<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:30710.wais] S. Hrg. 109-685 THE GENERIC DRUG MAZE: SPEEDING ACCESS TO AFFORDABLE LIFE-SAVING DRUGS ======================================================================= HEARING before the SPECIAL COMMITTEE ON AGING UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION __________ WASHINGTON, DC __________ JULY 20, 2006 __________ Serial No. 109-28 Printed for the use of the Special Committee on Aging _____ U.S. GOVERNMENT PRINTING OFFICE 30-710 PDF WASHINGTON : 2006 _________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 SPECIAL COMMITTEE ON AGING GORDON SMITH, Oregon, Chairman RICHARD SHELBY, Alabama HERB KOHL, Wisconsin SUSAN COLLINS, Maine JAMES M. JEFFORDS, Vermont JAMES M. TALENT, Missouri RON WYDEN, Oregon ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas MEL MARTINEZ, Florida EVAN BAYH, Indiana LARRY E. CRAIG, Idaho THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania BILL NELSON, Florida CONRAD BURNS, Montana HILLARY RODHAM CLINTON, New York LAMAR ALEXANDER, Tennessee KEN SALAZAR, Colorado JIM DEMINT, South Carolina Catherine Finley, Staff Director Julie Cohen, Ranking Member Staff Director (ii) C O N T E N T S ---------- Page Opening Statement of Senator Herb Kohl........................... 1 Opening Statement of Senator Gordon Smith........................ 3 Prepared Statement of Senator Hillary Rodham Clinton............. 55 Panel I Gary Buehler, director, Office of Generic Drugs, Center for Drug Evaluation and Research, Food and Drug Administration, Rockville, MD.................................................. 4 Jon Leibowitz, commissioner, Federal Trade Commission, Washington, DC................................................. 18 Panel II Heather Bresch, senior vice president of Corporate Strategic Development, Office of the Chief Executive Officer, Mylan Laboratories, Inc., Canonsburg, PA............................. 59 Mark Merritt, president and chief executive officer, Pharmaceutical Care Management Association, Washington, DC..... 74 APPENDIX Letter to Senators Smith and Kohl from Generic Pharmaceutical Association (GPhA)............................................. 97 (iii) THE GENERIC DRUG MAZE: SPEEDING ACCESS TO AFFORDABLE LIFE-SAVING DRUGS ---------- -- THURSDAY, JULY 20, 2006 U.S. Senate, Special Committee on Aging, Washington, DC. The Committee met, pursuant to notice, at 10:04 a.m., in room SD-106, Dirksen Senate Office Building, Hon. Herb Kohl presiding. Present: Senators Kohl, Smith and Clinton. OPENING STATEMENT OF SENATOR HERB KOHL Senator Kohl. We will call this hearing to order at this time, and we welcome our witnesses. As always, I thank our Chairman, Gordon Smith, for the opportunity to put this hearing together today. We will examine today the bureaucratic and legal barriers that stop new generic drugs from entering the market and what we can do about it. This is of particular interest to this Committee as we work to help seniors cope with the high costs of prescription drugs. But rising drug prices don't only harm the elderly; they hurt us all as they undermine our private and public health systems. Health insurance premiums continue to skyrocket in large part due to escalating drug costs. The Federal Government, with the new Medicare prescription drug benefit, also feels the squeeze. Yet, the pharmaceutical industry, as you know, remains one of the most profitable industries in the world, returning more than 15 percent on investment. As a businessman myself, I respect an industry's right to maximize profits. Nevertheless, I believe they are charging Americans the highest drug prices in the world--that is almost beyond dispute--and forcing many employers to drop health coverage for their employees and squeezing the budgets of State and Federal Governments as well. As we will examine in this hearing today, government needs to consider action if companies unfairly and or evenly illegally manipulate the private market. According to the CBO, generic drugs save consumers $8 to $10 billion every year. Just last week, this Committee heard from Richard Wagoner, the CEO of General Motors, who stated how important using generic drugs are in reducing General Motors' health costs. General Motors employees and retirees substitute generic drugs for brand name drugs in 90 percent of the cases in which a generic exists, and this has come about, this 90 percent, because General Motors pushes it with such great energy. General Motors estimates savings of $400 million every year as a result of using generic drugs. So we need to find every possible way to get government, companies and individuals to emulate what General Motors has done. If we could do that, health care savings in this country as a result of using generic drugs could be astronomical. One way to make that happen is for Congress to monitor more closely and adequately fund FDA's Office of Generic Drugs. Earlier this year, the FDA had a backlog of more than 800 applications to bring new generic drugs to the market. That was an all-time high. This backlog continues to grow as more brand drugs lose their patent protection. According to FDA guidelines, the agency should take no longer than 6 months to review a generic application, and yet the wait averages nearly 2 years. We have been working with the FDA to reduce this time. Earlier this year, we were able to add $10 million for generic drug review at FDA in the Ag appropriations bill, and we hope to keep these dollars in conference. While increasing funding for this program is just step one, we are pleased that the Director of the Office of Generic Drugs is here today to outline steps two, three and four so that we get generics to pharmacy shelves much more quickly. Since passage of the Drug Price Competition and Patent Term Restoration Act, commonly known as Hatch-Waxman, we have seen a wider availability of generic drugs with little effect on the profitability of drug manufacturers and their ability to do research and development. Unfortunately, some brand name pharmaceutical manufacturers have learned to circumvent Hatch- Waxman using litigation and other means to extend the life of patents and keep generics from entering the market. Courts and the FTC have determined that some brand name drug manufacturers have even colluded with generic drug manufacturers to delay the marketing of competing generic products. One form of collusion is to use payoff settlements. A drug company that holds a patent on a blockbuster brand name drug will pay off a generic drug maker to delay the sale of a competing generic drug. So while the brand name drug company and generic manufacturer make out extremely well, consumers, as we can readily understand, can lose out. The FTC has taken a strong stand against these types of payoffs, but they still flourish because of recent court rulings which allow back-room deals to occur. I have introduced bipartisan legislation to prohibit these payoffs. We hope to talk about this bill today, as well as other ways to address practices used by the drug industry to delay generic drug entry into the market. In our effort to cut down the cost of health care in this country, there is nothing more important than making sure that consumers, employers and governments have full access to affordable generic drugs. So we look forward to this hearing today, and at this time I turn to our esteemed Chairman, Gordon Smith. OPENING STATEMENT OF SENATOR GORDON H. SMITH, CHAIRMAN The Chairman. Thank you, Senator Kohl. Senator Kohl is our Chairman for this day. We have a relationship on this Committee that allows us to pass the gavel back and forth, and I want to thank Senator Kohl for his leadership on this issue. We jointly share a real concern about affordable prescription drugs. Clearly, the biggest problem we have in health care today is just simply the skyrocketing cost that far outpaces overall inflation for other goods and services. In fact, from June 2004 to 2005, prices for health care grew at a rate double other types of consumer goods. Obviously, driving much of this growth in costs are prescription drugs. Prices for brand name prescription drugs have grown 4 percent since January of this year alone. For some medications like the sleeping aid Ambien, increases have been in the double digits. Frankly, if this trend continues, drug therapies important to seniors will just simply be undermined. The gains we have achieved with the implementation of Medicare Part D will just simply be lost. Generic drug alternatives do hold some promise in helping to provide consumers more affordable options. The CBO estimates that generic drugs save health care consumers $8 to $10 billion a year. With a number of popular brand name drugs soon going off patent, Americans and the Federal Government could save billions of dollars by choosing to purchase generic alternatives. Such savings will only be realized if the drugs get to market in a timely manner, and as Senator Kohl has just indicated, we are very concerned about the practice of paying by brand to keep generics off the market. This is of great concern to us. Obviously, we want the market to work, but it is not working when it is done in that way. So given the potential cost savings that could be gained by getting more generic drugs to market, Congress needs to carefully consider whether it is appropriately funding the FDA's approval activities. An even greater impediment to generic drug access is this practice of paying off. That simply needs to stop. As Senator Kohl noted, Congress is already taking steps to prohibit brand name drug companies from entering into these kinds of agreements so they can delay less expensive alternatives from coming to market. So I look forward to learning more about this important topic and I appreciate very much the effort that our Committee is making on this. Senator Kohl has assembled an excellent group of witnesses today and I know they will provide us with useful information on this issue. Senator Kohl. Thank you, Senator Smith. We are very pleased to welcome our first panel here today. The first witness will be Gary Buehler. Mr. Buehler has been the director of the FDA's Office of Generic Drugs, Center for Drug Evaluation and Research, since July 2001. Besides working for FDA for the past 10 years, Mr. Buehler has compiled a great deal of experience with various aspects of the issues that we will be examining today. Mr. Buehler's testimony, I believe, will help us understand some of the factors that slow the approval of generic drug applications. After him, we will hear from Jon Leibowitz, who has been an FTC commissioner since 2004. Before joining the executive branch, Mr. Leibowitz served in a variety of different offices in the Congress, including my own as my chief counsel on Judiciary from 1989 to 2000. Additionally, he has prior experience on the U.S. Senate Antitrust Subcommittee as the Democratic chief counsel and staff director from 1997 to 2000. Mr. Leibowitz