PUBLIC HANDOUTS ENRICH DRUG MAKERS, SCIENTISTS

First Of Three Parts

Working in a public laboratory, backed by $3.2 million in federal grants,
Dr. Barry S. Coller turned a scientific hunch into a ''super aspirin'' and
turned himself into a Park Avenue multimillionaire.

Coller's royalties from the sale of ReoPro, an intravenous drug that
prevents blood clotting after angioplasty, are expected to hit $6.4 million
by summer. The drug manufacturer, analysts say, will make a 28 percent
profit. Heart patients get a new treatment. But the taxpayers who
underwrote the development of ReoPro and scores of other new drugs get next
to nothing.

Some, like Eric Harrington, can't even afford the new drugs. To control
Harrington's multiple sclerosis, his doctor would like to prescribe Avonex,
a drug developed by Cambridge-based Biogen and tested with $4.6 million in
government aid. But Biogen charges more than $11,000 for a year's supply.
And Harrington, a maintenance foreman with no prescription coverage,
doesn't have $900 a month for medicine.

''They take my tax dollars, it benefits the companies and I don't get any
use out of it,'' said Harrington of Arlington.

Tracking government-funded research to develop new treatments, a Spotlight
team investigation revealed a billion-dollar taxpayers' subsidy for
pharmaceutical companies already awash in profits. The investigation also
documented a pattern of scientists and universities cashing in on
government-funded inventions.

The government spending helps bring new drugs to the public. But taxpayers
often end up paying onerous prices at the pharmacy for medicine their tax
dollars helped to create.

Now Congress is preparing to increase the stakes by doubling the budget for
the National Institutes of Health, the main dispenser of grants for medical
research. Scientists and drug companies are cheering, since NIH money comes
with few obligations, like a bank loan that never comes due. In fact, NIH
only loosely tracks its spending on new drug development and rarely asks
for any return of taxpayers' seed money.

Coller declined to comment on his research-to-riches story. Drug industry
leaders say that NIH-funded research lays important groundwork for drug
development, and they argue that restricting access to that work would
delay development of new drugs essential to the health of Americans.
Underscoring that point, Biogen president Jim Tobin said that without NIH's
support, the company ''would have taken a pass'' on Avonex. But he and
others also argue that to focus on NIH's investment is to ignore the much
larger outlay by pharmaceutical and biotechnology companies themselves.

''This is a wonderful synergy that has great benefit for patients with
medical needs,'' said Judith H. Bello, executive vice president of the
Pharmaceutical Research and Manufacturers of America (PhRMA). ''We don't
want to erect deterrents to that collaboration.''

But critics ask why an industry that generates net profits more than twice
as large as those of other major US businesses gets taxpayer assistance
with so few strings attached.

''Taxpayers' money ought to earn money,'' said William Haddad, chairman of
Mir Pharmaceuticals, a generic drug manufacturer, who believes that
companies with successful products should reimburse the government.

The federal Department of Energy already requires payback of research funds
in similar situations, and some prescription drug companies endorse the
concept of a partial reimbursement through royalties to NIH. But the
majority of the industry supports the status quo and vehemently opposes a
plan proposed by US Representative Bernard Sanders of Vermont to cut the
prices of drugs developed with public money. Sanders calls the current
system ''an outrageous example of corporate welfare.''

The Spotlight team investigation of that system found: 45 of 50 top-selling
drugs got government subsidies totaling nearly $175 million. The single
largest public investment was $45.9 million for the cancer drug Proleukin.
The drugs selected for study were the bestsellers among those the Food and
Drug Administration deemed most important or unique. The Globe studied 35
new drugs and 15 ''orphan'' drugs, for rare diseases, approved by the FDA
since 1992. The average net profit margin of the companies making those
drugs was 14 percent in 1997, more than double the 6 percent average for
industrial companies in the Standard & Poor's 500.

NIH spent at least $1 billion on drug and vaccine development in fiscal
1996, but took in only $27 million in royalties from all products. By
funding the early stages of research and testing, NIH assumes great risk
while reaping few financial rewards.

NIH is supposed to protect the public's investment by monitoring the
products it helped develop. But in some cases, NIH officials can't even
determine if the agency contributed to the development of a drug.

Unlike most developed nations, the United States has no national drug
policy, so there is no overall direction, no coordination, and no
evaluation of the costs and benefits of federal spending for drug
development, according to Stephen W. Schondelmeyer, a professor at the
University of Minnesota's College of Pharmacy.

