[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]







 THE IMPACT OF MEDICAL DEVICE AND DRUG REGULATION ON INNOVATION, JOBS, 
                   AND PATIENTS: A LOCAL PERSPECTIVE

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 26, 2011

                               __________

                           Serial No. 112-90








      Printed for the use of the Committee on Energy and Commerce
                        energycommerce.house.gov


                                _____

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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana              Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 _____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia                TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio                MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington   JIM MATHESON, Utah
LEONARD LANCE, New Jersey            HENRY A. WAXMAN, California (ex 
BILL CASSIDY, Louisiana                  officio)
BRETT GUTHRIE, Kentucky
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)














                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Brian P. Bilbray, a Representative in Congress from the 
  State of California, opening statement.........................     2
    Prepared statement...........................................     4
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     6
Prepared statement...............................................     8
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................   114

                               Witnesses

Bill Walton, Executive Chairman, CONNECT San Diego Sport 
  Innovators.....................................................    10
    Prepared statement...........................................    15
David L. Gollaher, President and Chief Executive Officer, 
  California Healthcare Institute................................    27
    Prepared statement...........................................    29
Sharon Stevenson, Director, Okapi Venture Capital, LLC, on behalf 
  of the National Venture Capital Association....................    41
    Prepared statement...........................................    44
Steven J. Mento, President and Chief Executive Officer, Conatus 
  Pharmaceuticals, Inc., on behalf of Biotechnology Industry 
  Organization...................................................    57
    Prepared statement...........................................    59
Donald M. Casey, Chief Executive Officer, West Wireless Health 
  Institute......................................................    72
    Prepared statement...........................................    75
Joe Panetta, President and Chief Executive Officer, BIOCOM.......    82
    Prepared statement...........................................    85
Kevin T. Larkin, President and Chief Executive Officer, TherOx, 
  Inc............................................................    91
    Prepared statement...........................................    94

                           Submitted Material

Statement, dated September 26, 2012, of Hon. Darrell E. Issa, a 
  Representative in Congress from the State of California, 
  submitted by Mr. Burgess.......................................    26
Letter, dated August 4, 2010, from Mr. Waxman, et al., to 
  Kathleen Sebelius, Secretary, Department of Health and Human 
  Services, submitted by Mr. Waxman..............................   115

 
 FIELD HEARING ON THE IMPACT OF MEDICAL DEVICE AND DRUG REGULATION ON 
          INNOVATION, JOBS, AND PATIENTS: A LOCAL PERSPECTIVE

                              ----------                              


                       MONDAY, SEPTEMBER 26, 2011

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 11:28 a.m., at 
the Scripps Seaside Forum, Scripps Institution of Oceanography, 
8610 Kennel Way, La Jolla, California, Hon. Michael C. Burgess 
presiding.
    Members present: Representatives Burgess and Bilbray.
    Staff present: Clay Alspach, Counsel, Subcommittee on 
Health; Carly McWilliams, Legislative Clerk; Allison Corr, 
Minority Policy Analyst.
    Mr. Bilbray [presiding]. Let's go ahead and move it a 
little earlier. In the tradition of George Marshall, we will 
start the proceedings 5 minutes early. Those of you who don't 
understand that can pull up your history books and find out 
about the Supreme Court Justice.
    I want to thank everybody for being here. Let me say, 
clearly, we want to thank Dr. Burgess for showing up. The 
Congressman took a long flight to come out here. I think we all 
owe him a real thanks for not just caring but acting on his 
concerns, bringing his expertise in.
    And I want to thank you very much, Doctor, for taking the 
time to come over here. Next time, we will try to arrange these 
hearings during February, where you might appreciate it a 
little more.
    [Laughter.]
    And I bet you the turnout will be much larger, too.
    I think that one of the things that we want to point out is 
that San Diego, obviously, is not just the land of sun and sea 
and sand. It is definitely a generator of major medical 
breakthroughs and a major employer; 40,000 people in the life 
sciences here.
    I think, though, too often, those of us in Washington take 
a look at the life sciences and medical research and see it as 
an abstract. And this is not just an issue, again--and I will 
say this again and again--we are not just talking jobs. We are 
talking lives.
    And this is an industry that needs to be addressed from 
both sides. But we always have to remember, the endgame is to 
save lives, and not just an elderly mother or grandmother, but, 
more importantly, make sure that, in the future, our 
grandchildren can have their most prosperous and healthy life 
possible, because we did the right thing.
    One of the biggest challenges I want to point out is that 
getting a team to work together--and Tony? Where is Tony? Did 
he leave?
    Mr. Burgess. He is making a phone call.
    Mr. Bilbray. OK, I always love to thank the guy who allowed 
us to come hang out in these digs, so we will get to him.

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

    But let me just start off, right off, that what we need to 
talk about here is what are the opportunities and the 
challenges of making sure that we not only maintain a research 
capability in this country that creates jobs, but one that 
can--we can change our operations to be able to make sure of 
those breakthroughs.
    And one of the biggest frustrations I have had is that 
everybody thinks medical research is all about spending money, 
and that in Washington, it is easy for us to write checks and 
throw money at a problem. And I think some of the latest 
scandals you have seen coming out of Washington, directed at 
certain assumptions, was thinking just spending money will cure 
a problem. And I really want to go back to the fact that in our 
lifetime, we saw a major success for the AIDS epidemic, and too 
many people think it was just because we threw money at the 
problem, don't go back and realize the changed regulatory 
oversight. We made the bureaucracy in Washington approach it 
differently.
    And I don't think, in our lifetime, we have seen such a 
dramatic breakthrough in health benefits. In fact, I think 
somebody was calling me down that it was not just 37 but 
probably 50 times longer life expectancy than what they had 
before once we get into it.
    Imagine if we can do that for diabetics, do it for cancer 
patients, do it for people with MS. That kind of breakthrough 
may be possible. But we will never know if we don't change the 
way Washington handles these issues.
    And I don't think this is a Democrat or Republican issue. 
Sick children do not carry a party affiliation with them. They, 
basically, all have the right to be able to have the same 
access to medical breakthrough as anybody else. And that is a 
big challenge I think we need to talk about.
    First thing we need to do is remember, though, too, 
especially those of us who are on our side of the aisle, there 
is a place for regulation. There is a place to regulate.
    What we are worried about is there is a big difference 
between regulating and strangulating. And I think that is the 
one frustration that I get through. And I think that if we look 
at the people who will testify today, good research, good 
health, knows no party affiliation, knows no political lines. 
And, hopefully, we will be able to address those issues.
    I think the California Healthcare Institute talks about the 
delays that the FDA has put out and the mindset. I have to 
remind you though, too, this is not just an FDA challenge. 
Hopefully, a lot of people here can look at what we are trying 
to do in Washington and make sure you guys in the private 
sector not only have the basic research that government pays 
for, not only has the regulatory reform that makes it easier 
for you to create the miracles that we take for granted, but 
also that we take a look at how Washington operates, and make 
sure that we bring in capital into this country that you can 
use to stay in business, so that we see the next generation of 
miracles.
    And I just worry that the American people take you for 
granted, take medical breakthrough after medical breakthrough 
for granted. And I think that it is important for us to make 
sure that that doesn't happen anymore.
    Let me just close by saying, again, we are here today not 
just to talk about something that is very important during one 
of the most critical economic downturns in the history of this 
country. We are not just talking about jobs. We are also 
talking about lives. And it is not very often that you can talk 
about something that is good for the economy and good for the 
environment that humans live in. Too often we have these tough 
choices of, is it good for the economics, or is it good for 
public health? This is a proposal that is good for both. And it 
is one we want to build on.
    So I would like to throw it over to my colleague, Dr. 
Burgess. And it is yours.
    [The prepared statement of Mr. Bilbray follows:]



    Mr. Burgess. Thank you, Brian.
    Now, was that your opening statement or was that just a 
filibuster?
    [Laughter.]
    Why don't we go ahead and call the subcommittee to order, 
and I want to thank our witnesses for being here with us here 
today. I, obviously, want to thank the University for opening 
up this very stunning facility for us to use today.

 OPENING STATEMENT OF MICHAEL C. BURGESS, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    And let me begin by making an opening statement, and first 
state, for the record, that I am not just happy but I am 
thrilled to be here today, talking about a very important topic 
and the impact of the medical device industry in the United 
States. It is more than just what we do for patients. It 
affects commerce, technology, as well as the economy by 
providing quality jobs to Americans, which range from highly 
skilled technical to those involved in the manufacture of those 
devices.
    Unfortunately, the jobs are slipping away. And with these 
jobs, new technologies and innovations are being driven 
overseas, and our economy is suffering, and, most importantly, 
our patients are denied access to these devices.
    In a recent study conducted by PricewaterhouseCoopers, 
United States consumers are already being shown as not being 
the first to benefit from medical technology. And without 
change, the process could eventually--we could eventually be 
last. In fact, innovators are already going first to the 
European market, and, by 2020, will likely move into other 
emerging economies.
    And I hear about this literally every week in my office. 
Because I am a physician by background, someone is in my office 
with a perplexed tale of woe about what their difficulties have 
been in trying to get a drug or device approved through the 
FDA, an FDA that seems to consistently discourage innovation 
and leads to American job loss. Innovators cite their inability 
to facilitate a predictable process as reasons to move 
overseas.
    And this was no more evident than a few weeks ago when we 
had a hearing in our subcommittee back in Washington, and I 
just reference, I spent a lot of time on the plane this 
morning. I got to read every word of the Wall Street Journal. 
And on page three is an article about a new device that has now 
received provisional approval by the Food and Drug 
Administration, the MelaFind device.
    Now, just a few weeks ago, it was denied. And the Journal, 
I think, correctly cites--they don't correctly identify Brian 
Bilbray and myself, but they correctly cite:
    ``The case was a focus of a House of Representatives 
hearing this summer at which the FDA's top device regulator, 
Jeffrey Shuren, acknowledged the agency had mishandled the 
MelaFind application. Dr. Shuren mentioned the Food and Drug 
Administration's decision to hold a meeting of its advisers on 
MelaFind after the agency had already decided to reject the 
device, the reverse of the usual order.
    "'The staff made the wrong call,''' said Dr. Shuren.
    Now the United States is currently exporting over $34 
million a year in medical devices, and those industries employ 
more than 27 million people. No, it does not take a rocket 
surgeon to understand that in this current economic 
environment, this is the type of stimulus that is needed by our 
economy.
    The Food and Drug Administration's failure to ensure a 
reliable and consistent approval process not only creates a 
disadvantage for current devices, but signals their inability 
to handle the advancements of technology in the future.
    The United States has always led the way in innovation and 
technology. As we customize medicine, it is imperative that the 
Food and Drug Administration have the ability to thoroughly 
examine these devices in a timely manner.
    Brian is right. We do not want to sacrifice patient safety. 
That should be the number one priority when looking at devices. 
However, the long and arduous process that is frequently 
ambiguous adversely affects everyone, including those patients 
who desperately need the device.
    In addition, the United States medical device manufacturers 
will also be hit with a 2.3 percent tax on revenues due to new 
requirements in the Patient Protection and Affordable Care Act. 
For many smaller businesses, this tax be detrimental and cause 
many to shut their doors, effectively stifling technological 
advancements.
    President Obama, in the State of the Union Address, 
advocated for America to lead the way on technology and 
innovation. In that, there is complete agreement with this 
Member of Congress. Unfortunately, his signature legislation 
coupled with the Food and Drug Administration's confusing and 
somewhat disjointed approval process has instead encouraged the 
off-shoring of business and brought medical discoveries to a 
halt. It is essential that the Food and Drug Administration 
process becomes more transparent for all involved.
    [The prepared statement of Mr. Burgess follows:]



    
    Mr. Burgess.Now, I look forward to hearing from our 
witnesses. Again, I want to thank all of our witnesses for 
being with us today. We are going to hear from each of you, in 
turn.
    We will begin, I think, with Mr. Walton, and then we will 
hear from Dr. Gollaher, who is the president and chief 
executive officer of the California Healthcare Institute. We 
have Dr. Sharon Stevenson on behalf of the National Venture 
Capital Association. We have Dr. Steven Mento, who is the 
Biotechnology Industry Organization representative; Joe 
Panetta, president and chief executive officer of BIOCOM; Kevin 
Larkin, the president and chief executive officer of TherOx, 
Inc.
    Did I leave anyone out? Mr. Donald Casey--where did you go? 
Oh, there you are. Chief executive officer of the West Wireless 
Health Institute, who of course is very familiar to me, us 
having met in Washington on more than one occasion.
    I would like to now recognize our first witness, Mr. Bill 
Walton, for his opening statement.
    You are recognized, sir. Five minutes.

