t go back and realize the changed regulatory oversight. We made the bureaucracy 

in Washington approach it differently. 

And I don’t think, in our lifetime, we have seen such a dramatic 

breakthrough in health benefits. In fact, I think somebody was calling me down that it was not just 37 but probably 50 times longer 

life expectancy than what they had before once we get into it. 

Imagine if we can do that for diabetics, do it for cancer patients, 

do it for people with MS. That kind of breakthrough may be possible. But we will never know if we don’t change the way Washington handles these issues. 

And I don’t think this is a Democrat or Republican issue. Sick 

children do not carry a party affiliation with them. They, basically, 

all have the right to be able to have the same access to medical 

breakthrough as anybody else. And that is a big challenge I think 

we need to talk about. 

First thing we need to do is remember, though, too, especially 

those of us who are on our side of the aisle, there is a place for 

regulation. There is a place to regulate. 

What we are worried about is there is a big difference between 

regulating and strangulating. And I think that is the one frustration that I get through. And I think that if we look at the people 

who will testify today, good research, good health, knows no party 

affiliation, knows no political lines. And, hopefully, we will be able 

to address those issues. 

I think the California Healthcare Institute talks about the delays 

that the FDA has put out and the mindset. I have to remind you 

though, too, this is not just an FDA challenge. Hopefully, a lot of 

people here can look at what we are trying to do in Washington 

and make sure you guys in the private sector not only have the 

3 

basic research that government pays for, not only has the regulatory reform that makes it easier for you to create the miracles 

that we take for granted, but also that we take a look at how 

Washington operates, and make sure that we bring in capital into 

this country that you can use to stay in business, so that we see 

the next generation of miracles. 

And I just worry that the American people take you for granted, 

take medical breakthrough after medical breakthrough for granted. 

And I think that it is important for us to make sure that that 

doesn’t happen anymore. 

Let me just close by saying, again, we are here today not just to 

talk about something that is very important during one of the most 

critical economic downturns in the history of this country. We are 

not just talking about jobs. We are also talking about lives. And it 

is not very often that you can talk about something that is good 

for the economy and good for the environment that humans live in. 

Too often we have these tough choices of, is it good for the economics, or is it good for public health? This is a proposal that is good 

for both. And it is one we want to build on. 

So I would like to throw it over to my colleague, Dr. Burgess. 

And it is yours. 

[The prepared statement of Mr. Bilbray follows:] 

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Mr. BURGESS. Thank you, Brian. 

Now, was that your opening statement or was that just a filibuster? 

[Laughter.] 

Why don’t we go ahead and call the subcommittee to order, and 

I want to thank our witnesses for being here with us here today. 

I, obviously, want to thank the University for opening up this very 

stunning facility for us to use today. 

OPENING STATEMENT OF MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

And let me begin by making an opening statement, and first 

state, for the record, that I am not just happy but I am thrilled to 

be here today, talking about a very important topic and the impact 

of the medical device industry in the United States. It is more than 

just what we do for patients. It affects commerce, technology, as 

well as the economy by providing quality jobs to Americans, which 

range from highly skilled technical to those involved in the manufacture of those devices. 

Unfortunately, the jobs are slipping away. And with these jobs, 

new technologies and innovations are being driven overseas, and 

our economy is suffering, and, most importantly, our patients are 

denied access to these devices. 

In a recent study conducted by PricewaterhouseCoopers, United 

States consumers are already being shown as not being the first to 

benefit from medical technology. And without change, the process 

could eventually—we could eventually be last. In fact, innovators 

are already going first to the European market, and, by 2020, will 

likely move into other emerging economies. 

And I hear about this literally every week in my office. Because 

I am a physician by background, someone is in my office with a 

perplexed tale of woe about what their difficulties have been in trying to get a drug or device approved through the FDA, an FDA that 

seems to consistently discourage innovation and leads to American 

job loss. Innovators cite their inability to facilitate a predictable 

process as reasons to move overseas. 

And this was no more evident than a few weeks ago when we 

had a hearing in our subcommittee back in Washington, and I just 

reference, I spent a lot of time on the plane this morning. I got to 

read every word of the Wall Street Journal. And on page three is 

an article about a new device that has now received provisional approval by the Food and Drug Administration, the MelaFind device. 

Now, just a few weeks ago, it was denied. And the Journal, I 

think, correctly cites—they don’t correctly identify Brian Bilbray 

and myself, but they correctly cite: 

‘‘The case was a focus of a House of Representatives hearing this 

summer at which the FDA’s top device regulator, Jeffrey Shuren, 

acknowledged the agency had mishandled the MelaFind application. Dr. Shuren mentioned the Food and Drug Administration’s 

decision to hold a meeting of its advisers on MelaFind after the 

agency had already decided to reject the device, the reverse of the 

usual order. 

′′’The staff made the wrong call,’’’ said Dr. Shuren. 

7 

Now the United States is currently exporting over $34 million a 

year in medical devices, and those industries employ more than 27 

million people. No, it does not take a rocket surgeon to understand 

that in this current economic environment, this is the type of stimulus that is needed by our economy. 

The Food and Drug Administration’s failure to ensure a reliable 

and consistent approval process not only creates a disadvantage for 

current devices, but signals their inability to handle the advancements of technology in the future. 

The United States has always led the way in innovation and 

technology. As we customize medicine, it is imperative that the 

Food and Drug Administration have the ability to thoroughly examine these devices in a timely manner. 

Brian is right. We do not want to sacrifice patient safety. That 

should be the number one priority when looking at devices. However, the long and arduous process that is frequently ambiguous 

adversely affects everyone, including those patients who desperately need the device. 

In addition, the United States medical device manufacturers will 

also be hit with a 2.3 percent tax on revenues due to new requirements in the Patient Protection and Affordable Care Act. For many 

smaller businesses, this tax be detrimental and cause many to shut 

their doors, effectively stifling technological advancements. 

President Obama, in the State of the Union Address, advocated 

for America to lead the way on technology and innovation. In that, 

there is complete agreement with this Member of Congress. Unfortunately, his signature legislation coupled with the Food and Drug 

Administration’s confusing and somewhat disjointed approval process has instead encouraged the off-shoring of business and brought 

medical discoveries to a halt. It is essential that the Food and Drug 

Administration process becomes more transparent for all involved. 

[The prepared statement of Mr. Burgess follows:] 

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Mr. BURGESS.Now, I look forward to hearing from our witnesses. 

Again, I want to thank all of our witnesses for being with us today. 

We are going to hear from each of you, in turn. 

We will begin, I think, with Mr. Walton, and then we will hear 

from Dr. Gollaher, who is the president and chief executive officer 

of the California Healthcare Institute. We have Dr. Sharon Stevenson on behalf of the National Venture Capital Association. We have 

Dr. Steven Mento, who is the Biotechnology Industry Organization 

representative; Joe Panetta, president and chief executive officer of 

BIOCOM; Kevin Larkin, the president and chief executive officer of 

TherOx, Inc. 

Did I leave anyone out? Mr. Donald Casey—where did you go? 

Oh, there you are. Chief executive officer of the West Wireless 

Health Institute, who of course is very familiar to me, us having 

met in Washington on more than one occasion. 

I would like to now recognize our first witness, Mr. Bill Walton, 

for his opening statement. 

You are recognized, sir. Five minutes. 

STATEMENTS OF BILL WALTON, EXECUTIVE CHAIRMAN, CONNECT SAN DIEGO SPORT INNOVATORS; DAVID L. GOLLAHER, 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, CALIFORNIA 

HEALTHCARE INSTITUTE; SHARON STEVENSON, DIRECTOR, 

OKAPI VENTURE CAPITAL, LLC, ON BEHALF OF THE NATIONAL VENTURE CAPITAL ASSOCIATION; STEVEN J. 

MENTO, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

CONATUS PHARMACEUTICALS, INC., ON BEHALF OF BIOTECHNOLOGY INDUSTRY ASSOCIATION; DONALD M. CASEY, 

CHIEF EXECUTIVE OFFICER, WEST WIRELESS HEALTH INSTITUTE; JOE PANETTA, PRESIDENT AND CHIEF EXECUTIVE 

OFFICER, BIOCOM; AND, KEVIN T. LARKIN, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, THEROX, INC. 

STATEMENT OF BILL WALTON 

Mr. WALTON. Thank you, Congressman, and good morning. My 

name is Bill Walton, and I am here today as a patient advocate, 

proud, honored, and privileged to have the opportunity to give back 

with my duty, obligation, and responsibility for those people, like 

me, who are suffering in extreme pain, and who were, at one point, 

hopeless that their lives could ever return to normal. 

Now in addition to sharing with you the patient perspective regarding the impact medical innovation can have, I also want to ask 

you, and urge you, to cultivate a statutory and regulatory atmosphere with clear rules and guidelines in the medical innovation 

field, so that we can continue here in the United States to lead the 

world in the creation of lifesaving medical devices, drugs, and 

health care. 

Now, while the U.S. continues to maintain its global edge in 

groundbreaking, game-changing medical technology, much of it occurring right here in my hometown of San Diego, the rest of the 

world is closing in on us fast. The world, they have copied what we 

have done here in America. And they are using our techniques and 

our talents to achieve our unmatched success story. 

11 

However, while U.S. companies struggle with longer wait times 

for regulatory approval in an increasingly uncertain regulatory approval process, our global competitors are streamlining their regulatory systems, which attract capital and companies to their shores 

from ours. 

You, as our congressional leaders, you have the ability to recognize this problem, and create laws and regulations that protect our 

innovation edge, which means that more patients will have lifechanging stories to tell, like the one you will hear today. 

My UCLA college basketball coach, John Wooden, he used to tell 

us all the time, ‘‘Don’t measure yourself by what you have accomplished, but rather by what you should have accomplished with 

your ability.’’ 

America’s history of great innovation is not enough to be satisfied 

with. There are many more brilliant scientists and doctors who 

want to help people and cure diseases. But they can only accomplish up to their ability, if our Nation’s medical innovation ecosystem continues to encourage discovery and reward risk. 

My story of disability and pain, which has turned to healing because of what these emerging companies are creating, is why I am 

here today. My college basketball career took me all over this great 

country, but it was a frigid night in January 1974, more than 37 

years ago, when our UCLA Bruins traveled to Washington State 

University at Pullman, Washington, the southeastern part of that 

great State, and the Bruins, we were riding our 84-game consecutive winning streak, for a big Pac-8 conference showdown. 

During the game, I was making a play at the ball, and a guy on 

the other team, he came from the other side of the court and took 

my legs out from underneath me and I flipped over, came crashing 

down, and landed on my spine on a synthetic floor. That night, I 

fractured two bones in my spine, and things were never the same 

for me again. 

Throughout my NBA game career, I worked as hard as I could 

to stay in shape and to stay healthy, but that pain was always with 

me in my spine, the discomfort, the limitation, the restrictions. 

After another nearly 20 years in the broadcast business, 200 

nights a year on the endless road, in airplanes and through a manmade world ill-suited for a 6’11’’ body, the back pain ultimately became unbearable. My spine simply could not hold me up anymore. 

The pain was debilitating, excruciating, and relentless. Visualize 

yourself being submerged in a vat of scalding acid with electrifying 

current running through it, and you could never get out, ever. 

