[Senate Hearing 105-524]
[From the U.S. Government Publishing Office]
S. Hrg. 105-524
LEGISLATIVE PROPOSAL TO INCREASE FUNDING FOR MEDICAL RESEARCH
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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U.S. GOVERNMENT PRINTING OFFICE
46-160 cc WASHINGTON : 1998
_______________________________________________________________________
For sale by the U.S. Government Printing Office
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ISBN 0-16-057151-0
COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire HARRY REID, Nevada
ROBERT F. BENNETT, Utah HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado PATTY MURRAY, Washington
LARRY CRAIG, Idaho BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
Steven J. Cortese, Staff Director
Lisa Sutherland, Deputy Staff Director
James H. English, Minority Staff Director
------
Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
SLADE GORTON, Washington ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri DANIEL K. INOUYE, Hawaii
JUDD GREGG, New Hampshire DALE BUMPERS, Arkansas
LAUCH FAIRCLOTH, North Carolina HARRY REID, Nevada
LARRY E. CRAIG, Idaho HERB KOHL, Wisconsin
KAY BAILEY HUTCHISON, Texas PATTY MURRAY, Washington
Majority Professional Staff
Craig A. Higgins and Bettilou Taylor
Minority Professional Staff
Marsha Simon
Administrative Support
Jim Sourwine
C O N T E N T S
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Page
Opening remarks of Senator Arlen Specter......................... 1
Statement of Scott Hallquist, Sr., vice president and general
counsel, Immunex International, Inc............................ 1
Prepared statement........................................... 3
Generics......................................................... 5
Statement of Daniel P. Perry, executive director, Alliance for
Aging Re- search............................................... 6
Prepared statement........................................... 7
Letter from the Alliance for Aging Research...................... 9
Letter from Dr. Robert L. Comis.................................. 9
Letter from the Eastern Cooperative Oncology Group, Group Chair's
Office, Allegheny University, Cancer Clinical Trials Research
Center......................................................... 10
Statement of Kenneth W. Clarkson, Ph.D., director, Law and
Economics Center School of Law and Business, University of
Miami.......................................................... 10
Prepared statement........................................... 12
Statement of Gina Cioffi, national director, Cooley's Anemia
Foundation..................................................... 13
Prepared statement........................................... 15
Statement of James Love, director, Consumer Project on
Technology, on behalf of the Center for Study of Responsive
Law, Washington, DC............................................ 16
Prepared statement........................................... 18
Taxol issue...................................................... 20
Letter from June E. O'Neill, Director, Congressional Budget
Office......................................................... 27
Letter from Senator Paul Wellstone............................... 30
Prepared statement of Senator Richard J. Durbin.................. 31
Prepared statements of Representatives Henry Waxman, Sherrod
Brown, Peter Deutsch, and Fortney Pete Stark................... 31
Prepared statement of R. Douglas Chiappetta, president, National
Alternative Fuels Association.................................. 33
Questions submitted and responses of Gina Cioffi................. 34
LEGISLATIVE PROPOSAL TO INCREASE FUNDING FOR MEDICAL RESEARCH
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TUESDAY, OCTOBER 21, 1997
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 4:50 p.m., in room SD-138, Dirksen
Senate Office Building, Hon. Arlen Specter (chairman)
presiding.
Present: Senators Specter, Gorton, and Harkin.
Also present: Senator Bennett.
NONDEPARTMENTAL WITNESSES
STATEMENT OF SCOTT HALLQUIST, SR., VICE PRESIDENT AND
GENERAL COUNSEL, IMMUNEX INTERNATIONAL,
INC.
opening remarks of senator arlen specter
Senator Specter. We will now have a panel discussion
examining a possible legislative proposal relating to medical
research. Mr. Perry, Mr. Hallquist, Ms. Cioffi, Mr. Love, Mr.
Clarkson, step forward, please.
This panel will examine the possibilities of increasing
funding for medical research by having the Government extend
the period of exclusivity for certain pharmaceutical products
in exchange for the company providing a dedicated royalty
income stream to NIH. This is obviously a complex issue which
would involve greater rights of exclusivity, which would impede
upon the issue of generics. And the question is what will the
impact be on the consumer? What will the help be to aid medical
research?