The industry takes full advantage of the situation, building on NIH's basic
and applied research and readily accepting the government's help in testing
new drugs.

As a result, researchers like Coller are striking it rich with tax dollars.
Robert A. Holton, a professor of organic chemistry at Florida State
University, received about $2.3 million from NIH to help develop a
synthetic form of the cancer drug Taxol. Last year, he got $11 million in
royalties on the semi-synthetic Taxol, bringing his total since 1993 to
nearly $25 million. The NIH money, he said, was ''key'' to his work.

Private companies are piggybacking on government research. Chiron Corp. of
California charges kidney cancer patients up to $20,000 for treatment with
Proleukin. The drug won FDA approval after nearly $46 million worth of
clinical tests conducted or funded by NIH.

Corporations are getting direct government handouts. NIH awarded Abbott
Laboratories of Illinois $3.2 million to design and develop a new drug,
called a protease inhibitor, to slow the progression of AIDS. Abbott sold
$41 million worth of Norvir in the first half of 1997.

Even foreign companies are cashing in. Teva Pharmaceutical Industries of
Israel sold about $50 million worth of its multiple sclerosis drug,
Copaxone, in the United States last year, reaping the rewards of nearly $5
million NIH and the FDA spent to help test it.

''They're [NIH] in the business of pouring money into private industry and
failing to keep track of it,'' said professor Michael H. Davis, a
specialist in intellectual property at Cleveland State University College
of Law. ''We're talking about millions of dollars wasted and about people
being exploited because of excessively high drug prices.''

NIH director Harold Varmus defends the agency's actions, asserting that
they fit its goal of supporting research and ensuring that potential
products are developed.

''The process is designed to benefit both the public good and private
industry, and it works well,'' he said in a written statement.

''I do not attempt to measure the role of NIH in drug development by
comparing how much money we spend on research with royalty revenue we
generate,'' he added. ''Royalties are subservient to public health
considerations.''

RIGHTS TO DISCOVERIES CEDED BY CONGRESS

Up until the 1980s, the government owned the rights to any discoveries made
with federal aid. But concern that important new drugs and other products
discovered with federal assistance were not making it to market led
Congress to change the rules. In a series of laws, Congress gave away the
government's rights - and the ensuing profits - to universities, nonprofit
laboratories, and small businesses.

In addition, Congress ordered federal laboratories to cooperate more
closely with industry in developing new treatments and products, and gave
federal scientists an incentive by allowing them to collect royalties on
inventions made while on the federal payroll.

To protect the public's interest, the law ordered federal agencies to
ensure that products developed under the new system were ''reasonably''
available to the public and required them to collect royalties for work
performed by government scientists that led to new patents. But in
practice, the system has authorized loosely supervised government subsidies
that go far beyond NIH's boost to the pharmaceutical industry, extending
from other federal agencies to the fields of electronics, defense, and
energy, among others.

Without doubt, the system has spurred economic development, added jobs, and
generated tax dollars. The subsidies and results are striking in the
pharmaceutical industry, where there has been an explosion of new drugs,
many of which save lives and reduce hospitalization.

But even as he praises such advances, one of the architects of the new
system, former US senator Birch Bayh, an Indiana Democrat, worries that
they are being tainted by price-gouging or profiteering.

''How do we deal with a situation where one person who has a new mousetrap
that is a lifesaver is gouging the public?'' asked Bayh, who is now a
lobbyist. ''If there's a formula we can find for reasonableness, then we
should do that.''

In addition, by giving up its share of the profits, the government is
losing a source of revenue that could be tapped, instead of taxes, to pay
for more research.

That drain occurred during a decade that saw a doubling of NIH's budget.
Now, President Clinton is proposing an additional 50 percent increase over
the next five years, and congressional leaders in both parties want to top
that, advocating a 100 percent increase that would bring NIH's annual
budget to $26 billion.

Massachusetts would benefit greatly from an expansion of NIH's coffers,
since the state's prestigious researchers win about 10 percent of NIH
grants. But some specialists worry that the money would give NIH less
incentive to track its spending on drug development and end up sending more
money into the pockets of individual researchers and big pharmaceutical
corporations.

Industry leaders see no downside to that development, even as they downplay
the importance of NIH's contribution.