My life was over. I had nothing. I ate my meals on the floor face 

down. I couldn’t get any sleep. I couldn’t get dressed. Nothing 

eased the devastating nerve pain radiating throughout my body, 

coming from my spine. It got to the point where my life wasn’t 

worth living. I was standing on the edge of the bridge, knowing full 

well that it was better to jump than to go back to what was left 

of my life. 

I was lucky. I was saved. I came across medical innovators that 

reconstructed my spine and gave me my life back. 

I had no idea what life was like without back pain. They saved 

my life. Dr. Garfin, here at UCSD, the head of the orthopedic spine 

clinic. NuVasive, a company here in San Diego. They combined on 

12 

a new surgical technique operating on my spine by entering 

through the side and deploying NuVasive’s medical devices to rebuild my back. I underwent 8 1/2 hours of XLIF surgery. I was 

amazed by the relief that came at the end of the relentless, excruciating pain that ran constantly through my entire body. 

After I started to get better, I began to do things I hadn’t been 

able to do in years, like put on my own shoes and socks, to be able 

to bend over and pet the dogs. 

It was right around the seven-month mark after my surgery 

when I really turned a corner and found freedom one more time, 

pedaling my bicycle with no limitations. Riding on the open road, 

the wind and the sun in my face, the film of sweat on my body, 

that was the greatest outcome in the world for me. 

I had lost everything. But now I am back in the game of life and 

climbing to the top of the mountain one more time. 

The story of NuVasive is one of those high-growth, job-creating 

companies that Washington wants to replicate all over the country, 

but which sadly faces substantial challenges because of the uncertain and prolonged regulatory approval process. NuVasive is a public medical device company focused on developing minimally disruptive surgical products and procedures for the spine. 

The company has grown from a venture-capital-backed startup 

company 10 years ago to one with more than $500 million in annual sales in just 10 years. 

NuVasive is now the fourth largest spine company in the U.S. 

and the fifth largest worldwide. This industry-leading growth has 

propelled the company to a global presence employing over 1,100 

people. 

From a technology perspective, NuVasive’s sole focus is to advance spine surgery by developing new products and procedures 

that provide superior surgical outcomes and improve patient 

health. NuVasive’s innovation in surgical technique and devices 

have great benefits for the patient, including reduced operative 

time, reduced blood loss and minimal scarring, reduced post-operative pain, reduced hospital stay, and rapid return to normal activities. 

Despite NuVasive’s innovative techniques and technologies, their 

future faces serious obstacles because of the uncertain U.S. regulatory approval process and a new tax on medical devices past in 

last year’s health care reform law. 

Over the past 18 to 24 months, NuVasive has experienced longer 

delays related to FDA product clearances and approval in 510(k) 

and premarket approval applications. Longer FDA approval times 

will potentially result in significant revenue loss estimated at up 

to $70 million over the next 2 years, increased operating expenses 

of over $2 million, and hundreds of new jobs eliminated. 

Historically, NuVasive has launched at least 10 new products per 

year. Because of the stifling regulatory climate, that number is 

being reduced by half. 

It is becoming far more efficient and faster to innovate outside 

the United States, in places like Europe. Non-U.S. systems have 

more timely, more predictable, and more transparent processes, 

and that is not acceptable for us as patients or as Americans. 

13 

This means that instead of creating new American jobs, those 

jobs, manufacturing plants, distribution networks, related innovations, and profits have a substantial likelihood of moving overseas. 

As a result of costs associated with protracted approval and 

clearance processes, NuVasive has committed to fewer R&D 

projects in 2011 and ’12. This results in less innovation and this 

has caused them to reduce hiring by at least 15 percent, with 150 

fewer new jobs versus their 2011 projected headcount. 

For many reasons, we can’t have a regulatory framework that 

hinders job creation. NuVasive does not believe a major overhaul 

of the current FDA process is needed. Instead, they need process 

predictability and timeliness from the reviewers, and to ensure 

that approvals are being efficiently processed under the current 

high safety standards. 

Now, as part of the 2010 health care reform legislation, medical 

device manufacturers will be required to pay a new 2.3 percent excise tax on all FDA-approved devices sold in the United States. 

This tax is punitive in nature and will likely raise costs throughout 

the health care system. 

In response to the new tax, it is expected that the industry will 

reduce R&D spending and jobs domestically while pressure will increase to invest overseas. This will not only harm the economy, 

but, most importantly, it will harm patients. This tax is based on 

revenue, causing successful, rapidly growing companies like 

NuVasive to be hit the hardest, making it more difficult to invest 

in growth and innovation. 

Wall Street estimates that large-cap companies will have up to 

a 5 percent decrease in profitability while small to mid-cap companies see a 10 to 15 percent decrease. Using 2013 Wall Street revenue projections, NuVasive would be required to pay almost $15 

million in pretax dollars, equating to an approximate 13 percent reduction in profit. 

This type of increased tax burden will potentially result in over 

100 new highly skilled jobs being eliminated. 

It is puzzling to me why congressional leaders would target an 

industry that is so fruitful and productive. The medical device industry creates nearly 2 million high-wage jobs nationwide, with 

wages approaching 40 percent higher than the average national 

wage. Approximately 1.5 million additional jobs are created in 

manufacturing, suppliers, and service providers. 

In California alone, our home State, the industry employs over 

80,000 individuals with $5.5 billion in payroll, and $26 billion in 

revenue. This results in almost 210,000 additional jobs driving an 

additional nearly $7 billion in payroll and over $31.5 billion in revenue. 

The tax penalizes an industry that is innovative and that 

achieves the main goals of health care reform: lowering costs while 

improving patient care. 

The tax should be repealed. And I want to commend Congressman Bilbray for his leadership in introducing H.R. 734 to repeal 

this punitive tax. 

Now, I have been most fortunate in my life to have learned from 

many great innovators: John Wooden, Jerry Garcia, Larry Bird, 

Bob Dylan, Tchaikovsky, Maurice Lucas, Dr. Garfin, NuVasive, and 

14 

my current interactions with the inspirational innovators like 

Duane Roth at CONNECT, and the founders of all the new companies that are trying to make it with the help of our new organization, San Diego Sport Innovators, the newest division of CONNECT. 

I have been able to help these sport innovators in the organization grow but only because, as a patient, I am the beneficiary of 

medical innovation. 

Now as a patient, we see risk and benefit a bit different than 

regulators sitting in historic buildings in Washington. When I was 

face down on the floor with extreme pain coursing through my 

nerves, I desperately needed the treatments that NuVasive was 

creating, in conjunction with the skill and precision of a master 

surgeon like Dr. Garfin. 

What the regulatory system needs is a balanced approach to create the incentive needed for investment in innovation, coupled with 

a predictable and prompt regulatory process that still provides reasonably safe and effective medical devices and drugs. I worry that 

the regulatory process is so focused on perfection, which does not 

exist, that it thwarts important creations from reaching the marketplace and saving other people that are on that bridge just like 

I was. 

Coach Wooden also tried to teach us a most applicable lesson 

here: Don’t let what you cannot do interfere with what you can do. 

Maybe you can’t solve all the problems, but that shouldn’t dissuade you from doing what you can to move the medical innovation 

ecosystem toward more discovery, more reward, and more jobs, 

which will result in more patients living a healthy life. 

Here’s to a full and pain-free life with lots of jobs for everyone. 

Thank you, good luck, and please realize that one day everybody 

in this room, including yourself, will be facing that moment when 

you need help, when you need that medical practice, device, technique, company to be right there. Act today, so that you can enjoy 

tomorrow. 

Thank you. 

[The prepared statement of Mr. Walton follows:] 

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Mr. BURGESS. Well, I certainly want to thank our witness for the 

compelling testimony. 

I do want to remind panelists, we do typically try to keep our 

opening statements to 5 minutes, and your full statement can be 

inserted into the record. 

So we will ask to try to stick to the 5-minute timeline and give 

plenty of time for questions. But your full statement will be part 

of the record. 

Mr. WALTON. I believe, Congressman, that mine came in at 4:52. 

Mr. BURGESS. That was my time. 

[Laughter.] 

Mr. BILBRAY. Mr. Walton, whatever you say the time was. 

[Laughter.] 

Mr. BURGESS. Yes, I was not going to blow the whistle. I promise. 

[Laughter.] 

I do ask unanimous consent that the testimony of the chairman 

of the Oversight and Government Reform Committee, Darrell Issa, 

be submitted as part of the record. I also want to include Mr. 

Bilbray’s statement as part of the record as well. 

Without objection, so ordered. 

[The information follows:] 

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Mr. BURGESS. Dr. Gollaher, you are recognized for 5 minutes. 

STATEMENT OF DAVID L. GOLLAHER 

Mr. GOLLAHER. Thank you. Vice Chairman Burgess, Congressman Bilbray, welcome to San Diego. My name is David Gollaher, 

and I am president and CEO of CHI, the California Healthcare Institute. And I appreciate the opportunity to speak today regarding 

the current regulatory environment for medicines and medical devices, and its impact on biomedical innovation. 

CHI is a public policy and advocacy organization representing 

California’s innovative biomedical research and development sector. 

Our membership includes the State’s leading research universities 

and private biomedical research institutes, along with venture capital firms and biotechnology, pharma, device and diagnostic companies. 

All told, California is home to 2,200 biomedical companies employing some 270,000 people, making our industry one of the leading high-tech employers in the State. 

This morning I would like to address two things. First, I would 

like to provide an overview of recent trends industry has encountered that the FDA. And, second, I would like to briefly cover one 

of the problems in FDA performance that CHI believes should be 

a focus of efforts to get things back on track. 

History shows that a strong science-based FDA, and a well-articulated, predictable, and consistent regulatory process, these 

things are essential to bio, pharma, and medical technology investment, innovation, and patient care. 

Recently, however, the number-one policy issue raised by our 

biotech and medical device companies has been frustration with 

regulatory processes and communications at the FDA that have become increasingly uncertain, unpredictable, and inefficient. 

There is a widespread sense in our industry that things are getting worse at the FDA. And this is confirmed by data reflecting a 

recent slowdown in product review times and approvals documented in a recent study that CHI did with Boston Consulting 

Group, called ‘‘Competitiveness in Regulation: The FDA and the 

Future of America’s Biomedical Industry.’’ This was published in 

February. 

Our report shows a few things. Particularly comparing today to 

the 2003–2007 timeframe, drugs and biologics review times have 

increased by 28 percent, 510(k) device clearances have slowed by 

43 percent, and PMA—premarket approval—device approval times 

have lengthened by 75 percent. That is comparing today to the 

2003–2007 timeline. 

Now, no single factor explains this decline, but the most important contributor to recent trends appears to be a shift in FDA culture. Faced with accusations that it was too lax and failed to protect the public from safety problems with devices and drugs, the 

FDA has shifted emphasis in product reviews from the benefits of 

new products to an increasingly weight on their possible risks. 

And from the perspective of an FDA reviewer, it is easy to understand. After all, an individual reviewer has little to gain by approving a product, much to lose by approving a product that has a problem in the future. 

