<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:82439.wais]
EXAMINING ISSUES RELATED TO COMPETITION IN THE PHARMACEUTICAL
MARKETPLACE: A REVIEW OF THE FTC REPORT, GENERIC DRUG ENTRY PRIOR TO
PATENT EXPIRATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
OCTOBER 9, 2002
__________
Serial No. 107-140
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Barondess, Mark A............................................ 91
Crawford, Hon. Lester M., Acting Commissioner, Food and Drug
Administration; accompanied by Daniel D. Troy, Chief
Counsel, Food and Drug Administration...................... 27
Glover, Gregory J., Ropes and Gray, on behalf of PhRMA....... 80
Jaeger, Kathleen D., President and CEO, Generic
Pharmaceutical Association................................. 72
Levine, Sharon, Associate Executive Director, the Permanente
Medical Group, on behalf of RxHealthValue.................. 86
Muris, Hon. Timothy J., Chairman, Federal Trade Commission... 35
Material submitted for the record by:
American Association of Retired Persons, prepared statement
of......................................................... 123
Glover, Gregory J., Ropes and Gray, on behalf of PhRMA,
letter dated November 21, 2002, enclosing response for the
record..................................................... 136
Jaeger, Kathleen D., President and CEO, Generic
Pharmaceutical Association, response for the record........ 127
Levine, Sharon, Associate Executive Director, the Permanente
Medical Group, on behalf of RxHealthValueresponse for the
record..................................................... 135
Motley, John J., III, Senior Vice President, Government and
Public Affairs, Food Marketing Institute, letter dated
October 8, 2002............................................ 126
Muris, Hon. Timothy J., Chairman, Federal Trade Commission,
letter dated November 22, 2002, enclosing response for the
record..................................................... 130
(iii)
EXAMINING ISSUES RELATED TO COMPETITION IN THE PHARMACEUTICAL
MARKETPLACE: A REVIEW OF THE FTC REPORT, GENERIC DRUG ENTRY PRIOR TO
PATENT EXPIRATION
----------
WEDNESDAY, OCTOBER 9, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Upton,
Greenwood, Deal, Burr, Ganske, Norwood, Wilson, Pickering,
Bryant, Buyer, Pitts, Tauzin (ex officio), Brown, Waxman,
Barrett, Towns, Pallone, Eshoo, Stupak, Wynn, Green, and
Dingell (ex officio).
Also present: Representative Shimkus.
Staff present: Patrick Morrisey, deputy staff director and
counsel; Brent Del Monte, majority counsel; Steve Tilton,
health policy coordinator; Eugenia Edwards, legislative clerk;
John Ford, minority counsel; and Jessica McNiece, minority
staff assistant.
Mr. Bilirakis. Shall we please take our seats so that we
can get started. Good morning.
I would announce that the opening remarks by the chairman
and the ranking member will be for 5 minutes, and remarks from
the other members of the subcommittee will be limited to 3
minutes, and I call this meeting to order.
First, I would like to thank our witnesses for appearing
before the subcommittee today. The subcommittee values your
expertise and we look forward to your expert testimony. I am
certain it will help us better understand the issues before us.
The Hatch-Waxman amendments of 1984 established the
framework that currently governs the entry of generic
pharmaceutical products into the marketplace. The 1984 law
attempted to accommodate two important public policy
objectives. The first was to speed the entry of lower-cost,
generic versions of brand-name drugs into the marketplace. The
second, and more subtle, objective was to preserve an
environment that encourages companies to develop innovative new
pharmaceuticals.
By all accounts, Hatch-Waxman has been a success. Almost
half of the prescriptions filled in the United States today are
for generic drugs, whereas only 19 percent of prescriptions
filled in 1984 were for generics. However, there are
indications that the law needs to be modified to ensure that it
continues to meet its original intent.
The Federal Trade Commission recently published an
extensive report that identifies certain instances where
innovator companies may be using questionable tactics to delay
the entry of generic competitors. I am not going to go into the
details of the FTC's findings right now or their
recommendations. However, suffice it to say that the FTC
recommendations could serve as a good starting point for
discussions about potential Hatch-Waxman reforms.
I want to emphasize, and members of this subcommittee have
heard me say it, I trust, many times, that I have been a long-
time supporter of the generic drug industry. Generic drugs are
often substantially cheaper than brand-name versions, and we
should ensure that American consumers continue to have access
to them.
However, I think we must approach Hatch-Waxman reforms
cautiously because poorly thought-out, Draconian changes in
this area could dramatically reduce the incentive for innovator
companies to develop new, lifesaving products. Some of us had a
number of entertainers attend our offices last week who have
particular illnesses, diseases, and who have asked us to take
it slow.
I want to make it perfectly clear that any Hatch-Waxman
reforms should not be viewed as a substitute for a meaningful
Medicare prescription drug benefit. Although I am disappointed
that, once again, my constituents do not have access to a
Medicare prescription drug benefit, I am very proud that this
committee favorably reported a bill that was subsequently
passed by the House.
H.R. 4954, the Medicare Modernization of Prescription Drug
Act, is a good bill. It is not a perfect bill. Nobody has ever
said it is a perfect bill, but it is a good bill that, if
enacted, would help low-income seniors, provide every
beneficiary with stop-loss protection, and significantly lower
the cost of prescription drugs for all Medicare beneficiaries.
Let me emphasize that last point. Contrary to the rhetoric
we hear in this committee, the House-passed Medicare
prescription drug bill significantly lowers the cost of
prescription drugs. It does so without resorting to an
inefficient, government-administered price control scheme.
Instead the bill allows Medicare prescription drug plans to
negotiate deep discounts for manufacturers on behalf of
Medicare beneficiaries. So every time someone talks about how
the House-passed Medicare prescription drug bill does not
address the issue of high drug costs, everyone here will know
that that claim is absolutely indisputably false.
That said, I believe it is important to carefully review
the findings of the FTC report and to hear expert testimony on
this matter, and that is why I decided to hold today's hearing.
My hope is that members will use this opportunity to ask
serious questions about a very complicated subject, and there
is no reason why we shouldn't have a thoughtful, measured
discussion today.
My fear, however, is that some will, instead, use this
opportunity to grandstand and demagogue this issue in an
attempt to score some cheap political points. That is
unfortunate. We can solve this problem if we work together, if
we are not concerned about demagoguery and throwing stones at
each other.
I want to thank our witnesses again for taking the time to
appear before our subcommittee today. I trust you will provide
valuable perspective.
Now I am pleased to yield to the ranking member from Ohio,
the gentleman from Ohio, for an opening statement.
Mr. Brown. Thank you, Mr. Chairman. I appreciate that.
Earlier this year the chairman committed to holding a
hearing on Hatch-Waxman reform. I want to thank you, Mr.
Chairman, for fulfilling that commitment today. You
consistently try to do the right thing. I recognize that and I
appreciate that.
If the impact of inflated drug prices on American
purchasers were a minor problem or a recent problem, or if
prescription drug affordability was a problem unique to
seniors, and if we had passed a decent prescription drug
benefit in this body, one not written by and for the drug
companies, I would not question the majority's decision to hold
this hearing just days before Congress adjourns.
But exploding prescription drug inflation is not a minor
phenomenon; it is not a recent phenomenon. It is driving up
health insurance premiums; we know that. It undercuts the
financial security of seniors; we know that. It drains scarce
dollars from State and Federal health programs; we know that.
Anti-competitive behavior in the prescription drug market
is not a minor or a recent problem either. The FTC has
acknowledged it. The Patent Office has acknowledged it. The
President has acknowledged it.
Thirty-two State attorneys general and businesses and trade
groups and consumer groups and consumer unions throughout the
Nation are fighting it, but the problem is statutory. It is
something we have a responsibility to fix.
CBO says this anti-competitive gaming, wherein brand and
generic drug manufacturers improperly exploit provisions of
Hatch-Waxman to block lower-priced competitors from the market
will cost American consumers $60 billion over the next 10
years. If Congress enacts Medicare prescription drug coverage,
but doesn't close the loopholes on Hatch-Waxman, the Medicare
program and seniors will spend as much as an extra $100 billion
for that coverage over the next decade. This is not a minor
problem.
Earlier this summer Mr. Waxman and I asked the majority to
work with us to come up with a bipartisan compromise. We were
willing to start from scratch, if that is what it took to put a
stop to the anti-competitive behavior in the prescription drug
market. The majority refused.
I recognize that many on this committee are under
tremendous pressure to tow the drug industry's line. No one is
ignorant in this body of the close alliance between PhRMA and
Republican leadership in the House. No one is ignorant of the
close connection and alliance between PhRMA and Republican
leadership in the White House. Look at the fundraising; look at
the President's appointments; look at the behavior of the new
Food and Drug Administration; look at the votes in this House.
But regardless of the majority's allegiance to the drug
industry, at some point our inaction on this issue is important
to consumers, to seniors, to State governments, to the
taxpayers who support Federal and State health programs. At
some point our inaction on this issue, on an issue this
important to the American public, is more than irresponsible;
it is inhumane.
As you know, there are three bills pending in the House:
H.R. 1862, H.R. 5272, H.R. 5311, co-sponsored by scores of
Democrats and some courageous Republicans, bills that would
address the concerns raised by the FTC report. These bills
would help prevent anti-competitive manipulation of the 30-
month stay and the 180-day exclusivity provisions of the Hatch-
Waxman Act without curtailing the 14 to 17 years of patent
protection which drugmakers receive for new products.
In contrast to PhRMA's claim that these bill ``threaten
medical promise''--by the way, I am not sure if you are
familiar with the statement, Mr. Chairman, but it is quoted
from the ad PhRMA ran where they counseled parents to pray for
a miracle, because if we dare pass S. 812 or one of the bills
in the House that I and others are working on, and close
loopholes that some, not all, but some drug manufacturers use
to cushion their profits, then all research and development
will dry up. I will hand out that ad today. I think it is
important for all members to see it, so you will know exactly
what kind of organization and what kind of demagoguery we are
dealing with.
The truth is closing loopholes in Hatch-Waxman would
invariably boost medical innovation on behalf of patients like
Mr. Barondess from our second panel. Hatch-Waxman loopholes
have given drug manufacturers a lucrative alternative, an
alternative to innovation. Rather than develop new drugs, they
squeeze additional revenues, using expensive attorneys, patent
lawyers, and others, out of their old ones. Blocking generic
competition to earn a buck doesn't help patients. It hurts
innovation and hurts patients.
Let me quote Merck CEO Ray Gilmartin, who runs one of the
most profitable companies in America. ``We won't engage in any
practices simply to delay the arrival of a generic to the
market. Extending a patent inappropriately is not beneficial to
the consumer or to the health care system because generic drugs
play a very important role in keeping down the rate of increase
in drug costs. It frees up resources, frankly''--get this--
``Generic drugs,'' CEO Gilmartin says, ``Generic drugs free up
resources for health plans to be able to afford the new drugs,
the breakthrough drugs, not the `me too' drugs, not the `gaming
the patent system' drugs, but the breakthrough drugs that a
company like Merck is bringing to the market.''
Mr. Chairman, I appreciate again the opportunity for this
hearing. I look forward to talking more about this.
Mr. Bilirakis. And I thank the gentleman for his
understanding.
Three minutes, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman.
As we embark on this hearing, let's keep one thing front
and center--The 1984 Drug Price Competition and Patent Term
Restoration Act is arguably one of the most successful and
important health and consumer laws that we have ever enacted.
It created this Nation's modern, vibrant generic drug industry.
Prior to its passage, generic drug sponsors had to duplicate
all of the pioneer drug sponsors' work, with all the attendant
costs in both money and time.
Then generics had about a 19 percent share of the U.S.
prescription drug market. Well, since that 1984 law gave them
an Abbreviated New Drug Application process and access to the
pioneer drug's data and the right to use that data to perfect a
copy well before the pioneer's patent has expired, generics'
market share has grown rapidly. Today generics have 47 percent
of the market, saving consumers $8 to $10 billion a year.
At the same time, the 1984 law has provided the
pharmaceutical industry with a very effective incentive to
invest the many years and hundreds of millions of dollars
needed to bring innovative drugs to the market, giving millions
of suffering patients hope where once there was little or none.
I am sure that every person here in this room has
personally seen, and some have personally experienced,
individuals for whom a new drug has literally meant the
difference between life and death or a life lived in pain or a
life lived with debilitating suffering. I know that all of us
who have watched loved ones lose their battle with terrible
diseases like cancers, Alzheimer's, ALS, have found ourselves
sorely wishing that there were a miracle cure available for
them.
The law works because it is balanced. It recognizes--and we
need to keep this well in mind, too--that without a vibrant,
innovative pioneer drug industry, there can be no generic
industry.
I recognize there has been some gamesmanship with the law,
and some modifications may be necessary to ensure that generic
competition remains healthy. But let's make sure that any cure
that we ultimately prescribe is not worse than the disease, and
let's fairly evaluate and understand the extent of the problem
under current law.
Our Nation leads the world in the development of new drugs
that enable us to effectively treat diseases and conditions.
But if the incentives are not there to continue new drug
discovery and development, and if people cannot afford to buy
those drugs, their benefits will be lost to many.
Mr. Bilirakis. Please finish up.
Mr. Upton. How we ultimately address these and other
fundamental issues relating to the 1984 law will determine
whether we will continue our world leadership in drug
innovation and whether patients will have access to the safe,
effective, and affordable drugs that they need both now and in
the future.
Mr. Bilirakis. I apologize to the gentleman.
Mr. Upton. I yield back the balance of my time.
Mr. Bilirakis. He was actually on ``caution.'' Mr. Waxman,
3 minutes, please, for an opening statement.
Mr. Waxman. Thank you, Mr. Chairman. I appreciate all the
comments that my colleagues have made about the success of this
law, which I had an important part to play in its development.
It has been a very successful law, and the idea of the law
was to create a balance. We wanted to give incentives for
innovation because the consumers of this country and around the
world benefit from the investment that leads to new
pharmaceutical products to deal with our diseases that
otherwise couldn't be addressed.
At the same time, on the other part of the balance we
wanted competition. Consumers benefit when there is competition
because they can get a better price; they can get a lower
price.
We have now seen in recent years--this wasn't a problem in
the beginning, but only in recent years--an abuse of the law. I
asked the Federal Trade Commission to look at this question and
to see if they could determine whether there are tactics that
are being used, games being played, by some of the brand-name
companies to simply keep competition off the market.
They found that since 1998--the law didn't have this
problem from 1984 to 1998, but since 1998 companies have
increasingly begun to file multiple late patents, triggering
successive 30-month stays of generic competition. This tactic
has been used for eight blockbuster drugs, has delayed the
availability of generic competition between 4 and 40 months
beyond the initial 30-month period.
Moreover, the patents for these particular drugs, when the
FTC looked at it, they didn't find that the patent challenges
were valid challenges. At the same time they have also found
that there is a significant number of collusive agreements
between the brand-name companies and the generic manufacturer
to keep generics off the market.
They have taken a provision of the Hatch-Waxman law and
turned it on its head. The provision was to encourage
competition. They have used it to discourage competition, in
fact, to stop competition.
We ought to stop the games that are being played, restore
the balance that we need in the pharmaceutical area. Let me
assure my colleagues and friends that the biggest problem to
innovation is with those companies that don't want to invest in
new innovative drugs because they want to invest in legal fees
to keep competition off the market. If they can continue their
monopoly on a product that is a big seller, they don't feel
that they need to get new drugs out there, or they are not
being successful in getting new drugs developed.
So if we want new drugs for the American people, let's get
competition when the patents are through. The law was very,
very generous in giving patent protection, the restoration of
patent, more exclusive time through GAAP and other means. The
patents have even been extended longer through the pediatric
bill. We have given an additional 6 months. The companies have
plenty of innovative incentives, and we ought to stop the games
from occurring.
Mr. Bilirakis. I thank the gentleman.
There are four votes on the floor. The Chair will recognize
Dr. Ganske for a 2-minute opening statement, and then we are
going to break until we have completed those votes.
Mr. Ganske. I thank you, Mr. Chairman.
We need to pass a Medicare prescription drug bill. We
passed one in the House that needs to become law. All across
Iowa I have talked to seniors about it. They think that is a
very significant improvement in Medicare.
We also need to address the high cost of prescription
drugs. We do that in the Medicare bill we passed in the House,
but we also need to close some loopholes in the generic law.
There is concern that some brand-name drug manufacturers
are preventing generic competition by obtaining multiple 30-
month stays. There is concern that there are agreements between
brand-names and generics that delay getting those generics onto
the market.
That is why I am a co-sponsor of H.R. 5311, the
Prescription Drug Affordability Act of 2002, introduced by
Representatives John Thune and Jo Ann Emerson. That bill would
eliminate the potential for stacked 30-month stays. It would
prevent the listing of frivolous patents. It changes market
exclusivity rules to prevent collusion between brand and
generic drug companies.
Mr. Chairman, I think these are all important changes. I
think Mr. Waxman's bill had good intentions, but, like many
bills--in fact, maybe most of the bills that we pass here in
Congress--after a while you begin to see that you need to do
some reform on those bills.
This is a bill that, if we could get it passed, or
something equivalent to it, I think it would help bring down
the cost of drugs for senior citizens and for everyone in the
country. I think that is a laudatory goal.
I appreciate the chairman for having this hearing, and I
will yield back.
Mr. Bilirakis. I thank the gentleman.
All right, we will break for as long as it takes us,
probably 40 minutes, something like that, maybe less than that.
[Brief recess.]
Mr. Bilirakis. We will continue with our opening
statements, 3-minute opening statements.
Mr. Dingell, for an opening statement.
Mr. Dingell. Mr. Chairman, I thank you, and I thank you for
scheduling this hearing. It is long overdue.
It is at the end of a Congress in which we have sent the
distressing message to millions of prescription drug consumers,
and that is that the House is content to let the good,
bipartisan work of the Senate go to waste.
The Senate has tried to establish an appropriate balance
between the legitimate interests of innovator companies and the
interests of consumers who stand to benefit from price
competition in the marketplace. This body has not. We're past
the point of asking whether there is a problem. It is clear
when seniors are compelled to choose between paying the rent or
buying food to purchase needed prescription pharmaceuticals.
There is a bipartisan agreement on this point, and there
are some curious remedies being brought forward, including
changing the laws on imports, something which poses significant
difficulties to the consuming public and some substantial
danger of dangerous pharmaceutical or pseudo-pharmaceuticals
being brought into this country.
The administration, which opposed S. 812, the Greater
Access to Pharmaceuticals Act, even though it passed the Senate
by a wide margin, still says it recognizes that adjustments to
current law would improve the fair entry of generic substitutes
in the market and prevent future abuses of the patent laws
which do occur today.
I would note that we may not all agree with the content of
that legislation, but at least serious consideration of it, and
allowing the process to go to work to correct the abuses that
we find in terms of pricing, is very much in order and very
much in the public interest.
Major employers in this country, such as General Motors,
are facing unsustainable drug cost increases due to a variety
of factors that include costs associated with the delay or
denial of generic price competition. I am aware that the answer
to their concerns does not rest entirely with generic drugs,
but more than $20 billion worth of prescription pharmaceuticals
are due to come off their patent over the next few years. Any
unreasonable delay or denial of the market entry of generic
drugs has significant implications for the health of our
citizens and the health of our country, as well as significant
adverse impacts upon American employers.
Mr. Chairman, I want to be as fair as possible in my
approach to the subject. I continue to listen to the concerns
of drug innovators as well as drug purchasers, but the House
appears to be missing a major opportunity, and we are not
carrying out our duty to the people in moving forward on this
matter. I do not believe that we can hide that unfortunate
fact.
Thank you, Mr. Chairman.
Mr. Bilirakis. And I thank the gentleman. Mr. Tauzin,
chairman of the full committee, for an opening statement.
Chairman Tauzin. Thank you, Mr. Chairman. Let me express my
appreciation to you personally for this hearing to consider the
issues surrounding competition in the drug marketplace. As we
know, this Nation has, in fact, enjoyed an enormous progress in
competition in the drug marketplace because of Hatch-Waxman.
Reviewing the problems with the act and also acknowledging its
success is an important part of this hearing, I believe.
Without adequate competition, all Americans would pay too
much for their drugs, and many do in some cases. At the same
time, if we skew the marketplace so much as to allow for
immediate competition upon FDA approval of a generic
challenging a patented brand drug, it would simply stifle
innovation and eliminate the motivation to make those
investments. So it is a delicate balance we seek, and I believe
today's hearing will help us in seeking the balance and
achieving it as quickly as we can.
In 1984, the Congress passed the Hatch-Waxman act, which
governs generic drug entry into the marketplace. In exchange
for streamlining the generic drug approval process, brand-name
drugs had patent life restored, so as to take into account the
time lost during the FDA drug approval process. That was the
trade: Get generics into the market quicker and at the same
time give those who develop and produce new drugs a chance to
enjoy the opportunity to recover those investments over the
life of their patent, without the patent being used up in time
spent at the FDA in approval.
During that time we have seen generics now go up from less
than 20 percent of prescriptions filled in the U.S. to nearly
half of all prescriptions dispensed. That is remarkable
progress. I've got pharmacists in my district, by the way, that
are using email and fax technologies now to communicate
directly with doctors when a prescription arrives at their
pharmacy, and in those email and fax matrix systems they are
setting up doctors can approve generics that they may not have
thought about prescribing in the first place.
They tell me they can drive the percentage of prescriptions
dispensed with generics even higher than that one-half of the
generics dispensed today in prescriptions to as high as 80
percent. That would dramatically, I think, help all of us in
this country take advantage of generic drugs, which in many
cases are cheaper than brand-names.
At the same time, Hatch-Waxman has allowed companies to
continue to innovate, and they spend today roughly $30 billion
per year on research and development. Every one of those new
drugs produced and developed is saving lives, extending lives,
and making life more bearable for people with illnesses and
diseases in this country.
So while we may complain that the act is not working
perfectly, I think we will all concede that, I assume all of us
would concede that it is working pretty good. I don't expect
anyone on these panels to call for us to repeal it. What we are
going to hear, hopefully, is how we can improve it. That is why
this hearing is good.
Recently, the FTC issued a report examining generic entry
in the marketplace prior to the expiration of brand patent
rights. The important words to stress here are ``prior to the
expiration of brand patent rights.'' The sole focus of that
report was whether generics were obtaining access to the market
when a brand holds a valid patent issued by the Patent and
Trademarks Office. To be sure, some patents may be improperly
granted by the PTO, but, according to the FTC, this is not the
rule. It has been the exception.
Since passage of Hatch-Waxman, roughly 95 percent of all
generics seeking access to the market raise no issue about the
validity of the brand patents. That is a pretty high
percentage.
With few exceptions, generic access to the market has not
been stymied through the system of gaming. There have been
exceptions. We ought to correct them.
What the FTC focused upon were eight drugs where brand
manufacturers received multiple 30-month stays. At the onset,
let me state that I support the notion of the 30-month stay.
The 30-month stay allows for a cooling-off period, so tricky
patent issues can be litigated. We believe a 30-month stay is
appropriate because Hatch-Waxman allows generic manufacturers
to commit activities that would otherwise be considered patent
infringement prior to generic approval.
So when a person tells me that a brand drug should be
treated the same in patent litigation through a requirement
that they seek injunctive relief to prevent the FDA from
approving the generic, I tell them that that should be the case
only if we treat generic manufacturers like all other
manufacturers prior to approval. That is, you should not be
allowed to infringe upon the front end and then demand to be
treated like all the others in the back end.
The question begins, however, and it still lays before us:
Is more than one 30-month stay ever legitimate? Truthfully, I
don't know that answer. The FTC has studied it and recommends
one 30-month stay per drug. I want to hear that reasoning
explained to us today.
Further, FTC recommends that when brands settle patent
litigation with generics, the FTC should be given notice of the
settlement. This, to me, makes abundant sense. I understand the
FTC is not calling for approval of the settlement, but rather
simple notice. Since anti-competitive settlements do nothing to
bring lower-priced generics to the market, this seems like a
good starting point for discussion.
Again, Mr. Bilirakis, I want to thank you for calling this
hearing.
Finally, let me mention one more thing before we go into
the arcane details of Hatch-Waxman. We will hear a great deal
of rhetoric today at this hearing about why we must quickly
approve the Senate bill, Senate 812, or some similar
legislation. Our friends on the other side of the aisle will
say that such legislation is sorely needed to bring down the
price of prescriptions for seniors. Let me be perfectly clear.
The best way to reduce the prices paid by seniors for their
prescription drugs is to pass comprehensive prescription drug
benefit in Medicare.
The bill we passed through this committee and through the
House in June would reduce some seniors' drug spending by well
over 50 percent. Approximately 44 percent of Medicare
beneficiaries would pay nominal co-pays or no cost-sharing at
all. That legislation ought to be signed into law, and it is a
shame we are not in conference at this point making that
possible for the seniors of America.
As the Energy and Commerce Committee has enjoyed, I
believe, a history of great bipartisanship, as we delve into
the minutiae of Hatch-Waxman, I hope we can go back to that
spirit.
There are some problems in the act. We ought to fix them.
There are some things we could do to improve them. But we ought
to build on the success of Hatch-Waxman, and we ought to build
on it as Americans, not as Democrats or Republicans. I hope as
we learn about these important issues today, this committee
will begin to see its way clear to doing that.
Thank you, Mr. Chairman.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Mr. Chairman: I appreciate you holding this hearing to consider the
issues surrounding competition in the drug marketplace. As a Congress
and as a nation, we must ensure that competition in the drug
marketplace remains vibrant. Without adequate competition, all
Americans would pay too much for their drugs. At the same time, if we
skew the marketplace so much as to allow for immediate competition upon
FDA approval, we would stifle innovation. So it's a delicate balance we
seek, and I believe today's hearing will help us in seeking that
balance.
In 1984, the Congress passed the Hatch-Waxman Act, which governs
generic drug entry into the marketplace. In exchange for streamlining
the generic drug approval process, brand name drugs had patent life
restored so as to take into account the time lost during the FDA drug
approval process. Since the Act was passed, we have seen generics go
from less than 20% of the prescriptions filled in the United States, to
nearly half of all prescriptions dispensed. At the same time, the
brands continue to innovate, spending roughly $30 billion per year on
research and development. So while some may complain the Act is not
working perfectly, I assume all would concede that it's working pretty
well. Certainly, I do not expect to hear anyone call for a repeal of
the Act.
Recently, the FTC issued a report examining generic entry into the
market prior to the expiration of brand patent rights. The important
words to stress here are ``prior to the expiration of brand patent
rights.'' The sole focus of the report was whether generics were
obtaining access to the market when a brand holds a valid patent issued
by the Patent and Trademark Office. To be sure, some patents may be
improperly granted by the PTO. But, according to the FTC, this is not
the rule, but rather the exception. Since passage of Hatch-Waxman,
roughly 95% of all generics seeking access to the market raised no
issue about the validity of brand patents. With few exceptions, generic
access to the market has not been stymied through a system of gaming.
What the FTC focused upon were 8 drugs where brand manufacturers
received multiple 30-month stays. At the outset, let me state that I
support the notion of a 30-month stay. A 30-month stay allows for a
cooling off period so that tricky patent issues can be litigated. We
believe that a 30-month stay is appropriate because Hatch-Waxman allows
generic manufacturers to commit activities that would otherwise be
considered patent infringement prior to generic approval. So when a
person tells me that brand drugs should be treated the same in patent
litigation, through a requirement that they seek injunctive relief to
keep the FDA from approving the generic, I tell them that should be the
case only if we treat generic manufacturers like all other
manufacturers prior to approval. That is, you should not be allowed to
infringe on the front end and then demand to be treated like all others
on the back end.
The question becomes, however, ``Is more than one 30-month stay
ever legitimate?'' Truthfully, I don't know the answer. The FTC has
studied this issue very carefully, and recommends one 30-month stay per
drug. I want to hear this reasoning explained to me today.
Further, the FTC recommends that when brands settle patent
litigation with generics, the FTC should be given notice of the
settlement. This, to me, may be sensible. I understand that FTC is not
calling for approval of the settlement, but rather a simple notice.
Since anti-competitive settlements do nothing to bring lower-priced
generics to the market, this seems like a good starting point for
discussion.
Again, Chairman Bilirakis, I appreciate you calling this hearing on
this very important topic. While it's easy to say we must rush to
reform Hatch-Waxman, the one thing we cannot do is reform it in a way
which threatens innovation. Without innovation, patients are harmed.
Without innovation, research moves overseas. Without innovation, there
is no generic pharmaceutical industry. Let us always remember: Hatch-
Waxman has worked very well. If reforms are needed, we must draft these
reforms correctly.
Finally, let me mention one more thing before we go into the arcane
details of the Hatch/Waxman Act. You will hear a great deal of rhetoric
at this hearing about why we must quickly approve S. 812 or some other
similar legislation. Our friends on the other side of the aisle will
say that such legislation is sorely needed to bring down the price of
prescriptions for seniors.
Let me be perfectly clear. The best way to reduce the prices paid
by seniors for their prescription drugs is to pass a comprehensive
prescription drug benefit in Medicare. The bill we passed through the
House in June will reduce some seniors drug spending by well over 50%.
Approximately, 44% of Medicare beneficiaries will pay only nominal co-
pays and no cost-sharing. That's legislation that should be signed into
law right away.
At the Energy and Commerce Committee, we have a proud history of
bipartisanship. As our Committee delves into the minutia of Hatch/
Waxman, I hope that we do so in the spirit of that finest bipartisan
tradition and examine this law on the merits. We have many important
issues before us today. Let both sides approach them with an open mind
and a willingness to be educated.
Mr. Bilirakis. Thank you. I thank you for the wisdom of
your remarks, Mr. Chairman, and would yield 3 minutes to Mr.
Pallone for an opening statement.
Mr. Pallone. Thank you. Let me say that I very much
disagree with what the chairman of the full committee just said
about what we should be doing and what the other body should be
doing. I mean, the bottom line is that this generic Greater
Access to Affordability Pharmaceuticals Act, the bill that
passed the Senate, is really the only game in town.
As much as I am happy that we are having this hearing
today, we need to pass a generic bill. We need to make the
changes to Hatch-Waxman and pass the Senate bill. The fact that
we are having a hearing is not enough. The subcommittee, the
full committee should be marking up the Senate bill.
I am all for a Medicare prescription drug benefit, but the
bottom line is that that is not going to happen. This can
happen very easily if this committee would just take the bull
by the horns and do what has to be done.
Keep in mind also that the Medicare benefit, although it is
a great thing, doesn't address costs. The Republican bill
doesn't address cost. It only deals with senior citizens. If
you pass the Senate generic bill, the Hatch-Waxman reform, it
would lower costs for all Americans, not just for senior
citizens.
I think the Republican leadership on the committee,
basically, what they are doing is they are saying, look, we
know there are all these problems with Hatch-Waxman. The FTC
report shows dramatically that the brand-name industry is
causing the problem and causing all these delays for generics.
Yet, they are not willing to bring it up.
Why not? Well, the reason is simple: because the brand-name
industry is financing campaigns. They are running ads for all
the Republican candidates in the competitive districts telling
them that you should vote Republican.
You know, the brand-name industry is the problem here, and
the Republican leadership on this committee is not willing to
address the problem because they want the help that they are
getting from the brand-name drug companies in their campaigns
and in these competitive races. That is what this is all about.
We don't need a hearing. We need to pass a bill and we need
to deal with the issue of cost. The Republican bill, even the
Medicare benefit bill, doesn't deal with the cost issue. I have
mentioned many times in this committee about the non-
interference clause that is in the Republican prescription drug
bill that specifically says that the person in charge of the
program cannot essentially negotiate price reductions. That is
what the bill says because that is what the brand-name industry
wanted. They don't want us to deal with the cost issue. They
don't want more generics brought to the market.
I mean this FTC report unambiguously confirms that Hatch-
Waxman is being abused. It details that brand-name companies
are manipulating the approval process. They are the problem.
These additional 30-month stays are being triggered by the
strategic submission of inappropriate patents by the brand-name
drug companies, listings in the FDA's ``Orange Book,'' and they
go on to talk about the other problems with the 180 days. I
mean, we don't need anything more.
The subject of this hearing clearly shows in this FTC
report that the brand-name industry is abusing the system.
Let's do something about it. Don't just keep talking.
Thank you, Mr. Chairman.
Mr. Bilirakis. The gentleman's time has expired. Mr.
Shimkus, opening statement, 3 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. I ask unanimous
consent that the testimony of the Coalition for a Competitive
Pharmaceutical Market be submitted for the record.
Mr. Bilirakis. Without objection.
[The prepared statement of the Coalition for a Competitive
Pharmaceutical Market follows:]
Prepared Statement of Coalition for a Competitive Pharmaceutical Market
Chairman Bilirakis, Congressman Brown, and distinguished
Subcommittee members, the Coalition for a Competitive Pharmaceutical
Market (CCPM) commends the Subcommittee for its leadership in
addressing the critical issue of improving consumer access to
affordable generic drugs in light of unsustainable increases in the
cost of prescription drugs. On behalf of our members, we appreciate
this opportunity to submit written comments to the Subcommittee.
CCPM is an organization of large national employers, insurers,
generic drug manufacturers, and others committed to improving consumer
access to high quality generic drugs and restoring a vigorous,
competitive prescription drug market. CCPM supports legislation to
eliminate legal barriers to timely access to less costly, equally
effective generic drugs.
Our membership is broad and diverse, and includes numerous
prominent purchasers of pharmaceuticals, such as General Motors
Corporation, Caterpillar, Inc., Eastman Kodak Company, and Delphi
Corporation. We are eager to share with the Subcommittee our experience
regarding prescription drug cost increases and to underscore our belief
that the House of Representatives needs to act now to eliminate legal
barriers to timely access to affordable, equally effective generic
drugs by passing H.R. 5311/H.R. 5272.
impact of unsustainable prescription drug costs
Large and small businesses, consumers, unions, governors, the
federal government and health plans throughout the nation are
aggressively attempting to manage soaring prescription drug costs.
These expenditures are growing at annual rates of up to 20 percent and
are unsustainable. Current pharmaceutical cost trends are increasing
premiums, raising copayments, pressuring reductions in benefits, and
undermining the ability of businesses to compete. CCPM members seeking
to continue to provide prescription drug coverage to employees and
subscribers face a tremendous challenge in light of these skyrocketing
pharmaceutical costs.
For example, General Motors--the largest private provider of health
care coverage in the nation, insuring over 1.2 million workers,
retirees, and their families--currently spends over $1.3 billion a year
on prescription drugs. Despite GM's use of state of the art management
techniques that assure the most appropriate and cost effective use of
prescription drugs, its pharmaceutical bill continues to grow at a rate
of 15 to 20 percent a year--more than quadrupling the general inflation
rate.
Similarly, Eastman Kodak Company, which insures 150,000 covered
lives, spends 31 percent of its health care dollar on prescription
drugs. Kodak is on track to spend $88 million on prescription drugs
this year, and estimates that their drug costs will increase to at
least $99 million in 2003.
Likewise, equipment manufacturer Caterpillar Inc. spent $131
million on prescription drugs last year, representing a 17 percent
increase over the previous year. Moreover, Caterpillar has experienced
drug cost increases ranging from 17 to 25 percent over the past five
years.
The experience of insurers is no different. The 42 Blue Cross and
Blue Shield Plans that collectively provide health care coverage for
84.4 million Americans, represented in CCPM by the Blue Cross and Blue
Shield Association (BCBSA), are experiencing up to 20 percent increases
in prescription drug costs each year. BCBSA expects these costs to
continue to grow rapidly, exacerbating the difficulty of providing a
meaningful level of coverage for prescription drugs while keeping
premiums as affordable as possible.
Such drug cost increases are driven by multiple factors, including
higher utilization, direct-to-consumer advertisements, drug price
increases, and, especially, delayed generic competition.
CCPM members are growing increasingly concerned that a major
contributor to the pharmaceutical cost crisis is the use of the Drug
Price Competition and Patent Term Restoration Act of 1984 (Hatch-
Waxman) in ways clearly unanticipated by Congress and which effectively
block generic entry into the marketplace. We believe that inappropriate
Orange Book patent listings, the repeated use of the 30-month generic
drug marketing prohibition provision and other legal barriers have
resulted in increasingly unpredictable and unaffordable pharmaceutical
cost increases.
generic drugs provide critical cost savings
Every day, the choice of generic products creates substantial
savings for consumers; as much as 70 to 80 percent when compared to the
brand product. This adds up to more than $10 billion dollars a year in
savings for consumers, employers, insurers, and taxpayers, as well as
state and federal governments. Generic drugs play a critical role in
the search for answers about how to decrease health care costs, while
increasing access to important medicines and assuring health care
coverage availability.
Like their brand-name counterparts, generic drugs are subject to
thorough review by the Food and Drug Administration (FDA) to ensure
that they are safe and effective. The generic manufacturer relies on
the underlying safety and efficacy data supplied by the brand
manufacturer when it submits its application to the FDA for approval.
In addition, the generic manufacturer must demonstrate in its
application that the generic drug is equivalent to the branded product
based on bioavailability and/or bioequivalence studies to win FDA
approval.
legal barriers to generic access impede vigorous market competition
Generic drugs offer consumers a safe, equally effective and
affordable alternative to brand name prescription drugs. However, the
lack of access to high quality generic drug choices for Americans leads
to increased premiums, higher co-payments, fewer health benefits, and
reduced access to quality care--particularly for the uninsured and
poorly insured.
CCPM commends the Subcommittee for focusing today on barriers to
generic entry into the marketplace. We believe, and the recent report
from the Federal Trade Commission ``Generic Drug Entry Prior to Patent
Expiration'' confirms, that such barriers have cost consumers billions
in lost savings and will continue to do so absent swift legislative
action. Without relief from rising prescription drug costs, employers
and other purchasers simply will be unable to effectively compete in
the world marketplace.
Specifically, such legislation should:
<bullet> End delays associated with the automatic 30-month stay;
<bullet> Accelerate generic drug introduction to market; and
<bullet> Expedite resolution of patent disputes.
End Delays Associated with the Automatic 30-Month Stay
A brand name drug manufacturer can delay generic competition for 30
months because current law requires the FDA automatically to stay
approval of a generic application if the brand manufacturer sues for
patent infringement. In fact, current law allows multiple, automatic
30-month stays, further delaying market entry for generic drugs.
Restricting the availability of the automatic 30-month stay would still
permit brand manufacturers to sue generic companies. However, like
patent holders in all other industries, brand manufacturers would have
to obtain a preliminary injunction based on merit to delay generic drug
approvals.
For example, the manufacturer of Neurontin <Register> strategically
timed the submission of an additional patent to FDA, effectively
converting the automatic 30-month stay into a 54-month delay of generic
competition. The cost in lost savings to consumers has already amounted
to well over $825 million. With each new day the public loses an
additional $1.5 million.
Accelerate Generic Drug Introduction to Market
Current law grants a 180-day period of market exclusivity to a
generic applicant who first files an application with the FDA
certifying that the patents on the brand product it intends to copy are
either invalid or will not be infringed by the manufacturing and
marketing of a generic version of the drug. However, the 180-day period
does not begin until the first applicant goes to market or litigation
surrounding the certification is resolved. In the interim, all other
generic applicants are kept out of the market.
The 180-day exclusivity provision now available to the first
generic challenger should be available to a subsequent challenger, if
the initial challenger does not go to market within a specified period
or the FTC finds the applicant engaged in unlawful conduct (such as an
agreement with a brand manufacturer to stay out of the market).
Additionally, a Federal appellate court decision, or the date of a
settlement agreement or consent decree that includes a finding of
invalidity or noninfringement should be designated as ``triggers'' for
the 180-day period to provide certainty for the generic applicant.
Expedite Resolution of Patent Disputes
A brand manufacturer enjoys a statutory 45-day window during which
it may file an infringement suit against a generic challenger and
obtain an automatic 30-month stay. Under current law, a generic
manufacturer must wait to be sued and complete litigation to achieve
certainty of its right to market its product--or risk triple damages if
it markets an approved generic drug while a suit is pending. Generic
manufacturers should be permitted to challenge patents inappropriately
listed with the FDA, with a correction or de-listing remedy available.
This statutory change would reduce the amount of litigation surrounding
drug patents and expedite consumer access to affordable medicines.
cost impact on ccpm members
In addition to the well-documented cost savings that generic drugs
provide, there is ample data on the lost savings to consumers when
generic drug access is delayed. For example, the Congressional Budget
Office (CBO) examined a bill passed by the Senate in July 2002 (S. 812)
that would eliminate many of the barriers to generic drug market entry
discussed above. CBO concluded that consumer savings generated from
such legislation could reach as much as $60 billion over the next ten
years. CBO further determined that if all barriers to generic drug
market entry were eliminated, the total savings could reach $120
billion over 10 years.
CCPM member Eastman Kodak estimates that approximately one-third of
its current expenditures on prescription drugs is spent on brand name
drugs for which generic counterparts are expected to be available in
the near future. Similarly, Caterpillar anticipates that if generic
competition is introduced for the 15 most popular drugs expected to go
off patent by 2006, it will save between $25 to $30 million per year.
General Motors estimates that without new legislation, if just five
pharmaceutical ``blockbuster'' product patents that are currently
scheduled to expire are extended, GM will see increases in its
prescription drug bill in excess of $204 million during the period of
delay of generic market entry.
support for bipartisan legislation to improve access to generic drugs
In light of the unintended consequences of Hatch-Waxman provisions
that serve to impede access to safe, affordable generic drugs, CCPM
believes that Congress must act now to pass legislation that will
restore the balance between competition and innovation that was
initially intended by the Congress in 1984. Specifically, CCPM supports
the Prescription Drug Affordability Act (H.R. 5311) and the
Prescription Drug Fair Competition Act (H.R. 5272).
Last week, CCPM joined with the RxHealth Value coalition and AARP
in releasing a new AARP survey that found overwhelming support for
legislation to close loopholes used by some pharmaceutical companies to
prevent generic drugs from being made available to consumers. As the
largest consumer group in the nation, AARP supports the House bills
because, according to its survey, the vast majority (92 percent) of
Americans age 45 and older is concerned about the impact of rising drug
costs on their health care coverage.
In addition, the AARP survey revealed that 84 percent of older
Americans strongly believe that making generic drugs more available is
an important part of the solution to rapidly increasing drug prices and
two-thirds support legislation to make generic drugs more available.
It is important to note that nothing in the legislation introduced
by Representatives Waxman and Brown, or Representatives Thune and
Emerson, diminishes the patent rights of brand-name pharmaceutical
manufacturers. The legislation does not in any way amend Title 35 of
the U.S. Code, which protects the patents of all manufacturers,
including CCPM members. As innovators, patent-holders and competitors
in the world market, CCPM members respect the integrity and value of
intellectual property protection. However, we oppose practices that
detract from true innovation and new product development and merely
serve to preserve of old innovations.
conclusion
CCPM applauds the Subcommittee and the FTC for examining the
critical health care issue of assuring continued access to safe,
affordable generic prescription drugs.
CCPM believes that Hatch-Waxman reforms--such as the Prescription
Drug Affordability Act (H.R. 5311) and the Prescription Drug Fair
Competition Act (H.R. 5272)--can enhance competition and choice while
also encouraging meaningful innovation. The Senate recognized as much
when it passed similar legislation in July 2002 by an overwhelming
bipartisan vote of 78-21. CCPM maintains its commitment and support for
the Congress to pass this legislation this year; delay would mean yet
another year of excessive prescription drug costs that create pressures
that make it more difficult for businesses to compete and health plans
to offer affordable, meaningful insurance.
Mr. Chairman, we appreciate your leadership in holding this
hearing. We look forward to working with you and providing any
assistance possible in developing legislation in this area.
Mr. Shimkus. Thank you, Mr. Chairman, and I will be brief.
First of all, this does address a cost issue across the
country on prescription drugs, but I would remind my friends
and Mr. Pallone, who just talked, that under the prescription
drug bill many of you voted against the best pricing provision
that the VA uses that would have saved $19 billion. That was a
way in which, through passing that--so there was cost-benefit
provisions in our prescription drug bill. The best pricing is
what the VA uses. That is why we have been able to expand----
Mr. Pallone. Will the gentleman yield?
Mr. Shimkus. Yes, I will be happy to yield.
Mr. Pallone. I don't know--if you are talking about trying
to use the VA----
Mr. Shimkus. Model.
Mr. Pallone. [continuing] model, I know that----
Mr. Shimkus. You all voted against it.
Mr. Pallone. We supported that.
Mr. Shimkus. No.
Mr. Pallone. Mr. Stupak----
Mr. Shimkus. In the amendments, the best pricing model.
Mr. Pallone. It was Mr. Stupak's amendment, and we voted
for it.
Mr. Shimkus. There was $19 billion in savings in this bill.
So to say that our prescription bill doesn't have price savings
is wrong.
Mr. Pallone. You have a non-interference clause in the bill
that specifically says that the administrator of the program
cannot negotiate----
Mr. Shimkus. Reclaiming my time----
Mr. Bilirakis. Gentlemen, this is an opening statement. The
gentleman has the time.
Mr. Shimkus. Reclaiming my time, I would just say that $19
billion is a significant savings to the senior citizens for
prescription drug benefits, and that was passed in our bill.
I would also respond and concur with the chairman, who said
the real question is, is one 30-month stay legitimate? That is
the basic premise of the FTC report. That is what we are going
to hear today.
As many of the folks who are here know, we want to hear the
testimony to make the case of reforms needed to make sure that
we get low-cost prescription drugs and that we continue
innovation and development, because innovation and development
is only occurring here in the United States today because of
our ability and our patent protections.
So this is an important hearing. I thank the chairman for
having the hearing and Chairman Tauzin for allowing us to have
this, period, and I yield back my time.
Mr. Bilirakis. And I thank the gentleman. Mr. Stupak, for
an opening statement, 3 minutes.
Mr. Stupak. Thank you, Mr. Chairman, and thank you for
holding this hearing on competition on the prescription drug
market.
Last year prescription drug spending increased by $20.8
billion or 18.8 percent. Seniors, one-third of whom lack
prescription drug coverage, received a 2.4 percent cost-of-
living increase in their Social Security benefit last year.
Simply put, the math just does not add up.
This is not just about seniors, but all Americans cannot
afford double-digit increases in costs each year for their
pharmaceuticals. Something needs to be done.
Let me be clear on one important point. I'm not blindly
pro-generic; I'm pro-competition because competition has proven
to be the great marketplace equalizer.
Our hearing today was triggered by a report released in
early August by the Federal Trade Commission, the FTC. The
results of this report concluded that there were certain abuses
of the Waxman-Hatch generic drug legislation and that
legislative fixes are needed to close these loopholes that
prevent generics from coming swiftly to the market.
Legislative fixes are certainly needed, especially when
States are now being sued for trying to keep down prescription
drug costs by incorporating generics into their Medicaid
formulas. My home State of Michigan is attempting to limit out-
of-control drug costs in this way and is being sued by PhRMA to
prevent this from happening.
PhRMA reasoning is this, and I quote: ``Our argument is,
why would you want to put this in place when you're going to
hurt some of the most vulnerable people in Society?'' That is
attributed to John Brown, PhRMA State lobbyist.
PhRMA apparently sees no irony in this statement while I
do. This same PhRMA spokesman goes on to say that States
shouldn't balance budgets on the backs of poor. I find it
ironic and sad that they are willing to hurt these vulnerable
people by forcing them to pay top dollar for drugs they cannot
afford while using this same vulnerable populations as cover to
ensure their financial bottom line, to make sure that their
bottom line is the healthiest in the country.
PhRMA's claim that the Senate-passed generics bill, S. 812,
will chill innovation and we won't have new therapies, again,
just the opposite is true. By closing the loopholes in the
Waxman-Hatch, the brand industry will be able to go back to the
lab to come up with new medicines to make money, instead of
pouring financial resources into how best to use legal
loopholes so as to make their money stretch out to protect
their monopolies.
They can also do it by reducing their advertising. They
spend twice as much money on advertising than they do on
development of new drugs. These abuses, outlined in the FTC
report, are serious and cost the health care system billions of
dollars in inflated drug costs.
In closing, let me say that a solution to these abuses
exists and has been passed overwhelmingly by bipartisan support
in the Senate of 78 to 21. A broad range of groups--employers,
insurance, consumers, labor, Governors--support congressional
action. We should respond to their requests and to our
constituents' requests for action to lower drug costs and
follow the Senate's lead by passing our companion bill to S.
812 and pass it this year.
With that, Mr. Chairman, I yield back my time.
Mr. Bilirakis. I thank the gentleman. Dr. Norwood, for an
opening statement.
Mr. Norwood. Thank you, Mr. Chairman. I appreciate you
holding this hearing on what I consider to be a very
complicated subject.
I can't help but note that my friend, Mr. Pallone, doesn't
agree with the chairman, and I would like to say that I could
associate myself with his remarks real well. Though I am not
certain where I want to be yet, I have had people, as all of us
have, coming in and out of our office every day; one side
saying, ``We're right and the other side's wrong,'' and the
other side saying, ``No, we're right.'' It's been back and
forth now for a while on this generic drugs and the Hatch-
Waxman amendment. I am not totally certain where I need to be,
but I am absolutely certain that neither side is completely
right and neither side is completely wrong.
This is a very important issue because the cost of drugs is
a driving factor in so much of health care today. For seniors,
it is the force behind our efforts to pass a prescription drug
bill, and for our employers and insurers, it is a driving force
behind premium increases.
Getting generic competition in the market is clearly in the
public interest. Are there loopholes in Hatch-Waxman that need
to be fixed? I believe the FTC was right in outlining certain
areas of current or potential abuse in S. 812 or the Brown
bill, but the answers to these concerns, is that the answer? I
am not sure I believe so. I think they probably go a little too
far.
But one thing I am certain of is that the Hatch-Waxman bill
has worked. We have increased generics in this country over the
last 20 years from 20 percent of the market to 50 percent of
the market. The brands have done a great job in their R&D. They
have increased that by $30 billion.
I think it would be an interesting question for us to
answer, well, what would happen if generics had 75 percent of
the market? What would happen to prescription drugs in this
country if they had 95 percent of the market? Is that a good
idea?
Is the bill working perfectly? No, we need to fix some of
the areas of political abuse, but I think we should be
cautious, very cautious, before we dive head-long into
tinkering with a law that has actually worked pretty well.
I also want to mention that, even though we don't want to
embarrass the Senate because they have put out a bill, and
there hasn't been many, so the very little work they have done,
we may not want to waste. But I would say to them also that we
put out a bill, too, that helped senior citizens a lot, and
that is the prescription drug bill, and they need to deal with
the fact that our poorest seniors and our sickest seniors
should be dealt with with a prescription drug bill. So I am not
sure exactly which issue we should be on. Just because the
Senate says it is dead, I am not sure we need not tell them
their issue is dead, too, until they can learn to play.
Mr. Chairman, I look forward to this testimony of our
witnesses today. I view this as a great opportunity for
learning and listening. We will see where we need to be, but I
tend to agree with the chairman again: Perhaps the Senate bill
is just not exactly what the House wants. We usually can come
up with a little better solution, and we need to have our own.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Ms. Eshoo, for an
opening statement.
Ms. Eshoo. Good morning, Mr. Chairman, and thank you for
having this hearing today. It is an important one because it is
a very important issue for the American people.
Being almost the last one to make an opening statement, I
would like to make just a couple of observations that I didn't
have part of my written copy. That is to say that I think that
it is safe and sad to say that a prescription drug bill is not
going to be passed by the Congress. We are going to be taking a
vote on war tomorrow. The statements will be completed on the
floor very shortly.
As we talk about competition, here in the House of
Representatives my friends on the other side of the aisle don't
believe in the competition of ideas. When you talk about a
prescription drug bill, you wouldn't allow another idea to be
brought to the floor to be debated. That is wrong. That is
wrong.
This business about the Senate, I am sick and tired of it.
The Senate, whether you like the bill or not, passed almost
100-to-nothing. So it is the responsibility of the House to not
only have a hearing at 2 minutes until midnight before we leave
to go home for the mid-term elections, but to have had a markup
here. I may not agree with everyone here about the innards of
the Senate bill, but we have a responsibility to come up with
something and, most frankly, we are not going to.
I look forward to the distinguished people who are here to
testify today because, if I am blessed enough to come back in
the 108th Congress, we have to use your wisdom on what
direction we need to go.
Hatch-Waxman has been successful, but we know many years
later that there are some abuses and that we need to straighten
that out. Why? Because it creates an opportunity for the
American people to not only benefit from generics, but also
from the investments that are made in this country relative to
drugs. So we need to keep innovation going, and we need to
protect what the American people, especially the poor, the
elderly, and those that are uninsured, benefit from.
So there are abuses. We need to correct them, but let's not
suggest at this very important hearing that the Congress of the
United States is going to be taking care of this forthwith.
Let's not be posing for ``holy card'' pictures because it is
not going to be done. This is being brought up, as I said, just
a few minutes before midnight before Paul Revere rides out of
town.
I know that our chairman always wants to do the right
thing, and I appreciate that. He is a gentleman. He is a decent
person, and I will always stand with that. But the tenor and
the exaggeration that is here today on the part of some of my
colleagues really does not befit a very distinguished committee
and where we are in the last throes of a Congress that is
debating war, and not passing either a bill to make the
corrections that need to be made or a Medicare prescription
drug benefit that actually is in Medicare. We can debate that.
Mr. Bilirakis. The gentlelady's time has expired.
Ms. Eshoo. I thank the chairman.
Mr. Bilirakis. I thank the gentlelady. Mr. Pitts, for an
opening statement.
Mr. Pitts. Thank you, Mr. Chairman. Thank you for holding
this important hearing today. I look forward to hearing about
the state of competition between brand and generic drugs and
whether improvements in this marketplace are necessary.
Mr. Chairman, it has been said this is probably one of the
more complicated issues the subcommittee has dealt with to
date. I believe this hearing will allow all of us to get a
better picture of the industry.
I think it is important to note that the numbers show that
Hatch-Waxman has been generally successful. It has maintained
the balance of improving the generic drug approval process
while at the same time providing patent term restoration to the
brand drug industry. As we all know, a competitive market for
the pharmaceutical industry relies on new innovation. I believe
we have a responsibility not to hinder this innovation.
