contracts are permitted to retain sufficient rights to enable them to grant some exclusive rights to pharmaceutical concerns, this practice can continue. Otherwise, there is every indication that it will soon come to a complete halt. I understand from discussions with lawyers that a pharmaceutical invention is regarded as "conceived" when the chemical is visualized and its probable activity identified. I also understand, however, that in some instances the "conception" is not complete until activity is demonstrated-but that under these circumstances the conception may not be that of the person making the biological tests, but rather may be considered to be that of the person who visualized the product and its probable activity that is later demonstrated to exist. Since an invention is regarded as "made" under a Government contract when "conceived" during the performance of the contract, it is my understanding that where an academic scientist visualizes and makes a product while under such contract, the invention is likely to be the property of the Government even if a pharmaceutical concern invests far more than the Government in biological tests and other activities. If the biological testing of one or more products shows some promise of useful biological properties, it is necessary to undertake very substantial additional research before a product that may be even tested on humans is obtained. This activity entails some very important and risky decisions. The first decision is that of identifying the family of chemicals that should be made and tested to be sure that the chemical having the greatest desirable activity and the least undesirable activity is found. This is not a simple task. Endless variations in chemical structure are usually possible. A skilled scientist may be able to identify the structural components of the chemical that contribute to the activity and suggest the chemical variations that can most productively be explored. More typically, it is necessary for the chemist and the biological scientist to work in close liaison in preliminary tests directed to identification of the biological effects resulting from variation of parts of the molecule. In any case, an extremely difficult decision must be made in determining just what products should be prepared and subjected to biological tests. This decisional process is part of the new drug development procedures that a pharmaceutical concern is designed to follow. It is particularly suitable for a business concern spurred on by the prospect of an important new drug that can be marketed under patent rights. If the testing of related products stops short of testing the optimum product, the resultant drug will not be the best possible. But if the testing goes beyond the point of diminishing returns, investment is needlessly increased and availability of the drug to the public is needlessly delayed. Decisions of this sort are best made in the environment of a competitive enterprise where wise decisionmaking results in profits and unwise decisionmaking may be economically fatal. MAKING THE PRODUCT The first step in making a product from the invention is to select the compound from among those tested which seems to justify further development. Among factors influencing a selection at this point are: chemical considerations such as difficulty and cost of synthesis on a larger scale, stability, physical form of the chemical, specifications, etc.; biological considerations—such as spectrum of biological activities, absorption, anticipated difficulties from toxicity or metabolic disposition; pharmaceutical consideratons-such as formulation problems that might arise in converting the raw generic substance from the chemist's bottle to a stable, reproducible, functional pharmaceutical dosage form. It readily can be seen that the potential sources of difficulty are numerous and multidisciplinary. If a poor selection is made, this will be an expensive error in judgment because all of the work would need to be repeated if another compound later had to be chosen. After a new chemical is tentatively selected for further evaluation, it is put through the paces of additional safety testing in animals and elucidation of a more complete biological profile. This, if a new compound were turned up as warranting interest because of its ability to lower blood pressure in animals, prior to its first evaluation in man it would be necessary to determine what other things the chemical might do in a wide variety of biological test systems and to conduct additional preliminary safety and toxicity tests. At this point, one is still a long way from knowing whether his new chemical is a drug. If the acute animal tests show now limiting undesirable manifestations, subacute toxicity tests in animals are conducted for about 3 months. If the compound passes this safety test, then one can consider very careful, preliminary, "dose-range" explorations in a limited number of human volunteers. The decision to conduct enough laboratory tests to prepare a compound for preliminary evaluation in man involves the assumption of considerable decisionmaking risk in commitment of resources. Furthermore, the decision as to how much animal work to conduct prior to preliminary evaluation in man is a weighty responsibility for the research and general pharmaceutical management. Additionally, the Food and Drug Administration requires that an investigational new drug application be filed with them prior to the institution of any evaluation of an experimental drug in man. The basic responsibility and the