will discuss current efforts by the FTC to protect consumers from anti-competitive practices of the pharmaceutical industry. We welcome you both here today and we look forward to your testimony. Mr. Buehler. STATEMENT OF GARY BUEHLER, DIRECTOR, OFFICE OF GENERIC DRUGS, CENTER FOR DRUG EVALUATION AND RESEARCH, FOOD AND DRUG ADMINISTRATION, ROCKVILLE, MD Mr. Buehler. Good morning, Mr. Chairman and Ranking Member Senator Kohl. I am Gary Buehler, Director of the Office of Generic Drugs in the Center for Drug Evaluation and Research at the U.S. Food and Drug Administration. Thank you for the opportunity to testify about FDA's efforts to expedite the approval of generic drug products. FDA understands that Congress and the public are concerned about the high cost of prescription drugs. Generic drugs play an important role in granting access to affordable products that will benefit the health of consumers and especially seniors. Generic drugs typically cost 50 to 80 percent less than their brand name counterparts, and prompt approval of generic drug product applications, also known as abbreviated new drug applications, or ANDAs, is imperative in making generic products available to American consumers at the earliest possible date. FDA has taken a number of significant steps to provide greater access to affordable prescription medicines. In 2003, FDA published a final rule to improve access to generic drugs and lower prescription drug costs for millions of Americans. This rule was first proposed in response in part to FTC recommendations and other changes that the agency identified as being useful in improving generic competition. The rule limits an innovator drug company to only one 30- month stay of a generic drug applicant's entry into the market for resolution of a patent challenge. These changes will save Americans over $35 billion in drug costs over the next 10 years, and will also provide billions in savings for the Medicare and Medicaid programs. We were pleased that elements of this rule are prominent in part of the Medicare law, and that with FDA's technical assistance, the law added additional mechanisms to enhance generic competition in the marketplace. In addition, since fiscal year 2001, the administration and Congress have increased funding for FDA's generic drug program by 66 percent--a clear sign of the important role played by the Office of Generic Drugs. These increases have enabled FDA to hire additional expert staff to review generic drug applications more quickly and initiate targeted research to expand the range of generic drugs available to consumers. While there remains work to be done, as I will discuss, we have been able to produce significant reductions in approval times for generic drugs since 2002. These reductions, coupled with changes to reduce the time for developing generic drugs and making them available, will save consumers billions. Much concern has been raised from the public and Congress about a backlog of pending ANDAs currently under OGD review. OGD generally maintains a first in, first reviewed policy for ANDAs to ensure the integrity of the approval process. A number of factors govern the timing of generic drug approvals, including whether the application is of high quality, meets the inspection standards and the scientific and technical requirements for approval, and whether patent protection and exclusivity periods have expired on the innovator drug. Over the last 5 years, the number of applications submitted to OGD has increased by 150 percent, which is shown in detail on the graph to my right. The receipts are in yellow and the tentative approvals are in green. You can see the receipts from 1995 through 2001 remained at around 300. They were very, very static at that point. In the year 2002, they increased to 364, and continued to increase in 2003 to 449; in 2004, 563, and then in 2005, 766 applications. This year, since we are three- quarters of the way through the year, I can report that we expect to receive almost 800 applications for generic drug applications by the end of September. Just last month, we approved 45 applications, but received 92. Clearly, this rate of increase in applications resulted in a dramatic increase in the workload. It is important to stress that the ANDAs in the backlog are not all unreviewed, but may be applications that have had an initial review and are now waiting a second or subsequent review of the company's attempts to satisfy our approval requirements. Although OGD still has a backlog, the graph demonstrates that we have managed to increase the number of approvals each year, and in 2001 OGD approved or tentatively approved 310 ANDAs, and this number increased to 467 in fiscal year 2005. OGD's efforts are also evident when looking at the median approval time. The median approval times have decreased from the 18.4 figure in fiscal year 2001 to 16.3 months in fiscal year 2005. Some of these applications were approved in less than a year. FDA has taken significant steps to improve our resources. With additional resources each year, FDA has increased its generic drug FTE positions from 134 in fiscal year 2001 to 201 in fiscal year 2006. In addition, OGD has taken actions to streamline the ANDA review process, which includes addition of a third chemistry review division and a fifth review team in OGD's division of bioequivalence. Also, a number of new review practices have been implemented to improve interactions with the generic drug companies. Other new efficiencies to the application review process are described in detail in my written statement. Because of these efforts, on the very day that the last patents or exclusivities expire on an innovator product, OGD has been able to approve at least one generic application in most cases. Recently, FDA approved applications for generic versions of the popular brand names Pravachol, Zoloft and Zocor on the day the innovator protections expired. Just yesterday, OGD approved 13 applications for Meloxicam, the generic equivalent for Mobic, a popular analgesic used for osteoarthritis. These applications were approved in just over 9 months from the date they were submitted. The approvals of these four products should produce savings measured in the billions of dollars per year. We will work to continue our success in staying ahead of the curve on first-time generics and responding to all pending applications. An issue of particular focus in OGD is streamlining the citizen petition review process. Citizen petitions may be submitted at any time, requesting FDA to impose new criteria for approval of ANDAs. These petitions often make serious challenges to whether or not a generic product can be approved; that is, whether a specific application or group of applications would meet the statutory requirements for approval. FDA must consider and address the merits of the challenges to generic drug approvals. It is not required that FDA respond to citizen petitions before approval of a related ANDA, and it is very rare that petitions present new issues that CDER has not fully considered. But the agency must nevertheless assure itself of the fact by carefully reviewing these citizen petitions. A high percentage of the petitions to OGD are denied. While the citizen petition process is a valuable mechanism for the agency to receive information from the public, it is noteworthy that very few of these petitions on generic drug matters have presented data or analyses that significantly altered FDA's policies. CDER's recent efforts to improve the process for responding to citizen petitions are described in detail in my written statement. An issue garnering discussion among many stakeholders is that of authorized generics. The term ``authorized generic'' is generally used to describe an instance when an innovator company, in the face of pending generic competition, repackages its own product and markets it as a generic. Generic drug companies, through citizen petitions and lawsuits, have sought FDA's intervention to halt the marketing of authorized generics, especially during the 180-day exclusivity period. FDA determined, and the courts have upheld, that the Federal Food, Drug and Cosmetic Act does not give FDA authority to intervene in this matter. Thank you for the opportunity to highlight some of the areas that OGD is working diligently to address. FDA appreciates the Committee's interest and concern about expediting the approval of generic drug products and the opportunity to discuss these important issues. In spite of an increasing workload, be assured that there is a sense of purpose and knowledge among my staff and the administration that we are working to fulfill an important public health mission. FDA will continue to work toward greater efficiency in ANDA review and attempt to deal with the issues discussed today and the many emerging challenges ahead. We are committed to continue to make additional generic products available to the American public as soon as legally possible. I would be pleased to respond to your questions. [The prepared statement of Mr. Buehler follows:] [GRAPHIC] [TIFF OMITTED] 30710.001 [GRAPHIC] [TIFF OMITTED] 30710.002 [GRAPHIC] [TIFF OMITTED] 30710.003 [GRAPHIC] [TIFF OMITTED] 30710.004 [GRAPHIC] [TIFF OMITTED] 30710.005 [GRAPHIC] [TIFF OMITTED] 30710.006 [GRAPHIC] [TIFF OMITTED] 30710.007 [GRAPHIC] [TIFF OMITTED] 30710.008 [GRAPHIC] [TIFF OMITTED] 30710.009 [GRAPHIC] [TIFF OMITTED] 30710.010 [GRAPHIC] [TIFF OMITTED] 30710.011 Senator Kohl. Thank you very much, Mr. Buehler, and now we will turn to Mr. Leibowitz. STATEMENT OF JON LEIBOWITZ, COMMISSIONER, FEDERAL TRADE COMMISSION, WASHINGTON, DC Mr. Leibowitz. Chairman Smith, Co-Chairman Kohl, protecting competition, as you know, in the pharmaceutical sector is a mainstay of our work at the FTC, and your hearing is both timely and important. Let me start, though, with the usual disclaimer. The written statement that we submitted today represents the views of the Commission. My oral testimony today reflects my own views and not necessarily the views of any other Commissioner or the Commission itself. Mr. Chairman, the savings that generic drugs offer are particularly important for older Americans. Research indicates that 87 percent of persons aged 65 or older take at least one prescription drug on a regular basis. On average, seniors take four different prescription drugs daily. Persons over 65--and they only compose about 13 percent of the population--account for 42 percent of every dollar spent on prescription drugs. There is a particular urgency to pharmaceutical competition issues right now. Recent decisions by some appellate courts are making it difficult to challenge agreements that delay generic competition. If these decisions are allowed to stand, prescription drug costs, already the fastest growing segment of our Nation's spending on health care, will rise even more dramatically. These increased costs will burden not only individual consumers, especially older Americans, but