Regulatory Impact Analysis for the Regulation of Microbial Products of Biotechnology: The Regulated Community
II. THE REGULATED COMMUNITY
This chapter describes the section of the biotechnology industry thatproduces and/or uses microorganisms falling under the jurisdiction of the Toxic Substances Control Act (TSCA). The chapter is organized into 4 sections as follows:
Section A discusses biotechnology applications regulated underTSCA;
Section B provides an overview of the TSCA biotechnology industry and describes companies involved in TSCA microbial biotechnology activities;
Section C describes the various application areas; and
Section D discusses university research.
Much of the industry currently uses only naturally occurring microorganisms in R&D and commercial activities. These organisms areimplicitly included on the TSCA Inventory under current policy and are not affected by the rule. The entire industry is described here, however, becauseapplications now using naturally occurring microorganisms may eventually makeuse of intergeneric microorganisms affected by the rule.
A. Overview of Microbial Applications Subject to TSCA
The microorganisms potentially affected by the rule are those for whichthe corresponding chemical use would be subject to TSCA jurisdiction. By statute, the Toxic Substances Control Act (TSCA)(Footnote 1) regulates all chemicalapplications not specifically exempted in the Act. Language in the Act hasbeen interpreted to include living microorganisms (i.e., microscopic livingcells such as bacteria, fungi, protozoa, microscopic algae, and viruses).(Footnote 2)
Table II-1 lists the excluded applications -- mainly food, drugs,cosmetics, animal drugs and feed additives, and pesticides. Table II-2 liststhe leading applications subject to TSCA jurisdiction, such as the productionof enzymes for use in laundry detergents, production of fuel ethanol, use innitrogen fixation for legumes, and use in waste treatment.
B. Biotechnology Industry Overview
This section presents an overview of various components of thebiotechnology industry. The section is organized into 4 parts as follows:
Part 1 presents the technologies, techniques, and applicationswithin the industry;
Part 2 describes the 1988 EPA survey of TSCA biotechnology firms(ICF 1988);
Part 3 presents the magnitude of TSCA microbial markets; and
Part 4 presents the types of companies involved in TSCA microbialapplications.
1. The Technologies
Biotechnology involves the use of living organisms, such asbacteria, yeast, viruses and other microorganisms, plants, and animals, toproduce desired products. The development of microorganisms with desirableproperties can be accomplished using various biotechnological techniquesinvolving the selection and manipulation of DNA (deoxyribonucleic acid, themolecule that carries genetic information). One common approach involvesdeliberate mutation using chemicals or ultraviolet light. Organisms thatdemonstrate desirable properties are isolated from the culture and propagatedseparately.
Alternatively, instead of deliberately mutating cells, researchers maymerely select the most promising cells from heterogeneous cell populations andgrow them for later use. For example, they may obtain a soil sample from a
The following applications would be excluded under TSCA Sections 3 and 22:
Human medicines, cosmetics, medical diagnostics, medical devices,and intermediates used in their production;
Food, flavorings, additives, beer and other beverages, and theirintermediates;
Animal drugs, feed additives, silage inoculants, and theirintermediates;
Pesticides (i.e., microorganisms used as pesticides). These areregulated by EPA under the Federal Insecticide, Fungicide andRodenticide Act. However, intermediates used in the production of these substances come under TSCA jurisdiction;
National defense activities for which the President has granted awaiver.
Microbial production of enzymes used in household detergents;
Microbial production of enzymes for ethanol production, leathertanning, paper manufacturing, and textile manufacture;
Microbial production of other specialty chemicals such aspesticide intermediates or degreasing agents;
Microbial production of commodity chemicals such as fuel ethanol,xanthan gum for oil recovery, and citric acid for use indetergents or other TSCA applications;
Microorganisms or microbial products used for routine non-R&Danalysis such as detection of water contaminants
(R&D reagents also fall under TSCA jurisdiction, but are exemptfrom reporting so long as the microorganism meets specificrequirements for containment, documentation, and risknotification);
Microorganisms added to waste treatment facilities or contaminatedsites (such as Superfund sites) to degrade sewage and toxicwastes;
Microorganisms used for nitrogen fixation are added to alfalfa,soybean, and other legume crops in order to promote plant growth,and, microalgal soil conditioners for farming;
Microorganisms used to help leach copper and other metals out ofore during mining operations; and
Microorganisms injected into oil wells to enhance oil recovery (nolarge scale applications have been attempted).
contaminated site, and then select cells within the sample that are naturallysuccessful at degrading toxic chemicals.
