Hoffmann–La Roche’s AIDS scientists weren’t alone in dealing with executive suite problems. As the winter of 1991 melted into a typically slushy Chicago spring, the handful of researchers working on Abbott Laboratories’ protease inhibitor project suddenly found themselves operating in an environment dominated by corporate scandal.
Abbott, one of the largest employers in the suburbs north of the city, took pride in its conservative ways. Its sprawling Abbott Park campus had expanded steadily in the postwar years, fueled more by marketing acumen than a drive to produce medicine. The company traced its origins to a family-run pharmacy started by Wallace Calvin Abbott on the north side of Chicago. A physician who had migrated to the Windy City from Michigan, Abbott began mixing his own medicines after becoming frustrated by the poor quality of the available supplies of morphine, quinine, and strychnine that were the mainstays of his turn-of-the-century medical practice. He soon began peddling his concoctions to fellow physicians.
His big breakthrough came during World War I and ushered in the company’s long history of involvement with government programs. The war disrupted trade between the United States and Germany, then the undisputed leader in pharmaceutical development. To provide the latest painkillers to American soldiers wounded at the front, the United States seized the German patents on novocaine and barbital and awarded them to Abbott as a wartime emergency measure. Abbott asked University of Illinois chemists to develop a process for making the painkillers in bulk. The company rapidly expanded through wartime contracts.
Shortly after the war, one of the young doctoral candidates who had worked on the project, Ernest H. Volwiler, joined the company. Volwiler went on to become research director and president. Under his direction Abbott emerged as a leading manufacturer of anesthetics and was best known for developing sodium pentothal, the so-called truth serum. The company also bought out the nonprofit Dermatological Research Laboratories of Philadelphia, which during World War I had been awarded the nationalized patent for Paul Ehrlich’s process for making arsphenamine, the first cure for syphilis.
World War II gave the company another financial shot in the arm. It won a government contract to make penicillin and worked closely with the Agriculture Department’s new research lab in Peoria to develop the process. Ten days after Pearl Harbor, Robert Coghill, chief of the fermentation division at Peoria, briefed the chief executives and research directors of Merck, Squibb, Pfizer Inc., and Lederle about the breakthrough processes developed in his lab. They, like Abbott, became penicillin suppliers. After the war, Abbott recruited Coghill to run its research division, where he stayed until 1957, when he returned to the government to run the National Cancer Institute’s chemotherapy program.1
Though its roots were in pharmaceuticals, the company never developed a full range of drug products that might have made it a major player in the field. During the booming postwar years, it chose instead to diversify into other lines of business. In 1964, it purchased Ross Laboratories, which had developed the first infant formula. With Abbott’s marketing savvy, Similac became the leader in its field, and the nutritionals division became Abbott’s biggest money maker. The company also expanded into hospital supplies such as intravenous feeding systems and disease diagnostic kits. Its AIDS test, licensed from the National Institutes of Health (NIH) in the mid-1980s, was one of dozens in its salespersons’ bags. When John Erickson began pushing the company to jump into AIDS drug discovery, pharmaceuticals represented less than one-fifth of company sales.
During the business-friendly 1980s, the company was run by Robert A. Schoellhorn, who had joined the firm in 1973 after a twenty-six-year career with chemical maker American Cyanamid. Abbott’s bottom-line oriented board recruited Schoellhorn because of his reputation as a tough manager. But to their consternation, he became better known as an overbearing manager with a lavish corporate lifestyle. Schoellhorn’s tenure was marked by a steady exodus of executive talent as frustrated potential successors abandoned ship. The nation’s biotechnology industry in its start-up years used Abbott’s executive suite like a minor league farm team: James L. Vincent left in 1980 to become chairman of Biogen, George Rathmann left that same year to become chairman of Amgen, and G. Kirk Raab left in 1985 to become president of Genentech.
While strife-torn Abbott came up with a handful of new prescription medicines in the 1980s, its research efforts were puny and ineffective compared to industry giants like Roche, Pfizer, and Merck. Like many companies with unproductive research staffs, Abbott went shopping for promising drug candidates. But unlike firms that look to Wall Street for buyout targets, Abbott under Schoellhorn took what at the time was the unprecedented step of looking abroad. In 1988, the company entered into a joint venture with Takeda Chemical Industries to test and market drugs developed by Japan’s largest pharmaceutical manufacturer. The joint venture, dubbed TAP Pharmaceuticals, ignored the rising national concern about U.S. competitiveness vis-à-vis Japan, which was then at the height of its financial bubble. If you can’t beat them, join them, Schoellhorn seemed to be saying as he jetted around the world. Indeed, at the same time that he was slashing domestic research-and-development budgets to meet his profit targets, he ordered a new $25-million Gulfstream, complete with custom-made seats.
The final straw for the board of directors came in August 1989, when Schoellhorn pushed out Jack W. Schuler, a highly touted Stanford Business School graduate who had been hired as the combative chief executive officer’s third chief operating officer. The move triggered a slew of hostile articles in the financial press. “Schoellhorn rarely brooks dissent and bridles when a talented manager gets too close to the seat of power,” Business Week concluded after interviewing a score of former and current top officers. “Schuler never cared much for Schoellhorn’s rigid 15-percent-profit target and argued against cutting research-and-development spending.”2
Schuler left his mark on the firm, though. One of his last moves was recruiting Ferid Murad from Stanford, his alma mater. Murad, a noted academic researcher who would eventually win the 1998 Nobel Prize for medicine, was a physician by training. He was born in 1934 to an Albanian immigrant who ran an all-night restaurant in the shadows of the Standard Oil refinery in Whiting, Indiana, which is just outside Chicago. Looking for a profession where he wouldn’t have to work as hard as his father, he chose medicine and enrolled in Cleveland’s Western Reserve University (now Case Western Reserve). His father’s work ethic stuck, however, and his medical school performance earned Murad a prestigious internship at Massachusetts General Hospital, where he studied under, among others, Edward Scolnick, who would go on to NIH before becoming Merck’s top scientist. Murad soon followed Scolnick to Bethesda for a postdoctoral fellowship at the National Heart Institute. The stint taught him how to navigate the grant-making politics of NIH, leading the University of Virginia to recruit him in 1970 to launch a clinical pharmacology program.
