March 1, 2005 (Vol. 25, No. 5)

Stricter Bans on Certain Extracurricular Activities Could Have Impact on Industry

Within the first week of the NIH announcing new ethics regulations, the phone calls to recruiters had started. For some, the regulations, termed both punitive and draconian, were the breaking point that is driving them into industry.

The 96 pages of regulations, in case you haven’t heard, are significantly stronger than those proposed last June by NIH director Elias Zerhouni, M.D.

The new regs ban extracurricular activities, which include serving as scientific advisors, officers, directors, or other fiduciary board members; consulting or providing professional services, as well as teaching, speaking, writing, or editing for “substantially regulated” organizations, including hospitals health insurers, and health, science, or health research-related trade professional, consumer, or advocacy association or a supported research institution.

Holding stock or other financial interests (aside from pensions and employee benefits) within “substantially regulated companies” also is prohibited, although employees who are not required to file financial disclosure reports may hold up to $15,000 in such stock. The definition of “substantially regulated companies” also was broadened.

“This has a major impact for the NIH and industry,” emphasizes Buster Houchins, vice chairman of recruiter Christian & Timbers (

“This is truly a disruptive change,” Houchins says, that affects the way information is transferred. The bans upon extracurricular speaking and teaching activities hamper the flow of information, although even the regulations promise to “consider expanding the availability of scientists” to speak before “relevant audiences at government expense” or by acceptance of travel reimbursement. Compensation for such activities, however, remains barred.

“There has been an effort throughout government to facilitate technology transfer, to make great research available to the public,” according to Steven Meltzer, attorney, Shaw Pittman, and general counsel, Technology Council of Maryland.

“I don’t know how they plan to provide information to companies, but a creative way is always found,” opines Steven A. Kriegs-man, president and CEO, CytRx (Los Angeles).

That way may be the recently announced rules requiring publication of research within 12 months, and the continued use of cooperative research and development agreements (CRADA), Meltzer says.

Chilling Effect

Nonetheless, these regulations, “have a chilling effect on tech transfer because, if scientists can’t be involved with private industry in a compensatory way, the easiest thing to do is just go in and do their work,” adds Meltzer, and nothing more.

“Many universities,” in contrast, “see consulting as a good thing that brings in funding and facilitates tech transfer,” he continues. The big difference, apart from budget and funding sources, is that the NIH is involved in a high percentage of medical research in the U.S. That, coupled with recent pharmaceutical scandals, makes the NIH a big target.

Congress, through the Office of Government Ethics, “is overreacting because of a few bad apples who didn’t recognize what a conflict of interest was,” fumes Viijay Samant, president and CEO, Vical (San Diego). “It’s a big hammer for a small problem. I fundamentally disagree with them.”

Vical doesn’t hire NIH consultants, so it will feel no immediate repercussions from the many banned activities. Instead, Samant’s distress is for the industry.

“NIH used to be a blue sky environment in a collegial atmosphere,” in which researchers could keep in touch with advances in modern science through consulting and speaking engagements. Those avenues of engagement have been sharply curtailed.

“Most players try to walk an ethical line. This puts those ethics in writing and refocuses attention,” according to Bruce Seligmann, Ph.D., founder, chairman, and CSO at High Throughput Genomics (HTG; Tucson).

That said, the restrictions on financial holdings in biotech, pharma, food, and other “significantly regulated companies” are particularly onerous to those affectedmany of whom have utterly no input into decisions, continues Dr. Seligmann.

Different Restrictions

The compensation restrictions “are different, but not unique,” as John Rhodes, U.S. and global managing partner of Deloitte’s life sciences practice, points out. “This is reflective of the times we live in, where outside pursuits have to be very, very transparent. We’re beginning to see this in the financial services and accounting worlds, too.”

Such restrictions aren’t yet commonplace, though, so it’s understandable that “people believe they’re being singled out. That makes it significantly harder to recruit and to retain people,” comments Meltzer. Morale already is suffering, if the reputed grumbling at NIH staff meetings is any gauge.

In such an environment, “the NIH will need a new strategy to attract the best,” maintains Houchins. Without it, adds Samant, “the NIH will fail to attract very good talent. There will be a talent drain that will leave the deadwood researchers and bur-eaucrats at the NIH.”

