Prepared Testimony of Kathy Behrens

Good afternoon. My name is Kathy Behrens and I am Managing Director of
Robertson Stephens Investment Management in San Francisco. I am also Chairman of the National
Venture Capital Association, which is comprised of more than 330 professional venture capital firms
dedicated to stimulating the flow of equity capital to emerging growth and developing companies. With a
doctorate degree 'M microbiology from UC Davis, where I performed genetic research for six years, I am
focused on investing in the life sciences area, and, in particular, in biotechnology companies. In fact, over
the past 15 years I have sat on the Boards of many biotechnology companies including Nfitotix, Tularik,
Cell Genesys, Insite Vision, COR Therapeutics and Mercator Genetics. These companies and others 'in
the Robertson Stephens portfolio illustrate that biotechnology is giving new and renewed hope for people
who suffer maladies across virtually the entire spectrum of diseases and afflictions. In fact, without patient
'investment from venture capitalists, this industry literally would not exist. According to NVCA statistics,
since 1990 venture capitalists have pumped over $5.8 billion into over 550 biotechnology companies.
While companies in California, Massachusetts, Washington state, Pennsylvania and New Jersey have
received the largest share of these dollars, biotechnology companies 'in 34 states have received venture
financing. Venture capitalists invest on average over $10 million 'in each biotech company the industry
funds. There are currently 79 biotechnology therapeutics/vaccines approved for sale by the Food and
Drug Administration. 3 5 0 biotech drugs, vaccines and therapies for conditions such as cancer, arthritis,
genetic disorders, burns and blindness currently are in clinical trials. Most of these companies have been
financed by venture capital. However, there are serious and profound problems facing us right now.
While the venture capital industry is 'investing more money in more companies than ever before, the
amount of money going into biotechnology as a percentage of overall dollars disbursed is beginning to
decline. While venture capitalists 'increasingly pursue Internet deals which have the ability to garner a
significant financial return in a relatively short time-frame, the biotech arena, which faces heavy
government regulation and requires longer-term and more patient investing, naturally suffers. It is likely 'in
1999 that fewer new biotechnology companies will be funded by venture capitalists. Also, public
biotechnology companies are having problems securing additional needed money to get through the FDA
pre- market approval process. The market for biotech initial public offerings declined from 22 in 1997 to
6 in 1998, and 1999 does not look very optimistic either. Does the federal government have a role in
seeing that this trend does not continue? I believe it does. At this moment and in this very building a
significant debates are taking place regarding health care reform, patent reform, tax policy and immigration
policy. The results of these debates may directly affect the future of biotechnology companies and in turn
impact the availability of the innovative products these companies are developing. As a seasoned venture
capitalist, I can attest to the enormous risks biotech companies face in an attempt to bring a product to
market. Health care proposals which impose drug price controls or Medicare drug benefits which provide
marginal reimbursement can create a perception or reality that our potential return is limited or at greater
risk. The biotechnology community has for years been asking for patent reform, only to get bills passed
'in the House and have them not acted upon in the Senate. The issue is simple- we need to make certain
that the new 20 year GATT patent term does not end up shortening the terms of patents when the
government causes delays 'in the issuance of a patent. Last month the House passed the American
Inventors protection Act by a vote of 376-43. NVCA hopes that the Senate will act quickly as well.
Advances 'in biotechnology will only occur with a highly educated workforce. Education reform is critical,
but it will not occur overnight. In order to ensure the continued dynamism of the biotechnology industry,
Congress needs to increase the number of HI -B visas available. New visas will be available shortly with
the commencement of the new fiscal year, but this relief will only be temporary as the number of visas
we need to keep our companies running's much larger than the number of visas available 'in the upcoming
year. The biotechnology 'industry currently is undergoing tremendous consolidation through mergers and
acquisitions which on the whole is positive for the industry. Pooling has been the most desired method of
structuring acquisitions, but the Financial Accounting Standards Board has proposed eliminating pooling of
interest accounting. By limiting our ability to use mergers and acquisitions as an exit strategy you limit our
ability to invest in biotechnology. I understand that the Senate Banking Committee is looking at holding
hearings on this issue. I urge you to support this effort so that you can hear the reasons why changes in
pooling accounting policy could very well limit the amount of capital invested in biotechnology. I want to
thank the Congress for enacting a capital gains rate reduction several years ago and urge you to move
further in this regard. If a broad-based capital gains rate reduction cannot be passed this year, serious
consideration should be given to enacting the Dunn/Matsui bill which would create a zero capital gains
rate for 'investments in equities of entrepreneurial firms. This incentive is tailor-made for biotechnology
and other emerging growth companies and would certainly help alleviate some of the finding problems
biotech companies currently face. Finally, I want to thank you for holding these hearings. Your effort to
highlight the contributions that biotechnology has already created in our society as well as the problems
we now face will help us move forward.