Before the Senate left DC earlier this month, the U.S. Senate Committee on Commerce, Science and Technology held a hearing regarding Innovation in America: Opportunities and Obstacles. What was particularly important about this hearing was that the President’s Chief Technology Officer asserted that:
“The Federal Government should take advantage of the expertise and insight of people both inside and outside the Federal government… and form high-impact collaborations with researchers, the private sector, and civil society.”
Accordingly, Committee Chairman Jay Rockefeller (D-WV), noted in his opening statement how “investments in information technology (IT), including health IT, smart grid, and broadband will continue to spur our economy, foster new growth, and connect smaller communities.”
What caused him concern was the fact that “the United States has been losing market share in global high-tech exports, shifting from a trade surplus in the late 1990s to an $80 billion deficit in 2008.” In addition, Rockefeller was disturbed by the fact that American research and development (R&D) expenditures grew at a rate of 5-6% annually over the period 1996–2007, while the R&D growth rate in Asian economies often exceeded 10%, and in China’s case, the rate of growth was 20 percent.
From these disappointing numbers, Rockefeller asserted that Congress has “a responsibility to ask whether our nation has the programs and policies in place to support innovation and stay competitive, and whether American can continue to attract, educate, and retain brilliant and ambitious minds from all corners of the world.” He asked these questions because he, as well as many Americans, are concerned that our country is enacting regulations that will make us “complacent, protectionist, and isolationist, which will make it easier for those brilliant and ambitious minds to seek opportunities elsewhere.”
Rockefeller then asserted that in order to address the issues affecting America’s ability to innovate, the federal government must play an important role in providing some of the needed resources to support both the key technology and the leading minds that drive innovation in this country.
Accordingly, the Committee then heard testimony from Aneesh Chopra, Chief Technology Officer and Associate Director of the Office of Science and Technology Policy, which is part of the Executive Office of the President of the United States.
Mr. Chopra acknowledged how innovation begins from scientific research that creates new opportunities for technological change. He asserted that this research cannot be taken for granted because this basic research is what lays the groundwork for the development of new products, services, or processes. He also recognized however that the full process of developing ideas from innovation has many variables, and those ideas often fail before they make it through the full chain.
As a result, he emphasized that for societies to prosper—both as producers of goods and services as well as consumers of them—innovations need to flourish and progress along this chain. In order to create the conditions necessary for success Chopra noted that we must ask how government can best create the conditions that will enable private sector entrepreneurs to innovate.
In answering this question, Chopra asserted that government can help spur innovation by enabling entrepreneurs to move our economy forward. To do so, Chopra noted that the Obama Innovation Strategy has three parts: investing in the building blocks of innovation, promoting competitive markets that spur productive entrepreneurship, and providing extra catalysts to jumpstart innovation in sectors of national importance.
One promise Obama has pledged to accomplish this goal is by doubling the funding for three key science agencies, the National Science Foundation, the laboratories of the National Institute of Standards and Technology, and the Department of Energy’s (DOE) Office of Science. The President also pledged in an address before the National Academy of Sciences, to lift the sum of public and private investment in R&D to 3 percent of GDP.
Chopra also discussed how the President plans to encourage private sector investment in R&D by making the Research and Experimentation Tax Credit permanent. This includes working to increase the impact of this investment by providing greater support for university commercialization efforts, for high-risk, high-return research, for multidisciplinary research, and for scientists and engineers at the beginning of their careers. One proposal already underway includes the National Science Foundation’s FY11 budget, which proposes to double support for the Partnerships for Innovation program, which will help universities move ideas from the lab to the marketplace.
The Obama administration also wants to help establish competitive, high-performing regional economies to cultivate regional economic clusters that will allow a region to develop a strategy that includes support for R&D, infrastructure, small and medium-sized enterprises, and workforce development.
Another part of the Presidents innovation plan Chopra discussed was improving our health care system through the use of health IT (HIT). Chopra noted that HIT has the potential to improve health care quality, prevent medical errors, increase the efficiency of care provision and reduce unnecessary health care costs, reduce paperwork, increase administrative efficiencies, expand access to affordable care, and improve population health. In fact, through a new collaborative, NHIN Direct, which will organize a set of standards, services and policies that enable secure health information exchange over the Internet, the Obama administration hopes to provide a framework to spur innovation in support of direct communication amongst providers, and between providers and patients – in a secure and simple manner.
The President’s Chief Technology Advisor also discussed the recently launched Community Health Data Initiative (CHDI), a public-private collaboration spearheaded by the Department of Health and Human Services. CHDI is aimed at using health care data to raise awareness and improve community health performance, and was formed in collaboration with innovators from the worlds of business, technology, academia, and community organizations, who identified areas where exciting new applications to improve health could be developed.