That said, I am aware of the concern that some have
expressed that generic drug approvals have been unnecessarily
delayed due to patent listings. So I believe this hearing will
be an excellent opportunity to examine these concerns. We need
to know whether the reforms identified within the FTC report
are appropriate. We need to know what the impact of the
recommended FTC reforms may have on brand-name drug innovation.
I will submit my entire remarks for the record, but say, in
conclusion, Mr. Chairman, I look forward to hearing from our
distinguished witnesses and yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman for his consideration.
Mr. Green, for an opening statement.
Mr. Green. Thank you, Mr. Chairman. I would like to join my
colleagues in expressing regret that I think a lot of
discussion on this bill would have been taken care of if we had
actually been able to consider alternatives on the floor of the
House to our committee product that took us all night.
Although this bill, the bill we are holding hearings on, I
appreciate, again even at this late date, the hearing on
changes in the Drug Price Competition and Patent Term
Restoration Act, also known as Waxman-Hatch, prescription drugs
are a central part of our health care system, and advances in
the area of pharmaceutical research have led to new treatments
for diseases such as AIDS, diabetes, cancer, arthritis, and
dozens of others.
Although there is no doubt that we should do all we can to
ensure that that kind of innovation continues, the cost of
these drugs remains a concern to all Americans, but
particularly our elderly. Health care costs rose 5 percent in
2001, 3.7 times faster than the overall inflation rate, this in
large part due to the increase in the cost of prescription
drugs.
Prescription drug cost spending is the fastest-growing
component of health care costs and rose 17 percent in 2001.
This increase has a ripple effect not only in the private
sector, health insurance, State Medicaid programs, employers,
uninsured, and seniors, but also in our Veterans'
Administration health care programs.
Congress tried to balance two conflicting interests when
they passed Waxman-Hatch in 1984, and there is no question it
is an extremely complex and challenging area of FDA law. It has
been successful. In our committee memo it says that generic
drugs have risen from 40 percent to 50 percent of all
prescription drugs dispensed. At the same time, brand
innovation and the research and development has increased to
nearly $30 billion.
Unfortunately, with these improvements have come new
loopholes that have created the opportunity for abuse in our
current system. Innovator companies often file a number of
patent, staggering patent applications, to extend the patent
protections and, thus, their market exclusivity.
Each time an innovator lists a new patent, generic
companies must file for a paragraph (IV) certification, which
triggers an automatic 30-month stay before the FDA can approve
their product. By staggering new patents, this loophole creates
the possibility of innovator companies to receive multiple and
unlimited stays on a single drug. The patent stacking results
in lengthy delays.
Additionally, these new patents are often for secondary
changes, such as the pharmaceutical's color, labeling, or
expiration date. These kinds of minor changes are not the
innovations that Congress sought in the Waxman-Hatch bill.
Additionally, the 180-month stay provision which was
intended to promote generic competition has been abused by some
generic companies who have colluded with their brand-name
counterparts to keep lower generics off the market. There have
been several pieces of legislation introduced to address these
abuses, and Americans need timely access to affordable
medications.
Senate bill 812 would contain many of the provisions.
Again, I don't think you would see as much support for this
bill if we had considered and passed a real prescription drug
benefit under Medicare.
I yield back my time.
Mr. Bilirakis. I thank the gentleman. Ms. Wilson, for an
opening statement.
Mrs. Wilson. Thank you, Mr. Chairman. I also appreciate
your having this hearing because I think it is a beginning of a
very important process of considering what we have to do to
improve and buildupon the Hatch-Waxman bill, and that is kind
of a big deal. I don't think it is easy, and I think the idea
that we could quickly pass this bill is probably not true. I
think there will be people who want to look at a lot of the
different provisions of Hatch-Waxman, and we need to consider
how we are going to do that.
I come to this with the perspective of a consumer and a
former small business owner, but the real issue is, what is the
price to the consumer and whether small businesses,
particularly, can continue to offer health insurance to their
employees. It is now not even an issue so much for small
business as medium-sized business and large business, where
health insurance premiums continue to go up.
I don't believe that there is a single-point solution to
this problem. I don't think there is an ``only game in town,''
not in this town and not in the town that I live in.
We need to add a prescription drug benefit to Medicare. We
passed a plan through this House. I wish that the Senate had
been able to pass one and we could come together in conference
and get that done. We are going to have to come back and do it
again in the next Congress, and I will be there to try to craft
the best bill possible for our consumers and our seniors.
I think we need to consider allowing the importation of
safe prescription medicines that are made in FDA-approved
facilities, and I think that that will put a little back
pressure on the pharmaceutical companies, because, frankly, the
difference between the cost of medicine in Juarez and the cost
of the same medicine in Albuquerque is too big. It causes
people to be traveling to Mexico to buy medicine.
I drink my orange juice that may come from Mexico. It seems
to me that we should be able to figure out a way to get safe
medicine from other countries.
We need to look at the generic medicine law, and that is
what this hearing is about; both the 30-month stay and things
like the difference in price is substantial. I think we need to
look at that law.
I think we need to also protect the motivation for
innovation. You know, if we want to just freeze the
prescription drug formulary where it is, we could come up with
price controls, but we all want to see the next miracle
medicine, the cure for Alzheimer's, the cure for AIDS, the cure
for Parkinson's. It is the prescription drug industry that is
most likely to bring us that next generation of miracles.
Finally, I think we may want to look also at advertising
and what the laws are with respect to prescription medicine
advertising. I think there are a lot of things that are on the
table that could achieve or help to achieve our goal, which is
to lower the cost of miracle medicines to the consumer and make
sure people continue to have health coverage through their
employer.
I look forward to hearing the testimony today. I look
forward to learning more about this issue in my district and my
constituents, but I agree with many of the things that have
been said previously. But the first step is to deal with those
who are most in need, and that is our seniors. We need to add a
prescription drug benefit to Medicare.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentlelady. Mr. Shadegg, for an
opening statement.
Mr. Shadegg. Thank you, Mr. Chairman, and I, too, want to
express my appreciation for your holding this important hearing
today. There are many laws that come before this Congress which
are not truly within the ambit of our responsibility, but the
Constitution specifically gives the U.S. Congress the power to
enact laws relating to patents. So this is our responsibility,
and in this instance I think it is an extremely important
responsibility.
Just as Thomas Jefferson and James Madison differed over
the merits of patent laws over 200 years ago, today there is an
honest and genuine debate over the regulatory environment
surrounding our pharmaceutical patents and our pharmaceutical
industry. That debate deserves this hearing and deserves
careful consideration.
This is an incredibly complicated subject. My constituents
do not understand the 30-month stay or the 180-day market
exclusivity, but, Mr. Chairman, they clearly do understand and
are concerned about the double-digit increase in the cost of
prescription drugs and the double-digit increase in health
insurance premiums. We simply as a nation cannot tolerate cost
increasing at those rates.
Now my constituents, Mr. Chairman, deeply value innovative
medicines and are very much appreciative of the miracle drugs
which have been produced. They also understand that producing
those drugs is a capital-intensive process, and that if that
capital isn't there, those drugs won't come to market.
But, Mr. Chairman, it is important that we strike an
appropriate balance. Some say, for example, that Hatch-Waxman
strikes that proper balance. Others, of course, strongly
disagree and say there are loopholes. I believe, indeed, that
there have been some abuses, perhaps abuses on both sides, and
we must fix this system.
It seems to me that the witnesses today can bring us
important evidence on that issue and that we owe it to our
constituents to examine these laws and to ensure that they are
correctly crafted. The miracle drugs that make our health care
system the best in the world need to come to market. At the
same time, the laws that allow those drugs to come to market
should not be abused or twisted or used in a way to protect the
market for one company long beyond what was intended and to
keep others out of the market.
This seems to me to be one of the most important challenges
facing this Congress. We must strike the right balance. I am of
the mind that we have not struck that balance correctly, that
there are loopholes which need to be repaired and which need to
be examined by this Congress. I am anxious to hear the evidence
here today. I think this is an important, critically important,
obligation for us because of the importance of health care to
all Americans.
I thank you, Mr. Chairman, for holding the hearing.
Mr. Bilirakis. And I thank the gentleman, and would yield
to Mr. Buyer for an opening statement, 3 minutes, please.
Mr. Buyer. For all my education, I will articulate the word
``pass.''
I want to let us hear the witnesses.
Mr. Bilirakis. Mr. Deal, for an opening statement.
Mr. Deal. Pass.
Mr. Bilirakis. ``Pass''--I like those opening statements.
All right, that completes all of our opening statements, I
do believe.
[Additional statement submitted for the record follows:]
Prepared Statement of Hin. Albert R. Wynn, a Representative in Congress
from the State of Maryland
Mr. Chairman, thank you for holding this important hearing on
whether there is adequate competition amongst brand and generic drugs,
and whether improvements allowing for greater competition in the drug
marketplace are necessary.
Clearly, with the rising costs of prescription drugs and an
inadequate prescription drug benefit, we should look at ways to lower
prescription drug costs without providing a significant disincentive
for brand drug companies from innovating.
The issue of drug patents and the entry of generic drugs on the
marketplace is interesting and complex subject. In 1984, the Hatch-
Waxman legislation streamlined the generic drug approval process, and
restored the patent life lost during the FDA approval process for the
innovator of the drug.
Since 1984, generics have risen from less than 20 percent to
roughly 50 percent of all prescription drugs dispensed. At the same
time, brand investment in research and development has increased to
nearly $30 billion.
However, there are some concerns that some name brand manufacturers
are preventing generic competition. Unfortunately, a lack of
competition in the drug industry translates into higher prices for
consumers.
On the Senate side, S. 812 passed in July, which would allow
generic drugs to get on the market more easily. I would like to hear
from our witnesses about the impact that the measure would have in the
industry--brand and generics--as well as consumers should it pass.
I am hopeful that today's hearing will shed some light on the
Hatch-Waxman bill and possible modifications that need to make in this
day and age.
Mr. Bilirakis. What I would like to announce at this point
is that we will hear the statements of the witnesses of the
first panel, Dr. Crawford and Mr. Muris. Then we will break for
45 minutes to give everybody a chance to grab a quick bite or
whatever the case may be. I hope it doesn't inconvenience you
two gentlemen too very much, but give the opportunity, because
I know there are people here who want to hear your testimony. I
don't want to break, take that away from them. Is that all
right, Dr. Crawford?
Mr. Crawford. Yes.
Mr. Bilirakis. All right. When we return after that 45
minutes, then we will go into the questioning of the first
panel.
Mr. Brown. Mr. Chairman, I would like to ask unanimous
consent to submit several documents for the record, distribute
this ``Pray for a miracle'' PhRMA ad I mentioned in my remarks,
and other testimony from Business for Affordable Medicine, if I
could.
Mr. Bilirakis. Without objection, those will be made a part
of the record.
[The prepared statement of Business for Affordable Medicine
follows:]
Prepared Statement of Business for Affordable Medicine
Mr. Chairman, on behalf of Business for Affordable Medicine, we
appreciate the opportunity to present our views on the need for reform
of the 1984 Drug Price Competition and Patent Term Restoration Act
(Hatch-Waxman Act).
BAM is a non-partisan coalition of Governors, large employers, and
labor leaders committed to containing drug costs by improving
pharmaceutical competition. Our complete focus has been on helping
Congress understand the need to reform the Hatch-Waxman Act.
consumers and other purchasers need help
No problem poses a greater threat to the economic well being of
American consumers than the rising cost of prescription drugs. Our
aging population is faced with the promise of longer and healthier
lives as a result of important pharmaceutical discoveries, but we also
face a nearly unbearable burden of paying for these medicines at rates
that are breaking the budgets of consumers, states, and other
purchasers.
Americans will spend an estimated $4.7 trillion for prescription
drugs over the next 10 years. Today, the cost of drugs is rising at
nearly 20 percent annually. Those who can afford to pay are finding
their budgets and patience wearing thin. Seniors, employers, government
agencies, and taxpayers who must foot the largest part of the bill--
including millions of Americans without insurance--are desperate for
help.
congress must close hatch-waxman act loopholes
Pending legislation before this committee provides Congress with
the greatest opportunity in nearly two decades to make a difference. By
closing loopholes in the Hatch-Waxman Act, HR 5311 will stop tactics by
drug companies that prevent access to lower-cost generics. This simple
effort will save Americans $60 billion in prescription drug costs over
the next 10 years, according to the Congressional Budget Office.
The Hatch-Waxman Act was passed in 1984 to encourage drug
manufacturers to invest in research and development of new drugs. The
law was also intended to ensure that lower-cost generic drugs would be
available immediately after specifically designated market
exclusivities provided under the Act expired. The problem is, drug
manufacturers block access to more affordable generics even after these
exclusivity periods expire.
case study--prilosec
Among many examples of abuse, we encourage the committee to closely
examine the actions by the manufacturer of Prilosec. British-based
AstraZeneca manufactures Prilosec (omeprazole), the most prescribed
drug in America for seniors. The base patents and market exclusivities
that were intended to protect Prilosec from generic competition expired
three years ago. Despite this fact, AstraZeneca has engaged in an
apparently carefully crafted strategy to use provisions of the Hatch-
Waxman Act together with other legal maneuvers to prevent generic
sales.
First, AstraZeneca listed a patent with the FDA that covered the
metabolite created in patients who ingest Prilosec. It also listed
patents that cover the use of the drug with antibiotics, and that
covered formulations not used to make or market the product.
None of these patents covered approved ``methods or uses'' of the
product. The result was to create a situation where generic
manufacturers must litigate 90 claims on six patents, making it
impossible to resolve any dispute within the 30-month stay provided
under the Act. The fact that every patent adjudicated so far has been
struck down by the courts seems to indicate that AstraZeneca took
unfair advantage of the Hatch-Waxman provisions relating to listing of
patents.
Second, while patent term extensions were provided in the Hatch-
Waxman Act in return for explicitly established obligations on patent
holders to reasonably cooperate with litigants to expedite claims,
AstraZeneca has taken advantage of the provisions without upholding its
obligations under the Act.
AstraZeneca sued generic manufacturers in May 1998, but waited
until late-1999 to respond to discovery requests, waited more than a
year after filing the suit to file for multi-district consideration of
the cases, and then argued that the cases should be returned to their
original jurisdictions. AstraZeneca also obtained another patent in
January 2000, and then waited nine months--after discovery ended in its
litigation against generic competitors--to include the patent in the
trial. Subsequent actions to delay the case resulted in an order by the
court that condemned AstraZeneca's ``utter failure'' to comply with
discovery obligations.
Third, AstraZeneca listed four additional patents in March 2001 to
obtain a 45-day extension of its market exclusivity. This tactic
prevented FDA action to approve generic competitors until AstraZeneca
could complete separate filings on unrelated patents and obtain a six-
month extension under the pediatric testing law.
These actions make it impossible for purchasers to believe that the
courts can adequately address abuses of the Hatch-Waxman Act, as some
on the committee suggest.
the system for regulating pharmaceutical competition is breaking down
In fact, we are witnessing an outbreak of litigation by the Federal
Trade Commission, state Attorneys General, and class action attorneys
to claim damages from drug manufacturers for their actions. Rather than
address legitimate claims that were contemplated by the Act, the courts
are becoming filled with claims outside the Act because of its
failures.
It is particularly alarming to purchasers that the Act provides no
regulatory avenue for relief to those harmed by apparently unlawful
actions not anticipated by its framers--such as listing of patents with
the FDA that do not cover approved methods or uses of a drug, filing of
questionable citizen petitions that intentionally delay generic drug
approvals, and frivolous litigation intended to trigger Hatch-Waxman
provisions that also delay generic approvals.
It is further alarming that the Act also does not allow any
purchaser to have standing in court to contest alleged abuses of the
Act. The result is a proliferation of litigation under anti-trust and
anti-consumer laws that we believe could overwhelm the judicial system,
lead to further breakdown in the pharmaceutical market, and ultimately
harm the ability of the drug industry to remain competitive and robust.
We also encourage the committee to consider the extent to which
drug companies are misleading government agencies to obtain patents and
trigger 30-month stays on FDA approvals of generic products. The tactic
seems to be gaining popularity within the industry, and has been cited
by the courts in cases relating to Buspar (an anxiety drug manufactured
by Bristol Myers-Squibb), Tiazac (a heart drug manufactured by
Biovail), and Prilosec.
inaction by congress is costing billions of dollars
Failure of the Hatch-Waxman Act to protect the interests of
purchasers--including state and federal taxpayers, consumers, and
employers is a growing problem at a time when billions of dollars worth
of patented drugs face competition over the next few years.
For example, Medicaid agencies in 46 states spent $1.2 billion
dollars last year to purchase 16 prescription drugs that face patent
expiration over the next three years. The nation's largest employers
spent over $2 billion to purchase the same drugs, including Augmentin,
Relafin, Flonase, Cipro, and Wellbutrin. Purchasers should expect to
save 50 percent or more when the patents and exclusivities on these
drugs expire and generic alternatives become available.
Unfortunately, we have little faith that consumers will see these
savings any time soon because loopholes in the Hatch-Waxman Act enable
drug manufacturers to delay generic competition for months and, in some
cases, years.
Though generic competition for Prilosec should have begun in
October 2001, seniors, consumers, employers and taxpayers have paid
nearly $3 billion more over the past year--or nearly $6 million each
day--than necessary for Prilosec.
The brand drug industry will claim that generic manufacturers could
make their products available to compete against Prilosec at any time.
We predict, however, that they will refuse to discuss with this
committee the brand industry strategy built around shortcomings of the
Hatch-Waxman Act that has made launches of generic Prilosec all but
impossible.
purchasers have done everything possible
Purchasers are doing everything possible on their own to reign in
the growing cost of prescription drugs. For example, West Virginia
produces significant savings by waiving co-payments for some generic
drugs used by state employees. In South Dakota, the state Medicaid
program requires physicians to obtain authorization before prescribing
specific high cost drugs for which more affordable alternatives may be
as good. Vermont and other states use preferred drug lists, which
ensure their programs obtain the best possible rates from manufacturers
who must compete on price.
Employers are also finding ways to cut costs by negotiating
directly with drug manufacturers, increasing generic utilization, and
changing formularies. Their only remaining option is to reduce or
eliminate prescription drug coverage altogether, a move that is picking
up steam in corporate boardrooms.
None of these efforts changes the fact that the nation will still
waste billions of dollars to purchase drugs that should face generic
competition. In fact, pharmaceutical purchasers are now counting
entirely on Congress to fix the problem.
The U.S. Senate responded on July 31, 2002 in a way that gives
purchasers real hope. Bipartisan legislation passed by a vote of 78-21
to provide genuine prescription drug cost relief by closing the most
abusive loopholes in the Hatch-Waxman Act.
response to drug industry opposition
While drug lobbyists argue that Congress should limit its focus to
passing a Medicare prescription drug bill, it is plain to the rest of
us that spending more taxpayer funds for prescription drugs without
also ensuring faster access to generics makes no sense.
The drug industry also points out that only six percent of generic
drug applications since passage of the Hatch-Waxman Act have faced
approval delays. In fact, while few generics faced approval delays in
the early years, the majority face delays today. It is also a fact that
manufacturers now delay competition for virtually all blockbuster
drugs.
Washington needs to face this reality. The Federal Trade Commission
report issued in July 2002 clearly highlights the drug industry's
growing efforts to ``game the system'' and delay the introduction of
generic competition through the Hatch-Waxman Act. Even drug industry
leaders acknowledge the problem. Novartis chairman and CEO Daniel
Vasella told the media on June 6, 2002 that industry practices to delay
competition are not fair. ``One has to accept that drug patents do
indeed have an end,'' he told USA Today.
The committee should consider these facts apart from the rhetoric
provided by the drug industry. A recent national survey by AARP found
that 81 percent of Americans over the age of 45 believe Congress should
pass legislation this year to make generic drugs more available.
Support for this legislation is strong among Republicans (83 percent),
Democrats (86 percent) or Independents (84 percent).
Finally, we hope the House will not buy into the drug industry's
claim that passing Hatch-Waxman reform legislation will result in cut
backs on research and development for new drugs. In fact, increased
spending by the drug industry on research since 1984 is a result of
generic competition, not in spite of it. Reduced competition resulting
from an aging Act and ensured by legislative non-action will surely
lead to less, not more investment in research.
The AARP survey found that an overwhelming majority of Americans
(73 percent) do not buy the drug industry scare tactic. In fact, 77
percent of survey participants identifying themselves as either
Republican or Democrat see threats of diminished research investment in
the face of increased competition as nothing more than a smoke screen.
We encourage the committee to immediately pass HR 5311 so the House
of Representatives can pass Hatch-Waxman reform legislation before
Congress adjourns this month. Billions of dollars are at stake. To do
nothing this year will be a costly disappointment to every consumer in
America. We urge you to provide genuine cost relief to all prescription
drug purchasers by ending the delay tactics Americans can no longer
afford.
Thank you for the opportunity to make our views known.
Mr. Bilirakis. The Chair now yields to Dr. Crawford. I
would advise you both that your written statement is a part of
the record, and, hopefully, you would sort of complement it, if
you will, supplement it. Thank you, Doctor. Please proceed.
STATEMENTS OF HON. LESTER M. CRAWFORD, ACTING COMMISSIONER,
FOOD AND DRUG ADMINISTRATION; ACCOMPANIED BY DANIEL E. TROY,
CHIEF COUNSEL, FOOD AND DRUG ADMINISTRATION; AND HON. TIMOTHY
J. MURIS, CHAIRMAN, FEDERAL TRADE COMMISSION
Mr. Crawford. I am joined at the table by Daniel E. Troy,
who is Chief Counsel of FDA.
Before I go further, I would like to congratulate the House
for the passage of the Medical Device User Fee Act. This is
very important to the Food and Drug Administration, and I am
very pleased to hear that that is one of the items that you
addressed recently.
I am going to discuss FDA's implementation of the Drug
Price Competition and Patent Term Restoration Act, also known
as the Hatch-Waxman amendments. I will also discuss the Federal
Trade Commission's report on patent issues as they affect the
approval of generic drugs.
Since its enactment in 1984, Hatch-Waxman has become a
valuable tool in making medications more affordable for
American citizens. To date, FDA has approved more than 10,000
generic drug products, providing high-quality, lower-cost
prescription drugs to millions of consumers.
Two of the key Hatch-Waxman provisions, however, have
recently become associated with possible anti-competitive
behavior, provisions for 180 days of marketing exclusivity for
certain generic drug sponsors and for a 30-month stay on
generic drug approvals while patent infringement issues are
litigated.
Section 505(j) of the Food, Drug and Cosmetic Act governs
the Abbreviated New Drug Application, or ANDA, approval
process. This permits generic versions of existing innovator
drugs to be approved without submission of a full New Drug
Application, or NDA.
NDAs must include information about patents claiming a drug
product, which FDA then lists in a publication called the
``Orange Book.'' ANDAs must include a certification for each
patent listed in the Orange Book for the innovator drug. A so-
called paragraph (IV) certification begins the process in which
the validity of the listed patent or infringement by the
generic product may be determined by the courts.
If the NDA sponsor or patent owner files a patent
infringement suit against the ANDA sponsor, FDA cannot approve
the ANDA for at least 30 months from the date of the notice
unless the court reaches an earlier decision. In return for
risking a patent infringement lawsuit, the statute provides an
incentive of 180 days of marketing exclusivity to the first
generic applicant who challenges a listed patent.
The 180-day exclusivity provision has been the subject of a
series of Federal court decisions in recent years. Most
notably, the courts have determined that the meaning of a court
decision that begins 180-day exclusivity may be the decision of
a district court if it finds the patent to be invalid,
unenforceable, or not infringed.
FDA had previously interpreted a court decision as a final
decision of an appellate court, generally the Federal circuit.
We took this position so that generic manufacturers would not
run the risk of being subject to treble damages for marketing a
drug if the appeals court ruled against it.
Concerns have been expressed over FDA's role in the listing
of patents in the Orange Book, which can delay generic drug
approvals and the initiation of the 180-day exclusivity. As
noted before, an applicant seeking approval for an ANDA must
submit a certification to relevant listed patents. Under
current law, even an applicant whose ANDA is pending must
certify to any new patent submitted for listing by the sponsor
within 30 days after they are issued by the Patent and
Trademark Office.
Clearly, when an innovator company submits a new patent
listing to FDA for an existing product, the process of patent
certification, the 45-day waiting period, litigation, and a 30-
month stay can result in a considerable delay in the approval
of a generic product. Indeed, a pending generic drug
application may be subject to multiple, overlapping stays if
new patents are listed for the innovator drug.
Of the 442 active ANDAs containing paragraph (IV)
certifications, only 17 have had multiple 30-month stays.
However, a significant number of these products have high-
dollar-value annual sales, and in some instances multiple stays
have resulted in the delay of generic drug approval for years.
FDA does not undertake an independent review of the patent
submitted by the NDA sponsor. The statute requires FDA to
publish patent information upon approval of the NDA, thus,
making the agency's role ministerial.
Generic and innovator firms may resolve any disputes
concerning patent listings in private litigation. Some have
suggested that FDA should review drug patents to determine if
they should be listed in the Orange Book. We believe that FDA
should not review drug patents because we do not have the
expertise to make these assessments. It would fail to speed the
availability of generic drugs.
I want to commend the FTC for their comprehensive study on
these issues. FDA has found the factual information provided in
the report to be extremely valuable in our own discussions on
the generic drug approval process.
FTC recommends that only one 30-month stay be allowed for
infringement disputes over patents listed in the Orange Book
prior to the filing date of the NDA. FDA is sympathetic to this
recommendation. FDA agrees that recently more ANDAs have been
subject to 30-month stays than in years past, and that more
patents on average are now being litigated for generic drug
application than formerly.
We would also like to note that the FTC report recognized
that FDA does not have the capacity to review the
appropriateness of patent listings. While FDA and the
administration share a deep concern about the cost of drugs, we
are opposed to S. 812, the Greater Access to Affordable
Pharmaceuticals Act, because it would harm innovation and
investment in new medicines, encourage litigation around new
drug approval and the filing of patents, reduce patent
protections for drug developers, and delay the availability of
generic drugs.
Rather than this harmful approach, the administration
strongly supports the bill passed by the House earlier this
year to provide a prescription drug benefit under Medicare.
Under S. 812, sponsors who fail to file patent information for
the Orange Book by certain deadlines permanently lose the right
to bring future lawsuits for patent infringement. Similarly, if
an innovator fails to file a lawsuit and obtain a preliminary
injunction within 45 days of a paragraph (IV) challenge, it
would be permanently barred from taking future actions to
protect the patent. These are unacceptable rollbacks in the
rights of patent-holders that will stifle innovation.
In addition, provisions for rolling exclusivity would
actually reduce access to affordable drugs, as consumers would
have to wait longer for the entry of the second, third, and
succeeding generic versions of a product, which is when
significant price reduction takes place.
In conclusion, Mr. Chairman, FDA has been actively engaged
in addressing the issues that have been raised by brand-name
and generics companies concerning the operation of the statute.
We continue to implement the Hatch-Waxman amendments as best we
can, given the statutory checks. In doing so, we have tried to
maintain a balance between protecting innovation in drug
development and expediting the approval of lower-cost drugs.
Thank you very much.
[The prepared statement of Hon. Lester M. Crawford
follows:]
Prepared Statement of Lester M. Crawford, Deputy Commissioner of Food
and Drugs, Food and Drug Administration
Mr. Chairman and Members of the Subcommittee, I am Dr. Lester M.
Crawford, Deputy Commissioner of Food and Drugs. I am pleased to be
with you today to discuss the Food and Drug Administration's (FDA)
implementation of the Drug Price Competition and Patent Term
Restoration Act of 1984, commonly known as the Hatch-Waxman Amendments.
This testimony will discuss a number of issues which affect the
timely introduction of generic drugs into the U.S. marketplace. It will
focus in particular, as you requested, on the question of whether
certain ``later-listed'' patent filings by the sponsors or
manufacturers of innovator drug products have resulted in the delay of
generic drug approvals by the Food and Drug Administration (FDA or the
Agency).
The Hatch-Waxman Amendments were intended to balance two important
public policy goals. First, Congress wanted to ensure that brand-name
drug manufacturers have meaningful market protection to encourage the
development of valuable new drugs. Second, once the statutory patent
protection and marketing exclusivity for these new drugs has expired,
consumers benefit from the rapid availability of lower priced generic
versions of innovator drugs.
Since its enactment in 1984, Hatch-Waxman has governed the generic
drug approval process. One of its key provisions provides 180 days of
marketing exclusivity to certain generic drug applicants. The 180-day
generic drug exclusivity provision is one component of the complex
patent listing and certification process, which also provides for a 30-
month stay on generic drug approvals while certain patent infringement
issues are litigated. Both of these provisions are discussed in detail
below.
statutory provisions
The Hatch-Waxman Amendments amended the Federal Food, Drug, and
Cosmetic (FD&C) Act and created section 505(j). Section 505(j)
established the abbreviated new drug application (ANDA) approval
process, which permits generic versions of previously approved
innovator drugs to be approved without submission of a full new drug
application (NDA). An ANDA refers to a previously approved NDA (the
``listed drug'') and relies upon the Agency's finding of safety and
effectiveness for that drug product.
The timing of an ANDA approval depends in part on patent
protections for the innovator drug. Innovator drug applicants must
include, in an NDA, information about patents for the drug product that
is the subject of the NDA. FDA publishes patent information on approved
drug products in the Agency's publication Approved Drug Products with
Therapeutic Equivalence Evaluations, also known as the ``Orange Book.''
The book is printed yearly by the Government Printing Office and is
updated monthly and available to the public. It lists all approved drug
products with their therapeutic equivalence codes in addition to the
products' patent and exclusivity information (if such information
exists). The ``Orange Book'' is also publicly available on FDA's
website.
The FD&C Act requires that generic drug applicants include, in
their ANDAs, a certification for each patent listed in the ``Orange
Book'' for the innovator drug. This certification must state one of the
following:
(I) that the required patent information relating to such patent has
not been filed;
(II) that such patent has expired;
(III) that the patent will expire on a particular date; or
(IV) that such patent is invalid or will not be infringed by the drug,
for which approval is being sought.
A certification under paragraph I or II permits the ANDA to be
approved immediately, if it is otherwise eligible. A certification
under paragraph III indicates that the ANDA may be approved on the
patent expiration date.
A paragraph IV certification, however, begins a process in which
the question of whether the listed patent is valid or will be infringed
by the proposed generic product may be answered by the courts prior to
the expiration of the patent. The ANDA applicant who files a paragraph
IV certification to a listed patent must notify the patent owner and
the NDA holder for the listed drug that it has filed an ANDA containing
a patent challenge. The notice must include a detailed statement of the
factual and legal basis for the ANDA applicant's opinion that the
patent is not valid or will not be infringed. The submission of an ANDA
for a drug product claimed in a patent is an infringing act if the
generic product is intended to be marketed before expiration of the
patent, and therefore, the ANDA applicant who submits an application
containing a paragraph IV certification may be sued for patent
infringement. If the NDA sponsor or patent owner files a patent
infringement suit against the ANDA applicant within 45 days of the
receipt of notice, FDA may not give final approval to the ANDA for at
least 30 months from the date of the notice. This 30-month stay will
apply unless the court reaches a decision earlier in the patent
infringement case or otherwise orders a longer or shorter period for
the stay. A court may modify the length of a stay, under the FD&C Act,
``if either party in the action failed to reasonably cooperate in
expediting the action.'' (21 U.S.C. 335(j)(5)(iii))
The statute provides an incentive of 180 days of market exclusivity
to the ``first'' generic applicant who challenges a listed patent by
filing a paragraph IV certification and thereby runs the risk of having
to defend a patent infringement suit. The statute provides that the
first applicant to file a substantially complete ANDA containing a
paragraph IV certification to a listed patent will be eligible for a
180-day period of exclusivity beginning either from the date it begins
commercial marketing of the generic drug product, or from the date of a
court decision finding the patent invalid, unenforceable or not
infringed, whichever is first. These two events--first commercial
marketing and a court decision favorable to the generic--are often
called ``triggering'' events, because under the statute they can
trigger the beginning of the 180-day exclusivity period.
In some circumstances, an applicant who obtains 180-day exclusivity
may be the sole marketer of a generic competitor to the innovator
product for 180 days. But 180-day exclusivity can begin to run--with a
court decision--even before an applicant has received approval for its
ANDA. In that case, some, or all of the 180-day period, could expire
without the ANDA applicant marketing its generic drug. Conversely, if
there is no court decision and the first applicant does not begin
commercial marketing of the generic drug, there may be prolonged or
indefinite delays in the beginning of the first applicant's 180-day
exclusivity period. Approval of an ANDA has no affect on exclusivity,
except if the sponsor begins to market the approved generic drug. Until
an eligible ANDA applicant's 180-day exclusivity period has expired,
FDA cannot approve subsequently submitted ANDAs for the same drug, even
if the later ANDAs are otherwise ready for approval and the sponsors
are willing to immediately begin marketing. Therefore, an ANDA
applicant who is eligible for exclusivity is often in the position to
delay all generic competition for the innovator product.
Only an ANDA containing a paragraph IV certification may be
eligible for exclusivity. If an applicant changes from a paragraph IV
certification to a paragraph III certification, for example upon losing
its patent infringement litigation, the ANDA will no longer be eligible
for exclusivity.
court decisions and fda actions
The 180-day exclusivity provision has been the subject of
considerable litigation and administrative review in recent years, as
the courts, industry, and FDA have sought to interpret it in a way that
is consistent both with the statutory text and with the legislative
goals underlying the Hatch-Waxman Amendments. A series of Federal court
decisions beginning with the 1998 Mova <SUP>1</SUP> case describe
acceptable interpretations of the 180-day exclusivity provision,
identify potential problems in implementing the statute, and establish
certain principles to be used by the Agency in interpreting the
statute. As described in a June 1998 guidance for industry, FDA
currently is addressing on a case-by-case basis those 180-day
exclusivity issues not addressed by existing regulations.
---------------------------------------------------------------------------
\1\ Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1065 (D.C.
Cir. 1998).
---------------------------------------------------------------------------
One of the most fundamental changes to the 180-day exclusivity
program, resulting from the legal challenges to FDA's regulations, is
the determination by the courts of the meaning of the phrase ``court
decision.'' The courts have determined that the ``court decision'' that
can begin the running of the 180-day exclusivity period may be the
decision of the district court, if it finds that the patent at issue is
invalid, unenforceable, or will not be infringed by the generic drug
product. FDA had interpreted the ``court decision'' that could begin
the running of 180-day exclusivity (and the approval of the ANDA) as
the final decision of a court from which no appeal can be or has been
taken--generally a decision of the Federal Circuit. FDA's
interpretation had meant that an ANDA applicant could wait until the
appeals court had finally resolved the patent infringement or validity
question before beginning the marketing of the generic drug.
FDA had taken this position so that the generic manufacturer would
not have to run the risk of being subject to potential treble damages
for marketing the drug, if the appeals court ruled in favor of the
patent holder. The current interpretation means that if the 180-day
exclusivity is triggered by a decision favorable to the ANDA applicant
in the district court, the ANDA sponsor who begins to market during
that exclusivity period now may run the risk of treble damages if the
district court decision is reversed on appeal to the Federal Circuit.
As a practical matter, it means that many generic applicants may choose
not to market the generic and thus the 180-day exclusivity period could
run during the pendency of an appeal.
``orange book'' listings
Concerns have been expressed over FDA's role in the listing of
patents in the ``Orange Book,'' which can have an impact on generic
drug approvals by delaying their approval and the initiation of 180-day
exclusivity. Under the FD&C Act, pharmaceutical companies seeking to
market innovator drugs must submit, as part of an NDA or supplement,
information on any patent that 1) claims the pending or approved drug
or a method of using the approved drug, and 2) for which a claim of
patent infringement could reasonably be asserted against an
unauthorized party. Patents that may be submitted are drug substance
(active ingredient) patents, drug product (formulation and composition)
patents, and method of use patents. Process (or manufacturing) patents
may not be submitted to FDA.
When an NDA applicant submits a patent covering the formulation,
composition, or method of using an approved drug, the applicant must
also submit a signed declaration stating that the patent covers the
formulation, composition, or use of the approved product. The required
text of the declaration is described in FDA's regulations.
The process of patent certification, notice to the NDA holder and
patent owner, a 45-day waiting period, possible patent infringement
litigation and the statutory 30-month stay may result in a considerable
delay in the approval of ANDAs when an innovator company submits a new
patent listing to FDA. Therefore, ANDA applicants often closely
scrutinize these listings. FDA regulations provide that, in the event
of a dispute as to the accuracy or relevance of patent information
submitted to and subsequently listed by FDA, an ANDA applicant must
provide written notification of the grounds for dispute to the Agency.
FDA then requests the NDA holder to confirm the correctness of the
patent information and listing. Unless the patent information is
withdrawn or amended by the NDA holder, FDA will not change the patent
information in the ``Orange Book.''
If a patent is listed in the ``Orange Book,'' an applicant seeking
approval for an ANDA must submit a certification to the patent. Even an
applicant whose ANDA is pending when additional patents are submitted
for listing by the sponsor must certify to the new patents, unless the
additional patents are submitted by the patent holder more than 30-days
after issuance by the U.S. Patent and Trademark Office. Moreover, a
pending generic drug application may be subject to multiple overlapping
30-month stays if new patents are listed for the innovator drug. A
review of FDA's records indicates that of the 442 active ANDAs that
contain paragraph IV certifications, only 17 have had multiple 30-month
stays, representing 3.8 percent of all applications with patent
challenges. However, we note that a significant number of these
products have high dollar value annual sales, and we are aware of some
instances where multiple stays have resulted in the delay of a generic
drug approval for a number of years.
FDA does not undertake an independent review of the patents
submitted by the NDA sponsor. Issues of patent claim and infringement
are matters of patent law, and FDA does not have the authority as well
as the resources or capability to assess whether a submitted patent
claims an approved drug and whether a claim of patent infringement
could reasonably be made against an unauthorized use of the patented
drug. FDA has implemented the statutory patent listing provisions by
informing interested parties of what patent information is to be
submitted, who must submit the information, and when and where to
submit the information. The statute requires FDA to publish patent
information upon approval of the NDA and, therefore, the Agency's role
in the patent-listing process is ministerial. The Agency relies on the
NDA holder or patent owner's signed declaration stating that the patent
covers an approved drug product's formulation, composition or use.
Generic and innovator firms may resolve any disputes concerning patents
in private litigation. <SUP>2</SUP>
---------------------------------------------------------------------------
\2\ Mylan v. Thompson, 268 F.3d 1323 (Fed Cir. 2001)--A generic's
claim of improper listing ``Is not a recognized defense to patent
infringement.''
---------------------------------------------------------------------------
The Agency is aware that in the past couple of years there have
been new patents submitted to FDA for listing in the ``Orange Book''
shortly before patents already listed in the ``Orange Book'' are
scheduled to expire. These new patents have been submitted to FDA
within the required 30-days of issuance by the Patent and Trademark
Office. If the NDA sponsor complies with the requirements of the
statute and regulations in submitting a patent for listing in the
``Orange Book,'' the Agency has no discretion to reject a patent merely
on the basis that, but for the filing of the patent, ANDAs would be
eligible for final approval.
It has been suggested that FDA should review drug patents to
determine if they should be listed in the ``Orange Book'' as protection
for innovator drug products--that is, FDA should assess whether a
submitted patent properly claims the approved drug product and could
support a claim of patent infringement. The Agency believes that it
should not review drug patents because such a review would be time
consuming and would not speed the availability of generic drugs, but
instead add a layer of complexity and delay.
Because it is not established that FDA has authority under the FD&C
Act to make substantive patent assessments, there would be lengthy
litigation before the scope of Agency authority is established. FDA
review of patents is unlikely to speed approval and marketing of
generic drugs in a meaningful way because even if FDA were to decide
not to list a patent, the innovator company could obtain an injunction
against approval or marketing of the generic drug until the patent
listing question is resolved. In such a case, FDA's review of the
patents would have done nothing to speed approval of generic drugs.
Patent reviews would lead to substantial litigation that will impose a
new and substantial burden on FDA's Office of the Chief Counsel and
Department of Justice litigation resources. Finally, the Agency does
not have the resources or expertise to review patents and, even with
additional funding, is unlikely to be able to obtain adequate expert
resources to do so.
federal trade commission study
In response to reports of brand-name and generic drug companies
engaging in anti-competitive behavior, the Federal Trade Commission
(FTC) conducted a study to determine if the 180-day exclusivity and the
30-month stay provisions of the Hatch-Waxman Amendments are used
strategically to delay consumer access to generic drugs. In July 2002,
FTC published the findings of their study and provided two primary
recommendations.
FTC recommends that only one automatic 30-month stay per drug
product per ANDA be permitted to resolve infringement disputes over
patents listed in the ``Orange Book'' prior to the filing date of the
generic applicant's ANDA. FDA is sympathetic to the recommendation for
a single 30-month stay. FDA also agrees with FTC that recently, more
ANDAs have been subject to 30-month stays than in years past, and that
more patents on average are now being litigated per generic drug
application than in the past.
FTC's second recommendation is to pass legislation to require
brand-name companies and first generic applicants to provide copies of
certain agreements to FTC. This is a response to FTC's finding that
brand-name companies and first generic applicants have on occasion
entered into agreements to delay generic competition. FDA has no
objection to this recommendation.
FDA agrees with many of the conclusions of the FTC study and has
found the factual information provided in the report to be extremely
valuable in our own deliberations regarding the generic drug approval
process. One example of this is the compilation of information on the
disposition of litigation surrounding patents filed after NDA approval.
Currently, the Agency is considering a citizen petition submitted by
FTC concerning the appropriateness of listing patents that cover
polymorphs, which are forms of the active ingredients of approved drugs
different from the actual form approved in the NDA.
Finally, we note that FTC's report recognized that FDA does not
have the capacity to review the appropriateness of patent listings.
other significant barriers to generic drug availability
Although patent-related challenges have delayed approval of generic
drugs in a number of high-profile cases, there are a number of other
important barriers to generic competition. These barriers, which
usually result from insufficient scientific knowledge and standards,
are likely to become even more significant as scientific advances in
drug development lead to new forms of therapy.
Currently, some classes of drug products entirely lack generic
versions because scientific methods for evaluating their bioequivalence
are not available. Examples include the nasal and inhaled
corticosteroids used for allergy and asthma treatment. Prospective
manufacturers of inhaled or topical generic drugs face uncertainty and
high development costs, and thus few such products have been developed.
Other widely used drugs, such as conjugated estrogens (available since
the 1940's), lack generic competition due to scientific uncertainty
about the composition of the active ingredient (s). Disputes over
composition and bioequivalence standards also have caused delays in
approval of many generic drugs while innovator challenges to the
standards are evaluated. Scientific research to support the development
of additional standards in these areas would enable FDA to approve
drugs in additional classes, and also to deal with scientific
challenges to pending generic drug approvals more expeditiously.
Innovations in drug therapy are leading to new methods of drug
delivery, including via liposomes, implantable systems, transcutaneous
or transmucosal products, and inhalation methods. At the same time, due
to innovations in chemistry, drugs with very complex molecular
structures are possible.
If generic copies of such innovative therapies are eventually to be
made available, standards must be developed to accommodate these
products within the Hatch-Waxman framework. This includes work on
issues of composition, formulation and bioequivalence. Scientific
research in each of these areas is needed to support new standards.
legislation
On July 31, the Senate passed S. 812, the Greater Access to
Affordable Pharmaceuticals Act, sponsored by Senators Schumer (D-NY)
and McCain (R-AZ). The Administration is opposed to this bill on the
grounds that it would 1) harm innovation and investment in new
medicines; 2) encourage litigation around the initial approval of new
drugs and the filing of patents; 3) reduce patent protections for drug
developers; and 4) delay availability of generic drugs and reduce price
competition. The Senate also attached provisions to allow the
importation of drugs from Canada that we believe would jeopardize the
health and safety of the nation's consumers. The Administration
supports the approach to drug price relief taken by the House of
Representatives earlier this year, in passing legislation to provide a
prescription drug benefit under Medicare.
Provisions of S. 812 require sponsors to file patent information
for ``Orange Book'' listings no later than 30 days after NDA approval,
or 30 days after patents are issued for drugs already having NDA
approval. Failure to file within these timeframes will permanently bar
patent holders from bringing suits for patent infringement. The
Administration believes this would be an unacceptable rollback in the
rights of patent holders. Provisions to allow generic manufacturers to
sue sponsors to correct or delete patent listings would encourage
lawsuits.
The Administration also opposes provisions that would allow
innovators to protect their patents filed more than 30 days after NDA
approval only by filing an infringement lawsuit and obtaining a
preliminary injunction within 45-days of receiving notification of a
paragraph IV challenge. If no lawsuit has been filed after 45 days have
elapsed, the innovator would be permanently barred from filing future
infringement suits to protect the patent.
In addition, provisions for ``rolling'' 180-day exclusivity will
actually reduce access to affordable pharmaceuticals, as consumers
would have to wait longer for the second or third generic approvals
after the expiration of exclusivity, which is when significant price
reduction occurs. These provisions would also generate extensive
litigation over the timing and validity of triggering events.
Finally, we note that provisions to allow the importation of drugs
from Canada by individuals, pharmacists and wholesalers, would open up
the current ``closed'' drug distribution system to drugs of unknown
quality, authenticity and origin. These provisions create opportunities
for counterfeiting, drug diversion, and fraud.
conclusion
FDA has been actively engaged in addressing the issues that have
been raised by brand name and generics companies concerning the
operation of the statute. We held a symposium in January 2002 where the
generic and innovator industries engaged FDA in a discussion and debate
on the issues each side wanted to bring to the Agency's attention.
Issues included the 30-month stay, 180-day exclusivity, and patent
listing, as well as other questions such as the use of citizen
petitions and their role in approval of generic drugs.
FDA continues to implement the Hatch-Waxman Amendments exclusivity
provisions in the best manner possible given the text of the
legislation, the history of the legislation and the numerous court
challenges. In doing so, FDA has tried to maintain a balance between
innovation in drug development and expediting the approval of lower-
cost generic drugs, as Congress sought to do in enacting this statute.
Thank you for the opportunity to discuss these important issues
with you, and I will be happy to answer any questions you may have.
Mr. Bilirakis. Thank you very much, Dr. Crawford.
Next we will hear from the Chairman of the Federal Trade
Commission, Mr. Timothy Muris. Please proceed, sir.
STATEMENT OF HON. TIMOTHY J. MURIS
Mr. Muris. Thank you very much, Mr. Chairman, and thank you
for holding this hearing and for inviting me to testify.
I am pleased to appear today to testify on behalf of the
Commission regarding competition in the pharmaceutical industry
and, in particular, to discuss our study of generic drug entry
prior to patent expiration. Let me address two issues briefly:
our enforcement agenda, which influenced our study and the
themes of the study that the Commission issued in July of this
year.
First, the Commission has challenged conduct by firms that
allegedly have gamed the Hatch-Waxman framework to deter or
delay generic competition. Our first generation of such cases
involved agreements through which a brand-name drug
manufacturer allegedly paid a generic drug manufacturer not to
enter and compete. It used the generic's rights under Hatch-
Waxman to impede entry by other generic competitors.
Our second generation of enforcement activities has
involved allegations that individual brand-name manufacturers
have acted to delay generic competition by using the Hatch-
Waxman provision that prohibits the FDA from approving a
generic applicant for 30 months under certain circumstances.
Brand-name drug manufacturers may sometimes act strategically
to obtain more than one 30-month stay of FDA approval of a
particular generic drug. We recently took action against
Biovail Corporation for engaging in this type of activity for
its drug product Tiazac, which is used to treat high blood
pressure and chronic chest pain.
Next, let me briefly discuss our study. The study was
prompted by several factors, including cases such as those I
just discussed, a request from Representative Waxman to look
into these issues, and, of course, the large amounts we spend
on pharmaceuticals.
Looking at the timeframe from 1992 through 2000, the study
asks whether and how generic drug companies entered and
competed against brand-name drug manufacturers before the
patents expired. An increasing number of generics have sought
to enter before the expiration of patents. In all, the study
examined the 104 brand-name drug products in which generic
applicants sought entry prior to patent expiration between 1992
and 2000.
As we have heard in today's opening statements, under
Hatch-Waxman the brand-name companies are required to list
patents that claim each brand-name drug in the Orange Book. A
generic applicant then may certify that its product does not
infringe or that the patents are invalid. If, in response, the
brand-name manufacturer sues the generic applicant for patent
infringement, the FDA may not approve the generic application
until a court's determination of invalidity or non-infringement
or 30 months from the receipt of the certification.
We found that 30 months historically has approximated the
time necessary for FDA review and approval of the generics
application, as well as the time necessary for a district court
to resolve the patent infringement litigation. Thus, in most
circumstances it does not appear that the 30-month stay itself
has a significant potential to delay generic entry.
However, there have been eight brand-name drug products in
which the brand-name manufacturers have been able to obtain
more than one 30-month stay. This has cost additional delay of
FDA approval of the generic application from 4 to 40 months
beyond the initial 30 months. Our study recommends a limit of
one automatic 30-month stay per drug product per generic
application to resolve infringement disputes over patents that
were listed in the Orange Book prior to the filing of the
generic application.
We also researched the circumstances surrounding another
Hatch-Waxman provision that awards 180 days of market
exclusivity to the first generic applicant to apply to enter
before patent expiration. During this 180 days, the FDA may not
approve a subsequent generic application for the same drug
product. This provision provides an economic incentive for
companies to challenge patent validity and design around
patents to find alternative, non-infringing forms of patented
drugs.
The data in the study suggests that generic applicants have
mostly brought appropriate patent challenges. For the drug
products covered by the FTC study, generic applicants prevailed
in nearly 75 percent of the patent litigation resolved by court
decision.
Sometimes, however, the litigation is settled and not
litigated to conclusion. Our study found 14 final settlement
agreements that at the time they were executed had the
potential to ``park'' the first generic applicant's 180-day
exclusivity for some period of time and, thus, possibly to
prevent subsequent generic entry.
Such agreements may be pro-competitive, they may be
competitive-neutral, and, of course, they may be anti-
competitive. Because they have the potential to raise antitrust
issues, we support the Drug Competition Act of 2001, S. 754,
introduced by Senator Leahy, as reported by the Committee on
the Judiciary, which would require the filing of these type of
agreements with the FTC and the Department of Justice.
We will continue to be active to protect consumers from
anti-competitive practices that inflate drug prices. Indeed,
since my arrival as Chairman 16 months ago, we have increased
our resources in health care by 50 percent, the vast majority
of that dealing with pharmaceuticals.
We look forward to working closely with the subcommittee,
as we have in the past, to meet this goal. I want to thank you,
Mr. Chairman, on behalf of the Commission for your support of
our work.
[The prepared statement of Hon. Timothy J. Muris follows:]
Prepared Statement of Hon. Timothy J. Muris, Chairman, Federal Trade
Commission
i. introduction
Mr. Chairman, I am Timothy J. Muris, Chairman of the Federal Trade
Commission. I am pleased to appear before the Subcommittee today to
testify on behalf of the Commission regarding competition in the
pharmaceutical industry.<SUP>1</SUP>
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\1\ The written statement represents the views of the Federal Trade
Commission. My oral presentation and responses are my own and do not
necessarily reflect the views of the Commission or of any other
Commissioner.
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Advances in the pharmaceutical industry continue to bring enormous
benefits to Americans. Because of pharmaceutical innovations, a growing
number of medical conditions often can be treated more effectively with
drugs and drug therapy than with alternative means (e.g., surgery). The
development of new drugs is risky and costly, however, which increases
the prices of prescription drugs. Expenditures on pharmaceutical
products continue to grow. The growth of prescription drug spending at
retail outlets has ``exceeded that of other health services by a wide
margin, increasing 17.3 percent in 2000, the sixth consecutive year of
double-digit growth.'' <SUP>2</SUP> Pharmaceutical expenditures are
thus a concern not only to individual consumers, but also to government
payers, private health plans, and employers.
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\2\ K. Levit, C. Smith, C. Cowan, H. Lazenby & A. Martin,
``Inflation Spurs Health Spending in 2000,'' 21:1 Health Affairs 179
(2002), citing data from the Centers for Medicare and Medicaid
Services, Office of the Actuary, National Health Statistics Group, of
which the authors are members.
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To address the issue of escalating drug expenditures, and to ensure
that the benefits of pharmaceutical innovation would continue, Congress
passed the Hatch-Waxman Amendments <SUP>3</SUP> (``Hatch-Waxman'' or
``the Amendments'') to the Food, Drug and Cosmetic Act (``FDC
Act'').<SUP>4</SUP> Hatch-Waxman established a regulatory framework
that sought to balance incentives for continued innovation by research-
based pharmaceutical companies and opportunities for market entry by
generic drug manufacturers.<SUP>5</SUP> Without question, Hatch-Waxman
has increased generic drug entry. The Congressional Budget Office
estimates that, by purchasing generic equivalents of brand-name drugs,
consumers saved $8-10 billion on retail purchases of prescription drugs
in 1994 alone.<SUP>6</SUP> With patents set to expire within the next
four years on brand-name drugs having combined U.S. sales of almost $20
billion,<SUP>7</SUP> the already substantial savings are likely to
increase dramatically.
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\3\ Drug Price Competition and Patent Restoration Act of 1984, Pub.
L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended 21 U.S.C.
Sec. 355 (1994)).
\4\ 21 U.S.C. Sec. 301 et seq.
\5\ See infra note 14 and accompanying text. The Amendments also
were intended to encourage pharmaceutical innovation through patent
term extensions.
\6\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry (July 1998) (``CBO Study''), available at <http://www.cbo.gov/
showdoc.cfm?index=655&sequence=0>.
\7\ Id. at 3.
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Yet, in spite of this remarkable record of success, the Amendments
have also been subject to some abuse. Although many drug
manufacturers--including both brand-name companies and generics--have
acted in good faith, others have attempted to ``game'' the system,
securing greater profits for themselves without providing a
corresponding benefit to consumers. This testimony will describe the
Commission's past and present response to these anticompetitive
efforts.