28 

In our view, reforming the FDA is about strengthening the agency. CHI and our membership support is strong, appropriately 

resourced on science-based FDA, and we support strong, sciencebased safety and efficacy standards. But we do not believe that 

slower processes mean safer or better. We can have both high safety and effectiveness standards and efficient, predictable, consistent, 

and transparent processes to get new medicines and technologies 

to patients who need them. 

With this in mind, I would like to turn briefly to one of the main 

issues we believe needs to be addressed to get the FDA back on 

track. My written statement covers others, and CHI looks forward 

to working with Congress and your committee and other stakeholders to find and act on the best solutions. But given the time 

this morning, I would like to focus on a single issue. 

Many of our members point out that a major problem with the 

FDA is in the period shortly before or shortly after product submission, when discussions and negotiations over the types and amount 

of clinical data the agency wants to see in its submission are growing lengthier and more difficult, and are seen as less predictable, 

less transparent, and sometimes unreasonable. 

Now certainly, as science progresses, the information the agency 

considered sufficient yesterday may no longer be adequate, but 

what is important is that the agency processes promote early upfront communications that clearly convey not only what the agency 

expects but why they expect it. 

Clarity about what is necessary to approve a product is key. 

Innovators need to know what the agency says it wants and needs 

is really what it wants and needs, and that requirements won’t 

change midstream. 

Let me skip ahead, in the interest of time. 

What we have seen in particular, and this is an important focal 

point for medical devices, is that when the agency issues guidance 

documents, which change the standards for product approval, and 

given the agency’s current thinking on a given topic, a preliminary 

analysis of our work has shown that for in-process devices, when 

the agency issues a new guidance document, the process takes 60 

percent longer to approve than average. This is preliminary data, 

but we suggest that it shows a real opportunity for improvement 

at the agency in the guidance document process. 

I think in the interest of time that I am going to stop there, and 

I thank you for enabling our testimony. 

[The prepared statement of Mr. Gollaher follows:] 

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Mr. BURGESS. Great. We will probably get to some of these 

things during the question-and-answer time as well. 

Dr. Stevenson, you are recognized for 5 minutes. 

STATEMENT OF SHARON STEVENSON 

Ms. STEVENSON. Thank you, Representative Bilbray, Dr. Burgess. I am Sharon Stevenson, cofounder and managing director of 

Okapi Venture Capital, which is based in Laguna Beach. It is one 

of a handful of venture firms located in Southern California. 

Today I am testifying on the behalf of the National Venture Capital Association, the national trade association for the venture capital industry. Thank you for the opportunity. 

For the past several decades, venture capital firms such as Okapi 

have served as the primary source of risk capital, playing a central 

role in prospering the development of medical technologies and 

therapies to treat cancer, cardiovascular disease, diabetes, and a 

plethora of other conditions. 

This important relationship between capital and emerging companies has enabled our Nation’s biotechnology and medical device 

industries to assume their long-held positions as world leaders in 

medical innovation. The benefits of robust biotechnology and medical device sectors are abundantly clear: better care for patients, 

cures for diseases and disabilities, cost-effective treatments that 

can help lower health-care costs, and high-paying jobs with tremendous growth potential. 

Although researchers continue to identify promising therapies at 

a great pace, fewer of these discoveries are being developed and 

brought to market, in part due to a growing reluctance among the 

venture capital industry to provide necessary financial backing. 

Venture capital and emerging technologies exist in a fragile ecosystem. A number of factors, including the current economic environment and lack of an IPO market, have impacted general availability of venture capital. However, the life sciences sector is being 

doubly hit. 

The uncertainty of the FDA processes has undermined the ability 

of life science venture capital firms to achieve favorable return on 

their investments and, therefore, to raise funds to support the next 

generation of innovative biotechnology and medical device companies. 

Increasingly, limited partners, the endowments, pension funds, 

and the institutions that provide much of the capital for venture 

funds to invest, are telling us that they are reducing or even eliminating the share of investment that they allocate to life sciences 

venture capital. Some well-established life sciences venture firms 

have reduced or ceased operations; others are no longer investing 

in early-stage life sciences companies. 

Some firms have changed their investment portfolios, increasing 

their support for information technology and social networking 

companies, or have begun to invest in emerging markets, sending 

private investment dollars previously dedicated to U.S. companies 

to startups overseas. 

This decline in U.S. investment has enormous implications for 

patients and their care providers, who in the future will have diminished access to breakthrough treatments. It has and will conVerDate Aug 31 2005 08:53 May 15, 2012 Jkt 037690 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 F:\112-09~1\112-90~1 WAYNE
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tinue to undermine a key engine of our economy that has long provided well-paying jobs throughout the Nation. 

Obviously, there are many factors at play here, but the uncertain 

regulatory environment at the FDA has been a very significant contributor. Since the late ’80s, the agency held firmly to a balanced 

risk-benefit approach, with a stable predictable regulatory pathway. As a result, a generation of important therapies came to market, and the Nation gained prominence as a leader in medical innovation. 

But the agency dynamic has changed dramatically in the wake 

of a series of high-profile therapies that resulted in significant safety issues. The pendulum has shifted with the FDA culture now 

marked by extreme caution and risk aversion. 

To be clear, protecting patients must be a fundamental element 

of the FDA’s activities, and I am in no way suggesting it should 

be otherwise. Right now, though, the FDA’s approach emphasizes 

risk over benefit. 

Simply stated, the careful balance that historically helped to fuel 

the development of any number of breakthrough innovations and 

life-saving treatment no longer exist. Rather, the approval process 

is now unpredictable and lacking in transparency, creating greater 

risk for researchers, emerging companies, and investors. 

Venture capital is an industry that is all about taking risk. That 

is what we do. But it is important to distinguish between the two 

types of risk we consider when making investment: manageable 

and unmanageable. 

When the regulatory pathway is sensible, clear, and consistent, 

the regulatory risk is manageable, even if the associated activities 

are expensive and time-consuming. However, in the current regulatory environment, the FDA may require significant changes in 

the regulatory pathway midstream, or even after clinical trial activities have been completed. 

When the rules are changed in the middle of the process, more 

capital is inevitably needed at the worst possible time for the company to be raising it. 

The bottom line is that the current FDA regulatory approach has 

led to a painful, if not intolerable, increase in unmanageable risk. 

As a result, many of my colleagues have reached a tipping point 

and have significantly or completely pulled back their investments 

in emerging life sciences companies, or are only investing in companies where a clear route to commercialization exists outside of the 

U.S. This is not good. 

The NVCA and its member companies want to work with Congress and the FDA to reestablish a thoughtful risk-benefit equation 

and respectfully offer the following recommendations for the subcommittee’s consideration. 

One is to support allowances for variation in risk-benefit assessments to ensure patient-centric drug and medical device development and approval. 

Second is to expand the accelerated approval pathway into a progressive approval system for drugs, diagnostics, and medical devices. 

Lastly, ensure conflict of interest policies are not hindering patient access to new treatments. The goal is not to eliminate conVerDate Aug 31 2005 08:53 May 15, 2012 Jkt 037690 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 F:\112-09~1\112-90~1 WAYNE
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flicts of interest, but to illuminate them, so that they may be appropriately managed. We need the most knowledgeable people 

around the table for advisory panel discussions. 

Thank you very much. 

[The prepared statement of Ms. Stevenson follows:] 

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Mr. BURGESS. Thank you. 

Dr. Mento, you are recognized for 5 minutes for your testimony. 

STATEMENT OF STEVEN J. MENTO 

Mr. MENTO. Thank you, Congressman Burgess, Congressman 

Bilbray. My name is Steven Mento, and I am cofounder, president, 

and chief executive officer of Conatus Pharmaceuticals. 

I am here testifying on behalf of Biotechnology Industry Organization, where I serve as cochairman of its Emerging Companies 

Section Health Committee. It is important to note that the majority 

of BIO’s member companies are small emerging companies like 

Conatus working on the arduous and capital-intensive task of developing innovative treatments and therapies. 

I personally have over 25 years of experience in the biotechnology and pharmaceutical industry. Conatus is focused on the 

development of innovative human therapeutics to treat liver disease and cancer. Our lead development candidate, Emricasan, a 

novel drug being tested as a potential anti-fibrotic drug to delay 

the progression of hepatitis and prevent the development of cirrhosis. Our pipeline also includes a potential oral therapy to reduce 

tumors associated with lymphomas. 

Everyone would like to see innovative treatments and therapies 

to treat liver disease and cancer be successfully developed. However, it is essential to understand the difficulty in accomplishing 

this shared goal in today’s environment. 

While we in the United States are currently the global leader in 

the development of biotechnology treatments and therapies, intense 

competition from China and India means this is a position we have 

to fight to keep. Indeed, when it comes to small venture-backed 

startup biotechnology companies, such as my own, our industry is 

facing a crisis. 

In addition to the economic downturn, regulatory uncertainty, 

longer drug development timelines, and an increasing regulatory 

and congressional focus on risk instead of reward in pharmaceutical innovation, are deterring investors from investing in biotechnology, as you have just heard. 

While these projects may have the highest risk, they also have 

the highest potential to positively impact society. Investors have always known that the science is difficult and fraught with risk, but 

FDA’s shift in recent years to an increasingly cautious, risk-averse 

posture has had the unintended consequence of diverting investment in life sciences innovation toward things like Groupons and 

iPads. 

In addition to the past potential medical breakthroughs we offer 

to patients, the bioscience sector accounts for over 7 million direct 

and related high-paying, high-quality jobs. We have a national imperative to foster the development of innovative treatments and 

therapies. With baby boomers now entering into the Medicare system, the costs associated with chronic care diseases will skyrocket 

unless we work to develop novel medicines to treat these diseases. 

We as a Nation need to focus policy discussions on how to unleash the promise of biotechnologies so that the American public 

can realize the benefits it has to offer. A fundamental part of our 

ability to innovate and raise private investment is having an FDA 

58 

with the resources and mechanism required to effectively and consistently review and approve innovative products in a timely manner. 

These decisions must be understood by stakeholders, industry investors, patients, and physicians, and then must be made in the 

context of patients and diseases being treated. 

The FDA is rarely praised for approving a novel therapy, but 

they are often maligned if there are unforeseen adverse events that 

occur once a product is approved. It is imperative that policymakers understand the scientific realities of approving novel medicines. 

The remainder of my testimony will focus on solutions. BIO has 

developed a set of policy proposals designed to encourage innovation through the creation of a 21st century FDA, which we have 

submitted for the record. I will highlight a few of those proposals 

today. 

FDA has been perceived by many as the global standardbearer 

for regulatory review in drug and biologic applications. However, 

scientific and medical knowledge, techniques, and technologies are 

advancing at a more rapid pace today than at any other time. And 

FDA’s capacity to access information about these advancements 

has not kept pace. It is essential that FDA’s access to scientific and 

medical advice be enhanced by improving the operations of the 

FDA advisory committees, establishing chief medical policy officers 

in the immediate offices of the center directors, and providing FDA 

staff with additional avenues for accessing external scientific and 

medical expertise. 

Two, patients, particularly those with illnesses where no adequate therapy exists, want to access the promising new therapies 

earlier in the drug development process. Expanding and improving 

the accelerated approval pathway into a progressive approval 

mechanism would help provide patients more timely access to 

needed therapies. This pathway would also ensure risk-benefit 

analysis that incorporates the safety and needs of patients in the 

real world. 