  STATEMENTS OF BILL WALTON, EXECUTIVE CHAIRMAN, CONNECT SAN 
DIEGO SPORT INNOVATORS; DAVID L. GOLLAHER, PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, CALIFORNIA HEALTHCARE INSTITUTE; SHARON 
 STEVENSON, DIRECTOR, OKAPI VENTURE CAPITAL, LLC, ON BEHALF OF 
  THE NATIONAL VENTURE CAPITAL ASSOCIATION; STEVEN J. MENTO, 
PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONATUS PHARMACEUTICALS, 
 INC., ON BEHALF OF BIOTECHNOLOGY INDUSTRY ASSOCIATION; DONALD 
    M. CASEY, CHIEF EXECUTIVE OFFICER, WEST WIRELESS HEALTH 
INSTITUTE; JOE PANETTA, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
  BIOCOM; AND, KEVIN T. LARKIN, PRESIDENT AND CHIEF EXECUTIVE 
                     OFFICER, THEROX, INC.

                    STATEMENT OF BILL WALTON

    Mr. Walton. Thank you, Congressman, and good morning. My 
name is Bill Walton, and I am here today as a patient advocate, 
proud, honored, and privileged to have the opportunity to give 
back with my duty, obligation, and responsibility for those 
people, like me, who are suffering in extreme pain, and who 
were, at one point, hopeless that their lives could ever return 
to normal.
    Now in addition to sharing with you the patient perspective 
regarding the impact medical innovation can have, I also want 
to ask you, and urge you, to cultivate a statutory and 
regulatory atmosphere with clear rules and guidelines in the 
medical innovation field, so that we can continue here in the 
United States to lead the world in the creation of lifesaving 
medical devices, drugs, and health care.
    Now, while the U.S. continues to maintain its global edge 
in groundbreaking, game-changing medical technology, much of it 
occurring right here in my hometown of San Diego, the rest of 
the world is closing in on us fast. The world, they have copied 
what we have done here in America. And they are using our 
techniques and our talents to achieve our unmatched success 
story.
    However, while U.S. companies struggle with longer wait 
times for regulatory approval in an increasingly uncertain 
regulatory approval process, our global competitors are 
streamlining their regulatory systems, which attract capital 
and companies to their shores from ours.
    You, as our congressional leaders, you have the ability to 
recognize this problem, and create laws and regulations that 
protect our innovation edge, which means that more patients 
will have life-changing stories to tell, like the one you will 
hear today.
    My UCLA college basketball coach, John Wooden, he used to 
tell us all the time, ``Don't measure yourself by what you have 
accomplished, but rather by what you should have accomplished 
with your ability.''
    America's history of great innovation is not enough to be 
satisfied with. There are many more brilliant scientists and 
doctors who want to help people and cure diseases. But they can 
only accomplish up to their ability, if our Nation's medical 
innovation ecosystem continues to encourage discovery and 
reward risk.
    My story of disability and pain, which has turned to 
healing because of what these emerging companies are creating, 
is why I am here today. My college basketball career took me 
all over this great country, but it was a frigid night in 
January 1974, more than 37 years ago, when our UCLA Bruins 
traveled to Washington State University at Pullman, Washington, 
the southeastern part of that great State, and the Bruins, we 
were riding our 84-game consecutive winning streak, for a big 
Pac-8 conference showdown.
    During the game, I was making a play at the ball, and a guy 
on the other team, he came from the other side of the court and 
took my legs out from underneath me and I flipped over, came 
crashing down, and landed on my spine on a synthetic floor. 
That night, I fractured two bones in my spine, and things were 
never the same for me again.
    Throughout my NBA game career, I worked as hard as I could 
to stay in shape and to stay healthy, but that pain was always 
with me in my spine, the discomfort, the limitation, the 
restrictions.
    After another nearly 20 years in the broadcast business, 
200 nights a year on the endless road, in airplanes and through 
a manmade world ill-suited for a 6'11'' body, the back pain 
ultimately became unbearable. My spine simply could not hold me 
up anymore.
    The pain was debilitating, excruciating, and relentless. 
Visualize yourself being submerged in a vat of scalding acid 
with electrifying current running through it, and you could 
never get out, ever.
    My life was over. I had nothing. I ate my meals on the 
floor face down. I couldn't get any sleep. I couldn't get 
dressed. Nothing eased the devastating nerve pain radiating 
throughout my body, coming from my spine. It got to the point 
where my life wasn't worth living. I was standing on the edge 
of the bridge, knowing full well that it was better to jump 
than to go back to what was left of my life.
    I was lucky. I was saved. I came across medical innovators 
that reconstructed my spine and gave me my life back.
    I had no idea what life was like without back pain. They 
saved my life. Dr. Garfin, here at UCSD, the head of the 
orthopedic spine clinic. NuVasive, a company here in San Diego. 
They combined on a new surgical technique operating on my spine 
by entering through the side and deploying NuVasive's medical 
devices to rebuild my back. I underwent 8 1/2 hours of XLIF 
surgery. I was amazed by the relief that came at the end of the 
relentless, excruciating pain that ran constantly through my 
entire body.
    After I started to get better, I began to do things I 
hadn't been able to do in years, like put on my own shoes and 
socks, to be able to bend over and pet the dogs.
    It was right around the seven-month mark after my surgery 
when I really turned a corner and found freedom one more time, 
pedaling my bicycle with no limitations. Riding on the open 
road, the wind and the sun in my face, the film of sweat on my 
body, that was the greatest outcome in the world for me.
    I had lost everything. But now I am back in the game of 
life and climbing to the top of the mountain one more time.
    The story of NuVasive is one of those high-growth, job-
creating companies that Washington wants to replicate all over 
the country, but which sadly faces substantial challenges 
because of the uncertain and prolonged regulatory approval 
process. NuVasive is a public medical device company focused on 
developing minimally disruptive surgical products and 
procedures for the spine.
    The company has grown from a venture-capital-backed startup 
company 10 years ago to one with more than $500 million in 
annual sales in just 10 years.
    NuVasive is now the fourth largest spine company in the 
U.S. and the fifth largest worldwide. This industry-leading 
growth has propelled the company to a global presence employing 
over 1,100 people.
    From a technology perspective, NuVasive's sole focus is to 
advance spine surgery by developing new products and procedures 
that provide superior surgical outcomes and improve patient 
health. NuVasive's innovation in surgical technique and devices 
have great benefits for the patient, including reduced 
operative time, reduced blood loss and minimal scarring, 
reduced post-operative pain, reduced hospital stay, and rapid 
return to normal activities.
    Despite NuVasive's innovative techniques and technologies, 
their future faces serious obstacles because of the uncertain 
U.S. regulatory approval process and a new tax on medical 
devices past in last year's health care reform law.
    Over the past 18 to 24 months, NuVasive has experienced 
longer delays related to FDA product clearances and approval in 
510(k) and premarket approval applications. Longer FDA approval 
times will potentially result in significant revenue loss 
estimated at up to $70 million over the next 2 years, increased 
operating expenses of over $2 million, and hundreds of new jobs 
eliminated.
    Historically, NuVasive has launched at least 10 new 
products per year. Because of the stifling regulatory climate, 
that number is being reduced by half.
    It is becoming far more efficient and faster to innovate 
outside the United States, in places like Europe. Non-U.S. 
systems have more timely, more predictable, and more 
transparent processes, and that is not acceptable for us as 
patients or as Americans.
    This means that instead of creating new American jobs, 
those jobs, manufacturing plants, distribution networks, 
related innovations, and profits have a substantial likelihood 
of moving overseas.
    As a result of costs associated with protracted approval 
and clearance processes, NuVasive has committed to fewer R&D 
projects in 2011 and '12. This results in less innovation and 
this has caused them to reduce hiring by at least 15 percent, 
with 150 fewer new jobs versus their 2011 projected headcount.
    For many reasons, we can't have a regulatory framework that 
hinders job creation. NuVasive does not believe a major 
overhaul of the current FDA process is needed. Instead, they 
need process predictability and timeliness from the reviewers, 
and to ensure that approvals are being efficiently processed 
under the current high safety standards.
    Now, as part of the 2010 health care reform legislation, 
medical device manufacturers will be required to pay a new 2.3 
percent excise tax on all FDA-approved devices sold in the 
United States. This tax is punitive in nature and will likely 
raise costs throughout the health care system.
    In response to the new tax, it is expected that the 
industry will reduce R&D spending and jobs domestically while 
pressure will increase to invest overseas. This will not only 
harm the economy, but, most importantly, it will harm patients. 
This tax is based on revenue, causing successful, rapidly 
growing companies like NuVasive to be hit the hardest, making 
it more difficult to invest in growth and innovation.
    Wall Street estimates that large-cap companies will have up 
to a 5 percent decrease in profitability while small to mid-cap 
companies see a 10 to 15 percent decrease. Using 2013 Wall 
Street revenue projections, NuVasive would be required to pay 
almost $15 million in pretax dollars, equating to an 
approximate 13 percent reduction in profit.
    This type of increased tax burden will potentially result 
in over 100 new highly skilled jobs being eliminated.
    It is puzzling to me why congressional leaders would target 
an industry that is so fruitful and productive. The medical 
device industry creates nearly 2 million high-wage jobs 
nationwide, with wages approaching 40 percent higher than the 
average national wage. Approximately 1.5 million additional 
jobs are created in manufacturing, suppliers, and service 
providers.
    In California alone, our home State, the industry employs 
over 80,000 individuals with $5.5 billion in payroll, and $26 
billion in revenue. This results in almost 210,000 additional 
jobs driving an additional nearly $7 billion in payroll and 
over $31.5 billion in revenue.
    The tax penalizes an industry that is innovative and that 
achieves the main goals of health care reform: lowering costs 
while improving patient care.
    The tax should be repealed. And I want to commend 
Congressman Bilbray for his leadership in introducing H.R. 734 
to repeal this punitive tax.
    Now, I have been most fortunate in my life to have learned 
from many great innovators: John Wooden, Jerry Garcia, Larry 
Bird, Bob Dylan, Tchaikovsky, Maurice Lucas, Dr. Garfin, 
NuVasive, and my current interactions with the inspirational 
innovators like Duane Roth at CONNECT, and the founders of all 
the new companies that are trying to make it with the help of 
our new organization, San Diego Sport Innovators, the newest 
division of CONNECT.
    I have been able to help these sport innovators in the 
organization grow but only because, as a patient, I am the 
beneficiary of medical innovation.
    Now as a patient, we see risk and benefit a bit different 
than regulators sitting in historic buildings in Washington. 
When I was face down on the floor with extreme pain coursing 
through my nerves, I desperately needed the treatments that 
NuVasive was creating, in conjunction with the skill and 
precision of a master surgeon like Dr. Garfin.
    What the regulatory system needs is a balanced approach to 
create the incentive needed for investment in innovation, 
coupled with a predictable and prompt regulatory process that 
still provides reasonably safe and effective medical devices 
and drugs. I worry that the regulatory process is so focused on 
perfection, which does not exist, that it thwarts important 
creations from reaching the marketplace and saving other people 
that are on that bridge just like I was.
    Coach Wooden also tried to teach us a most applicable 
lesson here: Don't let what you cannot do interfere with what 
you can do.
    Maybe you can't solve all the problems, but that shouldn't 
dissuade you from doing what you can to move the medical 
innovation ecosystem toward more discovery, more reward, and 
more jobs, which will result in more patients living a healthy 
life.
    Here's to a full and pain-free life with lots of jobs for 
everyone. Thank you, good luck, and please realize that one day 
everybody in this room, including yourself, will be facing that 
moment when you need help, when you need that medical practice, 
device, technique, company to be right there. Act today, so 
that you can enjoy tomorrow.
    Thank you.
    [The prepared statement of Mr. Walton follows:]