We will proceed at this time with our panel. First, we will
hear from Mr. Hallquist, senior vice president and counsel of
Immunex International, Inc., a research-based biopharmaceutical
company headquartered in Seattle. Immunex markets products used
in the treatment of cancer that temper the side effects of
cancer therapy.
We'll set the clock again at 4 minutes and the floor is
yours.
summary statement of scott hallquist
Mr. Hallquist. Thank you, Mr. Chairman. Good afternoon, Mr.
Chairman, Members of the subcommittee.
As you've introduced me, my name is Scott Hallquist and I'm
the senior vice president and general counsel of Immunex Corp.,
a biopharmaceutical company based in Seattle, WA. I appreciate
this opportunity to present my company's views regarding the
proposed data exclusivity demonstration. With me today are Ruth
Berkowitz and Bob Altop of the economic research firm, National
Economic Research Associates, or NERA, whose analysis forms the
basis for my testimony.
I am summarizing my testimony and ask permission that the
entire written statement be submitted to the record.
Senator Specter. All statements will be made a part of the
record without further request and the summaries will be
appreciated.
Mr. Hallquist. Thank you, Mr. Chairman.
Biopharmaceutical research is at the core of Immunex's
mission. We have spent nearly a half a billion dollars on
research on R&D since the company was founded 16 years ago. We
understand the need for research and we applaud the committee's
interest in providing additional research dollars for NIH, but
we strongly believe that this proposed demonstration vehicle is
a flawed piece of legislation that will not achieve the
objectives of the committee.
We think it's the submarine that's going to put a torpedo
into the Medicare budget several years down the road and needs
to be very carefully analyzed in order to calculate what those
added Medicare costs are going to be.
The proponents of the demonstration contend that 5 years of
market exclusivity under Waxman-Hatch does not provide adequate
incentive for companies to conduct research to develop new
drugs. Waxman-Hatch was carefully crafted to balance the
interests of patients, drug companies and others. Combined with
the benefits of our patent system, these incentives have made
the U.S. pharmaceutical industry today the world's leader by
any token.
Whether the existing system provides sufficient incentives
or whether it should be amended directly or indirectly are
issues that require significant public debate and analysis. The
appropriations process is not the right forum for that kind of
critical decision.
This demonstration will not incentivize new research
because it applies only to existing drugs, drugs that are
already available, and it actually would deter research by
innovative companies that want to develop new modes of
administration, new formulations or new forms of drugs that are
protected under this bill.
The other justification for this demonstration is that it
will provide revenue for NIH. That's a laudable objective, but
there is no free lunch. Let's look at Taxol, the primary drug
beneficiary of this demonstration as a specific example. Taxol
is the chemotherapy drug sold by Bristol-Myers Squibb and used
to treat ovarian, breast and other cancers. The active
ingredient in Taxol is a compound known as paclitaxel, which
was discovered by the National Cancer Institute using taxpayer
dollars.
As a result of the cooperative research and development
agreement, Bristol-Myers Squibb was granted exclusive rights to
develop Taxol using NCI's data. Upon approval, Bristol
qualified for 5 years of exclusivity under Waxman-Hatch. Their
exclusivity expires at the end of this year.
Under the Bristol monopoly, Taxol is a very expensive drug.
A basic treatment can cost more than $2,000. The high price of
Taxol and its 5 years of exclusivity were explicitly taken into
account in the negotiated agreement between Bristol and the
Federal Government. This deal has paid off richly for Bristol.
Its U.S. Taxol sales in 1996 alone exceeded $500 million.
Immunex and several other companies in this country would like
to develop competitive products to the paclitaxel product. Our
competing product is already available in Canada. A breast
cancer patient in the United States pays $183 for a bottle of
Taxol. Her Canadian counterpart can buy our competing product
for $100.
The NERA study, which we're providing as part of the record
of this proceeding, compares--was actually developed to analyze
the net Medicare and U.S. budget--or U.S. health care budget
impact of extending the Taxol monopoly for just 2 years. Again,
this particular proposal would extend it for 5 years. The
bottom line numbers are an increased cost to the U.S. health
care system of more than $1 billion for just a 2-year
extension, of which $288 million is attributable to Medicare
expense. So in other words, the increased costs to the health
care system far outweighs the benefits that would be provided
to NIH, however laudable by the 3-percent royalty that the
companies are offering to pay.
prepared statement
There needs to be further analysis of such a sweeping piece
of legislation that would essentially block people and
disincentivize people from doing research and providing better
drugs for patients. Thank you.