Murad did his most significant scientific work while at Virginia, identifying how nitric oxide acted as a cell signaling mechanism for the cardiovascular system. The Nobel-quality science laid the intellectual groundwork for the development of erectile dysfunction drugs like Viagra. He moved on to Stanford and was continuing that research when Schuler made what seemed at the time to be a very attractive offer. “I enjoyed the access to all of Abbott’s resources, scientific staff, instrumentation, and what initially seemed like an unlimited research budget,” Murad wrote in his Nobel autobiography. “I eventually learned that one can never have enough resources when one looks for novel therapies of major diseases.”3
It didn’t take long for Murad to bump into the glass walls of the corporate fishbowl he had jumped into. Within months of his arrival, Schuler, the man who had brought him to Abbott, was gone and the company was wracked by high-level intrigue among a board of directors intent on ousting Schoellhorn. Murad had to devise a strategy to avoid being pulled under by the tempest. His solution was simple. He kept his more controversial programs—like the AIDS program that Erickson, the academically inclined X-ray crystallographer, was just getting underway—under the radar screen of top management. When Erickson came to him with his early models of the HIV protease and a strategy for going after drugs to inhibit its action, Murad said, “Fine, but let’s not make a big deal out of it.” He later described Abbott as “a very conservative place. There were several projects I thought important [but] they didn’t want to pursue. They were not very excited about the HIV program initially, and that’s why we didn’t talk about it.”4
Murad dubbed the protease inhibitor program a pilot project and encouraged Erickson to pursue an NIH grant to hire postdoctoral researchers to supplement the meager bench support he could offer the young scientist. Murad won similar grants for a number of Abbott drug development programs. At the peak of the program in the early 1990s, Abbott had thirty-five NIH-funded researchers on staff. The cooperative research programs ended shortly after Murad’s departure in 1993.
Shortly after the first government-funded postdocs came on board in the fall of 1988, Dale Kempf and his small chemistry team began making progress in the search for a protease inhibitor. He rejected suggestions from higher-ups that he blindly test chemicals that had been synthesized as potential renin inhibitors against the HIV enzyme. All the major companies that had renin inhibitor programs would be using the same strategy, Kempf figured. Moreover, they had far more chemists and resources than Abbott was ever going to give him. A colleague stopped him in the halls one afternoon and put an arm on his shoulder. “My condolences, Dale, I hear Merck has thirty chemists on its HIV project.”5 He had only three.
Instead of screening, Kempf looked to Erickson’s evolving model of the clamshell-like protease for guidance. He designed symmetric chemicals that in theory would bind to both sides of the enzyme and thereby gum up the works. (Kempf calls protease inhibitors “molecular peanut butter,” a phrase suggested to him by a fourth grader during one of the many grade school presentations he makes about his work.) Whenever his team came up with a chemical that succeeding in binding to the cloned protease, Erickson shipped it off in the overnight mail to the NCI lab in Bethesda, where Hiroaki Mitsuya tested it for activity against HIV in his assays. There was nobody better in the country at conducting such tests since Mitsuya had polished his skills during the cancer agency’s successful hunt for the first generation of AIDS drugs.
Within a few months they hit pay dirt. Unfortunately, Abbott’s first protease inhibitor presented its inventors with huge problems. The molecule was so large that it couldn’t be tested for safety, even in animals. It was simply too big to be safely injected into mammals. A dejected Kempf continued looking for a more soluble protease inhibitor. In the spring of 1990, the Erickson-Kempf team came up with one that they thought was worth sending to human clinical trials. Abbott filed its first protease inhibitor patent in May 1990.
A-77003 (each drug company has its own system for numbering and naming its synthetic chemicals, usually using the first letters of the company’s name with a number) was itself almost useless as a drug candidate. The large molecule was rapidly digested in the gut, meaning it could never be manufactured in pill form. Erickson and Kempf knew they were going to need a better drug, one that wouldn’t have to be injected intravenously. But to come up with something better, they needed to throw more chemists at the task. And to convince top management that it was worth ramping up the program, they had to show that a protease inhibitor—any protease inhibitor—would eventually be a viable alternative to AZT as an AIDS drug. At that point, no protease inhibitor had ever been successfully tested in humans.