    
    Mr. Burgess. Well, I certainly want to thank our witness 
for the compelling testimony.
    I do want to remind panelists, we do typically try to keep 
our opening statements to 5 minutes, and your full statement 
can be inserted into the record.
    So we will ask to try to stick to the 5-minute timeline and 
give plenty of time for questions. But your full statement will 
be part of the record.
    Mr. Walton. I believe, Congressman, that mine came in at 
4:52.
    Mr. Burgess. That was my time.
    [Laughter.]
    Mr. Bilbray. Mr. Walton, whatever you say the time was.
    [Laughter.]
    Mr. Burgess. Yes, I was not going to blow the whistle. I 
promise.
    [Laughter.]
    I do ask unanimous consent that the testimony of the 
chairman of the Oversight and Government Reform Committee, 
Darrell Issa, be submitted as part of the record. I also want 
to include Mr. Bilbray's statement as part of the record as 
well.
    Without objection, so ordered.
    [The information follows:]



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

                 STATEMENT OF DAVID L. GOLLAHER

    Mr. Gollaher. Thank you. Vice Chairman Burgess, Congressman 
Bilbray, welcome to San Diego. My name is David Gollaher, and I 
am president and CEO of CHI, the California Healthcare 
Institute. And I appreciate the opportunity to speak today 
regarding the current regulatory environment for medicines and 
medical devices, and its impact on biomedical innovation.
    CHI is a public policy and advocacy organization 
representing California's innovative biomedical research and 
development sector. Our membership includes the State's leading 
research universities and private biomedical research 
institutes, along with venture capital firms and biotechnology, 
pharma, device and diagnostic companies.
    All told, California is home to 2,200 biomedical companies 
employing some 270,000 people, making our industry one of the 
leading high-tech employers in the State.
    This morning I would like to address two things. First, I 
would like to provide an overview of recent trends industry has 
encountered that the FDA. And, second, I would like to briefly 
cover one of the problems in FDA performance that CHI believes 
should be a focus of efforts to get things back on track.
    History shows that a strong science-based FDA, and a well-
articulated, predictable, and consistent regulatory process, 
these things are essential to bio, pharma, and medical 
technology investment, innovation, and patient care.
    Recently, however, the number-one policy issue raised by 
our biotech and medical device companies has been frustration 
with regulatory processes and communications at the FDA that 
have become increasingly uncertain, unpredictable, and 
inefficient.
    There is a widespread sense in our industry that things are 
getting worse at the FDA. And this is confirmed by data 
reflecting a recent slowdown in product review times and 
approvals documented in a recent study that CHI did with Boston 
Consulting Group, called ``Competitiveness in Regulation: The 
FDA and the Future of America's Biomedical Industry.'' This was 
published in February.
    Our report shows a few things. Particularly comparing today 
to the 2003-2007 timeframe, drugs and biologics review times 
have increased by 28 percent, 510(k) device clearances have 
slowed by 43 percent, and PMA--premarket approval--device 
approval times have lengthened by 75 percent. That is comparing 
today to the 2003-2007 timeline.
    Now, no single factor explains this decline, but the most 
important contributor to recent trends appears to be a shift in 
FDA culture. Faced with accusations that it was too lax and 
failed to protect the public from safety problems with devices 
and drugs, the FDA has shifted emphasis in product reviews from 
the benefits of new products to an increasingly weight on their 
possible risks.
    And from the perspective of an FDA reviewer, it is easy to 
understand. After all, an individual reviewer has little to 
gain by approving a product, much to lose by approving a 
product that has a problem in the future.
    In our view, reforming the FDA is about strengthening the 
agency. CHI and our membership support is strong, appropriately 
resourced on science-based FDA, and we support strong, science-
based safety and efficacy standards. But we do not believe that 
slower processes mean safer or better. We can have both high 
safety and effectiveness standards and efficient, predictable, 
consistent, and transparent processes to get new medicines and 
technologies to patients who need them.
    With this in mind, I would like to turn briefly to one of 
the main issues we believe needs to be addressed to get the FDA 
back on track. My written statement covers others, and CHI 
looks forward to working with Congress and your committee and 
other stakeholders to find and act on the best solutions. But 
given the time this morning, I would like to focus on a single 
issue.
    Many of our members point out that a major problem with the 
FDA is in the period shortly before or shortly after product 
submission, when discussions and negotiations over the types 
and amount of clinical data the agency wants to see in its 
submission are growing lengthier and more difficult, and are 
seen as less predictable, less transparent, and sometimes 
unreasonable.
    Now certainly, as science progresses, the information the 
agency considered sufficient yesterday may no longer be 
adequate, but what is important is that the agency processes 
promote early upfront communications that clearly convey not 
only what the agency expects but why they expect it.
    Clarity about what is necessary to approve a product is 
key. Innovators need to know what the agency says it wants and 
needs is really what it wants and needs, and that requirements 
won't change midstream.
    Let me skip ahead, in the interest of time.
    What we have seen in particular, and this is an important 
focal point for medical devices, is that when the agency issues 
guidance documents, which change the standards for product 
approval, and given the agency's current thinking on a given 
topic, a preliminary analysis of our work has shown that for 
in-process devices, when the agency issues a new guidance 
document, the process takes 60 percent longer to approve than 
average. This is preliminary data, but we suggest that it shows 
a real opportunity for improvement at the agency in the 
guidance document process.
    I think in the interest of time that I am going to stop 
there, and I thank you for enabling our testimony.
    [The prepared statement of Mr. Gollaher follows:]



    
    Mr. Burgess. Great. We will probably get to some of these 
things during the question-and-answer time as well.
    Dr. Stevenson, you are recognized for 5 minutes.

                 STATEMENT OF SHARON STEVENSON

    Ms. Stevenson. Thank you, Representative Bilbray, Dr. 
Burgess. I am Sharon Stevenson, cofounder and managing director 
of Okapi Venture Capital, which is based in Laguna Beach. It is 
one of a handful of venture firms located in Southern 
California.
    Today I am testifying on the behalf of the National Venture 
Capital Association, the national trade association for the 
venture capital industry. Thank you for the opportunity.
    For the past several decades, venture capital firms such as 
Okapi have served as the primary source of risk capital, 
playing a central role in prospering the development of medical 
technologies and therapies to treat cancer, cardiovascular 
disease, diabetes, and a plethora of other conditions.
    This important relationship between capital and emerging 
companies has enabled our Nation's biotechnology and medical 
device industries to assume their long-held positions as world 
leaders in medical innovation. The benefits of robust 
biotechnology and medical device sectors are abundantly clear: 
better care for patients, cures for diseases and disabilities, 
cost-effective treatments that can help lower health-care 
costs, and high-paying jobs with tremendous growth potential.
    Although researchers continue to identify promising 
therapies at a great pace, fewer of these discoveries are being 
developed and brought to market, in part due to a growing 
reluctance among the venture capital industry to provide 
necessary financial backing. Venture capital and emerging 
technologies exist in a fragile ecosystem. A number of factors, 
including the current economic environment and lack of an IPO 
market, have impacted general availability of venture capital. 
However, the life sciences sector is being doubly hit.
    The uncertainty of the FDA processes has undermined the 
ability of life science venture capital firms to achieve 
favorable return on their investments and, therefore, to raise 
funds to support the next generation of innovative 
biotechnology and medical device companies.
    Increasingly, limited partners, the endowments, pension 
funds, and the institutions that provide much of the capital 
for venture funds to invest, are telling us that they are 
reducing or even eliminating the share of investment that they 
allocate to life sciences venture capital. Some well-
established life sciences venture firms have reduced or ceased 
operations; others are no longer investing in early-stage life 
sciences companies.
    Some firms have changed their investment portfolios, 
increasing their support for information technology and social 
networking companies, or have begun to invest in emerging 
markets, sending private investment dollars previously 
dedicated to U.S. companies to startups overseas.
    This decline in U.S. investment has enormous implications 
for patients and their care providers, who in the future will 
have diminished access to breakthrough treatments. It has and 
will continue to undermine a key engine of our economy that has 
long provided well-paying jobs throughout the Nation.
    Obviously, there are many factors at play here, but the 
uncertain regulatory environment at the FDA has been a very 
significant contributor. Since the late '80s, the agency held 
firmly to a balanced risk-benefit approach, with a stable 
predictable regulatory pathway. As a result, a generation of 
important therapies came to market, and the Nation gained 
prominence as a leader in medical innovation.
    But the agency dynamic has changed dramatically in the wake 
of a series of high-profile therapies that resulted in 
significant safety issues. The pendulum has shifted with the 
FDA culture now marked by extreme caution and risk aversion.
    To be clear, protecting patients must be a fundamental 
element of the FDA's activities, and I am in no way suggesting 
it should be otherwise. Right now, though, the FDA's approach 
emphasizes risk over benefit.
    Simply stated, the careful balance that historically helped 
to fuel the development of any number of breakthrough 
innovations and life-saving treatment no longer exist. Rather, 
the approval process is now unpredictable and lacking in 
transparency, creating greater risk for researchers, emerging 
companies, and investors.
    Venture capital is an industry that is all about taking 
risk. That is what we do. But it is important to distinguish 
between the two types of risk we consider when making 
investment: manageable and unmanageable.
    When the regulatory pathway is sensible, clear, and 
consistent, the regulatory risk is manageable, even if the 
associated activities are expensive and time-consuming. 
However, in the current regulatory environment, the FDA may 
require significant changes in the regulatory pathway 
midstream, or even after clinical trial activities have been 
completed.
    When the rules are changed in the middle of the process, 
more capital is inevitably needed at the worst possible time 
for the company to be raising it.
    The bottom line is that the current FDA regulatory approach 
has led to a painful, if not intolerable, increase in 
unmanageable risk. As a result, many of my colleagues have 
reached a tipping point and have significantly or completely 
pulled back their investments in emerging life sciences 
companies, or are only investing in companies where a clear 
route to commercialization exists outside of the U.S. This is 
not good.
    The NVCA and its member companies want to work with 
Congress and the FDA to reestablish a thoughtful risk-benefit 
equation and respectfully offer the following recommendations 
for the subcommittee's consideration.
    One is to support allowances for variation in risk-benefit 
assessments to ensure patient-centric drug and medical device 
development and approval.
    Second is to expand the accelerated approval pathway into a 
progressive approval system for drugs, diagnostics, and medical 
devices.
    Lastly, ensure conflict of interest policies are not 
hindering patient access to new treatments. The goal is not to 
eliminate conflicts of interest, but to illuminate them, so 
that they may be appropriately managed. We need the most 
knowledgeable people around the table for advisory panel 
discussions.
    Thank you very much.
    [The prepared statement of Ms. Stevenson follows:]