also the Federal Government's new Medicare Part D drug program, which you mentioned, Senator Kohl, in your opening statement, and American businesses striving to compete in a global economy, for example, like General Motors, and I know you had their CEO testify here last week. In my oral remarks this morning, I will focus primarily on what are called exclusion payments. By this I mean settlements of patent litigation in which the brand name drug firm pays a generic challenger to stay out of the market. Then I will briefly touch on two other issues: bottlenecks that keep subsequent generic filers off the market and so-called authorized generics. Now, when Congress enacted the Hatch-Waxman statute in 1984, it encouraged speedy introduction of generics. That statutory framework, while ensuring that our pioneer drug firms remain the envy of the world--and they are--has also delivered enormous consumer savings. Indeed, as a general matter, when the first generic enters the market, it does so at a 20- to 30- percent discount off the brand prices, and prices drop even further, by as much as 80 percent, after other generic competitors go to market, and that is usually 6 months after the first generic entrant. The consumer and government savings that result from generic entry will be lost, however, if companies settle through arrangements in which they share the monopoly profits that are preserved by delay. Sadly, the incentives to enter into these pernicious settlements are substantial because generic entry causes the branded drug firm to lose far more in revenues than the lower-priced generic can possibly earn. As a result, if both companies agree to delay entry, both firms are better off financially. Of course, it is consumers who are left holding the bag, or more precisely footing the bill. For the past decade, the FTC has made challenging patent settlements that delay generic entry a bipartisan priority. In the late 1990's, when we started seeing these disturbing settlement payments, we acted to stop them. The Commission obtained two major consents involving anti-competitive payments and we put pharmaceutical companies on notice that we would consider all available remedies, including disgorgement of profits, against similar conduct in the future. As a result, our action stopped this conduct cold. It set forth rules that everyone in the pharmaceutical industry understood. If you settled a pharmaceutical patent case by paying off a generic, you would face antitrust scrutiny. As a result, to the best of our knowledge there were no such settlements between 2000 and 2004. The Commission did rule in 2003 that in an earlier settlement in, I think, 1998, a payment from Schering-Plough, the brand, to Upsher-Smith, the generic, violated the antitrust laws. That case, by the way, involved a potassium supplement that was widely used and still is widely used by older Americans. The Eleventh Circuit reversed us in 2005, and the Second Circuit, in a two-to-one decision in the In re Tamoxifen case, issued a similar opinion late last year. These decisions, which essentially hold that a patent- holder has a right to compensate a generic except where the brand's infringement suit is a sham, have dramatically altered the legal landscape, and we believe it has done so to the detriment of consumers. Mr. Chairmen, this is not idle speculation. Thanks to the reporting requirement that Congress included in the 2003 Medicare Modernization Act--and you passed this law presumably because you were also troubled by these agreements--the FTC reviews each and every Hatch-Waxman settlement. Tellingly, here is what the data for the last few years tell us and what it reveals. For fiscal year 2004 and the early part of 2005, none of the nearly 20 agreements reported contained a payment from the brand to the generic accompanied by a deferred generic entry. In other words, parties could and did settle patent litigation without money flowing to the generic. In sharp contrast, the most recent data for the first half of fiscal year 2006--and that reflects agreements after the Schering and the Tamoxifen cases--is far more disturbing. Seven of the ten agreements between brands and generics during this period included a payment from a brand and an agreement to defer generic entry. In other words, just before Schering and Tamoxifen, there were almost no such payments. Just after these decisions, it appears to be the new way of doing business. From our perspective, we will continue to be vigilant in looking for ways to challenge anti-competitive settlements, and I certainly hope the Supreme Court will eventually weigh in on this problem. A legislative approach, however, could provide swifter and a more comprehensive solution. For that reason, we strongly support the intent behind the Preserve Access to Affordable Generics Act, the bipartisan bill that you introduced, Senator Kohl, with Senator Grassley, Senator Leahy and Senator Schumer. But drafting such a measure is challenging, so we are happy to work with you as the bill moves forward. Let me very briefly raise two other issues. The first is yet another strategy that thwarts consumer access to generic drugs and which we believe undermines congressional intent, and we discuss this bottleneck issue in detail in our written submission. It involves legal complexities unique to Hatch- Waxman. But boiled down into plain English, it is this: subsequent generics are supposed to have an alternative way to enter the market when the first generic delays its own entry. Instead, because of recent case law, they are stuck in a sort of pharmaceutical catch-22. The courts won't let them bring a patent challenge and the FDA won't let them market without winning one. It is a sort of drug purgatory and we believe one that results in considerable delays for consumers. We made a legislative recommendation to solve this problem in 2002 before I came to the Commission and it is in our written statement. We are happy to work with you on that. The second matter is authorized generics, a product, as you know, that involves a chemically identical drug to the brand drug and the brand firm when the brand firm introduces its own generic. In recent years, brand firms have increasingly begun to market authorized generic drugs at precisely the same time that the first generic entrant begins its 180-day exclusivity period. In the short run, the entry of an authorized generic may benefit consumers by creating additional competition that lowers prices. But critics assert that in the long term, consumers will be harmed because of the competition from authorized generics, and the significantly lower profits for the generic industry that result will basically decrease the incentives of generic firms to pursue entry especially for non-blockbuster drugs. At the Commission, we are now undertaking a study to examine the competitive impact of authorized generics. Mr. Chairman, at a time when this Nation faces the challenge of ever-mounting health care costs, ensuring that seniors and other consumers have access to low-cost pharmaceuticals is a matter of critical concern. The FTC is committed to doing whatever we can to promote drug competition and we stand ready to assist your Committee. Thank you. [The prepared statement of Mr. Leibowitz follows:] [GRAPHIC] [TIFF OMITTED] 30710.012 [GRAPHIC] [TIFF OMITTED] 30710.013 [GRAPHIC] [TIFF OMITTED] 30710.014 [GRAPHIC] [TIFF OMITTED] 30710.015 [GRAPHIC] [TIFF OMITTED] 30710.016 [GRAPHIC] [TIFF OMITTED] 30710.017 [GRAPHIC] [TIFF OMITTED] 30710.018 [GRAPHIC] [TIFF OMITTED] 30710.019 [GRAPHIC] [TIFF OMITTED] 30710.020 [GRAPHIC] [TIFF OMITTED] 30710.021 [GRAPHIC] [TIFF OMITTED] 30710.022 [GRAPHIC] [TIFF OMITTED] 30710.023 [GRAPHIC] [TIFF OMITTED] 30710.024 [GRAPHIC] [TIFF OMITTED] 30710.025 [GRAPHIC] [TIFF OMITTED] 30710.026 [GRAPHIC] [TIFF OMITTED] 30710.027 [GRAPHIC] [TIFF OMITTED] 30710.028 [GRAPHIC] [TIFF OMITTED] 30710.029 [GRAPHIC] [TIFF OMITTED] 30710.030 [GRAPHIC] [TIFF OMITTED] 30710.031 [GRAPHIC] [TIFF OMITTED] 30710.032 [GRAPHIC] [TIFF OMITTED] 30710.033 [GRAPHIC] [TIFF OMITTED] 30710.034 [GRAPHIC] [TIFF OMITTED] 30710.035 [GRAPHIC] [TIFF OMITTED] 30710.036 [GRAPHIC] [TIFF OMITTED] 30710.037 [GRAPHIC] [TIFF OMITTED] 30710.038 [GRAPHIC] [TIFF OMITTED] 30710.039 [GRAPHIC] [TIFF OMITTED] 30710.040 [GRAPHIC] [TIFF OMITTED] 30710.041 Senator Kohl. Thank you, Commissioner Leibowitz. Commissioner Leibowitz, after the FTC lost the Schering case, as you pointed out, I introduced legislation to prevent brand name drug companies from paying off generics to stay off the market. I understand that the FTC has not taken a formal position on our bill as of yet. Can you tell us why the FTC has not endorsed this legislation? Mr. Leibowitz. Well, we strongly support the intent of your legislation, but the FTC is the epitome of a consensus-driven agency. We haven't reviewed the legislation in detail. By the way, I believe it will go to Senator Smith's subcommittee, which is the FTC subcommittee on the Commerce Committee. But we are very supportive of what you are trying to do and we are very supportive of a legislative solution. Senator Kohl. Is the FTC pursuing other cases to challenge different payoffs in an effort to get a better result in court? Is the FTC holding public hearings on this issue? Mr. Leibowitz. We are looking to find cases so that we can create, for example, a split in the circuits that would militate toward the Supreme Court taking a case. I can't discuss any of our individual investigations publicly, but we are looking to find a case. As for a public hearing, we have not initiated one. I would be glad to take that back to the Commission and talk to them about it. Senator Kohl. You referred to authorized generics. As you pointed out, the FTC is currently studying the effects of authorized generics. The question is does the FTC have the authority to address this anti-competitive practice, or do you believe that we also need to find a legislative fix for this issue. What is your opinion on that, Commissioner Leibowitz? Mr. Leibowitz. Well, I don't know that authorized generics rises to the level of an antitrust violation, which is really what is within our purview at the FTC. We certainly think that it is an important public policy issue and we are committed to doing a very thorough study and looking at both the potential short-term benefits and the potential long-term problems that it may cause. Senator Kohl. Mr. Buehler, over the last 5 years, as you have been discussing this morning, the number of generic drug applications have increased 150 percent, while your budget to work with this increase has not increased nearly to that percentage. Of the close to 800 applications that you have already received this year, as you pointed out, you have only approved a little more than half. So what is your plan to eliminate this backlog? How long do you expect it to take before we can eliminate this backlog? Mr. Buehler. To be able to eliminate the