''The vast majority of new medicines are actually developed by companies,''
said Jeff Trewhitt, a PhRMA spokesman. ''NIH does most of the basic
discovery work, but we do the applied research. We take new medicines
through the expensive process of clinical testing and FDA approval. The
cost per product can be up to $600 million.''

Trewhitt acknowledges that the $600 million figure is an extrapolation,
adjusted for inflation and changes in research and development, based on a
disputed Tufts University study that pegged the average cost of developing
a drug at $231 million in 1987. Both numbers count not only company
spending but money lost on unsuccessful drugs and the expense of using
funds for drug development rather than some other purpose. A 1993
government study that used the same base figures, however, found that the
out-of-pocket costs after tax breaks were just $65.5 million. None of the
figures can be verified because companies refuse to release actual expenses
for individual drugs.

Regardless of the actual cost, critics agree with Trewhitt that ''it is not
cheap, and it is very risky to develop a new medicine.'' But they ask
whether the public, which shares that cost and risk, should share more
directly in the benefits.

ANTI-CLOTTING DRUG PAYS BIG DIVIDENDS

Throughout the development of ReoPro, Barry Coller says, he has been
serving the public. ''I view my scientific investigation as serving my
commitment as a physician to improve the diagnosis and therapy of patients
suffering from illness,'' he wrote in a 1995 article about the drug's
development.

But Coller has also served himself - and the drug companies that produce
and sell his drug.

Coller, a doctor who specializes in the study of blood, developed his
anti-clotting drug in the labs of the State University of New York at Stony
Brook, where he was a member of the faculty. He credits SUNY for ''an
enriched scientific environment'' and the National Heart, Lung and Blood
Institute, a branch of NIH, for funding the basic work. Over nearly 20
years, NIH records show that the agency contributed $3.2 million to his
efforts.

But after testing the developing drug in animals, Coller and SUNY turned to
industry in 1986. They sold the rights to develop ReoPro to Centocor, a
young biotechnology company from Malvern, Pa. Over the next eight years,
Centocor would supplement Coller's NIH research funding and his state
salary, while also giving SUNY more than $1 million in licensing fees and
upfront royalties. Centocor paid to patent the drug and says it spent more
than $200 million on development.

ReoPro won FDA approval in late 1994. Given intravenously to patients
following surgery for clogged arteries, the drug helps prevent heart
attacks from blood clots. Eli Lilly and Co. markets ReoPro for Centocor. In
1997, annual worldwide sales hit $254 million.

Under the deal with Centocor, the university collected nearly $12 million
in royalties by the end of 1997 and expects another $4 million by summer,
much of which will fund university research. Coller's share will be $6.4
million. Analysts predict sales will nearly triple by 2001, which could
boost Coller's royalty income over $20 million.

A year before ReoPro won FDA approval, Coller departed SUNY for Mount Sinai
Medical Center in Manhattan, becoming chairman of medicine, its largest
department. He purchased a home on Park Avenue that realtors say is worth
more than $1.5 million.

Coller declined to discuss whether taxpayers beyond the sphere of the state
university deserve a share of his success, while a Centocor spokesman said
the company played by the rules.

Officials at SUNY said NIH does not deserve a dime back. ''The university
on all the responsibility of patenting and marketing and trying to develop
the invention,'' said John Petersen, director of the university's office of
technology licensing. ''The public as a whole benefits from getting the
product on the market.''

But not all scientists agree that is sufficient at current drug prices.
ReoPro costs about $1,500 per treatment.

''When the public pays for something, they should expect to get access to
it,'' said Richard J. Roberts, a Nobel laureate in medicine who is now
research director of New England Biolabs in Beverly. ''They're not
expecting that a university or a university researcher is going to get rich
on it.''

But Coller has plenty of company in the millionaire's circle. Royalties for
Holton, the Florida State professor, dwarf Coller's. For his work
developing the semi-synthetic form of Taxol, Holton says he's collected
just shy of $25 million in royalties.

''In 1983, when I first started working on Taxol, I never expected it would
be a drug,'' said Holton, who still teaches organic chemistry. Over 12
years, he received $2.3 million from NIH for work that changed his view.
While scientists at the National Cancer Institute, another branch of NIH,
were spending nearly $27 million to develop and test the natural form of
the drug, derived from the bark of Pacific yew trees, Holton pressed ahead
with his search for a cheaper and more readily available source. His
success boosted the sales of Taxol and added to the revenues of
Bristol-Myers Squibb, which produces and sells the drug. In the first half
of 1997, Bristol-Myers sold $323 million of Taxol in the United States,
helping to push its profit margin to 19 percent.