Erickson again turned to the government for help. In the fall of 1990, he set up a meeting between his Abbott team and every top official at NIH involved in the fight against AIDS. Anthony Fauci, who had primary responsibility as head of the National Institute for Allergies and Infectious Diseases (NIAID), was there; so was Broder, chief of NCI; Dan Hoth, head of the AIDS Clinical Trials Group (ACTG); and Bruce Chabner, who was heading the drug discovery unit at NCI. “Abbott won’t develop this drug as an intravenous agent, but I need to know if it will work,” Erickson told the small crowd. His plan was simple. He wanted the government to subsidize the cost of testing the drug for its pharmacological activity in animals. He also needed help in developing it into a form that could be injected into humans. With those two steps out of the way, he would then have the results needed to convince Abbott’s top management to fund the scale-up and production of the drug to do the initial testing in humans to prove the concept. “It would save us all a lot of grief if the protease turns out not to be a very good target,” he told them.6
The government scientists were more than happy to perform the tests for Abbott. From a scientific perspective, it was an extraordinary opportunity to test the first of a new class of drugs that had been specifically designed to combat AIDS. They also thought they had every right to be part of the trials. Abbott’s protease inhibitor had been developed with the help of federal grants. “We wanted to collaborate on clinical trials,” Hoth said. “We thought they had good science and a promising drug. Their research people were outstanding.” The result of the meeting was an agreement to let NCI do the initial animal testing on Abbott’s new drug.7
Murad and Erickson were overjoyed. The agreement allowed them to pursue their exciting discovery while maintaining the program’s low profile inside the firm. But their glee would be short lived. A few months after Schuler’s departure, the company’s board of directors, fed up with Schoellhorn’s constant upheavals, stripped him of day-to-day responsibilities and installed Duane Burnham, the chief financial officer, as chief executive. Schoellhorn wasn’t one to accept public humiliation without a fight. Throughout 1990, the board and its former chief executive officer engaged in a high-profile court battle. Schoellhorn accused the board of acting like a “rogue committee,” while the board lawyers suggested he had “repeatedly misappropriated the company assets,” including the installation of company-owned artwork in his home. The board’s new man, Burnham, was a bean counter through and through, and a micromanager to boot. Besides limiting the ostentatious expenditures of the Schoellhorn reign, he began scaling back the aggressive moves Schuler had made in research and development.8
Erickson saw the handwriting on the wall. A company that for a few years under Schuler and Murad had allowed him to move unimpeded through the wilds of early-stage drug research was now going to concentrate on bringing the few drugs in its pipeline to market. Erickson’s future at the firm would be managing those projects toward completion, not cutting-edge drug design. During one of his frequent trips to Bethesda, he voiced his concerns to the senior scientists at NCI. They suggested an alternative. Why not join NCI to set up a government-run X-ray crystallography department?
The top scientists at NCI were excited at the prospect of snaring Erickson. It would bring the government agency one of the nation’s top scientists in X-ray crystallography, a man who also had industrial experience designing drugs with the latest technologies. Broder got directly involved in recruiting Erickson. A few months earlier, he had convinced several top cancer researchers to return to the government fold after short stints in industry. It was part of the NCI chief’s high-profile campaign to reverse the brain drain that usually saw scientists leave NIH for better-paying industry jobs. “We still have considerable difficulty in recruiting senior-level scientists and clinical researchers,” Broder said. “Government service as a calling just doesn’t seem to have the same force that it might have had in another era.”9 He wasn’t just concerned about rebuilding the government’s public health service. Broder was still seething over Burroughs Wellcome’s snub of NCI’s contributions to developing AZT. His response was to plunge deeper into drug development.
Word of Erickson’s imminent defection soon trickled back to Murad, who had his own contacts in NIH. He implored Erickson to stay. The bearded scientist said he wanted the company to commit some chemists to the purely scientific side of his research. Erickson wasn’t interested in just designing drugs, he wanted to perfect his ability to model proteins on his computers. Murad, a brilliant research scientist himself, understood the instinct, but there was no money in his budget for that kind of pure science endeavor, he told Erickson. In January 1991, the crystallographer left Abbott to join NCI.
By itself, the defection of one high-level scientist in its AIDS research and development department might not have set off alarm bells, especially at a company preoccupied with dumping its chief executive officer. But Abbott’s North Shore soap opera was about to take a more ominous turn. In February, local police arrested Seymour Schlager, a physician earning $140,000 a year as head of Abbott’s AIDS clinical research, for attempted murder after he tried to smother his wife with a plastic-encased pillow in his spacious Highland Park home. She escaped and ran screaming down the quiet residential street of their tony suburb. Within days the local papers’ gossip columns were filled with tales of Schlager’s affair with his twenty-four-year-old assistant. His lawyers would later claim job stress led to a mental breakdown. An unsympathetic judge eventually sentenced him to thirteen years in prison.
Schlager was indeed in a stressful position in the early months of 1991. He had been overseeing the testing of clarithromycin, an experimental antibiotic that top company officials hoped to turn into a blockbuster drug. Abbott researchers had been testing the drug against a range of serious respiratory infections. One of those infections was mycobacterium avium complex, or MAC, which struck down more than half of AIDS patients after their immune systems collapsed. Clinical trials in Europe had already documented clarithromycin’s value in combating MAC. However, trials in the United States were moving slowly because Abbott was aiming for much wider labeling for the drug than just its AIDS-related use. Radical AIDS activist groups were outraged that the company put its sales strategy ahead of the well-being of people who were dying. They demanded that the company immediately make the drug available even though it was still in clinical trials. Schlager was the company’s point man in that controversy. A few weeks after his arrest for attempted murder, activists belonging to the AIDS Coalition to Unleash Power, or ACT UP—the most militant of the AIDS groups—began picketing the company’s offices in San Francisco. Their demand: immediate access to clarithromycin.
