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According to the study, based on a statewide survey of biomedical executives conducted by CHI and KPMG Peat Marwick LLP, increased legal costs and coerced settlements from frivolous lawsuits would force 43 percent of biotech and medical-device companies to cut back on medical research and development.

"Prop. 211 is bad medicine," said CHI President David Gollaher, Ph.D. "It will stunt crucial medical advances; deprive patients, young and old, of medical breakthroughs; and cause many of our best and brightest companies to leave our state. Californians simply can't afford this dangerous and needless new law."

Alliance Pharmaceutical Corp., in San Diego, battled an abusive lawsuit for nearly four years. Although the company finally prevailed, the suit delayed development of key products.

"The cost of this frivolous lawsuit cannot be measured in dollars alone, " said Alliance Chairman, President and Chief Executive Officer Duane Roth.

"This lawsuit disrupted our research projects; our top scientists spent their time dealing with lawyers rather than working in the research lab. It slowed the development of our products -- including one that today helps premature babies with lung failure survive -- by months."

Nearly half (49.6 percent) of biomedical-company CEOs surveyed are considering relocating their firms' headquarters outside California unless Proposition 211 is defeated.

"If Prop. 211 passes, I can assure you that our company will not go public in the state of California. We will either move or, if that is too expensive, I will be forced to sell the company," Robert Tillman, CEO of Sunshine Medical Instruments in Foster City, Calif., said. "Neither is an attractive option, but I'll have no choice if Prop. 211 becomes law."

Leaders of California life-sciences universities also voice serious misgivings.

"Prop. 211 is of concern to those of us in the research community because it could severely damage the partnership between universities and industry," C. Kumar Patel, Ph.D., UCLA's vice chancellor for research, said. "It threatens the ability of life- sciences start-up ventures to raise capital and seek collaborations with research universities."

Proposition 211 poses a direct threat to venture investment in new biomedical technology.

"Prop. 211 is a toxic cloud on medical innovation. Its passage would label California as the place not to build medical-science companies. It would siphon millions from R&D and clinical development ... toward paying the multimillion-dollar settlements coerced by frivolous lawsuits. Prop. 211 would drive entrepreneurs, scientists, sources of venture capital, and experienced management away from our state and away from taking the risks to use cutting- edge technologies to help humankind," said Brook Byers, a partner at Kleiner, Perkins, Caufield & Byers.

Other findings from the CHI study include:

-- Fear of litigation would cause 81 percent of companies to curtail the amount of information released to the public about the progress of new inventions.

-- The threat of punitive liability would cause 75 percent of companies to lose key directors, including senior physicians and scientists.

-- Biomedical-job loss could amount to as many as 63,000 jobs.

-- The direct wage loss to the California economy could reach $3.15 billion.

-- Since 1990, 39 California biotech and medical-device companies have been sued for stock fraud.

-- Of these lawsuits, none has ever gone to trial -- 18 percent were dismissed by judges; 82 percent were settled out of court.

-- The median settlement amount was $4.86 million.

-- The average share that went to the plaintiffs' lawyers is $1.75 million.

-- Firms who were sued devoted an average of 1,640 management hours (41 full work weeks) to the legal defense of their companies.

-- The threat of lawsuits over the past decade has pushed up the average yearly cost of directors' and officers' insurance 383 percent -- from $95,400 to $365,100.

California Healthcare Institute (CHI) is a nonprofit public- policy research organization representing biotechnology, medical- device and pharmaceutical research companies, and academic research institutions.

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CONTACT: California Healthcare Institute Tina Harris, 916/442-2331 Molly Ingraham, 619/551-6677

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