The Commission has pursued numerous antitrust enforcement actions
affecting both brand-name and generic drug manufacturers.<SUP>8</SUP>
In addition, the Commission recently released a study entitled
``Generic Drug Entry Prior to Patent Expiration'' (``FTC Study''). That
study examines whether the conduct that the FTC has challenged
represented isolated instances or is more typical of business practices
in the pharmaceutical industry, and whether certain provisions of
Hatch-Waxman are susceptible to strategies to delay or deter consumer
access to generic alternatives to brand-name drug products.<SUP>9</SUP>
The Commission has gained expertise regarding competition in the
pharmaceutical industry through other means as well. The Commission
staff has conducted empirical analyses of competition in the
pharmaceutical industry, including in-depth studies by the staff of the
Bureau of Economics.<SUP>10</SUP> The Commission's efforts have
included filing comments with the Food and Drug Administration
(``FDA'') regarding the competitive aspects of Hatch-Waxman
implementation,<SUP>11</SUP> as well as previous testimony before
Congress.<SUP>12</SUP> Furthermore, individual Commissioners have
addressed the subject of pharmaceutical competition before a variety of
audiences, both to solicit input from affected parties and to promote
discussion about practical solutions.<SUP>13</SUP>
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\8\ See, e.g., Biovail Corp. and Elan Corp. PLC, Dkt. No. C-4057
(Aug. 20, 2002) (consent order); Biovail Corp., Dkt. No. C-4060 (Oct.
2, 2002) (consent order); FTC v. Mylan Laboratories, Inc. et al., 62 F.
Supp. 2d 25 (D.D.C. 1999); Roche Holding Ltd., 125 F.T.C. 919 (1998)
(consent order); Ciba-Geigy Ltd., 123 F.T.C. 842 (1997) (consent
order).
\9\ Federal Trade Commission, Generic Drug Entry Prior to Patent
Expiration: An FTC Study (July 2002), available at <http://www.ftc.gov/
os/2002/07/genericdrugstudy.pdf>.
\10\ Bureau of Economics Staff Report, Federal Trade Commission,
The Pharmaceutical Industry: A Discussion of Competitive and Antitrust
Issues in an Environment of Change (Mar. 1999), available at <http://
www.ftc.gov/reports/pharmaceutical/drugrep.pdf>; David Reiffen and
Michael R. Ward, Generic Drug Industry Dynamics, Bureau of Economics
Working Paper No. 248 (Feb. 2002) (``Reiffen and Ward''), available at
<http://www.ftc.gov/be/econwork.htm>.
\11\ FDA: Citizen Petition, Comment of the Staff of the Bureau of
Competition and of the Office of Policy Planning of the Federal Trade
Commission Before the Food and Drug Administration (Mar. 2, 2000),
available at <http://www.ftc.gov/be/v000005.pdf> (recommending
modifications to the FDA's Proposed Rule on citizen petitions intended
to discourage anticompetitive abuses of the FDA's regulatory
processes); FDA: 180-Day Marketing Exclusivity for Generic Drugs,
Comment of the Staff of the Bureau of Competition and of the Office of
Policy Planning of the Federal Trade Commission Before the Food and
Drug Administration (Nov. 4, 1999) (``Marketing Exclusivity Comment''),
available at <http://www.ftc.gov/be/v990016.htm> (recommending that the
FDA's Proposed Rule on 180-day marketing exclusivity be modified to
limit exclusivity to the first ANDA filer and to require filing of
patent litigation settlement agreements.
\12\ Testimony of the Federal Trade Commission before the Committee
on Commerce, Science, and Transportation, United States Senate,
Competition in the Pharmaceutical Industry (Apr. 23, 2002), available
at <http://www.ftc.gov/os/2002/04/pharmtestimony.htm>; Testimony of the
Federal Trade Commission before the Committee on the Judiciary, United
States Senate, Competition in the Pharmaceutical Marketplace: Antitrust
Implications of Patent Settlements (May 24, 2001), available at <http:/
/www.ftc.gov/os/2001/05/pharmtstmy.htm>.
\13\ See, e.g., Sheila F. Anthony, Riddles and Lessons from the
Prescription Drug Wars: Antitrust Implications of Certain Types of
Agreements Involving Intellectual Property (June 1, 2000), available at
<http://www.ftc.gov/speeches/anthony/sfip000601.htm>; Thomas B. Leary,
Antitrust Issues in Settlement of Pharmaceutical Patent Disputes (Nov.
3, 2000), available at <http://www.ftc.gov/speeches/leary/
learypharma.htm>; Thomas B. Leary, Antitrust Issues in the Settlement
of Pharmaceutical Patent Disputes, Part II (``Part II'') (May 17,
2001), available at <http://www.ftc.gov/speeches/leary/
learypharmaceutical settlement.htm>; Timothy J. Muris, Competition and
Intellectual Property Policy: The Way Ahead, at 5-6 (Nov. 15, 2001),,
available at <http://www.ftc.gov/speeches/muris/intellectual.htm>
---------------------------------------------------------------------------
After reviewing the relevant Hatch-Waxman provisions, this
testimony will address the Commission's vigorous enforcement of the
antitrust laws with respect to generic drug competition. These efforts
have entailed several types of conduct relating to certain Hatch-Waxman
provisions. One type of conduct involves allegedly anticompetitive
settlements between brand-name companies and generics. Because the
Commission became aware of and challenged such settlements first, this
testimony refers to those matters as ``first-generation litigation.''
Other, more recent types of conduct, such as allegedly improper Orange
Book listings and potentially anticompetitive settlements between
generic manufacturers themselves, are the subject of the Commission's
``second-generation actions.''
Next, the testimony will address the Commission's industry-wide
study of generic drug entry prior to patent expiration. An
understanding of the Commission's cases in this area will provide the
framework for the issues that the Commission examined in this study.
ii. regulatory background: the hatch-waxman drug approval process
A. The Hatch-Waxman Balance
The stated purpose of Hatch-Waxman is to ``make available more low
cost generic drugs.'' <SUP>14</SUP> The concern that the FDA's lengthy
drug approval process was unduly delaying market entry by generic
versions of brand-name prescription drugs motivated Congress's passage
of the Amendments. Because a generic drug manufacturer was required to
obtain FDA approval before selling its product, and could not begin the
approval process until any conflicting patents on the relevant brand-
name product expired, the FDA approval process essentially functioned
to extend the term of the brand-name manufacturer's patent. To correct
this problem, Congress provided in the Amendments that certain conduct
related to obtaining FDA approval, which would otherwise constitute
patent infringement, would be exempted from the patent laws.
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\14\ H.R. Rep. No. 98-857, pt. 1, at 14 (1984), reprinted in 1984
U.S.C.C.A.N. 2647, 2647.
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Congress continued to regard patent protection, however, as
critical to pharmaceutical innovation and an important priority in its
own right. Hatch-Waxman thus represented a compromise: an expedited FDA
approval process to speed generic entry balanced by additional
intellectual property protections to ensure continuing innovation. As
one federal appellate judge explained, the Amendments ``emerged from
Congress's efforts to balance two conflicting policy objectives: to
induce brand-name pharmaceutical firms to make the investments
necessary to research and develop new drug products, while
simultaneously enabling competitors to bring cheaper, generic copies of
those drugs to market.'' <SUP>15</SUP>
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\15\ Abbott Labs. v. Young, 920 F.2d 984, 991 (D.C. Cir. 1990)
(Edwards, J., dissenting) (citations omitted).
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Pursuant to the FDC Act, a brand-name drug manufacturer seeking to
market a new drug product must first obtain FDA approval by filing a
New Drug Application (``NDA''). At the time the NDA is filed, the NDA
filer must also provide the FDA with certain categories of information
regarding patents that cover the drug that is the subject of its
NDA.<SUP>16</SUP> Upon receipt of the patent information, the FDA is
required to list it in an agency publication entitled ``Approved Drug
Products with Therapeutic Equivalence,'' commonly known as the ``Orange
Book.'' <SUP>17</SUP>
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\16\ 21 U.S.C. Sec. 355(b)(1).
\17\ Id. at Sec. 355(j)(7)(A).
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Rather than requiring a generic manufacturer to repeat the costly
and time-consuming NDA process, the Amendments permit the company to
file an Abbreviated New Drug Application (``ANDA''), which references
data that the ``pioneer'' manufacturer has already submitted to the FDA
regarding the brand-name drug's safety and efficacy. Under the ANDA
process, an applicant must demonstrate that the generic drug is
``bioequivalent'' to the relevant brand-name product.<SUP>18</SUP> The
ANDA must contain, among other things, a certification regarding each
patent listed in the Orange Book in conjunction with the relevant
NDA.<SUP>19</SUP> One way to satisfy this requirement is to provide a
``Paragraph IV certification,'' asserting that the patent in question
is invalid or not infringed.<SUP>20</SUP>
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\18\ Id. at Sec. 355(j)(2)(A)(iv).
\19\ Id. at Sec. 355(j)(2)(A)(vii).
\20\ Id. at Sec. 355(j)(2)(A)(vii)(IV).
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Filing a Paragraph IV certification potentially has significant
regulatory implications, as it is a prerequisite to the operation of
two provisions of the statute. The first of these is the automatic
``30-month stay'' protection afforded to patent holders and the NDA
filer--most typically, brand-name companies. An ANDA filer that makes a
Paragraph IV certification must provide notice to both the patent
holder and the NDA filer, including a detailed statement of the factual
and legal basis for the ANDA filer's assertion that the patent is
invalid or not infringed.<SUP>21</SUP> Once the ANDA filer has provided
such notice, a patent holder wishing to take advantage of the statutory
stay provision must bring an infringement suit within 45
days.<SUP>22</SUP> If the patent holder does not bring suit within 45
days, the FDA may approve the ANDA as soon as other regulatory
conditions are fulfilled.<SUP>23</SUP> If the patent holder does bring
suit, however, the filing of that suit triggers an automatic 30-month
stay of FDA approval of the ANDA.<SUP>24</SUP> During this period,
unless the patent litigation is resolved in the generic's favor, the
FDA cannot approve the generic product.
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\21\ Id. at Sec. 355(j)(2)(B). Although the patent holder and the
NDA filer are often the same person, this is not always the case.
Hatch-Waxman requires that all patents that claim the drug described in
an NDA be listed in the Orange Book. Occasionally, this requires an NDA
filer to list a patent that it does not own.
\22\ Id. at Sec. 355(j)(5)(B)(iii).
\23\ Id. For example, the statute requires the ANDA applicant to
establish bioequivalence. Id. at Sec. 355(j)(2)(A)(iv).
\24\ Id. at Sec. 355(j)(5)(B)(iii).
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The second significant component of Hatch-Waxman is the ``180-day
period of exclusivity.'' The Amendments provide that the first generic
manufacturer to file an ANDA containing a Paragraph IV certification is
awarded 180 days of marketing exclusivity, during which the FDA may not
approve a potential competitor's ANDA.<SUP>25</SUP> Through this 180-
day provision, the Amendments provide an increased incentive for
companies to challenge patents and develop alternative forms of
patented drugs.<SUP>26</SUP> The 180-day period is calculated from the
date of the first commercial marketing of the generic drug product or
the date of a court decision declaring the patent invalid or not
infringed, whichever is sooner.<SUP>27</SUP> The 180-day exclusivity
period increases the economic incentives for a generic company to be
the first to file an ANDA.<SUP>28</SUP> Of course, during the 180 days,
the generic competes with the brand-name product. After the 180 days,
subject to regulatory approvals and determination of the outcomes of
any patent suits, other generics can enter the market.
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\25\ Id. at Sec. 355(j)(5)(B)(iv).
\26\ See Granutec, Inc. v. Shalala, 139 F.3d 889, 891 (4th Cir.
1998).
\27\ 21 U.S.C. Sec. 355(j)(5)(B)(iv).
\28\ There has been litigation over what acts trigger the 180-day
period of exclusivity. See FTC Study, supra note 9. This study is
discussed in detail below.
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B. Competitive Implications
The 30-month stay and the 180-day period of exclusivity were both
parts of the Hatch-Waxman balance. The imposition of a 30-month stay of
FDA approval of an eligible ANDA could forestall generic competition
during that period of time. The 180-day period of exclusivity can, in
some circumstances, limit the number of generic competitors during this
180-day period. Over the past few years the Commission has observed
through its investigations, law enforcement actions, and industry-wide
study that some brand-name and generic drug manufacturers may have
``gamed'' these two provisions, attempting to restrict competition
beyond what the Amendments intended. The next section of this testimony
discusses the Commission's efforts to investigate vigorously and to
prosecute such abuses.
iii. promoting competition through antitrust enforcement
A. First-Generation FTC Litigation: Settlements Between Brand-Name
Companies and Generic Applicants
Studies of the pharmaceutical industry indicate that the first
generic competitor typically enters the market at a significantly lower
price than its brand-name counterpart, and gains substantial share from
the brand-name product.<SUP>29</SUP> Subsequent generic entrants may
enter at even lower prices and cause the earlier entrants to reduce
their prices. These are precisely the procompetitive consumer benefits
that the Amendments were meant to facilitate.
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\29\ See CBO Study, supra note 6; see generally Reiffen and Ward,
supra note 10.
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This competition substantially erodes the profits of brand-name
pharmaceutical products. Although successful generic applicants are
profitable, their gain is substantially less than the loss of profits
by the brand-name product, because of the typical difference in prices
between brand-name and generic products. As a result, both parties may
have economic incentives to collude to delay generic entry. By blocking
entry, the brand-name manufacturer may preserve monopoly profits. A
portion of these profits, in turn, can be used to fund payments to the
generic manufacturer to induce it to forgo the profits it could have
realized by selling its product. Furthermore, by delaying the first
generic's entry--and with it, the triggering of the 180 days of
exclusivity--the brand-name and first-filing generic firms can
sometimes forestall the entry of other generics.
The Commission's first-generation litigation focused on patent
settlement agreements between brand-name companies and generic
applicants that the Commission alleged had delayed the entry of one or
more generic applicants. Of course, resolving patent infringement
litigation through settlement can be efficient and procompetitive.
Certain patent settlements between brand-name companies and generic
applicants, however, drew the Commission's attention when it appeared
that their terms may have reduced competition through abuses of the
Hatch-Waxman regime.
Two leading cases illustrate the Commission's efforts in the area:
Abbott/Geneva and Hoechst/Andrx. The first of these cases involved an
agreement between Abbott Laboratories and Geneva Pharmaceuticals, Inc.
relating to Abbott's brand-name drug Hytrin. The Commission's complaint
alleged that Abbott paid Geneva approximately $4.5 million per month to
delay the entry of its generic Hytrin product, potentially costing
consumers hundreds of millions of dollars a year.<SUP>30</SUP> The
complaint further alleged that Geneva agreed not to enter the market
with any generic Hytrin product--including a non-infringing product--
until (1) final resolution of the patent infringement litigation
involving Geneva's generic Hytrin tablets, or (2) market entry by
another generic Hytrin manufacturer. Geneva also allegedly agreed not
to transfer its 180-day marketing exclusivity rights.
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\30\ Abbott Laboratories, Dkt. No. C-3945 (May 22, 2000) (consent
order), complaint available at <http://www.ftc.gov/os/2000/05/
c3945complaint.htm>; Geneva Pharmaceuticals, Inc., Dkt. No. C-3946 (May
22, 2000) (consent order), complaint available at <http://www.ftc.gov/
os/2000/05/c3946complaint.htm>.
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The second case involved an agreement between Hoechst Marion
Roussel, Inc. and Andrx Corp. relating to Hoechst's brand-name drug
Cardizem CD. The Commission's complaint alleged that Hoechst paid Andrx
over $80 million, during the pendency of patent litigation, to refrain
from entering the market with its generic Cardizem CD
product.<SUP>31</SUP> As in the Abbott/Geneva case, the Commission's
complaint also asserted that the agreement called for Andrx, as the
first ANDA filer, to use its 180-day exclusivity rights to impede entry
by other generic competitors.
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\31\ Hoechst Marion Roussel, Inc., Dkt. No. 9293 (May 8, 2001)
(consent order), complaint available at <http://www.ftc.gov/os/2000/03/
hoechstandrxcomplaint.htm>.
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The Commission resolved both cases by consent order.<SUP>32</SUP>
The orders prohibit the respondent companies from entering into brand/
generic agreements pursuant to which a generic company that is the
first ANDA filer with respect to a particular drug agrees not to (1)
enter the market with a non-infringing product, or (2) transfer its
180-day marketing exclusivity rights. In addition, the orders require
the companies to obtain court approval for any agreements made in the
context of an interim settlement of a patent infringement action that
provide for payments to the generic to stay off the market, with
advance notice to the Commission to allow it time to present its views
to the court. The orders also require advance notice to the Commission
before the respondents can enter into such agreements in non-litigation
contexts.
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\32\ The consent order in Abbott Laboratories is available at
<http://www.ftc.gov/os/2000/03/abbot.do.htm>. The consent order in
Geneva Pharmaceuticals is available at <http://www.ftc.gov/os/2000/03/
genevad&o.htm>. The consent order in Hoechst/Andrx is available at
<http://www.ftc.gov/os/2001/05/hoechstdo.pdf>. In another matter,
Schering-Plough, the Commission resolved all claims against one of
three respondents, American Home Products (``AHP''), by issuing a final
consent order. Schering-Plough Corp., Dkt. No. 9297 (consent order as
to AHP issued Apr. 2, 2002), available at <http://www.ftc.gov/os/2002/
04/scheringplough--do.htm>.
The case against the other two respondents is in litigation before
the Commission. See Schering-Plough Corp., et al., Dkt. No. 9297
(Initial Decision) (July 2, 2002), available at <http://www.ftc.gov/os/
2002/07/scheringinitialdecisionp1.pdf>.
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Although each case turns on its own specific facts, these cases
highlight the Commission's concern about settlements whose primary
effect appears to be to delay generic entry, leading to less vigorous
competition and higher prices for consumers. Of course, not all
settlements are problematic. The Commission has not attempted to
provide a comprehensive list of potentially objectionable settlement
provisions. However, it is possible to identify from the Commission's
reported matters a few provisions that, within the Hatch-Waxman
context, have drawn antitrust scrutiny. These include:
(1) Provisions that provide for ``reverse'' payments. ``Reverse''
payments (i.e., payments from the patent holder to the alleged
infringer) may merit antitrust scrutiny because they may represent an
anticompetitive division of monopoly profits.
(2) Provisions that restrict the generic's ability to enter with
non-infringing products. Such provisions can extend the boundaries of
the patent monopoly without providing any additional public disclosure
or incentive to innovate, and therefore have the potential to run afoul
of the principles of antitrust law.<SUP>33</SUP>
---------------------------------------------------------------------------
\33\ Cf. Brulotte v. Thys Co., 379 U.S. 29, 33 (1964) (holding that
``enlarg[ing] the monopoly of the patent'' by collecting post-
expiration royalties constitutes patent misuse).
---------------------------------------------------------------------------
(3) Provisions that restrict the generic's ability to assign or
waive its 180-day marketing exclusivity rights. Because a second ANDA
filer may not enter the market until the first filer's 180-day period
of marketing exclusivity has expired, restrictions on assignment or
waiver of the exclusivity period can function as a bottleneck,
potentially delaying subsequent generic entry for an extended
period.<SUP>34</SUP>
---------------------------------------------------------------------------
\34\ But see Leary, Part II, supra note 13, at 7 (arguing that
agreements regarding waiver of 180-day exclusivity period may have no
anticompetitive effect absent reverse payment).
---------------------------------------------------------------------------
B. Second-Generation FTC Actions: Improper Orange Book Listings
1. In re Buspirone--A principal focus of the Commission's second-
generation activities has been improper Orange Book
listings.<SUP>35</SUP> Unlike the settled cases discussed above, which
involved alleged collusion between private parties, an improper Orange
Book listing strategy involves unilateral abuse of the Hatch-Waxman
process itself to restrain trade. Such conduct has raised Noerr-
Pennington antitrust immunity issues, an area of longstanding
Commission interest.
---------------------------------------------------------------------------
\35\ The Commission first raised concerns about the potential
anticompetitive impact of improper Orange Book listings in American
Bioscience, Inc. v. Bristol-Myers Squibb Co., et al., Dkt. No. CV-00-
08577 (C.D. Cal. Sept. 7, 2000). See Federal Trade Commission Brief as
amicus curiae, available at <http://www.ftc.gov/os/2000/09/
amicusbrief.pdf>. In that case, the parties sought court approval of a
settlement containing a specific factual finding that Bristol-Myers was
required to list American Bioscience's patent of Bristol-Myers's
branded drug Taxol in the Orange Book. The Commission was concerned
that the court's approval of the settlement would amount to a judicial
finding that the patent met the statutory requirements for listing in
the Orange Book and would prejudice parties who might later challenge
the listing.
---------------------------------------------------------------------------
The Noerr doctrine <SUP>36</SUP> provides antitrust immunity for
individuals ``petitioning'' government. While the Noerr doctrine is an
important limitation on the antitrust laws that protects the right of
individuals to communicate with government entities, some courts have
interpreted the doctrine too broadly in ways that are inconsistent with
Supreme Court precedent.
---------------------------------------------------------------------------
\36\ The Noerr doctrine was first articulated as an interpretation
of the Sherman Act in Eastern R.R. Presidents Conf. v. Noerr Motor
Freight, Inc., 365 U.S. 127 (1961), and United Mine Workers of America
v. Pennington, 381 U.S. 657 (1965).
---------------------------------------------------------------------------
To address the concern that the Noerr doctrine was being
interpreted too expansively, a Noerr-Pennington Task Force of
Commission staff began work in June 2001. One of the objectives of the
Task Force was to examine certain aspects of the Noerr doctrine, such
as the scope of ``petitioning'' conduct and the continuing existence of
a misrepresentation exception to Noerr immunity.
One of the first potential abuses the Task Force considered was the
improper listing of patents in the FDA's Orange Book. Pursuant to
current policy, the FDA does not review patents presented for listing
in the Orange Book to determine whether they do, in fact, claim the
drug product described in the relevant NDA.<SUP>37</SUP> Instead, the
FDA takes at face value the declaration of the NDA filer that the
listing is appropriate. As a result, an NDA filer acting in bad faith
can successfully list patents that do not satisfy the statutory listing
criteria. Once listed in the Orange Book, these patents have the same
power to trigger a 30-month stay of ANDA approval as any listed patent,
thereby delaying generic entry and potentially costing consumers
millions, or even billions, of dollars without valid cause.
---------------------------------------------------------------------------
\37\ See 21 C.F.R. Sec. 314.53(f); see also Abbreviated New Drug
Application Regulations--Patent and Exclusivity Provisions, 59 Fed.
Reg. 50338, 50343 (1994) (``FDA does not have the expertise to review
patent information. The agency believes that its resources would be
better utilized in reviewing applications rather than reviewing patent
claims.''); Abbreviated New Drug Application Regulations, 54 Fed. Reg.
28872, 28910 (1989) (``In deciding whether a claim of patent
infringement could reasonably be asserted . . . the agency will defer
to the information submitted by the NDA applicant.'').
---------------------------------------------------------------------------
In January of this year, lawsuits relating to Bristol-Myers's
alleged monopolization through improper listing of a patent on its
brand-name drug BuSpar <SUP>38</SUP> presented the Commission with an
opportunity to clarify the Noerr doctrine in a way that might have a
significant impact on the Commission's ongoing pharmaceutical cases.
Specifically, plaintiffs alleged that, through fraudulent filings with
the FDA, Bristol-Myers caused that agency to list the patent in
question in the Orange Book, thereby blocking generic competition with
its BuSpar product, in violation of Section 2 of the Sherman
Act.<SUP>39</SUP>
---------------------------------------------------------------------------
\38\ In re Buspirone Patent Litigation/In re Buspirone Antitrust
Litigation, 185 F. Supp. 2d 363 (S.D.N.Y. 2002) (``In re Buspirone'').
Some of the same plaintiffs previously had brought suit under the FDC
Act, requesting that the court issue an order compelling Bristol-Myers
to de-list the objectionable patent. Although plaintiffs prevailed at
the district court level, the Federal Circuit reversed that decision,
holding that the FDC Act did not provide a private right of action to
compel de-listing of a patent from the Orange Book. See Mylan
Pharmaceuticals, Inc. v. Thompson, 268 F.3d 1323, 1331-32 (Fed. Cir.
2001).
\39\ 15 U.S.C. Sec. 2.
---------------------------------------------------------------------------
Bristol-Myers responded to these allegations by filing a motion to
dismiss that raised, principally, a claim of Noerr-Pennington immunity.
Given the importance of the issue to competition in the pharmaceutical
industry, as well as to the Commission's ongoing investigations, the
Commission filed an amicus brief opposing the motion to
dismiss.<SUP>40</SUP> On February 14, 2002, the court issued an opinion
denying Bristol-Myers's immunity claim and accepting most of the
Commission's reasoning on the Noerr-Pennington issue.<SUP>41</SUP>
---------------------------------------------------------------------------
\40\ Memorandum of Law of Amicus Curiae Federal Trade Commission in
Opposition to Defendant's Motion to Dismiss, available at <http://
www.ftc.gov/os/2002/01/busparbrief.pdf>. (The Commission argued that
Orange Book filings are not ``petitioning activity'' immune from
antitrust scrutiny.)
\41\ In re Buspirone, supra note 38
---------------------------------------------------------------------------
In light of the Buspirone decision, the Noerr-Pennington doctrine
may not prove as large an obstacle to using the antitrust laws to
remedy improper Orange Book filings as some may have anticipated. It is
worth noting, and indeed emphasizing, that Buspirone does not mean that
all improper Orange Book filings will give rise to antitrust liability.
Any antitrust liability must be predicated on a clear showing of a
violation of substantive antitrust law. Buspirone makes it clear,
however, that Orange Book filings are not immune from those laws or
exempt from their scrutiny.
2. Biovail (Tiazac)--Last week, the Commission announced that it
had issued a consent order against Biovail Corporation, <SUP>42</SUP>
settling charges that Biovail illegally acquired an exclusive patent
license and wrongfully listed that patent in the Orange Book for the
purpose of blocking generic competition to its brand-name drug Tiazac.
This was the Commission's first enforcement action to remedy the
effects of an allegedly improper, anticompetitive Orange Book listing.
---------------------------------------------------------------------------
\42\ Biovail Corp., supra note 8.
---------------------------------------------------------------------------
Prior to the events giving rise to the Commission's complaint,
Biovail already had triggered a 30-month stay of FDA final approval of
Andrx's generic Tiazac product, by commencing an infringement lawsuit
against Andrx. Andrx prevailed in the courts, however, so that the stay
would have been lifted by February 2001. According to the Commission's
complaint,<SUP>43</SUP> Biovail, in anticipation of pending competition
from Andrx, undertook a series of anticompetitive actions to trigger a
new stay and maintain its Tiazac monopoly. Just before the stay was to
terminate, Biovail acquired exclusive rights to a newly issued patent
from a third party and listed that patent in the Orange Book as
claiming Tiazac--thereby requiring Andrx to re-certify to the FDA and
opening the door to Biovail's suit against Andrx for infringement of
the new patent and commencement of a second 30-month stay.
---------------------------------------------------------------------------
\43\ The Commission's complaint against Biovail is available at
<http://www.ftc.gov/os/2002/04/biovailcomplaint.htm>.
---------------------------------------------------------------------------
The Commission's complaint alleged that Biovail's patent
acquisition, wrongful Orange Book listing, and misleading conduct
before the FDA were acts in unlawful maintenance of its Tiazac
monopoly, in violation of Section 5 of the Federal Trade Commission Act
<SUP>44</SUP> (``FTC Act''), and that the acquisition also violated
Section 7 of the Clayton Act <SUP>45</SUP> and Section 5 of the FTC
Act.
---------------------------------------------------------------------------
\44\ 15 U.S.C. Sec. 45.
\45\ Id. at Sec. 18.
---------------------------------------------------------------------------
The consent order requires Biovail to divest the exclusive rights
to their original owner with certain exceptions; to achieve dismissal
with prejudice of any and all claims relating to enforcement of the
patent in relation to Tiazac; and to refrain from any action that would
trigger another 30-month stay on generic Tiazac entry. Further, the
order prohibits Biovail from unlawfully listing patents in the Orange
Book and requires Biovail to give the Commission prior notice of
acquisitions of patents that it will list in the Orange Book for
Biovail's FDA-approved products. These measures should not only remedy
Biovail's allegedly unlawful conduct, but also send a strong message
that the Commission will act decisively to eliminate anticompetitive
practices in the pharmaceutical industry.
C. Settlements Between Generic Manufacturers
Although agreements between first and second generic entrants have
attracted significantly less attention to date, they too can raise
competitive concerns and may draw antitrust scrutiny. As in the case of
agreements between brand-name companies and generic applicants, the
economic incentives to collude can be strong. Studies indicate that the
first generic typically enters the market at 70 to 80 percent of the
price of the corresponding brand <SUP>46</SUP> and rapidly secures as
much as a two-thirds market share. The second generic typically enters
at an even lower price and, like the first, rapidly secures market
share. Collusion between the generic firms can thus be a means of
preventing price erosion in the short term, though it may become
substantially less feasible if subsequent ANDAs are approved and
additional competitors enter the market.
---------------------------------------------------------------------------
\46\ See CBO Study, supra note 6; Reiffen and Ward, supra note 10,
at 22.
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In August 2002, the Commission issued a consent order against two
generic drug manufacturers to resolve charges that they entered into an
agreement that unreasonably reduced competition in the market for a
generic anti-hypertension drug.<SUP>47</SUP> According to the
Commission's complaint, Biovail Corporation (Biovail) and Elan
Corporation PLC (Elan) agreed not to compete, in violation of the FTC
Act. The complaint alleged that the companies' agreement substantially
reduced their incentives to introduce competing 30 mg and 60 mg generic
Adalat CC products, and that the agreement lacked any countervailing
efficiencies.<SUP>48</SUP>
---------------------------------------------------------------------------
\47\ Biovail Corp. and Elan Corp. PLC, supra note 8.
\48\ The Commission's complaint against Biovail and Elan is
available at <http://www.ftc.gov/os/2002/08/biovalcmp.pdf>.
---------------------------------------------------------------------------
The order, which has a ten-year term, remedies the companies'
alleged anticompetitive conduct by requiring them to terminate the
agreement and barring them from engaging in similar conduct in the
future.<SUP>49</SUP> The order maintains commercial supply of the
incumbent generic Adalat products while the companies unwind their
agreement, and eliminates the anticompetitive obstacles to entry of a
second 30 mg and a second 60 mg generic Adalat CC product.
---------------------------------------------------------------------------
\49\ The consent order in the Biovail/Elan matter is available at
<http://www.ftc.gov/os/2002/08/biovaldo.pdf>.
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iv. the commission's industry-wide generic drug competition study
A. Background and Introduction
In light of the questions its various generic drug investigations
raised, the Commission proposed an industry-wide study of generic drug
competition in October 2000. The FTC Study focused solely on the
procedures used to facilitate generic drug entry prior to expiration of
the patent(s) that protect the brand-name drug product--that is,
generic entry through the procedures involving Paragraph IV
certifications.<SUP>50</SUP> The Commission undertook the study for
three reasons:
---------------------------------------------------------------------------
\50\ The FTC Study does not address other procedures for generic
entry.
---------------------------------------------------------------------------
(1) To determine whether alleged anticompetitive agreements that
relied on certain Hatch-Waxman provisions were isolated instances or
more typical, and whether particular provisions of the Amendments are
susceptible to strategies to delay or deter consumer access to generic
alternatives to brand-name drug products;
(2) To respond to Representative Henry Waxman's request for the
Commission to ``investigate and produce a study on the use of
agreements between and among pharmaceutical companies and potential
generic competitors and any other strategies that may delay generic
drug competition throughout the U.S.''; and
(3) To ensure that there are no roadblocks in the way of generic
competition for the substantial sales volume of brand-name drug
products coming off patent in the next several years.<SUP>51</SUP>
Brand-name companies seeking to protect the sales of brand-name drugs
may have an incentive and ability to enter into agreements with would-
be generic competitors, or engage in other types of activities, that
would slow or thwart the entry of competing generic drug products.
---------------------------------------------------------------------------
\51\ National Institute for Health Care Management, ``Prescription
Drugs and Intellectual Property Protection'' at 3 (Aug. 2000).
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In April 2001, the Commission received clearance from the Office of
Management and Budget (``OMB'') to conduct the study.<SUP>52</SUP> The
Commission issued nearly 80 special orders--pursuant to Section 6(b) of
the FTC Act <SUP>53</SUP>--to brand-name companies and to generic drug
manufacturers, seeking information about certain practices that were
outlined in the Federal Register notices that preceded OMB clearance to
pursue the study.<SUP>54</SUP> The Commission staff focused the special
orders on brand-name drug products that were the subject of Paragraph
IV certifications filed by generic applicants. Only those NDAs in which
a generic applicant notified a brand-name company with a Paragraph IV
certification after January 1, 1992, and prior to January 1, 2001, were
included in the FTC Study. The selection criteria resulted in 104 drug
products, as represented by NDAs filed with the FDA, within the scope
of the study and included so-called ``blockbuster'' drugs such as
Capoten, Cardizem CD, Cipro, Claritin, Lupron Depot, Neurontin, Paxil,
Pepcid, Pravachol, Prilosec, Procardia XL, Prozac, Vasotec, Xanax,
Zantac, Zocor, Zoloft, and Zyprexa.
---------------------------------------------------------------------------
\52\ The Commission was required to obtain OMB clearance before it
could begin the study because the number of special orders to be sent
triggered the requirements of the Paperwork Reduction Act of 1995, 44
U.S.C. Ch. 35, as amended.
\53\ 15 U.S.C. Sec. 46(b).
\54\ See 65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512
(Feb. 27, 2001).
---------------------------------------------------------------------------
Responses from the 28 brand-name companies and nearly 50 generic
applicants generally were completed by the end of 2001. The Commission
staff compiled the information received to provide a factual
description of how the 180-day marketing exclusivity and 30-month stay
provisions affect the timing of generic entry prior to patent
expiration. The FTC Study did not provide an antitrust analysis of each
of the types of agreements submitted, nor did it examine other issues
involved in the debate over generic drugs, such as bioequivalence or
the appropriate length of patent restorations under Hatch-Waxman.
B. Findings: Litigation Frequency and Outcomes
The FTC Study sought to determine the frequency with which brand-
name companies have triggered the 30-month stay provision by suing
generic applicants for patent infringement within the required 45-day
period. For 72 percent of drug products the study covered, brand-name
companies initiated patent infringement litigation against the first
generic applicant. There was no suit in the other 28 percent, and the
FDA has approved most of the generic products, thus allowing generic
entry to occur.
In 70 percent of the cases (53 of the 75 drug products) in which
the brand-name company sued the first generic applicant, either there
has been a court decision (30 of the 53 drug products) or the parties
have agreed to a final settlement without a court decision on the
merits of the patent infringement lawsuit (20 of the 53 drug
products).<SUP>55</SUP> In the other 30 percent of the cases (22 of the
75 drug products), a district court had not yet ruled as of June 1,
2002.
---------------------------------------------------------------------------
\55\ There were three additional suits that had other resolutions.
---------------------------------------------------------------------------
Of all the patent infringement cases (with the first generic
applicant) in which a court had rendered a decision as of June 1, 2002,
generic applicants prevailed in 73 percent of the cases (22 out of 30)
and brand-name companies prevailed in 27 percent (8 out of 30). Of the
decisions favoring the first or any subsequent generic applicant, there
were slightly more non-infringement decisions (14) than patent
invalidity decisions (11). The U.S. Court of Appeals for the Federal
Circuit overturned district court decisions of patent invalidity for
drug products in this study in only eight percent of cases.
In 62 percent of the cases involving litigation with the first and
second generic applicants, brand-name companies initiated patent
litigation in just five federal judicial districts--the District of New
Jersey, the Southern District of New York, the Southern District of
Indiana, the Northern District of Illinois, and the Southern District
of Florida.
C. Findings: Orange Book Patent Listing Practices
The 30-month stay provision of the Amendments protects brand-name
companies beyond their existing intellectual property rights. It has
received increased attention because it can have a significant impact
on market entry by generic drugs. Since 1998, two new phenomena appear
to be emerging in relation to patent listing practices that affect
patent litigation: (1) an increase in the number of patents listed in
the Orange Book for ``blockbuster'' drug products; and (2) the listing
of patents after an ANDA has been filed for the particular drug
product.
The Commission found that, for drug products with substantial
annual net sales, brand-name companies are suing generic applicants
over more patents. Since 1998, for five of the eight ``blockbuster''
drug products for which the brand-name company filed suit against the
first generic applicant, the brand-name company alleged infringement of
three or more patents. In comparison, in only one of the nine
``blockbuster'' suits filed before 1998 by a brand-name company against
the first generic applicant did the complaint allege infringement of
three or more patents.
In the future, patent infringement litigation brought by brand-name
companies against generic applicants that have filed ANDAs with
Paragraph IV certifications may take longer to resolve. The data
suggest that cases involving multiple patents take longer than those
involving fewer patents. As of June 1, 2002, for six out of the seven
cases that were pending for more than 30 months before a decision from
a district court, the brand-name company has alleged infringement of
three or more patents.
By the timely listing of additional patents in the Orange Book
after a generic applicant has filed its ANDA (``later-issued
patents''), brand-name companies can obtain additional 30-month stays
of FDA approval of the generic applicant's ANDA. In eight instances,
brand-name companies have listed later-issued patents in the Orange
Book after an ANDA has been filed for the drug product. For those eight
drug products, the additional delay of FDA approval (beyond the first
30 months) ranged from four to 40 months. In all of the four cases so
far with a court decision on the validity or infringement of a later-
issued patent, the patent has been found either invalid or not
infringed by the ANDA.
Moreover, several of the later-issued patents in the Orange Book
raise questions about whether the FDA's patent listing requirements
have been met. For example, several of the later-issued patents do not
appear to claim the approved drug product or an approved use of the
drug. The FTC Study describes three categories of patents that raise
significant listability questions--i.e., issues concerning whether the
listed patents fall within the statutorily defined class. These
categories include (1) patents that may not be considered to claim the
drug formulation or method of use approved through the NDA; (2)
product-by-process patents that claim a drug product produced by a
specific process; and (3) patents that may constitute double-patenting
because they claim subject matter that is obvious in view of the claims
of another patent obtained by the same person.
D. Recommendations: The 30-Month Stay Provision
To reduce the possibility of abuse of the 30-month stay provision,
the Commission recommended in its study that only one 30-month stay be
permitted per drug product per ANDA to resolve infringement disputes
over patents listed in the Orange Book prior to the filing date of the
generic applicant's ANDA. This should eliminate most of the potential
for improper Orange Book listings to generate unwarranted 30-month
stays. One 30-month stay period alone has historically approximated the
time necessary for FDA review and approval of the generic applicant's
ANDA <SUP>56</SUP> or a district court decision on the patent
infringement litigation that caused the 30-month stay. Thus, it does
not appear that, on average, one 30-month stay provision per drug
product per ANDA would have a significant potential to delay generic
entry beyond the time already necessary for FDA approval of the generic
applicant's ANDA or a district court decision in the relevant
litigation.
---------------------------------------------------------------------------
\56\ FDA approval of ANDAs submitted by first generic applicants
who were not sued by the brand-name company took, on average, 25.5
months from the ANDA filing date.
---------------------------------------------------------------------------
Limiting brand-name drug companies to one 30-month stay per drug
product per ANDA is likely to eliminate most problems related to
potentially improper Orange Book listings. Nonetheless, the Commission
notes that there is no private right of action to challenge an improper
listing, nor does the FDA review the propriety of patent
listings.<SUP>57</SUP> The lack of a mechanism to review or delist
patents may have real-world consequences. For example, the Commission
is aware of at least a few instances in which a 30-month stay was
generated solely by a patent that raised legitimate listability
questions. One proposal to deal with this problem has been to establish
an administrative procedure through which generic applicants could
obtain substantive FDA review of listability. At a minimum, it appears
useful for the FDA to clarify its listing requirements as the FTC Study
suggests. Another remedy that may warrant consideration would be to
permit a generic applicant to raise listability issues as a
counterclaim in the context of patent infringement litigation that the
brand-name company already initiated in response to a Paragraph IV
notice from the generic applicant. A challenge limited to a
counterclaim would avoid generating additional litigation.
---------------------------------------------------------------------------
\57\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------
One minor change to the patent statute, which would clarify when
brand-name companies can sue generic applicants for patent
infringement, would ensure that brand-name companies have recourse to
the courts to protect their intellectual property rights in later-
issued patents. To do this, Congress may wish to overrule a recent
district court decision, Allergan, Inc. v. Alcon Labs, Inc., 200 F.
Supp. 2d 1219 (C.D. Cal. 2002), which questions the rights of brand-
name companies to sue for patent infringement regarding patents
obtained or listed after an ANDA with a Paragraph IV certification has
been filed.
E. Findings: Patent Settlements and the 180-Day Marketing Exclusivity
Certain patent settlement agreements between brand-name companies
and potential generic competitors have received antitrust scrutiny in
recent years because not only might they affect when the generic
applicant may begin commercial marketing, but they also may affect when
the FDA can approve subsequent generic applicants after the first
generic applicant's 180-day exclusivity runs. Parties have debated
whether these settlements increased or harmed consumer welfare. Twenty
final <SUP>58</SUP> and four interim <SUP>59</SUP> agreements that
settled litigation between the brand-name company and the first generic
applicant were produced in response to the FTC's special orders.
---------------------------------------------------------------------------
\58\ One of these agreements is subject to litigation currently
pending at the FTC. See Schering-Plough Corp., et al., Dkt. No. 9297
(Initial Decision) (July 2, 2002) supra note 32.
\59\ For three out of the four interim agreements, see Abbott
Laboratories, Dkt. No. C-3945 (May 22, 2000) (consent order) (relating
to two drug products, Hytrin tablets and Hytrin capsules); Geneva
Pharmaceuticals, Inc., Dkt. No. C-3946 (May 22, 2000) (consent order);
and Hoechst Marion Roussel, Inc., Dkt. No. 9293 (May 8, 2001) (consent
order), all supra note 32.
---------------------------------------------------------------------------
The final patent settlements can be classified into three
categories:
(1) Nine of these settlements contained a provision by which the
brand-name company, as one part of the settlement, paid the generic
applicant (settlements involving ``brand payments'');
(2) Seven of the 20 settlements involved the brand-name company
licensing the generic applicant to use the patents for the brand-name
drug product prior to patent expiration; and
(3) Two of the settlements allowed the generic applicant to market
the brand-name drug product as a generic product, under the brand-name
company's NDA but not under not the generic applicant's own
ANDA.<SUP>60</SUP>
---------------------------------------------------------------------------
\60\ The remaining two settlements do not fit into any of these
three categories.
---------------------------------------------------------------------------
Fourteen of the final settlements with the first generic applicant
had the potential to ``park'' the 180-day marketing exclusivity for
some period of time such that the first generic applicant would not
trigger the exclusivity, and thus FDA approval of any subsequent
eligible generic applicant would be delayed. (If the 180-day
exclusivity for the first generic applicant does not run, the FDA
cannot approve subsequent eligible generic applicants.) The data from
the FTC Study suggest, however, that the 180-day exclusivity provision
by itself generally has not created a bottleneck to prevent FDA
approval of subsequent eligible generic applicants.
In addition to the final settlements with the first generic
applicant, brand-name companies entered final patent settlements with
the second generic applicant in seven instances. In six of the seven,
the brand-name company also had settled with the first generic
applicant.
F. Recommendations: The 180-day Exclusivity Provision
To mitigate the possibility of abuse of the 180-day exclusivity
provision, the FTC Study recommended that Congress pass the Drug
Competition Act <SUP>61</SUP> to require brand-name companies and first
generic applicants to provide copies of certain agreements to the
Federal Trade Commission and the Department of Justice. The Commission
believes that review of these agreements by these agencies will help
ensure that the 180-day provision is not manipulated in a way to delay
entry of additional generic applicants.
---------------------------------------------------------------------------
\61\ S. 754, 107th Cong. (2001) (introduced by Sen. Leahy).
---------------------------------------------------------------------------
Empirical research demonstrates that as additional generic
competitors enter the market, generic prices decrease to lower levels,
thus benefitting consumers. The FTC Study makes three minor
recommendations to ensure that, once a subsequent generic applicant is
ready to market, the 180-day exclusivity is not a roadblock to that
entrant's beginning commercial marketing. The recommendations are:
(1) To clarify that ``commercial marketing'' includes the first
generic applicant's marketing of the brand-name product;
(2) To clarify that the decision of any court on the same patent
being litigated by the first generic applicant constitutes a ``court
decision'' sufficient to start the running of the 180-day exclusivity;
and
(3) To clarify that a court decision dismissing a declaratory
judgment action for lack of subject matter jurisdiction constitutes a
``court decision'' sufficient to trigger the 180-day exclusivity.
v. conclusion
Thank you for this opportunity to share the Commission's views on
competition in the pharmaceutical industry. As you can see, the
Commission has been and will continue to be very active in protecting
consumers from anticompetitive practices that inflate drug prices. The
Commission looks forward to working closely with the Subcommittee, as
it has in the past, to ensure that competition in this critical sector
of the economy remains vigorous. In keeping with this objective, the
Commission will likewise endeavor to ensure that the careful Hatch-
Waxman balance--between promoting innovation and speeding generic
entry--is scrupulously maintained.
Mr. Bilirakis. Thank you very much, sir.
Well, all right, as I said earlier, we are going to take a
break, let's say, until one o'clock. We will recess until one
o'clock. Thank you.
[Whereupon, at 12:10 p.m., the subcommittee recessed, to
reconvene at 1 p.m., the same day.]
Mr. Bilirakis. Let's get started.
Dr. Crawford, do you believe that in some instances 180
days of generic exclusivity is not warranted? For example, for
some blockbuster drugs, more than 10 generic manufacturers line
up to challenge the brand patent, but only the first is
entitled to the 180-day exclusivity. I would ask, isn't this
proof that the market is working, there's enough of an
incentive?
Mr. Crawford. We have looked into that. It is, obviously, a
part of the law, but it hasn't been proved that it is an
incentive. So we think that it is working as intended, but we
don't see it particularly as an incentive.
Mr. Bilirakis. You don't see it as an incentive? Do you
believe that in some instances that amount of exclusivity is
not warranted?
Mr. Crawford. There are instances where you would question
it, but it has become part of the system. It is expected, and
to some extent it drives the system. So I think changing that
would need to be done very carefully.
Mr. Bilirakis. Very carefully?
Mr. Crawford. Yes, sir.
Mr. Bilirakis. Can you describe for us the lengths that
some generics go to just to be the company qualifying for that
extra exclusivity?
Mr. Crawford. Yes. There are instances that actually have
been recorded, and I can attest to the veracity of, where
people have lined up in the parking lot and spent the night,
some companies in limousines, and I am told, although I haven't
seen it, some in tents from time to time, waiting to be the
first one in line. I don't know what all techniques are used in
jockeying for first position, but it is something that is
coveted, to answer your question.
Mr. Bilirakis. How many patent attorneys does the FDA
presently employ?
Mr. Crawford. We don't have any.
Mr. Bilirakis. You don't have any?
Mr. Crawford. No, we do not.
Mr. Bilirakis. So you have already said it, I think, you
don't have the expertise to review patent listings to determine
whether a patent's claim lists the drugs, right? You just don't
have the expertise?
Mr. Crawford. We do not. We do not, and we also do not
presume to second-guess PTO in that regard. If they issue a
patent, that basically is a statement of the government. So we
do not and we have not seen the need to employ patent attorneys
and also a patent staff.
Mr. Bilirakis. Mr. Muris, in your recent report that,
frankly, we thank you so very much for and we appreciate, you
have recommended two narrow changes to the act, to the Hatch
Waxman Act. Did the FTC consider other reforms and then reject
them?
Mr. Muris. In drafting the report, we looked at a variety
of issues, but the report was premised on the idea that the
original Hatch-Waxman balance made sense, and we didn't
question that. What we sought to evaluate was whether the
evidence showed that subsequent problems had arisen. We thought
there were some problems, and, hence, we did make a few
recommendations for legislation.
Mr. Bilirakis. All right. Just to sort of close out my
portion of the questioning, I think you have heard the opening
statements, and I think you can see that we all feel that
reforms have to be made. The extent of the reforms, of course,
is where the arguments come in, but I like to think that on a
bipartisan basis, if we take into consideration fairness, if
you will, certainly the intent of the act, Mr. Waxman would be
helpful in that regard, and that intent, obviously, being to
allow generics to get on the market quicker, but at the same
time to not take away from the research and the innovations
that the industry and that all of our people need so very
desperately.
Having taken that into consideration, would you say that
the recommendations that you have made in your report, Mr.
Muris, is basically it? You have nothing further to recommend
to us, knowing that we probably will address this problem, and
try to address it as well as we can?
Mr. Muris. Again, let me make clear, when I am answering
these questions, I am answering them as an individual
Commissioner and not on behalf of the Commission. The report is
a report of the Commission. I believe it is comprehensive in
the sense that it addresses the problems that we found with
this empirical evaluation that we gathered.
Mr. Bilirakis. Okay. Dr. Crawford, anything you want to add
to that?
Mr. Crawford. No. I want to reiterate, as we said in the
testimony, we do not oppose the idea of a single 30-month
extension. That concept is something that is agreeable to us.
Mr. Bilirakis. Okay, but there aren't any other suggestions
that you would make to this committee in terms of changes that
should be made?
Mr. Crawford. Not at this time. We have in our testimony
several issues that we raised, but to make formal
recommendations we are not prepared to do that.
Mr. Bilirakis. I would urge you both to make those
recommendations to us on a timely basis, when you come to them,
if you do.
But, Mr. Waxman, to inquire.
Mr. Waxman. Thank you. Thank you, Mr. Chairman.
Dr. Crawford, PhRMA has argued that provisions of S. 812
undermine protection of significant innovations in already-
approved drugs by refusing to allow 30-month stays for late-
filed patents. They describe as examples of such innovations
new dosage forms, new dosing regimens, and changes in side
effect profile.
Isn't it true that every one of these changes to a drug or
its labeling would require a New Drug Application or
supplement?
Mr. Crawford. The way we are organized now, it would
require supplements at the minimum in those cases, yes.
Mr. Waxman. If it were more of an innovation than the ones
I have mentioned, it would require a New Drug Application,
wouldn't it?
Mr. Crawford. If there is a substantial change in
indications and also for the drug, it is a possibility. That is
rare, as you know, that we would require a total resubmission,
but it is possible.
Mr. Waxman. Isn't it true that once there is a New Drug
Application or supplement, the NDA-holder is once again free to
file all patents to cover that new drug?
Mr. Crawford. They are free to file, yes.
Mr. Waxman. So limiting 30-month stays to patents filed
near the time of NDA approval wouldn't eliminate protection of
any of these innovations, would it?
Mr. Crawford. Not in and of themselves, no.
Mr. Waxman. What kinds of changes to already-approved drugs
could an NDA-holder make that would constitute an innovation
but wouldn't require a New Drug Application or supplement?
Mr. Crawford. In terms of the usage of the drug,
particularly?
Mr. Waxman. Any changes to an already-approved drug.
Mr. Crawford. Minimal things like changing the coloration
or extension of the usage language. It would be cosmetic or
minimal things.
Mr. Waxman. You have testified that FDA has neither the
expertise nor the authority to challenge patent listings by
NDA-holders, and the result of this position is that NDA-
holders can file patents that do not cover the approved drug
and, thus, do not meet the statutory requirements for filing
without challenge by the FDA, is that correct?
Mr. Crawford. Yes.
Mr. Waxman. If the NDA-holder who has improperly filed a
patent then sues a generic competitor for infringement of that
patent, the NDA-holder gets an automatic 30-month stay of
approval regardless of the merits of that patent, isn't that
correct?
Mr. Crawford. Yes.
Mr. Waxman. One might think that this situation demands
that we provide some avenue for generic companies to challenge
improper patent listings. The FTC report says that we should
consider providing for such an avenue. I understand that PhRMA
has suggested, however, that there is no need to let a generic
company challenge patent listings in court because in any case
where a filed patent does not cover the approved drug FDA can
bring a criminal action against an NDA-holder for filing a
false statement with the government. Now this puzzles me.
Is it your position that FDA does have the expertise to
determine whether a patent covers an approved drug for purposes
of bringing such a criminal action but does not for purposes of
challenging the filing of the patent?
Mr. Crawford. Mr. Troy is going to answer that.
Mr. Troy. Congressman Waxman, what often happens is at the
front end, it is not really clear whether or not what is being
made is or is not a false statement. It is possible that after
litigation it would become clear, but, as you well know and I
think as you perceptibly pointed out in your comments, these
issues are very, very, very carefully lawyered. So, basically,
PhRMA companies are sophisticated enough not to sign something
that is sufficiently false that we could prove beyond a
reasonable doubt in court.
Mr. Waxman. So the probability that FDA will be bringing
criminal actions against patent-filers for false statements is
pretty near zero, isn't it?
Mr. Troy. I think it is quite low because, again, these
things, as you say, are quite----
Mr. Waxman. Have you ever filed a criminal action?
Mr. Troy. No, we have not.
Mr. Waxman. Okay. Is it your position that generic
competitors should have no remedy for improper patent-filings
that could result in 30-month stays, Dr. Crawford?
Mr. Troy. Our view is that you can--proper resolution of
this under Hatch-Waxman is for the courts. The courts have the
expertise about patents and, as we understand the statute, the
point is, if someone verifies the listing, then it is really
for the courts to resolve. I think a court might have authority
to require a company to delist----
Mr. Waxman. Do you think that there ought to be a remedy
for improper patent filings that a generic competitor can
challenge, so that they don't get a 30-month delay?
Mr. Troy. Not that would require FDA to get into overseeing
and judging the patent listings. We don't have the expertise to
do that or the authority.
Mr. Waxman. Mr. Chairman, will we have a second round with
this?
Mr. Bilirakis. I don't contemplate it.
Mr. Waxman. May I ask----
Mr. Bilirakis. Let's see how we go.
Mr. Waxman. Okay, but at some point I would like to ask
that we have the opportunity to submit questions in writing for
responses in writing.
Mr. Bilirakis. We will definitely do that. Thank you.
Mr. Deal, to inquire.
Mr. Deal. We have heard reference made in your statements
to the fact that there are anti-competitive agreements
sometimes among brands and generics, and generics and generics.
Which of those seem to be the most frequent, the anti-
competitive agreements with brands and generics or generics
themselves with each other?