Once the controversy hit the newspapers, Abbott’s top management and its corporate public relations staff got involved. The company issued a press release offering to make the experimental drug available to very sick patients in an expanded access program, but only after it had obtained more data from studies that were then underway at Johns Hopkins University under the auspices of the government’s ACTG program. Outraged AIDS activists in Los Angeles, New York, and San Francisco began organizing patients into so-called buyers clubs. The clubs smuggled Abbott’s most promising new drug into the United States from Europe, where it was not only available, but sold for far less than what the company planned to sell it for in the domestic market. If Abbott’s top officials hadn’t been paying close attention to what was going on in their AIDS program before, they certainly were now.10
Andre Pernet, a career manager at the firm with a background in chemistry and chemical engineering, was brought in to begin sifting through Abbott’s AIDS programs. What he found didn’t please him. The ACTG, increasingly sympathetic to the AIDS activists, was pushing the clarithromycin trials in directions the company didn’t want to go. Furthermore, tests on the most promising new class of drugs to combat AIDS to come along in years—represented by their first protease inhibitor, A-77003—were being performed in government labs.
Throughout 1991, NCI scientists in Bethesda conducted the experiments on A-77003 that Erickson had requested during his last months at the firm. They developed an intravenous formulation, tested it on mice and rats for toxicity, and then used those tests to establish a range of potentially appropriate doses for humans. Meanwhile Kempf and his team continued looking for better versions of the molecule. In the fall he came up with one. But he needed more chemists to perfect it as well as to make sufficient quantities of the first one for the upcoming clinical trial designed to prove that a protease inhibitor—any protease inhibitor—could work in humans. From research’s point of view, everything was coming up roses. Pernet’s review—conducted over the same months—reached a similar conclusion. Abbott’s protease inhibitor search was about to turn into a major program. The last thing Pernet wanted was the government’s fingerprints all over the company’s new drug.
The government, in industry’s eyes, had become an unreliable partner. By mid-1991, AIDS activists’ outrage over the price of AZT was at a fever pitch. To industry executives, it seemed like NCI scientists had intervened on the activists’ side by insisting on proper credit for their role in discovering the drug. In July, Bernadine Healy, who had just been named director of NIH after a research career at the Cleveland Clinic, threw the weight of the federal agency behind the activists. She granted generic manufacturer Barr Laboratories a conditional license to manufacture and market AZT. The only caveat was that the license depended on Barr making the government a coowner of Burroughs Wellcome’s patent, which the company was pursuing in court.
Healy’s decision on AZT reflected national concerns about the rising cost of health care. The Democratic-controlled Congress that summer jumped on the issue of skyrocketing prescription drug prices with highly publicized hearings on the price of Taxol, a cancer-fighting extract from the bark of the Pacific Yew tree. The drug was one of the great success stories of NCI’s long-standing program for screening natural products from around the world for their anticancer properties. But once government researchers discovered Taxol and turned it over to Bristol-Myers Squibb for marketing, the company charged a fantastic markup for the extract. Congressional Democrats, who planned to make high drug prices a major campaign issue in the 1992 elections, argued that a so-called reasonable pricing clause that had been inserted in the contract the government signed with Bristol-Myers Squibb gave it the right to reduce the high price placed on the drug. NIH had begun inserting such clauses in its contracts with industry in 1989 in response to the public outcry over the cost of AZT.
The Taxol and AZT debates set off alarm bells in drug company boardrooms across the United States. Pernet called NCI’s Chabner, who was overseeing the animal tests on Abbott’s experimental protease inhibitor. He demanded a meeting in Bethesda to discuss the terms of the company’s arrangement with the government. The meeting took place in November 1991.
Abbott brought out the big guns. While Pernet and Murad were present, Paul Clark, president of the pharmaceutical division, ran the show. He brought along the company’s chief corporate counsel for legal support. Chabner and Hoth, representing the clinical testing wings of NCI and NIAID, respectively, were stunned by the presentation. “It was Clark’s meeting,” recalled Hoth. “The legal counsel advised that this was a risk. They could invest in all this research, and the government could march in. Clark said, ‘We can’t afford to take that risk.’ ”11
The company team informed the government scientists that Abbott planned to go abroad to test its new drug and wanted all tests done at Abbott expense. “The evolution of industry/government relationship and the decision at Abbott to initiate a global development have forced us to consider a new basis for the relationship,” Pernet said in a follow-up letter. The company would allow a joint scientific development board to oversee testing. But that board would have an Abbott scientist as its head, and he would have to sign off on any clinical protocols. The first tests would be done abroad because government authorities in some European countries didn’t require government filings for first-stage clinical trials. If NCI conducted any studies that eventually wound up in an application to the FDA, Abbott would reimburse NCI for all expenses. “My only purpose is to direct a concerted worldwide effort that can be executed in a record time and to be sure that Abbott is clearly seen as having funded and executed the development of the drug,” Pernet wrote.12
The company talked about speed. But the issue was price. In 1987, Burroughs Wellcome brought the first AIDS drug to market at a price to patients (or, more typically, insurers and government welfare agencies) of ten thousand dollars a year. But after four years of public protests, the company had been forced to cut its price in half. Coupled with a growing recognition that less could be used to gain the same effect, the company was now realizing less than twenty-six hundred dollars a year from AIDS patients. Abbott wanted to avoid similar meddling with the future price of protease inhibitors. It was bad enough that Abbott’s protease inhibitor patents had to include a clause that stated the government had helped develop the technology and therefore retained “certain rights” over its eventual use. To most corporate officials that meant only one thing: The government might one day step in and set the drug’s price.
There has never been a case where the government has actually marched in and set prices on inventions produced at public expense. Yet the debate over that prerogative has a long and contentious history and became a headline issue after the sea change in U.S. industrial policy that took place in the 1980s as the nation sought to deal with its declining industrial competitiveness.13 The Bayh-Dole University and Small Business Patent Act and the Stevenson-Wydler Technology Innovation Act—both passed in the waning days of the Carter administration—and the Federal Technology Transfer Act of 1986 established a new paradigm for the transfer of government-funded technology from federal labs and nonprofit institutions to industry. The debate over reasonable pricing of government-funded inventions followed in those bills’ legislative wake.