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

                  STATEMENT OF STEVEN J. MENTO

    Mr. Mento. Thank you, Congressman Burgess, Congressman 
Bilbray. My name is Steven Mento, and I am cofounder, 
president, and chief executive officer of Conatus 
Pharmaceuticals.
    I am here testifying on behalf of Biotechnology Industry 
Organization, where I serve as cochairman of its Emerging 
Companies Section Health Committee. It is important to note 
that the majority of BIO's member companies are small emerging 
companies like Conatus working on the arduous and capital-
intensive task of developing innovative treatments and 
therapies.
    I personally have over 25 years of experience in the 
biotechnology and pharmaceutical industry. Conatus is focused 
on the development of innovative human therapeutics to treat 
liver disease and cancer. Our lead development candidate, 
Emricasan, a novel drug being tested as a potential anti-
fibrotic drug to delay the progression of hepatitis and prevent 
the development of cirrhosis. Our pipeline also includes a 
potential oral therapy to reduce tumors associated with 
lymphomas.
    Everyone would like to see innovative treatments and 
therapies to treat liver disease and cancer be successfully 
developed. However, it is essential to understand the 
difficulty in accomplishing this shared goal in today's 
environment.
    While we in the United States are currently the global 
leader in the development of biotechnology treatments and 
therapies, intense competition from China and India means this 
is a position we have to fight to keep. Indeed, when it comes 
to small venture-backed startup biotechnology companies, such 
as my own, our industry is facing a crisis.
    In addition to the economic downturn, regulatory 
uncertainty, longer drug development timelines, and an 
increasing regulatory and congressional focus on risk instead 
of reward in pharmaceutical innovation, are deterring investors 
from investing in biotechnology, as you have just heard.
    While these projects may have the highest risk, they also 
have the highest potential to positively impact society. 
Investors have always known that the science is difficult and 
fraught with risk, but FDA's shift in recent years to an 
increasingly cautious, risk-averse posture has had the 
unintended consequence of diverting investment in life sciences 
innovation toward things like Groupons and iPads.
    In addition to the past potential medical breakthroughs we 
offer to patients, the bioscience sector accounts for over 7 
million direct and related high-paying, high-quality jobs. We 
have a national imperative to foster the development of 
innovative treatments and therapies. With baby boomers now 
entering into the Medicare system, the costs associated with 
chronic care diseases will skyrocket unless we work to develop 
novel medicines to treat these diseases.
    We as a Nation need to focus policy discussions on how to 
unleash the promise of biotechnologies so that the American 
public can realize the benefits it has to offer. A fundamental 
part of our ability to innovate and raise private investment is 
having an FDA with the resources and mechanism required to 
effectively and consistently review and approve innovative 
products in a timely manner.
    These decisions must be understood by stakeholders, 
industry investors, patients, and physicians, and then must be 
made in the context of patients and diseases being treated.
    The FDA is rarely praised for approving a novel therapy, 
but they are often maligned if there are unforeseen adverse 
events that occur once a product is approved. It is imperative 
that policymakers understand the scientific realities of 
approving novel medicines.
    The remainder of my testimony will focus on solutions. BIO 
has developed a set of policy proposals designed to encourage 
innovation through the creation of a 21st century FDA, which we 
have submitted for the record. I will highlight a few of those 
proposals today.
    FDA has been perceived by many as the global standardbearer 
for regulatory review in drug and biologic applications. 
However, scientific and medical knowledge, techniques, and 
technologies are advancing at a more rapid pace today than at 
any other time. And FDA's capacity to access information about 
these advancements has not kept pace. It is essential that 
FDA's access to scientific and medical advice be enhanced by 
improving the operations of the FDA advisory committees, 
establishing chief medical policy officers in the immediate 
offices of the center directors, and providing FDA staff with 
additional avenues for accessing external scientific and 
medical expertise.
    Two, patients, particularly those with illnesses where no 
adequate therapy exists, want to access the promising new 
therapies earlier in the drug development process. Expanding 
and improving the accelerated approval pathway into a 
progressive approval mechanism would help provide patients more 
timely access to needed therapies. This pathway would also 
ensure risk-benefit analysis that incorporates the safety and 
needs of patients in the real world.
    And three, FDA's current statutory authority requires that 
the agency approve applications for new drugs when they have 
been demonstrated to be safe and effective under the intended 
conditions of use. The law provides that effectiveness is 
established where FDA is satisfied that there is substantial 
evidence that the new drug has the intended effect that it is 
purported to have.
    FDA typically requires two adequate and well-controlled 
studies under this standard. A weight of evidence approach to 
data analysis, however, would allow the decisionmaker to look 
at all the data and information, and give appropriate 
consideration.
    Thank you for allowing me to testify, and we look forward 
to working with you on developing policies for a 21st century 
FDA that will serve to unleash the promise of biotechnology in 
the United States.
    [The prepared statement of Mr. Mento follows:]



    
    Mr. Burgess. Thank you for your testimony.
    Mr. Casey, you are recognized for 5 minutes.

                  STATEMENT OF DONALD M. CASEY

    Mr. Casey. Thank you, Congressman Bilbray and Congressman 
Burgess. Thank you for inviting me to testify. And thank you 
for coming to San Diego, and you get to see the weather.
    And I would also like to add it has been a pleasure working 
with your committee and your fine aide Clay, who has been very, 
very helpful in us understanding the process.
    My name is Don Casey, and I am the CEO of West Wireless 
Health Institute, and I spent 30 years working in the health-
care industry.
    West Wireless Health Institute is a not-for-profit medical 
research organization whose mission is to lower health-care 
costs through technology and innovation. With $100 million in 
funding today from Gary and Mary West, the institute has hired 
more than 60 scientists, engineers, and other experts who are 
incubating promising health-care technologies and engaging with 
policymakers on broad efforts to dramatically lower health-care 
costs.
    I would offer the following points today. First, novel 
medical technologies can save us literally billions of dollars 
while creating tens of thousands of new jobs. But they have to 
get through the FDA first. Second, the current regulatory 
climate, as you have heard from other testifiers today, is more 
challenging than ever and is slowing innovation and, indeed, 
driving U.S. jobs overseas. And third, there are several 
practical solutions the FDA can undertake today, including 
modifying the agency's de novo 510(k) regulatory review 
process, that would actually substantially aid in this process.
    The institute believes that novel medical technologies will 
play a huge role in health-care delivery in the future, 
providing better care for chronic diseases and dramatically 
lowering health-care costs, while literally creating tens of 
thousands of new U.S.-based jobs that can't be shipped 
overseas. We base this on our own research as well as major 
studies, including one by the VA. These studies show that we 
can reduce hospital readmissions, emergency room visits, and 
overall lower costs by up to 20 to 30 percent by using an 
infrastructure independent model for health care in the future.
    However, the regulatory environment that exists today is 
making it extremely difficult for such an innovative healthcare 
delivery system to be, A, developed, and then, B, deployed.
    The FDA is slowing development in novel health-care 
technologies in a number of ways. First, in our industry, by 
determining that once a device that has a wireless 
communications component, it may require different review 
process. With traditional medical devices, a manufacturer in 
the 510(k) process can cite a predicate device; i.e., a 
thermometer is a predicate for a new thermometer. The minute 
you add a wireless component now, a wireless thermometer can no 
longer cite a thermometer as a predicate device, which sets off 
a lengthy and somewhat circuitous regulatory review process 
where they ask you to cite the predicate even though you want 
to say that there is no predicate.
    A second is regulatory overreach. The FDA is exercising 
authority over more and more areas of health-care information 
technology, particularly where they are intersecting with 
medical devices. By taking an expansive regulatory approach to 
data collection, data transmission, and data analysis, the FDA 
is increasingly raising the bar so high that we are 
discouraging new entrants into the field.
    We ask ourselves all the time at the Institute, where is 
the goal in health care? It is information-intensive. It should 
be able to be searched. You can't do that, though, if the FDA 
continues to take a very aggressive and expansive approach to 
regulation.
    I would offer the institute's own experience with our first 
prototype, Sense4Baby. And I would be remiss if I didn't show 
you Sense4Baby.
    Sorry, if Bill can have a tall chair, we can have a 
Sense4Baby.
    This is the device that we are looking for, to focus on 
high-risk pregnancy, which basically takes a $4,000 to $5,000 
device that is currently sold in a hospital, and we can break 
this down into components that might cost us under $100 when 
using a cell phone to transmit this data.
    We are very excited about the potential it has to 
dramatically lower health-care costs--and I know, Dr. Burgess, 
you would appreciate this--by identifying high-risk mothers and 
giving them the capacity to be monitored on a regular basis and 
pushing that data to you.
    We are, however, once we have developed this process right 
up the road in La Jolla, going to actually begin to do our 
preliminary validation studies in Mexico. That is driven 
strictly by our interpretation of FDA regulations that says 
wireless health-care devices need to be looked at as--the 
wireless component--as a medical device in and of itself.
    For us, it is a more expeditious path to actually get 
experience with this product by taking it to Mexico, which does 
not look at this in the same way.
    New medical innovation is pushing the bounds of FDA's 
current regulatory paradigm, particularly those where a 
predicate does not exist. Traditionally, the FDA has relied on 
the de novo process to provide approval pathway for low-risk 
medical devices products that have no identifiable predicate. 
But the de novo pathway is not working efficiently today.
    Review times for de novo products during the last 4 years 
are now almost twice as long as the FDA's promise for a PMA 
submission. So basically, we are taking a 510(k) device that 
should be much more accelerated versus a PMA, and we are now 
seeing this de novo process taking it to be longer than the 
PMA, and this is very discouraging to industry.
    The fundamental problem with de novo today is it can only 
be pursued after the manufacturer applies for and completes the 
initial 510(k) review and then receives an official letter from 
the FDA explaining that there is not an approved predicate 
device. This time-consuming process must be completed even if 
the manufacturer is willing to acknowledge right up front that 
there is no predicate device before submitting the device for 
approval.
    We recommend that Congress reform the de novo process to 
allow device manufacturers to proactively initiate the de novo 
approval process without having to undertake the circuitous 
process that is required today.
    The FDA could also foster greater innovation and speed of 
delivery for safe, effective medical technology by making the 
510(k) process, as you have heard today several times, more 
predictable, transparent, and reasonable.
    The FDA's own reports indicate today that the average time 
for a 510(k) review has increased from 96 days to 140 days over 
the last decade. That is not even looking at industry studies 
that might show that that data is almost triple that.
    Manufacturers are increasingly being asked for new 
information late in the approval process, subjecting them to 
changing endpoints and delays. This stance has deterred venture 
capital, as we just heard, even for something in the low risk, 
like something like we are developing.
    In sum, we would ask the Members of Congress and the FDA to 
work to preserve patients' access to innovative products by 
taking the following steps: reject the IOM's recommendation and 
ensure that FDA preserves the 510(k) process to allow low-risk 
devices to come to market in a timely manner. We want to 
strengthen the 510(k) process so that manufacturers have more 
certainty, clarity, and predictability in the approval 
pathways. And finally, we want to reinvigorate the de novo 
process by permitting medical devices without a predicate to 
initiate an approval process without having to exhaust the 
510(k) process.
    We believe that all of that will, A, increase jobs, B, 
dramatically lower costs, and the final benefit of that is that 
you're going to get better patient care over time.
    We will look forward to working with Congress and building 
upon its leadership role in spurring innovation, creating new 
jobs for America, and helping all patients benefit from an 
infrastructure independent model for health care. Thank you.
    [The prepared statement of Mr. Casey follows:]