backlog, we would have to increase the monthly average of approvals from our present 40 applications to somewhere between 65 and 70. To be able to do that, we have submitted a plan that we believe, with additional resources, FTEs, of about 70 to 100 over 3 years-- this would entail $16 to $19 million annually. We would be able to create new review teams, continue to enhance the efficiency of our review process, and be able to first attain parity with the number of applications that we are receiving, and we are about a minus 300 right now. Once we attain parity, we will be able to address the backlog, and hopefully within 3 to 4 years be able to begin to whittle down this number. Senator Kohl. With respect to the amount of time that it takes to review these petitions, since the start of your process over a year-and-a-half ago, what is the average time right now? Mr. Buehler. For the petitions, sir? Senator Kohl. Yes. Mr. Buehler. Citizen petitions usually take about 6 months to review. We have a statutory 6-month timeframe to review citizen petitions. They are taking about that time, although we do get scientifically challenging ones that can run quite a bit longer than that. Senator Kohl. Senator Smith. The Chairman. Gary, is the backlog, in your view, then just a manpower issue? Mr. Buehler. For the most part, yes. These applications are all types, and we have done a number of analyses on the types of applications in our backlog and we have analyzed them by patent certification and we have found that there are about an equal number of paragraph I and paragraph II certification applications, which are applications that either have no patents or the patents have expired. These tend to be older drugs and drugs that probably already have generic competition. The Chairman. So there is nothing in your processes that you think could be streamlined without compromising safety? Mr. Buehler. We have looked at our process very carefully and I have said to my division directors that we have got to identify things that we do that we don't have to do that don't impact the safety and efficacy of the products. But at the same time, we have to be very aware of what we do do that does impact safety and efficacy. My mandate, my mission in life is to make sure that every generic drug that goes out on the market is safe, effective and bioequivalent and the American public can take these products with confidence. So we can reduce our process and the fat in our process, but only to a certain point. These are all full- standing applications with full data packages that have to be reviewed. The Chairman. I don't in any way want you to take from my question that we want to compromise safety or efficacy of these drugs. We are counting on you for that, but obviously if there is something that can be streamlined systemically, great, do it, but don't compromise those two things. As to the manpower issue, have you sought the authorization from the appropriate committee and are you getting the appropriations to add the staff? Mr. Buehler. We have provided our plan to Senator Kohl. He had requested a plan from us a few months ago and we have provided it to Senator Kohl. Mr. Leibowitz. If I could just add one thing, Chairman Smith. The Chairman. Yes. Mr. Leibowitz. We work very closely with the FDA and in response to a request from them several years ago, we did raise the potential for abuse of citizen petitions. Very often, they are filed at the eleventh hour. As Mr. Buehler's testimony points out, they usually raise redundant issues that have been resolved by the FDA. I was really heartened to see that in his testimony it looks like FDA is looking at ways to sort of tweak their rule so that maybe you would have to raise a citizens' petition earlier. That might solve part of the problem. The Chairman. OK, so you are not barring the citizen, but you are just saying it can't be unduly dilatory in this process. Mr. Leibowitz. Yes, that is right. The Chairman. Well, I hope you will succeed. You have got the ear of the right person in the Appropriations Committee. I guess it is the Health, Education and Welfare Committee that gives you the authorization for more, and if I can help, let me know. Mr. Buehler. Thank you, Mr. Chairman. The Chairman. I assume that with patents expiring, this issue is going to grow. It is not going to go down, and I think that is what your chart is saying. Mr. Buehler. It doesn't look like our submissions are declining, no. The Chairman. Jon, I am troubled by the holding. I am not an antitrust lawyer, but I do know something about antitrust law and I can't imagine a lower court finding that this was not uncompetitive action. What was their rationale and what was their holding? Mr. Leibowitz. Well, I think rather than looking at it from an antitrust perspective, which is the way we look at these cases--and I think the way Senator Hatch, one of the drafters of Hatch-Waxman, does--I think they looked at it more as patent case, and also wanted to ensure the benefit of settlements. Having said that, what we found from 2000 to 2004 when we pretty much stopped this practice cold was that there were plenty of settlements; there were just no settlements with money. So, of course, reasonable people can disagree. The Eleventh Circuit disagreed with us, but we think our position is the right one. The Chairman. On what basis did they disagree? I am not expecting you to agree with them, but I mean what was their rationale? Mr. Leibowitz. Well, their rationale essentially was that settlements are very important and as long as the settlement didn't go beyond--in the Eleventh Circuit--as long as the settlement didn't go beyond the scope of the patent, then this was an agreement that really shouldn't be analyzed under a rule of reason or a per se analysis or any antitrust approach. The Chairman. So antitrust wasn't even considered? Mr. Leibowitz. I guess I would say that it was looked at, but it wasn't considered; at least it wasn't considered sufficiently. The Chairman. Obviously, that would fall under the Justice Department to bring that action, I suppose, under antitrust. Mr. Leibowitz. We bring antitrust cases. We share that jurisdiction---- The Chairman. With them? Mr. Leibowitz. With the Justice Department. That is right. The Chairman. The Supreme Court denied certiorari? Mr. Leibowitz. The Supreme Court denied cert. You know, the Supreme Court gets a lot of applications for cert. Some people believed that there wasn't a sufficient split in the circuits to make it a case that they wanted to take or they ought to take. Hopefully, some other cases will come with better case law--if we bring further cases perhaps someday they will take it, perhaps someday soon. The Chairman. But as you saw it from the FTC, you clearly could demonstrate monetary impact to the marketplace. Mr. Leibowitz. Yes, we thought we did. We thought we did it compellingly. The Eleventh Circuit disagreed with us. The Chairman. But they didn't consider the antitrust implications? Mr. Leibowitz. From our perspective, at least, not sufficiently. The Chairman. That is amazing to me. You know, I am not an antitrust lawyer, but it seems like an antitrust violation, per se. Mr. Leibowitz. It certainly seemed to us like an antitrust violation. I wasn't on the Commission when we wrote our own opinion, but it was very compelling when I read it and I wasn't as persuaded by the Eleventh Circuit. But that is the nature of judicial review here. The only other point I want to mention is during the debate on the 2003 Medicare Amendments where Congress gave us the authority and really required us to review all of these settlements, Senator Hatch himself, one of the coauthors of Hatch-Waxman, said these types of reverse payments are ``appalling''. I think what Congress intended to do by requiring us to review all of these settlements was to see which ones were anti-competitive. The Chairman. So the legislation you have given to Senator Kohl's care provides the legal clarifications necessary under patent law to remedy this? Mr. Leibowitz. It basically would prohibit under the FTC Act these types of agreements where there was compensation, cash compensation particularly, given to the generic from the brand for the generic to stay out of the market. We don't think that was the intent of Hatch-Waxman. We don't think the Eleventh Circuit got it right. Reasonable people can disagree, but that is our hope. The Chairman. Well, we will surely take it up in the Commerce Committee post haste. Mr. Leibowitz. Thank you so much. We appreciate that. The Chairman. To your reference on the catch-22 issue, talk to me about the legal clarifications there that you need. Mr. Leibowitz. Well, under Hatch-Waxman, as I understand it, usually the first filer gets 180 days of exclusivity. That is the approach that Congress took when it designed Hatch- Waxman. But if the first filer for some reason--sometimes it might be because of a payment, sometimes because their challenge is weak--agrees to not enter for several years, there is supposed to be a way for subsequent patent challengers to trigger the 180 days by winning a declaratory judgment. Because of decisions in the D.C. Circuit and the Federal Circuit, they haven't been able to do that. So we have a proposal, again written by the staff in 2002, that is in my testimony that would solve that problem, and we believe do it in a constitutional way. There are different ways you can do it. The Chairman. Where is that legislation now? Mr. Leibowitz. That legislation is in my testimony, but has not been introduced. The Chairman. So we need it introduced. Mr. Leibowitz. Certainly, if you decide that introducing that legislation is a good idea, we would be supportive of it. The Chairman. Thank you, Mr. Chairman. Senator Kohl. Thank you very much, Chairman Smith. We are joined today by our colleague, Senator Clinton, from New York. We will turn to you for your thoughts, comments and questions. Senator Clinton. Thank you very much, and once again thanks to Senator Smith and Senator Kohl for doing these very informative hearings. I would ask unanimous consent to submit my statement to the record. The Chairman. Without objection. [The prepared statement of Senator Clinton follows:] Prepared Statement of Senator Hillary Rodham Clinton Prescription drugs are vital to preventing and treating illness and helping to avoid more costly medical problems. Spending in the U.S. for prescription drugs was almost $189 billion in 2004, over 4 and half times the amount spent in 1990. And although prescription drug spending has been a relatively small proportion of national health care spending compared to hospital or physician services, it is one of the fastest growing components, increasing over the past decade at double-digit rates compared to single-digit increases for hospital or physician services. As the population ages and our healthcare system faces increasing pressures, finding real and legitimate cost savings must be a top