During the 1970s, the U.S. economy suffered its worst economic performance since the Great Depression. Two recessions triggered by oil shortages hammered U.S. industry. Productivity growth rates, which had been better than 2 percent a year throughout the 1950s and 1960s, slipped to just over 1 percent. The economic woes of slow growth and rising unemployment were exacerbated by high and persistent inflation. A new word—stagflation—entered the economic lexicon. Year after year, U.S. companies lost ground to their Japanese and German competitors in markets where Americans had once been preeminent, including automobiles, steel, machine tools, and electronics. Vast swaths of the major cities and towns of the Northeast and Midwest became deindustrialized wastelands. Factories shut down, and their workers were permanently laid off.
Competitiveness gurus in business-oriented think tanks and business schools believed a solution for industry’s waning skills lay in the nation’s universities and federal labs. The United States had the best scientists and technology in the world, they lamented, but their output was left sitting on the shelf because companies had few incentives to commercialize it. The Kennedy administration had created an open-door technology-transfer policy. In 1963, it stipulated that the government would freely license any invention to all comers if it was going to be used by the general public or if the invention involved the public health or welfare. Though President Nixon tweaked the regulations slightly more in industry’s favor, open licensing resulted in most federally funded inventions remaining unused. One study in the late 1970s showed that less than 5 percent of the government’s twenty-eight thousand patents had been licensed. Why would a company spend the money to commercialize a scientific invention if any company could rush in and get a similar license once it became a proven success in the marketplace?
As the stagflation decade neared its end, the political will to change the technology transfer landscape cut across party lines. On October 31, 1979, President Carter called for change in a major address to Congress. Soon after, Senators Birch Bayh, a Democrat from Indiana, and Robert Dole, the Kansas Republican, cosponsored a bill designed to encourage commercialization of inventions made by government-funded researchers. Universities and small businesses would be given the patents to discoveries made on government grants, which they could then commercialize as long as the licensing and royalty revenue were shared with the inventor and the university used its share of the proceeds to further research and education. The proposed law also gave federal agencies that held patents the right to offer industry exclusive licenses on their inventions. The Stevenson-Wydler Act gave the same rights to federal labs run by private contractors.
The bills passed, but not before serious qualms were raised by influential voices in and out of Congress. Admiral Hyman Rickover, the straight-talking commander of the nation’s nuclear submarine fleet, complained that the legislation would benefit large corporations at the expense of small business. Rep. Jack Brooks, a Democrat from Texas, wanted the patents put out for competitive bid. Senator Russell Long, a Louisiana Democrat and the last of a long line of populists from his state, stated the opposition in its boldest terms: There is “absolutely no reason why the taxpayer should be forced to subsidize a private monopoly and have to pay twice: first for the research and development and then through monopoly prices.”
Some protections were built into the bill to assuage the critics. The government retained the right to seize the patent and issue a compulsory license to other manufacturers if it was “necessary to alleviate health or safety needs which are not reasonable satisfied” by the original patent holder. In other words, failure to commercialize an important invention after it had been licensed gave the government the right to “march in” and put it to public use. The law also said that any government-funded invention should be made “available to the public on reasonable terms.” In 1989, with the uproar over the price of AZT and Taxol rising, NIH would interpret these clauses as giving the government the right to set prices on drugs developed by the government or on government grants. It began inserting reasonable pricing clauses in all cooperative research and development agreements with industry, which had been authorized by the Federal Technology Transfer Act.14
The original public debate over the Bayh-Dole Act swirled around competitiveness issues in basic U.S. industries like machine tools, electronics, and autos. The health of the pharmaceutical and nascent biotechnology industries rarely entered into the discussion, even though NIH had long been one of the major agencies involved in technology transfer. Yet in the wake of the bill’s passage, no industries benefited more from the conveyor belt that was set up to move federally funded research from laboratory to industry. The gene-splicing revolution set off an explosion of entrepreneurial activity in the life science departments of the nation’s universities and medical schools. The commercialization orgy transformed their institutional culture. For many researchers, the eureka moment no longer came when they discovered a medical breakthrough. Rather, pay dirt was defined as the moment the scientist issued public stock in the company he had set up to commercialize his NIH-funded discovery.
There were some institutional qualms in the early days of the biotechnology-pharmaceutical entrepreneurial revolution, but they didn’t last long. Stanford professor Paul Berg, a gene-cloning pioneer, initially criticized UCSF professor Herb Boyer’s decision to form Genentech. Yet a few years later he formed his own firm. Walter Gilbert, the Nobel Prize–winning biologist at Harvard, raised a firestorm of criticism when he quit his prestigious post to run Biogen. He retorted: “One half of my colleagues at Harvard are involved in companies in one form or another.”15
Over the years, numerous university officials, bioethicists, and scientists have complained that the gold-rush mentality inevitably riddled academic medicine with conflicts of interest and threatened the independence of basic research. But those voices went largely unheeded. The system of encouraging commercialization of government-funded inventions has now become thoroughly institutionalized. A survey by the Association of University Technology Managers found that institutions of higher education generated $1.26 billion from licensing revenue in 2000, and university technology transfer officers said most of that came from pharmaceutical and biotechnology firms. Government licensing followed a similar pattern. In 1999, a Government Accounting Office survey of the six major federal agencies with substantial licensing activity found NIH with 990 active licenses, or 71 percent of the total. The public health agency generated fully 95 percent of $107 million in royalties the government received from industry that year.16 Despite the fears of Abbott and other pharmaceutical firms that licensed those inventions, the government has never exercised the rights enumerated in the patents issued for all those taxpayer-financed inventions.