Mr. Crawford. Brands and generics.
Mr. Deal. What action, if any, can be taken with regard to
that?
Mr. Crawford. By FDA?
Mr. Deal. Yes.
Mr. Crawford. Almost nothing.
Mr. Deal. Mr. Muris, what about with your agency?
Mr. Muris. Under certain circumstances, those agreements
can violate the antitrust laws. The Commission has brought four
cases, three involving agreements between brands and generics,
and one involving an agreement between a generic and another
generic. We have also filed an amicus brief in another case,
but it didn't involve an agreement. It involved unilateral
activity.
Mr. Deal. Do you also become involved in the generic-
versus-generic cases?
Mr. Muris. Yes.
Mr. Deal. Have you filed any actions there?
Mr. Muris. We have had one case there, yes.
Mr. Deal. Okay. Explain the relationship. Do you simply ask
the Justice Department to initiate action or how does the
process work?
Mr. Muris. No, we have independent authority. Most of the
cases that we bring, we bring administratively as opposed to
going directly to Federal court. This is what we have done in
the cases that involve these branded and generic drug issues.
Of the four cases that have been filed, three of them were
settled with consent agreements.
Mr. Deal. Is that an area where there needs further
statutory authority to act in that area or do you think there
is adequate remedy?
Mr. Muris. We think there is adequate substantive authority
in terms of the antitrust laws, although there are some very
tricky issues. We do recommend that the House pass the bill
that the Senate passed, which would require notification of
these agreements to the FTC and the Department of Justice.
Mr. Deal. Mr. Muris, does the FTC ever consider restricting
pharmaceutical patent rights, which I understand some witnesses
are going to advocate here today? Do you support any
limitations on manufacturers' patent rights?
Mr. Muris. Under the antitrust laws there are situations
where patent rights may be abused. The most prevalent kind of
cases, however, involve cases where there was some problem in
obtaining the patent rights or in this area where patents are
improperly listed in the Orange Book.
Mr. Deal. You recommend only one 30-month stay per drug.
Others, of course, take an opposite position. What is the basis
for that? Is it just simply that you think that is a way to
game the system with additional extensions or what?
Mr. Muris. I think it is important to identify what we mean
by a late listing. Mr. Waxman suggested that late listing was
after the NDA. When we are talking about a late listing, we are
talking about after the ANDA is filed. Our report identified
eight instances where that happened and where a subsequent 30-
month stay was allowed.
In each instance, there are serious issues about the
validity of listing the additional patents in the Orange Book.
We think that, although the number is not large, the pattern is
recent; the amount of commerce is very significant. We think
that there is nothing in Hatch-Waxman, as it was first passed
and as it was implemented, for most of its history, that
indicates support for these multiple 30-month stays. Because of
the problems we have seen with them, we recommend that just one
30-month stay be permissible.
Mr. Deal. Did I understand, though, that in those cases,
that maybe only one of them ran the full length of the
additional stay period? Were they cut short of the full
extension period?
Mr. Muris. Yes. The additional stays ran from 4 to 40
months, but we are talking very significant amounts of money
here, even on a per-month basis.
Mr. Deal. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Mr. Brown, to
inquire.
Mr. Brown. Thank you, Mr. Chairman.
Dr. Crawford--I am sorry, Mr. Muris, I would like to start
with you.
It is my understanding that drugmakers that own patents are
protected by preliminary injunctions and by treble damages. The
30-month stay is an extra layer of protection that has been
subject to gaming, obviously, as you said in your report, and
it provokes litigation, as you said in your report. Why do you,
then, recommend maintaining one 30-month stay per drug?
Mr. Muris. Again, we started with the premise that the
original Hatch-Waxman balance made sense. We asked, was there
any evidence that we had that indicated that there were
problems? In terms of the 30-month stay, if you look at cases
where there was no challenge at all, there was a period of
about 25\1/2\ months before FDA approval. In terms of district
court litigation, again, it took about 25\1/2\ months to obtain
a district court decision of approval.
So the 30 months does not cause a problem in itself and, in
fact, approximates what would happen without the court
challenges. It was the multiple 30-month stays where we thought
that there was significant gaming and the significant problems.
Mr. Brown. Can that 25\1/2\ months be accelerated? Can that
be shortened? If you were not recommending one 30-month stay
per drug, can that 25\1/2\ months be speeded up? Can the
approval time ultimately be speeded up?
Mr. Muris. Yes. The approval occurs at the FDA, and our
report does not address that possibility. We just didn't study
it.
Mr. Brown. All right, Dr. Crawford, you have opposed S.
812, as you said, and as the President had said. You have,
however, the FDA has acknowledged, the President has
acknowledged that there is a gaming of the patent system, that
there is abuse, that there are problems here, that 32 attorneys
general have said we need to do something; the FTC says we need
to do something.
What is the FDA's suggestion? What do you propose to fix
this problem that you, in fact--even though you have opposed S.
812, there can be other avenues--what do you propose to correct
this?
Mr. Crawford. Actually, what we are indicating is that this
is not something that is in the usual ambit of what FDA does.
We oppose the bill because of the intellectual property rights
compromise and various other aspects.
This particular thing of gaming with the 30-month stays and
interactions between the pioneer and the generics would
normally fall within the purview of the Federal Trade
Commission, and not of the FDA.
Could we ask Mr. Troy to add a bit to that?
Mr. Troy. Thank you. Let me say three things. First of all,
there is game playing. There is game playing on both sides. The
generics engage in a fair amount of game playing that we see,
and we in the Office of Generic Drugs, in the Office of Chief
Counsel, spend an enormous amount of time trying to enforce the
balance of Hatch-Waxman and to apply it--it is not easy--
according to its terms. We try, to the extent possible within
the limits of the law, to cut down on game playing. That is
point one.
Point two, I think there are two other things that I think
we can do at the FDA and are looking at doing. The second is we
can clarify, as the FTC suggested, we can clarify that there
are certain patents that we think should not be listed in the
Orange Book. We can provide more guidance on that, and we
intend to do so.
The third thing that we are looking at doing, and that I
have had some productive meetings with Kathleen Jaeger of GPhA
about, is looking at a beefed-up declaration, meaning of the
kind that is submitted by the innovator to provide additional
information about the patents that they are claiming and the
patents that they are listing. Those are things that are, I
think, well within our administrative authority, and they are
things we are actively considering and looking at doing.
Mr. Brown. So, Dr. Crawford, can you do those things
administratively and do you think correct this problem short of
a statutory change?
Mr. Crawford. These are the authorities we have. We
actually do that as seriously as we can. There is one other
aspect. There is another aspect, which is that if a patent that
is filed seems to be one that is objectionable and that may be
too widely drawn to fit what we normally expect, we have sent
letters to the firm reminding them that their declaration that
we enter into the Orange Book administerially--that is, we just
put it in--but in the evaluation we have sent letters saying
that you might want to reexamine this patent and what it is----
Mr. Brown. But they still have gotten the 30-month stay?
Mr. Crawford. Yes.
Mr. Brown. Okay, so the letters really don't mean very
much, except maybe they hurt the company in court? But the 30-
month stay, the clock still begins to tick?
I have run out of time, Mr. Chairman, and I apologize for
that.
I do want to say, though, that, first of all, you oppose
this bill. Second, you say that it is not in the purview of the
FDA to make suggestions on what to change statutorily. You are
part of the administration. You are both Presidential
appointees. I would hope the Bush Administration would come
forward with some suggestions on fixing this, if they are not
going to support the Brown-Emerson bill--Ms. Emerson, a
Republican, was here earlier sitting in the front row, I
believe--or any of these other pieces of legislation. I would
hope that the administration, through you or through HHS or in
some other way, would say what they do support and do advocate.
Mr. Crawford. Let me reiterate that we do favor the
imposition of a single 30-month stay, not multiple----
Mr. Brown. You support the FTC's recommendations?
Mr. Crawford. Yes, we do.
Mr. Brown. Okay, that has not been said before, has it?
Mr. Deal [presiding]. The gentleman's time has expired. Mr.
Shimkus.
Mr. Waxman. Mr. Chairman, I ask unanimous consent for 30
seconds to get a clarification on that.
Mr. Deal. Without objection.
Mr. Waxman. If you support limiting it to one 30-month
stay, isn't that what the Senate bill does?
Mr. Crawford. I think it has more in it than just that.
Mr. Waxman. But that part you support?
Mr. Crawford. We do, yes.
Mr. Brown. To fill up the rest of the 30 seconds, I just
wonder why you didn't, when you opposed S. 812 before the
Senate vote, why you didn't weigh in that way saying, ``We
support what the FTC does, but some of these other changes in
S. 812 went too far or don't go far enough.'' I would just put
on the record that I would hope that you would take that
position.
Mr. Crawford. Thank you.
Mr. Deal. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman.
I am going to throw up a timeline and a chart. I am
actually going to do it for both panels and probably will not
ask too many questions of this panel on this.
As many of the folks here who are observing this know, I
don't serve on this subcommittee. I am honored that you let me
be in this process.
But what I am going to ask both panels is, the first
question is: Based upon your involvement, is this a relatively
accurate depiction of what goes on? I know the FDA, you are
just checking whether the drug is safe for human consumption.
We have you here at the New Drug Application, the New Drug
Application approved, and that would be you. That is when it
gets placed into the Orange Book, is that correct?
Mr. Crawford. Yes.
Mr. Shimkus. Do you actually have, it is actually a big
orange book?
Mr. Crawford. Actually, it is both electronic and published
with an orange cover.
Mr. Shimkus. Okay, good. I was hoping that it was just not
a three-ring binder that we are sliding papers in.
Then you are also, FDA is also involved at the Abbreviated
New Drug Application, is that correct?
Mr. Crawford. That is correct.
Mr. Shimkus. Now, Mr. Muris, the patent infringement suit
comes by the generic drug companies saying a lot of things.
They are saying this shouldn't be patent-protected and we
should have access to sell this drug now, is that correct?
Mr. Muris. Yes. There is what is called a paragraph IV
certification, where the generic applicant is claiming either
the patent is invalid or the generic does not infringe.
Mr. Shimkus. So if that occurs in that timeline and then,
of course, the patent infringement suit is filed, that is the
whole debate of the 30-month stay, is that correct? I mean,
when that is filed, you get the 30-month stay?
Mr. Muris. Yes, unless there is a court decision earlier.
Mr. Shimkus. Okay. Now that is coming before the end of the
original patent term for the most part?
Mr. Muris. Yes. Obviously, this whole issue and our whole
study was directed to the issue of prior to patent expiration.
Mr. Shimkus. Have there been cases where, on the whole
debate we just had on multiple 30-month stays, have there been
multiple 30-month stays that still fall short of the original
patent term of 20 years?
Mr. Muris. Yes. Yes.
Mr. Shimkus. Do we know how many?
Mr. Muris. There must be. Of the eight cases that we have,
the whole issue of paragraph IV becomes irrelevant once the
stay expires. Thus this area involves through the life of the
patent. If you are talking about beyond the life of the patent,
you could file what is called a paragraph III certification.
Mr. Shimkus. Okay. If----
Mr. Muris. I'm sorry, go ahead.
Mr. Shimkus. No, that is all right. If, the way I have
talked to, again, many folks here, and as I have been trying to
struggle with this understanding chemical compounds, if you had
a basic chemical compound and it got a patent application and
it got filed and it got approved, and you said that formula,
the patent term for that formula is 20 years, if we would craft
legislation that just said, at the end of the patent life, 20
years for that chemical compound, it is over, wouldn't that
solve a lot of problems and a lot of bureaucracy and a lot of
court cases?
Mr. Muris. I think part of the reason underlying Hatch-
Waxman is that there are a variety of patents and a variety of
complexities. Certainly allowing the generics to cut through a
lot of the drug approval process, which Hatch-Waxman allowed,
in fact, dramatically increased generic entry.
Mr. Shimkus. That is the term ``bioequivalency''? Is that
what we are referring to, the ability that generics, because
they in essence--I don't know the proper terminology--get the
information, the research that has been done, through the
pharmaceutical research and development, they can say, ``Okay,
that's been done. We don't have to do that. Then we can jump up
here.''?
But the question is still the same. Then it marries up, as
we tinker with reformulation. And I am going to ask this to the
next panel; I am going to use the same chart. If a patent is
filed and approved for a chemical compound and patent law says
20 years, except for pediatric exclusivity, which we through
public policy have said is a good thing to extend, why not just
say it is done? Why not prohibit the immediate review and the
post-review and these 30-month stays and just go to the end of
the patent?
Mr. Waxman. Would the gentleman yield to me?
Mr. Shimkus. Yes, I would.
Mr. Waxman. The idea of the law was that there is time
spent at FDA to get a drug approved. A lot of the companies
felt that, since they can't market their product until FDA
approves it, that they should have restored to them part of the
time at FDA. We felt that was a wise public policy measure to
take because we wanted to give every encouragement for the
investment.
But we do want in that law the balance. At the end of the
patent period and the patent restorations we want competition.
We want generics to be approved and then to be able to go on
the market.
What we have seen is something we never envisioned when the
law was adopted. The 30-month delay is different than what
happens ordinarily in patents. Ordinarily in patents if a
competitor goes out and sells a product, if you feel he has
violated your patent, you sue him and you get treble damages.
You can't stop him, oftentimes you can't stop him from
infringing, but you can get tremendous damages.
In 1984, a lot of the brand-name companies said to us, ``We
are not sure that if we sue for treble damages these generic
companies will be viable enough to pay us the damages. So we
would like to have the assurance that, if there is an
infringement of the patent, we will have a stop of any
competition for 30 months.''
What has happened is that these generic companies are
viable. They could recover damages. I don't think any of these
patent infringement lawsuits have ever succeeded. But the
consequence of that 30-month stay has meant that in recent
years, not in the beginning but in recent years, they can just
file a frivolous lawsuit and then stop a generic from going on
the market. Then they can come in with another frivolous patent
and follow it with a lawsuit and get even a further extension--
--
Mr. Shimkus. If I can reclaim my time, though, going back
to the chart, if there are cases where there are duplicate 30-
month stays, that stills fall short of the original patent
term?
Mr. Waxman. Well, if the gentleman would yield, the time is
restored, so that the original patent term is in effect
extended to these under that time.
Mr. Shimkus. Yes, this is really for infantrymen, a
simpleton, this is--I am trying to get a handle on this, and I
appreciate my colleague's patience. I will ask this again in
the next panel.
I yield back my time.
Mr. Deal. Mr. Pallone.
Mr. Pallone. Thank you.
I have to say, Dr. Crawford, I am very frustrated by the
testimony today because I don't think you are really being
helpful in terms of telling us what needs to be done here. Let
me just outline.
I mean, I see this FTC report as being extremely helpful
and basically saying that there is abuse of the system with the
30-day stays, with the Orange Book listings. Then Mr. Troy
says, ``Well, there's gaming on both sides of the aisle or both
sides, generic and''--not the aisle, I guess that is wrong--you
know generics and brand-name, almost like you are trivializing
the problem that we have been highlighting here with the Orange
Book listings and the 30-day stays.
Then, Dr. Crawford, you say that the FDA can't really
address the abuses outlined in the FTC report about the Orange
Book listings. Then, with Mr. Waxman, you said that the agency
doesn't have the resources or expertise to review patents, and
even with additional funding, you are not going to be able to
obtain the resources. Then you come and tell us, ``Well, we are
not in favor of passing S. 812 because it is going to stifle
innovation.''
I mean you are either an expert or you are not. I mean you
are either going to tell us that there is something to be done
here to correct these abuses that the FTC report has outlined
on both sides--I mean, S. 812 addresses the generic abuses as
well as the brand-name abuses, if you will. But, you know, it
can't be both ways. It seems to me you are almost like saying
two things at the same time.
You either have the expertise to tell us that S. 812 is not
a good idea because it is going to stifle innovation and then
you can't come back and tell us, ``Well, we don't have the
expertise to deal with addressing the abuses.'' Why do you feel
that S. 812 is going to stifle innovation? It seems to me that
it doesn't do anything that is damaging to the patent system. I
don't understand that statement at all, and I don't understand
how you are saying both of these things at the same time.
Mr. Crawford. I am going to ask Mr. Troy to follow up, but
what I had reference to is that FDA basically does not have
expertise in patent law.
Mr. Pallone. Right, but then you tell us we shouldn't pass
S. 812.
Mr. Crawford. Yes.
Mr. Pallone. So why, if you don't have the expertise, why
are you telling us that?
Mr. Crawford. I can give you two things. One is the
original statement that the administration put out, which is
very brief. That is, we support steps to encourage fair
competition and appropriate use of generic drugs and recognize
that some adjustments to current law would improve the fair
entry of generic substitutes into the market and prevent future
abuses of the patent law.
Mr. Pallone. What do you want us to do? You say that S. 812
is no good. Why is it----
Mr. Crawford. I have already said that one thing that we do
not oppose is a system where there is only one 30-month
extension. Presently, there can be multiple 30-month
extensions.
Mr. Pallone. But tell us why you think that S. 812 is going
to stifle innovation. Why is there a problem? It clearly
addresses the problems on both sides that the FTC report brings
up. So why is it a problem? Why isn't it a good thing? Because
you say you don't have the power to address these abuses.
Mr. Crawford. Right.
Mr. Pallone. We are going to fix it by passing the Senate
bill, but then you tell us it is not a good idea and you don't
have the expertise, but you are telling us anyway.
Mr. Crawford. I am going to ask Mr. Troy to make some
specific references to our testimony, and then I will follow up
with a more----
Mr. Pallone. But I want an answer to my question about why
we shouldn't pass S. 812.
Mr. Crawford. That is what he is going to give you.
Mr. Pallone. Okay.
Mr. Troy. The problem with S. 812, Congressman Pallone, is
not that it would restrict multiple 30-month stays. There are a
host of other things that are unfortunate add-ons to S. 812,
and I will give you two specific ones.
Mr. Pallone. So you don't have a problem with the aspect,
with the 30-day stay?
Mr. Troy. The administration never said it had a problem
with that.
Mr. Pallone. Okay, keep going.
Mr. Troy. One is that it would allow any generic
manufacturer to sue sponsors to correct or delete patent
listings, and we believe that that provision would encourage
lawsuits.
The second, and much more important, problem is that, if
you fail to file certain things within timeframes, it would
permanently bar patent-holders from bringing suits for patent
infringement. It is one thing to target a bill that focuses on
the later-listed patents and the 30-month stay issue, the
multiple 30-month stay issue.
What S. 812 does is it goes beyond that and seems to impose
barriers and seems to attack the so-called good patents, the
upfront patents, the $800 million patents----
Mr. Pallone. I am running out of time. Aren't those a
little specious by comparison to the good that is done in
addressing the FTC problems that have been raised?
Mr. Troy. The FTC does not call for any of those additional
things that are in S. 812.
Mr. Pallone. No, I understand, but I mean the things you
are mentioning pale by comparison to the good that would be
achieved.
Mr. Troy. With all due respect, Congressman Pallone, it
seems to me that, if you end up forfeiting patent rights, not
the successive 30-month stay but forfeiting the patents, and
these are the patents that go to the NDA, not the later-listed
patents, that that could have very dramatic consequences for
innovation. That is the problem.
Mr. Waxman. Would the gentleman yield?
Mr. Pallone. Yes.
Mr. Deal. The gentleman's time has expired.
Mr. Waxman. I ask unanimous consent the gentleman be given
1 additional----
Mr. Deal. Let's follow regular order.
Mr. Waxman. I asked unanimous consent. If somebody
objects----
Mr. Deal. Are there objections?
[No response.]
All right.
Mr. Pallone. I yield to the gentleman.
Mr. Waxman. Just to clarify the point, Mr. Troy, you are
saying you don't want the generics to be able to do anything to
delist a patent they don't think is valid because you think it
is going to encourage lawsuits. But the whole idea of the 30-
month stay, based on a lawsuit by the brand-name companies,
encourages frivolous lawsuits on their part.
In my point of view, as the original author of this bill, I
don't even think we ought to have one 30-month stay. The reason
for it originally doesn't exist today. But if you are talking
about encouraging lawsuits, if you can't judge whether a patent
is valid or not, why not let a generic company file a lawsuit
to delist it and let the courts decide, because you don't have
the capability at FDA to decide this issue?
Either way, it is going to be a court deciding it. Either
way, you think the lawsuits are not going to be meritorious;
let a court decide it.
Mr. Pallone. Before the time runs out, could I ask you to
send us something, with the chairman's indulgence, to send us a
followup about those issues that you mentioned with regard to
S. 812? I would really like to see you provide more details
about those comments that you made, if you could.
Mr. Troy. I think what I am saying is in the statement of
the administration policy----
Mr. Pallone. Okay.
Mr. Troy. [continuing] and we would be happy to send you
that.
Mr. Pallone. Okay.
Mr. Troy. It is one thing, Congressman Waxman, if I may,
for the consequence to be the loss of a successive or even
first 30-month stay. That would be one thing. But if they don't
list things properly, they lose the opportunity to get even a
first 30-month stay. I am not saying that the administration
endorses that, but that is one consequence or remedy.
But the remedy that S. 812 imposes would be the loss not
just of the 30-month stay, but of the ability to enforce the
underlying patent. The intellectual property rights themselves
would be at stake and would be at issue. That is the problem.
Mr. Waxman. I don't see that. I don't see it. I know my
time has expired, but I think you are offbase on that. I think
you are wrong.
Mr. Deal. Mr. Burr.
Mr. Burr. I thank the Chair.
I want to take this opportunity, Dr. Crawford, to say
welcome, as well as to our witness from the FTC.
It is not too tough to believe that we would have
difficulty trying to interpret what Hatch-Waxman did because,
in fact, it was a political document. It was as much a
political document as it was a policy statement. At the end of
a day in a room there was give and take to try to meet the
needs and define the balance that, Dr. Crawford, you have
mentioned as an agency you try to maintain.
That is very difficult to maintain over time because times
have changed. There are more generic manufacturers at the gates
ready to produce products to fill the need in the pipeline, and
there are clearly more New Drug Applications this year than
there were last year that do seek some type of patent
protection.
I guess my first question to you is, if we eliminated
patent protection for the pharmaceutical or biologics or
medical device industry, what would happen?
Mr. Crawford. Well, what would happen is what has happened
in many other countries. That is that pharmaceutical research
and development would decline.
We have talked earlier in this hearing about prices and
price schedules, and how drugs are cheaper in certain other
countries. Those are, for the most part, countries that do not
develop drugs. The world depends on the United States, the
viability of the United States pharmaceutical research and
development establishment.
One of the reasons that it is able to do what it does to
regularly supply the world not only with effective drugs of
longstanding, but new, breakthrough drugs that really mean
something to individual disease sufferers is because of the
equanimity that has been imposed by bills such as Hatch-Waxman
in its original form and also because of FDA's steady drive to
do a more effective and efficient job of approving these drugs
and getting them on the market.
Mr. Burr. In fact, in doing that, the quality of life for
patients across this country has been improved, and in many
cases we have shifted what was before limited options, some
surgical, some inpatient, and we have defrayed that cost. Even
though pharmaceutical cost has increased, the options that we
have supplied to patients are that much more. That is
beneficial, and I think most in this country agree.
The debate today is on a very small piece of the pie. We
would all love to see more generics to the marketplace faster,
but I think we all agree not until the patent life is over.
Now both of our witnesses today have talked about some
people who want to game the system. I want to go to the FTC
study that was released in June. I think in that study it
suggested that since 1992, if my numbers are correct, there
were 8,000 Abbreviated NDAs filed. In fact, in that same period
there were 104 NDAs and ANDAs with paragraph (IV)
certifications, meaning there were 8,000 generics that wanted
to come to the marketplace.
There are 104 that fall into this category that we are here
discussing today. Twenty-nine of the NDA-holders didn't
question it. So that left 75 that NDA-holders sued on. Of those
75, 53 of the NDAs have had resolution, two where the patent
expiration expired before the litigation. Twenty cases were
settled. Twenty-two generic applications were won. Eight brand-
name companies won. The NDA was withdrawn before litigation
resolved in one.
On the other side of the coin, there were 22 where the 30-
month stay and/or additional-month stays went into effect.
Fifteen are in the initial 30-month stay period. Seven--seven--
are in additional 30-month stay periods because the initial 30-
month stay has expired, less than one-tenth of 1 percent of the
applications that have been filed.
Mr. Muris, am I correct with your chart?
Mr. Muris. Yes, but I think the relevant universe is much
smaller. I think the relevant universe that we studied, in
fact, were the 104 brand-name drug products since 1992. Of that
universe, we found 14 instances where there was an agreement
with the potential to park the 180 days, which could be a
problem, and we found eight cases of these late-listed patents
that certainly appear to be problems.
Thus, I certainly agree with the implication that in the
overwhelming majority of instances there aren't problems, but I
think the relevant denominator is somewhat smaller.
Mr. Burr. My time has run out, but I would say that on a
number of those that you just gave a number to, Dr. Crawford's
and the FDA's intent to try to look at those patents and I
guess evaluate whether they were substantial enough to
contribute to the health of the individual and to the efficacy
of the product, an enhancement, a true enhancement other than
cosmetic, would, in fact, solve the majority of the numbers you
just talked about.
I believe the hope of every member of this committee is to
develop a way for generics to come in a quicker way, in a more
abundant way, to where there's competition throughout the
marketplace. I thank both of you for helping us get there.
I yield back.
Mr. Deal. Dr. Norwood.
Mr. Norwood. Thank you very much, Mr. Chairman.
Dr. Crawford, nice to see you again.
Mr. Crawford. Good to see you, sir.
Mr. Norwood. Thank you for being here with us.
Mr. Crawford. Thank you.
Mr. Norwood. Over the last 20 years, we have gone from 80
percent brand and 20 percent generic to 50 percent generic,
which is probably a good thing. Tell me just your feelings
about what would happen to those numbers should we pass the
Senate bill and it becomes law.
Mr. Crawford. Well, I think we would lose ground. It is not
possible to say what the percentage change would be. One is
tempted to say we might go back the way we were before Hatch-
Waxman, but we don't have enough evidence to make a statement
like that. But it is my opinion that we would lose ground.
Mr. Norwood. When you say, ``Go back like it was before we
had Hatch-Waxman,'' does that mean we would go back and we
would have 20 percent brand and 80 percent generic?
Mr. Crawford. No. No, it doesn't mean that. I can't predict
that. But I think that what would happen is, if there is a
compromise of intellectual property rights such as Mr. Troy
outlined, what happens in cases like that is a company has to
determine whether or not they are going to pursue the approval
of a product or a category of products or whether or not they
would keep producing what are called ``me-too'' products, that
is, those that are already on market in slightly different
forms, as you well know.
So I think there would be a compromise of the robust R&D
environment that we have seen over the last few years, a great
deal of which has been due to Hatch-Waxman.
Mr. Norwood. Well, I get the feeling that those who would
like the Senate bill just as it is like that idea because they
think that we will get a great deal more generics to the
market. I mean, that is what I sense out of this conversation
that I hear for people who are for it.
I keep wondering how the patient would fare in that, if in
fact this bill allowed the market to change to the point where
75 percent of the drugs--and, clearly, that has to relate to
R&D is what I mean by the patient and innovative new drugs.
Can't any of us even speculate a little bit? Might not that
bill as it is almost reverse what has happened in Hatch-Waxman
over the 20 years?
Mr. Crawford. I would say one thing that it would do, in my
opinion, as you know, for every generic drug and every
application or certification under Hatch-Waxman there is a
referenced innovator drug. There is a pioneer drug that is on
the market and that was produced by this system that I
described a few minutes ago.
Eventually, if there is a tamping back of the R&D
enterprise in this country, and I don't see any other country
able to make up for that slack, there won't be as many generic
drugs because there will be nothing to reference. Any viability
in the generic drug industry would largely be a representation
of imitations of products that we already have on the market.
So, in order to have a viable generic drug industry and one
that really does good for the sick people of this country, you
need a viable R&D enterprise.
Mr. Norwood. So might not we be where we need to be without
passing this bill?
Mr. Crawford. Without passing----
Mr. Norwood. Passing the Senate version.
Mr. Crawford. [continuing] the Senate bill?
Mr. Norwood. Yes. Might not we be taking some risk in
passing that bill?
Mr. Crawford. Yes.
Mr. Norwood. Mr. Troy, Mr. Waxman disagreed with you on S.
812 and patent infringement and changing the patent laws. Were
you giving a legal opinion?
Mr. Troy. Not really. I was reading from page 10 of S. 812
which says, ``No claim for patent infringement,'' that says,
``An owner of a patent with respect to which a holder of an
application under subsection (b) of 505, if they fail to file
information on or before a date required, shall be barred from
bringing a civil action for infringement of the patent against
a person that.''
So the point is, if you fail to file the requisite
information or a court determines that you didn't file the
requisite information, then you lose the ability to have, to
quote the title, ``No claim for patent infringement.'' Later,
on pages 15 to 16, it says, ``Failure to bring an infringement
action,'' and ``you are barred from bringing a civil action for
infringement of the patent in connection with the development
and manufacture, use, offer to sell.''
The point is it is not just about eliminating one 30-month
stay per NDA, as the FTC recommends. What S. 812 does is it
goes far beyond that, and it would compromise intellectual
property rights in a manner that is damaging, as you suggest
and as you propose and as you are talking about.
Mr. Norwood. Mr. Chairman, I see the red light. I am sure
not through, but I will thank you for the time.
Mr. Deal. Mr. Stupak.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Muris, what can you tell me about these late-filed
patents? We have heard that some of them don't actually cover
the approved drug. What about the late-filed patents that do
appear to cover the approved drug? PhRMA would argue that they
cover important innovations that must be protected, but in the
FTC's experience how often do they represent important
innovations?
Mr. Muris. Our complaint and problem with these eight late-
listed patents on eight drug products deals with the
listability. We think that patents on all eight drug products
could be the subject of non-frivolous challenges, and in four
of them, courts have ruled that the patent was either invalid
or not infringed. In a fifth, we have a consent agreement where
we have successfully challenged a late-listed patent.
We therefore think there are serious problems with late-
listed patents. Again, by late-listed, I mean our definition,
which is different than S. 812's definition. Our definition
would be after the ANDA.
Mr. Stupak. Sure. Well, the possibility that significant
delays do occur, and I think we have seen somewhere from after
the 30 months it was 4 months to as many as 40 months----
Mr. Muris. Yes.
Mr. Stupak. [continuing] before the issue is resolved, so
you have a lot of delay. Based upon either it is late-listed or
improperly filed patents, it would suggest at least that we
need some mechanism to challenge these patent listings. Is
there currently a viable method for generics to challenge
questionable patent listings? Do you agree or disagree that
there should be some mechanism involved?
Mr. Muris. There is not. In fact, the courts have held
there is not. But we recommended a narrower right of action
than S. 812. We recommended that the generic be allowed to file
a counterclaim challenging the listing. We think, if there
wasn't a suit against the generic in the first place, there
wouldn't be a problem. So we think the counterclaim would take
care of the issue.
Mr. Stupak. Okay. Dr. Crawford, if I may, along these lines
of questioning then, who is responsible for assuring that
patents are properly listed in the Orange Book?
Mr. Crawford. We enter in the Orange Book on an annual
basis with an updating of each approximately every 30 days, but
FDA does that ministerially. When the patents are submitted to
FDA, we simply list them. We make no judgment about them.
Mr. Stupak. Well, don't you think there should be some
judgments made before they are listed in the Orange Book, so we
don't have these problems and delays, especially with generics?
Mr. Crawford. The problem is that the PTO has granted the
patent, and it has never been, ever since the advent of the
Hatch-Waxman, it has never been the province of FDA to
challenge that. Another agency of the government expert in
patents and trademarks has basically issued a patent, and we
have not done that.
Mr. Stupak. Sure, but since the Waxman-Hatch Act has been
involved, this has been an ongoing problem. Since 1998, it has
only increased, hasn't it?
Mr. Crawford. Since 1998----
Mr. Troy. Well, if I may, Congressman?
Mr. Stupak. Sure.
Mr. Troy. In fact, the problem is, if you end up allowing a
lawsuit against the FDA, because that is what would happen if
you got us into the judgment of listing and delisting patents
on a discretionary basis, you would end up having a lawsuit
anyway. So I thought that the wisdom of Hatch-Waxman was to
say, ``Look, the courts really are the province. They are
experts in assessing the validity of patents once they have
been granted by the Patent and Trademark Office.''
So the statute says, upon the submission of patent
information under this subsection, the Secretary ``shall''
publish it. Courts, including the Fourth Circuit Court of
Appeals have held that that is an administerial burden on us,
and we have no discretion.
In addition to the----
Mr. Stupak. You have no discretion, so you are claiming.
But, obviously, you have recognized a problem here. So my
question is: Has the FDA sent up to Congress--because they say,
``We wash our hands of it. Congress has to resolve this.'' Have
you sent up any language or anything to Congress saying,
``Here's how we would suggest you fix this, so we don't have
these loopholes and delays in getting generics to the
market.''?
Mr. Troy. Well, to the extent that any such language would
get us in the business of reviewing patent listing, we are not
actually interested in sending such language because it gets us
into a business that we don't think we can do. Again, I don't
think it would fix the problem because it would just engender
litigation against us. We've got enough.
We have promised, I have talked about here, a number of
things that we think we can do, like beefing up the declaration
and like clarifying which patents can and cannot be listed in
the Orange Book.
Mr. Stupak. But even if you did all that, how do you intend
to enforce the regulations, and then what goes into the Orange
Book?
Mr. Troy. Again, I think a beefed-up declaration, along the
line that GPhA has proposed, would cut down, that plus
clarification about what patents we think can and cannot be
listed in the Orange Book would do a lot to cut down on
listings that are improper. That is point one.
Point two, again, we have said we do not oppose the idea of
a single 30-month stay per ANDA. One of the reasons why people
are so concerned about listings is because of the effect on the
multiple and successive 30-month stays. If that problem were to
go away, then you don't really have to spend a lot of time, it
seems to me, on the listabilities and the listings issues.
Mr. Stupak. But what I am hearing is, ``if this problem
goes away''; that is a lot of ``what if's.'' The problem hasn't
gone away. That is why, graciously to the chairman, we are
having a hearing on this today.
Actually, if you take a look at the brief that you filed in
the Apotex case--is that the way you say it?
Mr. Troy. Yes, yes.
Mr. Stupak. You took the position there that there is a
sufficient sanction to penalize companies who do not list
patents in the Orange Book. On the other hand, the agency has
opinioned that there is no penalty within the Food, Drug and
Cosmetic Act for overlisting patents in the Orange Book.
So which is it? You've got sanctions or you don't have any
sanctions? What is the appropriate enforcement mechanism, is
what I am trying to get at?
Mr. Troy. As we have said, I think the appropriate
enforcement mechanism is for the courts to assess the validity
of the patents, as in the context of that challenge, we have
neither the resources, the expertise, nor the authority to be
reviewing the substance of the listings. Again, it wouldn't
really help because we would end up in court with us being sued
instead of the parties suing one another.
Mr. Deal. The gentleman's time has expired. Mr. Buyer.
Mr. Buyer. To the FDA, on page 15 of your testimony, you
lay out four specific positions of the administration: harm to
innovation and investments, will encourage litigation, reduce
patent protections for drug developers. The Senate bill will
also delay availability of generic drugs, reduce price
competition. Those are four biggies.
If the Senate bill were to be adopted as written by the
House, based on these four positions, is this a piece of
legislation that the President would veto?
Mr. Crawford. I cannot speak for the President.
Mr. Buyer. All right, let me repose the question.
Mr. Crawford. Yes.
Mr. Buyer. Would you submit a recommendation to the
President to veto this bill, based on these four criteria?
Mr. Crawford. That would be done north of me.
Mr. Buyer. Now let me rephrase. Let me rephrase. You have a
tremendous responsibility here.
Mr. Crawford. Yes.
Mr. Buyer. So what is your personal opinion in
recommendation to the President, based on these four criteria,
the administration's position?
Mr. Crawford. I would hope this bill would not become law.
Mr. Buyer. That would be your personal opinion?
Mr. Crawford. Right.
Mr. Buyer. To the FTC, in reviewing Senate bill 812, I
notice that the bill would bar innovators from suing to enforce
patents not listed in the Orange Book by certain deadlines. Is
that something that the FTC recommended in its report?
Mr. Muris. No, it was not.
Mr. Buyer. I also see, under Senate bill 812, an innovator
would have to sue within 45 days' notice in order to enforce
its patent or lose all future rights to sue. Is that something
that was recommended in the FTC report?
Mr. Muris. No.
Mr. Buyer. I also notice that it would create rolling
eligibility for an award of 180 days' exclusivity. Is that
something that the FTC recommended in its report?
Mr. Muris. No. There are, as you are going through here,
there are several differences and inconsistencies between S.
812 and the FTC report.
Mr. Buyer. What about the limiting 30-month stays for
certain kinds of patents? Was that in the FTC report?
Mr. Muris. I am not sure what you are driving at.
Mr. Buyer. I will get there. What about creating a private
right of action for delaying patents? Was that a recommendation
from the FTC report?
Mr. Muris. No.
Mr. Buyer. The FTC report was over a year in the making and
represents the agency's views on how Hatch-Waxman should be
amended to facilitate generic entry while protecting incentives
to innovate, is that correct?
Mr. Muris. Yes, I believe that it was clearly a balance.
Mr. Buyer. So, as I go through and hit the highlights here,
none of these things that are in Senate 812 were recommended by
the FTC. Your agency examined this a year in the making and now
has testified that you attempted to strike a balance. So your
testimony here today would be that Senate 812 does not strike
the proper balance for this country?
Mr. Muris. Let me make clear what the Commission said and
what I am----
Mr. Buyer. No. Will you answer that question yes or no?
Mr. Muris. I can't answer it yes or no. So I won't say
anything.
Mr. Buyer. So Senate--all right, let me ask this.
Mr. Muris. Would you like an honest answer or would you
like----
Mr. Buyer. No, I am going to ask this.
Mr. Muris. Okay, fine.
Mr. Buyer. I don't want you to waffle and that is what you
are about to do.
Mr. Muris. No, I am not about to waffle.
Mr. Buyer. It is a very simple question.
Mr. Muris. Happiy, I am not about to waffle.
Mr. Buyer. Then give me your answer.
Mr. Muris. All right, thank you. The Commission--I am just
trying, and I apologize for getting a little hot there, I am
just trying to distinguish between the Commission----
Mr. Buyer. I asked you a very simple yes-or-no question,
sir.
Mr. Muris. I am trying to distinguish between the
Commission, which is five people, and me, which is one
Commissioner. That is all I am trying to do. If you will let me
do it, I will do it.
Mr. Buyer. Do it.
Mr. Muris. All right. The Commission issued a report which
it thought addressed the problems. There are some
inconsistencies with S. 812, and there are some differences.
Now when the Commission was doing the report, we didn't
have before us S. 812. My personal opinion is that there are
several parts of S. 812 that I would not favor. Indeed, I would
favor what is in the Commission's report as to what is in S.
812. But, again, the full Commission itself has not taken a
position on S. 812.
Mr. Deal. Mr. Pickering.
Mr. Pickering. Mr. Muris, to follow up on that line of
questioning, what are the provisions in H.R. 5311 or the Senate
bill where you do agree?
Mr. Muris. Well----
Mr. Pickering. Not where you disagree, but where you would
agree?
Mr. Muris. I certainly agree that we should have one 30-
month stay.
Mr. Pickering. There is some disagreement on whether it
starts with the NDA or the ANDA.
Mr. Muris. Yes. Yes.
Mr. Pickering. What are the consequences of those two?
Mr. Muris. That is an important question, and I am not
positive of the consequences. Let me explain why.
If you look at what we found, and this is not in our report
because, again, we did not have S. 812 before us; we had these
late-listed patents on eight drug products. That means late-
listed after the ANDA was filed. But if you look at the 75
cases that we had where the NDA-holder sued the first ANDA
filer, 17 of those would fit in the period between the NDA
approval plus 30 days, which is the S. 812 standard, and the
filing of the ANDA. In all of those cases I believe the patent
was sought before the NDA approval plus 30 days.
Most of these issues deal with formulation patents. Unless
the branded companies could, under the S. 812 standard, have
the patents approved more quickly, then the S. 812 standard
would result in a significant difference with what we have
proposed.
What I don't know, and what you could ask the next panel,
is what extent does that difference make. We found there are
actually 23, and not 17. Six of the 23 were, in fact, issued
before the NDA was approved. But they just didn't get around to
filing them in the Orange Book. That is one of the differences.
I realize this is very complex, but this could be a very
significant difference between S. 812 and the recommendation
that we made.
Mr. Pickering. Would you oppose the S. 812 standard of NDA
versus ANDA when the clock starts on a 30-month stay?
Mr. Muris. I prefer our standard, but what I am saying is,
I could be convinced----
Mr. Pickering. Yes, you are not as adamant on that issue as
you may be on some of the other issues?
Mr. Muris. Yes, because I don't know to what----
Mr. Pickering. That might be an area of compromise?
Mr. Muris. What I would want to know, the reason is I am
uncertain factually about the significance of this group in the
middle, the 17 that we had. If, in fact, they could not
accelerate patent approval, then I think that S. 812 would be
working a major difference.
Mr. Pickering. But the objective would be to stop the
gaming and to have the generic available on time, when the----
Mr. Muris. Right, but what I am saying is, these 17 cases
did not involve, as far as we could tell, the kind of gaming
that the later-filed patents on the eight drug products did. So
I am saying, again, I would want to know factually from people
in the industry and talk to people at the FDA about what the
significance would be of adopting the S. 812 standard.
Mr. Pickering. But would it be fair to say that the FTC is
open on that issue?
Mr. Muris. Well, again, when I am answering these
questions, I am speaking only for myself.
Mr. Pickering. You just want more information? You could be
convinced by the industry if you see no adverse consequence?
Mr. Muris. Sure, if, in fact, the 17, for a variety of
reasons, could have qualified under the S. 812 standard, that
would be very important to know.
Mr. Pickering. Okay, Mr. Chairman, if I could have just one
other line of questioning?
On the 180-day exclusivity, does the FTC recommendation
conform to S. 812 and the Thune legislation in the House? Does
it differ? Do you have a significant issue with the proposed
legislation as it addresses exclusivity?
Mr. Muris. Yes. Again, the Commission did not address S.
812, but the report does not suggest that the 180 days should
roll. Again, not speaking for the Commission because the
Commission hasn't talked about this--I think that rolling can
be a process for gaming.
We have seen in some of our cases, when you treat the 180
days as a currency that can be traded----
Mr. Pickering. Should we just do away with the 180-day
exclusivity?
Mr. Muris. We approached this as accepting the original
Hatch-Waxman balance and accepting the 180 days as a fact. We
saw nothing that we looked at that told us that there was a
major problem with the 180 days in and of itself. Thus, I
personally would not recommend eliminating the 180 days.
Mr. Pickering. Could you modify it to have 180 days but you
must go to market within that time?
Mr. Muris. We have made three recommendations for
clarifying when the 180 days begins to run. We think those
recommendations, if they were accepted, would go a considerable
way to eliminating problems.
Mr. Pickering. Let me summarize real quickly where I think
we might be. So FTC would make a compromise on NDA versus ANDA
and on the 180-day exclusivity. On the rights to litigate, that
is a more complicated and difficult task of reaching agreement.
Would that be a fair summary of where we are?
Mr. Muris. Let me summarize very quickly. There are several
provisions of S. 812 that are inconsistent or different. Again,
not speaking for the Commission--I personally would prefer to
stick with what is in the Commission's report and not what is
in S. 812. But, the Commission, not just me, does believe there
should be legislation.
Mr. Pickering. Thank you.
Mr. Deal. The gentleman's time has expired. Mr. Wynn.
Mr. Wynn. No questions. I yield.
Mr. Waxman. I thank you for yielding. I thought Mr.
Pickering's line of questioning was very helpful.
Let's go back to the 180 days. The 180 days was put in
there to give an incentive for a generic to step to the plate
and challenge it, but we never thought the 180-day right to the
generic to block another generic was going to be used as a way
for a collusive agreement to stop any generics. So aren't we
trying to deal with that problem, not to eliminate the 180 days
but make sure that the 180-day does not become a barrier for
any generic to get on the market?
Mr. Muris. I agree with that, and that is the issue to
which the Commission's report was addressed. I am afraid that
S. 812, by allowing it to roll, could result in analogous sorts
of games where, in fact, 180 days is extended and does become a
barrier.
Mr. Waxman. That is a fair issue to look at.
Now on the question on the 30-month stay, the FTC
recommended that if the patent-holder/approved drug
manufacturer wants to stop a generic from competing, they can
simply claim another patent. Then if the generic manufacturer
wants to come in and compete, they can file a lawsuit, and that
automatically stops that generic from competing for 30 months,
which is a substantial period of time.
The FTC has suggested that the generic manufacturer ought
to be able to go to court in a counterclaim and say that the
listing of the patent was not legitimate. Now my question to
you is, what good does it do for the manufacturer of a generic
company to make a counterclaim if they still get that 30-month
period where they still can't compete, even if it was
completely frivolous?
Mr. Muris. I understand. Again, we support eliminating the
multiple 30-month stays. There is an additional issue here
which some of you have raised, which is there is no way to
challenge the validity of a listing.
Mr. Waxman. Right.
Mr. Muris. We think, rather than a new private right of
action, a counterclaim would be adequate to the task.
Mr. Waxman. But a counterclaim doesn't solve the problem of
the 30-month stay that would go into effect. So by the time
they have their issue resolved, and it turns out that it was a
frivolous patent, they have still lost 30 months.
Mr. Muris. I agree, but, again, you need to couple our
recommendations. You've got to consider our recommendations as
a group.
We would eliminate the multiple 30-month stays. We think
the problem----
Mr. Waxman. I am talking about if we have one 30-month
stay.
Mr. Muris. Okay, we found very few examples of the same
sorts of challengeable patents in the original group as
compared to the late-listed group.
The second point is, the 30 months turns out to be a fairly
good approximation of what happens in reality, how long it
takes----
Mr. Waxman. A lot of the generic companies dispute that.
Some of them say they are getting approved faster, and the
public ought to have the ability to have a generic, lower-
priced drug whenever it is appropriate. We shouldn't have an
artificial 30-month stay if it is not based on a legitimate
application of the law.
Mr. Muris. But the reality is--let me make two last points.
One, obviously, the counterclaim would terminate, if you went
with the counterclaim, it would terminate the 30-month stay,
just as now, if you win, it terminates a 30-month----
Mr. Waxman. That is only if you win.
Mr. Muris. Sure.
Mr. Waxman. But the 30-month stay was supposed to stop a
generic from competing 30 months or before the court acts, but
there is no reason to want to get into court faster. Isn't the
issue here the ability of a generic manufacturer to get some
kind of resolution of the issue of whether the patent should
have been listed or not? The FDA believes they can't make that
decision, and I certainly sympathize with them.
Mr. Troy is saying that these other provisions of stopping
of a lawsuit up to 45 days and maybe losing your rights to sue
up to 30 days, the essential point is to let the generic
company be able to challenge the improper listing of a patent
from which they are stopped for at least one 30-month period,
maybe under existing law for more than one 30-month period. So
we need some adjudication of that issue quickly, so that the
public isn't denied the right for a generic drug, if it is
appropriate that they should have a generic drug under the
clear purpose of the law.
Mr. Muris. There are several balls in the air here, and let
me try to address at least two of them.
In terms of what would the world look like without the 30-
month stay, we found, with or without litigation, it takes
about 25\1/2\ months before the district court opinion or FDA
approval. Obviously, they can't enter before FDA approval if
there is no lawsuit, and they don't enter during the pendency
of the district court litigation.
So the difference between 30 months and 25\1/2\ months is
not all that significant. Thus, if you eliminated the 30-month
stay, what I am----
Mr. Waxman. If it is a blockbuster drug, it is very
significant, and why should you have something that is
arbitrary? If FDA is improving in the speed at which they get
drugs on the market, whether it is a brand-name drug or a
generic drug, which we want to encourage, why should we have
some artificial 30-month period based on a patent that wasn't
appropriate to list and for which there should be any stay of a
generic competitor?
I guess let me have that out there----
Mr. Bilirakis. The time has expired. Mr. Muris, just
respond to that question, and then let's move on because we've
got a panel that has been sitting here since 10 o'clock.
Mr. Waxman. I had that more as a rhetorical question, but I
think it is an issue that needs to be addressed.
Mr. Muris. May I respond?
Mr. Bilirakis. Please, briefly.
Mr. Muris. We accepted the validity of the 30 months, and
we said that, in fact, 25\1/2\ months and 30 months are not
that far apart. It is true for a blockbuster drug that it would
be significant.
If you wanted to reopen the question as to what was the
right period of time, obviously, then you could look and say,
well, 25\1/2\ months is shorter than 30 and make your decision.
Again, we accepted the validity of the 30 months, the 180 days,
and tried to see what the evidence bears on those issues.
Mr. Bilirakis. All right, the gentleman's time has expired.
I think we should just consider this finishing up with this
panel.
Mr. Brown. Mr. Chairman, could I have 2 minutes to follow
up with----
Mr. Bilirakis. Are we ever going to finish here?
Mr. Brown. Yes, if I have my 2 minutes, we will, Mr.
Chairman.
Mr. Bilirakis. Well, your 2 minutes will result in----
Mr. Brown. The chairman promised Mr. Waxman a couple of
minutes on a partial round.
Mr. Bilirakis. I understand Mr. Waxman has had considerably
more than a couple of minutes. We made that promise, but----
Mr. Brown. But, no, he had Mr. Wynn's time. Mr. Chairman,
Mr. Muris said several things. I just want to----
Mr. Bilirakis. Without objection, the gentleman has 2
minutes.
Mr. Brown. This is such an important----
Mr. Waxman. I object.
Mr. Bilirakis. Objection?
Mr. Waxman. Would the gentleman permit, if he would yield
to me? Look, I was able to get additional time on Mr. Wynn's
time. Mr. Brown is requesting two more. This is a complicated
issue, and I don't think anybody else is going to ask for more
time.
I will withdraw the objection.
Mr. Bilirakis. Yes, I appreciate the gentleman withdrawing,
but the truth is we've got to finish sometime with this panel.
We have had another panel sitting there 4\1/2\ hours. Let's be
fair. The Chair yields to Mr. Brown.
Mr. Brown. On your 25\1/2\ months versus the 30 months,
first of all, I think the extra 4\1/2\ months on a drug like
Prilosec or a drug that has $3, $4, $5, $6 billion in sales,
there is a huge amount of money at stake for the Nation's
consumers or the Nation's businesses, or whatever.
Second, I am not sure that there is any incentive to
squeeze that 25\1/2\ months down when it really doesn't matter
because they are getting this 30-month extension anyway.
Third, I wonder why we can approve a new drug so much more
quickly and a generic drug so slowly when one would think that
you could do the generic drug at least as quickly. But we have
shoveled more and more money into the approval process on new
drugs and we have underfunded the generic drug approval.
So couldn't we, couldn't the FDA--and I am asking Mr. Muris
or maybe both of you, quickly--couldn't we get the FDA to
shrink that 25\1/2\ months significantly? Then there is no
longer the discussion, why should the 30-month--it doesn't
matter if we repeal it because the 30-month one is arbitrary.
Second, it is not so similar in time if we can reduce that
25\1/2\ down to 18, which many say it has been, and maybe down
further, if we can provide the resources for----
Mr. Muris. But the issue is what happens in a lawsuit. What
happens in a lawsuit is obviously both parties are involved.
When there is a district court lawsuit, and we found the
generics win most of the cases, if that judgment dissolves the
30-month stay, as we believe it does and should, then you will
have generic entry in most cases.
We have found that the generics, because they have won 13
out of 14 cases on appeal, the generics are willing to enter
after a district court decision. So I think that we are mostly
talking about a non-issue here. In fact, that is probably why
none of these bills that I know of are talking about getting
rid of the initial 30-month stay.
Mr. Brown. Actually, the original Brown-Emerson bill does.
We pursued the Senate version because we thought, if we can get
Republican leadership to schedule it for a vote, we wanted to
do it quickly, get the Senate version, get it back in its
identical version and get it to the President.
So, no, in fact, the first bill out there, the original
Schumer-McCain and the original Brown-Emerson did have
elimination of the 30-month.
Mr. Bilirakis. The time of the gentleman has expired.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Bilirakis. Dr. Crawford and Mr. Muris, thank you so
very much. We appreciate your patience. We customarily do have
written questions that we submit to you. We would hope that you
would plan to respond to those questions in a reasonable period
of time.
Thank you so very kindly for being here.
Mr. Crawford. Thank you.
Mr. Muris. Thank you.
Mr. Bilirakis. Panel two, finally: Ms. Kathleen Jaeger,
President and CEO of Generic Pharmaceutical Association; Dr.
Gregory J. Glover, Ropes and Gray here in Washington, DC, on
behalf of PhRMA; Dr. Sharon Levine, Associate Executive
Director of The Permanente Medical Group, on behalf of
RxHealthValue, and Dr. Mark Barondess of Annapolis, Maryland,
Dr. Barondess being a J.D.
Well, ladies and gentlemen, the clock is set at 5 minutes.
Your written statement, of course, is a part of the record. We
would hope you would complement it or supplement it. We would
appreciate it if you could stay as close to the 5 minutes as
you can.
We will kick off, if she is ready, with Ms. Jaeger.
STATEMENTS OF KATHLEEN D. JAEGER, PRESIDENT AND CEO, GENERIC
PHARMACEUTICAL ASSOCIATION; GREGORY J. GLOVER, ROPES AND GRAY,
ON BEHALF OF PhRMA; SHARON LEVINE, ASSOCIATE EXECUTIVE
DIRECTOR, THE PERMANENTE MEDICAL GROUP, ON BEHALF OF
RxHEALTHVALUE; AND MARK A. BARONDESS
Ms. Jaeger. Chairman Bilirakis, Congressman Brown, and
members of the subcommittee, thank you for the opportunity to
testify on the very important subject of the refinements to the
Drug Price Competition and Patent Restoration Act of 1984.
The 1984 act is a landmark consumer piece of legislation
that has opened the door to prescription drug competition. In
1984, Congress determined that the balance between incentives
for innovation and the opportunities for competition were out
of kilter. This subcommittee and its members played a central
role in the adoption of the legislation that was intended to
restore this balance.