[The statement follows:]
Prepared Statement of Scott Hallquist
Mr. Chairman and Members of the Subcommittee: On behalf of
the employees and stockholders of Immunex Corporation, I am
grateful to the Subcommittee for affording me the opportunity
to present Immunex's views about the proposed demonstration
project to fund biomedical research through extensions of
market exclusivity for approved drugs. If implemented, this
proposal would deprive our company of the ability to provide an
important cancer drug to patients. Using this drug as an
example, I will illustrate for the Subcommittee the punitive
and anticompetitive impact of the proposed demonstration on
private sector research, health care expenditures, the federal
Medicare budget, and patient access to affordable drug
therapies.
Immunex is a research-based biopharmaceutical company
headquartered in Seattle, Washington. We have approximately 900
employees throughout the U.S. Our mission is to develop
innovative treatments for patients with serious medical needs.
Since the company was founded sixteen years ago, we have spent
$483 million on research and development--approximately one-
half of the company's revenues over that same period of time.
In 1996, our total research investments exceeded $100 million.
Immunex markets seven products in the U.S. All are used in
the treatment of cancer or to temper the side effects of cancer
therapy. As one example, we received FDA approval to market a
chemotherapy drug called Novantrone for the 80,000 men who
suffer from advanced hormone refractory prostate cancer. Until
Novantrone received clearance, there were few treatment options
for these patients. In addition to the development of innovator
drugs like Novantrone, Immunex has developed a generic form of
paclitaxel, a chemotherapeutic agent used to treat metastatic
ovarian and breast cancers that have not responded to first
line therapies. We intend to market this drug as soon as the
exclusivity period granted to Bristol-Myers Squibb for its
brand, Taxol, expires.
Thus, we are able to consider the proposed demonstration
project from a unique perspective--that of a company that is
fiercely committed to research and development, that develops
and markets innovator drugs, and that also has an interest in
generics. In our view, the proposed demonstration runs counter
to sound public policy and would not achieve its stated
objectives.
Proponents of the demonstration offer two principal
justifications: (1) five years of market exclusivity is not
sufficient to provide adequate incentive for companies to
conduct research to develop new drugs; and (2) the
demonstration would provide a source of revenue needed to
maintain support for NIH research. Unfortunately, the proposal
fails on both counts.
Perhaps there should be a reexamination of the purpose and
effect of the Waxman-Hatch market exclusivity law. But the
appropriations process is not the proper forum for that debate.
It requires the same level of scrutiny and consideration that
was applied when the law was first adopted. This is
particularly true in light of the anti-competitive nature of
the demonstration and its likely adverse impact on patient
access to lifesaving therapies. Moreover, the proposed
demonstration does nothing to incentivize new drug development
since it would extend, by up to five additional years, market
exclusivity for existing drugs only. It actually would deter
research to develop new formulations of drugs that qualify for
the additional protections. Simply put, other companies that
otherwise might produce new versions with fewer side effects,
easier delivery systems, or greater efficacy would be unable to
receive approval and would have no incentive to conduct the
research necessary to achieve these kinds of breakthroughs.
Depriving patients in this way goes well beyond current market
exclusivity policy.
The projected revenue stream to NIH is another fallacy. As
illustrated in the Taxol example below, the cost to the
government of extending exclusivity periods under this
demonstration would far exceed the projected $750 million of
new revenue for NIH. It also is important to note that the
proposed ``royalty'' would not be absorbed by the
pharmaceutical companies but would be passed on to patients,
private insurers, and government health care programs in the
form of higher prices for drugs that are shielded from
competition. A tax on sick and dying patients is an
inappropriate and unnecessary way to fund biomedical research.
Conservatively, at least 21 drugs would receive protection
under the demonstration. But one drug, Taxol, presents the most
egregious case study on why the demonstration would be a
horrible investment for taxpayers and a setback for cancer
patients.
The active ingredient in Taxol is the anticancer compound
paclitaxel. It was discovered, formulated, and introduced into
human clinical trials by the National Cancer Institute using
federal funding. As a result of a cooperative research and
development agreement, or CRADA, Bristol-Myers Squibb was
granted exclusive rights to the NCI paclitaxel research,
continued the clinical trials of Taxol, and obtained FDA
approval in December 1992. In return for its investment,
Bristol received five years of marketing exclusivity under the
Waxman-Hatch Act. This term of exclusivity is scheduled to
expire on December 27, 1997.
