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Biotech Industry Sees Potential In Ethics Rules

By Michael S. Rosenwald
Washington Post Staff Writer
Thursday, February 3, 2005; Page E01

Venture capitalists, entrepreneurs and state officials say strict new ethics rules governing National Institutes of Health researchers could prompt many of them to leave for private companies -- a potential boon for the region's biotech sector.

"I think this ban will encourage people to leave, those especially who have a lot of interaction with drug companies and are currently in a position to receive a lot of money" from private companies, said Bruce D. Weintraub, a former NIH researcher who left and co-founded Trophogen Inc. in Rockville.

Proximity to NIH, such as the Mark O. Hatfield Clinical Research Center, is considered a key part of attracting biotech firms to Montgomery County. (Lucian Perkins -- The Washington Post)

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The same theory found favor yesterday at the Maryland Department of Business and Economic Development, where officials anticipate the new rules -- so detailed they will force thousands of employees at NIH's Bethesda campus to sell stock they hold in the biotech industry -- will push some government researchers to start their own businesses.

"We're still trying to figure this out, and part of me says this could spawn new companies," said Chris Foster, the agency's deputy secretary. "This may be a good thing. We are really focused on entrepreneurship. This plays right into that."

Word of the new restrictions began circulating several months ago following reports that hundreds of NIH researchers had entered into lucrative consulting arrangements with private businesses. Agency observers worried at the time that if the rules designed to cure that perceived conflict of interest were too strict, it could cause an agency brain drain.

Those worries intensified this week when the rules were announced. They include a strict ban on consulting work for biotech and drug companies, a prohibition on accepting fees for speaking at conferences, and a mandate that researchers divest their stock holdings in biotech companies. The latter requirement in particular produced several contentious moments yesterday at a meeting between senior NIH officials and researchers.

"These researchers are just not as well compensated as they should be," said John W. Holaday, a former government researcher who launched Rockville's EntreMed Inc. "This might drive creative scientists right out of the NIH. They'll . . . do this work on their own."

Jonathan Aberman, a lawyer with Mintz Levin Cohn Ferris Glovsky and Popeo P.C. who handles venture capital transactions in the biotech sector, said: "These researchers won't be able to have their cake and eat it too. This may lower the bar for many of them to enter the private sector."

While the NIH's loss could be industry's gain, regional biotech executives also worried yesterday that the restrictions will chill the relationships between government and for-profit researchers. Proximity to NIH has been a key selling point for Montgomery County as a biotech center. "Will people think twice about picking up the phone to call someone at the NIH? I think they will," said Holaday, who recently co-founded HarVest Bank of Maryland, which focuses on biotech clients. "This does dampen the free exchange of information between public labs and commercial companies. Any time you do that you deteriorate the ultimate opportunity for everyone."

At the same time, NIH officials and biotech executives stressed that the new restrictions won't affect common agency and private-sector relationships, including collaborative research agreements that often result in royalty payments to the NIH and specific inventors at the agency if a company brings a resulting product to market.

GenVec Inc. of Gaithersburg has a similar relationship -- a collaborative research and development agreement, or CRADA -- with an NIH division for the development of an HIV vaccine. As part of the agreement, the NIH is sponsoring, managing and funding human testing. Agency and company scientists also work together.

"These new rules basically have nothing to do with us because we don't use NIH people as consultants," said GenVec chief executive Paul H. Fischer. "We have these specific relationships with the NIH. A lot of companies have these."

Those collaborations are the lifeblood of many biotech companies and specifically of start-up firms, which often have limited resources. Intronn Inc. of Gaithersburg, a start-up of about 15 employees, has a CRADA with the NIH's National Cancer Institute to develop a treatment for cervical cancer.

"We provide resources and they provide resources," said Gerard J. McGarrity, Intronn's president and chief executive.

Samuel Broder, the former director of the National Cancer Institute and now chief medical officer at Celera Genomics in Rockville, said companies and the NIH will have to focus now on cooperating under CRADAS. "We have to work hard to stay within the boundaries that already exist," Broder said.

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