The incentive piece of the act has been extremely
successful. It has yielded important new medicines and generous
profits to drug companies.
On the competition side, the benefits of the act have also
been significant. The percentage of prescription drugs sold in
generic form has risen from 19 percent in 1984 to 47 percent
today. So that generics are currently saving consumers, the
Federal Government, and health care providers $10 billion each
year.
But we are losing important opportunities to save more.
This is despite the fact that there's been an increase in
generic usage, and the percentage of prescription drug
expenditures dedicated to generics has been declining and is
now at 8 percent. In other words, 92 cents of every
prescription dollar goes toward a brand product.
This is important because an increase of just 1 percent in
generic utilization would save an additional $1.3 billion.
Doing simple math, an increase of just 10 percent yields $13
billion in savings.
Relevant to today's hearing is that the balance has shifted
as a result of some brand companies using innovative and
creative skills to exploit the system's loopholes in order to
block generic competition. One of these loopholes which we have
heard a lot about, and is the subject of the FTC report, is the
30-month stay. The FTC report identified and confirmed that,
indeed, abuses are occurring, and that these abuses must be
addressed if goals of the act are to be preserved.
The greatest area of abuse, as I said, is the 30-month
stay. Under this provision, when a generic challenges a brand
patent and the brand company sues on that patent, FDA approval
of the generic product is automatically blocked for 30 months.
This block occurs regardless of the patent's merits.
In other words, the system bestows a financial windfall to
the brand company for merely suing a generic firm, regardless
of whether the patent at issue is properly listed.
Inappropriate patents, patents that do not claim the brand
product, cannot only trigger a 30-month stay, but in some
instances result in multiple stays.
Let's look at some facts. Patent listings have increased
from two patents in 1984 to on average for blockbusters today
of 10 patents. Correlating to this fact is that patent
challenges have increased from 2 percent of generic
applications in 1984 to 1989, to 12 percent in 1990 to 1998, 20
percent in 1998 to 2000, and last year to 28 percent. There is
no reason why this trend will not increase unabated.
The FTC report documents that abuse of the 30-month stay by
the brand industry is a strategy used by some brand companies
in the last few years to maximize profits on blockbusters. The
FTC report suggests that not only will this trend get worse,
but this abuse has real-world consequences.
Despite the FTC's findings, the Senate's approval of GAAP
by a 78-to-21 vote, and the coalition members supporting that
bill, PhRMA charges the generic industry is overstating its
case. It argues that the current system works well.
Clearly, they have not put this argument to a vote by
consumers, businesses, and other purchasers. PhRMA's argument
ignores the single mother of an asthmatic child requiring the
drug Maxar who can't get an affordable equivalent because the
patent is listed, not on Maxar, the drug, but on the new
container that houses Maxar.
PhRMA's argument also ignores the cancer patient who will
have to pay the higher brand price for years to come because
the brand company listed two patents that define how product
information should be inserted into pharmacy computers, solely
to block generic competition.
Another well-known example is the anti-depressant Paxil,
which has annual sales of $2 billion. The two major patents,
the basic compound patent and the first-method-of-use patent,
expired in 1992 and 1994, respectively. Yet, the brand company
has sued a generic firm for infringement of five other patents,
thereby generating five new 30-month stays, totaling 65 months,
and costing consumers billions of dollars.
Like many of our coalition partners, GPhA believes a 30-
month stay provision should be eliminated in its entirety,
although we do endorse the one 30-month stay compromise
recently passed overwhelmingly by the Senate. This compromise
is also included in the House companion legislation that is
currently pending before this committee.
The Congressional Budget Office reported that American
consumers will save $60 billion over the next 10 years if
Congress enacts GAAP. CBO has already proven our main point of
this debate. Fair competition is pro-consumer and pro-savings.
Mr. Bilirakis. Please summarize, Ms. Jaeger.
Ms. Jaeger. I would be pleased to.
GAAP does not change patent law. GAAP is merely a rule
change, if you will, a refinement of existing law that
addresses current system abuses and trends. GAAP would restore
the intended balance between innovation, competition, and
access. We urge the House to immediately approve legislation
like H.R. 5272 and H.R. 5311. Thank you.
[The prepared statement of Kathleen D. Jaeger follows:]
Prepared Statement of Kathleen D. Jaeger, President & CEO, Generic
Pharmaceutical Association
Chairman Bilirakis, Ranking Democrat Brown, and distinguished
Members of the Subcommittee. My name is Kathleen Jaeger, and I am
President and CEO of the Generic Pharmaceutical Association. I am also
a pharmacist and an attorney, who specializes in FDA-regulatory law.
Coming from a family-owned pharmacy background, I understand the
critical role that both brand and generic pharmaceuticals play in our
health care system. Thus, the relevant debate is not about the value of
brand products or generic products--again both provide tremendous
value. Rather, the issue is the need to restore predictability to the
Hatch/Waxman system--to ensure that the system is fair and just for all
affected parties, especially consumers.
GPhA represents manufacturers and distributors of finished generic
pharmaceutical products, manufacturers and distributors of bulk active
pharmaceutical chemicals, and suppliers of other goods and services to
the generic pharmaceutical industry. GPhA members manufacture more than
90 percent of all generic drug doses dispensed in the United States.
Over one billion prescriptions are filled with our products every year.
We are a significant segment of America's pharmaceutical manufacturers.
No other industry has made, or continues to make, a greater
contribution to affordable health care than the generic pharmaceutical
industry.
On behalf of GPhA and its more than 140 members, I want to thank
you for convening this hearing. It is critically important that we
address the issues related to increasing access to prescription drugs
while assuring that American consumers can afford the medicines they
need. With such a short time remaining before Congress recesses, a
unique opportunity exists: to pass legislation that will take a
meaningful step towards reducing the cost of prescription drugs over
the next decade.
Today, I will discuss the current landscape of the pharmaceutical
industry, both generic and brand, and how the Federal Trade Commission
(FTC) identified abuses under the present construct, with their trend
analysis indicating that these abuses will only get worse in the
future. The FTC report accurately diagnoses system abuses involving the
30-month stay provision among others. Congressional Representatives
have proposed thoughtful and a narrowly targeted legislative solution
that would address these abuses by closing several unintended loopholes
in Hatch/Waxman. Legislation that is critically necessary to avoid
unnecessary future expenditures, which cost consumers billions of
dollars in lost savings.
I will explain why the approval by the House of Representatives of
H.R. 5311 and H.R. 5272, the Greater Access to Affordable
Pharmaceuticals Act (``GAAP''), would create billions of dollars in
prescription drug cost savings without harming the brand pharmaceutical
industry or sacrificing brand product innovation.
I will also provide compelling evidence that legislation such as
this would restore the balance between brand-name innovation and
generic competition that lies at the heart of the Hatch/Waxman Act. In
doing so, I will review the positions of the Congressional Budget
Office and the FTC, which confirm the need for legislative intervention
in this area.
i. background--generics save consumers billions each year
I will start with a brief overview of the contribution of the
American generic pharmaceutical industry.
The Drug Price Competition and Patent Term Restoration Act of 1984,
also known as Hatch/Waxman, extended product monopolies on brand drugs
in exchange for the establishment of a regulatory process for
affordable medicines--an Act that created the modern generic
pharmaceutical industry. This process was designed to streamline the
approval process for generic drugs, which can only enter the market
after the expiration of all valid and non-infringed patents that
protect the equivalent brand drug products.
Since 1984, the use of generic pharmaceutical products saves
millions of dollars for consumers and taxpayers each and every day.
These savings amount to more than $10 billion dollars in lower health
care costs each year. For the last couple of years, about 45 percent of
all prescriptions were filled with generic drugs. But while nearly one
in every two prescriptions was filled with a generic drug, only about 8
percent of all dollars spent on drugs were spent on generic medicines.
Conversely, brand name prescription drugs represented 53 percent of all
prescriptions but consumed approximately 92 percent of all drug therapy
dollars spent. The top ten brand pharmaceutical companies accounted for
61 percent of all pharmaceutical sales.
These numbers reveal a stark reality: brand name prescription drugs
exceed the cost of generics by almost ten-fold, and brand companies
dominate the marketplace in terms of dollars spent on prescription
drugs.
Let's look at these same statistics from another perspective;
namely, that of the patient or payer. The average price of a
prescription dispensed with a generic drug in 2001 was $16.85. The
average price of a prescription dispensed with a brand name drug in
2001 was $72. That is an average savings of 76 percent when a generic
product is substituted for a brand product.
While generic substitution has increased from 19 percent in 1984 to
47 percent in 2000, the amount of money spent on generic drugs as a
percentage of overall dollars spent on medicines has declined five
percentage points, from 12 percent to 7.5 percent, over the past five
years. So, consumers used more generics and spent less on them. But at
the same time, the cost of prescription drugs continued to increase at
double-digit rates.
Currently, 7,602 of the 10,375 drugs listed in the FDA's Orange
Book (which identifies therapeutically equivalent generic drugs and
their brand counterparts) are available in generic form. Over the next
decade, a number of the most well-known brand name pharmaceuticals will
lose patent protection, theoretically allowing the introduction of more
affordable generic versions of these blockbuster products. Within the
next three years, 27 brand name pharmaceuticals with annual sales of
more than $37 billion should go off patent. If the law and regulatory
system were working as intended, this development would create an
important opportunity to save critical health care dollars.
ii. the tremendous savings that generics offer consumers, the federal
government and other institutional health care payers
As I previously discussed, the generic prescription utilization
rate is 47 percent. An increase of 1 percent in this utilization rate
would generate payer savings of $1.3 billion each year. An increase of
10 percent would save $13 billion.<SUP>1</SUP> We cannot afford to miss
this opportunity.
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\1\ Tim R. Covington, Executive Director of The Managed Care
Institute at Samford University.
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A. Brand Pharmaceutical Innovation
The debate over restoring the balance created under Hatch/Waxman
has been falsely cast as a threat to brand pharmaceutical innovation.
We endorse the brand pharmaceutical industry's role in discovering new
drugs, and the societal value of a patent system that fosters the
development of new innovative medicines. However, we reject--as do so
many others involved in our broad-based, bi-partisan coalition--the
notion that the status quo is fair and consistent with the aims of the
Hatch/Waxman Act. To the contrary, the current system allows for the
exploitation of unintended loopholes to preserve profits and
monopolies, long after valid patents and patent extensions have
expired, at the expense of the American consumer.
One of the best ways to promote innovation, to provide an incentive
to develop the next medical breakthrough product, is to foster
competition. Allowing a brand product to have unlimited monopoly
protection distorts the incentive, and results in the adoption of a
brand preservation strategy, rather than an innovation strategy.
The intent of Hatch/Waxman was to define and establish a natural
and limited period of monopoly protection, in recognition of the
societal value of brand innovation. However, after the expiration of
that monopoly, more affordable generic alternatives should have
unfettered access to the marketplace. But in recent years, loopholes in
the Act have been identified and manipulated to expand this protection
well beyond what the drafters of Hatch/Waxman intended or even
imagined, and to deny consumers access to affordable medicines. It is
time to recognize that these efforts are nothing more than attempts at
monopoly extensions, which actually harm innovation and penalize
consumers in various ways.
A number of organizations have in recent years explored whether
generic competition poses a risk to brand pharmaceutical innovation and
the ``search for cures.'' The results of these separate analyses are
consistent. Competition is good for innovation, and the brand
pharmaceutical industry has thrived since 1984.<SUP>2</SUP>
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\2\ Congressional Budget Office, 1998; How Increased Competition
From Generic Drugs has Affected Returns in the Pharmaceutical Industry;
Pharmaceutical R&D: Costs, Risks & Rewards, 1993.
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Moreover, one such study also concluded that after Hatch/Waxman
extensions were added, 44 percent of the drugs examined had effective
patent lengths of 14 years or more. Equally important was the
observation in another study that brand manufacturers manage patent
protection for blockbusters more aggressively resulting in longer
effective patent lengths.<SUP>3</SUP>
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\3\ Office of Technology Assessment, Pharmaceutical R&D: Costs,
Risks & Rewards, 1993.
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The brand pharmaceutical industry's opposition to reforming Hatch/
Waxman is not about the threat to innovation; it is about a threat to
profits.
B. The Current System Is Being Abused To The Detriment of American
Consumers
As previously noted, Hatch/Waxman guaranteed brand companies a
period of market exclusivity to recoup their investment in research and
development. It also established a specific period of exclusivity,
including a five-year patent extension for most drugs, but it was also
intended to create a regulatory system that allowed the generic
manufacturers to bring their products to market immediately upon
expiration of the brand patents.
Over the past decade, some aggressive brand companies, enjoying the
profits of market exclusivity, have gamed the system to obtain
unintended extensions to this exclusivity. This has hurt consumers and
taxpayers, and upset the balance between innovation and competition
that was initially created under Hatch/Waxman. The cost of these
activities has been in the billions of dollars. It should be noted that
these games have not been played by all the brand companies. A number
of the largest and most research-oriented brand companies have declined
to exploit the recently discovered loopholes as a way of extending
their patents.<SUP>4</SUP>
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\4\ Merck; Novartis, Pharmacia to name a few.
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The recently released FTC Report on ``Generic Drug Entry Prior to
Patent Expiration'' (the ``FTC Report'') identified gaming of the
Hatch/Waxman patent challenge process by brand companies and analyzed
its impact on pharmaceutical competition. The over-arching conclusion
of the report is that abuses of the current system have cost consumers
billions in lost savings, and may cost even more if not remedied by
legislative action. The primary tool for the abuse has been the
automatic 30-month stay provision. This statutory provision bestows
brand companies free 30-month injunctions regardless of the merits of
the case, which bar the Food and Drug Administration (FDA) from
approving generic competitor's products.
The 30-month stay is available for all patents that are ``listed''
by the brand company in FDA's ``Orange Book,'' a publication containing
a list of patents that cover approved drugs. Over the past several
years, certain brand companies have discovered that FDA does not police
patent listings. FDA takes the position that it has no authority, nor
the expertise to determine if patents submitted for listing meet the
statutory requirement of claiming the approved brand drug
product.<SUP>5</SUP> In other words, even if a brand company lists a
patent that on its face does not cover the brand product, FDA will
automatically list the patent as long as the brand company maintains
its listing. Moreover, courts have found that no legal means exist for
generic firms to challenge improperly listed patents. Still, this lack
of balance, coupled with the windfall of the 30-month stay, provides a
perverse incentive for brand companies to adopt an over-reaching patent
listing strategy for large selling ``blockbuster'' drugs. The average
number of patents listed for each blockbuster has increased from 2 in
1984, when Hatch/Waxman was enacted, to 10 today.
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\5\ FDA's brief (dated September 23, 2002), field in Apotex, Inc.
v. Thompson (No. 02--1295). FDA also opined that if there is an
``enforcement gap,'' redress lies with Congress, not FDA or the courts.
Id at 35.
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The driving force behind the substantial increase in patent
listings is a free 30-month stay, which occurs in 85 percent of the
cases when the brand company sues a generic. The only reason for
listing patents that do not claim the brand drug, and therefore have
little or no chance of surviving a challenge by a generic competitor,
is to obtain a financial windfall that flows from the free stay. This
strategy is evidenced by the dramatic increase in the number of patent
listings and, correspondingly, in the number of patent challenges in
order to bring generic drugs to market. These patent challenges have
increased from 2 percent of all generic applications in 1984-1989, to
12 percent in 1990-1998, to 20 percent in 1998-2000, and to 28 percent
in 2001.
FTC also identified the fact that multiple patent listings result
in protracted litigation, causing significant consumer delay. By
listing multiple patents, brand companies can, among other things,
obfuscate the proceedings to insulate a certain patent from
adjudication. Equally important is the fact that they also can design
their patent strategy to yield several consecutive 30-month stays. The
FTC, in its report, found that singularly, and in combination, the
automatic 30-month stay has ``real world consequences'' for consumers.
This activity is clearly a trend that is destined to continue and most
likely intensify if not checked.
From a consumer's perspective, the most alarming aspect of these
abuses is that they involve almost exclusively the most popular, and
sometimes the most needed drug products. Specifically, we are seeing
the most abuse with those drug products with annual sales over $500
million. The cost to an individual healthcare plan can be significant;
the cost the healthcare system can be enormous. For example, General
Motors estimates that if five pharmaceutical blockbuster patents
scheduled to expire are extended, they will see increased prescription
drugs costs in excess of $204 million during the delay of generic
entry. Similar losses are being felt by the federal and state
governments as they struggle to meet their budgets and provide Medicaid
coverage.
When one considers the totality of the circumstances surrounding
these abuses, several facts emerge.
<bullet> First, absent congressional action, the future is likely to be
worse. Given the current trend, and the financial windfall that
brand companies can achieve through the exploitation of these
loopholes, the abuses are almost certain to increase over the
next decade.
<bullet> Second, more patents are appearing, and will continue to
appear, in the Orange Book and these additional patents will
cause significant delays in the availability of lower cost
generic drugs.
<bullet> Third, these abuses have seriously degraded the predictability
of generic drug approval that was a cornerstone of Hatch/
Waxman. This loss has already resulted in tremendous harm to
the nation's health care system, especially to Federal, state,
and private health care providers who are struggling to keep up
the escalating cost of prescription drugs. It also undermines
the ability of generic companies to manage their businesses
efficiently.
<bullet> Lastly, 27 blockbuster drugs are ``scheduled'' to come off
patent in the next five years. If the loopholes in the 30-month
stay and patent listing provisions are not closed, a delay in
the availability of low cost equivalents of these drugs is
almost certain to occur.
C. The FTC Report Confirms The Brand-Name Abuses and Supports The
Modest Reform
In response to alleged abuses, FTC was asked to investigate the
operation of the Hatch/Waxman patent challenge process. FTC looked at
the 30-month automatic stay, and at the 180-day generic exclusivity
incentive that is available to generic companies that are first in time
to challenge improper, weak, or invalid brand-name patents. This past
July, the FTC issued its final report. Its findings clearly confirm
that:
(1) the 30-month stay is being abused and is delaying competition; and
(2) the 180-day exclusivity provision is an efficient means of
eliminating illegitimate barriers to competition.
The FTC found that the 30-month stay provision in of itself is
problematic. FTC also found that subsequent 30-month stays unfairly
block generic competition, particularly since none of the patents
supporting those stays had been held to be valid.
Accordingly, like many of our coalition partners, GPhA believes
that a 30-month stay provision should be eliminated in its entirety,
although we did endorse the one 30-month compromise recently passed by
the Senate. Contrary to the findings of the FTC, which focused on past
FDA practices, we believe that in the future FDA will take
significantly less than 25 months to review and approve generic drug
applications. The dramatic improvements in review of brand applications
(which are now completed in about 6-10 months) demonstrate that this is
clearly possible. Moreover, the long review times in the past may be
explained, in part, by the fact that often a generic will not be
eligible for marketing after its application is filed, because the
application was filed in advance of the expiration of a valid patent or
because the 30-month stay blocks approval. If the 30-month stay
provision was eliminated, there would be new incentives for FDA and the
generic companies to work to expedite review and approval of generic
drugs.
Additionally, FTC found that, since 1998, brand companies are
listing more and more patents for drugs with substantial annual sales.
Prior to 1998, patent litigation for most blockbuster drugs involved
only 1 or 2 patents. Since 1998, 5 of the 8 blockbuster drug cases
considered by FTC involved 3 or more patents. As FTC observed, ``with
additional patents to be litigated, the average time to obtain a court
decision has increased.'' <SUP>6</SUP> Furthermore, FTC found that many
of these new patents do not meet the statutory requirements for listing
in FDA's Orange Book. We draw the Committee's attention to Appendix H
of FTC's report, where FTC analyzes three types of patent listing
abuses: patents not claiming the approved drug or an approved use of
the drug; product-by-process patents <SUP>7</SUP>; and double patenting
<SUP>8</SUP>. FTC's efforts to take enforcement action to address the
anticompetitive effects of these improperly listed patents may have
been significantly hindered by FDA's failure to respond to a 2001 FTC
petition requesting guidance on the patent listing requirements.
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\6\ FTC Report at p. 37.
\7\ These are patents that are the functional equivalent of
``process patents,'' which are specifically prohibited from listing in
the Orange Book.
\8\ These are patents that claim the same invention as a prior
patent, but are nevertheless issued by the Patent and Trademark Office
because the patent applicant agrees to have the new patent expire on
the same date as the earlier patent.
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FTC noted that patent listing abuses are being fueled by (1) the
lack of patent listing policing and (2) the total lack of a statutory
mechanism to ``delist'' patents once they are submitted for inclusion
in the Orange Book. The courts, supported by FDA, have held that that
there is no private right of action under the Patent Act or the Federal
Food, Drug, and Cosmetic Act to have a patent ``delisted,'' even where
it is obvious that the patent does not meet the requirements for
listing.<SUP>9</SUP> In other words, the brand company may illegally
list a patent (which, significantly, is a prerequisite to a paragraph
IV certification and triggers the 30-month stay provision), but the FDA
alleges that it lacks the authority to assess the appropriateness of
patent listings. Yet, the courts have held that the generic company
cannot challenge the listing in court. The GAAP Act corrects this
inequity by permitting the generics to bring a suit in court.
---------------------------------------------------------------------------
\9\ Mylan Pharm. v. Shalala, 81 F.Supp.2d 3 (D.D.C. 2000); AAIPhRMA
v. Thompson (CA-01-153-F) July 10, 2002 (Until Congress takes further
action to address the enforcement gap in Hatch/Waxman's patent listing
provisions, the FDA may persist in its purely ministerial approach to
the Orange Book Listing Process.).
---------------------------------------------------------------------------
Another activity observed by FTC is the ``stacking'' of multiple
30-month stays. As discussed above, this practice consists of listing
as many patents as possible once a patent battle has begun in order to
obtain successive 30-month stays that keep the generic competition out
of the market. FTC found that brand companies have just recently
discovered the potentially unlimited monopoly profits that can be
reaped by taking advantage of the lack of a patent delisting mechanism
and the automatic 30-month stay. According to FTC, the ``stacking'' of
multiple 30-month stays has delayed generic approval for not 30 months,
but for 34 to 70 months--4 to 40 months beyond the first 30-month stay.
Furthermore, six of the eight ``stacking'' abuses cited by FTC occurred
since 1998, and all occurred since 1996--demonstrating that the
discovery of this loophole is relatively new, but steadily on the rise.
FTC also correctly observed that, like all other patent owners,
brand companies can prevent generic marketing by demonstrating
entitlement to a preliminary injunction. FTC further concluded that
there were no instances where a generic drug entered the market and was
later found to be infringing on the brand's patent--so in essence, the
generic industry self-polices itself given the potential liability
exposure.
In regard to patent challenges, the FTC data confirms that patent
challenges by generic companies under Hatch/Waxman result in greater
competition and consumer access to affordable medicine. FTC's analysis
revealed that generics are winning nearly 75 percent of the patent
cases and, therefore, are bringing ``appropriate challenges'' to brand
patents. This percentage would be even larger if one included some of
the patent suit settlements that were the equivalent of a generic
victory. This is compelling evidence that, in the overwhelming majority
of cases, patent challenges brought under Hatch/Waxman are removing
illegitimate barriers to competition and making a real difference in
the cost of prescription drugs. Thus, the FTC Report is entirely
consistent with eliminating 30-month stay provision from Hatch-Waxman.
D. Reform is Needed Now
Americans need relief from out of control prescription drug costs.
Generics can help. GAAP will not provide all the answers, but it does
represent a constructive step in closing loopholes that delay the
introduction of generic drugs after the valid brand patents and
corresponding patent extensions have long expired.
In 2000, NIHCM released a study that analyzed the issue of brand
innovation and patent extensions. The study suggested that changes in
the law over the last two decades have increased by at least 50 percent
the effective patent life for new drugs. That means drug companies
have, in addition to five years of patent restoration time, recovered
an extra four or five years to reap profits before low-priced generics
enter the market. The NIHCM study concluded that delays in generic
competition are forcing customers to incur billions of dollars in
prescription drug costs they otherwise may not have paid.
In opposition, PhRMA has been using a chart to bolster its case.
This chart allegedly indicates that reform of Hatch-Waxman is not
necessary by showing the cumulative value of brand products coming off
patent in the next ten years. What PhRMA neglects to mention for a
multitude of reasons--one of which involves 30-month stays--is that 20
of the 30 possible products that should have gone off patent in 2000
failed to have generic competition during that year. This represented
$5.4 billion in sales. Likewise, in 2001, generic competition did not
commence for 23 of the 26 products, representing $11.4 billion in
sales.
iii. highlights of gaap legislation
GAAP achieves significant savings by closing loopholes in the
current laws that allow brand name drug companies to block generic drug
approval and thereby delay consumers' access to more affordable
medicine.
The significant provisions of GAAP, which the Senate overwhelmingly
passed by a vote of 78-21, include:
<bullet> Limiting brand drug companies to a single 30-month automatic
stay of generic drug approvals. When a generic applicant
challenges a patent, and is subsequently sued by the brand name
drug company, there is an automatic 30-month stay, in essence a
free preliminary injunction, which prevents FDA from approving
the generic product. In other words, the system bestows a
financial windfall to the brand company for merely suing the
generic--regardless of the fact that brand companies lose these
lawsuits nearly 75 percent of the time. This 30-month stay of
course is unique to the pharmaceutical industry with respect to
classical drug products. To obtain a preliminary injunction
against a competitor in all other industrial sectors, including
antibiotic and medical device cases, patent owners must meet a
significant burden of establishing the likelihood of success on
the merits of the patent before a competitor's product is kept
off the market. Thus, because the thirty-month stay is not
based on the patent's merits, it can be quite problematic in
and of itself, resulting in needless health care costs. In
addition, the brand company can currently list multiple patents
while a lawsuit is ongoing, resulting in additional 30-month
stays for each new listing. This can delay generic approval
virtually indefinitely. GAAP would limit brand companies to a
single 30-month stay for the patents that are listed in the
Orange Book when the brand drug was originally approved. For
all other patents, GAAP provides an easier preliminary
injunction standard by which brand companies can seek to keep
generic competitors off the market during the litigation.
<bullet> Providing an accurate list of patents for brand name drugs.
There is currently no method for correcting the information in
the FDA Orange Book, the document that lists the patents that
protect brand drugs from generic competition. The courts have
held that there is no right to challenge a patent listing and
FDA alleges it has no authority in this area. The FTC, in its
recent report, noted several examples where patents that
``raised legitimate listability questions'' were listed solely
to generate 30-month stays. GAAP allows the private sector to
insure the correctness of patent listings by giving generic
applicants and patent owners the right to sue brand companies
to correct improper patent listings in the Orange Book.
<bullet> Providing a complete list of patents for brand name drugs. The
proper listing of all relevant patents is essential to
providing timely access to affordable medicine. This will be
especially true when the 30-month stay loophole is closed.
Without the potential for a 30-month stay, brand companies may
be encouraged to NOT list their patents and therefore shift the
litigation outside of the Hatch/Waxman system. By doing so,
brand companies could wait longer to sue, thereby delaying the
timely resolution of patent issues. GAAP would address this
potential future loophole by preventing brand companies from
suing generic manufacturers over patents that are not listed in
a timely manner. This imposes little or no burden on brand drug
companies, but is imperative to the efficient operation of
Hatch/Waxman to facilitate the timely access of affordable
pharmaceuticals.
<bullet> Ensuring the timely resolution of patent disputes. Currently,
the potential for a free 30-month stay drives brand companies
to sue generics within 45 days of being notified of a patent
challenge. When the free 30-month stay is taken away for
patents listed after the brand approval, brand companies may
seek to make an end-run around the system by waiting until the
eve of generic approval before bringing their lawsuit. This
would have the effect of keeping generic competition out of the
market because it would create too much risk for the generic
company to introduce the product. GAAP requires generic
applicants to provide a detailed notice to brand companies of
their intent to market a lower priced version of the drug. GAAP
also requires the brand company to sue the generic company
within 45 days of receiving this notice or lose its right to
sue that particular company. This provision is essential to
prevent future gaming of the system.
<bullet> Preserving the incentive to challenge patents. The current law
grants 180 days of exclusive generic marketing to the first
generic company to successfully challenge a brand drug patent.
As the FTC noted in its recent report, the generic industry has
been extremely successful in selecting weak and invalid patents
to challenge. As a result, consumers have received affordable
versions of blockbuster drugs such as Prozac years ahead of
when they otherwise would have been available. However, recent
court decisions have drastically reduced the value of this
incentive by triggering the exclusive marketing period
following the initial court ruling in the case. As a result, it
is possible for the 180-day generic exclusivity period to
expire before the appeals process is completed. GAAP fixes this
by moving the triggering event out to the date of an appeals
court decision.
<bullet> Forfeiture of 180-Day Exclusivity. The current law does not
adequately address situations where the first generic
challenger does not, or cannot, go to market after the
resolution of the lawsuit. GAAP provides for the forfeiture of
the first challenger's exclusive marketing period if they do
not go to market within 60 days of specified events.
conclusion
The Congressional Budget Office reported that American consumers
will save 60 billion dollars over the next ten years if Congress enacts
the GAAP bill currently under debate. CBO has already proven our main
point in this debate: fair competition is pro-consumer and pro-savings.
Moreover, these savings will make a prescription drug benefit more
affordable.
The Generic Pharmaceutical Association believes that modest
legislative fixes contained in GAAP could stop abuses and restore the
balance between innovation, competition and access originally sought in
the Hatch-Waxman Act. GAAP does not rewrite Hatch/Waxman. GAAP does not
change patent law. GAAP simply restores balance to a system created two
decades ago. It is a rule change, if you will, a refinement of existing
law, not a rewrite of Hatch/Waxman.
I would be happy to answer any questions.
Mr. Bilirakis. Thank you. Dr. Glover, please proceed, sir.
STATEMENT OF GREGORY J. GLOVER
Mr. Glover. Mr. Chairman and members of the committee, on
behalf of the Pharmaceutical Research and Manufacturers of
America, I am pleased to appear at this hearing today. I am
here to discuss the importance of innovation and competition in
maintaining patent incentives for discovering new medicines and
the critical, highly successful role of the Hatch-Waxman Act in
fostering a competitive market that drives innovation.
Competition in the pharmaceutical industry is robust.
Innovation results in new products that compete with products
of other research-based companies, thereby providing patients
with important therapeutic options. Thanks to the Hatch-Waxman
Act, the generic industry's share of the prescription drug
market has jumped from less than 20 percent in 1984 to almost
50 percent today. This demonstrates the system is working as
intended by Congress.
However, we are concerned that the current debate is
heading toward eroding legitimate intellectual property rights
and legitimate efforts to enforce those rights. The findings of
the Federal Trade Commission do not demonstrate patterns of
widespread abuse of the Hatch-Waxman Act, nor do they justify
the sweeping measures included in pending legislation.
The FTC reported concerns about only eight cases out of
more than 8,000 generic drug applications since 1984, less than
one-tenth of 1 percent. Any congressional legislation that
works 99.9 percent of the time should be heralded as an
unqualified success.
As the FTC explains in the report's preamble, the study
addresses only consumer access to the generic drugs. It does
not address the Hatch-Waxman objective of promoting innovation.
This limited focus does not address the need to maintain
current incentives for innovation and the creation of new
treatments and cures.
One mechanism for preserving these incentives is the 30-
month stay. During this time period the FDA cannot grant final
market approval for a generic product that is involved in
timely initiated patent litigation. Contrary to many
assertions, the 30-month stay does not extend the patent.
Currently pending legislation would deny the 30-month stay
for any patent filed with FDA more than 30 days after new drug
approval. The FTC report suggests a very different, but still
flawed, policy that would deny a 30-month stay to any patent
listed in the Orange Book after the relevant ANDA was filed.
Both limitations are arbitrary and are based on a fictional
version of research and development, where innovation for a
product ceases as soon as the innovator begins the FDA approval
process. The reality is that pioneer companies continue to
innovate even after the FDA approval process begins. Companies
continue to innovate to improve the side effects profile,
improve stability, increase the efficiency of drug delivery,
improve dosage regimens, and develop changes in dosage forums.
The patents are filed when the innovation occurs. However,
depending on the timing of the innovation and the review
processes of the Patent and Trademark Office, many, if not all,
of those patents can be issued more than 30 days after NDA
approval.
In addition, the legislative proposals include several
provisions that extinguish the patent owner's rights to enforce
its patents, either inside or outside the context of the Hatch-
Waxman Act. These provisions demonstrate that the patent system
itself is at the heart of the debate, patent protection that is
guaranteed by the United States Constitution.
Indeed, purported benefits of legislation now before
Congress will prove elusive because the increased availability
and use of innovative medicines is what really helps reduce the
cost of overall health care. As the Patent and Trademark Office
wrote in a July 30 letter to Senator Hatch regarding the
Senate's proposal, quote, ``This bill would likely do the
opposite of what its title suggests by limiting access to
cutting-edge drugs, decreasing innovation, and ultimately
harming the quality of treatments available to patients.''
Continuing attacks on patent rights will lead to less
consumer choice and decreased availability of new drugs and
will undermine the careful balance of the Hatch-Waxman Act that
protects legitimate patent rights while facilitating the
marketing of generic drugs. Thank you.
[The prepared statement of Gregory J. Glover follows:]
Prepared Statement of Gregory J. Glover, on Behalf of the
Pharmaceutical Research and Manufacturers of America
Mr. Chairman and Members of the Committee: On behalf of the
Pharmaceutical Research and Manufacturers of America (PhRMA), I am
pleased to appear at this hearing today on the Hatch-Waxman Act. I am a
physician and an attorney with the law firm of Ropes & Gray,
specializing in the relationship between intellectual-property and FDA
regulatory law. PhRMA represents the country's major research-based
pharmaceutical and biotechnology companies. Having invested over $30
billion in 2001 alone in discovering and developing new medicines,
PhRMA companies lead the way in the search for new treatments and cures
that enable patients to live longer, healthier, and more productive
lives.
introduction
I am here to discuss the importance to innovation and competition
of maintaining patent incentives for discovering new medicines and the
critical, highly successful role of the Hatch-Waxman Act in fostering a
competitive market that drives innovation for pharmaceutical
development. Competition in the pharmaceutical industry is robust.
Innovation results in new products that compete with products of other
research-based companies in given therapeutic areas. Different patented
medicines to reduce cholesterol and limit blood pressure are just two
examples of strong competition between products within therapeutic
classes. Even before generic competition occurs, competition from other
innovator products takes place, providing patients with various
therapeutic options.
In addition, innovation promotes competition between research-based
companies and generic companies by providing new treatments and cures
for generic companies to copy. As we all recognize, it is the function
and business model of generic companies to copy products developed by
research-based companies. Current interpretations of the 180-day
generic drug exclusivity period encourage the quick filing of ANDAs
containing a Paragraph IV certification to challenge the pioneer patent
as soon as possible after the NDA has been approved. In many cases,
generic manufacturers apply as early as 48 months after approval of the
pioneer product. The result is that generics come onto the market even
earlier than anticipated by Hatch-Waxman.
This highly competitive environment rests on a bedrock of
innovation from the pharmaceutical industry. To the extent innovation
does not occur, research-based companies and generics alike will have
fewer new products, less competition will result, and more importantly,
patients will wait longer for future treatments and cures.
Let me say upfront that the research-based pharmaceutical industry
recognizes that generic drugs play an important role in health care.
The Hatch-Waxman Act also acknowledges the important role of generics.
And, because of that Act, the generic industry's share of the
prescription drug market has jumped from less than 20 percent to almost
50 percent today. This marketplace shift demonstrates that the system
is working as intended by Congress by maintaining incentives both for
research on new drugs and for generic copies of older drugs.
However, we are concerned that the current debate is heading toward
eroding legitimate intellectual property rights and legitimate efforts
to enforce those rights. Today, we want to respond to frequent claims
that it is anti-competitive for pioneer companies to seek and obtain
intellectual property protections for their innovations and to protect
those presumptively valid rights under the provisions of the Hatch-
Waxman Act and the patent law.
The findings of the Federal Trade Commission, published in its
report that is the subject of today's hearing, do not support either
the allegations of widespread abuse of Hatch-Waxman and patent law or
the sweeping measures included in legislation pending before Congress.
The FTC study focused on eight cases of concern to the Commission--out
of more than 8,000 generic drug applications since 1984 under the
Hatch-Waxman Act--less than one-tenth of one percent. Any Congressional
legislation that works 99.9% of the time should be heralded an
unqualified success.
response to alleged abuses
I would like to turn now to some of the alleged abuses raised by
the generic industry.
1. There has been a lot of talk about a pioneer company that
supposedly had a patent on a brown bottle. The allegation is simply
false. The brown bottle was described as one of many ways to protect
the drug from being degraded by light, a significant concern for this
drug. Indeed, in the litigation in question, the court specifically
held that ``no brown bottle appears as part of the claim,'' and focused
instead on ``[the patent claiming] a composition for treating cancer
with cisplatin.'' The court's ruling that the invention in question was
an obvious modification of prior patents in light of the scope and
content of the prior art was the result of a complex analysis of
patentability standards, a judicial determination legitimately and
appropriately sought and provided.
2. There have been complaints about a pioneer patent on the scoring
of a pill. However, the scoring was an important element of the dosing
regimen for the drug. Indeed, it was so important that the generic
manufacturer tried to work around the patent by making minor
modifications to the scoring pattern. The generic industry cannot
seriously maintain that the patent is frivolous when it has worked so
hard to recreate the innovation that is covered by the patent.
3. There are allegations that patents claiming particular uses of
Wellbutrin IR <Register> stalled competition for one of the forms of
Wellbutrin IR <Register> for five years. However, since October 2000,
there have been four generic versions of the drug on the market. The
patents in question were never challenged by any generic.
4. The pioneer for Nicorette <Register> has also been criticized
unfairly for patenting flavors in addition to its original non-flavored
product. But the pioneer only received a period of exclusivity for the
first approved form of flavored Nicorette <Register> because the FDA
required additional studies demonstrating that a flavored product did
not create an increased risk of nicotine addiction. The period of
exclusivity did not apply to the initial form of (non-flavored)
Nicorette <SUP>'</SUP>.
5. There have also been accusations about a pioneer improperly
extending exclusivity for Prilosec <SUP>'</SUP>, asserting that generic
competition should have begun when the patent claiming the drug's
active ingredient expired on October 5, 2001. I want to review the
facts of this situation, which simply do not support the rhetoric.
In 1998, AstraZeneca filed patent infringement cases to enforce its
rights under certain patents that claim among other things the Prilosec
<SUP>'</SUP> formulation. Prilosec's <SUP>'</SUP> active ingredient,
omeprazole, by itself does not make an effective drug. To work,
omeprazole must be absorbed in the small intestine, but the chemical is
fragile and normally destroyed by stomach acid and decomposes quickly
upon storage. To get the active ingredient safely through the stomach
to the intestine, AstraZeneca's scientists had to come up with a way to
shield the omeprazole from the stomach acid that would destroy it and
to keep the drug from degrading. The solution was the innovative
formulation.
The reason for the absence of generic products has nothing to do
with any Hatch-Waxman-related activity. Although there are a number of
patent infringement suits currently pending, there are no 30-month
stays blocking generic approval. In fact, Andrx, one of the ANDA
applicants has had FDA approval to market its drug for nearly eleven
months, since November 16, 2001. Andrx's failure to market its approved
product is not based on a 30-month stay, but on its own business
decisions regarding when and how to prepare for commercial marketing.
6. Another drug on the list of alleged abuses is Paxil
<SUP>'</SUP>. Paxil <SUP>'</SUP> was approved by the FDA in 1992 and
first sold in 1993. Generic competitors wishing to copy this drug
launched patent challenges on the drug in 1998--little more than 5
years after the drug was on the market. All of the other patents the
pioneer has listed will expire before the initial patent covering the
active ingredient. Further, if the pioneer successfully enforces its
patents in court, generics can enter the market in 2007--no more than
14 years from when the drug was first marketed.
7. Finally, there have been allegations of an instance where a
pioneer attempted to patent the color of a pill. We have not yet been
able to find any alleged patent on pill color, and hope that the
generic industry can clarify this allegation or retract it.
None of these examples represents abuse of the Hatch-Waxman Act,
and several of these examples have nothing to do with the Hatch-Waxman
Act at all. What these examples illustrate is that there is fundamental
unhappiness with patent protection itself--protection that is
guaranteed by the United States Constitution.
anti-competitive practices in the marketplace
We are also concerned about the highly selective approach to
discussing anticompetitive conduct. For example, the debate about the
status of competition in the marketplace often does not include a
discussion of the anti-competitive effect of the 180-day generic drug
exclusivity. This provision assures that the first generic company to
begin commercial marketing of a copy will not face other generic
competition for the first 180 days its copy is on the market.
The 180-day exclusivity period awarded to qualifying generic patent
challengers allows generic companies the opportunity to make
significant profits during their period of exclusivity. But it is not
at all clear that this 180-day exclusivity period is in fact needed as
an incentive to bring generic drugs to market. Even without it, the
generic copy business offers significant financial rewards--that's why
18 generic companies now have approval to market generic copies of
Prozac <SUP>'</SUP> even though only five received 180-day exclusivity.
Furthermore, where the generic firm is able to show that its product
does not infringe the pioneer product, but cannot demonstrate the
invalidity of the patent, its 180-day exclusivity provides little
public benefit and is essentially a windfall to that generic.
ftc report is more appropriate basis for serious discussion
While the FTC report does not identify patterns of abuse, the
report discusses circumstances that might give rise to abuses and
proposes limited adjustments to address these circumstances. The FTC
has concluded that preemptive adjustments should be pursued as an
alternative to relying on antitrust enforcement to address any actual
abuse should it arise.
Having said that, the FTC explains in the report's preamble, the
report addresses only consumer access to generic drugs; it does not
address the Hatch-Waxman objective of promoting innovation.
Accordingly, the FTC report focuses on only half of the story. By
considering solely consumer access to generic drugs, the study focuses
on copying existing drugs rather than maintaining current incentives
for innovation and the creation of new cures and treatments. In short,
despite having found no patterns of abuse and not having considered
potential impacts on innovation (which is the role of the Patent and
Trademark Office), the FTC has proposed limited changes to a highly
successful regime at the risk of harming innovation. Even with this
limited focus and set of priorities, the FTC study does not support the
radical changes encompassed in the bills pending before Congress.
proposed ``patent reform'' legislation (s. 812, h.r. 5311, hr. 1862)
The legislation pending in Congress reflects a focus on the 30-
month period in which the FDA cannot grant final market approval for a
generic product that is involved in timely initiated patent litigation.
We must bear in mind that the Hatch-Waxman Act requires the pioneer to
wait until the generic manufacturer files its patent challenge before
bringing this suit. This unique Hatch-Waxman benefit to generic drug
manufacturers--giving the generic drug manufacturer the use of what
otherwise would be patent-protected pioneer medicine data to obtain
bioequivalency data for their FDA applications--is often forgotten in
this debate.
Currently pending legislation would deny the 30-month stay for any
patent filed with FDA more than 30 days after new drug approval.
Remarkably, this even encompasses patents filed many years prior to FDA
approval, but not issued until long after FDA approval. The FTC report
suggests a very different, but still flawed policy that would deny a
30-month stay to any patent filed after the relevant ANDA was filed.
Both limitations are arbitrary, and neither approach recognizes a
corresponding need to modify the application of the patent infringement
exemption. Both approaches fail to recognize the need to provide
pioneers with a viable means to protect their patent rights. Both also
fail to recognize that the current law on 180-day generic drug
exclusivity encourages generic applicants to file patent challenges as
soon as possible--even when they have no basis for a patent challenge
and even when they have an inadequate application that they will need
to fix later.
Furthermore, the legislation's limitation of the 30-month stay is
largely based on a fictional version of research and development where
innovation for a product ceases as soon as a pioneer has an approved
version of that product. Therefore, nearly all patents related to the
product would be issued by the Patent and Trademark Office (PTO) by the
time of NDA approval. Further, drugs that receive fast-track
approvals--because they represent significant improvements in the
treatment of life-threatening diseases--would not get the full benefits
of the Hatch-Waxman Act protections. Real examples of patents for drugs
that received fast-track approvals and would not receive the full
patent protections under the generic industry's proposed changes to the
Hatch-Waxman Act include AZT, the first product approved for treating
AIDS, and some protease inhibitors, the current state-of-the-art
treatment for HIV. Other products that would be denied full protection
under the generic industry proposals are important drugs for
cardiovascular diseases and mental health disorders.
This scenario bears no relation to the real world of research-based
science. The reality is that pioneer companies do not stop innovating
once the approval process for a product begins. As countless examples
demonstrate, pioneer companies continue to innovate after beginning the
approval process for a product to improve the side-effects profile,
improve stability, increase the efficiency of drug delivery, improve
dosage regimens, and develop changes in dosage forms. The patents are
filed when the innovation occurs. However, depending on the timing of
the innovation and the review process at the Patent and Trademark
Office, many if not all, of these patents from continuing innovation
can issue more than 30 days after NDA approval. Yet, the legislative
proposals would deny these patents the full protection of the Hatch-
Waxman Act while, at the same time, continuing to make these patents
subject to the patent infringement exemption.
In addition to the provisions on the 30-month stay, the legislative
proposals include several provisions that extinguish the patent owner's
right to enforce its patents--either inside or outside the context of
the Hatch-Waxman Act. These provisions support my earlier statement
that the heart of the complaints in the current debate are about the
patent system itself. PhRMA urges Congress to recognize that playing
games with the patent protections of the Hatch-Waxman Act for the
benefit of generic profits and short-term cost savings does gamble on
jeopardizing the incentive for the important and risky investments in
future treatments and cures that are undertaken by the research-based
pharmaceutical industry.
Indeed, the short-term benefits of the legislative proposals now
before Congress will prove elusive because the increased availability
and use of innovative medicines is a true driver of reduced overall
healthcare costs. There are many examples of rapid improvements in
medicines in recent years that, while leading to increased expenditures
on medicines, also have led to far better results for patients, and
often avoidance of much costlier hospitalizations, emergency care, and
nursing home admissions. For instance, innovations in recent years have
brought us both improvements in medicines and the first medicines to
treat Alzheimer's Disease, diabetes, asthma, depression, AIDS, various
types of cancer, and heart disease. These medicines--which save and
improve lives and allow people to continue work rather than struggle
with disability--are all products of our strong patent system that
protects intellectual property rights, not a weak one that fails to do
so.
conclusion
Our health care system would be far less affordable without new
medicines--as demonstrated by purchasers embracing disease management
as one of their leading cost containment strategies. In these programs,
drug spending often increases while total health spending decreases.
Weakening patents ultimately will increase health care costs, as the
disincentive to innovate leads to fewer new medicines and, thus,
foregone opportunities to cure or better manage costly diseases. As the
Patent and Trademark Office (PTO) wrote in a July 30, 2002 letter to
Senator Orrin Hatch, ``This bill [S.812] would likely do the opposite
of what its title [Greater Access to Affordable Pharmaceuticals]
suggests--by limiting access to cutting-edge drugs, decreasing
innovation, and ultimately harming the quality of treatments available
to patients.''
Part of Hatch-Waxman's foundation is the protection of legitimate
patent rights of pioneer companies. Without that protection, the
research-based pharmaceutical industry will have reduced incentives to
innovate and to create safe and effective cures and treatments of
illnesses. Without that protection, the production of new drugs will
suffer. Attacks on legitimate patent rights will lead to less consumer
choice and less availability of new drugs, and will undermine the
careful balance of Hatch-Waxman between legitimate patent rights and
getting generic drugs to market.
Thank you.
Mr. Bilirakis. Thank you very much, Dr. Glover. Dr. Levine.
STATEMENT OF SHARON LEVINE
Ms. Levine. Mr. Chairman, Congressman Brown, distinguished
committee members, I am a pediatrician and Associate Executive
Director of The Permanente Medical Group in the Kaiser
Permanente Medical Care Program. I am testifying today on
behalf of RxHealthValue, a broad coalition of more than 20
organizations nationally, consumer organizations, purchasers of
drugs, providers, health benefit sponsors and health plans,
including AARP, General Motors, AFL-CIO, United Auto Workers,
DaimlerChrysler, Verizon, and Visteon. Collectively,
RxHealthValue's members represent more than 100 million
American consumers who have a great interest in the outcome of
hearings such as this.
As a physician and as a member of RxHealthValue, my primary
concern and the reason I am here today is the affordability of
prescription drugs and the viability of prescription drug
coverage. Reform of the laws covering generic availability is a
key concern not only of this committee and of our coalition,
but of American consumers, as was sharply reflected in the
survey released last week by AARP. It is clear that there is
strong consumer support for generic drugs and for the kind of
reforms that would make generic drugs more accessible.
Congress has the ability to do any number of things to make
prescription drugs more affordable. While reform of Hatch-
Waxman is not the only step, it is an important step and
presents an important opportunity to address a piece of what is
going on that is making prescription drugs and prescription
drug coverage increasingly unaffordable for American consumers.
Consumers, businesses, unions, the Federal Government, and
health plans are aggressively attempting to manage staggering
increases in prescription drug expenditures. Members of
RxHealthValue spend billions of dollars each year on
prescription drugs and have experienced anywhere from 17 to 20
percent annual increases for the last 5 years, threatening the
viability of prescription drug coverage.
Our goal as a coalition and our goal as individual
organizations is to provide value to our beneficiaries and to
ensure that our members or patients get a dollar's worth of
help at least for every dollar they spend on prescription
drugs. Generic drugs are an important part of the value
equation. As you know, they are subject to rigorous FDA review
to ensure that they are as safe, as effective, as their brand-
name counterparts; they have the same active ingredients,
dosage forms, standards for purity, quality, and manufacturing,
and the same clinical effect. The only substantive difference
between generic drugs and their brand counterpart is the price.
The passage of Hatch-Waxman in 1984 was an important step
in increasing the availability of generics. It established a
regulatory framework to balance the incentives and the reward
for continued innovation by research-based pharmaceutical
companies with opportunities for consumers to actually benefit
from those drugs based on market entry by genetics.
RxHealthValue members are growing increasingly concerned,
however, that the provisions of Hatch-Waxman have been
inappropriately exploited to delay market entry and to delay
access to high-quality, cost-effective generic drugs.
Inappropriate Orange Book patent listings, repeated use of the
automatic 30-month stay granted to the patent-holder has
resulted in significant expense for consumers and
unpredictable, unaffordable, and increasingly unmanageable
pharmaceutical costs.
While it represents a very small percentage in terms of
market share or in terms of the number of drugs, when we look
at the expense associated with these drugs, it is quite large.
General Motors testified that ``evergreening'' of the patents
of five drugs, one each to treat ulcers, cholesterol, diabetes,
allergies, and depression, increased its pharmaceutical costs
by over $142 million. In Kaiser Permanente these same drugs,
the same five drugs, resulted in an expenditure of over $120
million.
Just to give you some perspective, that $120 million could
have built and equipped a 100-bed hospital. This is a non-
trivial expense even though it represents a small number of
drugs.
Last-minute delays in generic availability make it
difficult to plan and to budget for drug costs and to budget
the appropriate resources. Our members have had to absorb
unanticipated cost of hundreds of millions of dollars based on
this small number of evergreening patents.
Delays in generic availability, though not the sole reason
for the staggering increases in drug costs, certainly
contribute and they result in efforts and activities by
providers of health care coverage that have impacted consumers
significantly.
Mr. Bilirakis. Please summarize, would you, please, Doctor?
Ms. Levine. Modifying benefits to reduce coverage, increase
in cost-sharing, these have real impact on consumers, and the
delay in the availability of quality generics contributes to
this.
Our coalition recommends either eliminating the automatic
30-month stay, decreasing its length--and I would argue that
the difference between 25\1/2\ and 30 months is substantive
when we look at the expense related to these drugs--and if that
is not possible, at least limiting it to one 30-month stay.
In addition, we support the fact that there ought to be
regulation requiring the actual use of the 180-day exclusivity
for generic drugs to actually result in a benefit to consumers
and the generic actually coming to the market. Thank you very
much.
[The prepared statement of Sharon Levine follows:]
Prepared Statement of Sharon Levine, Kaiser Permanente Medical Care
Program on Behalf of RxHealthValue
Chairman Bilirakis, Congressman Brown, and distinguished Committee
members, I am Dr. Sharon Levine, a pediatrician and Associate Executive
Director of The Permanente Medical Group, in the Kaiser Permanente
Medical Care Program.
I am here today testifying on behalf of RxHealthValue, a broad and
diverse coalition of more than 20 national organizations representing
consumer organizations, purchasers of pharmaceuticals, health benefits
sponsors and health plans including AARP, Families USA, Ford, General
Motors, DaimlerChrysler, Verizon, Visteon Corporation, the United Auto
Workers, the AFL-CIO, the Academy of Managed Care Pharmacy, the
Alliance of Community Health Plans, the Blue Cross Blue Shield
Association, and Kaiser Permanente. RxHealthValue is committed to
research, education and both public- and private-sector solutions to
assure that Americans receive the full health and economic value from
their prescription drugs. It is an honor to appear before your
Subcommittee to share our views regarding prescription drug spending
growth and access to generic drugs and to underscore our belief that
federal policy reforms are needed to restore balance in the
pharmaceutical marketplace.
As a physician, my primary concern today is the affordability of
prescription drugs and prescription drug benefits. Reform of the laws
governing availability of generic drugs is a key objective of our
coalition; it is also an important concern of American consumers
surveyed in recent weeks by AARP who recognize the value that these
drugs represent and who have shown strong support for reforms that
would make generic drugs more accessible.
As the House Subcommittee with primary jurisdiction over
prescription drug development, use and marketing, we want to
particularly thank you for your leadership in holding this hearing. We
also want to commend the Federal Trade Commission (FTC) and Chairman
Murris for the extensive and thoughtful work the FTC has put into
analyzing and addressing competitive concerns in the prescription drug
marketplace over the past several years. It is our hope that today's
hearing will continue the strong bipartisan effort to develop
legislation to bring relief to consumers, as well as public and private
purchasers of prescription drugs.