priority. And prescription drugs are clearly a place we should be looking. The 2003 Medicare prescription drug law explicitly prohibited the government from using the collective purchasing power of more than 40 million seniors to negotiate lower drug prices, in stark contrast to the authority to reduce prescription drug costs that other federal agencies and programs have including the VA and DoD. In addition, many of my colleagues and I continue to call for passage of legislation to allow for the safe reimportation of prescription drugs. But I think the real potential--and I thank and commend the Chair and Ranking Member for having the foresight to hold this hearing--is in generic drugs. According to a 1998 CBO analysis, generics save consumers between $8 and $10 billion each year. And generic drugs are now used to fill more than half--approximately 55 percent--of all prescriptions each year, but account for only about 13 percent of spending on prescription drugs. It is estimated that every 1 percent increase in generic utilization results in a 1-2 percent total cost savings. But since generic substitution rates are in the range of 90 percent, the greatest potential for cost savings rests with bringing new generics to the market. And the recent study that PCMA did, and that they talk about in their testimony today, really highlights the future potential of cost savings as brand drugs come off patent and generics are able to enter the market. The PCMA analysis found the potential for $49 billion in savings across the healthcare system from 14 drugs that are going off patent in the next five years. Medicare's share of that total is approximately $23 billion. One important component that I am particularly interested in for ensuring that generic drugs are able to come to market is the establishment of a clear pathway for generic biologics. Since the passage of Hatch-Waxman in 1984, scientific advances have made the biotechnology industry an integral part of the pharmaceutical industry and we must update this law to reflect the critical role biologics now play in treatment. And biologics are a major driver of increasing prescription drug costs. Six biotech pharmaceuticals--Procrit, Epogen, Neuposen, Intron-A, Humulin and Rituxan generated sales of more than $1 billion in 2003 and the top three biotech pharmaceuticals: Neupogen, Epogen and Intron A cost patients $23,098, $10,348 and $5,850 respectively, each year. As evidenced by these examples, generic competition for biopharmaceuticals has the potential to offer consumers dramatic and substantial savings. As the number of biologics grows, and the lifecycle of these products matures, the patents on these products expire. In 2004 there were more than a dozen biopharmaceuticals for which U.S. patents have expired, or will expire by 2006. Providing a clear pathway for bringing generic biologics to market provides a significant opportunity to save healthcare dollars and I look forward to exploring this in more detail this morning and as we move forward. Thank you, Mr. Chairman. Senator Clinton. Mr. Buehler, I recognize that the FDA has been very public about its belief that it does not have the legislative authority to develop a pathway that would allow the vast majority of generic biologics to enter the market. However, the FDA began working on drug-specific guidance documents 7 years ago during the Clinton administration to provide information to companies about two biologics--insulin and growth hormone--drugs that you have asserted authority over. While these guidance documents are not an explicit pathway, they would certainly facilitate bringing a biogeneric for each of these drugs to the market. But just last month, after 7 years, the FDA announced that it is reversing course and will instead begin all over again and develop industry-wide guidance on this issue. Now, I am particularly concerned about this because since the passage of Hatch-Waxman in 1984, a lot of scientific advances have been made and the biotechnology industry is now an integral part of our pharmaceutical industry. I think we have to update the law to reflect the critical role that biologics are now playing in treatment of disease. Biologics are a major driver of increasing prescription drug costs. Six biotech pharmaceuticals are generating more than $1 billion in sales and the top three biotech pharmaceuticals--Neupogen, Epogen and Intron-A--cost patients $23,000, $10,000 and $5,000, respectively, each year. So as the number of biologics grows and the life cycle of these products mature, the patents on these products expire. In 2004, there were more than a dozen pharmaceuticals for which U.S. patents have expired or will expire by the end of 2006. So providing a clear pathway for bringing generic biologics to market provides a significant opportunity to save health care dollars. So now even where the FDA has accepted authority to facilitate bringing a generic to the market and where you have spent 7 years, you have missed the opportunity to save millions of dollars for consumers and taxpayers. In fact, just for insulin and growth hormone alone, the Medicaid program spent $752 million last year. If a biogeneric had been on the market in 2005, the Medicaid program could have saved over $100 million on these two drugs alone. Of course, the savings in Medicare and the health care system overall would be even greater. So with that preface, Mr. Buehler, why after 7 years did the FDA decide to change course, No. 1? No. 2, what happened to the insulin and growth hormone specific documents you were working on? Mr. Buehler. Well, first, let me preface, Senator Clinton, that through the extensive discussions we have been having at the agency over generic biologics, the initial feeling is that my office would not be involved in the review and approval of these products because of the complexity of the molecules and the feeling that there would be the need for some additional clinical work that would accompany the application that could not be submitted in an ANDA and could not be reviewed in the Office of Generic Drugs. So the direction that the discussions are going are that these particular applications would be what we call 505(b)(2) applications, which are a hybrid application that is reviewed in the Office of New Drugs and gives the applicant the capability to do a number of various studies that are requested by FDA. These are complex molecules. There is a lot of concern at the agency that when biogenerics are available, they are clearly--as the concern is for small molecules, they are clearly bioequivalent products that can be used interchangeably in the marketplace. So we are taking our time in making sure that the requirements for these products are clearly delineated and scientifically based. The reason I believe--and again I am not privy to a lot of these discussions because my office is not going to be involved in the review and approval of these products, but I believe the thought was that we wanted to put out a global document that would cover the class of biogenerics or follow-on protein products from the very simplest to the more complex, and that we can provide a road map for the industry that would outline the requirements for FDA approval. Senator Clinton. Well, Mr. Buehler, just so I understand, was your office involved in the 7 years of study with respect to insulin and growth hormone? Mr. Buehler. We were involved in the discussions, and clearly our scientists were involved in the discussions with the scientists from the Office of New Drugs. But at a certain point, the Office of New Drugs and the clinicians in the Office of New Drugs felt that these particular applications should be put in as a (b)(2) application so that it would allow us to request more information, if needed, for these particular products. Senator Clinton. So is it your understanding that the Office of New Drugs will handle both the original biologics and the generic version of the biologics? Mr. Buehler. At this point, I believe that is the direction we are going, yes. Senator Clinton. Now, would you or anyone else who is here with you from the FDA know who has possession of the guidance documents that were generated with respect to insulin or growth hormone? Mr. Buehler. I do not know. Senator Clinton. Is there anyone else from FDA who knows who has possession? Mr. Buehler. We can get back to you with that. Senator Clinton. I think it would be very useful because this is an area which is crying out for some legislative direction. It doesn't really have a specific pathway yet, and because the FDA has taken the position that it doesn't have authority, I think that we need to look to see how we are going to handle both the biologics and then, of course, the generic biologics. I think it would be useful to have those guidance documents because 7 years of effort went into those. So, Mr. Chairman, I might ask that we try to obtain those guidance documents to see if it can inform our concerns about the generic issue, in general, but specifically in this new field of biologics, because I am concerned that we don't yet have a framework for this and I think we need to work on that. So I look forward to getting more information from the FDA about this process and then trying to figure out what we might do to work with the FDA to create a better understanding of how this is going to be handled because I think Mr. Buehler very correctly said this is incredibly complicated and so we need some guidance. I understand from the reports I got that there was some very good questioning by the Chairman and the Ranking Member about whether the FDA has the resources to do what we are asking them to do, and I don't think it does. This new field which is about to explode on biologics will add even more burden, but there is no better place to put it if it is well- resourced. So I think that has to be taken into account as well. Thank you. Senator Kohl. Thank you very much, Senator Clinton. We would like to thank the first panel. You have been really good, very informative, and at this point we will go on to the next panel. Mr. Leibowitz. Thank you. Mr. Buehler. Thank you. Senator Kohl. The first witness on our second panel is Heather Bresch, who is the senior vice president of Corporate Strategic Development at Mylan Laboratories. Mylan Laboratories is a leading U.S.