Other methods involve combining genetic material from differentorganisms. Microorganisms are called "intergeneric" if the source organismsare in different genera, and "intrageneric" if the source organisms are fromthe same genus. Methods of transferring genetic material from one cell toanother include physiological processes such as conjugation (cell mating),transduction (using viruses as vectors), or transformation (the cell takes upnaked DNA directly from the culture media).(Footnote 3) The recombinant DNA technique, inwhich enzymes are used as chemical scissors to cut and splice DNA in preciseways, can be used with these techniques to create combinations of geneticmaterial. Some of the biotechnological techniques applicable tomicroorganisms are summarized in Table II-3.
2. 1988 EPA Survey of TSCA Biotechnology Firms
To better characterize the segment of the biotechnology industrythat is potentially subject to TSCA, EPA commissioned a survey in 1988 whichwas conducted by ICF Incorporated. The survey results reflect the responsesof 72 companies identified as working with microorganisms in TSCA-relatedmarket areas. Universities were not surveyed. The major topics covered inthe survey included:
Financial Information, including total annual budget, sources offunds, overall R&D budget, proportion of R&D budget allocated tobiotechnology and to TSCA-related products;
Market Information, categorizing a company's TSCA products by enduse market area;
Product Characterization, noting the specific type of geneticmanipulations, level of containment, and stage of development;
Selection of naturally occurring organisms involves no deliberategenetic manipulation. The most promising microorganisms areselected from a heterogeneous cell population and cultured.
Mutagenesis. Microorganisms are intentionally mutated throughexposure to UV light, mutagenic chemicals, etc. Exposure tomutagens speeds up the natural mutation process. The mostpromising microorganisms are then selected and grown.
Conjugation, transduction, transformation. DNA is transferredfrom one cell to another through "mating," through the use ofviruses as transportation vectors, or by diffusion through aliquid medium.
Recombinant DNA is defined by NIH as (i) molecules which areconstructed outside living cells by joining natural or syntheticDNA segments to DNA molecules that can replicate in a living cell,or (ii) DNA molecules that result from the replication of thosedescribed in (i) above.
Other advanced techniques for combining DNA from two or moremicroorganisms, such as cell fusion, microinjection (injectinggenetic material into a host microorganism), microprojectileprocesses, and electroporation (introducing large molecules intocells by subjecting cell to current, thus inducing changes in thepermeability of the cell membrane).
New Uses, capturing a company's impressions of possible futureapplications and markets;
Institutional Biosafety Committees (IBCs), including the size,labor requirements, and liability insurance needs; and
Field Trials, determining the number of tests per microorganismand the number of microorganisms tested to develop one commercialproduct.
3. The Magnitude of TSCA Microbial Markets
It is difficult to comprehensively describe or accurately estimatethe share of the biotechnology market potentially affected by the rule. Onereason for this difficulty is that TSCA is a "gap filling" statute; it hasjurisdiction over all applications not specifically exempted in the statute,rather than a well defined set of applications. A second reason is that mostmarket studies do not specifically examine TSCA biotechnology applications, sothat good data are not available concerning the magnitude of TSCA microbialactivity.