Holton says he'd be willing to give a share of his royalties to NIH ''as
long as it went back to the NIH budget in the same area that generated it
and didn't supplant other funds.''

For its part, Bristol-Myers last year made its first - and only - royalty
payment to NIH for Taxol, $3.4 million in exchange for additional rights
that extend Bristol-Myers's monopoly on the drug. The payment followed
years of criticism of the original deal in which the government gave the
company rights to Taxol without seeking any direct payback.

Bristol-Myers spokeswoman Jane Kramer says the public got much more than
the royalties, including ''a cancer-fighting drug that it wouldn't
otherwise have had,'' and NCI got free supplies of Taxol, research support
to test the drug for new uses and royalties that together were worth $30
million.

But critics say the payments don't begin to compensate taxpayers. ''It's a
great deal for Bristol-Myers, but it's a terrible deal for the taxpayers,''
said James P. Love, an executive with the Taxpayer Assets Project, founded
by Ralph Nader. ''It's as if the government hired 1,000 people to build
cars for General Motors and GM agreed to pay for their coffee.''

Like Bristol-Myers, other private companies are riding government research
to the bank. Chiron Corp. of Emeryville, Calif., for example, is the
beneficiary of more than $45 million worth of clinical tests conducted or
funded by NIH.

The company sells Proleukin, a genetically engineered form of
interleukin-2, for the treatment of kidney cancer and malignant melanoma.
The substance was patented by scientists at Cetus Corp., later taken over
by Chiron. But it was work by surgeon Steven A. Rosenberg and his
colleagues at the National Cancer Institute that showed the drug could help
people with advanced kidney cancer. And it was NCI that funded most
nationwide tests of the drug for use in other cancers. NCI eagerly shared
the results of its work while asking little in return. Rosenberg, who
favors such no-strings interactions among scientists, declined comment
about the financial aspects of interleukin-2.

Maurice Wolin, medical affairs director for Chiron, acknowledges
Rosenberg's contribution. But he says Chiron poured millions of dollars
into the drug, and provided it free to Rosenberg and his patients. Added
Chiron vice president James Knighton, ''All the constituents get a share
that's fair to the risk they bore.''

Knighton said Chiron sold more than $75 million of Proleukin worldwide in
1997. NIH said it gets no royalties.

NIH SPENT $1 BILLION ON DRUG RESEARCH IN 1996

Rosenberg's years of work on Proleukin are indicative of the government's
massive investment in developing new medicines that goes far beyond grants
to university researchers.

In fact, NIH has several divisions devoted to searching for potential
drugs. For certain illnesses, government scientists also run a screening
service for drug companies, spending taxpayer dollars to determine whether
those companies have a potential winner among the chemical substances
they've patented. The companies retain all rights and profits.

NIH says it spent approximately $1 billion on drug and vaccine development
in fiscal 1996. But the actual figure may be higher. NIH largely tracks its
spending by disease, not by drug. For most drugs, therefore, NIH has no
idea how much taxpayers invested and no way to determine if they're getting
a fair return.

''Every time we've tried to work backwards, the picture gets very complex
of how a drug or compound was created,'' said Barbara McGarey, deputy
director of NIH's Office of Technology Transfer. The Spotlight team
calculated government spending on 50 drugs by conducting its own search of
NIH's grant database, a method that probably underestimates taxpayer
contributions since the database does not include all work done by NIH's
own scientists and often does not specify drug names. Still, the total
spent on those 50 drugs from 1972 to 1996 was just under $175 million.
Hundreds of millions more were undoubtedly spent on scores of other drugs
approved by the FDA during that period and on drugs still in the pipeline.

NIH also does little to enforce rules designed to protect US rights to
drugs that result from taxpayer-funded work.

For example, government rules require recipients of NIH money to report any
inventions that resulted and to acknowledge the federal role in any patent
received. But, when asked by the Globe, NIH could not produce any reports
on five specific drugs developed with millions of dollars from NIH. The
agency says there is neither time nor resources to verify researchers'
compliance with the rules, despite a warning from its own inspector general
in 1994 that NIH's lax enforcement meant the agency was ''not able to
protect the taxpayers' interest.''