risks inherent to this step nevertheless rest, as they should, squarely upon the pharmaceutical company or submitter of such a new drug. The first and preliminary evaluation in man involves studies which often do not tell us whether the new chemical is active in influencing the disease for which it is of possible interest. Rather, the early investigations are designed to guide subsequent studies from the view of how much of the potential new drug substance can be safely administered to man without inducing limiting, undesirable side effects. These preliminary tests generally are referred to as human "dose-range" studies. These are conducted in human volunteers and by at least two independent, clinical investigator groups. If the new chemical shows undesirable features at this stage, it is dropped from further consideration. As one can see, an appreciable investment has already been made in coming to this point of no further pursuit. If, on the other hand, the compound does not show undesirable characteristicts, it yet remains to be demonstrated that it is effective for the disease condition to be treated. Many factors now enter into the design of steps beyond this point. If a drug potentially will be used as therapy for a chronic disease, it will be administered for prolonged periods of time. In these instances one must begin even more extensive, expensive, and time-consuming, long-range animal toxicity studies to determine the safe dose range of the experimental drug prior to its administration for a significant period of time to humans with the disease. It is self-evident that a drug for treatment of an acute condition such as pneumonia, which would require administration of the drug for a limited period of time, poses a different kind of safety problem than one for treating diabetes, for example, which requires a day in and day out medication for the remainder of the patient's life. The decision to proceed to long-range toxicity studies involves significant calculated risk in the investment of resources. The decision to pursue clinical testing beyond the initial dose range studies commits the company to possible expenditure of very sizable sums of money over several years' time. The company expenditures for clinical studies involve not just internal costs, such as maintenance of a medical department, preparation of clinical supplies, etc., but financial support for external studies by clinical investigators. These external clinical costs include grant supports to the institutions where studies are to be conducted and reimbursements for the large numbers of often expensive clinical laboratory tests used to monitor the effects of the drug on the volunteer patient. Investigators of high caliber sought to conduct clinical studies of this kind also may be carrying on other research programs for which some financial support may have come grom philanthropic sources, or from local, State, or Federal agencies. Total isolation or segregation of every aspect of every projects by an investigator on the basis of source of funds is virtually impossible. It would cut off from the industry the services of many leading clinical investigators if the proprietary position in the company's drug were to be usurped by the Government whenever any part of the investigator's or institution's support of a drug study were associated with Federal funds. Here the policy respecting Government-financed research by academic scientists again impinges on the development and marketing of new drugs. The pharmaceutical concern must be able to use the facilities of the academic clinical investigator. It cannot do so if the consequence of using these is to lose the patent rights that are essential to marketing of the proposed new drug. While I do not believe that-aside from exceptional cases-any present practice relating to Government-financed research contracts threatens the pharmaceutical concern in this respect, any continuation of the recent trend toward everincreased Government claim of rights may well do so. If this occurs the consequences will be disastrous to new drug development and marketing. After collecting considerable amounts of data from animals and from human clinical work with a new experimental drug, one usually has an accumulation of encouraging and discouraging information which requires evaluation. There is no such thing as an ideal drug. No drug is without some shortcomings or limitations. Yet, if we are to be practical and make step-by-step advances in medical therapy, we must make realistic compromises with the ideal and in light of the best medical judgment determine whether the evaluated data from a new drug shows sufficient advantages to outweigh its limitations and justify its use in treatment of a disease. The company management once again must make a high-risk decision. Do the overall characteristics of the investigational drug merit its market introduction as a product? Errors in judgment escalate in costliness as a drug development program moves closer to the product stage. A new drug application filed with the Food and Drug Administration may require several years to clear. During this time, the company has considerable money spent which earns no income and in practice, usually continues to spend money on additional studies. Finally, that rare day may dawn for a pharmaceutical company on which it receives approval of its new drug application. To reach this point, an average of 5,000 compounds were prepared, studied, and discarded by the industry before the one became an acceptable, marketable product. CONDUCTING