Abbott’s plan to distance its protease inhibitor project from its government roots didn’t sit well in Bethesda. Yet NCI’s Chabner, in a letter sent back in early January 1992, agreed to the new terms “in the interest of bringing this promising agent to the clinic as rapidly as possible.” But he put his own twist on the meeting. NCI would continue to collaborate with Abbott under the new circumstances. Abbott could reimburse NCI for the preclinical expenses already incurred if it liked, but it was Chabner’s understanding that future studies would be joint endeavors and that “NCI scientists will direct and monitor these studies as usual.” Abbott could go elsewhere for additional studies, but the joint scientific board proposed by Abbott “will have the opportunity to review all preclinical protocols.”17
In March Abbott brought in a new man to run the clinical side of its antiviral team. John Leonard, who had worked for a small contract research house before coming to Abbott, was under strict marching orders. “We had a decree from our CEO that we would accept no government funding for our work,” he said.18 In one of his initial briefings about the program, Leonard heard stunning news from Kempf, who, with Erickson gone, was heading the science team. Kempf’s chemists had synthesized a third potential inhibitor, a chemical cousin of the first two drugs. But this molecule was small enough to take in pill form. It would eventually be called ritonavir. Keeping the news about the better drug strictly in-house, Leonard began working on its intravenous predecessor to prove the new class would work. He decided to ignore the joint advisory committee that had been set up during the November meeting. He asked Sven Danner, an Amsterdam physician whom he knew from work with his previous employer, to conduct the first clinical trials for Abbott’s intravenously administered protease inhibitor in Europe.
Word soon got back to Hoth and Chabner, who fired off angry letters to Leonard. “I am dismayed to learn that the NCI was not adequately included in the discussions to initiate clinical trials,” Chabner wrote on May 13, 1992. “Based on our written agreement, we expected to be included as a full partner in the efforts to bring this drug to the clinic and were surprised to learn of your plan to delay entry of the drug into testing in the United States.” Chabner reminded Leonard of the studies already conducted by government scientists to bring the drug to that point. “Since government funding was used to conduct the majority of the toxicology and pharmacology studies on this drug, we feel that the AIDS patients in the United States have a right to treatment as rapidly as possible.” He then cut to the chase. “I realize that Abbott has agreed to reimburse NCI for these studies and hope that a suitable mechanism can be developed to accomplish this stated goal. It was not our intention, however, at the start of this ‘collaboration’ to act as a contractor for Abbott. Reimbursement would not eliminate the fact that NCI personnel conceived, monitored, and executed these studies over the last year.” The angry NCI director fired off copies to the top leaders of both organizations: Broder and Fauci at NIH, and Burnham and Clark at Abbott. He didn’t help his cause when he addressed the Abbott chief executive officer as “Dwayne Burham,” misspelling both of his names.19
A month later Leonard fired back. With first-phase safety tests unregulated in Europe, it would be easier to get studies underway there. “This approach will benefit all HIV-infected patients regardless of their nationality,” he wrote. He offered Hoth “a formal line of communication” by allowing an ACTG-affiliated doctor to sit on an advisory committee, but he wouldn’t allow official government representation. “You express that NCI should be a full partner in the development of HIV protease inhibitors based on funding provided to Abbott,” he wrote. “I must emphasize that [A-77003] was discovered by Abbott and is owned by Abbott. The government funding received by Abbott was and will continue to be a small part of the total development costs.” A few weeks later, Abbott sent NCI a check for more than nine hundred thousand dollars to reimburse the government for its expenses for the preclinical work and animal trials.20
With the Abbott-NIH dispute at a fever pitch, NIAID director Anthony Fauci trekked to Capitol Hill to defend the Bush administration’s 1993 fiscal budget request for AIDS research. At the hearing of the House Commerce Committee’s health subcommittee on February 24, 1992, longtime drug industry critic Rep. Henry Waxman, a Democrat from California, wanted to know how much of the $232 million earmarked for government-run clinical trials was going toward combination therapy trials, which he viewed as the most pressing item on the AIDS agenda. Waxman wanted to know if a combination of the anti-HIV drugs that had already been approved by the FDA would be any better for patients than taking just one of the drugs alone. “Was industry a willing participant in those trials?” he asked.
In the early days of AIDS research, it wasn’t obvious that it was going to take a combination of drugs to tame the disease. While there was precedent for combination therapies conquering an infectious disease—tuberculosis was the most famous example—the dream of discovering a magic bullet that would take out HIV lived on, especially inside drug companies.
That wasn’t Hoth’s mindset, though, and he was running the ACTG. The physician-researcher brought years of experience running cancer clinical trials at NCI. “Cancer is all about combination therapy,” he said later after moving on to a biotechnology firm on the West Coast. “One of the things I learned at NCI is that there is a difference between a drug focus and a disease focus. At NCI we had one group focused on drugs and one on the disease, and we’d get together on a regular basis to integrate the two. The ultimate benefit is the merger of those two things,” he explained. “Early on I created that dual focus in the AIDS division. We needed people who didn’t have an allegiance to any particular drug.”21
In mid-1991, the second NCI-discovered nucleoside reverse transcriptase inhibitor—Bristol-Myers Squibb’s ddI—was approved by the FDA. More were on the way. There was also a non-nucleoside reverse transcriptase inhibitor (NNRTI) in the drug approval pipeline. Progress was being made on the protease inhibitor front. To Broder and his colleagues at NCI, the future seemed clear. Writing in the Journal of the Federation of American Societies for Experimental Biology, they predicted, “Before long, combination therapies using multiple antiretroviral drugs will be available. Such therapies will exert major effects against the morbidity and mortality caused by HIV.”22
Indeed, the first combination trials were already underway under ACTG auspices. As early as June 1990 at the sixth International AIDS Conference in San Francisco, Margaret Fischl of the University of Miami and Douglas Richman of the University of California at San Diego had presented preliminary data from ACTG 106. The study was designed to come up with proper dosing when combining AZT and ddC, which NCI had just licensed to Roche for clinical trials. The early results were heartening. Not only was the combination safe enough to take, it appeared to increase the number of infection-fighting white blood cells (scientifically known as CD4 lymphocytes) in the fifty-six patients in the test. The researchers began enrolling patients for a much larger study, ACTG 155, designed to prove once and for all that two drugs were better than one.