-based generic pharmaceutical company and one of the world's leading providers of prescription medications. Ms. Bresch has 15 years of experience in the generic pharmaceutical industry, including multiple senior positions with Mylan Laboratories and the Generic Pharmaceutical Association. She is here to provide us with firsthand examples of the challenges generic pharmaceutical companies face in getting their medicines on the market. We welcome you. The second witness will be Mark Merritt. Mr. Merritt serves as president of the Pharmaceutical Care Management Association, the national association representing America's pharmacy benefit managers which administers prescription drug plans for more than 200 million Americans. Mr. Merritt will demonstrate the cost savings associated with increased utilization of generic drugs, as well as recent analysis showing the potential savings seniors and Medicare could realize over the next 5 years. We thank you both for coming, and so we will start with you, Ms. Bresch. STATEMENT OF HEATHER BRESCH, SENIOR VICE PRESIDENT OF CORPORATE STRATEGIC DEVELOPMENT, OFFICE OF THE CHIEF EXECUTIVE OFFICER, MYLAN LABORATORIES, INC., CANONSBURG, PA Ms. Bresch. Thank you, Chairman Smith and Co-Chairman Kohl and members of the Committee on Aging. I am Heather Bresch, with Mylan Laboratories, one of the world's leading providers of prescription drugs. Fifty-five percent of all drugs dispensed today in the United States are filled by generic drugs. However, this 55- percent generic utilization only consumes 15 percent of America's drug spend. The average cost of a brand drug is about $95, while the average cost of a generic drug is less than $30. My written testimony today addresses a number of issues. However, I wanted to devote my limited time with you today to talk about two of the more debilitating obstacles facing our industry: the misuse of authorized generics and the abuse of citizen petitions by brand companies. To save consumers billions of dollars, the Hatch-Waxman Act of 1984 created a balance encouraging innovation and promoting access to affordable medicines. The only incentive provided to generic companies to challenge questionable brand patents was the 180-day exclusivity period. Members of this Committee, the release of authorized generics during this exclusivity period is the single greatest threat to the viability of the generic industry going forward. Supporters of authorized generics claim that consumers benefit from this practice through lower prices, as cited by a recent study by PhRMA. A soon to be released independent study proves that nothing could be further from the truth. PhRMA's study looked at wholesale prices, not retail- level prices. The independent study replicates PhRMA's products and calculations, but uses the retail price. It is also important to note that this study shows that 90 percent of our population is insured by a third-party payer or the government. So while they realize savings with a generic product coming to market because it establishes a generic co-pay, the presence of an authorized generic provides no additional savings to this group. The remaining 10 percent of our population who pays cash saw virtually no additional savings from the presence of an authorized generic during the 180 days. Brand companies would never lower their price or launch an authorized generic without the presence of a true generic coming to the market. For brand companies, authorized generics are a long-term strategy designed to debilitate our industry because they understand this revenue very importantly generates and enables us to further challenge questionable patents in their pipeline. There is no short-term benefit and there is long-term detriment to the generic industry because of this practice. In fact, to use the exact words of J.P. Garner, CEO of Glaxo, quote, ``The idea was somebody has a 6-month exclusivity, but we are king-maker. We can make a generic company compete during a very profitable time. We are not a generic company and we do not wish to become one. If we acquired the most successful generic company in the world, it would barely move our needle on profit.'' Authorized generics are on the marketplace solely to cripple the industry. Eli Lilly CEO Sidney Laurel said back in December 2003, ``For this to really work, you would have to have the whole industry do this systematically each time a patent expires so that you would truly eliminate the incentive and the calculation that generic companies would make.'' Well, to my knowledge, since December of 2003, each and every generic launch has been met in the marketplace with an authorized generic. Brand companies also leverage authorized generics during settlement negotiations. We are aware, Senator Kohl, of your bill which seeks to prohibit any and all consideration but early entry of brand generic patent settlements. But we think this approach goes too far. The truth be told, unless and until the authorized generic problem is resolved, the patent settlement issue cannot rationally be discussed. Even if the generic company has invalidated a patent or believes that it will, the fact that a brand company can release an authorized generic during the 180-day period dramatically reduces the generic returns and leaves the generic with little choice and no bargaining power. During the time period that Commissioner Leibowitz discussed that they reviewed patent settlements, the phenomenon of authorized generics has escalated dramatically. So we do not think it is coincidental the types of patent settlements that you are reviewing and their coordination with the practice of authorized generics. The second tactic I want to discuss is the abuse of the citizen petition process to improperly delay competition. Frequently, a brand company will file a petition on the eve of FDA approval of a generic product to delay its approval. The brand strategy is that it will take months or longer for the FDA to answer the petition, during which time final approval of the generic drug will not be granted, and during which time brands can receive millions of dollars of day of revenue by delaying competition. A review of citizen petitions filed with the FDA over the last 3 years reveals a very clear picture. During the last 3 years, brand companies have filed 45 petitions requesting the delay of FDA approval of a generic drug. Of these 45 petitions, the average time at the agency is 13 months. The FDA has ruled on 21, denying 20 of them, but not before causing delay anywhere from a few months to over a year. To bring this critical issue sharply into focus, consider Mylan's successful challenge to J and J's brand name incontinence drug Ditropan XL. On August 29, 2005, with a decision expected at any moment, J and J filed an eleventh-hour citizen petition requesting that the FDA rethink its standards for approving a generic version of this drug. On September 26, 2005, not even a month later, a Federal district court found that J and J's patent was invalid and not infringed. However, today, 11 months later, the patent stands invalid, but consumers wait to enjoy the lower cost of a generic alternative because Mylan cannot receive final approval due to the citizen petition, even though we received tentative approval months and months ago. In conclusion, we believe that Congress cannot stand still with such threats facing our health care system and the viability of the generic drug industry. We applaud this Committee for conducting these hearings and urge Congress to take action now in two specific areas. We urge you to support legislation introduced yesterday by Senator Rockefeller and cosponsored by Senator Schumer and Senator Leahy. Let me be clear about a very important point. The generic industry is not opposed to honest competition. Following the 180 days of exclusivity, we recognize the right of any company with an FDA-approved product, including the brand itself, to compete in the generic marketplace. But competition timed to hurt the long-term viability of our industry will lead to an escalation of the health care crisis, not its resolution. Second, in 1999 the FDA proposed a rule that would have separated the review of citizen petitions from the approval of the generic product, and the FTC weighed in on the rule and even enhanced it. With little explanation, the FDA withdrew this proposed rule in 2003. We urge Congress to call on the FDA to reissue its proposed rule of 1999. If the FDA fails to take such action, we urge Congress to act immediately to support the bipartisan bill, Stabenow-Lott, which implements effectively the same rule. I want to thank the Committee again for its time and interest in making sure seniors and all Americans have access to affordable, safe generic pharmaceuticals. I am happy to answer any questions you may have. [The prepared statement of Ms. Bresch follows:] [GRAPHIC] [TIFF OMITTED] 30710.042 [GRAPHIC] [TIFF OMITTED] 30710.043 [GRAPHIC] [TIFF OMITTED] 30710.044 [GRAPHIC] [TIFF OMITTED] 30710.045 [GRAPHIC] [TIFF OMITTED] 30710.046 [GRAPHIC] [TIFF OMITTED] 30710.047 [GRAPHIC] [TIFF OMITTED] 30710.048 [GRAPHIC] [TIFF OMITTED] 30710.049 [GRAPHIC] [TIFF OMITTED] 30710.050 [GRAPHIC] [TIFF OMITTED] 30710.051 [GRAPHIC] [TIFF OMITTED] 30710.052 [GRAPHIC] [TIFF OMITTED] 30710.053 Senator Kohl. We thank you very much. Mr. Merritt. STATEMENT OF MARK MERRITT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, WASHINGTON, DC Mr. Merritt. Thank you, Senator Kohl, Senator Smith, Senator Clinton, other members of the Committee. I am Mark Merritt, president of PCMA, the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, or PBMs. PBMs administer drug benefits for more than 200 million Americans with coverage provided through private and public purchasers. We appreciate the invitation to be here today. PBMs work on behalf of employers, unions, government agencies and others to help offer their people drug benefits that are as generous and affordable as possible. We don't set the price, prescribe or produce these drugs. Our job is to use our enormous purchasing power on behalf of our thousands of clients to generate competitive pricing from drug manufacturers and drugstores so that payers and consumers get the best deal possible. As a result of these efforts, PBMs typically reduce costs for purchasers and consumers by an average of 25 percent. Regarding generics, PBMs do as much or more than anyone in America to increase generic utilization where appropriate, and we do this in a number of ways. First, we design formularies that offer consumers significant incentives to choose generic drugs when appropriate. We offer lower co-pays, step therapy programs and options like mail service pharmacy which tend to have a higher generic substitution rate than those achieved by retail pharmacies. Second, we educate consumers, physicians and pharmacists about the availability of generics themselves. It is not always apparent to them, and we do as much as we can through calls and letters, and so forth, to make sure everybody knows of the affordable alternatives available to them. Third, we have played a major leadership role in the e- prescribing front, which empowers physicians and patients to better understand their options and to make more affordable choices while they are still in the doctor's office. PBMs routinely get generic substitution rates above 90 percent, and this hearing is very timely. PCMA looked at the impact of generics coming to market and found an unprecedented number of brands coming off patent in the next few years. As a result, we believe the potential savings across the entire