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

                    STATEMENT OF JOE PANETTA

    Mr. Panetta. Thank you, Vice Chairman Burgess and 
Representative Bilbray. Thank you both for being here in the 
center of global innovation of the biomedical industry of 
Southern California.
    My organization, BIOCOM, is the advocacy organization for 
our industry here in Southern California. Ninety percent of our 
members have fewer than 50 employees, and most have products in 
research and development that hopefully will commercialize them 
in the near future, if we can create an environment that is 
conducive to their being able to do this. And today I am glad 
to be here to be able to talk to you about some of the 
challenges that we face.
    I also want to acknowledge the great work of committee 
staff, and Mr. Bilbray's committee staff as well, his personal 
staff, Gary Kline, the great work that we have done with Gary. 
We appreciate the relationship that we have had. And we 
appreciate the work that Congressman Bilbray has done to 
address the challenges that we face as an industry.
    I want to address in sequence here some of the challenges 
that we face as a result of FDA's medical device regulation, 
and that impact on innovation jobs and patients.
    As you have heard indirectly here, our companies face one 
challenge. Their fate is completely determined by a single 
federal agency, and that is the FDA.
    Without approval from the FDA at each stage of the 
commercialization process, nothing else about the company 
matters. Life science companies must be afforded transparent, 
predictable, clear regulatory processes to encourage the 
immense investment that it takes to get a concept from 
discovery to commercialization.
    However, as you have heard, according to our members, the 
current environment at the FDA is perceived by investors to be 
unpredictable, hesitant, and risk-averse. This environment has 
created a funding crisis for many of our small to midsize 
companies, and these are the companies that have been central 
to the growth of the life science industry over the past 20 
years.
    And I will remind you that this is an industry that has 
constantly outperformed other sectors during the past economic 
downturn.
    It is essential that FDA focus on innovation to be 
strengthened in order to maintain this country's leadership in 
biomedical innovation, and all of the jobs that go with that 
global leadership. Even some of the most strident critics of 
the life science industry, including California's own raking 
member Henry Waxman, agree that the FDA is perceived as being a 
failed agency by much of the American public.
    The U.S. is headed for a crisis as more and more boards and 
investors are demanding that companies first commercialize 
their products outside the U.S., where safety standards may be 
just as rigorous, but the approval process is more consistent, 
transparent, and predictable. And the companies, therefore, 
have a better chance of realizing a revenue stream.
    Unfortunately, that FDA's leadership has made recent public 
statements that appear to indicate that the agency is in denial 
regarding this migration of products to Europe. I can assure 
you that our members would reinforce the fact that this is 
correct.
    For example, a recent BIOCOM member survey revealed that 59 
percent of our respondents are developing strategies to seek 
approval and commercializing outside the U.S. before seeking 
FDA approval.
    Sending innovation to another country first has many grave 
implications. Jobs related to clinical trials and development 
are moved to those countries in which approval is being sought. 
Once approved, manufacturing facilities and distribution are 
set up in and around those countries. And those jobs are not 
just limited to Ph.D.s.
    This isn't a matter simply of jobs. Patients become aware 
of the most current and effective treatments and technologies, 
but only those who can afford it can travel to foreign 
countries to access them. This is ironic, because it indicates 
a reversal in the prior trend over years of patients from the 
E.U. and other places coming to the U.S. to access cutting-edge 
treatments.
    It also should be noted that many insurers won't provide 
coverage for a therapy or device not approved in the U.S., so 
this option is limited to those who can afford to pay all costs 
out-of-pocket. For the vast majority of Americans, however, it 
just means that they must go without the best and most current 
therapies and technologies.
    The impact on patients in the U.S. is undeniable. They are 
being denied access to the most cutting-edge lifesaving, or 
life-changing products.
    I want to remind you, members of the committee, that FDA's 
mission is very clear. Its primary mission is both to protect 
public health and to promote public health as it relates to 
approval of drugs, devices, and diagnostics.
    BIOCOM industry members share a common goal with the agency 
and support the desire to improve public health by bringing 
innovative, high-quality products to patients in a timely 
fashion. But we continue to hear from our members that this 
system is creating delays, it is more unpredictable, and more 
data seems to be required than in previous submissions.
    We don't believe that this is a reflection on the quality 
of the data that our companies are submitting so much as a lack 
of effective communication between reviewers in the industry as 
well as the issue of reviewers' access to training and 
education of the newest technologies.
    We have conducted a survey five times over the last 16 
years with PricewaterhouseCoopers called ``Improving America's 
Health.'' I have provided copies to all the members of the 
committee.
    Our survey continues to indicate a growing concern that the 
FDA is becoming more detached from the industry that it 
regulates. The survey seeks to evaluate the relationship 
between the FDA and the companies regulated by it. Sixty 
percent of our survey respondents stated that the FDA changed 
its position during the course of a review, and that was up 
from 40 percent 4 years ago. Almost half of the people 
responding to the survey felt the products were being denied in 
part because of inadequate resources at the agency, and 48 
percent reported a break in continuity during the review 
process.
    This level of uncertainty isn't surprising when taken in 
the context of the current state of the agency's human resource 
pool. Dr. Schoen, head of CDRH, recently said in a town hall 
meeting that the average CDRH reviewer has less than 3 years of 
experience.
    With that level of turnover, it is not surprising the 
review times become elongated as new reviewers are brought up 
to speed on the industry. Sometimes these new reviewers may 
request information or data on issues never previously raised 
with the applicant. Often these requests can require studies 
costing millions of dollars and a year or more to complete.
    I want to point out that FDA has recognized that they have 
a problem, and they are implementing measures to address some 
of these specific measures. However, BIOCOM is concerned that 
that these changes won't go far enough. Therefore, we have 
developed specific, focused recommendations that we intend to 
share with FDA and with Congress regarding potential 
organizational improvements and efficiencies to improve the 
agency's overall performance. And I would be glad to discuss 
these as well.
    I just want to turn briefly to a few other issues that add 
uncertainty to the uncertainty that we already feel as an 
industry.
    First, the Independent Payment Advisory Board enacted as a 
part of health-care reform is an unelected body, which could 
institute broad changes to Medicare with no congressional input 
or oversight. And we don't support this approach.
    Medicare Part D, which provide seniors with long-sought 
drug benefits, and part B, which provides oncology products for 
administration in physician offices, has been under threat.
    You have heard about the medical device excise tax. This 
will be devastating to many of our members, and we support the 
efforts of both Representative Bilbray and of Representative 
Paulsen of Minnesota to repeal this unfair tax, which, as you 
have heard, takes dollars away from R&D and job growth.
    And finally, there are those, including the President of 
the United States, who continue to seek to reduce the 12-year 
data exclusivity period for biologic products. That 12-year 
period has been supported overwhelmingly in Congress on a 
bipartisan basis.
    Innovation in the life science industry is meaningless if 
it doesn't reach the patient, so we at BIOCOM welcome 
constructive dialogue with agencies, with Congress, the 
industry, FDA leadership, and the patient population we all 
seek to help, so that we can come together to ensure patient 
safety and advances for cures and treatments that will reduce 
overall health-care costs, create jobs, and benefit all 
Americans while ensuring that our citizens have access to them.
    Thank you for this opportunity, and thank you for your time 
in coming to San Diego.
    [The prepared statement of Mr. Panetta follows:]



    
    Mr. Burgess. Thank you for your testimony.
    Mr. Larkin, you are recognized for 5 minutes for purposes 
of an opening statement.

                  STATEMENT OF KEVIN T. LARKIN

    Mr. Larkin. Good afternoon. I am Kevin Larkin, CEO of 
TherOx, a venture-capital-supported clinical stage medical 
device company located in Irvine, California. And I appreciate 
the opportunity to testify before you today.
    As background, I have spent 37 years in the cardiovascular 
medical device business in items such as heart pacemakers, 
implantable defibrillators, angioplasty catheters, and stents. 
As a consumer and as an occasional patient, I absolutely 
recognize the need for and support reasonable evaluation and 
regulation roles for FDA. These facilitate, but do not foster, 
innovation.
    My peers and physicians I have worked with over the years 
are overwhelmingly honest and ethical, and will not knowingly 
do harm. Unless and until these values are violated, they 
should be treated as professionals with trust and respect.
    I believe also that FDA has huge challenges satisfying its 
diverse, heterogeneous constituents: the public, physicians, 
industry, media, and legislators. Most of these groups do not 
understand the risk-benefit aspect of medical treatments.
    Specific to the PMA regulatory path, the advisory panel 
process is dysfunctional and counterproductive. The good news 
is it can be fixed fairly easily.
    As background, TherOx is a non-revenue-generating, clinical 
stage company that pioneered a breakthrough heart attack 
treatment that minimizes heart damage compared to the standard 
of care.
    We successfully completed a controlled, randomized pivotal 
trial that met both its effectiveness and safety endpoints with 
headroom. Our trial design was collaboratively worked out with 
our FDA review team, a group within CDRH.
    After we submitted our trial data, our FDA review team on 
its own initiative awarded us what is called expedited review, 
a classification that not only indicates prespecified criteria 
were met, but that the new therapy treats a serious disease 
state for which there are no better alternatives. Despite this 
apparent success, an advisory panel did not vote to recommend 
approval of our therapy.
    Here are some observations from that panel meeting. 
Physician composition of 15 members, three routinely treat 
heart attack patients and, therefore, know the practices, 
logistics, adverse event and mortality rates for this serious 
disease state. These physicians were ignorant, even dismissive 
of our Bayesian statistical design, which was recommended by 
our FDA advisory group.
    Because they don't routinely treat heart attack patients, 
they were unfamiliar with our heart measurement assessment, 
Sestamibi Nuclear Imaging, a well-validated assessment tool. 
They dismissed it.
    They were concerned about a 1.8 percent death rate in the 
treatment arm of the group. They didn't understand the normal 
death rate was greater than 3 percent at the time. They just 
didn't know.
    An untrained advisory panel chair accepted a motion for 
approval without conditions, completely inappropriate for a 
full PMA product. Minimally, a postapproval study is always a 
condition for approval.
    The panel vote was 9-to-5 not to recommend approval, 
despite the trial having met its endpoints.
    Here is a summary of actions since that meeting.
    Jobs were lost. One of my first actions post-panel was to 
fire half of the employees as a cash conservation maneuver 
while we attempted to work through an approval path with FDA. 
The employees let go had done their jobs effectively, helped us 
deliver a successful trial, and did not deserve this outcome.
    Since that panel meeting, heart attack patients, 
particularly those suffering large, debilitating heart attacks, 
have no access to our therapy.
    The advisory panel is being tweaked slightly. For the most 
part, it operates as it has in the past.
    Venture capital, by far the dominant financing resource for 
innovative breakthrough medical devices, is increasingly 
abandoning investments in PMA product research due to 
uncertainty over FDA approval, even when outcomes meet goals.
    No doubt, many of you here today have heard a variety of 
criticisms about FDA policies, personnel, arbitrariness, 
follow-up, and more. Unlike many of my peers who run small 
medical device companies, I have high regard for most of our 
particulars CDRH members. They are collaborative, helpful yet 
firm, and importantly, they are responsive. I appreciate that 
we work together and how each of us tries to work toward 
deliverables.
    As you may have assumed by now, my biggest single criticism 
is with the advisory board. The good news is that I believe the 
advisory panel function can be monumentally improved with just 
a few changes. Here are a couple recommendations.
    Reconcile the ridiculously extreme conflict of interest 
restriction that increasingly staffs advisory panels with 
nonspecialists in the field being evaluated. Strike a balance 
between accessing expertise with reasonable, commonsense 
restrictions. Require advisory panel members to pre-read the 
prepared material and attest to having done so, or be 
disqualified.
    If the FDA adopts and recommends trial design efficiencies, 
such as Bayesian statistics, uneven randomization, and other 
maneuvers, panel members have to be educated and oriented to 
such concepts or be considered not qualified. Panel members who 
make false or misleading statements must be corrected 
immediately by either the FDA or the sponsor to prevent 
negatively influencing other members. And instruct panel 
members to evaluate the trial and the results being presented, 
not redesign it on the fly. Train panel chair and other members 
on panel logistics, voting procedures, risk-benefit 
interpretation, and other issues critical to effective panel 
function.
    Having gone through what I call a good example of a bad 
example, I believe a few changes like these can preserve the 
important independent advisory function intended for panels, 
yet dramatically improve the effectiveness and the assistance 
of those panels in FDA's decisions to approve or not and under 
what conditions.
    The big picture: This is about maintaining our overwhelming 
U.S. leadership in medical research and innovation. It is about 
U.S. citizens being able to access the latest, most effective 
new treatments. It is about preserving venture capital's 
dominant role in financing daring new breakthrough treatments. 
And it is about adding, not reducing, U.S. jobs in this 
exciting medical device field.
    I appreciate having had the opportunity to testify today. I 
offer to be of assistance in any way I can.
    [The prepared statement of Mr. Larkin follows:]