And three, FDA’s current statutory authority requires that the 

agency approve applications for new drugs when they have been 

demonstrated to be safe and effective under the intended conditions 

of use. The law provides that effectiveness is established where 

FDA is satisfied that there is substantial evidence that the new 

drug has the intended effect that it is purported to have. 

FDA typically requires two adequate and well-controlled studies 

under this standard. A weight of evidence approach to data analysis, however, would allow the decisionmaker to look at all the data 

and information, and give appropriate consideration. 

Thank you for allowing me to testify, and we look forward to 

working with you on developing policies for a 21st century FDA 

that will serve to unleash the promise of biotechnology in the 

United States. 

[The prepared statement of Mr. Mento follows:] 

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Mr. BURGESS. Thank you for your testimony. 

Mr. Casey, you are recognized for 5 minutes. 

STATEMENT OF DONALD M. CASEY 

Mr. CASEY. Thank you, Congressman Bilbray and Congressman 

Burgess. Thank you for inviting me to testify. And thank you for 

coming to San Diego, and you get to see the weather. 

And I would also like to add it has been a pleasure working with 

your committee and your fine aide Clay, who has been very, very 

helpful in us understanding the process. 

My name is Don Casey, and I am the CEO of West Wireless 

Health Institute, and I spent 30 years working in the health-care 

industry. 

West Wireless Health Institute is a not-for-profit medical research organization whose mission is to lower health-care costs 

through technology and innovation. With $100 million in funding 

today from Gary and Mary West, the institute has hired more than 

60 scientists, engineers, and other experts who are incubating 

promising health-care technologies and engaging with policymakers 

on broad efforts to dramatically lower health-care costs. 

I would offer the following points today. First, novel medical 

technologies can save us literally billions of dollars while creating 

tens of thousands of new jobs. But they have to get through the 

FDA first. Second, the current regulatory climate, as you have 

heard from other testifiers today, is more challenging than ever 

and is slowing innovation and, indeed, driving U.S. jobs overseas. 

And third, there are several practical solutions the FDA can undertake today, including modifying the agency’s de novo 510(k) regulatory review process, that would actually substantially aid in this 

process. 

The institute believes that novel medical technologies will play a 

huge role in health-care delivery in the future, providing better 

care for chronic diseases and dramatically lowering health-care 

costs, while literally creating tens of thousands of new U.S.-based 

jobs that can’t be shipped overseas. We base this on our own research as well as major studies, including one by the VA. These 

studies show that we can reduce hospital readmissions, emergency 

room visits, and overall lower costs by up to 20 to 30 percent by 

using an infrastructure independent model for health care in the 

future. 

However, the regulatory environment that exists today is making 

it extremely difficult for such an innovative healthcare delivery system to be, A, developed, and then, B, deployed. 

The FDA is slowing development in novel health-care technologies in a number of ways. First, in our industry, by determining that once a device that has a wireless communications component, it may require different review process. With traditional 

medical devices, a manufacturer in the 510(k) process can cite a 

predicate device; i.e., a thermometer is a predicate for a new thermometer. The minute you add a wireless component now, a wireless thermometer can no longer cite a thermometer as a predicate 

device, which sets off a lengthy and somewhat circuitous regulatory 

review process where they ask you to cite the predicate even 

though you want to say that there is no predicate. 

73 

A second is regulatory overreach. The FDA is exercising authority over more and more areas of health-care information technology, particularly where they are intersecting with medical devices. By taking an expansive regulatory approach to data collection, data transmission, and data analysis, the FDA is increasingly 

raising the bar so high that we are discouraging new entrants into 

the field. 

We ask ourselves all the time at the Institute, where is the goal 

in health care? It is information-intensive. It should be able to be 

searched. You can’t do that, though, if the FDA continues to take 

a very aggressive and expansive approach to regulation. 

I would offer the institute’s own experience with our first prototype, Sense4Baby. And I would be remiss if I didn’t show you 

Sense4Baby. 

Sorry, if Bill can have a tall chair, we can have a Sense4Baby. 

This is the device that we are looking for, to focus on high-risk 

pregnancy, which basically takes a $4,000 to $5,000 device that is 

currently sold in a hospital, and we can break this down into components that might cost us under $100 when using a cell phone to 

transmit this data. 

We are very excited about the potential it has to dramatically 

lower health-care costs—and I know, Dr. Burgess, you would appreciate this—by identifying high-risk mothers and giving them the 

capacity to be monitored on a regular basis and pushing that data 

to you. 

We are, however, once we have developed this process right up 

the road in La Jolla, going to actually begin to do our preliminary 

validation studies in Mexico. That is driven strictly by our interpretation of FDA regulations that says wireless health-care devices 

need to be looked at as—the wireless component—as a medical device in and of itself. 

For us, it is a more expeditious path to actually get experience 

with this product by taking it to Mexico, which does not look at 

this in the same way. 

New medical innovation is pushing the bounds of FDA’s current 

regulatory paradigm, particularly those where a predicate does not 

exist. Traditionally, the FDA has relied on the de novo process to 

provide approval pathway for low-risk medical devices products 

that have no identifiable predicate. But the de novo pathway is not 

working efficiently today. 

Review times for de novo products during the last 4 years are 

now almost twice as long as the FDA’s promise for a PMA submission. So basically, we are taking a 510(k) device that should be 

much more accelerated versus a PMA, and we are now seeing this 

de novo process taking it to be longer than the PMA, and this is 

very discouraging to industry. 

The fundamental problem with de novo today is it can only be 

pursued after the manufacturer applies for and completes the initial 510(k) review and then receives an official letter from the FDA 

explaining that there is not an approved predicate device. This 

time-consuming process must be completed even if the manufacturer is willing to acknowledge right up front that there is no predicate device before submitting the device for approval. 

74 

We recommend that Congress reform the de novo process to 

allow device manufacturers to proactively initiate the de novo approval process without having to undertake the circuitous process 

that is required today. 

The FDA could also foster greater innovation and speed of delivery for safe, effective medical technology by making the 510(k) 

process, as you have heard today several times, more predictable, 

transparent, and reasonable. 

The FDA’s own reports indicate today that the average time for 

a 510(k) review has increased from 96 days to 140 days over the 

last decade. That is not even looking at industry studies that might 

show that that data is almost triple that. 

Manufacturers are increasingly being asked for new information 

late in the approval process, subjecting them to changing endpoints 

and delays. This stance has deterred venture capital, as we just 

heard, even for something in the low risk, like something like we 

are developing. 

In sum, we would ask the Members of Congress and the FDA to 

work to preserve patients’ access to innovative products by taking 

the following steps: reject the IOM’s recommendation and ensure 

that FDA preserves the 510(k) process to allow low-risk devices to 

come to market in a timely manner. We want to strengthen the 

510(k) process so that manufacturers have more certainty, clarity, 

and predictability in the approval pathways. And finally, we want 

to reinvigorate the de novo process by permitting medical devices 

without a predicate to initiate an approval process without having 

to exhaust the 510(k) process. 

We believe that all of that will, A, increase jobs, B, dramatically 

lower costs, and the final benefit of that is that you’re going to get 

better patient care over time. 

We will look forward to working with Congress and building 

upon its leadership role in spurring innovation, creating new jobs 

for America, and helping all patients benefit from an infrastructure 

independent model for health care. Thank you. 

[The prepared statement of Mr. Casey follows:] 

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Mr. BURGESS. Thank you. 

Mr. Panetta, you are recognized for 5 minutes for your opening 

statement. 

STATEMENT OF JOE PANETTA 

Mr. PANETTA. Thank you, Vice Chairman Burgess and Representative Bilbray. Thank you both for being here in the center of 

global innovation of the biomedical industry of Southern California. 

My organization, BIOCOM, is the advocacy organization for our 

industry here in Southern California. Ninety percent of our members have fewer than 50 employees, and most have products in research and development that hopefully will commercialize them in 

the near future, if we can create an environment that is conducive 

to their being able to do this. And today I am glad to be here to 

be able to talk to you about some of the challenges that we face. 

I also want to acknowledge the great work of committee staff, 

and Mr. Bilbray’s committee staff as well, his personal staff, Gary 

Kline, the great work that we have done with Gary. We appreciate 

the relationship that we have had. And we appreciate the work 

that Congressman Bilbray has done to address the challenges that 

we face as an industry. 

I want to address in sequence here some of the challenges that 

we face as a result of FDA’s medical device regulation, and that impact on innovation jobs and patients. 

As you have heard indirectly here, our companies face one challenge. Their fate is completely determined by a single federal agency, and that is the FDA. 

Without approval from the FDA at each stage of the commercialization process, nothing else about the company matters. Life 

science companies must be afforded transparent, predictable, clear 

regulatory processes to encourage the immense investment that it 

takes to get a concept from discovery to commercialization. 

However, as you have heard, according to our members, the current environment at the FDA is perceived by investors to be unpredictable, hesitant, and risk-averse. This environment has created a 

funding crisis for many of our small to midsize companies, and 

these are the companies that have been central to the growth of 

the life science industry over the past 20 years. 

And I will remind you that this is an industry that has constantly outperformed other sectors during the past economic downturn. 

It is essential that FDA focus on innovation to be strengthened 

in order to maintain this country’s leadership in biomedical innovation, and all of the jobs that go with that global leadership. Even 

some of the most strident critics of the life science industry, including California’s own raking member Henry Waxman, agree that the 

FDA is perceived as being a failed agency by much of the American 

public. 

The U.S. is headed for a crisis as more and more boards and investors are demanding that companies first commercialize their 

products outside the U.S., where safety standards may be just as 

rigorous, but the approval process is more consistent, transparent, 

and predictable. And the companies, therefore, have a better 

chance of realizing a revenue stream. 

83 

Unfortunately, that FDA’s leadership has made recent public 

statements that appear to indicate that the agency is in denial regarding this migration of products to Europe. I can assure you that 

our members would reinforce the fact that this is correct. 

For example, a recent BIOCOM member survey revealed that 59 

percent of our respondents are developing strategies to seek approval and commercializing outside the U.S. before seeking FDA 

approval. 

Sending innovation to another country first has many grave implications. Jobs related to clinical trials and development are 

moved to those countries in which approval is being sought. Once 

approved, manufacturing facilities and distribution are set up in 

and around those countries. And those jobs are not just limited to 

Ph.D.s. 

This isn’t a matter simply of jobs. Patients become aware of the 

most current and effective treatments and technologies, but only 

those who can afford it can travel to foreign countries to access 

them. This is ironic, because it indicates a reversal in the prior 

trend over years of patients from the E.U. and other places coming 

to the U.S. to access cutting-edge treatments. 

It also should be noted that many insurers won’t provide coverage for a therapy or device not approved in the U.S., so this option is limited to those who can afford to pay all costs out-of-pocket. 

For the vast majority of Americans, however, it just means that 

they must go without the best and most current therapies and 

technologies. 

The impact on patients in the U.S. is undeniable. They are being 

denied access to the most cutting-edge lifesaving, or life-changing 

products. 