health system will be $49 billion over 5 years, from 2006 to 2010, if these generic market entries happen when they are supposed to. The challenge for all of us is to not only increase the utilization of the current generics available, but to expand the number of generics that come to market. PCMA offers the following recommendations on how to bring this about. First, Congress should enact S. 2300, the Lower Price Drugs Act, cosponsored by you, Senator Kohl. Second, the funding of the Office of Generic Drugs needs to be increased so that generic applications can be moved through faster. Third, PCMA believes Congress should establish a clear legal pathway to approve biogenerics sooner rather than later. Last year alone, the cost of biologics soared 17.5 percent, compared with traditional drugs which increased by 10 percent, and biologic costs are expected to represent $90 billion of drug spend in 2009. Obviously, there are no generic alternatives to make prices more competitive in this area. Traditional drugs are created from chemicals, whereas biologics are derived from living organisms and are regulated differently by the Federal Government. While some argue that the science of creating generic biologics is not fully developed, progress is being made on a daily basis and the European Union has already approved legislation that creates a regulatory pathway for the approval of biogenerics. For these reasons, PCMA recommends that Congress create a clear legal pathway for generic biologics which would allow for some needed competition to bring down prices. Fourth, and finally, PCMA believes Congress should adopt a national, uniform e-prescribing standard to make it easier for physicians in both the commercial market and with Medicare patients to adopt this revolutionary technology. E-prescribing empowers the physician and patient by showing them the choices of drugs in a plan formulary, including low-cost generic options and mail service pharmacy options, and again all while everybody is still in the doctor's office, the doctor and patient working together on this. One e-prescribing demonstration project increased generic utilization by more than 7 percent in 1 year alone. Similarly, a recent study showed that widespread adoption of e-prescribing could save $29 billion annually, part of this because of increased generic utilization. The key is having one simple, uniform e-prescribing standard for physicians to actually encourage them to use this technology. A doctor in Washington, DC is much more likely to embrace and actually use e-prescribing if they are not required to comply with four different standards to accommodate their patients in DC, Maryland, Virginia, and now the Medicare program. PCMA is pleased to have the opportunity to testify here today and we look forward to working with the Committee as it considers these issues further. I would be happy to answer any questions the Committee may have. [The prepared statement of Mr. Merritt follows:] [GRAPHIC] [TIFF OMITTED] 30710.054 [GRAPHIC] [TIFF OMITTED] 30710.055 [GRAPHIC] [TIFF OMITTED] 30710.056 [GRAPHIC] [TIFF OMITTED] 30710.057 [GRAPHIC] [TIFF OMITTED] 30710.058 [GRAPHIC] [TIFF OMITTED] 30710.059 [GRAPHIC] [TIFF OMITTED] 30710.060 [GRAPHIC] [TIFF OMITTED] 30710.061 [GRAPHIC] [TIFF OMITTED] 30710.062 [GRAPHIC] [TIFF OMITTED] 30710.063 [GRAPHIC] [TIFF OMITTED] 30710.064 [GRAPHIC] [TIFF OMITTED] 30710.065 [GRAPHIC] [TIFF OMITTED] 30710.066 [GRAPHIC] [TIFF OMITTED] 30710.067 Senator Kohl. Thank you very much, Mr. Merritt. Ms. Bresch, in your company's experience, what is the biggest roadblock that you face when trying to get one of your drugs to market? Ms. Bresch. Well, I think, Senator, I highlighted in my testimony the authorized generics and the citizen petition process. Certainly, in my written testimony I talk about several other obstacles such as declaratory judgments, as Commissioner Leibowitz discussed. I believe that as we look at generic biologics, which is a vital role of the next frontier, I think, for the pharmaceutical industry, brands and generics alike, if we do not fix the obstacles we face today, I can only imagine what it would do to health care costs if a generic company would need to take on the additional cost in litigation and whatever that pathway may be, the costs that it would take to bring a generic biologic to market if we faced an authorized generic at the same time competing with us in the marketplace. So while we know that generic biologics are going to be a vital component, we need a pathway sooner than later. If we don't fix some of these issues today, we believe that it is only going to lead to more billions of dollars in costs for the government and consumers. So that is why to fix authorized generics, declaratory judgments--we believe that you are going to restore a competitive marketplace in allowing a level playing field to be put back in place and give the generic company the leverage and bargaining power it had before these practices were implemented. Senator Kohl. Mr. Merritt, do you have a comment on that? Mr. Merritt. Well, I just think that we need to clarify whatever confusion there is on how we can get generics to market faster. In other words, if it is a funding problem with OGD, then let's solve that. On the generic biologic front, I am not a patent lawyer and I am not a scientist, but I know from a public policy point of view and from the point of view of all the people who pay for health care in this country who hire us to help them get more affordable care, the fact that there is no generic pathway right now is a big problem. Competition is the key to getting these prices lower. Without it, we are not going to get the savings that we need. Senator Kohl. What do you say to the comment that these roadblocks for the most part, if not entirely, are just there to prevent generic companies from getting products to market that are otherwise entirely safe, and the roadblocks are put there--and in many cases they are legal--just to maximize profits for the brand name manufacturer at the expense of customers all across the country? Is there any useful purpose that these roadblocks are serving, Ms. Bresch? Ms. Bresch. Certainly, not in my opinion. I believe that the FDA is well equipped to handle the scientific issues, the approval process for a generic drug. I think we heard Mr. Buehler talk about while there may be some backlog, certainly they are addressing the prominent issues that we face to make sure they put out their safe and effective medicines when approved. I believe that as you look historically at the delay tactics that brand companies have used, I can't say they have served any purpose in our health care system. Generic drugs continue to save everyone billions and billions of dollars. I think that while they are maximizing their franchise for their shareholders, there is certainly nothing being done to the benefit of the consumer or the health care system. Senator Kohl. Mr. Merritt, do you agree with that? Mr. Merritt. Well, I would prefer not to ascribe motives as to why it is not happening, but it needs to happen. Every time we talk to somebody, we get a different answer as to why it is not happening and it is always a rational, complex answer. But I mean if we can send a man to the moon, we can get a regulatory pathway for generic biologics. It is going to happen; it has to happen. There are too many people who need these drugs. They are great products. But to not have competition, to not find a scientific way that is both legal and is clinically sound--that, to me, doesn't make sense. I am sure there is a way to do it. I don't have the expertise on how to do it, but I think Congress needs to get involved to make sure there is consensus around how to do it and make it happen. Senator Kohl. Thank you very much. Mr. Chairman. The Chairman. Heather, you indicated that it was the FDA that had a regulation out in 2002 and pulled it? Ms. Bresch. They issued guidelines in 1999 that would have decoupled the citizen petition process from the ANDA approval process. So while we certainly are all for citizen petitions being filed and raising any issues that an interested party or a citizen wants to raise, we don't believe that blocking the ANDA approval was in the best interest because as our data shows, the majority of them are eleventh hour that don't raise any new issues. So what the rule did was put in place the mechanisms to still have the process, not delay---- The Chairman. You have to timely file? Ms. Bresch. Timely filed, and allow the process to go on as it should. The FTC weighed in on that rule and said they thought that that was a great step to ensure that there wasn't a delay of the generic entry. The Chairman. Do you have to raise new issues under the proposed rule? Ms. Bresch. No, it didn't limit the issues you could raise. What it did limit is the direct attack on a specific company's product. So, for instance, if you wanted to raise an issue on the process of the generic drugs or a specific test or process that the FDA was doing, you could raise that. You couldn't make it product-specific, because a lot of times these petitions try to bring in some specific process on a specific product that they have known about for months and years specifically because we are usually in litigation for months and years prior. So they are familiar with all the information. So it doesn't limit what you can raise. It certainly just limits the fact that you can't use it to specifically tie it to a generic drug approval. The Chairman. In your view, why was it pulled? Ms. Bresch. As I stated, it was with very little explanation in 2003 that it was pulled. So it came under the Clinton administration and was pulled out under the Bush administration. The only thing on the record was that back in 2003, they felt that there wasn't a backlog of citizen petitions. But I think recent testimony from Mr. Bradshaw, FDA counsel, and others within the FDA has now very much admitted on the record that they are seeing a dramatic increase and a backlog in citizen petitions. So we have been in to HHS and the FDA asking them to please reissue these guidelines, especially with the FTC comments that they made to them. It would certainly dramatically alter the way citizen petitions are used. The Chairman. Are they going to reissue it? Ms. Bresch. We have no commitment that they are going to reissue it. So as I mentioned, Senators Stabenow and Lott have introduced a bill that pretty much does the exact same thing that the rule did in 1999. So our feeling is it certainly could be done administratively. They do not need legislation, as they once did in 1999. They did need legislation then; we don't need it now. But if they won't act and reissue the guidelines, certainly the legislation would correct the problem. The Chairman. It needs to be fixed. We want consumers to have opportunities to petition, but, you know, if it amounts to no more than just an abuse of process, that abuse