Congress could take any number of steps to make prescription drug
more affordable. The step closest at hand is the one we are discussing
today. We in RxHealthValue urge you to take action this session of
Congress to make drugs that are more affordable more available.
the pharmaceutical cost challenge
Consumers, businesses, unions, the federal government and health
plans throughout the nation are aggressively attempting to manage
soaring increases in prescription drug expenditures. Collectively,
RxHealthValue's members represent more than 100 million Americans. The
employer, insurer and consumer members of RxHealthValue spend billions
of dollars each year on prescription drugs and report that year-to-year
prescription drug spending is growing by as much as 20 percent,
threatening the very viability of prescription drug coverage. Not
surprisingly, a poll of Americans age 45 and over recently released by
AARP indicated that there is growing concern among this group that
rapidly rising prescription drugs costs are a threat not just to
prescription drug coverage, but to all health care coverage.
The broad-based, diverse and respected organizations within
RxHealthValue are growing increasingly concerned that the Hatch-Waxman
law contains loopholes or provisions that have been exploited to allow
the brand-name pharmaceutical industry to delay competition and access
to high-quality, cost-effective generic drugs. We believe that
inappropriate Orange Book patent listings and repeated use of the
automatic 30-month stay granted to the patent holder has resulted in
unpredictable, unaffordable and increasingly unmanageable
pharmaceutical costs.
Kaiser Permanente is the largest private, non-profit health care
system in the country, providing medical care to more than 8 million
Americans. Permanente physicians prescribe and Kaiser pharmacists
dispense more than $3 billion a year in prescription drugs. Our
physicians and pharmacists work very hard to deliver to our members the
highest quality and most cost-effective pharmaceutical care possible
based on the best available clinical evidence. Through this
partnership, we are able to achieve significant economies in
pharmaceutical care. Nevertheless, even our pharmaceutical costs
continue to soar, growing at an annual rate of about 15 percent in
recent years.
We expect pharmaceutical costs to increase significantly each year,
frankly at rates that far exceed inflation. We recognize that
prescription drugs can improve treatment, enhance the quality of life,
and increase longevity. There are circumstances in which increased use
of pharmaceuticals improves health and/or reduces spending for hospital
or medical services. In these circumstances--for example, the use of
lipid-lowering drugs to moderate coronary artery disease, or the use of
SSRIs to treat depression--we work very hard to increase appropriate
drug utilization, taking advantage of quality generics when available.
Unfortunately, most increases in drug spending supplements rather than
substitutes for other health care costs.
Generic drugs are important tools for managing rising
pharmaceutical costs. Typically, generic drugs enter the market at
prices reflecting a 30 percent discount over their brand-name
counterparts. Within two years, the generic price may be as much as 60
to 70 percent less than the brand-name price.
As you know, generic drugs are subject to rigorous review by the
Food and Drug Administration to ensure that they are as safe and
effective as their brand-name counterparts. When compared to brand-name
drugs, FDA-approved generic drugs have the:
<bullet> Same active ingredients,
<bullet> Same dosage form,
<bullet> Same standards for purity and quality,
<bullet> Same standards for manufacturing,
<bullet> Same amount of drug absorbed over the same time, and
<bullet> Same clinical effect.
The only real difference between generic drugs and their brand name
counterparts is the price.
barriers to generic competition
From our perspective, delays in the availability of generic drugs
have lengthened in recent years and, if not addressed, will almost
certainly force public and private purchasers to make difficult,
painful benefit decisions that will almost certainly increase consumer
out-of-pocket costs. The large companies that come to us for health
care coverage tell the story: in an absolute sense, the ability of U.S.
companies to compete effectively in the global marketplace without
relief from rising prescription drug costs will be significantly
diminished.
Last minute delays in generic availability make it very difficult
to plan for future drug costs, a key concern for employer, health plan
and governmental payers who need to budget the necessary resources in
advance to pay for prescription drugs. By creating significant
budgetary uncertainty, delays in generic availability force payers of
all kinds ``health plans, employers or state Medicaid programs--to seek
ways to mitigate budgetary risk including modifying benefits to reduce
coverage and in some cases increasing patient cost-sharing, both of
which are opposed and resisted by employees, unions, and members of
both public and private health plans. Such plan changes can lead to
significant conflict among corporate purchasers, insurers, health plans
and the people who depend on the health benefits they provide. The
year-after-year double-digit drug cost increases make this problematic
approach unavoidable. If the large increases in drug spending were in
fact matched by reductions in hospital and medical spending, this would
not be as significant a problem. But the promise of such an offset
largely has proved illusory.
Mr. Chairman, over the last several years, as the patents of costly
brand-name prescription drugs have approached expiration, purchasers
have planned and budgeted for generic drug competition to reduce costs
and increase enrollee choice. Such competition is critical to effective
pharmaceutical benefit management programs as generic competition
reduces costs by 60 to 70 percent. Time and again, however, purchasers
have underestimated their liability, as brand-name pharmaceutical
companies have been able to extend their drugs' market exclusivity
through repeated use of the automatic 30-month stay included in the
Hatch-Waxman Act.
In addition, the brand-name pharmaceutical industry has
successfully protected its older products from generic competition by
listing unapproved and unmarketed uses or altering non-active
ingredient components of the product in the Orange Book or through the
U.S. Patent and Trademark Office.
For many of these product listings, however, independent experts
have raised serious questions about whether such product changes really
are true innovations meriting such protections. And when a brand-name
pharmaceutical company contests a generic's challenge of a questionable
patent or exclusivity claim, the pharmaceutical company routinely is
granted a 30-month market exclusivity extension, regardless of the
merits of the case.
We are not aware of a single industry besides the brand-name
pharmaceutical industry that has the ability to extend unilaterally and
automatically protection against competition and believe that Congress
never intended nor expected this provision to be repeatedly utilized
for this purpose. We believe that the expiration of patents after their
intended statutory term creates a strong incentive for companies to
continue to develop innovative new products.
As a consequence of the practices of many in the brand-name
pharmaceutical industry, Kaiser Permanente and other members of
RxHealthValue have seen our prescription drug costs skyrocket. Since
the enactment of Hatch-Waxman, the average number of patent extensions
filed for ``blockbuster'' drugs has increased five-fold--from two to
ten patents filed. And this trend has a very real and all-too-
frequently devastating effect on the affordability of prescription
drugs and ultimately all health care costs. 1Our concerns about
inappropriate practices in the marketplace are not limited to the
brand-name industry. We are troubled by and strongly opposed to brand-
to-brand and brand-to-generic settlements that are designed to delay
market entry of generic competition.
There have been cases where generic pharmaceutical companies that
initially filed a challenge to a brand-name patent and thus were
eligible for the no-generic competition, 180-day exclusivity period
reached an agreement with the brand-name company not to bring their
generic drug to market. Such agreements, which can benefit both brand-
name and generic companies handsomely, create no value for purchasers
and consumers of prescription drugs.
I want to underscore our view that our support for restricting
questionable practices that delay generic drug market entry does not
mean that we oppose strong intellectual property protection. On the
contrary, we fully appreciate the fact that without strong protection,
the innovations that lead to breakthroughs for patients would not
occur, nor would similarly important advances in other industries. At
the same time, we do not believe that H.R. 5272 or H.R. 5311 would
reduce intellectual property rights or threaten that principle that
these rights are vital to a vibrant economy.
cost impact on rxhealth value members
Within the last several years RxHealth Value members have literally
had to increase our budgets for pharmaceuticals by hundreds of millions
of dollars a year. At Kaiser Permanente, a single manufacturer's
efforts to ``evergreen'' just three of its drugs increased costs to our
Program by over $30 million despite the fact that we strive to avoid
unnecessary costs whenever possible. General Motors, in earlier
testimony before the Senate Health, Education, Labor, and Pension
Committee reported that ``evergreening'' of the patents of five drugs
designed to treat ulcers, cholesterol, diabetes, allergies and
depression increased its pharmaceutical costs by over $142 million.
Even more ominous is our fear that this trend will continue with
increasingly negative impact. For example, without new legislation, GM
estimates that if another five pharmaceutical ``blockbuster'' product
patents that are currently scheduled to expire are extended, they will
increases their prescription drug bill in excess of $204 million during
the period of delay of generic market entry.
Mr. Chairman, when access to lower cost generics is inappropriately
delayed, consumers and other purchasers have no remedy or recourse--no
way to recoup the excessive costs paid for pharmaceuticals. We are
appearing before you to highlight the tremendous challenge confronting
us and to seek legislative relief.
support for bipartisan hatch-waxman reforms
We believe that this is the time for Congress to intervene and pass
legislation that will restore the balance between the value that
accrues to consumers from competition and the benefits that accrue to
brand-name manufacturers and consumers in return for innovation that
was initially intended by Congress in the Hatch-Waxman Patent
Restoration Act of 1984.
Consumers share the concerns of employers, insurers, and government
purchasers regarding the implications of rising prescription drug
costs. Consumers understand the need for policy interventions that
would eliminate barriers to generic competition and are extremely
accepting of generic drugs as an affordable, quality alternative to
brand-name products.
Just last week, AARP released a landmark survey in conjunction with
RxHealthValue that found older Americans:
<bullet> Are concerned about the impact of rising drug costs on their
health care coverage. More than 9 in 10 Americans age 45 and
older (92%) expressed concern about the impact of rising drug
prices on the ability of insurance plans and employers to
provide affordable health care coverage, including prescription
drugs.
<bullet> Frequently struggle to access needed prescription drugs
without lower cost alternatives. Nearly one in four (24%) of
the survey respondents said that they were unable to afford a
prescription drug medication when there was no generic
available.
<bullet> Believe that greater availability of generic drugs helps
combat rising drug costs. More than 8 in 10 (84%) of survey
respondents strongly believe that making generic drugs more
available is an important part of the solution to rapidly
increasing drug prices. Moreover, 9 in 10 older Americans say
they are willing to take generic drugs in order to reduce their
drug costs.
<bullet> Support legislation to make generic drugs more available. Two-
thirds of survey respondents (age 45+) support legislation to
close loopholes used by some pharmaceutical companies to
prevent generic drugs from being made available to consumers.
We in RxHealthValue agree. If possible, Congress should eliminate
the 30-month stay and transfer the 180-day generic exclusivity
protection away from any generic company who has agreed to a settlement
and award it to the next generic competitor who will enter the
marketplace. If eliminating the 30-month stay altogether is not
feasible, then Congress should enact legislation that provides for a
single 30-month stay.
We greatly appreciate the leadership of Congresswoman Emerson and
Congressman Thune and Congressmen Brown and Waxman, in raising this
issue and developing thoughtful legislative solutions in the form of
H.R. 55272 and H.R. 5311, respectively. We urge the Subcommittee to
report out legislation and call on Congress to pass a bill before the
session comes to a close.
Finally, I want to make clear that, speaking both for the
physicians of Kaiser Permanente and the members of RxHealthValue, we
are strongly committed to and supportive of pharmaceutical research and
development. Kaiser Permanente itself conducts a great deal of
pharmaceutical research. Pharmaceutical innovation requires patent
protection to assure innovation. At the same time, excessive market
exclusivity can be as great a deterrent to innovation as insufficient
exclusivity. We fear that certain practices currently employed in the
industry have effectively misdirected its attention away from true
innovation and new product development and towards preservation of its
revenue stream.
conclusion
The intent of the Hatch-Waxman law was to achieve a balance between
incentives to industry to stimulate innovation and patient access to
the products of this innovation and affordable care. Over 18 years the
balance has shifted as a result of questionable practices. But the law
has not kept pace. It's time to restore the balance.
Mr. Chairman, we appreciate your leadership in holding this
hearing. We look forward to working with you and providing any
assistance possible in developing legislation in this area. I would be
happy to answer any questions you may have.
RxHealthValue
RxHealthValue is a national coalition of large employers, consumer
groups, labor unions, health plans, health care providers and pharmacy
benefit managers that, through its members, represents more than 100
million Americans. RxHealthValue is committed to research, education
and both public- and private-sector solutions to assure that Americans
receive the full health and economic value from their prescription
drugs.
participating organizations
Blue Cross/Blue Shield; Kaiser Permanente; AARP; National Consumers
League; Alliance of Community Health Plans; General Motors; Ford;
DaimlerChrysler; Verizon; Families USA; Visteon; American Academy of
Family Physicians; Academy of Managed Care Pharmacy; National
Organization of Rare Disorders; International Union, UAW; AFSCME;
Pacific Business Group on Health; Midwest Business Group on Health;
Washington Business Group on Health; Advance-PCS; Caremark Rx; and AFL-
CIO.
Mr. Bilirakis. Thank you, Doctor. Mr. Barondess. Did I
pronounce that correctly? Okay, thank you. Please proceed.
STATEMENT OF MARK A. BARONDESS
Mr. Barondess. First of all, thank you, Mr. Chairman and
Congressman Brown, for allowing me the opportunity to address
this astute body today.
I am here today to discuss what I deem to be an extremely
important issue in my life, and that is the entry of generic
drugs into the marketplace prior to the expiration of lawful
pharmaceutical patents. I thank you because this issue is
directly about me, and it is about me and every other patient,
and it is about me and most of your constituents. It affects
all of us. I am not here today as a lobbyist. I am not here as
an advocate. I am here today solely as a patient.
I am greatly concerned as a patient about the potential
harm that would come to the pharmaceutical research industry in
the event there were any erosion of the patent protection that
presently exists under existing law. I am really not interested
today in entering into a political argument between the
generics on one end of the table and me as a patient on the
other end of the table, or what Kaiser Permanente wants or what
Blue Cross/Blue Shield wants. I really don't care what they
want. I care about what patients want and what constituents
want.
In December 1999, if you would have asked me what was my
most significant health problem, I probably would have told you
male pattern baldness, and it is still a major problem for me.
But, unfortunately, I discovered I had one other problem. In
March of 2000, I heard the words for the first time, ``multiple
sclerosis.'' I had no idea what it was. I was upset. I was
hurt.
I want to apologize to the committee in advance only
because one of the manifestations of my disease is that my
speech sometimes gets slurred and I go a little bit slower.
Please understand that that is part of the problem, and I am
not trying to delay or lengthen my speech for any other reason.
The best way I can describe MS to you is to imagine your
own immune system attacking itself. Right now I have six
lesions that are on my brain. When I first started with MS, I
had three. My nerves are like frayed extension cords. You know
what an extension cord looks like when it gets cut. It doesn't
get the right signal. Well, sometimes my brain doesn't get the
right signal; my legs don't get the right signal; my arms don't
get the right signal, and it affects me.
Multiple sclerosis is a disease with no cure and with no
known cause. While research from the pharmaceutical industry
has yielded five, what have been called, I guess, these
blockbuster-type drugs in the last 5 years, there is still no
cure on the horizon. The best that I can hope for, the best
that friends of mine that have MS can hope for, is that I stay
out of a wheelchair. That is my daily goal, to hope that my
condition does not progress any further.
Now on November 30, 2001, I did something that for me was
somewhat extraordinary. I ended my career as a trial lawyer. I
had been a trial lawyer for almost 20 years. During that 20-
year period, I had the great honor of representing Members of
this august body. I represented members of the Executive branch
of government. I represented athletes, sports figures, Olympic
gold medalists, celebrities, stars. I mean, you name it, I was
very, very fortunate to represent them. Some of them, like
Larry King or Montel Williams, I can still represent, but I
can't go into court for them anymore. I am not allowed to do
that because my multiple sclerosis has affected my ability to
do my trial work.
Like the passion that each one of you have for your
legislative goals and for your constituents and for your
individual careers, I lost mine. It is kind of like if I was
the captain of the Concorde, and all of a sudden I was told,
``You can't fly anymore.'' My wings got taken away.
It is difficult for me to articulate to you the pain and
frustration that I felt 1 day as I stood in a crowded courtroom
in a hotly contested case and I passed out because a spinal tap
that I had had the day before started leaking, and all the
cerebral fluid from my little brain started to leak out my
spine. It was a pain that I will never forget, and it is a pain
that I still feel today.
But that is my disease. That is my MS. Although I look
healthy, I am not healthy. MS is an invisible disease. Looking
at me right now, I am sure that you cannot tell that I have no
feeling on my left side, none at all. You could take a nail and
put it in my left foot, and I wouldn't feel it. Last week at
BWI Airport I was coming off the Park and Shuttle bus; I
couldn't feel my left foot. So what did I do? I fell down the
stairs of the bus.
Now a lot of people think lawyers have big egos. I like to
think that I am not one of them, but I've got to tell you I was
devastated. It was very embarrassing to fall down in front of a
group of people and have people older than me rushing over,
``Can I help you?'' It is a humiliating experience.
Three weeks ago I went blind in my left eye. I don't know
if any of you have ever lost your vision before, but I will
tell you it is a scary thing to happen.
Almost every day I get seasick, but I don't go out on
boats. It is all part of the disease.
Now why am I telling you each one of these stories? The
reason I am telling you these stories is because, first of all,
I want you to understand from a patient perspective; I could
care less about PhRMA; I could care less about generics; I
could care less about Kaiser Permanente. I care about what it
means as a patient to be affected by disease in America. It
doesn't matter that I have MS or if your mother has Alzheimer's
or if Michael J. Fox has Parkinson's. We are all affected the
very same way.
You do not know how it feels, and I hope to God that you
never do know, what it feels like not to be able to play with
your children because you are too tired. Imagine standing in a
courtroom where you are examining a witness and, as you stand
there, you totally forget what it is that you are asking the
witness. It is a terrible thing to happen. That is the effect
of the disease.
So why am I here? I am here to ask you to do the following:
I am asking you not to take any steps whatsoever that would
in any way hinder the pharmaceutical industry in their
development and innovation of drugs. It is too important.
We went through this whole thing--and I am skipping through
all my comments because I realize I am running out of time. We
went through this whole thing last year with Napster. I
represent music artists; I know what Napster is about.
Everybody was up in arms, ``My God, we can't get our free music
anymore. What's going to happen? We're going to protect the
music. The music is important.'' Well, Elvis may be dead, but,
I've got to tell you, his copyrights, they are alive and well.
He is doing great.
We are in the same situation here, except you have
something very unique. You have the power. You have the
obligation, I would submit, to protect people like me, to
protect your constituents, to protect your family, so that
pharmaceutical innovation is not halted.
Generics do serve a good goal. They should continue to
serve that goal. I am asking you to use your conscience, to use
your compassion, and to exercise your best judgment in order
that the pharmaceutical industry can continue to make
breakthroughs to help people like me and to help people that
are even less fortunate than me.
Thank you for your time.
[The prepared statement of Mark A. Barondess follows:]
Prepared Statement of Mark A. Barondess, Patient
Chairman Bilirakis, Representative Brown, and Members of the
Subcommittee, my name is Mark A. Barondess. I am an attorney who has
given up my litigation practice because my diagnosis of multiple
sclerosis precluded my ability to continue as a trial lawyer. I am here
today because the subject of this hearing is one that is crucial to me
and to many others like me who are affected by incurable diseases. The
one belief all of us as patients have in common is that we continue to
hope that some day, the word ``incurable'' will not apply to us. How
this Subcommittee, and this Congress, treat the protection of
intellectual property owned by research pharmaceutical companies has
everything to do with whether or not our hopes will ever be realized.
As I am sure you know, Mr. Chairman, multiple sclerosis is a
disease of the central nervous system that occurs in a minimum of
400,000-plus patients in North America. With the assistance of the
Gallup organization, we are presently conducting a poll to hopefully
gain a more accurate delineation of the actual number of MS sufferers.
I believe the actual number may approach 3 million people. Multiple
sclerosis can be a progressive disease, which causes a range of
symptoms including loss of muscle strength in the arms and legs;
compromised balance, coordination, and cognitive function; fatigue;
blurred vision; pain; vertigo and bladder dysfunction. Its cause is not
understood. MS generally is first diagnosed when a person is 20-40
years of age and its symptoms and progression are variable. MS can
progress slowly or quickly, with an increase in symptoms or silently.
The loss of physical and cognitive function may occur gradually over
many years, or more dramatically over a shorter period of time. It can
be difficult to predict the course of the disease in any given patient,
so all of us are in a wait-and-see mode. We basically meet each day
with the expectation that we will take it as it comes, and the hope
that that day will be better than--or at least no worse than--the day
before. And we always hope that this will be the day research will
yield results that can be translated into a cure.
Today, MS patients have several therapies available to them, which
palliate some of the symptoms and appear to slow the progression of the
disease. The remarkable thing about that statement is that just 9 years
ago, I could not have made it. Although patients have been affected by
MS for many years, the first drug treatment that actually was targeted
to this disease was not discovered and approved by the FDA until 1993.
Since then, several other products have been approved that have
provided incremental improvement. But no cure is on the horizon, and
even the most optimistic experts in the field tell patients that nobody
can predict when, or IF, there will be a cure. We know there is a great
deal of research under way that could lead to greater understanding of
this disease and even to a realization of how to cure it. But for that
research to benefit patients, it must be translated into a real,
tangible treatment. All of the basic research in the world put together
does not benefit a single patient unless someone applies that research
to bring it to the patient's bedside. And for patients who are waiting
for a cure for MS, the people who will bring the research home to us
are the research pharmaceutical companies.
With all due respect to the generic drug industry, Mr. Chairman, no
generic drug company will ever take a basic research finding and turn
it into a drug. The application of basic research in MS, through bench
science, animal studies, and finally through human clinical trials will
be accomplished by companies in the research pharmaceutical industry--
the industry that some in Congress want to blindly characterize as
evil, greedy, and uncaring. I don't agree with that characterization,
Mr. Chairman, and I consider it to be offensive not just to the
industry but also to every single patient in America who relies on the
pharmaceutical industry for a viable treatment and for a cure.
It is astonishing to me that Congress has expended a massive effort
to protect patents and copyrights on rock music, music videos and
movies but seems quite eager to literally toss away protections for the
industry that makes the most significant difference in the lives of
patients. I was stunned to learn about the recent Senate debate on
legislation called the Greater Access to Affordable Pharmaceuticals
Act. The debate seemed to be not at all about the pros and cons of the
bill. In fact, there seemed to be an extremely poor understanding on
the part of those who advocated this bill of what the legislation does
or of the impact it would have. Instead, there seemed to be statement
after statement about the cost of drugs and about various Senators'
very negative views of the research pharmaceutical industry. It seemed
to be statement after statement about insurance companies complaining
about the cost of drugs. I found myself asking when the insurance
industry suddenly had become the champion of the little person--the
champion of the patient.
Mr. Chairman, as a patient whose disease requires a variety of
treatments, I can tell you that insurance companies find very clever
ways to reduce their costs, which mostly involve denying patients
treatments they need. On September 30, 2002, I received a letter from
Trigon Blue Cross/Blue Shield advising me that they would no longer
reimburse me for a drug called Provigil, and innovative pharmaceutical
product that helps me overcome the debilitating fatigue of MS. Why?
Because the drug was originally designed to treat patients with
narcolepsy, not MS. So now I am faced with the decision to pay $1195
for 30 tablets, or just endure the fatigue. I am a victim of the
insurance industry; by contrast, I am a beneficiary of the benefits of
research-derived pharmaceuticals. To me, the truly sad thing about this
debate was not what was said, but what was not discussed--patients who
are waiting for new drugs that will cure their diseases. This so-called
pro-consumer legislation didn't seem to be about consumers at all.
Mr. Chairman, the title of today's hearing indicates that is about
pharmaceutical marketplace competition. And I think this is an
important opportunity for all of us to be educated about this. But I
want to urge you to look at this from another perspective--the
perspective of whether Congress could take actions that threaten the
availability of new drugs altogether. Speaking as a patient with MS,
who is hoping and waiting for a cure, and as an attorney, I am telling
you that this legislation WILL affect whether new drugs are available.
I take this personally, Mr. Chairman, because what the Senate did, and
what some in the House seem determined to do, will affect me
personally. For me, this is not an academic exercise, and it is not a
political prank; it is life in a wheelchair; it is life or death--mine.
Today, patent protection for pharmaceutical products is identical
with that for all other patented inventions, except for one key matter.
This is that software, microchips, automobile components, and video
equipment have 20 years of protected life in the market because as soon
as the invention is ready, and as soon as it is patented, it can go on
the market. If potential competitors violate these patents, or appear
to violate them, they can be prosecuted immediately; patent and
invention are preserved. But drug products must be approved by FDA
before they can go on the market. And to secure this approval requires
years of research and human testing. So, for these products, the
original patent may be issued many years before the product actually
reaches the market. The so-called ``effective'' patent life is never 20
years and can be less than half that time. Provisions of the Hatch-
Waxman Act were designed to restore some patent life to account for
research time and FDA review time. But in no case does that extension
ever come close to equaling the protections on high-technology
developments in other areas.
Hatch-Waxman provisions also recognized that getting generic copies
to market as soon as possible required actually allowing a generic
company to infringe existing patents for the purpose of getting data
needed for FDA approval. So, generic companies literally can start
using the information in the patent the next morning. Unlike any other
business, they don't have to wait until the patent expires to get their
competitor product ready for market. The balance for this in Hatch-
Waxman was to allow the patent holder a 30-month period to prosecute
any potentially infringed patents, before a generic drug can be
approved by the FDA. Remarkably, Hatch-Waxman also established a reward
for the first generic company to infringe a patent, awarding that
company 6 months of exclusive marketing.
So, to review the bidding, Mr. Chairman, here is what Hatch-Waxman
did: (1) took away basic patent protections from drug companies by
allowing generic copiers to use the patent information and make copies
of the product beginning on the very day the patent is issued; (2)
encouraged generic companies to infringe patents by rewarding the one
who reached the patent infringement finish line first; (3) allowed a
fraction of patent life to be restored for the time spent by a research
company in conducting human studies and in waiting for FDA review to be
completed; and (4) allowed a 30-month period for a drug patent holder
to prosecute its infringed patents in court, before FDA can approve a
generic copy.
So, we have essentially four components; two that benefit the
generic company, and two that help the research company. In my book
that's a balance. It might not be a ``one-for-one'' trade, but it's
sure a flat see-saw. The Senate legislation and bills pending in the
House tilts that see-saw precipitously, destroys the intended balance
of the law, and threatens the future of research pharmaceuticals. It
threatens my hope and well-being.
These bills go well beyond the recommendations of the Federal Trade
Commission, an organization that I certainly believe is independent
from the pharmaceutical industry. Even the FTC, in a report designed
and executed in an effort to uncover flaws and abuses of the Hatch-
Waxman law, does not say Congress should abrogate the fundamental
patent rights of the research pharmaceutical industry. The Senate and
House bills absolutely do that. In this report, certainly no ``white
wash,'' the FTC unequivocally states that the Hatch-Waxman law has
worked and has been literally responsible for the success of the
generic drug industry. The FTC, after exhaustively digging for
``abuses,'' found fewer than 10 cases where there can be even the
suggestion of going beyond the intentions of Hatch-Waxman; and these
are not clear ``abuses.'' FTC does not paint a picture of an evil
industry stomping out the benevolent intentions of a poor, struggling,
philanthropic generic industry. Instead, FTC makes modest suggestions
dealing with two of the rewards in the statute--the 30-months reward
for the research company and the 6-months reward for the generic
company.
Mr. Chairman, when you pass legislation--or even when you argue
about it as fiercely and as maliciously as has been done in recent
months--the effect will be a chill on pharmaceutical research, and that
chill will--whether you want to admit it or not--affect patients like
me. Will research in the pharmaceutical industry cease forever? Of
course not. Will companies re-evaluate their research investments?
Absolutely, unequivocally, yes. Patent protection is part of the
calculus of research investment. Intellectual property is a mark of the
value, the significance, and the quality of a research portfolio.
Change the rules, and you will change those attributes of the system.
Change the rules capriciously and you will have substituted politics
for patients. I reject such a change
Mr. Chairman, I am all for access to affordable drugs. I am all for
appropriate transition from an older, branded drug product to a generic
copy. I am all for the system working the way it was intended, and I am
not against change. But I am against arbitrary change. I am against
changing a system that is working because it makes a good sound bite in
an election year. I am against attacking the research pharmaceutical
industry in favor of the insurance industry.
Mr. Chairman, if you were to ask me what to do about pharmaceutical
patent law, I would say strengthen it. Rather than weakening patent
laws, I would urge you to enhance protections to provide greater
incentives for companies to look for the cures that are deeply buried
and very difficult to uncover. These are the kinds of cures for
patients like me, whose diseases challenge even the most committed
researchers. I would make the patent life of these products begin on
the first day they are sold, not when the underlying molecules are
created.
I am asking you to proceed with caution, and to make any changes on
the basis of real--not fabricated--reasons. I am asking you to
recognize that this law has worked by helping generic products get to
market through a very abbreviated FDA review process that uses data
gathered by a research drug company, allowing about $1 million worth of
development costs to substitute for about $500+ million worth of
research. I am asking you to recognize that the research pharmaceutical
industry is one with huge risks as well as great rewards, and that
those rewards accrue to people waiting for treatments and cures as well
as to the companies who find them. And finally, Mr. Chairman, I beg you
to approach this issue from the perspective of patients and to make
your choices and your decisions based not on politics but on the needs
of real people, suffering from real diseases for which there are no
cures. Without your support, my dreams and those of my children may
never become a reality.
Thank you.
Mr. Bilirakis. Thank you, Mr. Barondess, and we made you
wait 5 hours to give your testimony, and we apologize for that.
People on the street often--that didn't come out the right
way, but, in any case, there have been concerns raised over the
years I've heard of the efficacy, if you will, of generic
drugs. We have even had a doctor, a member of this
subcommittee, who questioned their efficacy in many cases, in
other words, as related to the brand-name drug.
I would just ask very, very quickly, Dr. Levine, do you
have an opinion on that, very briefly?
Ms. Levine. I do. The FDA has done an excellent job, and I
think the situation in regards to generic drugs today is very
different than it was when I started practice 25 years ago. The
FDA has ensured that the quality, safety, and efficacy of
generic drugs matches, and the bioavailability and clinical
effectiveness matches, their brand counterparts.
Mr. Bilirakis. Okay. I think it is important, and I am
going to ask Dr. Glover the same thing in a moment. But we have
television here, and I think it is important for the American
people to see that, so that they have a level of confidence.
Ms. Levine. I think the survey that I alluded to that AARP
released a week ago actually was remarkable in that it showed
how much American consumers actually have confidence in
generics.
Mr. Bilirakis. All right, Dr. Glover, do you have any very
brief opinion? Are you basically in agreement with Dr. Levine?
Mr. Glover. We certainly agree that the standards that FDA
has established for their pool of generic drugs generally makes
those drugs safe and effective. We do note, however, that there
are circumstances in which the generic drugs are not, in fact,
identical to the pioneer drug. In some circumstances for some
patients those are relevant issues.
Mr. Bilirakis. Thank you. Well, Ms. Jaeger, how much does
it cost the average generic manufacturer to produce a generic
drug?
Ms. Jaeger. Actually, that is a very good question. I think
it really would depend on actually the drug product. There are
a lot of complex issues involving each and every drug product.
So it can range from just shy of $1 million all the way up to
perhaps $10 to $12 million.
It really has to do with the scientific issues associated
with that product, like with respect to conjugated estrogens.
It also has to do with how many patents improperly listed or
those that are deemed to be invalid that the generic company
has to challenge. That all, basically, gets tied into how much
it costs to bring a generic to market.
Mr. Bilirakis. As related, and you started, I guess, to get
into it, as related to--well, in terms of the cost for
development of the drug to conduct the bioequivalency studies,
which are required by the FDA, which generally, as I understand
it, doesn't really include that many people, how much of a
cost? Would that cost be included in the dollar figure that you
gave me?
Ms. Jaeger. Yes, it would. Again, that study will range
depending upon the drug product.
Mr. Bilirakis. Dr. Glover, what would you say is the cost
to the average brand-name manufacturer to produce a generic
drug?
Mr. Glover. The number of recent studies shows that it
costs about $800 million to produce the drugs that actually get
approved. That, of course, takes into account some of the
failures for drugs that do not get to the approval process.
Mr. Bilirakis. Mr. Barondess, in your written testimony you
stated that the reforms passed in the Senate would tilt, I
think using your word there, would tilt the balance struck by
Hatch-Waxman, thus, threatening innovation. Well, you have sort
of addressed this, but I just wanted to give you a little more
time.
What impact would the Senate legislation--maybe we can
expand that into, and we have all indicated that there have to
be changes made to the Hatch-Waxman and we have all indicated
that we want to be a party to all that, but maybe we can add to
that the other pieces of legislation, some that have been
initiated here in the House. What impact would all that have on
your hopes for a cure?
Mr. Barondess. It would have a devastating impact. I was
fortunate enough this week to have a 45-minute meeting with
Senator John McCain, and Senator McCain was very receptive and
open to certain issues that he, I believe, had not considered
in terms of the passage of the legislation in the Senate.
Generic drugs are great in terms of providing care for
people, but generics are not innovative. Generics are not what
you are going to look for to cure AIDS, to cure cancer, or
anything else.
I would like to go just for a minute to the question that
was asked of Ms. Jaeger in terms of cost. I would think that as
the president of whatever it is, the generic group, that you
would know the answer to the question. For instance,
Fluoxetine, which would be the generic for Prozac, costs about
71 cents to make, but if you go to Wal-Mart you will pay $63
for 30 pills that cost 71 cents. That is a generic markup of
over 4,000 percent.
So when we are picking on the pharmaceutical industry,
don't lose sight of where the generic companies are making
money. Barr Lab's profits this past year are up 284 percent.
Why is no one complaining about that? Why? Because it is good.
They are providing a service. The generics should provide a
service. But they are not creating any new medicine and they
are no hope for me or anyone else to cure any disease.
Mr. Bilirakis. Thank you. Thank you, sir. My time has
expired.
Mr. Brown.
Mr. Brown. Thank you.
Ms. Jaeger, Mr. Barondess I thought spoke eloquently about
pharmaceutical innovation, and you have heard Mr. Glover and
others say that S. 812 and other attempts to bring competition
into the drug industry will destroy innovation. I also see huge
numbers of dollars being spent on 600 lobbyists in PhRMA to
protect things like this, not to mention huge amounts of
litigation costs on 30-month and 6-month exclusivity, and all
of that.
Explain why you think present law hurts innovation to come
up with drugs that would help Mr. Barondess and why S. 812
could stimulate innovation.
Ms. Jaeger. Sure. I would be pleased to.
I think under today's system what is happening is this
automatic 30-month stay, instead of giving the incentive for
the brand companies to go back and do what we call true
innovation, and bring novel medical products into the
marketplace, instead this 30-month stay is giving some of these
companies the incentive to go out and use what we call legal
loophole innovation.
Now going out and getting patents and listing patents in
this Orange Book that are improperly listed, I mean they don't
cover the brand products. They have nothing to do with the
brand product. Yet, they are there just to block generic
competition for 30 months.
What the Senate bill does is, basically, it is designed to
curve this abuse and abuses that we see today in the system, as
well as abuses tomorrow. Really what the whole bill will do is,
basically, tell the brand companies: Go back and innovate, but
stop misusing patents to block generic competition.
With respect to the example that was raised just a few
minutes ago with respect to Prozac, that is a great example.
There a generic company came in and challenged a patent. The
patent was deemed invalid. It cost that particular generic
company about $10 million to take on that challenge. They were
able to break down the patent, and the patent was deemed
invalid. The product, their product came into the market almost
3 years earlier than it should have, saving about $2.5 billion
to consumers.
I also think it is important to note that we have members
that innovate as well. We have a lot of members who innovate as
well. One of our members is Teva. Teva is one of the leading
generic manufacturers in the world as well as the United
States. Teva basically brings a product into the marketplace
called Copaxone that actually does treat MS.
All our companies want to bring innovative products. At the
same time, they want to bring their generic products into the
market. There should be a balance there.
So what we are asking right now is just saying there has
been abuse. Clearly, like in the world of sports, you see an
issue, like in basketball the 3 seconds rule, that is an issue.
It is a problem in the game. You don't scrap the game; you just
change the rule.
We are saying we all see the abuse here with respect to the
30-month stay. It is driving the companies to basically
manipulate the system to extend their products. We are just
asking for this to be changed so that we can bring our
affordable medicines into the marketplace, so that consumers
can actually afford their medicines and perhaps afford the
miracle drugs as well.
Mr. Brown. Dr. Glover, Hatch-Waxman allows the 6-month,
180-day exclusivity, as you know. I have talked to Waxman today
and numerous times about this. Neither he nor the other authors
20 years ago envisioned where a name-brand would pay the
generic that had the 6-month exclusivity, and the generic then
would not go on the market for that 180 days, for all intents
and purposes, giving an extra 6 months of exclusivity to the
name-brand. I mean that is, obviously, what actually happens
there.
Should that be permitted?
Mr. Glover. Sir, I would like to just explain that while we
always expected that the 180-day exclusivity would give the
generic the ability to be on the market without competition
with other generics, the scenario that has arisen within the
last several years that was the focus of some of the FTC issues
is a circumstance whereby in the context of patent litigation
the parties have decided to settle that litigation by virtue of
having one party make payments in some cases to another party.
As the Chairman of the FTC said this afternoon, those
settlements, even those involving payments, can be pro-
competitive, competitive-neutral, or anti-competitive. The
particular circumstance that I believe you are concerned about
is a circumstance whereby an agreement involving that first
ANDA's 180-day exclusivity has an impact on subsequent generic
applicants entering the marketplace beyond the ability of those
subsequent applicants to affect the system themselves.
Mr. Brown. If I can interrupt, it also means during that 6
months the price continues to be higher, rather than having the
generic and compete it.
Mr. Glover. But that is generally not the principal concern
of the FTC about those settlements. The principal concern was
something that was brought about by a change in the law in
1998, whereby we changed the criteria under which the generic
was eligible for the 180 exclusivity. The criteria had been,
since 1984 until 1998 or so, that in order to get the 180
exclusivity, the generic had to successfully defend a suit, the
patent infringement suit. Then they would get it.
The change in the law that was brought about by a court
case was that, in order to get the 180-day exclusivity, all the
generic had to do was be first. Only in that circumstance do
you generate the particular problem that the FTC was most
concerned about.
Mr. Bilirakis. The gentleman's time has expired. The
gentleman from Illinois.
Mr. Shimkus. Shimkus, Shimkus.
Mr. Bilirakis. I knew that.
Mr. Shimkus. I don't serve on this subcommittee, but I
appreciate the chairman, again, for having the hearing and
allowing me to be a full partner in this debate.
We have got my little chart up there. Again, maybe you have
had a chance to look at it over the break. Is this an accurate
depiction? Why don't I just go, Ms. Jaeger, do you think this
is an adequate depiction of what goes on?
Ms. Jaeger. Well, I think, actually----
Mr. Shimkus. And as short as possible.
Ms. Jaeger. Sure. I think actually what is relevant here is
that, before 1984, the brand companies were enjoying about 8.1
years----
Mr. Shimkus. Is this an accurate depiction of what is going
on right now? I don't want the history. I just want to know, is
this what is going on currently?
Ms. Jaeger. Generally speaking, this is----
Mr. Shimkus. Thank you.
Ms. Jaeger. [continuing] yes, the trendline.
Mr. Shimkus. All right, Dr. Glover?
Mr. Glover. This is a representative example, yes, it is.
Mr. Shimkus. Great. And Dr. Levine?
Ms. Levine. I am not a patent attorney.
Mr. Shimkus. Okay. Either am I. I still ask these
questions, though.
And Mr. Barondess----
Mr. Barondess. Yes.
Mr. Shimkus. [continuing] you are an attorney and a
patient. Is that how you see this process? Obviously, you are
pretty informed.
Mr. Barondess. Yes.
Mr. Shimkus. Now let me ask a question. On the bottom part
it says, ``Effective patent life,'' which is the time that
looks like--and I know it fluctuates, but it is the time that
the pharmaceutical company has those high prices to cover the
research and development, is that correct?
Mr. Barondess. Correct.
Mr. Shimkus. Okay. Now I know that the intent of my friend,
Mr. Waxman, when he helped craft this law was the 30-month
extension was a tradeoff, as I understand--and here we can go
to history--a tradeoff for the generics to file before the
patent life expires. Is that a correct historical premise? That
is what happened? Yes, Ms. Jaeger?
Ms. Jaeger. Yes. The generics are allowed to do the
research and development during the patent time. In exchange,
the brand companies are basically provided with 5 years of
patent restoration in time. Therefore, the distortions on both
sides of the equation were equalized.
Mr. Glover. I would have to disagree with that, if I may.
Mr. Shimkus. Sure, Doctor.
Mr. Glover. We need to recognize that while the first
change that Ms. Jaeger reported on is accurate, namely, the
Hatch-Waxman Act created an inability for the pioneer companies
to enforce their patents during the time generics were doing
their research and development, it is not the case that we were
given 5 years of data exclusivity. Because the circumstance
prior to the Hatch-Waxman Act is that our proprietary data, for
which we pay substantial amounts of money and investment, was
proprietary for a substantial period of time beyond 5 years.
The tradeoff for the generics being able to take advantage
of our patents early in the process was that at the time they
filed the generic drug application, it would have the
opportunity to try to start at least litigation to resolve the
patent issues before the generics got to market, and that is
the 30-month stay.
Mr. Shimkus. Let me go on, and my time is short and I want
to be respectful, but I do want to say to Mr. Barondess that
Mr. Waxman and I and this committee and the floor, we have been
pushing our orphan drug bill, which is an incentive to make
sure that in the small populations that we continue to have
research and development for a lot of diseases that are of
small population size. So even though it might seem that we are
contentious, there are things where this committee and Mr.
Chairman, whom I respect, have been very, very successful.
If this chart is correct and the effective patent lifeline
is at the bottom, and we have the Abbreviated New Drug
Application line, and if that gets approved, it seems like it
cuts into the effective patent life recovery time. If that is
correct, Mr. Barondess, isn't that your concern?
Mr. Barondess. It is exactly the concern. You know, you try
to look at these things and figure out what would be a simple
solution to this. Just speaking as a public citizen, it would
strike me that, instead of getting into 30 months here, 30
months there, and you have to file litigation in 45 days, and
if you don't do this, you lose that right, wouldn't it be more
simplistic if we just said, ``Look, from the date that the FDA
approves the drug that you get so many years.''? That's it. No
extensions, no modifications, no anything. You just keep it
nice and simple and clean. You avoid all this other.
I have heard a lot of discussion going back and forth
concerning this 30-month period and everything else. Let me
tell you, it is not the pharmaceutical companies that start the
problem. It is the lawyers. You all have developed solutions
for dealing with lawyers, and it is called Rule 11. So I would
urge you to avoid any type of litigation-type solutions. Just
make it simple.
Mr. Shimkus. And I will thank the chairman and really all
the folks that have helped try to educate me before the
hearing. I think this has been a good hearing. I appreciate the
panelists. I think we have work to do. I will yield back.
Mr. Bilirakis. We certainly do have work to do. I thank the
gentleman.
Mr. Pallone.
Mr. Waxman. What about me?
Mr. Bilirakis. I haven't gone to you yet? That was not
intentional. Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
I thank all the witnesses for their testimony. Mr.
Barondess----
Mr. Barondess. Yes, sir.
Mr. Waxman. --I, too, have a very close member of my family
suffering from MS. I can assure you, not just for MS, but
anybody suffering from any disease, we want to give the
greatest incentive and encouragement for innovation and
development of new drugs to fight these diseases.
Dr. Glover, I want to ask you a series of questions I think
you can answer yes or no.
Does the Senate bill diminish the patent term restoration
provisions of Hatch-Waxman?
Mr. Glover. In the context of, if I am not able to defend
and enforcement my extended patent, it diminishes the value----
Mr. Waxman. Well, okay, but does it address the patent term
restoration?
Mr. Glover. It does because it affects my ability to
enforce my patents.
Mr. Waxman. Does it diminish the 5-year exclusivity granted
each new chemical entity by the Hatch-Waxman Act?
Mr. Glover. I do not believe it addresses that.
Mr. Waxman. Does it diminish the 3-year exclusivity granted
to each change in a new drug, such as a new dosage form?
Mr. Glover. Such as new dosage form, no.
Mr. Waxman. Does it diminish the 6-month exclusivity
granted for pediatric testing of drugs?
Mr. Glover. It does not amend 505(a) of the----
Mr. Waxman. I would submit to you that we don't want to,
nor does this Senate bill, diminish any of the provisions we
put in Hatch-Waxman to encourage innovation. The only provision
that it diminishes is the 30-month stay. That 30-month stay was
never intended as an incentive for innovation. It was put there
to deal with the problem of generic companies who were in 1984
too small to be able to pay treble damages. At least that was
the theory advanced to us. So we said we would have this 30-
month stay.
But, Mr. Barondess, the lawyers did get into this whole
thing. What happened is that the drug companies waited until
1998, and then they saw that they could use this 30-month stay
to extend the period of time over which they would have a
monopoly.
Now what happens is, when there is a monopoly, you can't
have competition. Now my family member and you are very
fortunate to have health insurance, but a lot of people don't.
I know that MS drugs cost $10,000 to $12,000 a year. A person
without health insurance is not going to be able to afford to
pay it. If they had a generic version of these drugs, maybe,
undoubtedly, the price would come down.
Dr. Levine, Dr. Glover has testified that the drugs
examined in the FTC report constitute a tiny fraction of the
drugs for which there is generic competition and provide no
basis to conclude that there are no problems with the system.
Now the drugs identified by the FTC as having multiple 30-
month stays based on late-issue patents were Platinol, Hytrin,
Paxil, Taxol, BuSpar, two versions of Neurontin, and Tiazac. I
may not be pronouncing all of them correctly, but, according to
the FTC, these drugs have net sales ranging from $100 million
to over $1 billion per year and combined sales of as much as $5
billion per year. The FTC also found that obtaining multiple
30-month stays was a new phenomenon in the last 4 years with
the potential to increase in the future.
Do you agree with Dr. Glover that the recent delays of
generic competition on these eight drugs represents a trivial
problem and not evidence of abuse?
Ms. Levine. Not at all. It represents a huge problem, not
because of the number of drugs, but because of the cost
associated with each drug.
The issue around access to prescription drugs, I can't
support strongly enough Mr. Barondess' contention that we
absolutely need to provide incentive and reward for true
innovation. American consumers are willing to pay a premium
today for innovation in the future. They are quite angry about
paying a premium to reward clever legal maneuvering.
Mr. Waxman. I think that one of the best ways to get
innovation is to make clear that at some point your monopoly
will end, and once the monopoly ends, your pipeline of highest
possible charges is going to come to an end as well. You are
going to have to compete.
Therefore, you had better get new drugs on the market. You
had better put your money into research and development of new
products, not into lawyers to figure out how to play games with
the law to keep the monopoly going as long as possible.
Now PhRMA says, if we enact this law, it would have a
negligible effect on cost of drugs. Do you agree with that, Dr.
Levine?
Ms. Levine. Not at all. I mean, I think I stated that for
General Motors these five drugs, $142 million. Kaiser
Permanente is a not-for-profit organization. This money comes
out of the pockets of our members and it comes out of the
pockets of the purchasers and sponsors of health benefits who
pay on their behalf. These are forgone wages.
Mr. Waxman. Let me ask Ms. Jaeger a question. Some people
argue that if we eliminate the multiple 30-month stays,
incentives for innovation will be undermined. That is the real
issue.
Now to test this hypothesis, don't we need to know whether
the patents that have triggered the successive 30-month stays,
in fact, cover significant innovations? What kinds of
innovations are covered by these patents?
Ms. Jaeger. I think it is a very good point. For the most
part, the basic compound patents and the first-method-of-use
patent, the patents that represent about 98 percent of the
intellectual property rights on a brand product, are not
involved in patent challenges. What are involved right now are
the 2 percent of these patents that have to do with a
container, computer methods, unapproved formulations,
unapproved uses, kits. They have nothing to do with the brand
product itself.
Mr. Waxman. So they can file a phoney patent that has
nothing to do with the original drug, stop a competitor for 30
months, after all their patent time, plus all the time we
restored to them and the exclusivity we granted them in
addition runs out, and then they can still keep competitors off
the market because they file a frivolous lawsuit based on a
phoney patent?
Ms. Jaeger. That's absolutely correct.
Mr. Norwood [presiding]. Thank you very much, Mr. Waxman.
Your time has now expired.
Ladies and gentlemen of the committee, I am going to play
by the clock. I don't mind if we have rounds from now until
midnight.
Mr. Waxman. Is this time coming out of your time?
Mr. Norwood. No, it is not. Since I am the chairman, Mr.
Waxman, I can make an announcement.
We are going to stay on the clock. We will go around as
long as any of you want to, but let's, please, when the red
light comes on, it is over for that time period.
Mr. Waxman. Point of information: What if a witness is
answering a question? You will allow them to----
Mr. Norwood. We will decide that as we face the facts.
Mr. Waxman. You are revising the rules under which this
committee has always operated. The members have to complete
their questions, but I don't think we ought to cutoff
witnesses, if they have something to add to us that goes beyond
the time.
Mr. Norwood. Thank you, Mr. Waxman, for your help.
Mr. Buyer, you now have 5 minutes.
Mr. Buyer. One of the things I am concerned about at the
moment here, when Mr. Shimkus brought up this question about
the 30-month stay, and I am glad Mr. Waxman is still on the
committee so we can use him as a great resource, Mr. Waxman.
I am a little concerned here when you say, do away with the
30-month time period. Does that mean that we are to then go
back to LaRoche v. Bolar? Are we to go back to that case and
let that be the rule?
Ms. Jaeger. Mr. Chairman, can I answer?
Mr. Buyer. Well, you are the one that said do away with the
30-month.
Ms. Jaeger. Yes. No, we believe, again, that the offset for
the research and development phase is the 5-year patent
restoration time. So, therefore, we don't believe we have to go
back and look at the balance.
Mr. Buyer. You want it both ways?
Ms. Jaeger. Well, the----
Mr. Buyer. Wait a minute. You can't have it both ways, can
you?
Ms. Jaeger. The 30-month stay, as Congressman Waxman
indicated, was a safety net, and it was devised in 1984 to
ensure that generic companies don't put a product into the
marketplace that would infringe a patent. Since 1984, there
hasn't been one generic product going into the marketplace that
has infringed a patent. So the safety net is no longer needed.
If anything, it is being exploited, to the detriment of
consumers.
Mr. Buyer. Because the scientists are sophisticated enough
to put into the marketplace an alternative compound or the
bioequivalent, am I getting this sort of right?
Ms. Jaeger. Generics are therapeutic equivalents.
Mr. Buyer. Pardon?
Ms. Jaeger. Generics are therapeutic equivalent to their
brand counterpart, yes.
Mr. Glover. You are correct in suggesting that perhaps the
reason that we have not had generic drug market entry in the
face of valid patents is because of the 30-month stay, which
gives a 30-month period of time during which the pioneer and
the generic can begin to resolve the dispute over patent
litigation. That substantially reduces the likelihood that a
generic who receives final FDA approval would enter the market
in a manner that is not responsible.
Mr. Buyer. Do you concur with this, Counsel, that we should
do away with the 30-month?
Mr. Glover. We do not. We believe the 30-month is
important, and contrary to assertions otherwise, it means
nothing for us to have patents or patent term restoration if we
do not have an effective way to enforce those patents. Where
the patent infringement exemption has already limited our
ability to enforce those patents, it is only appropriate that
we be given the opportunity to try to enforce those patents
before the generic has gotten final FDA approval.
Ms. Jaeger. May I respond?
Mr. Buyer. I am not going to be able to pronounce your name
very well.
Mr. Barondess. Barondess.
Mr. Buyer. Sir, you are very articulate as a witness. I
have been here 10 years, and your personal story is, in fact,
very moving. I think that even though on this committee, when
you leave here today, even though we may be of different
parties and we have our different perspectives and we have our
philosophies, I think all of us dream that if, in fact, it is
ourselves or someone in our family who have some form of
disease or an ailment, that we, in fact, want some form of an
access.
We live in a great country, and that country makes these
drugs available. Why? Because the great minds of the world all
want to come to America because they can push the bounds of
science.
Your plea to us was sincere and it was compassionate, and I
just want to appreciate you. I think it takes bravery, it takes
courage, for you to be in a public forum and do so in such a
personal manner. When you leave here today, I want you to be
proud of yourself----
Mr. Barondess. Thank you.
Mr. Buyer. [continuing] because I think you have made a
valued contribution to this legislation.
I yield back my time.
Mr. Barondess. Thank you.
Mr. Norwood. The gentleman yields. Mr. Pallone, you are now
recognized for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman. I am going to have to
rush because I have to go to another meeting.
I just wanted to ask Dr. Glover a couple of questions. I
have to say that, when I looked at your testimony, Dr. Glover,
I was concerned because, you know, you say at one point that
the findings of the FTC and the report do not support either
the allegations of widespread abuse of Hatch-Waxman and patent
law or the sweeping measures included in the legislation
pending before Congress.
I have to say, I don't think there is any question, from
looking at the report, that there is widespread abuse. I mean
that is what it says. You've got all these groups, 78 Senators,
Governors, AARP, FTC, you know even the Bush Administration's
statement of administration policy, some of the Republicans
like Mr. Thune all agree that there are abuses. Yet, you seem
to say that there isn't really a widespread problem.
But then you go on to say that the FTC study focused on
eight cases of concern to the Commission, and you sort of
trivialize those, and you go through each one to say why it is
not true. I have some information with regard to No. 3, which
is the Wellbutrin. In your testimony you specifically claim
that no challenge was ever brought against the patent on
Wellbutrin. However, from what I understand, it is just
completely false.
In fact, I have some documents here that I would like to
submit to the committee that indicate that in June 1988 Teva,
which was already mentioned, Teva Pharmaceuticals, filed a
challenge to this patent. In addition, I have a copy of the
stamp that shows it was sent by certified mail and received.
So why do you say in your testimony that no generic
challenge was ever filed? Where does that come from?
Based on the documents, if I could, Mr. Chairman, if I
could submit these documents to the committee----
Mr. Norwood. So ordered.
[The information referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Pallone. Where are you getting this statement that the
patents in question were never challenged by any generic? They
were, in fact, challenged.
Mr. Glover. Congressman Pallone, I, obviously, would need
to review the documents that you have in order to be able to
respond fully, but I do believe that you are not challenging
the statement that I did make, which is that there are multiple
versions of Wellbutrin that are generic and that are currently
on the market.
Mr. Pallone. But you say, ``The patents in question were
never challenged by any generic.'' They clearly were.
Mr. Glover. Mr. Pallone, as I said, I've got to see your
documents----
Mr. Pallone. Well, I will be glad to give them to you. I
don't know how that works.