The new regulations, he says, could well be called “How to Choke Science101.”

The NIH is aware of the repercussions on recruiting and within the next year plans to complete an ongoing review of existing outside activities, evaluate effects on hiring and retention, and develop an oversight system to address concerns created because of this “interim final regulation.”

No Mass Exodus

No one is predicting a mass exodus from the NIH, but some good people inevitably will leave, if patterns from the 1991 ethics shakeup are any indication. A flight to industry could put much of the information and expertise that previously would have been widely disseminated into the hands of a few companies, possibly giving them a competitive edge.

Academic recruiting will prosper, too. On the East Coast, the University of Maryland is planning a new life sciences research building and the Howard Hughes Medical Institute is constructing a medical research facility in northern Virginia. Meltzer speculates that both could attract NIH researchers wishing to stay in the geographic area.

Motivations in leaving the NIH, however, could have important ramifications for potential employers. “The best employees aren’t the people running away from something. They’re the people who are attracted to something,” Houchins suggests.

Given the cultural differences between government services and industry opportunities, that distinction could be important. Michael Liebman, Ph.D., CSO, Windber Research Institute (, notes that outside of industry, “scientists have little exposure to conflict of interest or intellectual property issues, so sometimes they don’t necessarily understand the concerns.”

“In government service, there is a perception of longevity,” Houchins notes, that isn’t present in the private sector. Likewise, the budgetary process is supplanted with the need for financial results and individual accountability, and industry is inherently more of a risk-taker than are large bureaucracies.

Some researchers, frustrated by their new realities and failing to adjust, could become detriments regardless of scientific genius.

Perceived Chasm

That perceived chasm between government research and industry is closing, however, as the NIH is becoming increasingly involved in drug discovery. The focus of science itself is changing, says Dr. Seligmann. There is a big push today toward applied and translational research.

With that in mind, one of the biggest differences between government service and industry involves compensation. Houchins says a physician in government service “could more than double his salary in industry.”

A June survey by Contract Pharma indicates average total annual compensation in industry in 2003 for those with doctoral degrees was just more than $400,000. Even those with only bachelor’s degrees exceeded $200,000 (actual salaries averaged about $110,000 and $80,000, respectively).

Predictions of a flight to industry and academia assume the NIH actually walks the walk indicated by its new, tough-talking regulations. A statement from the Office of Government Ethics (OGE) indicates that the NIH is expected to police itself because the OGE lacks the scientific expertise to determine whether specific projects involve conflicts of interests.

“It sounds like campaign finance reform to me,” Bill Wiederseim, president and CEO, PharmaBioSource (Blue Bell, PA), says cynically.

Number of Exemptions

In fact, a casual read indicates lots of exemptions, including one for financial hardship and another to obtain “uniquely specialized services,” that may be considered if accompanied by documentation.

“My feeling is that they don’t want to have to review the exceptions,” Dr. Seligmann says. Rhodes agrees, but believes the regulations will be tightly enforced.

The regulations are stricter than those proposed last year by the NIH’s Dr. Zerhouni. When testifying before the Oversight and Investigations Subcommittee of the Committee of Energy and Commerce in the U.S. House of Representatives last June, Dr. Zerhouni outlined a broad plan “severely restricting the ability of NIH employees to consult with industry.”

He professed, however a reluctance to “discourage the intellectual excitement and curiosity that leads our scientists to want to work with industry.”

The new regulations also are stricter than they need to be, according to William A. Carter, M.D., president and CEO of Hemispherx Biopharma (Phil-adelphia), affecting what Dr. Liebman calls “innocent bystanders,” like administrative and technical staff.

“What you want is transparency,” Dr. Carter insists, similar to that of the Securities and Exchange Commission, so researchers within the NIH publicly acknowledge their activities and any potential conflicts of interests.

“There are ways to address conflicts of interest that don’t stop the free-flow of information,” he says, without building a big, bureaucratic review body.

Nonetheless, Meltzer says he believes there will be a narrow interpretation of the exceptions. That said, “These things tend to run in cycles. It will take awhile for them to loosen up some.”

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