A PHARMACEUTICAL BUSINESS Having a new product is an exciting situation for any company. This is particularly true in the pharmaceutical industry. Having a product, however, does not guarantee that it will form the basis of a profitable business. The company may be compelled to make a major investment in a new factory installation to manufacture the drug substance. Pharmaceutical production facilities may need to be designed or added for manufacture of the product. Quality control, packaging, distribution, and marketing efforts are required. These costs are particularly high during the early periods of new product introduction. To these costs and problems one must add the ever-present possibility the drug just won't be a market success for any of several reasons. Furthermore, in a highly competitive industry, who knows how soon and from what direction a new product will appear which overnight will make yours obsolete? STEPS IN THE DEVELOPMENT AND MARKETING OF A NEW DRUG FROM THE NORMAL LIMIT OF GOVERNMENT-FINANCED ACTIVITY IN MAKING COMPOUND WITH SOME ACTIVITY TO FIRST MONETARY RETURN There are, of course, endless variations in the sequence of steps leading to a marketable new drug. General indications of what takes place may nevertheless be helpful to your committee in visualizing what occurs. I have accordingly attached hereto an outline of steps in the development and marketing of a new drug. The outline extends only from the point at which a chemical is found to have an interesting biological activity to the time of first sale of the drug that ultimately results. The total elapsed time could range from 4 to 8 years. The total investment could fall in the range of from about $2 to $12 million. These are not absolute limits, but do represent the ranges usually encountered today. All of this investment must be made on a further risk basis in the light of the chance that a competitor will market an equal, or better, drug during this developmental period or shortly thereafter. The pharmaceutical concern must have patent rights to justify this investment. The Government investment in a potential new drug rarely extends beyond the point where it has been made by an academic scientist and some biological activity shown to exist (a demonstration that usually occurs in the laboratories of a pharmaceutical concern, to whom the compound has been given for this purpose). If the matter is dropped at this point, there is no drug suitable for marketing. If the matter is pursued, as illustrated in the outline, millions of dollars must be invested before there is any return. Such investment cannot be justified without patent rights. The initial Government investment in the making of the compound-perhaps only $10.000-is far outweighed by the investment of the pharmaceutical concern. It follows that Government policy should be based on leaving to the contractor in such instance sufficient patent rights to enable it to grant rights to the pharmaceutical concern adequate to support investment necessary to bring the product to the point of utilization to the benefit of mankind. One product having some pharmaceutical activity as tested in biological laboratory. (For every such compound, pharmaceutical concerns make and test many compounds. Where an academic scientist has made the compound, he may fortuitously hit upon one with some activity. If the academic scientist has been supported by the Government to any extent, the support does not normally extend beyond the point of having made such a compound.) Synthesis of 25-100 related compounds for test and determination of optimum chemical; $50,000 to $200,000 invested by company. Biological screening of 25-100 compounds; $15,000 to $50,000 invested by company. Full biological laboratory profile of compound selected as optimum; $50,000 investment. Preliminary, 3-month, animal toxicity tests; $10,000 investment. Metabolism and biochemistry studies; $50,000 investment. Pharmacy research and development; $50,000-$100,000 investment. Human dose-range studies; $15,000 investment. Long-term animal toxicity tests; $60,000 investment. Pre-new-drug application human evaluation of drug; $25,000-$1 million investment. Processing of new-drug application; $100,000 investment. Introductory supplies, production facilities, marketing; $5 million investment. First sale and monetary return If drug is successful, and is not displaced too soon by an even better drug, the monetary return will be adequate to justify the investment made on the drug, together with investments made on unsuccessful drugs. Total elapsed time from first compound with some activity to first monetary return: 4 to 8 years. Total investment from first compound (and normal limit of any actual Gov ernment financed activity) to first monetary return: about $2 million to about $12 million. APPENDIX A STATEMENT OF QUALIFICATIONS, DR. CHESTER J. CAVALLITO I received a bachelor of science degree in chemistry from Rutgers University in 1936. My doctor of philosophy degree was granted by Ohio State University in 1940. My field at this time was organic and physiological chemistry. In connection with work leading to the Ph. D. degree I also served as teaching assistant in the physiological chemistry and pharmacology laboratories in the medical school at Ohio State University. Following receipt of my Ph. D. degree, I worked for 1.5 years at Goodyear Tire & Rubber Co. My work there dealt with the techniques for preserving food using synthetic polymer films such as Pliofilm as protective agents. After this I spent some 9 years at Sterling-Winthrop