Although unable to quantify the exact magnitude of TSCA microbialactivity, the Agency believes that activities involving microorganisms inareas subject to TSCA comprise a modest share of overall biotechnologyactivity. Most biotechnology research and commercial production appears tofocus on applications exempt from TSCA -- medical, food, beverages, andmicrobial pesticides -- or involves manipulations of plant and animals ratherthan microorganisms. According to one estimate, there are over 1,000companies pursuing biotechnology activities in the U.S. (Burrill 1989). of these, the Agency has identified about 130 firms as "probably" being involvedin R&D or commercial production of microorganisms in applications that fall
under TSCA jurisdiction.(Footnote 4) However, many of these use naturally occurring microorganisms, and so would not be affected by the rule.
Only a few companies have submitted Premanufacture Notices (PMNs) formicroorganisms used in applications subject to TSCA, even though PMN reportinghas been mandatory for new intergeneric microorganisms in general commercialuse since 1986.
Figures II-1 and II-2, based on R&D spending data from a report by theOffice of Technology Assessment and on EPA survey data and judgment, suggeststhat TSCA microbial activities represent a relatively small portion of theestimated R&D spending in biotechnology. Total R&D spending in biotechnologyhas been estimated at $1.8 billion in 1988. EPA has estimated the TSCA shareat roughly 7 to 13 percent (ICF 1988, see Appendix A; Burrill 1989).
There is uncertainty concerning this estimate, as well as the estimatesof industry growth. One industry survey with information from 480biotechnology companies, predicts "tenfold growth in sales within 5 years and25-fold growth within 10 years" (Burrill 1989). While it is not known whetherTSCA applications will grow at this pace over the next few years, numerousTSCA applications of microorganisms that would be considered new under thisrule are being investigated in university, industry, and governmentlaboratories and eventually TSCA microbial applications are likely to take oncommercial importance. Most sources familiar with the TSCA markets, however,do not expect a major acceleration in the next 5 years and instead expect the current trends to continue (IBA 1991). Between 1988 and the present, trendsin R&D spending indicate significant growth for biotechnology spending. Forexample, the federal government spent approximately $4 billion onbiotechnology grants in 1995, compared to $1.8 billion spent in 1988 on totalbiotechnology R&D (Vermont 1995). However, TSCA activities as a percentage ofR&D spending has decreased to approximately 5% (McKinney 1995).
4. Types of Companies with TSCA Microbial Applications
For convenience, this analysis refers to the TSCA microbialbiotechnology "industry." However, the activities discussed actually occur ina number of different industries. Most companies working in TSCA microbialareas fall into the following broad groups (Appendix A).(Footnote 5)
Major U.S. and foreign-owned companies in the chemical, drug, oil,food, and other industries. TSCA microbial activities are usuallyvery small relative to the overall company size. Examples includeCPC International, Eastman Kodak, General Electric, and Monsanto.
Foreign-based companies that are leaders in the world industrialenzyme market. Examples are: Novo-Nordisk (Denmark) and Gist-Brocades (Netherlands) (Simpson 1990).
Small and medium-sized companies that are considered to be"biotechnology companies." An example is Research SeedsInternational, which has submitted voluntary PMNs to EPA for field
experiments using nitrogen fixation microorganisms. Thesecompanies often focus on non-TSCA areas such as medical and animalhealth, plant agriculture, or food, with TSCA microbialapplications accounting for only a small aspect of their business.
Small and medium-sized companies supplying microbial inoculantsfor waste treatment and/or agricultural applications. TSCAbiotechnology applications are likely to be a major market areafor these companies. However, most are working only withnaturally occurring microorganisms, and so may not be affected bythe rule.(Footnote 6)
Other organizations involved in TSCA biotechnology include researchinstitutions such as the Electric Power Research Institute, many universities,and Federal laboratories.
In annual sales, the TSCA portion of the biotechnology industry appearsto divide sharply between large and small firms. As Figure II-3 shows,roughly half of the companies providing sales data in the survey (25 out of46) had sales of $40 million or more, and many were very large companies withsales of over $500 million. Most of the remaining 21 had sales of under$10million, with relatively few near the $40 million cutoff used to definesmall businesses under TSCA regulations (40 CFR 704.3).(Footnote 7)
C. University Research
Financial interactions between academia and industry are becoming moreprevalent. Thus, under the current interpretation of "commercial purposes,"some academic institutions could be subject to the rule (Some researchoccurring on university campuses would have been captured regardless of which"commercial purposes" option had been chosen. However, the interpretation EPAhas chosen to implement results in fewer R&D activities on university campusesbeing subject to TSCA Section 5). This section provides an overview ofuniversity-industry partnerships and of university applications potentiallyaffected by the rule.