Andrew M. Weiss
Next, the Committee heard from Andrew M. Weiss, President & CEO, CoAxia, Inc., a medical device startup company in Maple Grove, MN, which is pioneering an innovative medical therapy for ischemic stroke, a condition that afflicts more that 500,000 Americans every year.
Mr. Weiss used his testimony to recognize how the US medical device innovation engine – the medical device startup community – is at great risk. He asserted that the ability for the medical community to pioneer new therapies is threatened because:
- The regulatory environment is in flux.
- The financial system of venture capital is in a period of decline.
- Physician consulting relationships and our ability to collaborate with university hospitals are being restrained; and
- Intellectual property laws are in review – possibly making it easier and cheaper for patent infringers.
As a result, he maintained that if these factors trend negatively, then our ability to fund, develop, evaluate and produce new medical therapies will decline. To address these issues, he asked that legislators acknowledge the important benefits gained from the medical device industry, such as improved and extended lives, all which result from medical innovation.
He gave the examples of how pacemakers, hip implants, stents, angioplasty catheters, neurostimulators for pain management and movement disorders, and numerous other medical devices, which have benefited patients and are good for society. He also recognized how the companies which make these devices employ hundreds of thousands of Americans, many of which are highly skilled and highly paid. These jobs are the sources of income, taxes and community wealth across the US, which creates a business and clinical infrastructure to support them which includes suppliers, lawyers, consultants, clinical experts, physicians.
Mr. Weiss also noted how US medical devices are heavily exported and generate a $5B+ positive trade balance, which generates income for American companies and positive good will around the world. He pointed out that although some say medical device innovation raises healthcare costs because of more tests, more scans, more procedures, and so on, they forget that innovation in medical therapies also improves patient outcomes, speeds their return to productive, healthy lives, reduces hospital stays, increases physician productivity and can reduce healthcare administrative expenses.
Lastly, Mr. Weiss pointed out that there are many untapped fields of innovation in medical treatment, such as genomics, nanotechnologies, higher levels of computing power, miniaturization, biotechnology, device combinations and more. As a result, he argued that it is an absurd and dangerous point of view to believe we don’t need any more medical therapy innovation. Especially because development of new technologies is creating major new opportunities to manage care, provide treatment, and reduce costs.
In addressing the challenges the device industry faces, Mr. Weiss pointed out that the FDA regulatory environment is concerning medical device innovators because of issues such as demands for additional information, delays in reviews, a perception of inconsistency, and announcements of upcoming changes to the 510(k) process. These changes have caused deliberate shifts of venture funding away from medical devices because the regulatory requirements are unknown and increasing.
Additional factors concerning the device industry according to Weiss included a 1/3 reduction in venture investing, and a much higher proportion of the remaining funds being used to support existing companies, and move away from early stage startups. Another limitation is that uncertainty in the health coverage and insurance fields and more restrictive policies regarding hospital and physician collaboration are threatening device innovation.
Equally important to Weiss was the need for the medical community to have an FDA regulatory process that is: a clear, efficient, predictable regulatory path, focusing reasonable standards for safety and efficacy, which align with the risk/benefit of medical devices, and will promote innovation. He recognized that speed, predictability, least-burdensome principles and a partnering attitude with the ultimate goals of safety and efficacy are needed to ensure that US medical innovations flourish here in the US. As a result, he offered a few basic principles to help support medical innovation, such as:
- FDA regulations and policies creating a baseline for device and treatment safety, efficacy claims, reliability, and comparable clinical and technical evidence.
- Congress providing guidance to the FDA on its fundamental role: is it chartered to select treatments for physicians, or to regulate approval of devices and treatments for physicians to select.
- CDRH should ensure that any requests for additional information conform to the basic principle of being “least burdensome.”
- The FDA should have the flexibility, and the encouragement, to allow treatments and devices to be approved for narrower claims based on these trials, with requests for appropriate follow-on studies, so that these devices can be put into clinical use without the need for completely new studies.
Mr. Weiss also recognized the extremely important need for medical innovators to have access to university labs, people and resources. Many universities are facing conflicting pressures of intellectual property commercialization, restrictions on innovators or physicians from owning their inventions, or from being compensated as consultants to startups, and from academic conflict of interest guidelines to ensure that their professors’ publications are deemed unbiased.
He also noted that because companies often do not have the cash to pay physicians and rely on other forms of compensation, physicians need to be able to invent – and own stakes in their own companies – and to consult – and be compensated for their work, without recrimination. In addition, he noted that it is in the public’s best interest to have physicians intimately involved with, and incentivized to participate in development of new therapies because if physicians are restricted from participating in therapy innovation, then the innovation process will stop.
Dr. Robert D. Atkinson
As President of the Information Technology and Innovation Foundation, Dr. Atkinson addressed his concern that U.S. firms are moving R&D offshore. He cited how Asian markets increased from 5 percent to 14 percent between 1995 and 2006, while the share of U.S. corporate R&D sites in the United States has declined from 59 percent to 52 percent, while the share in China and India increased from 8 to 18 percent. Taken together, it is clear that the U.S. private sector engine of innovation is not working as well as it used to.