ought to stop. Ms. Bresch. We have had many personal experiences with citizen petitions, but right now with Ditropan XL, it has been 11 months. We have had tentative approval, which means our application meets all scientific and regulatory issues. We have invalidated the patent. The Federal district court found it to be invalid, and yet we can't receive final approval because the FDA hasn't signed off on the petition J and J filed. The Chairman. Thank you. Senator Kohl. Thank you very much. Senator Clinton. Senator Clinton. I want to compliment these two witnesses. They are extremely informative and very clear in the information they are providing, and I appreciate both of you for being here. Mr. Merritt, I am really interested in your comments about e-prescribing because I think e-prescribing has been a great advance. When I went down to Houston after Katrina and visited a lot of the evacuees, one of the big problems they had was dealing with chronically ill people, frail elderly people who had been evacuated. They were evacuated often either without their medicine or without adequate supply. They didn't have any way of getting back to their physicians. Doctors' offices and hospital records were destroyed. Pharmacies were flooded. In talking with the physicians who were attempting to make sense out of all of this, the only good news was that for those patients who had shopped at a pharmacy that used e-prescribing, they could get into those national systems and that was the only way they could reconstruct what the dosage and the particular prescription was for an individual. So e- prescribing, in general, has been a great gift. Now, e-prescribing also increases generic utilization and it is another example of why we need to adopt a national framework for the electronic exchange of information in our health care system. As you know, we have been trying here in the Congress. I worked with Senators Frist, Enzi and Kennedy, and last year the Senate unanimously passed a bill to set up a framework for electronic medical records which, of course, would include e-prescribing. We are trying to get it through the House, so if anybody has any influence over on the other side, I hope that you will help us with that. I think that the experience with e-prescribing provides us with a lesson about broader health information technology implementation. As your testimony notes, the Medicare law that was enacted included a provision that called for a uniform standard for e-prescribing, but it was implemented only to apply to the Medicare population. So your example was a good one. You might have a pharmacy trying to figure out how to deal with four different standards right here in the District-- Virginia, the District, Maryland and Medicare. We ended up, then, with 50 State e-prescribing laws, and a 51st, namely the Medicare standard. That is too complicated, that is too expensive. We are once again shooting ourselves in both feet. We are making everything so expensive because we can't get rational about what we need to be doing to minimize the expense and maximize quality and safety. It is one of my biggest concerns about the broader implementation of health IT. If we don't pass a national legislative framework, that is what is going to happen across the board. GW Hospital will have a different system than Georgetown, which will have a different system than Johns Hopkins. You know, once again we are going to be in the Tower of Babel and we are going to be spending billions of dollars for no purpose. It is not going to cure anybody. It is not going to put a doctor or a nurse at anybody's bedside. It drives me crazy. I mean, we need a set of national standards and the only place to get that is from the national government that creates the architecture, systems that can talk to each other, systems that can cross-cut on quality and maximize savings. So I would appreciate perhaps, because as you can tell, I am passionate about this and I don't understand why we just don't do it, if you could expand perhaps on your testimony any lessons in implementation, any of the additional barriers or problems that you have seen with this increasing differentiation in e-prescribing that is going on. Mr. Merritt. Sure. Well, first of all doctors, if you talk to them, obviously--and, of course, you have talked to thousands of them--they don't want one more thing to have to do or one new gadget to have to figure out. So the key is how do we get them integrated into the system, and so adoption has got to be as simple as possible. One standard that not only one doctor can look at and find out that it is easy for her to do, but can also talk to the AMA, to other physicians organizations, and so forth, to get easy clarity, guidance, any education that needs to happen-- that is the best pathway to getting this done. So the biggest problem that we have seen is just the fact that it is new, the fact that people have no idea of the enormous benefits that it will have. Everybody talks about the very important IOM study, and they are releasing more information and probably already have by now on medical errors that will be prevented by e- prescribing. But there is another huge cost saver that e- prescribing offers, in that it brings doctors into the benefits and cost equation. Doctors currently have no idea of what formulary information people have. So they will go in and say, ``Well, you have a cholesterol problem. I have got some free Lipitor. Why don't you take that?'' That is their way of helping them address the cost issue. But if they knew that this person had on their formulary a generic with a five-dollar co-pay or perhaps waived co-pay--or if they had generic samples available, that would even be better--but if they knew that and had it on a little PDA, a little hand-held computer, and could show the person, hey, there are a couple of different options here and they are all basically the same, but this one is cheaper, do you want it, bang, it gets rid of all the noise around this issue. Direct to consumer advertising pushes people in all kinds of ways. Physician detailing by PhRMA companies pushes them all kinds of ways. To have that little hand-held device with that information cuts through all of that in a moment and will save literally billions of dollars. Senator Clinton. May I ask just one more question? Senator Kohl. Sure. Senator Clinton. I wanted to ask Ms. Bresch, who raised another issue of great concern to me, the pediatric exclusivity issue--and I think it is very important that we do provide a path for testing drugs to make sure that they are safe on our children and we know what dosage is permissible. We have made some progress on that with the Pediatric Research Equity Act and the Best Pharmaceuticals for Children Act. Now, the Best Pharmaceuticals for Children Act provides pediatric exclusivity incentives to manufacturers that conduct pediatric studies, and I think that that has helped to improve confidence in the safety of drugs for children. The FDA allows companies to request waivers from requirements to conduct pediatric studies for drugs that are not likely to be used in the overall pediatric population, such as drugs for ovarian cancer, for example. Now, in your testimony you noted that some companies that should be seeking waivers are instead conducting pediatric studies to receive the 6 months of exclusivity made available under the Best Pharmaceuticals Act, and that is another abuse of the system because they have no intention of making this drug available for the pediatric population. But they go ahead and claim they are and take advantage of it and get the 6 months of additional exclusivity. Do you have any suggestions about what actions the FDA could take to ensure that drugs that are obviously not geared to the pediatric population do not qualify for the exclusivity incentives? Ms. Bresch. I believe that the intention of the law and what it was seeking to do was a great act by Congress to make sure, as you said, that the drugs are safe on children and we know dosages, and so forth. I think as with anything, there are some loopholes and abuses that have taken place with this practice. I think the way the law was intentionally set out, the FDA would have to look at data, would look at a product and be interested in more information in the pediatric population. They would then have to request a PhRMA company to do the studies, and that would then earn them the 6 months of additional exclusivity in the marketplace. I can tell you today as one of the largest generic manufacturers, every product in our pipeline, every product that we look at, every timing that we look at, we automatically add 6 months of exclusivity to every single product we look at. So somewhere from the intention and the spirit of the law to its actions today, I think something has been lost in the translation because it is not limited to any specific universe of drugs or things that need to be looked at. So I think one thing that we would urge is to go back and look at the original framework, at how the request would be made to PhRMA to look at these studies. Just recently, within the last couple of weeks, a product that is a combination of a product with aspirin--we all know that aspirin is not recommended for children in the pediatric population. Yet, because of what you just explained, Senator Clinton, they received 6 months' exclusivity to show that this product should not be used in children. So we completely concur that, again, there is an abuse of this practice that needs to be looked at before I think the bill is reexamined next year as it sunsets. Senator Clinton. Thank you. Senator Kohl. Thank you very much, Senator Clinton. In closing this hearing, I just want to make, I think, a fairly obvious comment. There are few areas that provide more opportunity for us to serve consumers all across this country than tackling this whole issue of prescription drugs and bringing them to the American people at the lowest possible cost. We are fighting legitimate legal obstacles with respect to the pharmaceutical companies and their desire to do well by their stockholders. But that is not our job here. Our job is to do well by the American people, and there are a lot of barriers out there that we have to knock down and I think we have touched on many of them this morning. It is an urgent issue and I personally feel determined, and I know my colleagues feel the same way, to make measurable progress in a short amount of time. Your testimony this morning adds urgency and a lot of illumination to the problem, so we very much appreciate your being here. Unless there are any more comments--Senator Smith, would you like to add anything? The Chairman. No. Well said. Senator Kohl. Senator Clinton. Senator Clinton. No, thank you. Senator Kohl. Thank you very much for being here. Ms. Bresch. Thank you. Mr. Merritt. Thank you very much. Senator Kohl. We are adjourned. 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