1. University Biotechnology Activities
Universities perform a significant amount of the nation'sbiotechnology research. According to the Office of Technology Assessment, thefederal government spent an estimated $1.35 billion on biotechnology researchat universities in FY 1987 (Cornish 1989). In 1987, NIH provided at least$465 million for recombinant DNA research projects at academic institutions(NIH 1988). Additionally, a substantial amount of funding came from industry. According to the one study, 46% of biotechnology companies supported researchat universities in 1984 amounting to an estimated total of $120.7 million inresearch funds (Blumenthal 1986).
2. University-Industry Partnerships
In 1984, the average Fortune 500 biotechnology company spent $1.1million on university-directed research and 76% of university laboratoriesreported receiving industry funding for biotechnology R&D (Cornish 1989). Theresulting university-industry research relationships are pervasive. Theyrange from unrestricted grants to contracts that give corporations specificrights to university technology, including the right to license patents ownedby the university and the right to preview academic articles for patentableresults. An agreement may involve a single company, or it may involvemultiple corporate sponsors, sometimes with state and/or federal funding aswell. It may be limited to a year or two and confined to a specific project,or it may allow the corporate sponsor to broadly tap into the results ofuniversity biological research over periods of as long as ten or more years(Rawie 1988).
Many of the best-known agreements have emphasized medical applications,but some have covered applications relevant to TSCA. For example, theUniversity of Wisconsin at Madison formed a biopulping consortium to help
maintain the state's pulp and paper industries (Biotechnology 1989). Inaddition, agreements that give industry access to basic molecular biologyresearch may lead to products in a wide variety of fields, including TSCAapplications.
3. Potential University Submissions in TSCA Market Areas
Universities were not included in the ICF 1988 survey, and the Agency has not developed quantitative information on the amount and nature ofuniversity microbial research in TSCA applications. It has been determined,however, that 306 universities are potentially involved in biotechnologyresearch. This estimate is based on the numbers of universities requestinggrants from NIH for rDNA research. Assuming that the university community isjust as likely to perform biotechnology research as the industrial communitywith whom they have contracts, the number of submissions from the universitygroup, as a whole, is expected to be equal to the number of industrialapplications for the same purposes (ICF 1988, ETD estimates).
1. 15 U.S.C. §§2601 et seq.
2. TSCA also covers other biologically derived substances, such aschemicals extracted from plants or animals. However, these applications arenot affected by the rule because they are subject to the requirements of 40CFR Part 720.
3. Note that both intergeneric and intrageneric changes are covered by therule, but other physical/chemical methods of change are not.
4. 72 companies were confirmed as engaging in TSCA microbial activities inthe 1988 survey conducted for the Agency by ICF Incorporated described inAppendix A (ICF 1988). Additional companies were identified as probably beinginvolved through trade publications and other public sources. Additionalfirms have been identified as possibly being involved. In October of 1991, anupdated version of one of the sources used to identify companies in TSCAmarket areas was reviewed. The number of companies that the source identifiedas potentially working in these areas was not significantly different from thenumber in 1988 (GEN 1991).
5. Information about individual companies was based on public sourcesincluding PMN submissions obtained from the EPA public docket, companyfinancial reports and product literature, industry directories, and tradeperiodicals. Responses to the 1988 survey conducted for the Agency by ICFIncorporated were confidential; only aggregate survey data is presented inthis RIA (See Appendix A).
6. A related sector is companies that provide biological waste treatment services, including remediation of toxic waste sites using naturally occurring microorganisms (HMCRI 1989).
7. Implications of the proposed rule for small businesses are discussed in Chapter VIII.