To address this decline, Dr. Atkinson asked that Congress establish a National Innovation Foundation (NIF)—a new, nimble, lean, and collaborative entity devoted to supporting firms and other organizations in their innovative activities. A National Innovation Foundation would:
- Catalyze industry-university research partnerships through national sector research grants.
- Expand regional innovation-promotion through state-level grants to fund activities like technology commercialization and entrepreneurial support.
- Encourage technology adoption by assisting small and mid-sized firms in taking on existing processes and organizational forms that they do not currently use.
- Support regional industry clusters with grants for cluster development.
- Emphasize performance and accountability by measuring and researching innovation, productivity, and the value-added to firms from NIF assistance; and
- Champion innovation to promote innovation policy within the federal government and serve as an expert resource on innovation to other agencies.
Dr. Atkinson also noted that not surprisingly, many universities and federal labs underperform when it comes to working with industry and commercializing technologies. He assessed that the major reason for this is that few universities and federal labs see commercialization and industry partnerships as a central part of their mission. As a result, he called on the federal government to take a number of steps to support and incent universities and labs to more effectively commercialize technology.
For example, he noted how the National Science Foundation programs seek to create partnerships with industry, such as the Engineering Research Center Program and other related programs. Accordingly he recommended that Congress target a significant share of increased funding to the programs more focused on commercialization activities. This included the Industry/University Cooperative Research Centers (I/UCRC), Program, and other programs, which not only effectively leverage non-federal dollars (for example, I/UCRCs leverage 10 to 15 times the NSF investment), they effectively link universities and colleges to industry. In doing so, Dr. Atkinson recognized that if universities understand that their likelihood of receiving NSF grants is increased if they work more closely with industry, they will likely do so.
Steven J. Ubl
As President and CEO of Advanced Medical Technology Association (AdvaMed), Mr. Ubl asserted that “if America fails to lead in medical technology in this century of the life sciences, America’s long-term future as the world’s most powerful economy will be jeopardized.”
He noted how the manufacture of medical technology is an American success story, with more than 400,000 workers. Industry pay levels are 38 percent higher than average pay for all U.S. employment and 22 percent higher than other manufacturing employment. He also recognized how between 1980 and 2000, medical progress added more than three years to life expectancy. The death rate from heart disease was cut in half; the death rate from stroke was cut by one-third, and the death rate from breast cancer was cut 20%.
But he also recognized some troubling trends with products and clinical trials being conducted outside of the U.S. He asserted that products that are launched first abroad have several negative consequences. From a human point of view, it means that American patients may be denied timely access to the newest and best treatments. From a commercial point of view, as more and more products are launched first abroad, there is a real danger that R and D establishments will follow, so that product development will be close to the first users of the product.
Finally, Mr. Rhys Williams, president of an early stage R&D firm (iTherapeutics), which develops pharmaceutical drug candidates in partnership with academic researchers from the region’s leading academic institutions, focused on how in recent years, the FDA has caused problems for entrepreneurs. Specifically, he pointed out that due to extended periods without formal, resolute leadership at the FDA, entrepreneurs have lost years in their product development timelines and have spent additional capital in order to pursue preliminary, and ultimately final, approvals of the technologies they seek to bring to market.
As a result, early stage investors are increasingly avoiding making investments in areas with greatest technological promise, for many of the reasons listed above (i.e. complex and unclear regulations extended timelines; unfavorable economy and policies, and unfavorable conditions for small companies, start-ups and venture capitalists. Consequently, Mr. Williams offered a number of recommendations to address these issues such as filling critical vacancies at the FDA as quickly as possible and speeding up regulatory review at all stages of the FDA application and regulatory process.
Mr. Williams also asserted the need for the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs to be strengthened because grants from those programs provide key financing for early stage companies seeking to bridge the “valley of death” between initial seed capital (most often provided by entrepreneurs themselves, their “friends and family,” and/or angel investors), and later, larger financing rounds from institutional investors (e.g. venture capital funds and large pharmaceutical firms).
The testimony from this hearing demonstrated that the Obama Administration has a lot of work to do to create a national environment that is ripe for entrepreneurship and risk taking, which allows U.S. firms to compete and win in the global marketplace. Fortunately, the President’s own advisor recognized the need for the government to form high-impact collaborations with researchers, the private sector, and civil society to create this environment.
This work is necessary because innovation in medical therapies improves patient outcomes, speeds their return to productive, healthy lives, reduces hospital stays, increases physician productivity and can reduce healthcare administrative expenses. As a result, those testifying addressed the issues that FDA and other federal agencies must overcome to achieve the right balance for innovation, and identified a crucial way to resolve this issue: improve the link between economic goals and scientific research to fund more strategic research in partnership with industry and universities.