I want to remind you, members of the committee, that FDA’s 

mission is very clear. Its primary mission is both to protect public 

health and to promote public health as it relates to approval of 

drugs, devices, and diagnostics. 

BIOCOM industry members share a common goal with the agency and support the desire to improve public health by bringing innovative, high-quality products to patients in a timely fashion. But 

we continue to hear from our members that this system is creating 

delays, it is more unpredictable, and more data seems to be required than in previous submissions. 

We don’t believe that this is a reflection on the quality of the 

data that our companies are submitting so much as a lack of effective communication between reviewers in the industry as well as 

the issue of reviewers’ access to training and education of the newest technologies. 

We have conducted a survey five times over the last 16 years 

with PricewaterhouseCoopers called ‘‘Improving America’s Health.’’ 

I have provided copies to all the members of the committee. 

Our survey continues to indicate a growing concern that the FDA 

is becoming more detached from the industry that it regulates. The 

survey seeks to evaluate the relationship between the FDA and the 

companies regulated by it. Sixty percent of our survey respondents 

stated that the FDA changed its position during the course of a review, and that was up from 40 percent 4 years ago. Almost half of 

the people responding to the survey felt the products were being 

84 

denied in part because of inadequate resources at the agency, and 

48 percent reported a break in continuity during the review process. 

This level of uncertainty isn’t surprising when taken in the context of the current state of the agency’s human resource pool. Dr. 

Schoen, head of CDRH, recently said in a town hall meeting that 

the average CDRH reviewer has less than 3 years of experience. 

With that level of turnover, it is not surprising the review times 

become elongated as new reviewers are brought up to speed on the 

industry. Sometimes these new reviewers may request information 

or data on issues never previously raised with the applicant. Often 

these requests can require studies costing millions of dollars and 

a year or more to complete. 

I want to point out that FDA has recognized that they have a 

problem, and they are implementing measures to address some of 

these specific measures. However, BIOCOM is concerned that that 

these changes won’t go far enough. Therefore, we have developed 

specific, focused recommendations that we intend to share with 

FDA and with Congress regarding potential organizational improvements and efficiencies to improve the agency’s overall performance. And I would be glad to discuss these as well. 

I just want to turn briefly to a few other issues that add uncertainty to the uncertainty that we already feel as an industry. 

First, the Independent Payment Advisory Board enacted as a 

part of health-care reform is an unelected body, which could institute broad changes to Medicare with no congressional input or 

oversight. And we don’t support this approach. 

Medicare Part D, which provide seniors with long-sought drug 

benefits, and part B, which provides oncology products for administration in physician offices, has been under threat. 

You have heard about the medical device excise tax. This will be 

devastating to many of our members, and we support the efforts of 

both Representative Bilbray and of Representative Paulsen of Minnesota to repeal this unfair tax, which, as you have heard, takes 

dollars away from R&D and job growth. 

And finally, there are those, including the President of the 

United States, who continue to seek to reduce the 12-year data exclusivity period for biologic products. That 12-year period has been 

supported overwhelmingly in Congress on a bipartisan basis. 

Innovation in the life science industry is meaningless if it doesn’t 

reach the patient, so we at BIOCOM welcome constructive dialogue 

with agencies, with Congress, the industry, FDA leadership, and 

the patient population we all seek to help, so that we can come together to ensure patient safety and advances for cures and treatments that will reduce overall health-care costs, create jobs, and 

benefit all Americans while ensuring that our citizens have access 

to them. 

Thank you for this opportunity, and thank you for your time in 

coming to San Diego. 

[The prepared statement of Mr. Panetta follows:] 

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Mr. BURGESS. Thank you for your testimony. 

Mr. Larkin, you are recognized for 5 minutes for purposes of an 

opening statement. 

STATEMENT OF KEVIN T. LARKIN 

Mr. LARKIN. Good afternoon. I am Kevin Larkin, CEO of TherOx, 

a venture-capital-supported clinical stage medical device company 

located in Irvine, California. And I appreciate the opportunity to 

testify before you today. 

As background, I have spent 37 years in the cardiovascular medical device business in items such as heart pacemakers, 

implantable defibrillators, angioplasty catheters, and stents. As a 

consumer and as an occasional patient, I absolutely recognize the 

need for and support reasonable evaluation and regulation roles for 

FDA. These facilitate, but do not foster, innovation. 

My peers and physicians I have worked with over the years are 

overwhelmingly honest and ethical, and will not knowingly do 

harm. Unless and until these values are violated, they should be 

treated as professionals with trust and respect. 

I believe also that FDA has huge challenges satisfying its diverse, heterogeneous constituents: the public, physicians, industry, 

media, and legislators. Most of these groups do not understand the 

risk-benefit aspect of medical treatments. 

Specific to the PMA regulatory path, the advisory panel process 

is dysfunctional and counterproductive. The good news is it can be 

fixed fairly easily. 

As background, TherOx is a non-revenue-generating, clinical 

stage company that pioneered a breakthrough heart attack treatment that minimizes heart damage compared to the standard of 

care. 

We successfully completed a controlled, randomized pivotal trial 

that met both its effectiveness and safety endpoints with headroom. 

Our trial design was collaboratively worked out with our FDA review team, a group within CDRH. 

After we submitted our trial data, our FDA review team on its 

own initiative awarded us what is called expedited review, a classification that not only indicates prespecified criteria were met, but 

that the new therapy treats a serious disease state for which there 

are no better alternatives. Despite this apparent success, an advisory panel did not vote to recommend approval of our therapy. 

Here are some observations from that panel meeting. Physician 

composition of 15 members, three routinely treat heart attack patients and, therefore, know the practices, logistics, adverse event 

and mortality rates for this serious disease state. These physicians 

were ignorant, even dismissive of our Bayesian statistical design, 

which was recommended by our FDA advisory group. 

Because they don’t routinely treat heart attack patients, they 

were unfamiliar with our heart measurement assessment, 

Sestamibi Nuclear Imaging, a well-validated assessment tool. They 

dismissed it. 

They were concerned about a 1.8 percent death rate in the treatment arm of the group. They didn’t understand the normal death 

rate was greater than 3 percent at the time. They just didn’t know. 

92 

An untrained advisory panel chair accepted a motion for approval without conditions, completely inappropriate for a full PMA 

product. Minimally, a postapproval study is always a condition for 

approval. 

The panel vote was 9-to-5 not to recommend approval, despite 

the trial having met its endpoints. 

Here is a summary of actions since that meeting. 

Jobs were lost. One of my first actions post-panel was to fire half 

of the employees as a cash conservation maneuver while we attempted to work through an approval path with FDA. The employees let go had done their jobs effectively, helped us deliver a successful trial, and did not deserve this outcome. 

Since that panel meeting, heart attack patients, particularly 

those suffering large, debilitating heart attacks, have no access to 

our therapy. 

The advisory panel is being tweaked slightly. For the most part, 

it operates as it has in the past. 

Venture capital, by far the dominant financing resource for innovative breakthrough medical devices, is increasingly abandoning 

investments in PMA product research due to uncertainty over FDA 

approval, even when outcomes meet goals. 

No doubt, many of you here today have heard a variety of criticisms about FDA policies, personnel, arbitrariness, follow-up, and 

more. Unlike many of my peers who run small medical device companies, I have high regard for most of our particulars CDRH members. They are collaborative, helpful yet firm, and importantly, they 

are responsive. I appreciate that we work together and how each 

of us tries to work toward deliverables. 

As you may have assumed by now, my biggest single criticism is 

with the advisory board. The good news is that I believe the advisory panel function can be monumentally improved with just a few 

changes. Here are a couple recommendations. 

Reconcile the ridiculously extreme conflict of interest restriction 

that increasingly staffs advisory panels with nonspecialists in the 

field being evaluated. Strike a balance between accessing expertise 

with reasonable, commonsense restrictions. Require advisory panel 

members to pre-read the prepared material and attest to having 

done so, or be disqualified. 

If the FDA adopts and recommends trial design efficiencies, such 

as Bayesian statistics, uneven randomization, and other maneuvers, panel members have to be educated and oriented to such concepts or be considered not qualified. Panel members who make 

false or misleading statements must be corrected immediately by 

either the FDA or the sponsor to prevent negatively influencing 

other members. And instruct panel members to evaluate the trial 

and the results being presented, not redesign it on the fly. Train 

panel chair and other members on panel logistics, voting procedures, risk-benefit interpretation, and other issues critical to effective panel function. 

Having gone through what I call a good example of a bad example, I believe a few changes like these can preserve the important 

independent advisory function intended for panels, yet dramatically 

improve the effectiveness and the assistance of those panels in 

FDA’s decisions to approve or not and under what conditions. 

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The big picture: This is about maintaining our overwhelming 

U.S. leadership in medical research and innovation. It is about U.S. 

citizens being able to access the latest, most effective new treatments. It is about preserving venture capital’s dominant role in financing daring new breakthrough treatments. And it is about adding, not reducing, U.S. jobs in this exciting medical device field. 

I appreciate having had the opportunity to testify today. I offer 

to be of assistance in any way I can. 

[The prepared statement of Mr. Larkin follows:] 

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Mr. BURGESS. I want to thank all of the panelists for their testimony this morning. It certainly has been enlightening. 

It is usually our custom to go to questions from the Members of 

Congress at this point. We usually start with the person who has 

traveled the farthest and has the most seniority. 

[Laughter.] 

If it is all right with you, Mr. Bilbray, I will go first. 

I recognize myself for 5 minutes for the purpose of questions. 

Mr. Larkin, I have heard it from others on the panel as well, this 

issue of the advisory panels. And I have to tell you, in June of 

2007, when we did the reauthorization for the FDA, in particular 

the prescription drug user fee, the medical device user fee, and it 

was the first time I saw the language that was going to be restrictive that said, no one with any potential for conflict of interest was 

going to be seated on the panel. 

The Institute of Medicine, and I recognize there always are some 

disagreements with the Institute of Medicine, but they themselves 

said no more than 40 percent should have some identifiable conflicts. But they recognized the utility of having people on the panel 

who actually understood the drug or device under question. 

And when we had that conveyed in the committee, we had the 

markup on the bill, and I put up an amendment out there twice, 

once in subcommittee and then a full committee, and it was always 

voted down on a party-line vote. So clearly, there were political 

overtones as to why you mustn’t have any type of conflict of interest on the panel. 

But particularly in a very small universe, I was thinking at the 

time about pediatric oncology; certainly, your area fits that bill. 

But in a very small universe, the number of people who actually 

know something is going to be a pretty small number of people. 

And if you exclude all of them, then you are knocking all the experts off of the panel before you started. You might as well have 

OB–GYNs on the panel as pediatric oncologists. 

So I certainly welcome the fact that I have heard I think from 

several of you today, and I promise you this is something I am 

going to get fixed when we reauthorize both the prescription drug 

user fee on the medical device user fee in this Congress. 

It was wrong the way it was approached last time. I was young, 

well, younger. I didn’t appreciate how things worked. It was my 

first term on the committee in the minority. And I didn’t really understand how things were working, when the chairman, thenChairman Dingell, offered to work with me and help me get this 

fixed, it turned out to be pretty much an empty promise. This time, 

we will get this done. 

