Mr. Chairman and distinguished members of the Committee. Thank you for the opportunity to testify today regarding the most important topic of biotechnology and its impact on people like you and me. It is truly an honor to testify before you today. Your leadership on issues related to innovation, and medical research and development has been critical to the on-going development of new life-saving drugs and breakthrough technologies.

Without your commitment to such important policy initiatives as funding for the National Institutes of Health (NIH) and permanent extension of the research & experimentation tax credit (commonly known as the research and development tax credit), many remarkable products would not be made available to those in need.

The subject of today's hearing cuts to the core of what the biotech industry is all about. As Carolyn Boyer and Lance Armstrong's testimony demonstrates--the human face of biotechnology is very real. All the cutting-edge science and innovative technology of our industry is valuable only when it ultimately results in the alleviation of human suffering and the overall enhancement of human life.

Our mission at Genentech is to be the leading biotechnology company, using information and human genetic engineering to develop, manufacture and market pharmaceuticals that address significant unmet medical needs. We are committed to working with patients, families, providers and payers to improve patient care.

At Genentech we say that we are ``In business for life''. Our commitment to this is reflected in our history--a history that marks the genesis of the biotechnology industry. Genentech's founders, Herb Boyer and Bob Swanson, were the first to conceptualize the process of cloning human proteins for the purpose of manufacturing life-saving therapies. In 1976, Genentech was founded as the pioneering biotechnology firm with research and development, manufacturing and sales capabilities. By the early 1980s, Genentech had developed and licensed the first two products of biotechnology--recombinant insulin and alpha interferon.

As a testament to our commitment to saving lives, Genentech is among the most research intensive companies in the world. In 1996, we invested $471 million, or 49% of our income, on research and development. We reduced that amount to $396 million in 1998, or 34% of income, partially because investors are hesitant to support one-half of income going to research. But research is our lifeblood. It gives life to the ideas we test to treat serious, unmet medical needs. Our strong portfolio of products is a direct reflection of the ideas our scientists have brought from the lab to the patient. And, as evidenced by our robust pipeline, I firmly believe the best of our science is yet to come.

In an effort to further our commitment to our patients, Genentech devised a ``Single Point of Contact'' (SPOC) program to assist patients and their physicians in gaining reimbursement for their care. In addition Genentech instituted our own ``Uninsured Patient Program'' in 1986 when we marketed our first product, Protropin. The program provides free drugs to patients ensuring that a lack of financial resources will not prevent anyone from gaining access to our products.

With this brief background in mind, there are a few issues on which I wish to focus today, particularly: federal support for research and development, permanent extension of the R&D tax credit, and the Medical Innovation Tax Credit (MITC).

Federal Support for Biomedical Research and Innovation is Crucial. The scientific underpinnings of the industry itself--namely, the discovery of recombinant DNA technologies--was developed in the 1970s at Stanford University and the University of San Francisco with the help of federal funding.

As the industry has matured and grown, the ability of the federal government to either constructively nurture or inadvertently harm the industry has increased commensurately. The Joint Economic Committee (JEC)--particularly in hosting the national high technology summit earlier this summer--has played an enormously important role in highlighting some of the critical ways the federal government can advance our country by creating a more supportive environment for high-technology.

Permanent Extension of the R&D Tax Credit. Except for small increases in the past three years, direct federal support for overall research has, for the most part, been declining for over a decade. While a long-term commitment to increasing funds available to the federal government for basic research is important, maximizing private industry R&D through a permanent R&D tax credit is a necessity. Numerous studies have shown that a permanent R&D credit is a cost-effective means of ensuring that high levels of private-sector investment will continue to take place.

A short-term extension of the credit is clearly preferable to allowing the credit to lapse, however the lack of permanence severely compromises the effectiveness of the credit for the biotechnology industry. With biotechnology R&D programs often planned five to ten years in the future, uncertainty regarding the credit can prove detrimental. The industry is required to work under the assumption that the credit may not be in effect for the entire life of the research project, which in turn means less revenue can be committed to R&D. And, this translates into fewer scientific discoveries--fewer therapies like Herceptin.

Returning to our theme of ``Putting a Human Face on Biotechnology'', this uncertainty regarding the credit has profound implications for the patients since our industry spends much of its revenue on R&D. This uncertainty may necessitate a small firm furloughing scientists engaged in promising research. For a large firm it may mean making the hard choice to terminate or curtail a significant project. Either way, patients lose. I dare say that without the R&D tax credit, Herceptin simply would not be a reality. Mr. Chairman, you have long been the champion of this cause and I know that others on the Committee have been long time supporters of the credit. It is our desire to work with you to make the credit permanent.

Medical Innovation Tax Credit (MITC). Over the years, the federal government has invested billions of dollars to create a biomedical establishment of medical schools and teaching hospitals deemed the finest in the world. The growth of managed care, coupled with cuts in Medicare payments, threatens the ability of these medical schools and teaching hospitals to carry out their vital social mission of research, training of health professionals, and the provision of indigent care.

The Medical Innovation Tax Credit would establish an incremental 20 percent tax credit for clinical trials performed at medical schools, teaching hospitals that are under common ownership or affiliated with an institution of higher learning, or non-profit research hospitals that are designated as cancer centers by the National Cancer Institute (NCI). This credit would partially offset the roughly 30 to 50 percent greater cost of doing clinical trials at these institutions. It would encourage biomedical firms to do clinical trials here in the United States while providing a revenue source for medical schools, teaching hospitals, and NCI-designated cancer centers. Clinical trials at these crown jewels of our health care system have dropped from 82% of clinical trials in 1985 to an estimate of 27% in 1996.

This narrow credit is designed to complement the R&D tax credit and has been scored by the Joint Committee on Taxation as having negligible cost so long as the R&D credit is in effect. The legislation--H.R. 1039 in the House and S. 1010 in the Senate--has attracted strong bipartisan sponsorship and support. Mr. Chairman, thank you for your vital leadership on this important issue. I know others on the Committee are co-sponsors of this legislation, and we appreciate their support and efforts as well.

The Future of Biotechnology. The first quarter century of biotechnology has been a period of astounding advance. The next quarter century promises revelation and quantum leaps forward. The industry is on the cusp of major breakthroughs, breakthroughs that would have been the stuff of science fiction--not science--a few short years ago.

One example of where Genentech is headed in the future is our use of computers and the new technologies of bioinformatics to search large databases of information to advance our own research and medical science. Genentech's Secreted Protein Discovery Initiative (SPDI) builds on our world-class expertise in cloning and expressing genes from the human genome that encode proteins. SPDI focuses--through the brilliance of computer technology--on identifying the minority of proteins that are most likely to be of therapeutic interest. And because SPDI is

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Our pipeline is very exciting and robust. In addition to apoptosis, we are making headway on an advanced form of our original product, tPA, which is effective in the treatment of heart attack and stroke victims. We are also moving forward with research on a product designed to block the cascade of health problems associated with asthma and other allergies, and are in the process of testing Herceptin on other forms of non-breast cancers as well as on earlier stages of breast cancer.

As I hope I have illustrated for you today, the biotech industry holds tremendous promise for the future and lives of so many patients facing serious illnesses. Our resolve to better their lives is unwavering, even in the context of an unpredictable financial and regulatory environment.

However, two things are predictable as we look toward the future of biotechnology. As in the industry's first 25 years, the next 25 years will require federal policies that are supportive of biomedical research and innovation. And finally, the industry as a whole will only succeed if we continue to keep the patient--the human face in biotechnology--first and foremost in all our decisions.

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