Waxman, with the backing of the AIDS lobby, wanted the ACTG to do more. He grilled Fauci at the 1992 hearing. “Is it your professional judgment, then, that if we don’t fund this work of combinations to see how well they work that the private sector will not take up that slack?” Fauci had years of experience trekking up to the wood-paneled hearing rooms of the Rayburn Building to parry questions from politicians who almost always had less than perfect information. He was a master of employing the Beltway dodge, especially when a clear-cut answer would offend some powerful special interest. But his recent experiences with the pharmaceutical industry had left a sour taste in his mouth, and his answer that day was more straightforward than usual. “It has generally been our impression that drug companies and pharmaceutical corporations are less likely to want to push or support a trial that compares one drug with another, one of which is theirs and another of which is not theirs,” he responded. “And that’s one of the reasons and the rationale for the AIDS Clinical Trials Group to study combinations as well as study those kinds of drugs that may not necessarily be of great commercial interest to a company but would be of some public health impact on the disease.”
Unlike Abbott and Roche, which were attempting to get by on shoestrings, Merck was pouring substantial resources into the AIDS fight. After its first protease inhibitor proved toxic, the company’s research team began focusing on NNRTIs. Scientists knew why nucleosides worked. They bound to the last link on HIV’s DNA chain as it reproduced and brought the additive process to a crashing halt. But no one knew how or why non-nucleosides worked. As a result, all the companies pursuing NNRTIs had to use traditional medicinal-chemistry means to come up with drug candidates—in other words, massive screening. It was labor intensive work, and at Merck it was run by Emilio Emini at the company’s sprawling research and manufacturing complex in West Point, Pennsylvania. Spurred on by top management’s desire to do something about this dread disease, they hired more people and then hired some more. They expanded the existing containment lab, and when that filled up they built a new building. In the early 1990s, Merck had sixty chemists working on AIDS research and three times that number of support staff. “We were into hundreds of people by that stage,” Emini recalled.23
The company screened an estimated twenty-three thousand compounds in pursuit of the elusive NNRTI, finally coming up with one in early 1991 that inhibited viral replication. The company’s chemistry team made four analogues of the compound and, contrary to customary Merck policy, sent them all into first-stage clinical trials, which are designed to establish safety and a proper dosing level. Early safety trials also determine whether there is enough evidence of efficacy to justify further testing. Though chief executive officer Vagelos and research director Scolnick, both veterans of NIH, were firm believers in keeping the government at arm’s length from their chemistry labs, they had no problem cooperating with the ACTG when it came to clinical trials. Trials on L-661 (the most promising NNRTI candidate) were conducted at NIH and at the University of Alabama in Birmingham, a major ACTG site. The company also had trial sites in Brussels, Amsterdam, and Frankfurt.24
The firm had another partner in the process: the AIDS activist community. While most drug companies involved in AIDS research found themselves at one time or another in nasty confrontations with the activists, Merck from the outset tried to assuage the industry outsiders. Responding to repeated demands for information about their research, Merck top officials instructed their government and public relations officers to keep the activists informed. What they got in return was a steady stream of desperate applicants anxious to participate in their trials, and advice in designing those trials. “We developed a substantial amount of respect for each other,” Emini said.25
In early November, Emini and the company’s top clinicians met with AIDS activists to share the results of the first NNRTI tests. The curly haired scientist, an eternal optimist, visibly sagged as he presented the data. The virus quickly mutated around Merck’s NNRTI. They would continue one test where L-661 was being used in combination with AZT, but they weren’t hopeful. One of the AIDS activists present put an arm around his shoulder and advised him to take two weeks off before getting back to work. The company paid a price for its openness. Within days, articles appeared in the Wall Street Journal, the San Francisco Chronicle, and the Philadelphia Inquirer announcing to the world that Merck’s AIDS scientists had come up with another disappointment.26
Desperate after four years of AIDS research that had yet to turn up a viable drug candidate, Merck returned to the hunt for a protease inhibitor. While development had continued during the time when NNRTI was in trials, it clearly had been de-emphasized. Now it was their last hope of coming up with a drug to fight the disease. They decided to return to one of the original strategies employed by Irving Sigal, who had died in the crash of Pam Am 103. They deployed X-ray crystallographers to help their chemists design drugs that might work. One of them called Erickson, who was now at NCI, to get his data as they raced to catch up with others in the field.27 The Merck scientists also borrowed from their competitors. They reproduced Roche’s saquinavir, which that company had sent to the patent office in November 1990 and subsequently shared at scientific meetings and “learned that while it was a very potent inhibitor, it had very limited bioavailability.”28 But by combining elements of the Roche compound with elements of their earlier failed protease inhibitor, they came up with a new molecular entity that had spectacular results in the test tube. By August it had been moved into first-stage clinical trials.