Do any of you have any things you would like to offer on the conflict of interest stuff, because that is a fight that I intend to continue into this year? 

Yes, Doctor? 

Mr. GOLLAHER. We have talked to the FDA, including the commissioner, about this. And I think the FDA themselves support significant changes. So you are not completely swimming upstream. 

They realize that there are weaknesses that they can bring to bear, 

both on the drug and device side. 

101 

We talked with the commissioner about transparency. And the 

rule, generally, in looking at IRBs, for example, institutional review boards, within clinical medicine is conflicts are unavoidable. 

So clear illumination, as was said before, about the nature of the 

conflict is essential. 

But I think what we have seen is going very far the wrong way 

to try to exclude them, and that causes more harm than good. 

Mr. LARKIN. I think, sir, David is correct. The pendulum, to use 

that expression again, has swung too far. 

To me, it is sort of a cascade. You know the media gets the public 

stirred up about not necessarily a real problem but a whiff of a 

problem, a potential drug or device related problem that has yet to 

be demonstrated. And then once that is going, the public gets upset 

about it, rightfully. And then, I have to say, sometimes a few legislators kind of join that bandwagon. And at that point, it is very 

hard for someone to stand up and say, wait a second, let’s have a 

commonsense, practical approach to conflict of interest. 

It is as if, at that point, the public has said nobody who has anything to do with this specialty can be involved in this decision. And 

of course, that is not right. 

The more you know about the field, the more you know about devices or new approaches, particularly the more important you are 

as an element in that decision. I think you can be vetted, but I 

think we have to get back to some more reasonable—and the other 

thing I would say is, my point about believing that the vast majority of physicians and professionals in the medical space are honest 

and ethical is important. As soon as someone violates that, you 

kick them out. 

Mr. BURGESS. Yes, and that is critical. 

Mr. Panetta, you talked about the cutting-edge stuff now moving 

and instead of it being United States-oriented, it would be oriented 

overseas in Europe or perhaps even Asia. Right before his death, 

I had an opportunity to meet Dr. DeBakey. He got the congressional gold coin, and we spent an afternoon talking. And he reminded me that in the 1930s, when he graduated from medical 

school, that he was immediately required to go to Europe to get the 

credential to be a researcher, because he wanted to do research, 

and you couldn’t be a researcher of any renown if only trained in 

the United States. 

So he was a graduate of medical school, I think the year Elvis 

was born. And then things all changed after the Second World 

War. He attributes a lot of it to the funding of the National Institutes of Health, but there are obviously other reasons as well. 

But it seems like such a shame to undo that now, as we are 

poised to do. But that is obviously something that concerns you, as 

well. 

Mr. PANETTA. Absolutely, Congressman. 

It used to be, too, that the majority of drugs were developed in 

Europe. And we saw, fortunately, the pendulum shifting as drug 

companies came to the U.S. to take advantage of the work that is 

done by the NIH, to take advantage of the skilled workforce here, 

and certainly to take advantage of the reimbursement that is supported here that doesn’t come anywhere close in Europe to what 

companies are able to —— 

102 

Mr. BURGESS. And the academic community, we must mention 

them, since we are in their facility today. 

Mr. PANETTA. Absolutely. And here in San Diego, if it weren’t for 

the academic community, we wouldn’t have a biotechnology industry. It came out of the academic community. 

Just to get back to the advisory panel situation, the one comment 

I would add, if I could, on that situation is that many of my members tell me that there is definitely a disconnect between the advisory panels and a lot of the work that is done leading to advisory 

panel meetings, in terms of an understanding of the earlier work 

that has been done. And we have had several companies here that 

have gone all the way through the process and invested hundreds 

of millions of dollars only to be redirected back to something that 

came up as an issue early on in the process and could have easily 

been tackled then. And this creates even more delay and uncertainty at the end of the process. So there is definitely a discontinuity there. 

Mr. BURGESS. Thank you. 

Mr. Bilbray will be recognized for 5 minutes. 

Mr. BILBRAY. Yes, Joe, let me follow up on that. So you are talking about the staffers who review the original applications are not 

available as resources for the review bodies? 

Mr. PANETTA. Many times, Congressman Bilbray, the staffers are 

no longer there, because, as I said, there is a 3-year average turnover. Many times the products are reassigned. Staffers move from 

one division to another. And many times the record is just not clear 

within the agency as to decisions that were made early on, and 

there is no consistency in that decisionmaking. 

Mr. BILBRAY. So we have a real problem with institutional memory starting with that nobody can follow this through. I mean, how 

many people know the frustration, a good example, is you go to get 

your passport and somebody says oh, yes, you do this and this. You 

go back to the same window or you go back for your birth certificate, and they say, well, I wasn’t here, I didn’t tell you that. And 

I have a new set of rules. 

So I think this institutional memory, I just can picture, the fact 

of, coming from local government, of a planning commission not 

being able to have as a resource the staffer who actually processed 

the application. I mean, that is a huge resource there. And so, you 

are literally flying blind. 

Kevin, my question, though, is this conflict issue, it really is 

broad. I mean, it is almost going to a concept—and I guess it is 

something that I would ask both sides of the aisle to perceive—this 

would be like saying that you wouldn’t allow any school board 

member to be either a parent with a child in the school system or 

to be a teacher. You know how that would be received around this 

country. 

But that conflict I think is a real concern I have, because it is 

almost as if that there is a willingness to accept ignorance to avoid 

any appearance of prejudice. And I guess that is where we get into 

it on that. It is a big concern that you can’t sanitize the system to 

the point where nothing can grow. And, hopefully, we will be able 

to address that kind of conflict. 

103 

Let me just open up on one thing here. My concern is that, anybody here, if we do nothing, if we don’t address the issue of the 

desperate need for venture capital for research, if we don’t change 

the system where we allow experts—and let me just say a moment 

about that. You think cardiovascular, you know, you have a pretty 

broad perspective with some of this kind of stuff that goes on. I 

mean, I think we can talk about—what about gene therapy? 

If you don’t allow somebody was some expertise in the field, literally, you are flying blind. You would rather say, why even have 

a review body if they are going to be basically blind to the whole 

facts and science out there? 

But let me just open up, if we do nothing at all, if we keep on 

the projection that we are looking now, you know how guys love to 

do their scales. OK, here is our projection, here is where we are 

going, where are we in 10 years? 

Mr. GOLLAHER. Sir, just one way to think about this is the concept of regulatory competition. The FDA doesn’t view itself as having international competitors, but it does. 

In fact, the Europeans have designed their drug and their device 

regulatory systems with the explicit intention of building up their 

industries. And so it is really the opposite of the way that we have 

thought traditionally about regulation. 

Mr. BILBRAY. So it sounds like they actually approach this like 

they did the shipbuilding industry, where they were going to participate in helping to get to that outcome, that they were going to 

be partners with the researchers and the private team to get to the 

outcome. Where we used an approach of, ‘‘That is your problem. We 

are just here to make sure you don’t do something we don’t want 

to do. We don’t. We have no obligation to help you do the things 

we do want.’’ 

Mr. GOLLAHER. Well, it is interesting. If you look at the European system, and it is different for drugs than it is for devices. But 

in both cases, the regulatory system has a sponsor that relates to 

the company that is going for approval. It is called a rapporteur in 

the medicines agency, and it is called a notified body in the device 

industry. 

But these are people who are basically working with the industry 

sponsor to shepherd the product approval through. And it is not an 

adversarial but rather a collaborative process. 

Mr. BILBRAY. Doctor? 

Mr. MENTO. Yes. 

Mr. BILBRAY. I hear that we are looking at having our medical 

research facilities go the way of our shipbuilding. And it all ends 

up being basically something we used to talk about, where Americans used to be employed, used to being involved with that. If we 

don’t change the system, is our medical research going the same 

way as our shipbuilding did? 

Mr. MENTO. I think it is actually worse than that. I think, I 

mean you heard today, and the concept is that in small biotech 

companies that are willing to take the risk, so they are going to 

go out there with a first class drug. Well, the problem with first 

in class drugs are, there is no regulatory pathway. 

104 

You are talking about pathways that exist with endpoints. I am 

talking about drugs that we are developing in liver fibrosis; there 

are no endpoints. No one has ever done a drug in that space. 

So when you think about uncertainty associated with trusting 

that the FDA is going to be capable enough to have continuity over 

a 10-year process it is going to take to develop a brand-new drug 

in a space that hasn’t been developed before, it is incredibly difficult to bring money in. And if the money doesn’t come in, you are 

going to have more—I mean, I have a distinguished member of the 

venture community next to me. But I can tell you that the people 

I talk to, they would rather have I have a second or third generation drug where they know the pathway is, where they can at least 

identify if it is the next antihypertensive, people know how to 

measure blood pressure. They don’t know how to measure the progression of fibrosis in the liver in a way that will determine whether or not the clinical outcome for those patients is going to be better or worse. 

And, in particular, in our case, the epidemic—everybody talks 

about obesity. We are talking about the epidemic of obesity, and 

one of the things that people are probably not aware of—you probably are, as a physician. 

Mr. BILBRAY. He is aware of everything. 

[Laughter.] 

Mr. MENTO. The inflammation of liver associated with obesity is 

rampant and increasing, not just in the States but elsewhere. So 

it is not just that we are developing drugs for, say, in the U.S. elsewhere. The diseases that we have, because of the westernization of 

some of these other locations, are becoming more prominent there. 

They are going to be first in line, because they are going to be 

able to have the scientists there, have the funding for that to treat 

the disease there. They may not even get to the United States. 

So I think it is worse than the shipbuilding industry. 

Mr. PANETTA. May I add to that, Congressman? 

Mr. BURGESS. Of course. 

Mr. PANETTA. Last year, I had I had the—Mr. Chairman, last 

year I had the opportunity to go to Taizhou in China, where the 

Chinese are building China Medical City. 

China Medical City is a remarkable effort to begin with, because 

it is a ground-up—from the ground up effort to build research facilities, universities, incubators. But what impressed me the most 

was in the center of China Medical City was an SFDA building, a 

Chinese FDA building. 

And when I asked about it, I was told this building is here so 

that the SFDA folks can work directly with the researchers and the 

folks in the incubators from beginning to end and make sure that 

there is collaboration in the development of products. What a 

unique concept. 

Mr. BURGESS. The gentleman’s time has expired. We are, obviously, going to go another round for questions. 

Dr. Stevenson, I would like to ask you if I could, the concept of 

the shipbuilding having already left the country. Has the financing 

for the shipbuilding, has that ship also already sailed? 

Ms. STEVENSON. It is hovering, I would say. I am not so sure 

sailed. 

105 

But the point about the fragile ecosystem I think is really, really 

important, because I can only invest in companies when I have a 

fund to invest. I get that from my limited partners, who are, as I 

mentioned, the pension funds. In our case, we have these small 

funds. A lot of ours are family offices and high-net-worth individuals. 

Well, people are only—they are making those investments in 

order to get returns. So if I can’t demonstrate consistently over 

time that they are getting a reasonable return, they are simply 

going to go elsewhere. I mean it is—— 

Mr. BURGESS. There are too many iPhones being made. 

Ms. STEVENSON. Well, yes. Why not go where you are going to 

get a guaranteed return, as opposed to investing in innovation. 