    
    Mr. Burgess. I want to thank all of the panelists for their 
testimony this morning. It certainly has been enlightening.
    It is usually our custom to go to questions from the 
Members of Congress at this point. We usually start with the 
person who has traveled the farthest and has the most 
seniority.
    [Laughter.]
    If it is all right with you, Mr. Bilbray, I will go first.
    I recognize myself for 5 minutes for the purpose of 
questions.
    Mr. Larkin, I have heard it from others on the panel as 
well, this issue of the advisory panels. And I have to tell 
you, in June of 2007, when we did the reauthorization for the 
FDA, in particular the prescription drug user fee, the medical 
device user fee, and it was the first time I saw the language 
that was going to be restrictive that said, no one with any 
potential for conflict of interest was going to be seated on 
the panel.
    The Institute of Medicine, and I recognize there always are 
some disagreements with the Institute of Medicine, but they 
themselves said no more than 40 percent should have some 
identifiable conflicts. But they recognized the utility of 
having people on the panel who actually understood the drug or 
device under question.
    And when we had that conveyed in the committee, we had the 
markup on the bill, and I put up an amendment out there twice, 
once in subcommittee and then a full committee, and it was 
always voted down on a party-line vote. So clearly, there were 
political overtones as to why you mustn't have any type of 
conflict of interest on the panel.
    But particularly in a very small universe, I was thinking 
at the time about pediatric oncology; certainly, your area fits 
that bill. But in a very small universe, the number of people 
who actually know something is going to be a pretty small 
number of people. And if you exclude all of them, then you are 
knocking all the experts off of the panel before you started. 
You might as well have OB-GYNs on the panel as pediatric 
oncologists.
    So I certainly welcome the fact that I have heard I think 
from several of you today, and I promise you this is something 
I am going to get fixed when we reauthorize both the 
prescription drug user fee on the medical device user fee in 
this Congress.
    It was wrong the way it was approached last time. I was 
young, well, younger. I didn't appreciate how things worked. It 
was my first term on the committee in the minority. And I 
didn't really understand how things were working, when the 
chairman, then-Chairman Dingell, offered to work with me and 
help me get this fixed, it turned out to be pretty much an 
empty promise. This time, we will get this done.
    Do any of you have any things you would like to offer on 
the conflict of interest stuff, because that is a fight that I 
intend to continue into this year?
    Yes, Doctor?
    Mr. Gollaher. We have talked to the FDA, including the 
commissioner, about this. And I think the FDA themselves 
support significant changes. So you are not completely swimming 
upstream. They realize that there are weaknesses that they can 
bring to bear, both on the drug and device side.
    We talked with the commissioner about transparency. And the 
rule, generally, in looking at IRBs, for example, institutional 
review boards, within clinical medicine is conflicts are 
unavoidable. So clear illumination, as was said before, about 
the nature of the conflict is essential.
    But I think what we have seen is going very far the wrong 
way to try to exclude them, and that causes more harm than 
good.
    Mr. Larkin. I think, sir, David is correct. The pendulum, 
to use that expression again, has swung too far.
    To me, it is sort of a cascade. You know the media gets the 
public stirred up about not necessarily a real problem but a 
whiff of a problem, a potential drug or device related problem 
that has yet to be demonstrated. And then once that is going, 
the public gets upset about it, rightfully. And then, I have to 
say, sometimes a few legislators kind of join that bandwagon. 
And at that point, it is very hard for someone to stand up and 
say, wait a second, let's have a commonsense, practical 
approach to conflict of interest.
    It is as if, at that point, the public has said nobody who 
has anything to do with this specialty can be involved in this 
decision. And of course, that is not right.
    The more you know about the field, the more you know about 
devices or new approaches, particularly the more important you 
are as an element in that decision. I think you can be vetted, 
but I think we have to get back to some more reasonable--and 
the other thing I would say is, my point about believing that 
the vast majority of physicians and professionals in the 
medical space are honest and ethical is important. As soon as 
someone violates that, you kick them out.
    Mr. Burgess. Yes, and that is critical.
    Mr. Panetta, you talked about the cutting-edge stuff now 
moving and instead of it being United States-oriented, it would 
be oriented overseas in Europe or perhaps even Asia. Right 
before his death, I had an opportunity to meet Dr. DeBakey. He 
got the congressional gold coin, and we spent an afternoon 
talking. And he reminded me that in the 1930s, when he 
graduated from medical school, that he was immediately required 
to go to Europe to get the credential to be a researcher, 
because he wanted to do research, and you couldn't be a 
researcher of any renown if only trained in the United States.
    So he was a graduate of medical school, I think the year 
Elvis was born. And then things all changed after the Second 
World War. He attributes a lot of it to the funding of the 
National Institutes of Health, but there are obviously other 
reasons as well.
    But it seems like such a shame to undo that now, as we are 
poised to do. But that is obviously something that concerns 
you, as well.
    Mr. Panetta. Absolutely, Congressman.
    It used to be, too, that the majority of drugs were 
developed in Europe. And we saw, fortunately, the pendulum 
shifting as drug companies came to the U.S. to take advantage 
of the work that is done by the NIH, to take advantage of the 
skilled workforce here, and certainly to take advantage of the 
reimbursement that is supported here that doesn't come anywhere 
close in Europe to what companies are able to ----
    Mr. Burgess. And the academic community, we must mention 
them, since we are in their facility today.
    Mr. Panetta. Absolutely. And here in San Diego, if it 
weren't for the academic community, we wouldn't have a 
biotechnology industry. It came out of the academic community.
    Just to get back to the advisory panel situation, the one 
comment I would add, if I could, on that situation is that many 
of my members tell me that there is definitely a disconnect 
between the advisory panels and a lot of the work that is done 
leading to advisory panel meetings, in terms of an 
understanding of the earlier work that has been done. And we 
have had several companies here that have gone all the way 
through the process and invested hundreds of millions of 
dollars only to be redirected back to something that came up as 
an issue early on in the process and could have easily been 
tackled then. And this creates even more delay and uncertainty 
at the end of the process. So there is definitely a 
discontinuity there.
    Mr. Burgess. Thank you.
    Mr. Bilbray will be recognized for 5 minutes.
    Mr. Bilbray. Yes, Joe, let me follow up on that. So you are 
talking about the staffers who review the original applications 
are not available as resources for the review bodies?
    Mr. Panetta. Many times, Congressman Bilbray, the staffers 
are no longer there, because, as I said, there is a 3-year 
average turnover. Many times the products are reassigned. 
Staffers move from one division to another. And many times the 
record is just not clear within the agency as to decisions that 
were made early on, and there is no consistency in that 
decisionmaking.
    Mr. Bilbray. So we have a real problem with institutional 
memory starting with that nobody can follow this through. I 
mean, how many people know the frustration, a good example, is 
you go to get your passport and somebody says oh, yes, you do 
this and this. You go back to the same window or you go back 
for your birth certificate, and they say, well, I wasn't here, 
I didn't tell you that. And I have a new set of rules.
    So I think this institutional memory, I just can picture, 
the fact of, coming from local government, of a planning 
commission not being able to have as a resource the staffer who 
actually processed the application. I mean, that is a huge 
resource there. And so, you are literally flying blind.
    Kevin, my question, though, is this conflict issue, it 
really is broad. I mean, it is almost going to a concept--and I 
guess it is something that I would ask both sides of the aisle 
to perceive--this would be like saying that you wouldn't allow 
any school board member to be either a parent with a child in 
the school system or to be a teacher. You know how that would 
be received around this country.
    But that conflict I think is a real concern I have, because 
it is almost as if that there is a willingness to accept 
ignorance to avoid any appearance of prejudice. And I guess 
that is where we get into it on that. It is a big concern that 
you can't sanitize the system to the point where nothing can 
grow. And, hopefully, we will be able to address that kind of 
conflict.
    Let me just open up on one thing here. My concern is that, 
anybody here, if we do nothing, if we don't address the issue 
of the desperate need for venture capital for research, if we 
don't change the system where we allow experts--and let me just 
say a moment about that. You think cardiovascular, you know, 
you have a pretty broad perspective with some of this kind of 
stuff that goes on. I mean, I think we can talk about--what 
about gene therapy?
    If you don't allow somebody was some expertise in the 
field, literally, you are flying blind. You would rather say, 
why even have a review body if they are going to be basically 
blind to the whole facts and science out there?
    But let me just open up, if we do nothing at all, if we 
keep on the projection that we are looking now, you know how 
guys love to do their scales. OK, here is our projection, here 
is where we are going, where are we in 10 years?
    Mr. Gollaher. Sir, just one way to think about this is the 
concept of regulatory competition. The FDA doesn't view itself 
as having international competitors, but it does.
    In fact, the Europeans have designed their drug and their 
device regulatory systems with the explicit intention of 
building up their industries. And so it is really the opposite 
of the way that we have thought traditionally about regulation.
    Mr. Bilbray. So it sounds like they actually approach this 
like they did the shipbuilding industry, where they were going 
to participate in helping to get to that outcome, that they 
were going to be partners with the researchers and the private 
team to get to the outcome. Where we used an approach of, 
``That is your problem. We are just here to make sure you don't 
do something we don't want to do. We don't. We have no 
obligation to help you do the things we do want.''
    Mr. Gollaher. Well, it is interesting. If you look at the 
European system, and it is different for drugs than it is for 
devices. But in both cases, the regulatory system has a sponsor 
that relates to the company that is going for approval. It is 
called a rapporteur in the medicines agency, and it is called a 
notified body in the device industry.
    But these are people who are basically working with the 
industry sponsor to shepherd the product approval through. And 
it is not an adversarial but rather a collaborative process.
    Mr. Bilbray. Doctor?
    Mr. Mento. Yes.
    Mr. Bilbray. I hear that we are looking at having our 
medical research facilities go the way of our shipbuilding. And 
it all ends up being basically something we used to talk about, 
where Americans used to be employed, used to being involved 
with that. If we don't change the system, is our medical 
research going the same way as our shipbuilding did?
    Mr. Mento. I think it is actually worse than that. I think, 
I mean you heard today, and the concept is that in small 
biotech companies that are willing to take the risk, so they 
are going to go out there with a first class drug. Well, the 
problem with first in class drugs are, there is no regulatory 
pathway.
    You are talking about pathways that exist with endpoints. I 
am talking about drugs that we are developing in liver 
fibrosis; there are no endpoints. No one has ever done a drug 
in that space.
    So when you think about uncertainty associated with 
trusting that the FDA is going to be capable enough to have 
continuity over a 10-year process it is going to take to 
develop a brand-new drug in a space that hasn't been developed 
before, it is incredibly difficult to bring money in. And if 
the money doesn't come in, you are going to have more--I mean, 
I have a distinguished member of the venture community next to 
me. But I can tell you that the people I talk to, they would 
rather have I have a second or third generation drug where they 
know the pathway is, where they can at least identify if it is 
the next antihypertensive, people know how to measure blood 
pressure. They don't know how to measure the progression of 
fibrosis in the liver in a way that will determine whether or 
not the clinical outcome for those patients is going to be 
better or worse.
    And, in particular, in our case, the epidemic--everybody 
talks about obesity. We are talking about the epidemic of 
obesity, and one of the things that people are probably not 
aware of--you probably are, as a physician.
    Mr. Bilbray. He is aware of everything.
    [Laughter.]
    Mr. Mento. The inflammation of liver associated with 
obesity is rampant and increasing, not just in the States but 
elsewhere. So it is not just that we are developing drugs for, 
say, in the U.S. elsewhere. The diseases that we have, because 
of the westernization of some of these other locations, are 
becoming more prominent there.
    They are going to be first in line, because they are going 
to be able to have the scientists there, have the funding for 
that to treat the disease there. They may not even get to the 
United States.