Mr. Glover. It is not going to work now because your one
page is not going to be sufficient for me to make a----
Mr. Pallone. Okay, well, I would ask you to look at it. I
will submit it for the record. I have asked you to look at it.
I would ask you to respond, because the bottom line is they
were challenged.
It makes me question to what extent your effort to try to
refute these eight cases of concern to the Commission are
accurate. I mean if the one isn't, I wonder whether the other
seven are.
Mr. Glover. As I said, Congressman Pallone, whether that
particular fact is accurate or not, it is still true, as I
said, that contrary to concern that these patents were
preventing generic versions of Wellbutrin from getting in the
market, there are, in fact, several versions of Wellbutrin that
are generic that are already in the market.
Mr. Pallone. But are you denying, Dr. Glover, do you deny
that there have been at least eight brand-name pharmaceutical
products that have had greater than 30-month periods of market
exclusivity, and that these are costing consumers, employers,
and insurers, and states billions of dollars? You seem to be
trivializing this and saying that this FTC report isn't really
accurate. Are you saying it is not accurate; it doesn't show
widespread abuse? That is what you say. I don't know how you
can make that statement.
Mr. Glover. I stand by that position. The mere fact that
patent protection prevents generic drugs from going on the
market does not mean that there is abuse. Moreover, the view
that the FTC studied the cases, that there are, indeed, patents
that have resulted in 30-month stays that have been overlapping
and non-current also does not indicate----
Mr. Pallone. Well, what about the cost to consumers, the
billions of dollars that consumers pay because generics don't
come to market?
Mr. Glover. I understand. The mere fact that there is cost
to consumers does not indicate abuse. We have patent protection
for the particular purpose that the pioneers are able to
recover some of the cost of R&D. That is to be expected.
Mr. Pallone. So you don't think that excessive costs of
that nature are something that we need to address?
Mr. Glover. I do not believe that the excessive cost
indicates that there is abuse in the patent system. What the
excessive cost might mean is that there is a greater need to
have a more effective way for patients to access medicines, not
that the pharmaceutical companies should be undermined in being
able to enforce their patent rights.
Mr. Pallone. I guess what I don't understand--and, again, I
have to go--I just don't understand. We know that generics
bring costs down. It seems to me that the whole purpose of this
exercise by the FTC was to point out that, unfortunately, that
is not happening as effectively as it should because generics
aren't coming to market and we are not saving money.
So, I mean, for you to suggest that that is not significant
in some way, I don't understand.
Mr. Glover. I do not believe the FTC took the position
that, in the face of a valid patent, that there was anything
inappropriate about a pioneer being able to enforce those
patents, even if the effect of that was to prevent generic
market entry.
Mr. Norwood. Thank you, Mr. Pallone. I will let you go over
there a little, knowing you will be back.
The Chair now recognizes himself for 5 minutes.
Dr. Glover, the generic manufacturer can qualify for the
180 days of generic exclusivity by being the first generic to
challenge a patented drug, and the generic now, since 1998,
need not successfully defend this patent legislation. I would
like for you to take a minute and explain to me, by eliminating
this successful defense, what has that done to the landscape
out there for brand-name drugs and generic drugs?
Mr. Glover. For perhaps brand-name drugs, it is a much more
simple case. What it means is that the time on the market that
the pioneer drug has between NDA approval and the first generic
challenge has been trending toward a shorter period of time.
What we are finding is where the drug is what we call a new
chemical entity, a molecule that had never been approved
before, in that circumstance we are finding generic challenges
about at 48 months, which is about as early as you can do it.
With products that are not of this new chemical entity
class but are new uses for an old molecule, for example, where
in those circumstances generics are able to file their
applications at any time after new drug approval, we are
finding that the time that those products enjoy on the market
before a generic challenge is also shrinking.
The reason in part that those are shrinking is because
there is an incentive for the generics, when they make a
challenge to the patents, claiming that they are invalid or not
infringed, the incentive for them to be first is quite strong;
i.e., they get the 180-day exclusivity.
But because the rule for qualifying to be first has
changed--namely, all you have to do is be first; you don't
actually have to both be first, have a valid case, and
successfully defend it--then you are going to have people who
are going to file applications in circumstances where they know
that they do not have a good challenge, and then try to enter
an agreement that may prevent them from actually having to lose
or they will file a case and then continue to modify what they
intend to make; that is, continue to amend their generic drug
application so that they can actually get it to the state that
it should have been in at the time of the file.
Now the consequence of that is twofold. When the generic
files its application early, it is quite likely that the
generic is going to file its application before all of the
patents that the pioneer has applied for have been issued by
the Patent and Trademark Office and entered into the Orange
Book. Accordingly, you enter a circumstance where the
likelihood that the ANDA will be filed before all the patents
have issued is increased, and that is exactly the circumstance
that we have been observing, whereby you are getting an
increase in so-called non-concurrent 30-month stays, because
that is the particular circumstance that you need to have to
happen for that to occur.
Mr. Norwood. Well, it is your opinion, or yours either, Ms.
Jaeger, that the law actually should reverse the court finding
and let's simply say that the successful defense is important
for you to get the 180 days?
Ms. Jaeger. One, I would like to clarify the record that we
don't believe that the dismissal of the successful defense
really has anything to do with the increase in patent
challenges. What we believe is the support for the increase in
patent challenges is the fact that more and more patents are
being listed in the Orange Book.
So you think about it; back in 1984, there were two drug
patents that listed, and today we are looking at on average 10.
So there is going to be more and more patent challenges,
especially when you consider the fact that 98 percent, I said,
of this intellectual property protection around a brand product
has to do with a basic compound patent and first-method-of-use
patent. The vast majority of challenges by a generic company
have nothing to do with those patents. They have to do with the
improperly listed patents in the Orange Book.
Mr. Norwood. You like it like it is?
Ms. Jaeger. We would be happy--actually, we endorse Senate
bill 812, and we believe that successful defense is perhaps a
very necessary element. We have no problem with it. We support
it.
Mr. Norwood. Well, part of the reason I think we are having
this hearing is you are probably not going to get that bill,
and we need to work this out because there is right and wrong
on both sides.
What happens in a generic company after you have the 180
days of the exclusive right? What happens to the price during
that period of time? My understanding is that it isn't much
different than the brand-name price during the 180 days.
Ms. Jaeger. That is true. I think we will just go back,
since we have been using Prozac as an example, a generic
company came in and challenged the validity of patent, and the
patent fell for double patenting. There the challenge basically
cost about $10 million.
Mr. Norwood. So that really hurts the consumer that you
have the 180 days?
Ms. Jaeger. Well, no, not necessarily, because if you think
about it, during that 180 days in which the generic company
gets to go into the marketplace, that generic product was
basically about 20 to 30 percent less than the brand. The brand
was at about $2.60 a tablet before the generic went in.
Mr. Norwood. How much lower would it be if you didn't have
the 180 days?
Ms. Jaeger. Actually, it is a very good question. It went
down to 6 cents a tablet. So if you think about it, at 6 cents
a tablet with 14 companies in there, there would be no way a
company could take on a mega-challenge and spend $10 million in
breaking down a patent that provided $2.5 billion in cost
savings. So at 6 cents a tablet, there would be no way that
these companies would go forward with patent challenges. They
wouldn't have the resources, and the consumers wouldn't have
the ability to have affordable medicine in a timely fashion.
Mr. Norwood. I noticed that my time is up. I would like to
point out to my friend, Mr. Waxman, that I did let the witness
finish.
Mr. Towns, you are now recognized for 5 minutes.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me first thank all the witnesses for their testimony.
Let me begin with you, Dr. Glover. The former National
Medical Association Dr. Lucy Perez has stated over and over
that there is no such thing as one-size-fits-all drugs. Given
that fact, shouldn't we be concerned about new medical
discoveries and how changes to Hatch-Waxman may harm our
ability to get access to the best drugs for the minority
population, in particular?
Mr. Glover. Absolutely correct. What you have to be
concerned about when you make any challenges to intellectual
property protection for pharmaceutical companies is that you
change their decisions about the types of risks they are
willing to take, the types of investments they are willing to
make. Where they are faced with the opportunity to make
investments in small population products, whether it be orphan
drugs or whether they be drugs for particular subgroups of the
entire U.S. population, you have to be concerned that they will
make their investment decision not to pursue those drugs
because there are risks associated with trying to pursue
targets that are often difficult to reach, at the same time
knowing they are going to have a smaller market in which they
can recover their cost. So, indeed, in those circumstances the
drug companies may very well decide not to take those risks, to
the harm and detriment of patients with the diseases that need
to have very focused treatments.
Mr. Towns. I just want to follow up. Biologic products have
provided some of the only cures for various neurologic
diseases, actually, that disproportionately--let me put it this
way--affect women, like MS and rheumatoid arthritis. What are
some of the different investment constraints faced by this
industry that we don't see with the regular pharmaceutical
companies? Are there any?
Mr. Glover. They are substantial, but bear in mind that
they are, of course, not part of the generic drug system. But
they are substantial for the following reasons:
As a general matter, it is a substantially more difficult
task to manufacture biologics products once you have found
them, but the process of finding these products that affect the
immune system, that have very subtle effects on biological
systems that tend in many cases to be much more subtle than
small molecule drugs, and knowing that the diseases that you
are trying to affect will require you to have a long study
time, those drugs are likely to be drugs that will have
substantially greater costs associated with their development
than some other products. Obviously, on a case-by-case basis
you have to review that, but as a general matter these drugs
tend to be a bit more challenging for the industry.
Mr. Towns. Right. Let me just throw this out to all the
panel members. This way, I will be able to get my extra time.
I have to work this system here.
In your opinion, is cost the only concern we should have
when it comes to the access to medication? Shouldn't we also be
concerned about the right kind of medication for the patients?
Let me start with you, Ms. Jaeger.
Ms. Jaeger. Of course, we should be concerned with bringing
new, innovative medicine into the marketplace. At the same time
we also should be concerned about having affordable
pharmaceuticals available for consumers. So it is, basically,
we are looking at products that are quality, that have the
effect that you need, and that provide patients with good
health care.
Here, sitting today, the issue before this committee is how
to fix the abuses that have been identified by FTC and the
industry and the others. I think the issue here that we are
seeing that we clearly need to curb the abuse, but in no way
does Senate bill 812 in any way touch the intellectual property
rights as provided by title 35 for the brand industry.
So that this bill will not touch innovation and the generic
industry, for the record, as amended. We will never support a
piece of legislation that will have any chilling effect on
innovation because we, too, realize it is a very critical
component of our health care system.
Ms. Levine. I absolutely agree with you that cost is not
the only issue that affects access, but cost is a serious
issue. To invest in innovation without the knowledge that
people can actually benefit from the products of those
innovations is an illusory promise to the American people.
What is happening in the marketplace, what is a real-time
issue today is that increasingly consumers are faced with
shrinking coverage, shrinking drug benefits. This is a serious
issue.
Dr. Glover is right; the cost of the biologics is enormous.
Some of these therapies are $20,000-$30,000 a year. No
individual is going to be able to access those biologics
easily.
In order to ensure the viability of insurance coverage to
cover these very expensive, high-value, high-health-value
drugs, we have to absolutely ensure that we are getting a
dollar's worth of health from other drugs.
Mr. Barondess. Just very quickly, because I think that this
ties together everything that you are saying, do you remember
there was a list over here of names, and it was everybody that
was for the one bill? It listed Kaiser Permanente, General
Motors, Blue Cross/Blue Shield, and then there was one name on
the other side, and that was PhRMA, opposed.
Well, I just got a letter dated September 30, 2002 from
Trigon, Blue Cross/Blue Shield. They were on the list. This is
a letter where they are denying medication for my multiple
sclerosis, and the reason that they are denying the medication
is they are saying it is an off-label use, that there is not,
as they put in their letter, that the therapeutic use of what
this drug is is not supported by adequate evidence in clinical
literature.
Yet, right here an article dated from February 2002, The
Journal of Neurological Neurosurgery Psychiatry, underwritten
by the Department of Statistics at Kaiser Permanente, says that
this data suggests that 200 milligrams a day of this drug
significantly improves fatigue and is well-tolerated in
patients with MS.
Why is this important to me, Congressman? Because I was
paying $40 a month for this medicine under my health insurance.
Now for 30 pills I have to pay $1,195. I am not going to pay
it. I am going to be tired, and I am going to be tired until
every citizen has that medicine available to them. Just because
I can afford it, I don't want to take it. I want to do
everything that I can in my power to make sure that everybody
else can get it at the same time that I can.
Mr. Towns. Thank you, Mr. Chairman. I yield back.
Mr. Norwood. Well, in our effort to allow all the witnesses
to finish, Mr. Glover, you wanted to respond to the question?
Mr. Glover. As you are aware, we believe that the cost is
not the only issue when we are talking about effective,
efficient, and cost-effective health care in the United States.
We believe that it is quite important that we have new and
innovative medicines that decrease overall health care costs
because they decrease hospitalizations, surgeries, emergency
care, and things of that nature.
What is important, and principally important, in terms of
health care costs is that you allow both for the innovation of
these drugs and you allow people to have access to these drugs
by having drug benefit programs.
Mr. Towns. Thank you very much, and thank you, Mr.
Chairman, for your generosity.
Mr. Norwood. Thank you, Mr. Towns. Mr. Shadegg, you are now
recognized for 5 minutes.
Mr. Shadegg. Thank you, Mr. Chairman. I want to begin by
congratulating my good friend, Mr. Towns, on the efficacy of
his strategy. He got almost double the standard amount of time.
Well done.
First of all, let me begin by thanking all of you. This is
an extremely complex topic, and it is one where striking, I
think, the right balance is very important, and it is a
difficult balance to strike. I think each of you has brought
important information to that effort.
Mr. Barondess, I want to thank you for what you are doing.
I appreciate your efforts. I am particularly glad that Senator
McCain gave you time to discuss those issues.
Dr. Glover, let me start with you. I am one who strongly
believes that the capital has to be there for you to go find
the drugs, the new, cutting-edge drugs that we all need. I
appreciate very much that that really is at the edge of
medicine right now, and it is improving health care for people
in America and around the world.
Having said that, one cannot help but be concerned about
the staggering increase in drug costs and the contribution of
that increase to the cost of overall health care. Those numbers
are in the neighborhood of 17 to 20 percent a year.
I want to ask you kind of a multiple question and let you
kind of respond to it the way you would like. One, I hear from
your testimony that you seem to think that you don't have a
serious problem here. I would like, in that context, for you to
tell me if you have some other idea on how we are going to deal
with the increasing cost of drugs.
I would like you to also address what you believe the
effect on your industry would be of codifying the FTC
recommendations; that is, specifically, of limiting to one 30-
month stay and of requiring that people file with the FTC an
agreement between a generic and a pioneer drugmaker in the
process of 180 days.
Mr. Glover. Okay. Bear in mind that our comments regarding
whether there is a serious problem or not are addressed to
whether there is a serious problem under the functioning of the
Hatch-Waxman Act. Obviously, there are components to increasing
health care costs that go beyond pharmaceuticals and go beyond
the fact that we have patents.
Indeed, it is probably irrefutable that at some point the
country will not be able to afford increases in health care
costs.
Mr. Shadegg. We are close to that.
Mr. Glover. We believe that we are more a solution to that
problem rather than a problem in that scenario, in that we
provide benefits by virtue of having innovative medicines that
we believe reduce what would otherwise be the health care costs
if we had not innovated drugs 10 or 20 years ago and we are not
able to continue to innovate drugs for the next generation.
With respect to the effects on our industry of the
proposals in S. 812, we need to start and be clear about the
difference between what the FTC report recommends and what S.
812 does. The FTC report recommends a single 30-month stay, and
they do that by saying that any patents or the only patents
which are eligible for the 30-month stay are those patents
which are in the Orange Book at the time the relevant ANDA is
filed.
In contrast, S. 812 takes the position that any patent that
is not in the Orange Book within the first 30 days after new
drug approval is not going to be eligible for the 30-month
stay. As I explained in my testimony, and probably more fully
in my written testimony, the scenario whereby S. 812 cuts off
the ability of patents to get the benefit of the 30-month stay
30 days up to the end of your approval does not have any basis
in the way that companies really do their research and
development.
Contrary to the perhaps implications but not actual
statements of FDA earlier, where they were asked simply about
the number of circumstances in which products were modified
post-NDA approval and whether they got patents on those, the
scenario that the pioneer industry wants to emphasize here is
that there are often patents that are applied for before NDA
approval that do not get issued by the Patent Office until more
than 30 days after NDA approval. It is those patents that are
often important innovations in the originally marketed product
that need to get the protection of the 30-month stay. Those are
things that would be cutoff by the provisions in S. 812.
With respect to the other provision which you asked about,
which is the need to report to the FTC any settlements between
pioneer and generic companies, while PhRMA has not taken a
position on that, I would like for you to remember that
Chairman Muris said earlier today that those settlements, even
if they do get reported, can, indeed, be pro-competitive,
competitive-neutral, or anti-competitive. Indeed, in those
circumstances we do not believe that there should be a
presumption that, because there is an agreement between a
pioneer and a generic, that it is, in fact, hurting competition
and preventing generic drugs from getting to the market.
Mr. Shadegg. Ms. Jaeger, I would like to give you an
opportunity to respond to the same question.
Ms. Jaeger. With respect to the Senate bill 812, it is
really quite interesting that what we are asking for really is
that all these patents that come after brand product approval,
that they just be subject to the same standards that every
other industrial sector actually abides by. So that if a patent
truly represents innovation, a court is going to issue a
preliminary junction.
What is important to note, that in Senate bill 812 it
actually reduces the standard, so there is a higher likelihood
of actually a court issuing a preliminary injunction to the
brand company against FDA approving a generic product. So it is
very important to realize that we are not saying that they are
not going to be able to assert their intellectual property
rights. What we are saying is that this extra special
protection, this 30-month stay, that has nothing to do with the
merits of the patent, should not attach to those patents.
It is those patents that are the ones right now in our
current system that are causing a lot of these consumer delays.
So we are saying these patents, the ones that are
inappropriately listed, should not get the automatic 30-month
stay. They should have to stand or fall on the merits. That is
why we believe that Senate bill 812 would solve this issue.
As to the listing issue that was raised earlier, the bill
does have a provision in the bill whereby the brand companies
do have to list their patents at the time of brand product
approval plus 30 days. That is merely a codification of what we
have today. Today, under the current statute, the brand company
must file with FDA all patents they believe claim the brand
product, and they do so today at the time of NDA approval. This
will be no different.
The only difference is under current law there is no
penalty provision for not listing. So what Senate bill 812 was
designed to do was to stop the abuses of today as well as the
abuses of tomorrow. So we want to ensure that all patents are
basically put into the system and that way we could get
affordable pharmaceuticals to the consumers in a timely
fashion.
Mr. Norwood. Thank you, Mr. Shadegg. You did pretty well
yourself.
Mr. Waxman, you are now recognized for 5 minutes.
Mr. Waxman. I just want to follow up on that last question.
We have the Federal Trade Commission recommending only one 30-
month stay. We have the witnesses from the Bush Administration
saying they would like to limit it to only one 30-month stay.
Dr. Glover, is it PhRMA's position that you are against
limiting it to one 30-month stay?
Mr. Glover. That is correct, Congressman.
Mr. Waxman. Mr. Barondess, you I think captured the
frustration that you are feeling about a drug that you can't
afford because your insurance company isn't willing to pay for
it. What we want to do is achieve a balance. We want a balance
that on one hand will encourage innovation and research and
development of products that people are desperately looking for
to help them with disease. On the other hand, we want lower-
cost drugs.
So the balance we struck was that we give a patent to the
monopoly, and at the end of the monopoly we want competition
because that does lower the price of drugs. If we can't lower
the price of drugs, if people don't have insurance, they can't
afford it. But even insurance companies are refusing to pay
because the costs are so incredibly high to them. So the shift
is onto those who are insured. That is really the dilemma we
have.
But I want to tell you a story because this Hatch-Waxman
bill of 1984, I was around, obviously, when it was adopted. But
I was also around in Congress when we adopted a law called the
Orphan Drug Act. We had people affected with diseases in so
small numbers that the pharmaceutical companies didn't want to
put money into developing drugs for them because they didn't
see a high potential for profit.
So we held hearing after hearing after hearing. We didn't
wait until the end of a session to hold the hearings. We held
hearings, and then throughout that period of time worked out
legislation to give the incentive for the pharmaceutical
companies to develop these new drugs.
One of the incentives we gave them was an exclusivity over
a product that they would develop for people with rare diseases
because we will let them capture whatever profit there was and
not have competition so that nobody will want to be involved.
Well, it turns out that MS is considered a rare disease for
this purpose. When the companies were working on products for
rare diseases, they had one drug called Avonex out there, and
another company wanted to produce another drug that was pretty
much like that.
Mr. Barondess. Betaseron?
Mr. Waxman. Not Betaseron but Rebif.
Mr. Barondess. Well, Rebif, Betaseron, and Avonex are all
interferon-based drugs.
Mr. Waxman. So they wanted this other one, and the first
manufacturer came in and said, ``Well, they shouldn't be
allowed to compete with us.'' So they held up the second drug
for a very long time. I wrote to the FDA and I said, ``Well, we
wrote the law. We said that if there is an improvement in a
second drug, we should allow it to be available.'' But the FDA
took the most conservative position and refused to allow that
second drug to go on the market. Well, that meant that the
patients were being denied the benefit of another drug that
would have helped them.
Now, again, the balance: We wanted to give the full
incentive for the manufacture of a drug for a small patient
population, but they took advantage of what we were trying to
do to give an encouragement for one purpose and try to use it
for their own profits. There is nothing wrong with that.
But when we see that when the laws are used by people for
their own self-interest but contrary to what we ever envisioned
when we adopted them, Congress has to act. I submit to all of
the witnesses here that the Hatch-Waxman Act--we used to call
it the Waxman-Hatch Act--never intended this 30-day period to
be a way to stop a generic from coming on the market. We never
thought that 180 days, which we adopted for an incentive for a
generic to step up and compete, would be the basis for blocking
any generic competition.
So it is time, I think, for us to revise this law, to
revisit these issues. Those who have the benefit of the status
quo never want to give it up, even if it is in the public
interest.
I submit, Dr. Glover, I think PhRMA is taking a very
appropriate position for its self-interest, but its self-
interest is not, in my view, in this regard, to not change this
law at all, consistent with, I think, the public interest of
maintaining that balance of giving incentives for innovation
and giving the benefit to the consumer at the same time or at
least at some time for competition and lower prices.
That is a balance I think Congress has to revisit. I hope
that we can follow the example of the Senate, if not taking
their exact bill, at least struggling with those issues and
seeing if we can resolve them.
Thank you, Mr. Chairman.
Mr. Norwood. Thank you, Mr. Waxman. I will recognize myself
now for 5 minutes and to follow up on that.
PhRMA may be taking a position that is in their best
interest, but it may be in mine, too; it may be in yours, too.
That is what makes us have this hearing. We are trying to
understand that we don't do anything that interferes with
innovation, which Mr. Barondess has pointed out is so
important.
By the way, the insurance company that denied you the
medication, was that an HMO?
Mr. Barondess. No, sir. I actually----
Mr. Norwood. That is good. I just wanted to know if it was
or wasn't.
Let me follow up just a little bit, Dr. Glover, because you
have stated that you are unhappy with simply one 30-month
period in here. I would like for you to very carefully explain
to the committee instances where a brand should be allowed to
invoke multiple 30-month stays. Help me understand that.
Mr. Glover. Right. I think the easiest-to-understand
circumstance is where in the development of a drug, after we
have started the FDA approval process, that is, we are in phase
1, 2, or 3 trials, we do something to the drug that is
important for its ability to be a marketable product. That is,
we do something to reduce its side effects, to make it be
delivered more efficiently, allow it to have more stability on
the shelf so that it can actually be used and shipped in an
appropriate way.
Mr. Norwood. That is at a time that it is already on the
market?
Mr. Glover. No, this is at a time before it is on the
market.
Mr. Norwood. Okay, you are still working on it?
Mr. Glover. Right. But when we make those innovations, we
apply for the patent. We send the application into the Patent
and Trademark Office.
Nevertheless, having made those innovations, we are still
fairly far along in the process, and the drug gets approved
before the patent gets issued by the Patent and Trademark
Office. Indeed, it doesn't get issued by the Patent and
Trademark Office until more than 30 days after new drug
approval, but bear in mind it was a patent that was applied for
beforehand.
In that circumstance, under the scenario that S. 812 would
have, we wouldn't get the ability to have more than one 30-
month stay. Now we take that circumstance and, as counsel is
probably whispering into your ear, in order to get the
multiple, non-concurrent 30-month stay, that patent has to be
issued after the generic drug files this application.
Now in the circumstance of a 3-year data exclusivity
period, that is, not non-new chemical entities, the generic can
file their generic drug application the day after the pioneer
goes to market. So, obviously, this circumstance can happen.
In the case of a new chemical entity drug, this
circumstance would have to have the patent delayed by the
Patent Office for 4 years before it is actually issued by the
Patent Office. The reason that is is because the generic
applicant cannot file their application until 48 months after
new drug approval.
So they file their application at 48 months. A new patent
or the patent previously applied for gets issued by the Patent
Office, and it goes into the Orange Book. They then end up with
a non-concurrent 30-month stay.
Now then there is a much, much rarer circumstance, which is
you have a product that is on the market, and although there
was some exchange with FDA about this earlier, I am not sure it
was clarified. There are several things that you can, in fact,
do to a marketed product that would be innovations that are
covered by patents, but that do not require you to get a
supplemental NDA or a new NDA.
In those circumstances, the patent for that modification,
which may be things such as shelf life, greater stability, and
things of that nature, will be listed for the original NDA. So
now you have a new patent that is getting listed after the
original NDA approval. In those circumstances it is more likely
in terms of timing that those patents might be issued by the
Patent Office after the first generic files, and then, once
again, you would have a non-concurrent 30-month stay.
We do not believe that the mere fact that some non-
concurrent 30-month stays have been viewed by the FTC as being
inappropriate or anti-competitive is a reason to prevent the
possibility of a legitimate multiple 30-month stay from being
available to pioneer companies.
Mr. Norwood. Are they right? Have any of them been
inappropriate?
Mr. Glover. I would say that to the extent that they have
been successful in challenging some of the multiple 30-month
stays, they have done it under the antitrust laws, and,
therefore, we do not believe we need to change the Hatch-Waxman
Act to take care of those issues.
Mr. Norwood. So are you saying to me that perhaps this bill
isn't the way, but maybe we need to look at that because there
is an issue here?
Mr. Glover. I am certainly saying that this bill is not the
way. It is our view that there are currently laws in place to
take care of it. Indeed, on the particular issue that we are
concerned about, which is that someone is actually knowingly
filing a patent that should not be listed and knowingly
bringing litigation on a patent that they know is invalid, the
antitrust laws take care of that very clearly right now, and
they are doing so in some circumstances that have been
challenged by the Federal Trade Commission and the Department
of Justice.
Mr. Norwood. Mr. Brown.
Mr. Brown. I thank you, Mr. Chairman.
Dr. Glover, for the record, please provide a list of
patents just discussed that have been issued after NDA
approval, but that cover the already-approved drug, and
describe the innovation that the patent covered, if you would
be willing to do that for us?
Mr. Glover. That is very difficult to find, sir. I am not
sure I know about most of----
Mr. Brown. I am sure that you and PhRMA's resources can put
that together.
Mr. Glover. I cannot--first off, it is not within PhRMA's
information; it is within the company's information, and I
can't promise to do so. But to the extent that we can, we will
try to be responsive.
Mr. Brown. I appreciate that. PhRMA runs very coordinated
efforts all kinds of ways with its member companies, and I am
sure they will cooperate with you as well as they do in
political campaigns. So I appreciate that.
Dr. Levine, my understanding is that employers in your
coalition, which has been involved in some of this legislation,
very much value and respect the protection of patents. I
listened to you list the names of Verizon, a telecommunications
company, and General Motors, and companies that live and die
really on innovation and patents and intellectual property.
Do any of those members of your coalition believe that
policies before the Congress in this area, that any of the
legislation we are working on in any way undermines that
interest?
Ms. Levine. The coalition members have agreed and have
great concern about the issue of multiple 30-month extensions
of patent. They also strongly support intellectual property
protection.
One of the things that is challenging our members is the
unpredictability, the inability to plan and to budget and to
understand what the effective patent life is going to be, and
when it is going to end.
Patents and intellectual property protection represent a
legitimate return on the research and development efforts of
innovative research-based pharmaceutical companies. No one
argues with that.
The question is, how much return for how long and how
predictable is it? Is the profitability of a company, of a
research-based pharmaceutical company, to be driven from
revenue based on clever lawyering to extend patents or should
the rewards go to the company with the most innovative drugs?
I think our members have been frustrated by having to
absorb enormous, unplanned, and unanticipated costs for drugs
based on an expected expiration of patent, and then finding
that the process of challenging the patent is leading them to
have to manage what is essentially becoming unmanageable. The
response to that is even more problematic both for the
companies and for the beneficiaries they represent, because
people are having to do things with drug coverage.
I absolutely agree with Dr. Glover that the issue is
access. Ultimately, with a contraction of drug benefits, and we
only have to look at what has happened to the Medicare+Choice
Plans, look what has happened to the drug coverage available to
seniors in Medicare+Choice Plans over the last number of years.
The cost of prescription drugs, escalating at 17 to 20 percent
a year, has resulted in significant decreases for
Medicare+Choice members to prescription drugs, which is why
many of them joined those plans in the first place.
The mismatch between the revenues and the cost of
prescription drugs has meant that many, many seniors now cannot
afford the prescription drugs that they need, whether it is for
an orphan drug for a rare condition or it is drugs for high
blood pressure for which there is no generic available.
Mr. Brown. Thank you, Dr. Levine.
Ms. Jaeger, you have heard Mr. Burr at the beginning with
the FDA and the FTC here outline the number of ANDAs filed, the
number of generics, the number of 30-month stays, on and on. It
seems to me that this 30-month stay and 180-day exclusivity
issue, while still in the course of 20 years, has been
proportionately a very small number of drugs, obviously; that
the number of drugs has increased, the number of times this has
been done has increased as the years go by, as the companies,
as the name-brands have seen the opportunities there and are
driven by profit, as they should be, and are doing the right
thing for their bottom line, and would not be very good
companies if they weren't trying to take advantage of it.
We have also seen, obviously, the drugs they choose are
those that have the highest dollar sales. Explain, if you
would, and you have talked some about this, that the average
number of patent filings for breakthrough drugs has increased
fivefold, I think you and some others have said from two to ten
since original Hatch-Waxman. Give us a couple of specifics
there, if you would.
Ms. Jaeger. Sure. I think that I will stay with the example
for Paxil. Again, as I was saying, back in 1984, Congress
envisioned there would be two patents listed in the Orange Book
that would be subject to this automatic 30-month stay, the
basic compound patent, the first-method-of-use patent.
Since that time, especially in the mid-nineties, we started
to see an increase, an incline in how many patents were being
listed in the Orange Book per major blockbuster. Some were up
into the twenties. On average, we are seeing ten. So these
other eight, allegedly, protect the drug product.
But when we are looking at the particular drug product,
they don't cover the brand product marketed. When you look at,
as an example, Paxil, as I said, the basic compound patent, the
first-method-of-use patent expired in 1992 and 1993,
respectively. The next patent that was issued that was there at
the brand product approval time was a patent for the hemi-
hydrate form of the active ingredient. That, indeed, covered
the brand product. That was appropriately listed.
If you were thinking if it was the only patent that was
there, then from a competitor's standpoint generics could come
in, and if they can design around that particular patent, they
should be able to come to the market like every other
industrial sector.
But, lo and behold, we have this automatic 30-month stay
that kicks in. So even though they are going to be able to
design around, theirs is kept off the market for an additional
30 months.
To complicate the matter, the company filed additional
patents that went into the Orange Book for unapproved uses.
There is complicated product-by-process patents and others.
These patents we do not believe should be listed in the Orange
Book because they do not claim the drug product. These are the
type of the patents that are actually causing more litigation,
extending litigation, extending and making the litigation more
protracted, so that we can't get resolution of an issue. So
these are the type of things that we are seeing.
Senate bill 812 actually solves this issue because it would
basically roll back the automatic 30-month stay. It would
reduce the extra-special protection of this 30-month stay to
only those patents that are listed at the time of brand product
approval.
All other patents that come afterwards, again, would have
the same intellectual property protection and rights as every
other industrial sector and would be subject to a preliminary
injunction standard.
So what we are seeing is a trend, and FTC's report actually
said that right now we are seeing more and more patents listed.
The more patents that are being listed, the longer the
litigation, the longer the delay to the consumer.
What we are concerned about is that, when you think about
it, we are hoping that in the future that the review times for
generic applications should actually decrease. Then if we can
get rid of some of these improperly listed patents, perhaps we
can get immediate resolution or at least accelerated resolution
as to a reasonable patent. So the product can go into the
market in a timely fashion.
Mr. Glover. May I comment?
Mr. Norwood. Yes, you may. I am certainly going to abide by
Mr. Waxman's wishes. Dr. Glover, I would like for you to
comment. I would like to hear that.
Mr. Glover. Well, first, we need to go back to one of the
earlier statements that Ms. Jaeger said. It cannot be stated
accurately that the contemplation in 1984 was that there would
only be two patents listed in the Orange Book. Indeed, there
are three categories of patents that were deemed appropriate
for listing, and of course you can have more than one member in
each of those categories. Those were composition patents,
formulation patents, and method-of-use patents.
Second, we need to also recognize that, as the number of
patents per product that are getting listed in the Orange Book
has increased over the years, it may have nothing to do with
anything other than we are getting much more sophisticated in
our science and our research and development.
We should also recognize that, regardless of the number of
patents that are listed in the Orange Book, if they are all in
the Orange Book at the time the ANDA applicant files its
application, there will be a single, concurrently running 30-
month period in which FDA cannot give final approval.
The last thing to note, though, is that the premise of the
generic industry here and the proponents of S. 812 is that, if
you get rid of the 30-month stay, that the generics will be
able to get to market sooner. But as the FTC has already told
us, the litigation, if there is litigation to the district
court level, takes you at least 25\1/2\ months. If the generics
intend to get to the market earlier, obviously, their intent is
to go to market without having a resolution of the patent
infringement matter and, therefore, taking the risk that they
are going to violate presumptively patents that belong to the
pioneer.
Mr. Norwood. I would like to thank all of you. I know it
has been a long afternoon, but it has been an important
afternoon. This issue is very important to all of us, to
Members of Congress and our constituents.
We are concerned about the increased cost in prescription
drugs. I am also very interested in what that really means in
net cost in terms of the lifesaving pharmaceuticals that are
being produced and the cost savings that are being produced
because of the efficiency of new drugs. None of us on this
committee want to do anything with any law that interferes with
new innovations in the marketplace that are saving so many
lives and making so many people's lives worth living.
So thanks to all of you for your participation and thanks
to the members.
We are now adjourned.
[Whereupon, at 4:20 p.m., the subcommittee adjourned
subject to the call of the Chair.]
[Additional material submitted for the record follows:]
Prepared Statement of the American Association of Retired Persons
Mr. Chairman and members of the Committee, on behalf of our
organization and its 35 million members, thank you for convening this
hearing. AARP strongly believes there must be better containment of
prescription drug costs. Key to that is better access to generics,
which we are working to achieve through education, litigation, and
especially legislation that we urge you to enact.
Modern medicine increasingly relies on drug therapies, but the
benefits of these drugs elude more Americans every day because of high
costs that have reached crisis proportions. Spending for brand name
drugs tripled in the last decade, rising from $40.3 billion in 1990 to
$121.8 billion in 2000, and is expected to more than triple to $414
billion in this decade. This is a tremendous problem for older and
disabled Americans who rely so heavily on prescriptions. In fact,
Americans age 65 and older make up only about 15 percent of the
population but account for 40 percent of total prescription drug
spending. And 75 percent of Americans age 45 and over use prescription
drugs on a regular basis.
The failure of Congress to enact a Medicare prescription drug
benefit this year has left our members disappointed--and more than ever
in need of help in affording the drugs they rely on. That makes the
need to improve access to generics all the more critical now.
Improving access to generic drugs is a safe and effective way to
lower total drug costs. A survey we released last week found an
overwhelming majority of Americans say generic drugs are an important
part of controlling drug costs.<SUP>1</SUP> Indeed, switching from
brand name to equally effective generic alternatives commonly saves
consumers as much as 50 percent or more. Yet one in four of our survey
respondents reported not being able to afford a prescription drug
because no generic was available.
---------------------------------------------------------------------------
\1\ The survey of 1,046 adults age 45 and above was conducted by
ICR of Media, Pennsylvania and had a 3 percent margin of error for
overall results. It was released by AARP along with two coalitions--Rx
Health Value and the Coalition for a Competitive Pharmaceutical Market
(CCPM)--on October 1, 2002
---------------------------------------------------------------------------
Americans are finding that they cannot get the generics they need
because of loopholes in the law that allow brand-name manufacturers to
keep these low-cost lifesavers off the market. Our survey shows that
two thirds of Americans want Congress to close those loopholes now.
Legislation to close these loopholes was passed by the Senate in
July by a wide bipartisan margin of 78-21. It would let brand-name drug
companies receive only one 30-month patent extension per product,
prevent brand-name companies from paying generic manufacturers to keep
their products off the market, and allow generic companies to challenge
brand-name patents for frivolous modifications like superficial changes
in a drug's color or physical design. We strongly urge you and your
House colleagues to enact such a bill this year so that our members and
all Americans can afford the drugs they so desperately need.
aarp survey details
Because generics have so much potential to help curb skyrocketing
drug costs, we went to the American people to learn what they think
about these effective and affordable alternatives. We found Americans
age 45 and above readily accept generic drugs as substitutes for brand
names. For example:
<bullet> Ninety percent are willing to accept generic drugs as a way to
reduce their drug costs.
<bullet> Two-thirds of Americans 45 and older already usually choose
generics over brand names when available.
Americans also understand the importance of generics in addressing
their growing concerns about drug prices.
<bullet> More than 90 percent are concerned--and 72 percent are very
concerned--that high drug costs are making it more difficult
for employers and health plans to provide affordable coverage.
<bullet> Eighty four percent believe strongly that greater availability
of generics would help combat increasing drug prices.
Of course, nine out of ten people surveyed said enacting a Medicare
drug benefit this year is a priority. And, importantly, other research
suggests that proper use of generic drugs in a Medicare prescription
drug plan could save the program from $50 to $100 billion over 10
years.<SUP>2</SUP> Our survey also found that:
---------------------------------------------------------------------------
\2\ Greater Use of Generics: A Prescription for Drug Cost Savings.
Grant Ritter, Cindy Thomas, Stanley S. Wallack. Schneider Institute for
Health Policy, Heller Graduate School, Brandeis University. Waltham,
MA, 2001.
<bullet> Four out of five (81 percent) say it is important for Congress
to enact legislation this year to make generics more available.
<bullet> And two thirds (67 percent) say closing patent loopholes that
keep generics off the market is more important if Congress
fails to enact a Medicare benefit.
Yet cynicism is high. The survey found that:
<bullet> Nearly three quarters (72 percent) of respondents say
pharmaceutical companies exert too much power over Congress;
only 11 percent disagree.
<bullet> And despite the brand-name manufacturers' mantra that their
high prices are key to bringing new drugs to market, nearly
three out of four (73 percent) respondents do not believe
better access to generics will cause cuts in research and
development.
Our survey results make clear that consumers, like so many public
and private payers, are comfortable with and eager for generic
alternatives to expensive brand-name drugs and unsustainable annual
double-digit drug cost increases. Congress still has an opportunity
this year to make drugs more affordable and end unfair industry
practices.
We urge you to act now to close the loopholes that are keeping safe
and effective generics off the market and costing consumers billions of
dollars each year.
additional aarp efforts
Legislation is just one of three prongs in AARP efforts to reduce
prescription drug costs through wider access to and use of generics. We
are also working to educate our members on the importance and value of
generics. And we are working through the courts to challenge actions by
brand-name manufacturers that keep generics off the market.
Education: On the education front, we are working to encourage our
members to understand and use generics when appropriate, and to
otherwise use drugs wisely, through the AARP ``Check Up on Your
Prescriptions'' campaign. The campaign is designed to increase
understanding of generics as alternatives to brand name drugs when
appropriate, improve patient compliance with prescribed drug regimens,
and reduce harmful drug interactions and overmedication. It includes
national television and print ads, broadly distributed materials, and
other joint efforts with the American Geriatrics Society, United Health
Group, and the American Medical Women's Association. The messages are
also being carried by AARP's own publications, AARP Modern Maturity, My
Generation and the AARP Bulletin.
In addition to promoting generics, the AARP ``Check Up'' campaign
is urging patients to tell their doctors about other medications they
are taking. Currently about one third do not always do so, putting them
at risk for adverse interactions. The campaign also encourages
consumers to take drugs as prescribed. Skipping doses, not filling
prescriptions and unauthorized pill splitting are some of the measures
consumers take in the wake of rising drug costs.
AARP research has found that 28 percent of consumers have stopped
taking a drug before the prescription ran out and one in five have had
a prescription in the past two years that they did not fill--usually
because of the cost. Unfortunately, these misguided cost-saving
measures can also prolong an illness or medical condition and increase
the total cost of care.
Our prescription ``check up'' is simple to do. We are telling
people to:
<bullet> Ask their doctor and pharmacist if there is a generic
equivalent for brand name prescriptions.
<bullet> Make sure their doctor or pharmacist knows if they are taking
more than one medication.
<bullet> Always take the right dose and full course of a prescription.
<bullet> And last, but not least, not let drug advertising talk them
into believing they need a drug their doctor hasn't prescribed.
These and other ``Check Up on Your Prescriptions'' tips can help
bolster health and boost savings. More information about ``Check Up on
Your Prescriptions'' can be found at the AARP Web place at
www.aarp.org/wiseuse.
Litigation: The third prong of our efforts to increase use of
generics is in the courts. AARP attorneys are serving as co-counsel, or
have filed amicus briefs, in several cases charging brand-name
companies with patent abuse, suppression of generic competition, and
collusive agreements with generic manufacturers. The cases include:
<bullet> In Re: Buspirone Antitrust Litigation, a suit against Bristol-
Myers Squibb Company (BMS) for alleged patent abuse related to
a drug for anxiety. Just as BMS' patent for the drug was about
to expire, BMS brought patent infringement litigation against
the generic competitors and thereby triggered an automatic 30-
month stay of FDA's approval of the generics.
<bullet> In Re: K-Dur Antitrust, a class action anti-trust suit
alleging illegal agreements by three pharmaceutical companies
that prevented the marketing of a low-cost generic alternative
to a drug used to treat side effects of high blood pressure
medications. K-Dur20 is manufactured by Schering-Plough
Corporation and is one of the most frequently prescribed drugs
to people over the age of 65. Schering-Plough paid $75 million
to two generic manufacturers in exchange for the promise to
refrain from producing a lower-priced competitor.
<bullet> In Re: Tamoxifen, a class action against AstraZeneca
Pharmaceuticals LP and Barr Laboratories, Inc., for an
allegedly anti-competitive agreement involving one of the most
widely prescribed breast cancer drugs. Barr abandoned a
challenge to AstraZeneca's patent and agreed to refrain from
marketing a generic despite a federal district court ruling
that AstraZeneca's patent was unenforceable. In return,
AstraZeneca agreed to pay Barr $21 million and supply Tamoxifen
to Barr for resale as a ``generic'' priced only five percent
below the brand name version.
<bullet> In Re: Cardizem CD, antitrust litigation in which AARP argued
that an agreement by Aventis Pharmaceutical, the maker of
Cardizem, a high blood pressure medication, and Andrx, a
generic manufacturer, to keep a generic off the market has
harmed consumers.
AARP is involved in two other drug suits involving state efforts to
contain costs.
<bullet> In Pharmaceutical Research and Manufacturers of America
(PhRMA) v. Michigan Department of Community Health, AARP
supports the state program to persuade prescription drug makers
to offer rebates to lower the costs the state pays for its low-
income residents.
<bullet> In PhRMA v. Tommy G. Thompson, AARP's brief supports Maine's
Medicaid waiver demonstration project requiring drug makers to
rebate a portion of the price of drugs purchased directly by
individuals who are not otherwise covered by the state's
Medicaid program.
conclusion
Improving access to generic drugs is key to controlling
skyrocketing prescription drug costs and ensuring that older and
disabled Americans have affordable access to the prescription drugs
they need. Our survey results demonstrate that Americans are ready,
willing, and eager to make the most of generic drugs. The survey also
makes clear that the public is expecting Congress to act this year to
close loopholes that keep generics off the market. Doing so is within
reach this year. AARP urges you to enact such legislation.
______
Food Marketing Institute
October 8, 2002
The Honorable Mike Bilirakis
Chairman
House Energy and Commerce Health Subcommittee
2125 Rayburn House Office Building
Washington, D. C. 20515
Dear Mr. Chairman: The Food Marketing Institute (FMI), on behalf of
our 2,300 supermarket and food wholesaler members, submits the
following statement for the record in support of legislation (H.R. 5311
and H.R. 5272) that would provide consumers with greater access to
affordable medications. In brief, these initiatives now before the
House Energy and Commerce Health Subcommittee will bring modest but
long overdue reforms to the Drug Price Competition and Patent Term
Restoration Act of 1984 (P.L. 98-417) by closing loopholes in the
Hatch-Waxman law that allows brand-name pharmaceutical companies to
unfairly delay less expensive generic drugs from entering the
marketplace.
As an industry that has approximately 3.5 million employees, our
members are becoming increasingly concerned over the runaway costs for
prescription drugs which are increasing by a much as 10 to 20 percent
annually. If this disturbing tend continues unabated, it will undermine
the ability of our members who are self-insured companies to provide
their associates with health care coverage, and it may in fact force
many supermarket companies to increase employee premiums, raise their
co-payments or reduce benefits in order to offset these rising costs.
In this regard, it is our firm belief that reform of Hatch-Waxman is
needed now so that we can once again have a greater degree of balance
and competition in the marketplace in terms of the availability and
access to quality, cost effective generic drugs.
FMI's support for H.R. 5311 and H.R. 5272 is further predicated by
the fact that many of our members have in-store pharmacy departments.
We currently estimate that our supermarket members operate close to
12,000 pharmacy departments in the United States accounting for nearly
14 percent of the outpatient prescription drug market. Recognizing that
rising drug costs adversely affects all consumers, especially seniors
with limited incomes, the underinsured and the uninsured, we must make
a concerted effort to increase the availability of more affordable
generic drugs. It is simply wrong to allow brand-name pharmaceutical
companies to unfairly extend their patent protection beyond the time
allotted by Hatch-Waxman law. When Congress enacted this landmark
statute, it granted extended patent protection for new brand-name
medications for up to an additional five years to compensate
pharmaceutical manufacturers for the time lost in obtaining market
approval from the Food and Drug Administration (FDA). As part of that
compromise, the Hatch-Waxman law provides for an expedited approval
process for generic versions of post-1962 drugs.
Unfortunately, Congress never envisioned a system in which brand-
name companies would file questionable last-minute patents which
effectively blocks a generic equivalent from entering the marketplace.
This ``gaming'' of the system which has been occurring for the past
five years must be corrected, and it is FMI's position that this can
best be achieved by enactment of modest reforms as reflected in H.R.
5311 and H.R. 5272. Specifically, these initiatives would end needless
delays associated with the automatic 30-month stay, accelerate generic
drug introductions and would expedite resolutions of patent disputes.
The Federal Trade Commission (FTC) has endorsed these reform to Hatch-
Waxman, and the Congressional Budget Office (CBO) estimates that these
changes to the 1984 law will save consumers and employers some $60
billion over the next 10 years. Most importantly, reforming Hatch-
Waxman would not discourage pharmaceutical companies from making future
investments in the development of the next generation of innovative
drugs.
To conclude, FMI appreciates the opportunity to submit this
statement for the record in support of legislation (H.R. 5311 and H.R.
5272), and we look forward to working with the Chairman of Members of
the Health Subcommittee on this important issue.
Sincerely,
John J. Motley III, Senior Vice President
Government and Public Affairs
cc: Members of the Health Subcommittee
______
Response for the Record of Kathleen Jaeger, President and CEO, Generic
Pharmaceutical Corporation
Question 1. Generic Drug manufacturers have said that you want drug
patents to be treated just like other patents during patent litigation.
That is, you argue that brands should not have a 30-month stay, but
rather should have to argue for an injunction to prevent generic ANDA
approval. Isn't it true, however, that the ``Bolar Amendment'' allows
generic manufacturers to conduct what would otherwise be infringing
activity prior to marketing? Why should drug patents be treated like
all other patents during litigation, when they're treated differently
when generic manufacturers are copying them prior to approval?
Response. The Generic Pharmaceutical Association (GPhA) agrees with
President Bush's position that while brand name pharmaceutical
manufacturers ``deserve the fair rewards of [their] research and
development, [they] do not have the right to keep generic drugs off the
market for frivolous reasons.'' We believe that the 30-month stay
provisions of Hatch-Waxman are increasingly manipulated by some brand
companies to delay the timely introduction of more affordable generic
products. We believe that several measures are necessary to ensure
timely resolution of patent disputes and restore predictability to the
system.
When a generic applicant challenges a patent and the brand company
sues the generic for patent infringement, the generic drug cannot be
approved for 30 months (unless they win the lawsuit). This ``30-month
stay'' that automatically delays generic approval is unique in the
patent litigation world and is awarded to the brand company regardless
of the merits of their case. The Greater Access to Affordable
Pharmaceuticals Act (GAAP) passed by the Senate in July would limit
brand companies to a single 30-month stay for the patents that are
listed in the Orange Book at the timer of brand product approval.
The FTC study, issued in July 2002 during the Senate debate on
GAAP, found that ``[f]rom 1992 to 2000, brand-name companies have
listed patents in the Orange Book after ANDA has been filed for the
drug product in 8 instances; 6 of these 8 instances occurred since
1998. For the 8 drug products, the additional delay of FDA approval
caused by the additional 30-month stays (beyond the first 30-month
stay) ranged from 4 to 40 months. In all 4 of the cases so far with a
court decision on the validity or infringement of a later-issued
patent, the patent has been found either invalid or not infringed by
the ANDA.'' (July 2002 Generic Drug Entry Prior to Patent Expiration:
An FTC Study)
The study went on to note, ``[i]n the future, patent infringement
litigation brought by brand-name companies against generic applicants
that have filed ANDAs with paragraph IV certifications may take longer
to resolve. The data suggests that cases involving multiple patents
take longer than those involving fewer patents. As for June 1, 2002,
for 6 out of 7 cases that have been pending for more than 30 months
before a decision from a district court, the brand-name company has
alleged infringement of 3 or more patents.'' (July 2002 Generic Drug
Entry Prior to Patent Expiration: An FTC Study)
Let's look at an example of the abuses that result from multiple
30-month stays.
The well-known anti-depressant Paxil, which has annual sales of $2
billion, is a good example of a drug that has benefited from the
GlaxoSmithKline's ability to get multiple 30-month stays and stack
patents in a successful effort to delay generic competition and
consumer savings.
The original patents covering Paxil expired in the 1990s.
GlaxoSmithKline was able to obtain a patent claiming a particular
crystalline form of the drug. This patent expires in 2006. Generic
companies have sought to bring a version of Paxil to market that does
not infringe on this patent.
In 1998, several generic companies filed applications to bring a
generic version of Paxil to market, claiming they did not infringe the
still unexpired patent listed in the Orange Book. At the time the
generics filed, GlaxoSmithKline sued, triggering a 30-month stay.
Since 1998, GlaxoSmithKline has been able to obtain nine new
patents and list them in the Orange Book. Some of these patents are for
minor modifications of the active ingredient, different formulations,
and unapproved uses. These patents do not even claim the product that
is currently being sold, yet they are listed in the Orange Book.
As a result of these patents, GlaxoSmithKline sued the first
generic company four additional times, resulting in five additional 30-
month stays. The last stay will expire in November 2003. If these
patents are upheld in court, a more affordable generic will not be
approved until 2016.
Thus, through patent ``stacking,'' even after the original patents
on Paxil expired, GlaxoSmithKline was successful in getting four
additional 30-month stays, and may delay the introduction of generics
for more than a decade.
The 30-month stay provisions of GAAP make important process changes
that will lead to a more predictable, rational pharmaceutical
marketplace. GAAP limits brand companies to a single 30-month stay for
patents listed at the time of brand product approval. This eliminates
the brand companies' ability to get multiple 30-month stays from
generic competition by listing new patents.
Taken as a whole, the 30-month stay provisions of GAAP along with
other provisions in the legislation, will ensure timely resolution of
patent disputes and prevent end-run tactics that delay competition.
With regard to the Bolar Amendment, this provision provides a
mechanism by which generic companies may begin research and
development, and other activities necessary for FDA approval of a
generic drug product prior to the expiration of a patent on a brand-
name product. The Bolar Amendment specifically provides that such
activities ``shall not be an act of patent infringement.''
In Eli Lilly & Co. v. Medtronic, Inc. (496 U.S. 661 (1990)), the
Supreme Court, in an opinion by Justice Scalia, found that the Bolar
Amendment was intended to work in tandem with the patent term
restoration provisions of Hatch-Waxman to respond to ``two unintended
distortions'' in the patent law. The patent term restoration provisions
address the fact that a patent holder cannot profit prior to obtaining
FDA marketing approval. Likewise, the Bolar Amendment assures that the
patent holders do not enjoy a de facto patent term extension during the
period after expiration but prior to marketing approval for a generic
product. Thus the patent term restoration provisions and the Bolar
Amendment are complementary mechanisms intended to achieve a balance in
the law.
Question 2. S. 812, as passed by the Senate, restricts brand
manufacturers right to sue if patent litigation is not initiated within
45 days. Besides pharmaceutical patents, what other industry patents
should become unenforceable if not sued upon within 45 days?
Response. The issues with the 45-day ``statute of limitations'' are
closely linked to the issues of appropriate patent listing and stacking
multiple patents.
Several interlocking provisions stop the abuse of the 30-month stay
provision. One of them is creating a 45-day window for listing patents.