As a result of federal policies and practices, NIH's royalty income is
small. In fiscal 1996, the year NIH says it spent $1 billion on drug
development, it took in just $27 million in royalties from all products
that came out of its research. NIH does not tally its drug royalties
separately. NIH royalty revenue is rising - it hit $35 million in 1997 -
and would be expected to lag development spending, but it is dwarfed by
some universities' royalties. The University of California, for instance,
collected $57 million in 1996.

In most cases, NIH refuses to release royalty totals from specific drugs,
saying that would reveal proprietary information about private companies.
But NIH's typical royalty rates are lower than those usually negotiated by
universities and firms.

McGarey said NIH aggressively pursues royalties. But she acknowledged, ''We
license with an eye toward commercializing the product for a reasonable
return on the public's investment. Our primary goal is not to maximize the
financial return.''

NIH says a similar philosophy drives its policy that allows private
companies to compete with university researchers for grants. Seven percent
of all NIH research grants and contracts in 1997 - $733 million - went to
for-profit organizations.

Abbott Laboratories, for example, won $3.2 million in grants from 1988 to
1992 that laid the groundwork for its development of Norvir, a protease
inhibitor used to fight the progression of AIDS. In 1992, the Illinois
company began testing Norvir in animals, followed by tests in patients with
additional help from NIH. The FDA approved it for market in 1996. US sales
of the drug, typically used as part of a two-or three-drug ''cocktail,''
hit $41 million in the first half of 1997. The company reported a profit
margin of 18 percent.

As required, the company credited the NIH grant on its patent for Norvir.
But NIH didn't ask for any financial return and Abbott didn't offer. Abbott
officials declined comment.

FOREIGN-BASED FIRMS ALSO BENEFIT FROM US SUBSIDIES

The government's subsidy of drug companies also extends abroad. Twenty of
the drugs examined by the Globe were developed by foreign-based firms that
benefited from NIH or FDA-funded research or testing. The subsidy totaled
$39 million.

Teva Pharmaceutical Industries of Israel, for example, won FDA approval to
sell its multiple sclerosis drug, Copaxone, with the help of about $4.9
million worth of testing funded by NIH and the FDA. The saga began when
researchers in Israel working independently of Teva discovered the drug.
They sought help from colleagues in New York, who won more than $4 million
in NIH grants to try the drug in patients. Armed with successful results,
the Israeli researchers licensed the drug to Teva. The company then
received $300,000 more to test Copaxone from the FDA's orphan drug program,
which offers grants, tax breaks, and a seven-year monopoly to companies
developing drugs for rare diseases.

Analysts estimate Teva sold $50 million worth of Copaxone in 1997, the
first year the drug was available in the United States. Teva manufactures
the drug in Israel and markets it here through a joint venture with another
company. After taxes, profits are sent back to Israel. Patients pay more
than $10,000 a year for the drug, which reduces MS symptoms.

Teva officials say the company would be willing to pay back similar grants
in the future if that were required, especially if the funds were recycled
for other research projects. But they note that the Copaxone grants were
not awarded with any strings.

''It's a public ripoff,'' said patent lawyer Michael Davis, who represented
citizens in a suit over drug pricing. ''Our government is more than eager
to allow public research to be siphoned off to foreign companies. So we're
not only paying twice, we're paying it to a foreign company.''

That seems the ultimate injustice to Eric Harrington as he struggles with
multiple sclerosis. His most recent bout numbed his entire body, at its
worst leaving him unable to hold a cup of coffee, let alone feed his
newborn daughter. By early February, he had exhausted his vacation time and
all but one sick day for 1998.

Back at work now, he is increasingly worried that he will lose his job at a
local real estate company. His wife, Anne, fears that his next episode will
leave him unable to walk unassisted. The irony is that if he becomes
unemployed or disabled, he might qualify for Medicaid or Medicare coverage
that would pay for a drug to ease his symptoms.

Biogen, which makes Avonex, the MS drug Harrington's doctor prefers, has
offered to discount the drug, but Harrington says it is still out of reach.
The company reported a net profit of $89 million in 1997. Teva, which sells
the competitor drug Copaxone, made $101 million.

''The bottom line is that taxpayers invested when no one else would,'' said
Ralph DeGennaro, executive director of Taxpayers for Common Sense, a budget
watchdog group. ''It's only fair that they get a cut when the
pharmaceutical companies hit the jackpot.''