    So I think it is worse than the shipbuilding industry.
    Mr. Panetta. May I add to that, Congressman?
    Mr. Burgess. Of course.
    Mr. Panetta. Last year, I had I had the--Mr. Chairman, last 
year I had the opportunity to go to Taizhou in China, where the 
Chinese are building China Medical City.
    China Medical City is a remarkable effort to begin with, 
because it is a ground-up--from the ground up effort to build 
research facilities, universities, incubators. But what 
impressed me the most was in the center of China Medical City 
was an SFDA building, a Chinese FDA building.
    And when I asked about it, I was told this building is here 
so that the SFDA folks can work directly with the researchers 
and the folks in the incubators from beginning to end and make 
sure that there is collaboration in the development of 
products. What a unique concept.
    Mr. Burgess. The gentleman's time has expired. We are, 
obviously, going to go another round for questions.
    Dr. Stevenson, I would like to ask you if I could, the 
concept of the shipbuilding having already left the country. 
Has the financing for the shipbuilding, has that ship also 
already sailed?
    Ms. Stevenson. It is hovering, I would say. I am not so 
sure sailed.
    But the point about the fragile ecosystem I think is 
really, really important, because I can only invest in 
companies when I have a fund to invest. I get that from my 
limited partners, who are, as I mentioned, the pension funds. 
In our case, we have these small funds. A lot of ours are 
family offices and high-net-worth individuals.
    Well, people are only--they are making those investments in 
order to get returns. So if I can't demonstrate consistently 
over time that they are getting a reasonable return, they are 
simply going to go elsewhere. I mean it is----
    Mr. Burgess. There are too many iPhones being made.
    Ms. Stevenson. Well, yes. Why not go where you are going to 
get a guaranteed return, as opposed to investing in innovation. 
Good to be a good citizen, but that is not why people are 
making these investments.
    And there is a really big lag. You asked what would happen 
if it all kind of stopped today. Well, it takes a long time to 
go grow an idea. It takes a long time to grow the management 
team. I mean, nobody does life science management that hasn't 
been doing something allied for 15 or 20 years. Well, those 
people are going to go elsewhere.
    I mean, I had like 20 years of college and operating 
experience and all this stuff before I started doing that. That 
is not unusual for a venture capitalist.
    So the life sciences folks will go find other things to do. 
And it is very hard then to restart this ecosystem, once it has 
started to die off, like in any other ecosystem.
    Mr. Casey. And to put a point on that, you asked a 
question, Congressman. I mean, if things track the way they are 
today, the medical device industry will be a memory in the 
United States, point 1. Point 2 is patients are going to be 
paying a lot more for devices, and that money, just like oil, 
is going to go overseas to either China, South Korea, or over 
into Europe. And to be honest with you, the economy is going to 
have sacrificed, in our estimation, between 200,000 and 1 
million jobs on literally looking at how you begin to foster an 
industry and the next generation of health-care information 
technology.
    A lot of discussion here is a little bit more about bio and 
pharma. I will just tell you that if--you mention gene 
sequencing. When you look at wireless data, the prevalence of 
data is just going to explode in health care. And there is an 
entire new industry that is waiting to be formed on data 
analysis, data capture, data manipulation, over time.
    And if we have a regulatory environment today that is 
basically saying, well, hang on a second. The minute you move 
off the device and a drug into something that combines 
information with a device, that creates a whole world of 
regulatory uncertainty. That industry is going to be picked up 
and moved.
    I will tell you, currently today we are 3 years behind 
Japan. I would tell you we are about 18 months behind what we 
are seeing going on in Europe. And the Chinese who had no 
interest in that a year ago are now throwing around a ton of 
money looking at the space.
    So it is an industry that should be American. It is needed 
for the economy; it is needed for jobs. And we are just going 
to watch that just sail away.
    Mr. Burgess. Dr. Stevenson, I know you have to leave.
    Is there any parting advice that you want to give Mr. 
Bilbray and myself?
    Ms. Stevenson. Well, to use the analogy I used with our 
risk, manageable and unmanageable, to manage what is obvious 
here that needs to be managed, the conflict-of-interest issues.
    We can live with an FDA that is hard. We want safe, 
effective products. That is what we are investing in. We just 
simply need to be able to see the process and then depend on 
that process. So when we make our forecast, when we make our 
investments, we get to where--we have forecasts. We can get on 
that amount of capital and that amount of effort.
    That is really all anybody is asking for. And it existed at 
one point in time. And we believe it should exist again.
    Mr. Burgess. I agree with you.
    I yield back to Mr. Bilbray.
    Mr. Bilbray. Yes, let me just say, Doctor, we don't talk 
enough about it, because it is not sexy. It is heart-wrenching. 
But thank you for representing the venture capital industry, 
because as those of us that have been involved in the 
environmental movement, you are the krill of medical miracles.
    Ms. Stevenson. Is that good or bad? I am not familiar with 
the term.
    [Laughter.]
    Mr. Bilbray. The entire ecosystem depends on you being 
healthy.
    Ms. Stevenson. Oh, OK.
    Mr. Bilbray. But you are out of sight, out of mind.
    Ms. Stevenson. And sometimes maligned, I would also ----
    Mr. Bilbray. There was once a very bad movie that Charlton 
Heston did called ``Soylent Green.'' And when the krill dies, 
we start eating each other. In other words, it is not 
sustainable without you.
    And you are out of sight, out of mind. You let people take 
you for granted, and trying to get both sides to understand 
that we need that public research to create the sea grain for 
you. But we have got to allow you to get the capital to be able 
to create those startups that the big guys use to feed the 
system of the next generation.
    And without you, I really worry that we are going to be 
asking ourselves in 10 years, where are all those great medical 
breakthroughs? Where are the things like a vaccine for cervical 
cancer, so the politicians can debate about should it be 
applied or not.
    [Laughter.]
    Those type of miracles I think we take for granted too 
much, and I think we are too jaded.
    But you are the foundation on that, and I want to thank you 
for that.
    Ms. Stevenson. Thank you.
    Mr. Bilbray. My time has----
    Mr. Burgess. No, your time has not expired. You encroached 
on my time, which is perfectly fine.
    Go ahead and reset the time. We will give it to Mr. 
Bilbray.
    Mr. Bilbray. I want to bring that up, because there is a 
lot of stuff like the medical device issue.
    And, Don, my family went through the tragedy of crib death. 
And then went through the tragedy of living with an infant 
monitor with false alarms and everything else out there. A big 
concern is where we would have been if we didn't have that 
device and how if that wasn't made available--and, sure, there 
was a lot of false alarms. But let me tell you something, after 
you have to pick up a cold, dead baby, that false alarm doesn't 
bother you at all, especially when you could pick up a nice 
warm baby while you are terrified.
    And I guess that is my frustration of taking a look at 
things like aspirin. Hundreds of people die every year in this 
country from aspirin. And I wait for the time of the FDA 
explaining to me how aspirin stays on the market and admitting 
because, probably of any drug out there, it has probably saved 
more lives than anything else.
    But aspirin, as far as I know, do you think aspirin, anyone 
of you guys, do you think aspirin could get through the system 
today?
    [A chorus of noes.]
    Mr. Bilbray. And how many people, how many thousands of 
Americans and people around the world, are alive today because 
of aspirin? So how many other aspirins are being held up in a 
system and how many other people are dying because we are not 
approving the proper triage on that?
    And I would open it up. If there any specifics that you 
guys can see, the frustration you run into.
    Mr. Casey. Congressman, I want to pick up on your Sudden 
Infant Death Syndrome as illustrative of what is going to 
happen.
    I mean, basically you are talking about a baby monitor that 
you can hear and whatnot. The technology is rapidly getting to 
the point where it is eminently affordable that you could put a 
device under a mattress that is going to basically measure 
whether the child is breathing with a pretty fair degree of 
precision. And then that can be either pushed to a doctor, a 
caregiver, a parent. It could get pushed anywhere, because the 
data is basically easily moved.
    The challenge and the reason we are talking about de novo 
is, the minute you take a relatively straightforward device and 
put a wireless component to it that involves data transmission 
analytics, you enter into this very strange world where, well, 
hang on a second, are we actually looking at a device? Are we 
looking at a device plus an analytical system? And you get in 
this very strange do-loop.
    And one of the reasons, and it is a shame that Dr. 
Stevenson isn't here, venture capital is walking away from 
that, saying, oh, hang on a second, that is wireless.
    You know that is going to get into a bad place with the 
FDA. And you have totally ramped up the regulatory risks.
    So the technology that should actually already be 10 years 
old is waiting. And just pick that or, for us, congestive heart 
failure. $10 million disease, in terms of what the government 
pays out. It is billed $30 billion, but it is a $10 billion 
disease. There are relatively straightforward wireless medical 
devices that can make a transformative difference that can 
really ramp down costs, increase patient satisfaction, and 
reduce readmissions.
    Then again, it gets caught in this lack of predicate 
device, which is one of the reasons we have been pushing so 
hard on this de novo pathway.
    Mr. Mento. If I may add something in the context of a word 
that we heard--I don't know, I was going to count--probably 100 
times: innovation.
    Funny you brought up gene therapy. The first biotech 
company that I was recruited to in San Diego back in 1992 was a 
gene therapy company. And in those days, in the '90s, the 
investment in this industry was truly all about innovation. You 
heard from the venture community that limited partners were 
flowing in there because there was the perception that the 
science was going to dictate and lead the way. And when we 
started in gene therapy, the FDA not only had no one at the FDA 
that knew anything about gene therapy, because it was such a 
new field, but there wasn't that fear that there wasn't going 
to be a pathway that could be generated, because the feeling 
was that science was going to win out, both in the companies to 
develop innovative products, and through the FDA, that 
ultimately the process would be defined well enough that that 
the venture community would not go away.
    That is completely the opposite now. I mean, there is a 
fear, an absolute fear, in innovation, and you heard a bit of 
it here, in the venture community, not so much the science 
isn't good, but there is no predictability and no trust that a 
pathway will ever be developed.
    And even when you have a job that goes all the way through 
the process, you have had your agreements, you add the issue we 
had talked about relative to the scientific advisory committee 
meeting, and not having people on there that are even capable 
of understanding the process. We are in dire straits.
    If it doesn't get fixed, we may not see its 4 or 5 years, I 
am more concerned not about the drugs that are currently in 
phase 3. It is the pipeline that is not going to be there 5 or 
6 years from now, where you are not going to have to worry 
about regulating innovative drugs, because they are not going 
to be any there, because there wasn't any financing.
    And it is not just the venture community. Look at the large 
pharmaceutical companies. They are eliminating their R&D 
organizations, because they can't even manage or feel 
comfortable in managing if that is a good investment on our 
part.
    I mean, shipbuilding is close, but I don't think not even 
close to being as dire, what we are in for in the future.
    And when I talk to my colleagues within the industry, there 
is depression, because the science is better now. It is better 
than it was 20 years ago. We can develop--it is remarkable the 
kinds of things that we can do. And you know, with electronics, 
also with gene sequencing and marker analysis.
    But there is no way that we can convince investors that 
there will be a pathway, that the FDA is going to get up to 
speed, and that even if they are that that pathway is going to 
be predictable enough with a trust level that if it really does 
meet its endpoints, it is actually going to get through, and 
not be stifled by some people that are in the process at the 
end-stage that don't even know what they're talking about.
    So I don't know how you fix that.
    Mr. Bilbray. OK, Doctor, you raise a whole new concern that 
we need to follow up on and get into. And in all fairness, you 
are right. It took decades to lose the shipbuilding or the auto 
industry. It will take months to lose the research facilities.
    But the prejudice, the prejudice of people that claim to be 
based in science but bringing prejudice in, and the gene issue 
is a good example, where a top oncologist here at U.C. tells me 
flat out, we are this close, this close. If there was any 
opportunity, this close to the breakthrough, but it has been 
stopped dead in its tracks.
    And resources and everything else are moving off, and to 
see somebody whose entire life is devoted to trying to save 
life, a frustration of seeing a system that basically takes 