Good to be a good citizen, but that is not why people are making 

these investments. 

And there is a really big lag. You asked what would happen if 

it all kind of stopped today. Well, it takes a long time to go grow 

an idea. It takes a long time to grow the management team. I 

mean, nobody does life science management that hasn’t been doing 

something allied for 15 or 20 years. Well, those people are going 

to go elsewhere. 

I mean, I had like 20 years of college and operating experience 

and all this stuff before I started doing that. That is not unusual 

for a venture capitalist. 

So the life sciences folks will go find other things to do. And it 

is very hard then to restart this ecosystem, once it has started to 

die off, like in any other ecosystem. 

Mr. CASEY. And to put a point on that, you asked a question, 

Congressman. I mean, if things track the way they are today, the 

medical device industry will be a memory in the United States, 

point 1. Point 2 is patients are going to be paying a lot more for 

devices, and that money, just like oil, is going to go overseas to either China, South Korea, or over into Europe. And to be honest 

with you, the economy is going to have sacrificed, in our estimation, between 200,000 and 1 million jobs on literally looking at 

how you begin to foster an industry and the next generation of 

health-care information technology. 

A lot of discussion here is a little bit more about bio and pharma. 

I will just tell you that if—you mention gene sequencing. When you 

look at wireless data, the prevalence of data is just going to explode 

in health care. And there is an entire new industry that is waiting 

to be formed on data analysis, data capture, data manipulation, 

over time. 

And if we have a regulatory environment today that is basically 

saying, well, hang on a second. The minute you move off the device 

and a drug into something that combines information with a device, that creates a whole world of regulatory uncertainty. That industry is going to be picked up and moved. 

I will tell you, currently today we are 3 years behind Japan. I 

would tell you we are about 18 months behind what we are seeing 

going on in Europe. And the Chinese who had no interest in that 

a year ago are now throwing around a ton of money looking at the 

space. 

106 

So it is an industry that should be American. It is needed for the 

economy; it is needed for jobs. And we are just going to watch that 

just sail away. 

Mr. BURGESS. Dr. Stevenson, I know you have to leave. 

Is there any parting advice that you want to give Mr. Bilbray 

and myself? 

Ms. STEVENSON. Well, to use the analogy I used with our risk, 

manageable and unmanageable, to manage what is obvious here 

that needs to be managed, the conflict-of-interest issues. 

We can live with an FDA that is hard. We want safe, effective 

products. That is what we are investing in. We just simply need 

to be able to see the process and then depend on that process. So 

when we make our forecast, when we make our investments, we 

get to where—we have forecasts. We can get on that amount of 

capital and that amount of effort. 

That is really all anybody is asking for. And it existed at one 

point in time. And we believe it should exist again. 

Mr. BURGESS. I agree with you. 

I yield back to Mr. Bilbray. 

Mr. BILBRAY. Yes, let me just say, Doctor, we don’t talk enough 

about it, because it is not sexy. It is heart-wrenching. But thank 

you for representing the venture capital industry, because as those 

of us that have been involved in the environmental movement, you 

are the krill of medical miracles. 

Ms. STEVENSON. Is that good or bad? I am not familiar with the 

term. 

[Laughter.] 

Mr. BILBRAY. The entire ecosystem depends on you being 

healthy. 

Ms. STEVENSON. Oh, OK. 

Mr. BILBRAY. But you are out of sight, out of mind. 

Ms. STEVENSON. And sometimes maligned, I would also —— 

Mr. BILBRAY. There was once a very bad movie that Charlton 

Heston did called ‘‘Soylent Green.’’ And when the krill dies, we 

start eating each other. In other words, it is not sustainable without you. 

And you are out of sight, out of mind. You let people take you 

for granted, and trying to get both sides to understand that we 

need that public research to create the sea grain for you. But we 

have got to allow you to get the capital to be able to create those 

startups that the big guys use to feed the system of the next generation. 

And without you, I really worry that we are going to be asking 

ourselves in 10 years, where are all those great medical breakthroughs? Where are the things like a vaccine for cervical cancer, 

so the politicians can debate about should it be applied or not. 

[Laughter.] 

Those type of miracles I think we take for granted too much, and 

I think we are too jaded. 

But you are the foundation on that, and I want to thank you for 

that. 

Ms. STEVENSON. Thank you. 

Mr. BILBRAY. My time has—— 

107 

Mr. BURGESS. No, your time has not expired. You encroached on 

my time, which is perfectly fine. 

Go ahead and reset the time. We will give it to Mr. Bilbray. 

Mr. BILBRAY. I want to bring that up, because there is a lot of 

stuff like the medical device issue. 

And, Don, my family went through the tragedy of crib death. And 

then went through the tragedy of living with an infant monitor 

with false alarms and everything else out there. A big concern is 

where we would have been if we didn’t have that device and how 

if that wasn’t made available—and, sure, there was a lot of false 

alarms. But let me tell you something, after you have to pick up 

a cold, dead baby, that false alarm doesn’t bother you at all, especially when you could pick up a nice warm baby while you are terrified. 

And I guess that is my frustration of taking a look at things like 

aspirin. Hundreds of people die every year in this country from aspirin. And I wait for the time of the FDA explaining to me how aspirin stays on the market and admitting because, probably of any 

drug out there, it has probably saved more lives than anything 

else. 

But aspirin, as far as I know, do you think aspirin, anyone of you 

guys, do you think aspirin could get through the system today? 

[A chorus of noes.] 

Mr. BILBRAY. And how many people, how many thousands of 

Americans and people around the world, are alive today because of 

aspirin? So how many other aspirins are being held up in a system 

and how many other people are dying because we are not approving the proper triage on that? 

And I would open it up. If there any specifics that you guys can 

see, the frustration you run into. 

Mr. CASEY. Congressman, I want to pick up on your Sudden Infant Death Syndrome as illustrative of what is going to happen. 

I mean, basically you are talking about a baby monitor that you 

can hear and whatnot. The technology is rapidly getting to the 

point where it is eminently affordable that you could put a device 

under a mattress that is going to basically measure whether the 

child is breathing with a pretty fair degree of precision. And then 

that can be either pushed to a doctor, a caregiver, a parent. It 

could get pushed anywhere, because the data is basically easily 

moved. 

The challenge and the reason we are talking about de novo is, 

the minute you take a relatively straightforward device and put a 

wireless component to it that involves data transmission analytics, 

you enter into this very strange world where, well, hang on a second, are we actually looking at a device? Are we looking at a device 

plus an analytical system? And you get in this very strange doloop. 

And one of the reasons, and it is a shame that Dr. Stevenson 

isn’t here, venture capital is walking away from that, saying, oh, 

hang on a second, that is wireless. 

You know that is going to get into a bad place with the FDA. 

And you have totally ramped up the regulatory risks. 

So the technology that should actually already be 10 years old is 

waiting. And just pick that or, for us, congestive heart failure. $10 

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million disease, in terms of what the government pays out. It is 

billed $30 billion, but it is a $10 billion disease. There are relatively straightforward wireless medical devices that can make a 

transformative difference that can really ramp down costs, increase 

patient satisfaction, and reduce readmissions. 

Then again, it gets caught in this lack of predicate device, which 

is one of the reasons we have been pushing so hard on this de novo 

pathway. 

Mr. MENTO. If I may add something in the context of a word that 

we heard—I don’t know, I was going to count—probably 100 times: 

innovation. 

Funny you brought up gene therapy. The first biotech company 

that I was recruited to in San Diego back in 1992 was a gene therapy company. And in those days, in the ’90s, the investment in this 

industry was truly all about innovation. You heard from the venture community that limited partners were flowing in there because there was the perception that the science was going to dictate and lead the way. And when we started in gene therapy, the 

FDA not only had no one at the FDA that knew anything about 

gene therapy, because it was such a new field, but there wasn’t 

that fear that there wasn’t going to be a pathway that could be 

generated, because the feeling was that science was going to win 

out, both in the companies to develop innovative products, and 

through the FDA, that ultimately the process would be defined well 

enough that that the venture community would not go away. 

That is completely the opposite now. I mean, there is a fear, an 

absolute fear, in innovation, and you heard a bit of it here, in the 

venture community, not so much the science isn’t good, but there 

is no predictability and no trust that a pathway will ever be developed. 

And even when you have a job that goes all the way through the 

process, you have had your agreements, you add the issue we had 

talked about relative to the scientific advisory committee meeting, 

and not having people on there that are even capable of understanding the process. We are in dire straits. 

If it doesn’t get fixed, we may not see its 4 or 5 years, I am more 

concerned not about the drugs that are currently in phase 3. It is 

the pipeline that is not going to be there 5 or 6 years from now, 

where you are not going to have to worry about regulating innovative drugs, because they are not going to be any there, because 

there wasn’t any financing. 

And it is not just the venture community. Look at the large pharmaceutical companies. They are eliminating their R&D organizations, because they can’t even manage or feel comfortable in managing if that is a good investment on our part. 

I mean, shipbuilding is close, but I don’t think not even close to 

being as dire, what we are in for in the future. 

And when I talk to my colleagues within the industry, there is 

depression, because the science is better now. It is better than it 

was 20 years ago. We can develop—it is remarkable the kinds of 

things that we can do. And you know, with electronics, also with 

gene sequencing and marker analysis. 

But there is no way that we can convince investors that there 

will be a pathway, that the FDA is going to get up to speed, and 

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that even if they are that that pathway is going to be predictable 

enough with a trust level that if it really does meet its endpoints, 

it is actually going to get through, and not be stifled by some people that are in the process at the end-stage that don’t even know 

what they’re talking about. 

So I don’t know how you fix that. 

Mr. BILBRAY. OK, Doctor, you raise a whole new concern that we 

need to follow up on and get into. And in all fairness, you are right. 

It took decades to lose the shipbuilding or the auto industry. It will 

take months to lose the research facilities. 

But the prejudice, the prejudice of people that claim to be based 

in science but bringing prejudice in, and the gene issue is a good 

example, where a top oncologist here at U.C. tells me flat out, we 

are this close, this close. If there was any opportunity, this close 

to the breakthrough, but it has been stopped dead in its tracks. 

And resources and everything else are moving off, and to see 

somebody whose entire life is devoted to trying to save life, a frustration of seeing a system that basically takes prejudice, and discriminates against a certain scientific approach, based on ignorance, and to claim they are somehow being informed decisionmakers just I think is one of those things that we need to talk 

more about and look at. And that is one thing our committee has 

to look at is the prejudice. 

We just got this big scandal that is coming down that the doctor 

and I are working on of a certain kind of energy technology. And 

the prejudice led them to major mistakes that cost the taxpayers 

a half billion dollars. 

The trouble is, with your field, we are seeing bureaucratic prejudices that are standing in the way of not just the creation of jobs, 

but the saving of lives. And that sure makes what went on up in 

San Francisco look second rate. 

Mr. BURGESS. Let’s go each one last round. 

Mr. Panetta, I wanted to ask you a question. You referenced the 

period of exclusivity. And I thought, for all the bad stuff that is in 

the Affordable Care Act, I thought at least the period of exclusivity 

had been put to rest. It seemed to be pretty bipartisan, bicameral 

support for the 12 years that was I think included in the amendment that passed through our committee. And I think similar language was taken up by the Senate. 