Research Institute, engaged in research work in the field of pharmaceuticals. Since January 1951 I have been director of research of Neisler Laboratories, Inc. (formerly Irwin, Neisler & Co.), of Decatur, Ill., which this year became a subsidiary of Union Carbide Corp. I have served as secretary and as chairman of the Division of Medicinal Chemistry of the American Chemical Society and am a member of the editorial board of the Journal of Medicinal Chemistry. I have made presentations and have lectured in the filed of organic chemistry, drug mechanisms, and chemical pharmacology at meetings and at universities, both here and abroad. I have served as lecturer in the Department of Pharmacology at the University of Illinois College of Medicine. At present, I am serving on the Chemical Advisory Board for Walter Reed Army Institute of Research. I have authored approximately 70 scientific publications, and have received over 30 U.S. patents. I am a member of Phi Beta Kappa and Sigma Xi honorary fraternities. In addition to the American Chemical Society, I am a member of the Chemical Society (London), the American Association for the Advancement of Science, the New York Academy of Science (fellow), and the American Society of Microbiology. NEW JERSEY PATENT LAW ASSOCIATION, Re hearings June 1 and 2 on Government patent policy. Hon. JOHN L. MOCLELLAN, Chairman, Subcommittee on Patents, Trademarks, and Copyrights, Committee on the Judiciary, U.S. Senate, Washington, D.C. DEAR SENATOR MCCLELLAN: The New Jersey Patent Law Association has reviewed the provisions of S. 1809 and S. 1899 which are to be considered by your committee at the hearings to be held next week. Our association believes that your bill S. 1809, the Federal Inventions Act, is a very statesmanlike handling of this extremely important subject. In the opinion of our association, S. 1809 is an excellent bill which provides full safeguards to the Government and the public while permitting a degree of flexibility to the Government agency head to administer the patent rights provisions in Government contracts to best serve the public interest. We believe our national policy must be flexible because of the diverse types of Government research. In some cases where a field of research has been wholly Government funded and the contractor brings no private background to the contract work or where the research objective is to develop items for use by the public, for example, civil defense or public safety equipment, Government retention of title to Government-sponsored inventions may be desirable. In other cases where the research is primarily directed toward governmental activities but the Government wishes to encourage, but not support, future development in commercial areas, granting greater than nonexclusive rights to a contractor may be essential to encourage later private development. We believe that to develop commercial uses at private expense of most inventions requires more than nonexclusive rights for the person who is to make the developments. Extremely large sums of money are required in most instances to develop a new product to its commercial stage. Only if a company can recover its development expenses and have some hope for a reasonable profit on the products which it sells, will it be willing to take the great risks involved in attempting to commercially develop a new product. We believe that S. 1809 accomplishes the desired objectives of fully protecting the Government on inventions developed under Government contract yet at the same time, it gives a flexibility which will permit and in fact encourage, contractors to develop for commercial uses inventions which may have been made under or in connection with a Government contract. We have two minor suggestions, however, which we should like to have considered in connection with S. 1809. Section 2(g) appearing on page 3 of your bill, defines when an invention has been made. We believe that the words "in the course of or under" the contract could be misinterpreted to imply that inventions made during work performed by a contractor not under the contract but which may be in a related field should be considered as coming within the definition when an invention is made. We believe that this could be clarified by changing the words "in the course of or under" to "in the performance of work called for or required under." Without this clarification, a contractor might be inclined not to accept Government contracts in fields in which he is already doing commercial work (which fields, of course, would be where he would have his greatest capabilities). Our other suggestion regards section 4(a)(2) on page 7 of your bill. It refers to contracts for exploration into fields which directly concern the public health, welfare, or safety, and we believe it could be misinterpreted by contracting officials as applying to almost any contract which the Government might award. Almost anything which the Government gets involved in does in one way or another directly concern the public health, welfare, or safety. Therefore, we respectfully suggest that this section be expanded by setting forth those specific types of contracts which you would feel directly concern the three broad categories referred to in section 4(a)(2). Thus, for example in the field of public health, illustrative examples of such contracts would be those for developing means for curing and preventing diseases, matters related to sanitation and sanitary facilities, and improved food products for use by undernourished segments of our population. |