prejudice, and discriminates against a certain scientific 
approach, based on ignorance, and to claim they are somehow 
being informed decisionmakers just I think is one of those 
things that we need to talk more about and look at. And that is 
one thing our committee has to look at is the prejudice.
    We just got this big scandal that is coming down that the 
doctor and I are working on of a certain kind of energy 
technology. And the prejudice led them to major mistakes that 
cost the taxpayers a half billion dollars.
    The trouble is, with your field, we are seeing bureaucratic 
prejudices that are standing in the way of not just the 
creation of jobs, but the saving of lives. And that sure makes 
what went on up in San Francisco look second rate.
    Mr. Burgess. Let's go each one last round.
    Mr. Panetta, I wanted to ask you a question. You referenced 
the period of exclusivity. And I thought, for all the bad stuff 
that is in the Affordable Care Act, I thought at least the 
period of exclusivity had been put to rest. It seemed to be 
pretty bipartisan, bicameral support for the 12 years that was 
I think included in the amendment that passed through our 
committee. And I think similar language was taken up by the 
Senate.
    Then the President the other day said we are going to roll 
that back, I think he said to 7 years.
    Mr. Panetta. Seven years, correct. And if you recall, 
Congresswoman Eshoo took the President on directly on this 
issue as the Affordable Care Act was in the process of being 
passed. And this was probably a good year and a half ago that 
the President proposed to reduce it to 7 years period. We 
thought that had been put to rest, but of course it is in his 
latest deficit reduction plan again.
    Mr. Burgess. Yes, I mean, it almost defies gravity that you 
are going to be able to recoup the investment cost in such a 
short period of time and have a product on the market that 
anybody can actually afford. Otherwise, your price is so high 
that it becomes something that is not attainable.
    Mr. Panetta. Absolutely, and there was plenty of economics 
behind the proposal for 12 years. Of course, it was debated by 
the Energy and Commerce Committee, and we were able to back up 
the need for 12 years.
    It provided some sense of confidence and security to the 
investment community. And to propose to move it back to 7 years 
brings that insecurity back into the equation.
    Mr. Burgess. And just so you can take some comfort, I don't 
see any abiding interest from either side of the political 
dais, and in our committee, to reengage that fight. There was 
one person who was pushing it, as I recall, and the vote was 
literally that lopsided in July of 2009, when that came up in 
committee.
    Mr. Casey, on the novel device aspect, you have obviously 
referenced one that sounded pretty important to me. I assume 
there are others out there in the pipeline that you all are 
looking at.
    Mr. Casey. There are a ton. I mean, if you look at this 
space again, we commit to things as to how do we dramatically 
lower the cost of health care by creating infrastructure 
independent, or how do we create monitoring that to accelerate 
the development of novel technologies.
    If you look at the combined weight of like an Apple or 
Verizon, AT&T, they all want to jump in the health-care space, 
but then they jump and they look and say, oh my God, there is 
an uncertain regulatory body there that actually is actively 
discouraging innovation by virtue of not investing in 
understanding the science and not creating a pathway.
    We just see a significant amount of problems where we----
    Mr. Burgess. Now would Google be subject to that 2.9 
percent medical device tax on the iPhone?
    Mr. Casey. No, it is very interesting. Apple, as an 
example, for which there are now over 13,000 medical apps, you 
actually sign a release if you are going to develop a medical 
app with Apple that declares that you will not make the Apple 
iPhone a medical device, as a way of shielding them from the 
2.9 percent tax.
    And it is interesting that one of the most innovative 
companies in the world is so concerned about being regulated 
that they just basically sit there and put up a big wall.
    But if you look at the five most costly diseases--and I am 
talking to a physician. I don't mean to--but if you look at 
congestive heart failure, if you look at COPD, all of these, 
you run down asthma, you run down pregnancy, in terms of cost 
per individual that has that. These are all conditions that 
there are devices that can be made to transmit well-understood 
biometrics from point A to point B, and create--Congressman 
Bilbray, whether it is a false alarm or any kind of alarm, just 
move data and get it into a rich data analytic field, where you 
can learn long term what is the actual pathology of the disease 
and other things.
    But if you look at the amount of money that is being spent 
on wireless devices in COPD right now, it is nonexistent. 
Congestive heart failure, a little bit.
    Mr. Burgess. Yes, are forced expiratory volume transmitted 
wirelessly on a daily basis to predict the compliance----
    Mr. Casey. Lack of compliance.
    Mr. Burgess. Or lack of compliance. Same with the daily 
weight on a CHF patient. Relatively low-tech ideas that go 
high-tech on the wireless side. But it could just be a game-
changer, as far as the practice of everyday clinical medicine, 
where you are able to anticipate your patient's problems.
    One of the things I liked about that was you can set that 
so that the investigation is done at 2 o'clock in the 
afternoon, not in 2 o'clock in the morning, which is when we 
typically see the patient come in to the emergency room, 
because they have been worried because all day they have had 
this pain or this lack of activity, or something that has 
gotten their attention. So the ability to manage your clinical 
practice becomes huge.
    Mr. Casey. And you set the alarms. If you say, I have a 
diabetic obese--gestational diabetes obese patient, I actually 
might want to see more data than less. Where if I see somebody 
who you think is relatively low risk, you set the parameters, 
because this is the revolution that we are talking about.
    And the fact that the country invested so much money in 
creating basically ubiquitous communication technology, and we 
are not leveraging it against the 20 percent of spending that 
is called health care I think is really kind of of a national--
--
    Mr. Burgess. Maybe the critical point was----
    Mr. Bilbray. Doctor----
    Mr. Burgess. Wait, wait, I just have one cautionary tale.
    Three or 4 years ago, I went out to Seattle with Newt 
Gingrich, who was giving a talk out there. And he asked me to 
talk on electronic health records. And we got the tour through 
Microsoft, and all of the smart people at Microsoft were there 
with us. And we went through the Microsoft house. The house is 
named Grace. You walk up to the door and Grace recognizes you. 
You don't have to activate Grace. She recognizes that you are 
coming up.
    She turns on your favorite light, warms up your favorite 
chair, all this stuff. You go into the kitchen and Grace has 
some menu suggestions for you. And Grace might know if you are 
a diabetic or prediabetic.
    The thing that concerned me about that house was if the 
refrigerator talked to the bathroom scale, it might put the ice 
cream on lockdown for that night.
    [Laughter.]
    That is one of the things that--the cautionary tale I would 
have about wireless run amok.
    Mr. Bilbray?
    Mr. Bilbray. I almost was ready to make a marriage proposal 
to Grace. By the time----
    [Laughter.]
    Until she cut off the ice cream.
    Speaking of that is how in government we can weave these 
webs that come back to get us.
    As far as I know, there is a mandate in this new health-
care bill of the private sector has to go to electronic 
recordkeeping and data processing.
    But is there any protection against the tax that is in the 
bill of coming down on that technology that is mandated?
    Mr. Casey. No protection.
    Mr. Bilbray. So while they are mandated on one side, and, 
oh, by the way, veterans and military have been trying to do 
this for 10 years. We are going to have the private sector do 
it in 4.
    But now they say they want to do it, but at the same time 
basically have this cloud hanging over that there may be this 
big tax on you. If you do what the Federal Government wants, we 
are going to be coming hard with a big heavy tax. Is that 
correct?
    Mr. Casey. It is circular logic. And I will just push the 
EMR debate. We are not huge advocates of EMRs per se, but even 
EMRs, there is a carveout with the FDA.
    Now the FDA is saying, well, excuse me, EMRs have a 
carveout, but if you put in your clinical decision support 
algorithm in your EMR, well, that is now under review. And then 
if you put in your medical device collection capacity in your 
EMR, now that is going to be regulated.
    So the interesting issue is rather than increasing the 
functionality of this data-driven electronic medical record 
world that people want to live in, the FDA is now encroaching 
on what was something Congress had actually stepped up and said 
there should be a carveout to protect that, to get the 
innovation we actually need to change health-care paradigms.
    Mr. Bilbray. So maybe we want to start by, basically, 
getting both sides to agree that we will not implement the 
device if it falls into the category of a mandate for the data.
    Mr. Casey. That's a good start. A very wise Congressman I 
thought introduced something about that.
    Mr. Bilbray. Let me just say, we are about--do you have any 
more questions?
    Mr. Burgess. No, I have some things that I must do at the 
end, so go ahead with your closing observations.
    Mr. Bilbray. OK.
    You now, let me just make an observation as a local, and I 
want to thank the chairman for being here, and I want to thank 
the witnesses.
    I think the American people are looking around and saying, 
why can't Washington work in a bipartisan effort? And I 
apologize, both sides of the committee wanted to see this 
happen, and, hopefully, they will be able to review this. And I 
appreciate the fact of the bipartisan effort.
    This is the kind of thing that Americans really want to see 
a bipartisan effort on. The fact is, being from San Diego, it 
is sort of interesting that today we have had two visitors that 
have come. One everybody knows it is visiting. Another most 
people in this county of 3 million-plus won't even notice it. 
One from the West and from the ocean, and the other one from 
the East from the sky.
    And those of you when you leave here today, you can look 
out, you can see some very blue water. But then you can see 
some very ugly red water out there. And it is a thing called 
red tide.
    And the red tide to me is really a great analogy for what 
we have seen happen in the FDA. Red tide is something that goes 
into an environment and, basically, makes a very healthy 
environment toxic. Red tide will poison the basic building 
blocks of life in the ocean, and that is what we have out here.
    I see that as being an analogy for what we are seeing 
happen with FDA, that people will wonder why the environment 
has become so, so toxic for innovation and not just job 
creation but health creation. And we need to do something about 
it to make sure that red tide moves off into another 
neighborhood and leaves the research facilities alone, so you 
guys can grow and feed the system that we depend on so much.
    The other visitor was the President has come to visit us 
today, and for a lot of reasons, but I think that one that I 
hope that somebody talks to the President about here is how 
important medical research is for the creation of jobs in San 
Diego, that California has been historically the great 
incubator of medical breakthroughs.
    And I hope the President is confronted with the fact that, 
do not take us for granted here. Everybody in Washington talks 
about innovation, research, you know, the great potential that 
this is the backbone of America's economic and social future. 
And I hope somebody goes over there and reminds the President 
that he is in a city that desperately needs him to take a lead. 
Because everything we talked about today can be done tomorrow 
by the executive branch. They can make the institutional and 
cultural changes in FDA to make this possible.
    But let me just say this, I hope that there is a 
possibility that maybe some young lady can walk up to the 
President and not say do this for me, because we all talk about 
what--Bill Walton says he was a benefactor and he was somebody 
that benefited by this kind of research and this kind of 
medical device opportunity.
    But I will tell you something, more important than a young 
lady walking up and saying do this for me, would be a young 
lady walking with her child and say, the only thing worse than 
a Bill Walton or somebody and somebody in pain and suffering 
and needing medical breakthroughs is watching a child. That is 
a challenge that I wish that President could be confronted 
with. ``Mr. President, if you don't do it for me, do it for my 
children and do it for my grandchildren.''
    And so, hopefully, all of us can kind of leave here and 
say, our grandchildren won't remember if we are Democrat or 
Republican, but we are going to remember did we save the 
industry that could have saved their lives? Did we rise to the 
challenge to not only make sure we have a strong economy, but 
that we have healthy grandchildren?
    And thank you very much for being here today.
    Mr. Burgess. And I think that concludes our testimony and 
time for questions.
    I do want to thank all of you for being with us today. It 
has been an informative discussion. It is the committee's 
practice to allow members to submit written questions to 
witnesses. And I would ask that you would reply to those 
questions, if offered.
    And again, I want to thank you for the time, the time you 
took in preparing the testimony, the time you took coming here 
to testify to the committee.
    Remind the members that they should submit their questions 
to the committee clerk by Monday, October 10.
    And with that, I will adjourn the subcommittee. Thank you 
all.
    [Whereupon, at 1:17 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]




                                 
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