Then the President the other day said we are going to roll that 

back, I think he said to 7 years. 

Mr. PANETTA. Seven years, correct. And if you recall, Congresswoman Eshoo took the President on directly on this issue as the 

Affordable Care Act was in the process of being passed. And this 

was probably a good year and a half ago that the President proposed to reduce it to 7 years period. We thought that had been put 

to rest, but of course it is in his latest deficit reduction plan again. 

Mr. BURGESS. Yes, I mean, it almost defies gravity that you are 

going to be able to recoup the investment cost in such a short period of time and have a product on the market that anybody can 

actually afford. Otherwise, your price is so high that it becomes 

something that is not attainable. 

Mr. PANETTA. Absolutely, and there was plenty of economics behind the proposal for 12 years. Of course, it was debated by the EnVerDate Aug 31 2005 08:53 May 15, 2012 Jkt 037690 PO 00000 Frm 00113 Fmt 6633 Sfmt 6633 F:\112-09~1\112-90~1 WAYNE
110 

ergy and Commerce Committee, and we were able to back up the 

need for 12 years. 

It provided some sense of confidence and security to the investment community. And to propose to move it back to 7 years brings 

that insecurity back into the equation. 

Mr. BURGESS. And just so you can take some comfort, I don’t see 

any abiding interest from either side of the political dais, and in 

our committee, to reengage that fight. There was one person who 

was pushing it, as I recall, and the vote was literally that lopsided 

in July of 2009, when that came up in committee. 

Mr. Casey, on the novel device aspect, you have obviously referenced one that sounded pretty important to me. I assume there 

are others out there in the pipeline that you all are looking at. 

Mr. CASEY. There are a ton. I mean, if you look at this space 

again, we commit to things as to how do we dramatically lower the 

cost of health care by creating infrastructure independent, or how 

do we create monitoring that to accelerate the development of novel 

technologies. 

If you look at the combined weight of like an Apple or Verizon, 

AT&T, they all want to jump in the health-care space, but then 

they jump and they look and say, oh my God, there is an uncertain 

regulatory body there that actually is actively discouraging innovation by virtue of not investing in understanding the science and not 

creating a pathway. 

We just see a significant amount of problems where we—— 

Mr. BURGESS. Now would Google be subject to that 2.9 percent 

medical device tax on the iPhone? 

Mr. CASEY. No, it is very interesting. Apple, as an example, for 

which there are now over 13,000 medical apps, you actually sign 

a release if you are going to develop a medical app with Apple that 

declares that you will not make the Apple iPhone a medical device, 

as a way of shielding them from the 2.9 percent tax. 

And it is interesting that one of the most innovative companies 

in the world is so concerned about being regulated that they just 

basically sit there and put up a big wall. 

But if you look at the five most costly diseases—and I am talking 

to a physician. I don’t mean to—but if you look at congestive heart 

failure, if you look at COPD, all of these, you run down asthma, 

you run down pregnancy, in terms of cost per individual that has 

that. These are all conditions that there are devices that can be 

made to transmit well-understood biometrics from point A to point 

B, and create—Congressman Bilbray, whether it is a false alarm 

or any kind of alarm, just move data and get it into a rich data 

analytic field, where you can learn long term what is the actual pathology of the disease and other things. 

But if you look at the amount of money that is being spent on 

wireless devices in COPD right now, it is nonexistent. Congestive 

heart failure, a little bit. 

Mr. BURGESS. Yes, are forced expiratory volume transmitted 

wirelessly on a daily basis to predict the compliance—— 

Mr. CASEY. Lack of compliance. 

Mr. BURGESS. Or lack of compliance. Same with the daily weight 

on a CHF patient. Relatively low-tech ideas that go high-tech on 

the wireless side. But it could just be a game-changer, as far as the 

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practice of everyday clinical medicine, where you are able to anticipate your patient’s problems. 

One of the things I liked about that was you can set that so that 

the investigation is done at 2 o’clock in the afternoon, not in 2 

o’clock in the morning, which is when we typically see the patient 

come in to the emergency room, because they have been worried 

because all day they have had this pain or this lack of activity, or 

something that has gotten their attention. So the ability to manage 

your clinical practice becomes huge. 

Mr. CASEY. And you set the alarms. If you say, I have a diabetic 

obese—gestational diabetes obese patient, I actually might want to 

see more data than less. Where if I see somebody who you think 

is relatively low risk, you set the parameters, because this is the 

revolution that we are talking about. 

And the fact that the country invested so much money in creating basically ubiquitous communication technology, and we are 

not leveraging it against the 20 percent of spending that is called 

health care I think is really kind of of a national—— 

Mr. BURGESS. Maybe the critical point was—— 

Mr. BILBRAY. Doctor—— 

Mr. BURGESS. Wait, wait, I just have one cautionary tale. 

Three or 4 years ago, I went out to Seattle with Newt Gingrich, 

who was giving a talk out there. And he asked me to talk on electronic health records. And we got the tour through Microsoft, and 

all of the smart people at Microsoft were there with us. And we 

went through the Microsoft house. The house is named Grace. You 

walk up to the door and Grace recognizes you. You don’t have to 

activate Grace. She recognizes that you are coming up. 

She turns on your favorite light, warms up your favorite chair, 

all this stuff. You go into the kitchen and Grace has some menu 

suggestions for you. And Grace might know if you are a diabetic 

or prediabetic. 

The thing that concerned me about that house was if the refrigerator talked to the bathroom scale, it might put the ice cream on 

lockdown for that night. 

[Laughter.] 

That is one of the things that—the cautionary tale I would have 

about wireless run amok. 

Mr. Bilbray? 

Mr. BILBRAY. I almost was ready to make a marriage proposal 

to Grace. By the time—— 

[Laughter.] 

Until she cut off the ice cream. 

Speaking of that is how in government we can weave these webs 

that come back to get us. 

As far as I know, there is a mandate in this new health-care bill 

of the private sector has to go to electronic recordkeeping and data 

processing. 

But is there any protection against the tax that is in the bill of 

coming down on that technology that is mandated? 

Mr. CASEY. No protection. 

Mr. BILBRAY. So while they are mandated on one side, and, oh, 

by the way, veterans and military have been trying to do this for 

10 years. We are going to have the private sector do it in 4. 

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But now they say they want to do it, but at the same time basically have this cloud hanging over that there may be this big tax 

on you. If you do what the Federal Government wants, we are 

going to be coming hard with a big heavy tax. Is that correct? 

Mr. CASEY. It is circular logic. And I will just push the EMR debate. We are not huge advocates of EMRs per se, but even EMRs, 

there is a carveout with the FDA. 

Now the FDA is saying, well, excuse me, EMRs have a carveout, 

but if you put in your clinical decision support algorithm in your 

EMR, well, that is now under review. And then if you put in your 

medical device collection capacity in your EMR, now that is going 

to be regulated. 

So the interesting issue is rather than increasing the 

functionality of this data-driven electronic medical record world 

that people want to live in, the FDA is now encroaching on what 

was something Congress had actually stepped up and said there 

should be a carveout to protect that, to get the innovation we actually need to change health-care paradigms. 

Mr. BILBRAY. So maybe we want to start by, basically, getting 

both sides to agree that we will not implement the device if it falls 

into the category of a mandate for the data. 

Mr. CASEY. That’s a good start. A very wise Congressman I 

thought introduced something about that. 

Mr. BILBRAY. Let me just say, we are about—do you have any 

more questions? 

Mr. BURGESS. No, I have some things that I must do at the end, 

so go ahead with your closing observations. 

Mr. BILBRAY. OK. 

You now, let me just make an observation as a local, and I want 

to thank the chairman for being here, and I want to thank the witnesses. 

I think the American people are looking around and saying, why 

can’t Washington work in a bipartisan effort? And I apologize, both 

sides of the committee wanted to see this happen, and, hopefully, 

they will be able to review this. And I appreciate the fact of the 

bipartisan effort. 

This is the kind of thing that Americans really want to see a bipartisan effort on. The fact is, being from San Diego, it is sort of 

interesting that today we have had two visitors that have come. 

One everybody knows it is visiting. Another most people in this 

county of 3 million-plus won’t even notice it. One from the West 

and from the ocean, and the other one from the East from the sky. 

And those of you when you leave here today, you can look out, 

you can see some very blue water. But then you can see some very 

ugly red water out there. And it is a thing called red tide. 

And the red tide to me is really a great analogy for what we have 

seen happen in the FDA. Red tide is something that goes into an 

environment and, basically, makes a very healthy environment 

toxic. Red tide will poison the basic building blocks of life in the 

ocean, and that is what we have out here. 

I see that as being an analogy for what we are seeing happen 

with FDA, that people will wonder why the environment has become so, so toxic for innovation and not just job creation but health 

creation. And we need to do something about it to make sure that 

113 

red tide moves off into another neighborhood and leaves the research facilities alone, so you guys can grow and feed the system 

that we depend on so much. 

The other visitor was the President has come to visit us today, 

and for a lot of reasons, but I think that one that I hope that somebody talks to the President about here is how important medical 

research is for the creation of jobs in San Diego, that California has 

been historically the great incubator of medical breakthroughs. 

And I hope the President is confronted with the fact that, do not 

take us for granted here. Everybody in Washington talks about innovation, research, you know, the great potential that this is the 

backbone of America’s economic and social future. And I hope 

somebody goes over there and reminds the President that he is in 

a city that desperately needs him to take a lead. Because everything we talked about today can be done tomorrow by the executive 

branch. They can make the institutional and cultural changes in 

FDA to make this possible. 

But let me just say this, I hope that there is a possibility that 

maybe some young lady can walk up to the President and not say 

do this for me, because we all talk about what—Bill Walton says 

he was a benefactor and he was somebody that benefited by this 

kind of research and this kind of medical device opportunity. 

But I will tell you something, more important than a young lady 

walking up and saying do this for me, would be a young lady walking with her child and say, the only thing worse than a Bill Walton 

or somebody and somebody in pain and suffering and needing medical breakthroughs is watching a child. That is a challenge that I 

wish that President could be confronted with. ‘‘Mr. President, if you 

don’t do it for me, do it for my children and do it for my grandchildren.’’ 

And so, hopefully, all of us can kind of leave here and say, our 

grandchildren won’t remember if we are Democrat or Republican, 

but we are going to remember did we save the industry that could 

have saved their lives? Did we rise to the challenge to not only 

make sure we have a strong economy, but that we have healthy 

grandchildren? 

And thank you very much for being here today. 

Mr. BURGESS. And I think that concludes our testimony and time 

for questions. 

I do want to thank all of you for being with us today. It has been 

an informative discussion. It is the committee’s practice to allow 

members to submit written questions to witnesses. And I would 

ask that you would reply to those questions, if offered. 

And again, I want to thank you for the time, the time you took 

in preparing the testimony, the time you took coming here to testify to the committee. 

Remind the members that they should submit their questions to 

the committee clerk by Monday, October 10. 

And with that, I will adjourn the subcommittee. Thank you all. 

[Whereupon, at 1:17 p.m., the subcommittee was adjourned.] 

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