Testimony from June 16, 1999

Prepared Testimony from Gordon Binder, Amgen

 Thank you, Mr. Chairman. My name is Gordon Binder. I am Chairman and Chief Executive Officer of Amgen, the nation's largest biotechnology company and one of its premier high-technology enterprises. Amgen's story is in many ways typical of the entire story of high technology's role in America's economic growth. So, with your permission, I'll take a moment to sketch it out. Amgen began operations in 1981. We shipped our first drug in 1989. In the eight years in between, we had to do two things - pursue our research and development program and raise the capital that kept that program going. Raising capital, funding research, that is the heart of the high- tech story - and the heart of a good deal our nation's economic success story in the last two decades. For example, from that 1982 standing start, Amgen now has nearly $3 billion in revenues and more than 5,000 employees. Nationwide, biotechnology employment has grown almost 400 percent in 13 years - to over 150,000 people with salaries that average $50,000 each. And that's not the industry's only economic impact. This little bottle contains a single dose of EPOGENO, the product that we first shipped a decade ago. Well-functioning kidneys produce this protein naturally, which stimulates bone marrow to make red blood cells. Without enough red blood cells, you're anemic. If you are a kidney patient, chances are that you can't produce enough of this protein, so you can't produce enough red blood cells. It used to be that kidney patients received frequent transfusions, which are expensive and carry risks. Even so, many remained anemic. Some cut back on work. Some had to quit jobs altogether and go on public assistance. EPOGEN lets the body create red blood cells again, and gives people back their energy for work and for quality of life. In other words, in the past decade this small vial has helped millions to remain productive.

It has cut transfusions in the United States by nearly one-fifth -- that's one in five. And fewer people have
contracted blood- borne diseases, which has also saved healthcare money. So on top of creating tens of
thousands of jobs and billions of dollars of national wealth, biotechnological innovations like this are
cutting the cost of disease -- not just the out-of-pocket costs that insurers pay but the total cost to society
and patients. But biotechnological innovations do not come cheaply. It takes on average $500 million and
15 years to develop a new drug. And only one in three will produce profits that cover their after-tax R&D
costs. High costs and long odds are the realities of biotechnology innovation and they lead to the two
policy recommendations I want to focus on today. The first has to do with the R&D tax credit. The credit
is a good idea. It reduces the after-tax cost of R&D. This mean that innovators have more money to
invest in more new medicines, which 'increases the odds that a company will end up with a successful
new product. But R&D investment is not an on-again, off-again thing. It's a long-term commitment - and
to have the greatest macro-economic effect, the government's commitment to this tax credit should be
long-term, too. In the last 17 years, the credit has lapsed nine times, including last July. Each time it's
been renewed or extended, and now the President proposes to extend it for another year. That's good.
But put yourself in the shoes of biotechnology innovators. Can they count on the credit or not? Beyond a
year, they can't - so we are reluctant to factor more than a year of it into planning. In policy terms, this
means less innovation bang for the tax-credit buck. It is wasteful. So this is policy recommendation
number one: maximize the impact of the R&D tax credit; make the tax credit permanent.
Recommendation number two: in this session, there will be a number of proposals directly or indirectly to
impose price controls on pharmaceuticals. Innovation is expensive, risky and therefore fragile. Price
controls - even the threat of price controls - discourage it, badly. I have here a chart of total
pharmaceutical company R&D spending in the U.S. during each year of the last decade (see attachment).
You can see that, in that time, the climb was steady - with one exception. In 1994 it almost stopped.
What happened in 1994? The President put forward his healthcare program and it included price controls.
This is a simple fact: all policies to advance the biotechnology and the development of pharmaceuticals
and encourage industry growth 'into the next century will be far less successful if Congress imposes any
form of price controls on pharmaceuticals. My time is short today and I am sure you will hear from other
speakers about the need for strengthened global intellectual-property protections, for innovation-friendly
regulatory environments, for better treatment of capital gains and for day-for-day compensation for delays
at the Patent and Trademark Office that are out of the control of the patent applicant. So let me keep my
message to this: make tax incentives predictable, allow the market to determine prices and thereby decide
the rewards of innovation, and America's bio-tech and pharmaceutical innovators will continue making
medical and economic miracles. Thank you. I look forward to our discussion.