Currently brand manufacturers lists patents within 45 days of the
generic filing because they know they can get an automatic 30-month
stay on each patent. Once the 30-month stay loophole is removed, the
incentive to list patents in a timely fashion, or at all, may be
eliminated.
The generic pharmaceutical industry proposed the 45-day window
provision as a compromise that prevents brand companies from
circumventing a new potential loophole created by the single 30-month
stay provisions of GAAP. It requires the brand companies assert their
intellectual property rights during the 45-day window that starts any
patent challenge. This ``statute of limitations'' (which was merely
borrowed from other industrial sectors) concept ensures that brand
companies plays on a level playing field.
Question 3. How much does it cost the average generic manufacturer
to produce a generic drug? You state in your testimony that brand drugs
exceed generic drug costs by a factor of ten. To be fair, it also costs
roughly $600-800 million to develop a brand drug. How much does it cost
a generic manufacturer to develop its drug and conduct bioequivalency
studies?
Response. The issue of pharmaceutical research and development is
used repeatedly by the brand pharmaceutical industry to suggest that
eliminating barriers to a competitive market will somehow harm the
introduction of new medicines. GPhA disagrees with this premise. It is
our position that the current system harms innovation by rewarding
patent creation rather than the discovery of medicines. Further, we
believe that the current system encourages litigation instead of
research and development. The proposals we seek if implemented would
refocus the brand industry on true R&D rather than on legal loophole
innovation.
Based on our experience, the cost for the development of a generic
drug can range anywhere from $250,000 to tens of millions of dollars.
Generic drugs may take anywhere from 1-10 years to develop.
In 1998, the Congressional Budget Office (CBO) published an
analysis of the contributions of generic medicines to consumers since
1984. The CBO study concluded that the savings to consumers generated
by a vibrant generic pharmaceutical industry is enormous. ``CBO
estimates that in 1994, purchasers saved a total of $8 to $10 billion
on prescriptions at retail pharmacies by substituting generic drugs for
their brand-name counterparts.''
The study also found that generic competition has been good for
innovation within America's brand pharmaceutical industry. ``Between
1983 and 1995, investment in R&D, as a percentage of pharmaceutical
sales by brand name drug companies, increased 14.7 percent to 19.4
percent. Over the same period, U.S. pharmaceutical sales by those
companies rose from $17 billion to $57 billion. Overall, then, the
changes that have occurred since 1984 (the Hatch-Waxman Act) appear to
be favoring investment in drug development.''
One additional fact is worth noting in response to the brand
pharmaceutical industry's continued insistence that leveling the
competitive playing field will hurt innovation: the statistics on brand
company investment in innovation versus its investment in marketing.
From 1997 to 2000, drug maker spending on consumer advertising more
than doubled. At the same time as billions were being spent to sell
expensive brand pharmaceutical products to the public, research
employment dropped by nearly 2%, while marketing employment increased
by 58%. An industry analysis by Boston University experts showed that
brand pharmaceutical companies employ 81% more people in marketing than
in research.
According to the latest available data, the total prescription drug
expenditure in 2001 was $172 billion, or approximately $601 per person.
That represents an increase of 17% over the previous year. Of that
total, approximately $13 billion, or approximately $48 per person, was
spent on generic pharmaceuticals.
As a result, the amount of money invested by generic pharmaceutical
manufacturers, on the basis of sheer dollars, pales by comparison.
However, if you compare R&D investment for brand and generic companies
on the basis of a percent of gross profit, the leading generic
companies and the leading brand companies' average 15-17% of gross
profits invested in research and development. We believe that this
statistic demonstrates that the commitment to product development is as
strong in the generic industry as it is for our larger brand
pharmaceutical counterparts.
Question 4. You speak of the intent of Hatch-Waxman in your
testimony. Do you honestly believe that the authors of Hatch-Waxman
intended for the first generic to challenge a patent to qualify for the
180-day exclusivity, regardless of whether or not they're sued?
Response. Clearly, the framers of Hatch-Waxman, who included
Congress, experts, and members of both the brand and generic
industries, understood that the 180-day exclusivity period is a
powerful incentive for generic companies to bring patent challenges.
And this process works well in removing barriers that have prevented
consumer access to affordable generic medicines.
When the Hatch-Waxman Act was enacted in 1984, it included a
provision that created a process by which generic pharmaceutical
companies could challenge patents on brand name pharmaceuticals that
they believed unfairly delayed generic competition and consumer
savings.
Under the Hatch-Waxman Act, brand companies ``list'' the patents
with the FDA that claim their drug. When a generic manufacturer files
an application with the FDA, it must tell the FDA whether it is
challenging any of the patents listed by the brand. If so, the brand
company is given 45 days to sue the generic for patent infringement.
This results in a court case that allows the generic company to attempt
to invalidate patents preventing competition. With the average cost of
a patent challenge estimated at $10 million for the generic company,
and requiring a multi-year development and legal commitment, the 180-
day exclusivity provision provides a powerful incentive.
It is important to note that if a generic company successfully
challenges a patent, then the intent of the Hatch-Waxman framers has
been effectuated. The 180-day exclusivity award is a critical aspect of
that intent.
Clearly, the impact of this incentive has been positive for
consumers. Over the past several years, a total of 12 patent challenges
have created more than $27 billion in savings for consumers. These
patent challenges include:
<bullet> Prozac: 2.5 Years early at a cost savings of $2.5 Billion
<bullet> Buspar: 17 Years early at a cost savings of $8.8 Billion
<bullet> Terazosin: 13 Years early at a cost savings of $4.6 Billion
<bullet> Taxol: 11 Years early at a cost savings of $3.5 Billion
<bullet> Zantac: 4 Years early at a cost savings of $2.45 Billion
<bullet> Procardia: 8 Years early at a cost savings of $2.4 Billion
<bullet> Plantinol: 11 Years early at a cost savings of $1.0 Billion
<bullet> Ticlid: 3\1/2\ Years early at a cost savings of $492 Million
<bullet> Lodine: 7 Years early at a cost savings of $414 Million
<bullet> Relafen: 2 Years early at a cost savings of $413 Million
<bullet> Climara: 7 years early at a cost savings of $378 million
But even this component of Hatch-Waxman would benefit from reforms
included in the GAAP legislation.
The current law grants 180 days of exclusive generic marketing to
the first generic company to successfully challenge a brand drug
patent. However, recent court decisions have reduced much of the 180-
day exclusivity's incentive value by triggering the exclusive marketing
period on a successful trial court decision. As a result, the 180-day
period expires before the appeal can be heard. The bill fixes this by
moving the triggering event out to the date of an appeal decision.
The current law does not adequately address situations where the
first generic challenger does not, or cannot go to market after the
resolution of the lawsuit. GAAP addresses this problem by providing for
the forfeiture of the first challenger's exclusive marketing period if
they do not go to market within 60 days of specified events.
In sum, Hatch-Waxman recognized that brand companies need and
deserve a period of market exclusivity to recoup their investment in
research and development. It established a specific period of
exclusivity, and then permitted the date-certain introduction of more
affordable generic versions of these brand drugs. But no generic drug
can be approved, or enter the market as long as a patent protects the
brand product. GAAP does not change this fact. Rather, it ensures that
patents expire when Congress intended. It closes loopholes that in
essence create an indefinite period of exclusivity. It ensures that
patents come to an end, and that generic products can enter the market
when the patents expire.
The legislative proposals supported by GPhA benefit both the brand
and generic segments of the pharmaceutical industry, as well as the
American consumer, by restoring predictability to the marketplace.
______
Federal Trade Commission
Washington, DC
November 22, 2002
The Honorable Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
United States House of Representatives
Washington, D.C. 20515
Dear Chairman Bilirakis: I very much appreciated the opportunity to
present the Commissions testimony at the October 9, 2002 hearing
regarding ``Examining Issues Related to Competition in the
Pharmaceutical Marketplace: A Review of the FTC Report, `Generic Drug
Entry Prior to Patent Expiration' '' before the Health Subcommittee of
the House Energy and Commerce Committee. Enclosed please find my
written responses to the follow-up questions submitted by Subcommittee
members.
Please let me know if I can be of further assistance.
Sincerely,
Timothy J. Muris
Chairman
Enclosure
cc: The Honorable Sherrod Brown
The Honorable Henry Waxman
questions from chairman bilirakis to chairman muris
Question 1) In your testimony you state that some have attempted to
``game'' the system. Do both brand and generic manufacturers attempt to
``game'' the system? Further, how prevalent is such ``gaming'' with
respect to the total number of abbreviated new drug applications which
have been filed since passage of the Hatch-Waxman Act?
Answer: The FTC Report noted that pharmaceutical manufacturers have
attempted to ``game'' the system in two ways. First, both brand-name
and generic manufacturers have entered into agreements that the
Commission has alleged to be anticompetitive. The FTC Report indicated
that brand-name manufacturers and the first generic applicants had
entered into such final agreements for 14 brand-name drug products that
had the potential to be anticompetitive because the agreement could
delay FDA approval of subsequent eligible generic applicants.
In other instances, brand-name companies have listed patents in the
Orange Book that raise questions as to whether they should in fact have
been listed. The FTC Report detailed 8 drug products for which this
occurred and that triggered additional 30-month stays of FDA approval
of generic applicants' abbreviated new drug applications (ANDAs).
The FTC Report examined generic competition for those brand-name
drug products (1) subject to an ANDA notice containing a paragraph IV
certification; <SUP>1</SUP> and (2) that brand-name companies received
after January 1, 1992 and prior to January 1, 2001. According to the
FDA, 8,019 ANDAs were filed with the FDA from the time Hatch-Waxman
became effective in 1984 through December 31, 2000. Of these
applications, 7,536 (94 percent) raised no patent issues. A substantial
portion of the total number of ANDAs, however, relate to the same
brand-name drug product or new drug application (NDA). Thus, the total
number of ANDAs does not represent 8,019 unique brand-name drug
products, and it is unclear as to how many unique brand-name drug
products the total 8,019 relate.
---------------------------------------------------------------------------
\1\ A paragraph IV certification means a certification that a
patent listed in the FDA's Orange Book is invalid or will not be
infringed by the generic drug for which the ANDA applicant seeks
approval.
---------------------------------------------------------------------------
Four hundred eighty-three (483) (or 6 percent of the total number
of ANDAs filed) contained paragraph IV certifications. The 483 ANDAs
related to 130 brand-name drug products as measured by unique NDAs. The
FTC Report examined 104 drug products, which had ANDAs filed between
1992 and 2000, out of the 130 total from 1984 to 2000.
Question 2) Did the FTC ever consider restricting pharmaceutical
patent rights, which some of our witnesses today will advocate? Does
the FTC support limiting any manufacturer's patent rights?
Answer: The Commission did not consider or take a position on the
issue of limiting pharmaceutical patent rights. It did examine whether
there had been abuse of the ``30-month stay provision'' of the Hatch-
Waxman Act, in order to make recommendations designed to eliminate any
such abuse. The Commission recommended permitting only one automatic
30-month stay per drug product per ANDA to resolve infringement
disputes over patents listed in the Orange Book prior to the filing
date of the generic applicant's ANDA. Thus, the recommendation was
tailored to mitigate the possibility of continued abuse of Hatch-Waxman
that may deter market entry of more generic drugs.
Question 3) You recommend only one 30-month stay per drug. You also
recommend that the 30-month stay should apply to all patents listed at
the time of the abbreviated new drug application (ANDA) submission.
Others support one 30-month stay applicable to all patents listed at
the time of the brand drug's approval. Why is it better to have the 30-
month stay apply to drugs listed at time of ANDA submission?
Answer: The FTC Report did not examine whether the 30-month stay
should apply to patents listed at the time of the brand-name drug's
approval. Rather, the harm that the FTC Report addressed and
recommended remedying was the use of 30-month stays for patents listed
in the Orange Book after a generic applicant had filed an ANDA for a
particular drug product. The FTC Report revealed 8 drug products (out
of 104 in the study) for which the brand-name company listed a patent
in the Orange Book after the first generic applicant had filed its
ANDA.<SUP>2</SUP> In these cases, the brand-name company obtained one
or more additional 30-month stays of FDA approval of an ANDA for that
particular drug product. The 30-month stays caused by the filing of
later-issued patents are problematic because they delay FDA approval
beyond the average time necessary for ANDA approval. Moreover, in
nearly all cases, there are significant questions about whether the
patents causing these additional 30-month stays fall within Hatch-
Waxman's requirements for Orange Book listings.<SUP>3</SUP> Four courts
that have ruled so far on the patents causing more than one 30-month
stay have each found the relevant patent to be invalid or not
infringed.
---------------------------------------------------------------------------
\2\ This total does not include instances in which the brand-name
company initiated suit on a different strength of the same drug
product.
\3\ These questions are discussed in Appendices G and H of the FTC
Report.
---------------------------------------------------------------------------
Subsequent to the release of the FTC Report, FTC staff examined
patents listed in the Orange Book between approval of the NDA and the
filing of the first ANDA for that particular drug product. The staff
found 23 drug products in which the brand-name company sued the first
generic applicant for patent infringement only for patents listed in
the Orange Book after NDA approval and before filing of the ANDA. The
patents for these 23 products do not appear to raise the same issues of
whether they claim the approved drug product or otherwise should be
listed in the Orange Book as do the patents for the 8 drug products
where the patent was listed after the ANDA had been filed. It is
unknown whether these 23 patents could have been obtained from the
Patent and Trademark Office (PTO) early enough to have been listed in
the Orange Book simultaneously with approval of the NDA.<SUP>4</SUP> If
the brand-name companies could have obtained these patents earlier from
the PTO, arguably there is no difference between the two proposals.
---------------------------------------------------------------------------
\4\ For 6 of these 23 drug products, the patent was issue prior to
FDA approval of the NDA, but the brand-name company did not list the
patent in the Orange Book until after 30 days after the NDA was
approved, although it could have filed it earlier.
---------------------------------------------------------------------------
Question 4) Right now, to qualify for the 180-day exclusivity
period, all a generic manufacturer need do is to be the first to
challenge the patent. The manufacturer need not be sued. Do you think
that the 180-day exclusivity should be available only to those
manufacturers who successfully defend patent suits?
Answer: I am not in a position to answer that question right now.
The Commission did not reexamine the policy basis for the 180-day
exclusivity provision, nor does it have the facts necessary, to
determine whether only those generic manufacturers who successfully
defend patent suits should be entitled to the 180-day exclusivity.
Rather, the FTC Report examined whether the current 180-day provision
had been abused, given the initial balance Congress struck between
creating incentives for continued innovation and streamlining the
generic drug approval process. Nonetheless, the FTC Report indicated
that when a first generic applicant was not sued and received FDA
approval, it began commercial marketing in a timely manner that
triggered the running of the 180 days and allowed FDA approval of any
subsequent eligible generic applicant once the 180 days had run.
Question 5) The 180-day exclusivity can be gamed if a generic
manufacturer ``parks'', i.e. does not use, the exclusivity. In cases
where a manufacturer ``parks'' the exclusivity, should the manufacturer
forfeit it?
Answer: The FTC Report did not address whether manufacturers should
necessarily forfeit exclusivity should they enter into an agreement
that results in a manufacturer ``parking'' the exclusivity. Rather, the
Report examined whether pharmaceutical manufacturers were abusing the
current 180-day provision, given the initial balance Congress struck
between creating incentives for continued innovation and streamlining
the generic drug approval process. The FTC Report noted that 14 of the
20 final settlement agreements obtained through the study had the
potential at the time they were executed to ``park'' the 180-day
exclusivity for some period of time. Nonetheless, agreements that
``park'' exclusivity may be procompetitive, competitively neutral, or
anticompetitive. Thus, the Commission sought notification of these
agreements to allow the agency to challenge agreements that adversely
affect pharmaceutical competition. To this end, the FTC Report
recommended that pharmaceutical manufacturers provide copies of certain
agreements to the FTC that may affect, among other things, when the
180-day exclusivity is triggered.
Question 6) When is a settlement in which a brand pays a generic
money legitimate, and when is it anti-competitive? What factors guides
the FTC in drawing this distinction?
Answer: While the Commission has not attempted to set forth a
comprehensive list of potentially objectionable settlement provisions,
it is possible to identify from the Commission's reported cases a few
types of provisions that, within the Hatch-Waxman context, have drawn
antitrust scrutiny. These include:
<bullet> Provisions that provide for ``brand'' payments. ``Brand''
payments (i.e., payments from the patent holder to the alleged
infringer) may merit antitrust scrutiny, because they may
represent an anticompetitive division of monopoly profits.
<bullet> Provisions that restrict the generic's ability to enter with
non-infringing products. Such provisions can extend the
boundaries of the patent monopoly without providing any
additional public disclosure or incentive to innovate, and
therefore have the potential to violate the antitrust laws.
<bullet> Provisions that restrict the generic's ability to assign or
waive its 180-day marketing exclusivity rights. Because a
second ANDA filer may not enter the market until the first
filer's 180-day period of marketing exclusivity has expired,
restrictions on assignment or waiver of the exclusivity period
can function as a bottleneck, potentially delaying subsequent
generic entry for an extended period.
Question 7) Since the FTC began bringing enforcement actions
against brands and generics for collusive settlements, has this
activity diminished?
Answer: The FTC Report indicated that no interim patent litigation
settlement agreements similar to the ones that the Commission had
challenged were executed between April 1999 (shortly after the
investigations in this area became public) and the end of the period
covered by the Study.
Question 8) In your report, you note 8 drugs for which multiple 30-
month stays were acquired, and in your testimony you recount two FTC
enforcement actions. Why isn't FTC enforcement action enough to address
this problem?
Answer: Certainly vigorous enforcement of the antitrust laws in the
pharmaceutical area is one of the Commission's priorities, and the
Commission will continue its aggressive law enforcement activities. I
cannot guarantee that all potential antitrust violations in connection
with Hatch-Waxman will come to the agency's attention. Based on the
evidence of abuse of Hatch-Waxman that the Commission analyzed in its
study, the Commission made two main recommendations to restore the
balance that Hatch-Waxman struck between encouraging innovation and
providing for a streamlined generic drug approval process. I believe
that these recommendations are an efficient and cost-effective means to
address the problems documented in the FTC Report.
Question 9) Which occurs more frequently: Anti-competitive
agreements by brands and generics, or anti-competitive agreements by
generics and generics?
Answer: The FTC Report did not characterize the competitive or
anticompetitive nature of the agreements found between brands and
generics or between generics and generics. The FTC Report indicated
that, among the 104 drug products included in the study, there were
settlement agreements between brands and the first generic applicant
for 20 different drug products and there were agreements between
generic firms for 6 different drug products.
Question 10) You note that in 28% of cases where generics seek
approval of patented drugs, the brand company does not invoke the 30-
month stay by filing suit in a timely manner. Are there instances in
these cases where the brand later sues the generic for infringement?
Answer: Of the drug products where the brand-name company did not
sue the first generic company (29 drug products out of 104 drug
products included in the Study), there was no evidence that the brand-
name company later sued the generic manufacturer of the particular drug
product for patent infringement.
Question 11) On page 20 of the FTC report, the Commission states
that recent empirical evidence suggests that the rate at which drug
patents are found to be invalid is ``not out of line with that of
patents generally.'' Can you explain how the FTC reached this
conclusion? Doesn't this tend to undermine the claims that brand-name
manufacturers are filing frivolous patents? Doesn't it tend to support
the brand-name industry's claim that later listed patents represent
important incremental innovation?
Answer: The Commission examined the recent empirical literature
regarding the rate at which courts find patents invalid.<SUP>5</SUP>
The FTC Report compared the invalidity rate found in data with that
found in broader populations and it showed, as indicated in the FTC
Report, that the invalidity rates are similar. The patent invalidity
rates found in the broader empirical studies ranged between 27 and 36
percent. The Commission found the invalidity rate of the patents
involved in the study to be 28 percent. Thus, the Commission concluded
that the invalidity rate is ``not out of line with that of patents
generally.'' <SUP>6</SUP> The Commission did not obtain information to
determine whether the patents claiming the drug products in the study
that were not invalidated were ``frivolous'' or ``represent important
incremental innovation.''
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\5\ See, e.g., Kimberly A. Moore, Judges, Juries & Patent Cases: An
Empirical Peek Inside the Black Box, 98 Mich. L. Rev. 365 (2000); John
R. Allison, Mark Lemley, Empirical Evidence on the Validity of
Litigated Patents, 26 AIPLA L.Q. 185 (1998).
\6\ In some regards, the comparison may not be comparable, as noted
in the FTC Report. The invalidity rate calculated in the FTC Report may
be understated because patent validity may not have been determined in
the cases when there was a decision of non-infringement or in cases
when the brand-name company abandoned the litigation.
---------------------------------------------------------------------------
Question 12) S. 812 would bar innovators from suing to enforce
patents not listed in the Orange Book by certain deadlines. This isn't
something the FTC recommended in its report, is it? Also, under S. 812
an innovator would have to sue within 45 days of ANDA notice in order
to enforce its patent, or it would lose all future rights to sue. That
isn't something the FTC recommended, is it? Further, S. 812 would
create rolling eligibility for the award of 180 day exclusivity. That's
not something the FTC recommended, is it? What about limiting 30-month
stays to certain kinds of patents? What about creating a private right
of action for delisting patents?
Answer: The Commission in the FTC Report did not take a position on
S. 812. Rather, the Study examined whether certain provisions of Hatch-
Waxman have been subject to abuse that can delay generic entry given
the framework initially established by the Amendments. The Study
indicated the potential for ongoing problems with respect to two
provisions--30-month stay and 180-day exclusivity. The Commission in
its Report, therefore, recommended changes to those two provisions to
restore the balance that Hatch-Waxman initially struck between
encouraging innovation and providing for a streamlined generic drug
approval process.
The Commission observed, however, that the FDA does not review the
propriety of patents listed in the Orange Book, and courts have ruled
that generic applicants have no private right of action to challenge
those listings. The lack of any mechanism to challenge a listing may
have real world consequences in that the Commission is aware of a few
instances in which a 30-month stay was generated solely by patents in
which the propriety of the Orange Book listing was questionable. To
address this situation, the Commission suggested that the FDA may want
to clarify its listing regulations along the lines the FTC Report
suggested. It also recommended that Congress consider enacting a
private right to counterclaim and raise the issue of whether the patent
properly claims the brand-name product; this may eliminate the delay
that the 30-month stay could be causing for improperly listed patents
in the Orange Book.
Question 13) Several provisions of the Senate-passed bill would
limit brand-name drug patent holders from suing to enforce their
patents. In your July 2002 report you suggest that Congress consider
overturning Allergan Inc. v. Alcon Labs, Inc. in order to ensure brand-
name manufacturers access to courts. This is a key distinction between
the Senate bill and the FTC approach--could you explain how and why the
FTC thought it is important for patent holders to have the rights to
enforce those patents?
Answer: The Commission concluded that overruling the holding in the
Allergan case (which questions the rights of brand-name companies to
sue for patent infringement regarding patents obtained or listed after
an ANDA with a paragraph IV certification has been filed) is necessary
to ensure access to the courts and to encourage the resolution of any
patent disputes prior to the beginning of commercial marketing of the
drug product. Simultaneous resolution of patent infringement suits with
FDA approval time of the ANDA will redound to the benefit of consumers
by resolving any possible uncertainty that prevents a generic applicant
from marketing its products.
questions from representative waxman to chairman muris
Question 1) The report suggests that the 180-day exclusivity period
has not been a significant barrier to market entry of 2nd and 3rd
generic applicants. Please provide the information on which you based
this conclusion.
Answer: The data suggest that if the first generic applicant is
sued for patent infringement by the brand-name company, the generic
applicant begins commercial marketing only after it has some measure of
certainty that its generic product does not infringe the brand-name
drug's patents (i.e., it obtains a court decision of non-infringement
or patent invalidity). Once it receives such certainty, it begins
commercial marketing, which triggers the 180-day exclusivity period.
Thus, the 180-day exclusivity by itself does not act as a significant
barrier to market entry by 2nd and 3rd generic applicants beyond the
180-day period. The FTC Report indicated, however, that the resolution
of patent infringement litigation over 14 drug products (out of a total
of 53 drug products) involved an agreement in which the brand-name
company and the generic applicant agreed to ``park'' the first generic
applicant's 180-day exclusivity for some period of time, thus
potentially delaying FDA approval of subsequent eligible generic
applicants. The FTC Report indicated that agreements to ``park'' the
180-day exclusivity are not necessarily anticompetitive, but can be
procompetitive or competitively neutral. Moreover, the Report indicated
that when the first generic applicant is not sued, it begins commercial
marketing in a timely manner after receiving FDA approval.
Question 2) Please provide any information you have developed,
either before or after the report was issued, on the number and types
of patents that have been filed with FDA between approval of an NDA and
submission of the first ANDA for that drug. In describing the types of
patents, please provide as much detail as possible, including (a) when
the patent was filed with the PTO; (b) whether the patent claims the
drug substance, a method of suing the drug, a formulation of the drug,
a process for making the drug, or some other feature of the drug; (c)
whether the patent appears to claim the approved drug; (d) to the
extent the patent appears to claim the approved drug, any information
on the significance of the claimed innovation to the therapeutic value
of the drug; and (e) whether they are reasons for or against protecting
these patents with 30-month stays.
Answer: Out of the total 75 drug products in the FTC Report where
the brand-name company sued the first generic applicant based on
patents listed in the Orange Book, brand-name drug companies listed
patents in the Orange Book between NDA approval and submission of the
first ANDA for 34 drug products.
Of the 34 products in which the brand-name company listed a patent
during this period, for 11 products, the generic applicants filed ANDAs
with paragraph IV certifications for patents both listed within 30 days
of NDA approval and listed after 30 days following NDA approval. Thus,
in each of these 11 instances, the 30-month stay that issued was based
both on patents filed within 30 days of NDA approval and patents filed
after 30 days of NDA approval.
For the remaining 23 drug products, the patents listed during this
period were the only patents over which the brand-name company sued the
generic applicant, and thus obtained a 30-month stay of FDA approval of
the ANDA.<SUP>7</SUP> The patents for these 23 products do not appear
to raise the same issues about whether they are appropriately listed in
the Orange Book as those described in Appendices G and H of the FTC
Report. None of the patents for these 23 products were applied for
after the NDA had been approved. All except one of the patents were
formulation patents; the exception was a drug substance patent. The FTC
Report did not examine the significance of the claimed innovations in
these patents to the therapeutic value of the drug.
---------------------------------------------------------------------------
\7\ For 6 of these 23 drug products, the patent was issue prior to
FDA approval of the NDA, but the brand-name company did not list the
patent in the Orange Book until after 30 days after the NDA was
approved, although it could have filed it earlier.
---------------------------------------------------------------------------
Question 3) Your report focuses on the best way to avoid market
abuses of today and tomorrow. Is it not true that if the 30-month stay
were eliminated altogether, or were limited to products filed at the
time of new drug application, that it would more effectively limit, if
not altogether stop these abuses?
Answer: The FTC Report did not reveal what would happen in the
absence of the 30-month stay. It appears as though the 30-month stay
has been a motivating factor for brand-name companies to file suit
within 45 days of being notified that an ANDA has been filed for one of
its drug products. The FTC Report showed that both brand-name and
generic companies assumed that, if patent litigation were to occur, it
would be filed within 45 days of the ANDA filing in order for the
brand-name company to obtain the 30-month stay. Generic applicants who
were not sued during that time frame proceeded to commercial marketing
without significant delays and, at least for the drug products included
in the study, were not sued for patent infringement once commercial
marketing had begun.
Question 4) Almost a year and a half ago, you filed a citizen
petition to the FDA to determine whether various patents were listed
for anti-competitive reasons. To date, you have not received a
response. Please describe the importance of your requests to the
interests of consumers and a competitive marketplace.
Answer: The FDA recently has released a Notice of Proposed
Rulemaking that addresses many of the issues raised by the FTC Citizen
Petition. The FTC is in the process of studying the FDA's proposals and
plans to provide a comment to the FDA. The listing of patents in the
Orange Book can affect the timing of FDA approval of generic drug
products. Thus, it is critical to ensure that the patents in the Orange
Book are appropriately listed.
______
Response for the Record of Sharon Levine, Associate Executive Director,
The Permanente Medical Group, Inc.
Question 1: You state in your testimony that you are ``unaware of a
single industry besides the brand-name pharmaceutical industry that has
the ability to extend unilaterally and automatically protection against
competition.' Are you aware of any other industry which has their
patents infringed by competitors, as is allowed under the ``Bolar
Amendment''?
Response: In Eli Lilly & Co. v. Medtronic, Inc. (496 U.S. 661
(1990)), the Supreme Court, in an opinion by Justice Scalia, found that
the Bolar Amendment was intended to work in tandem with the patent term
restoration provisions of Hatch-Waxman to respond to ``two unintended
distortions'' in the patent law. The patent term restoration provisions
address the fact that a patent holder cannot reap profits during the
early years of the patent term prior to obtaining FDA marketing
approval. Likewise, the Bolar Amendment assures that the patent holders
do not enjoy a de facto patent term extension during the period after
expiration but prior to a generic company obtaining FDA marketing
approval for a generic product. Thus the patent term restoration
provisions and the Bolar Amendment are essentially two sides of the
same coin.
The Supreme Court held in Medtronic that the Bolar Amendment
applies to all of the products eligible for a patent term extension
under the Hatch-Waxman Act, including medical devices, food additives,
color additives, new drugs, antibiotic drugs, and human biological
products.
Moreover, it is important to understand that the Bolar Amendment
does not permit patent infringement. The Bolar Amendment is merely a
mechanism by which generic companies may begin research and
development, and other activities necessary for Food and Drug
Administration (FDA) approval of a generic drug product prior to the
expiration of a patent on a brand-name product. In fact, the Bolar
Amendment specifically provides that such activities ``shall not be an
act of patent infringement.''
Question 2: Generic manufacturers can earn 180 days of exclusivity
for being the first to challenge a brand patent, without having to
successfully defend suit. Of course, for many larger drugs, ten to
twelve generic manufacturers file ANDAs with paragraph IV
certifications, irrespective of exclusivity. Wouldn't repeal of this
exclusivity save insurers money in the long run?
Response: The landmark Hatch-Waxman Act recognized that the process
of patenting pharmaceutical products represents the opportunity for
patents to be granted that may unjustly prevent generic competition. To
further the public policy goal of improving consumer access to
affordable generic drugs, the Hatch-Waxman Act provided an incentive
for generic companies to challenge these suspect patents. It provides
180-days of generic market exclusivity to allow the generic company to
recover some of the costs associated with the patent challenge process.
The 180-day exclusivity period provides a useful economic incentive
to encourage the patent challenge process. The patent challenge process
reduces health care costs, when successful, by permitting the
introduction of generic competition years earlier than otherwise would
have been possible. The exclusivity is the generic company's reward for
removing questionable patents that act as barriers to consumer's access
to affordable drug products. The competition that follows a successful
patent challenge can generate billions of dollars in savings for the
consumer.
For example, the successful challenge of the patent for the anti-
depressant drug Prozac (generically fluoxetine) eventually resulted in
a wholesale price reduction for fluoxetine therapy from $2.65 to $0.10
for a daily dose of the drug. That this pricing did not occur
immediately when generic Prozac first because available partly
validates your question about whether the 180-day exclusivity provision
delays the establishment of such commodity market prices.
However, your question is only part of a more complex and important
one: Does the180-day exclusivity provision delay commodity market
pricing on a generic drug to a point in time beyond which such pricing
on the drug would have been available without 180-day exclusivity? On
this point, I have no information suggesting that without the 180-day
exclusivity incentive payers like employers, insurers and consumers
would be better off. It is my own view that the 180-day provision more
likely increases competition sooner than would otherwise be the case,
resulting in lower drug prices, more consumer choice, and greater
savings to all aspects of the U.S. economy.
Patent rights are a vital incentive for innovation, and therefore
deserve protection. The 180-day exclusivity provision probably
represents a useful check and balance to assure that only the owners of
worthy patents are rewarded, and questionable patents are not permitted
to deny or delay Americans' access to affordable prescription drugs.
______
Response for the Record of Gregory J. Glover, on behalf of
Pharmaceutical Research and Manufacturers of America
Hatch-Waxman's Unique Limitations on Brand-name Drug Patents
This answer responds to the Honorable Michael Bilirakis' Question
3, and the Honorable Ralph M. Hall's question regarding ``Patent law
applicable to the pharmaceutical sector.''
I hear generics constantly say they want brand patents to be
treated just like all other patents during patent litigation.
Aren't brand patents treated differently prior to litigation
however? Could you please explain the benefit of the ``Bolar
Amendment'' to the generic industry?
The generic industry has argued that the patent laws
applicable in the pharmaceutical sector are more innovator-
friendly than those applicable in other sectors of the economy.
What is the research-based pharmaceutical industry's response
to this?
Brand-name drug patents are treated very differently from other
patents. Ordinarily, upon issuance, patents are presumed to be valid
and enforceable. See 35 U.S.C. Sec. 182. Under the Patent Act, the
holder of a patent has the right to exclude others from making, using,
selling, or offering to sell the patented invention during the term of
the patent, which is 20 years from the date on which the patent
application is filed. Id. Sec. 156. The right is absolute and anyone
who, without authority, makes, uses, sells, or offers to sell a
patented invention during the term of the patent is an infringer of the
patent. The patent holder can obtain an injunction prohibiting the
infringing activity, and recover up to three times its damages caused
by the infringing acts.
Hatch-Waxman limited pharmaceutical patent rights by immunizing
generic drug manufacturers from suits for infringement based on their
manufacture and use of patented drugs for purposes of seeking FDA
approval to market a generic copy. In this special exception to patent
law, Hatch-Waxman permits a generic drug company to manufacture and use
the brand-name drug to obtain bioequivalence data for its FDA
application, so that it can be approved for marketing immediately upon
patent expiration. Ordinarily under patent law, manufacturing a
patented product--whether or not during the research and development
phase for a competing product--constitutes patent infringement. Hatch-
Waxman overruled Roche Inc. v. Bolar Pharms. Co., Inc., 733 F.2d 858
(Fed. Cir. 1984), where the Federal Circuit had found patent
infringement based on a generic company's use of a patented drug in
testing for purposes of seeking FDA approval.
Before generic pharmaceutical manufacturers were granted these
preferences, they controlled only 19 percent of the prescription drug
market share and roughly only 1 out of 3 top-selling innovator drugs
with no unexpired patents had generic competition. Today, the generic
share of the market is nearly 50 percent and every top-selling drug
subject to Hatch-Waxman whose patents have expired can expect generic
competition.
Effective Patent Life for brand name products
This response answers the Honorable Edolphus Towns question
relating to ``Patent Life.''
Can you explain the concept of ``effective patent life''? How
does this 14-year term compare with the patents available in
other industries?
The patent term is 20 years from the date an application is filed
with the Patent and Trademark Office. Because it takes between 10 to 15
years on average to develop a drug--from the earliest stages of
discovery to final FDA approval--significant portions of a prescription
drug's patent life are used up before the product even enters the
market.
Effective Patent Life (EPL) refers to the amount of time a product
is on the market before patent(s) covering it expire. Research by Henry
Grabowski and John Vernon at Duke University places the EPL on
prescription drugs at 11-12 years. Estimates by the American
Intellectual Property Law Association quote the EPL for products other
than pharmaceuticals at 18.5 years.
Under Hatch-Waxman, an innovator may be granted patent term
restoration for time lost during the regulatory review process.
Innovators may receive one-half day restoration for each day of
clinical trials, and day-for-day restoration for time lost during FDA
review of a drug application. The total amount of restoration may not
exceed five years, and the effective patent life of the drug may not
exceed 14 years.
Use of 30-Month Stays
This answer responds to the Honorable Michael Bilirakis' Questions
1, 2, 4, 5, and 10, the Honorable Ralph M. Hall's questions regarding
``Late listing of patents' and ``Time of patent listing,'' and the
Honorable Edolphus Towns' question regarding ``Frivolous listings.''
1) Could you please explain for the Committee instances where
a brand should be allowed to invoke multiple 30-month stays. In
other words, when can you both innovate enough to get a patent,
but not enough so that you can still claim the approved drug?
2) GPhA has argued that the prospect of receiving the initial
30-month stay, combined with FDA's policy of permitting
successive 30-month stays, provides brand name manufacturers
with an enormous incentive to submit patents for listing in the
Orange Book, even if they do not satisfy the listing criteria
contained in the Hatch Waxman Act. Do you agree? What is
PhRMA's response?
4) Why do brand manufacturers file so many patents per drug
now? Wasn't it the case that when Hatch-Waxman was passed, most
drugs had one or two patents? Why are there, sometimes, ten
patents per drug now?
5) You state in your testimony that the FTC focused on 8
examples of abuse, and that in 99.9% of the cases there are not
multiple 30-month stays. Isn't true, however, that multiple 30-
month stays are a recent trend, and that without reform we
might expect more examples in the future?
10) In your statement, you quote the Patent and Trademark
Office, where they state that S.812 ``would likely to the
opposite of what its title suggests--by limiting access to
cutting-edge drugs, decreasing innovation, and ultimately
harming the quality of treatments available to patients.''
Precisely what in S.812 would harm patients?
Can you explain for us why a brand-name pharmaceutical
company might need to list a patent in the Orange Book
significantly after NDA approval? Why is this practice, and the
subsequent litigation resulting in additional 30-month stays,
not an abuse of the Hatch-Waxman Act?
One of the key differences between the FTC Report and the
Senate-passed bill, one of the issues that people have been
focusing on, is this question of when patents must be listed,
in order to be eligible for a 30-month stay. The FTC report
recommends that stays be limited to patents listed when the
ANDA is filed. S.812 recommends that stays be limited to
patents listed within 30 days of NDA approval. Can you shed
some light on the importance of this issue? What does it matter
which cutoff date Congress picks? What is the significance of
the cutoff date?
GPhA has argued that the prospect of receiving the initial
30-month stay, combined with FDA's policy of permitting
successive 30-month stays, provides brand name manufacturers
with an enormous incentive to submit patents for listing in the
Orange Book, even if they do not satisfy the listing criteria
contained in the Hatch Waxman Act. What is PhRMA's response?
The 30-month stay allows for the resolution of patent disputes
before a generic manufacturer enters the market with a potentially
infringing product. Hatch-Waxman stripped innovators of their right to
sue before a generic manufacturer submits an application for approval
to FDA, although that generic manufacturer has performed acts that, in
other industries, would amount to patent infringement. The statute
therefore created the 30-month stay to permit the innovator to enforce
its patent rights by bringing a suit for infringement before the
generic product receives approval for marketing. The stay does not
extend the term of a patent and is initiated only in response to an
innovator's filing suit to enforce an un-expired patent.
When a generic manufacturer seeks approval to enter the market
before all patents on the innovator product expire, it must file a so-
called ``paragraph IV'' certification to each patent listed in the
Orange Book. The generic applicant must certify to all patents listed
at the same time. If the innovator exercises its right to file a
paragraph IV lawsuit under the Hatch-Waxman Act, each patent generates
a 30-month stay, but these stays run concurrently. In rare instances,
however, patents covering the innovator product may issue and be listed
in the Orange Book after the ANDA is filed. These cases are uncommon,
but they may lead to non-concurrent 30-month stays. This could be the
case, for example, if a patent was filed with the PTO for improvements
that allow manufacturing of the drug without production of an impurity
that presents toxicity risks. This would likely be filed well after the
original patents, and--depending on the speed with which it was
reviewed at PTO--could issue from PTO and be listed in the Orange Book
well after NDA approval or even ANDA submission. If an ANDA applicant
amended its ANDA to include this innovation and patent and the patent
owner sued within 45 days of notice, there would be a new non-
concurrent stay of up to 30 months. As PTO explained in a July 30
letter to Senator Hatch, ``the timing of issuance bears no relation to
the importance of innovation.''
Contrary to assertions by others, there is no evidence that the 30-
month stay provides an incentive to list inappropriate patents. That
several patents may be listed for a single drug is not unusual in other
types of commercial products: multiple patents simply reflect years of
complex research and multiple innovations, many of which are patentable
under standards as set forth in patent law and enforced by the Patent
and Trademark Office.
In fact, the July 2002 Federal Trade Commission study found only
eight instances since 1992 in which an innovator obtained a second 30-
month stay. There is no evidence that this will become more common in
the future, though the trend of generic manufacturers filing ANDAs
earlier and earlier in the life of an approved new drug could provide a
justified reason for maintaining the availability of non-concurrent
stays.
S.812, a bill passed by the Senate on July 30 that contains
multiple revisions to the Hatch-Waxman Act, would treat patents
differently depending on their issuance date. S.812 would apply a 30-
month stay only to patents that issue from PTO within 30 days of the
new drug application approval.<SUP>1</SUP> As PTO points out, this
limitation is ``arbitrary and unrealistic'' because ``the timing of
issuance bears no relation to the importance of innovation'' and
because ``the patent applicant often has no control over when a patent
issues.''
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\1\ Alternatively, the FTC report suggests the denial of a 30-month
stay to any patent listed after the relevant ANDA was filed.
---------------------------------------------------------------------------
I also note one recent regulatory development: The FDA has issued a
proposed rule that would change its current interpretation of allowing
multiple 30-month stay provisions for each ANDA to allowing only one
30-month stay for each ANDA. An ANDA applicant would not have to
provide notice that it had made a paragraph IV certification
challenging the validity or infringement of a listed patent if the
paragraph IV certification was added as an amendment to the ANDA and
the application already contained a paragraph IV certification to
another patent. Although the ANDA applicant would have to make a new
certification, it would not need to provide notice under the statute,
eliminating the ability of the innovator to seek a 30-month stay in
which to litigate the patent. The innovator would retain its right to
obtain a preliminary injunction from a court to prevent the ANDA
applicant from entering the market.
At bottom, limitations on the 30-month stay are based on the
incorrect assumption that innovation stops when the innovator has an
approved version of its product. The reality is that pioneer companies
do not stop innovating once the first patent has been applied for at
the PTO, or once the product approval process begins at the FDA.
Instead, innovation continues in order to improve a drug's side effect
profile, to improve its stability, to enhance the efficiency of its
delivery, to improve its dosing regimens, and to develop changes in
dosage forms.
A legislative framework that deprives patent owners of their core
rights, and that arbitrarily and irrationally deprives innovators of
the benefit of their innovation, will not provide the incentives
necessary for further research and development, and will result in
fewer new medicines for U.S. patients.
Use of Proposed 45-day Provision to Cut Off All Patent Enforcement
Rights
This answer responds to the Honorable Michael Bilirakis' Question 6
and further responds to Question 10.
6) Some would propose limiting brand patent rights if a brand
company does not sue within 45 days. What impact would this
have on innovation?
10) In your statement, you quote the Patent and Trademark
Office, where they state that S.812 ``would likely to the
opposite of what its title suggests--by limiting access to
cutting-edge drugs, decreasing innovation, and ultimately
harming the quality of treatments available to patients.''
Precisely what in S.812 would harm patients?
S. 812 currently provides that when a generic drug manufacturer
files an application with FDA stating its intent to market a copy of an
innovator drug before relevant patents on that drug expire, the patent
holder has 45 days to file a lawsuit to enforce its patent. If the
innovator does not bring a patent infringement suit within 45 days, all
rights to sue for future enforcement of that patent would be forfeited.
Though the Hatch-Waxman Act mandates that the patent holder sue within
45 days of notice of a paragraph IV certification in order to obtain
the benefit of the 30-month stay provision, the patent holder may
always seek patent enforcement remedies either against other generic
applicants or outside the context of the Hatch-Waxman Act. S.812 would
foreclose those options if the pioneer did not sue within 45 days.
It is well established law that a patent is a property right. By
diminishing the core right of a patent holder--the right to sue to
prevent infringement by others--the government would be infringing a
fundamental right. The courts have found this is equivalent to the
total occupation of a piece of real property, which is
unconstitutional. Further, the harm from this sort of taking is
irreparable. The ability to enforce a patent on pharmaceutical
innovation is one of the major incentives for research and development.
An arbitrary deadline for suit after which all property rights in the
patent would be forfeited would function as a significant disincentive
to innovate in the first instance.
180-day Generic Exclusivity (Questions 7, 8)
This response answers the Honorable Michael Bilirakis' Questions 7
and 8.
7) Does the 180-day generic exclusivity make sense in cases
where multiple generic applicants are lined up to challenge the
patent?
8) Does the I80-day exclusivity make more economic sense to
society when a patent is invalidated, rather than in instances
where a generic finds a way to innovate around the patent?
The operation of the 180-day Generic Drug Exclusivity Provision has
been primarily a question for the generic industry, FDA, and Congress.
Nevertheless, the circumstances that led to enactment of the 180-day
exclusivity provision have changed significantly since 1984. The
exclusivity provision was intended to provide an incentive to generic
manufacturers to challenge listed patents. It operates by shielding the
first generic from competition with other generic companies, even if
they are ready, willing, and able to enter the market. Today, however,
there is no shortage of generic companies willing to challenge patents
and file ANDAs. Since 1984, the generic share of the prescription drug
market has grown to nearly 50 percent. Senator Hatch has recently
suggested that it might be timely to assess the continuing need for and
utility of such an incentive.
Support for Statement that ``the increased availability and use of
innovative medicines is a true driver of reduced overall
healthcare costs.''
This response answers the Honorable Michael Bilirakis' Question 9.
In your statement, you state ``the increased availability and
use of innovative medicines is a true driver of reduced overall
healthcare costs.'' What proof do you have to back up this
statement?
Despite the attention paid to increases prescription drug spending,
medicines remain the smallest portion of the health care dollar.
According to National Health Care Expenditure data, prescription drugs
accounted for 9 percent of health care spending in 2000, while hospital
care amounted to 32 percent and physician services were
22%.<SUP>2</SUP>
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\2\ Centers for Medicare and Medicaid Services, Office of the
Actuary, National Health Statistics Group ``National Health Care
Expenditures,'' 17 July 2002, <http://www.hcfa.gov/stats> (8 November
2002).
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The economic and medical literature is replete with studies
demonstrating reductions in health care spending resulting from
increased use of pharmaceuticals. For example:
<bullet> Recent work by Columbia University Professor Frank Lichtenberg
demonstrated that each additional dollar spent on replacing
older medicines with newer ones reduces total health care
spending by $6.17.<SUP>3</SUP>
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\3\ Frank Lichtenberg, ``Benefits and Costs of Newer Drugs: An
Update,'' NBER Working Paper 8996. Available online 07/23/02: http://
www.nber.org/papers/w8996.
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<bullet> In recent years, breakthrough medicines offered Alzheimer's
patients their first real hope. An estimated 4 million
Americans currently have Alzheimer's disease. By 2030, that
number is projected to increase to as many as 9 million.
Currently, the direct and indirect cost of caring for people
with Alzheimer's is $100 billion nationally.<SUP>4</SUP>
According to a study published in the March issue of Managed
Care Interface a four-fold increase in spending on drug therapy
for mild to moderate Alzheimer's disease resulted in a one-
third decline in total health costs. For a group of patients
taking drugs to treat their Alzheimer's, drug costs went up by
over $1,000, but hospital costs dropped by $2,883 and nursing
home costs by $1,842. The result--nearly $3900 in savings
compared to patients not taking Alzheimer's drugs.<SUP>5</SUP>
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\4\ National Institute on Aging, Progress Report on Alzheimer's
Disease, 2000: Taking the Next Step, (Washington, DC: National
Institutes of Health, 2001), 3.
\5\ Jerrold W. Hill, et al., ``The effect of donepezil therapy on
health costs in a Medicare managed care plan,'' Managed Care Interface
15 (March 2002): 3, 63-70.
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<bullet> In research presented at the 12th World AIDS Conference in
1998, the Department of Veterans Affairs found that by giving
patients full access to new AIDS drugs it helped realize a
savings of $18 million in AIDS treatment costs in
1997.<SUP>6</SUP>
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\6\ Abid Rahman et al., ``Inversion of Inpatient/Outpatient HIV
Service Utilization: Impact of Improved Therapies, Clinician Education
and Case Management in the U.S. Department of Veterans Affairs,'' AIDS
Service Department of Veterans Affairs, International Conference on
AIDS, July 1998.
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<bullet> A study which reviewed patient records in the North Carolina
Medicaid program for one year before and one year after the
introduction of inhaled corticosteroid therapy found that for
those patients using the inhaled steroid therapy for asthma,
there was a 50 percent decrease in hospitalization rates and a
26 percent decrease in outpatient visits. The comparison group
had a 23 percent increase in hospitalization rates and a 36
percent increase in outpatient visits. According to a cost
analysis, use of the inhaled corticosteroid therapy reduced
total health care costs by 24 percent per asthma patient per
month.<SUP>7</SUP>
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\7\ R. Balkrishnan, MS (Pharm), et al., ``Outcomes and Cost
Benefits Associated With the Introduction of Inhaled Corticosteroid
Therapy in a Medicaid Population of Asthmatic Patients,'' Clinical
Therapeutics, Vol. 20, No. 3, 1998.
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Rather than citing pharmaceuticals as the principal source of most
health cost increases, it must be recognized that prescription drug
spending is small relative to total health care spending and can in
fact achieve savings on hospitalization and other medical costs.
Pharmaceuticals save lives and increase quality of life while creating
offsetting savings on other health services.
Response to the ``15 most egregious examples of Hatch-Waxman abuse''
(Question 14)
This response answers the Honorable Edolphus Towns' question
regarding ``Examples of Hatch Waxman Abuse.''
The generic industry claims that fifteen drugs represent the
``15 most egregious examples of Hatch-Waxman abuse.'' Do you
agree or disagree that these are in fact examples of abuse? And
if not, why not?
The generic industry claims that 15 drugs--Neurontin <SUP>'</SUP>,
Taxol <SUP>'</SUP>, Platinol <SUP>'</SUP>, Prilosec <SUP>'</SUP>, Paxil
<SUP>'</SUP>, BuSpar <SUP>'</SUP>, Tiazac <SUP>'</SUP>, Ultram
<SUP>'</SUP>, Zantac <SUP>'</SUP>, Coumadin <SUP>'</SUP>, Nicorette
<SUP>'</SUP>, Temovate <SUP>'</SUP>, Wellbutrin <SUP>'</SUP>, Questran
<SUP>'</SUP>, and Glucophage <SUP>'</SUP>--represent the ``15 most
egregious examples of Hatch-Waxman abuse.'' The generic industry is
simply wrong about the innovator industry's actions. At bottom, the
assertions boil down to complaints about continuing innovation on
pioneer drugs and the identification of significant consumer safety and
public health issues associated with generic copies of pioneer drugs. I
have arranged my response by the issues raised in these examples.
Non-Patent Issues
The Coumadin <SUP>'</SUP>, Nicorette <SUP>'</SUP>, Temovate
<SUP>'</SUP>, Questran <SUP>'</SUP>, and Glucophage <SUP>'</SUP>
examples involve various issues of critical importance to the
pharmaceutical industry--the public health, the right to petition
agencies concerning agency action, bioequivalence, and clarifying
unsettled areas of the law. These examples do not relate to the patent
scheme of Hatch-Waxman but to the FDA's exercise of its regulatory
authorities.
Patent Infringement Findings
Neruontin <SUP>'</SUP>, Zantac <SUP>'</SUP>, and Wellbutrin
<SUP>'</SUP> are examples of patent holders attempting to protect
legitimate intellectual property rights. Finding patent infringement is
a matter for the courts that frequently involves difficult and complex
issues of fact and law. In these cases, the patent holder sought only
to enforce its patent rights.
Patent Validity
Platinol <SUP>'</SUP> and BuSpar <SUP>'</SUP> each involve highly
technical disputes on the validity of relevant patents. Under the
relevant law patents are presumed valid and can be found invalid only
after substantial evidence has been produced to the contrary to the
presiding court.
Operation of Hatch-Waxman
The Prilosec <SUP>'</SUP> and Ultram <SUP>'</SUP> examples
demonstrate appropriate operation of the Hatch-Waxman Act's patent and
exclusivity provisions, which provide incentives for continued
innovation. There were no non-concurrent 30-month stays at issue in
either case.
Use of a 30-month stay
In the Taxol <SUP>'</SUP> matter the patent owner sought a single
30-month stay in which to litigate its patent rights.
Realities of Innovation
The Paxil <SUP>'</SUP> example makes clear that innovation in the
pharmaceutical industry frequently comes long after the issuance of the
initial patent. That fact, in combination with earlier filings of ANDAs
by generic manufacturers, results in the possibility for multiple
patents to cover the additional discoveries made concerning a product.
As explained by the PTO in a July 30 letter to Senator Hatch, ``the
timing of issuance bears no relation to the importance of innovation.''
Manipulation by Generic Manufacturers of Hatch-Waxman
Biovail, a generic drug manufacturer, has been accused of using
successive 30-month stays to extend its period of exclusive marketing
of Tiazac <SUP>'</SUP>. Through litigation and settlement not involving
the research-based pharmaceutical companies, generic forms of Tiazac
<SUP>'</SUP> are now on the market.
Response to request to ``provide a complete list of patents that claim
an approved drug, were issued by the PTO more than 30 days
after NDA approval, and were filed with FDA pursuant to
Sec. 3505(c)(2)'' and to provide related information.
This response answers the Honorable Henry A. Waxman's question.
Please provide a complete list of patents that claim an
approved drug, were issued by the PTO more than 30 days after
NDA approval, and were filed with FDA pursuant to section
505(c)(2). Be sure to include all such patents that have
triggered a 30-month stay of approval. For each such patent,
provide the following information:
(a) the date on which the patent was filed with the PTO;
(b) the name of the approved drug claimed by the patent, the
date of its approval, and the date of first marketing;
(c) whether the patent was a continuation patent or the
subject of a terminal disclaimer, and if so, the original
patent whose termination date the new patent also took;
(d) what innovation the patent claimed;
(e) the cost of developing that innovation;
(f) whether that innovation was the subject of an FDA
approval, and if so, the date of that approval;
(g) whether the patent was the subject of litigation and the
outcome of the litigation; and
(h) whether any 30-month stays were imposed pursuant to the
filing of a patent infringement suit to enforce the patent;
(i) whether there was more than one 30-month stay associated
with the approved drug claimed by the patent.
PhRMA does not have a list of patents issued by PTO more than 30
days after NDA approval. Furthermore, some of this information that you
request--such as the cost of developing the innovation that is the
subject of the patent in question--would be viewed as confidential and
proprietary by the companies.