To Merck’s top brass, the drug candidate called L-735,524, later indinavir, looked like a winner. Its bioavailability and potency seemed vastly superior to either of the two known rivals at Roche and Abbott. Other potential competitors seemed far behind. Coverage of AIDS research in the financial press routinely suggested a dozen companies were working on protease inhibitors. But precious little had emerged at scientific meetings. Biotech companies such as Vertex and Agouron—both firms had been created to pursue rational drug design—had developed a top-flight capability of grabbing headlines. But there was still no evidence that either had gotten anything to work in a test tube, much less move a drug candidate into a clinical setting.
And the people who run clinical trials—largely academic researchers affiliated with university medical complexes in the United States and Europe—do like to talk. By the fall of 1992, Abbott and Roche had their protease inhibitor candidates in first-stage trials in Europe. But management pressure to hold down costs had forced Roche’s Bragman to initiate talks with the University of Washington’s Ann Collier, a member of the ACTG network, about starting a second-stage trial in the United States. These early trials allowed Merck officials to keep a close eye on the competition. Emini recalled the optimistic mood inside the firm. “Saquinavir [Roche’s drug] barely worked. It is not a drug we would ever develop. Ritonavir [Abbott’s drug] had several metabolic and drug interaction problems. We would never have developed that either. Ours was potent. It was active,” he said.29
In May 1993, the company began enrolling patients who had never taken AIDS drugs before for a first-stage test of indinavir’s safety and tolerability and to get an initial estimation of its antiviral effect. The trials took place at Thomas Jefferson University Hospital in Philadelphia. Although the company didn’t talk about it at the July Berlin conference, indinavir was already well into its first major clinical trial.
The news from the ninth International AIDS Conference in Berlin cast a pall over the entire field of AIDS research. It was especially disheartening for those who believed the key to taming the disease lay in combination therapy. Those hopes had soared earlier in the year when a medical student at Massachusetts General Hospital in Boston had reported that he may have found the “Achilles’ heel of HIV.” Taiwan-born Yung-Kang Chow had combined three reverse transcriptase inhibitors in a test tube—AZT, ddI, and nevirapine, which was an experimental NNRTI that had been discovered by Boehringer Ingelheim, a German firm whose U.S. operations were based in Ridgefield, Connecticut. Chow’s paper in Nature suggested the combination eliminated the virus from human cells entirely.30 It was a remarkable coup for a medical student. While a frontpage story in the New York Times cautioned that the drug combination was only at the earliest stages of human testing and there was the potential for adverse drug reactions, most readers saw only the “Achilles’ heel” statement. Hope in the beleaguered AIDS patient community soared. The ACTG, under pressure from AIDS activists, threw the three-drug combination into a four-hundred-person clinical trial, twice the size of the trial originally sought by Martin Hirsch, who was Chow’s supervisor at Harvard Medical School and a leading member of the ACTG network.
By the end of July, the hope that combination therapy would cure AIDS patients was, if not defeated, in full retreat. The European Concorde trial’s preliminary results had shown that early use of AZT did not prolong life any longer than waiting until the disease had manifested itself. The study results, when first reported in the British biomedical journal Lancet in April, had sent Burroughs Wellcome’s stock plunging.31 In desperation, many dying patients began using AZT in combination with one of the other two nucleosides that had been approved, ddC and ddI. The FDA, in granting their approvals, had suggested they be used in combination with AZT since neither by itself had been shown to be more effective than the first AIDS drug. The combinations worked better, the agency seemed to be saying.
But in Berlin, the University of Miami’s Margaret Fischl reported the long-awaited results of ACTG 155, the trial that combined AZT and ddC. The definitive study showed that taking the two together was no better than taking each one separately. The original studies for AZT had shown that while the drug was effective in slowing the progression of disease, the virus mutated, and within a year almost half of the patients were once again being ravaged by opportunistic infections as their immune systems deteriorated. ACTG 155, which had followed patients for up to three years, showed that 42 percent of patients taking AZT became seriously ill or died, as did 43 percent on ddC and 39 percent on the combination, a statistically insignificant difference. The only positive result was that those patients who entered the trial with higher CD4 counts did somewhat better, suggesting early treatment might improve an HIV carrier’s long-term prospects. Fischl emphasized that relatively minor point in her presentation to the meeting, which infuriated the AIDS activists present. David Barr, a New York City lawyer and ACT UP member, stepped to one of the floor microphones. “The answer to the study you designed is that the study shows no difference between combo and monotherapy,” he shouted. “You have staked your career on these drugs. I have staked my life.”32
Combination therapy suffered another setback in late July when Harvard Medical School announced that Chow’s original test-tube study on the three-drug cocktail was flawed. Scientists at the Wellcome Research Laboratories in England and the Pasteur Institute in France had challenged the study. Hirsch and Chow, forced to retest their samples, sheepishly admitted that mutant HIV did in fact eventually overwhelm the combination. Lawrence Altman, the physician-journalist who covered AIDS for the New York Times, wrote a scathing attack on the government-funded research establishment. “It points up the risks run by scientists and federal health officials when they rush into clinical trials on the grounds that a lethal disease justifies greater speed,” he wrote. “AIDS scientists work in the hope that their findings may stop a major scourge as well as bring personal glory.”33
Altman hedged his comments deeper in the article by reporting many experts still believed the desperate situation with AIDS justified testing drugs in combination or in sequence. “Other evidence, in addition to the now-flawed theory, supports the triple-drug therapy,” he wrote.34 But the drug companies developing the next generation of AIDS drugs weren’t listening.