Taxol is an expensive drug. A basic treatment costs a
cancer patient more than $2,000. Taxol pricing was the subject
of a negotiated agreement between NIH and Bristol following a
House subcommittee hearing in 1991 at which a senior Bristol
executive testified that the drug ``is neither patented nor
patentable; therefore, we do not have exclusive intellectual
property rights to Taxol.'' Taxol's high price and five years
of marketing exclusivity were part of the bargain that Bristol
struck with the government.
The bargain paid off for Bristol. Bristol does not
separately report U.S. Taxol sales, but the market research
firm IMS America estimated U.S. Taxol sales for 1996 alone to
total $519 million. Other firms have estimated them to be as
high as $590 million. In August of this year, Bristol reported
worldwide Taxol sales of $813 million and sales in the first
half of 1997 of $444 million. Taxol is well on its way to
becoming a billion dollar drug and certainly needs no
additional legislative preference to ensure its success.
Four years ago, Immunex began working with paclitaxel. We
have a supply arrangement with an innovative Colorado company,
Hauser, Inc., that pioneered paclitaxel manufacturing processes
when NCI research on paclitaxel first began. Immunex and Hauser
each have invested heavily to prepare stockpiles of bulk drug
for formulation and sale. Hauser also has developed a
manufacturing process based on renewable biomass that can
assure continued supplies of paclitaxel. In undertaking this
effort, we relied upon the Waxman-Hatch law and have every
intention of introducing on the market a competitive paclitaxel
product in the U.S. upon the expiration of Bristol's initial
exclusivity period for Taxol. Several other companies have
expressed the same intent.
The positive impact of generic competition to Taxol is
occurring in Canada where Immunex has introduced a competitive
paclitaxel injection product. The prices for Taxol in Canada
are already declining as the market adjusts to competition.
Whereas a breast cancer patient in the U.S. pays $183 for a
vial of Taxol, her Canadian counterpart is able to obtain the
competitive product for less than $100 (U.S. dollars).
NCI has indicated its expectation that generic competition
for Taxol will occur upon the expiration of Bristol's initial
term of exclusivity. In a letter to Senator Ben Nighthorse
Campbell, dated February 26, 1997, Alan Rabson, Deputy Director
of NCI, discussed the Bristol CRADA and stated, ``* * * [N]ew
anti-cancer indications for paclitaxel that hopefully will
arise from research under the extended CRADA may increase
market opportunities for generic manufacturers of paclitaxel
once they are able to enter the market in January, 1998.''
Nevertheless, Bristol continues to pursue efforts to obtain
extensions of its Taxol exclusivity. At one point, Bristol was
seeking a two-year extension. To better understand the economic
impact of such an extension, Immunex commissioned a study by an
independent economic research firm, National Economic Research
Associates (``NERA''). NERA estimated that a two-year extension
would cost the U.S. health care system in excess of $1 billion
and would cost the Medicare program alone $288 million.
The proposed demonstration would provide not two, but five
years of additional exclusivity to Bristol for Taxol. In
exchange, NCI would receive a mere three percent royalty. Based
upon the approximately $500 million in U.S. sales now recorded
by Bristol, NCI would receive about $15 million in royalties in
the first year. Comparing the estimated Medicare cost impact of
a two-year extension with two years worth of royalty payments
under the demonstration, taxpayers would spend an extra $10 on
Medicare for every $1 invested in the demonstration. When one
considers the over $1 billion in added costs to all federal
health programs and private sector plans, the taxpayer cost
balloons to nearly $30 for every one dollar spent with regard
to Taxol alone. The numbers are even more astounding when all
drugs covered by the demonstration are taken into account.
The sweeping protections granted to certain drugs under the
proposal actually would deter other companies from researching
and developing new formulations of paclitaxel or new methods of
using and administering this anticancer compound, since any
drug application relating to this active compound (even new
drug applications directed to uses, indications, or
formulations that are not researched or developed by Bristol or
included in Taxol labeling) would be frozen for five years.
Thus, the proposed demonstration actually would cost the
federal government billions of dollars that otherwise could
have been dedicated, at least in part, to NIH research. It
would discourage important research, deny patients access to
lower-cost drugs, impose a hidden tax on the sick, and
adversely impact companies that have made significant
investments in researching new uses for drugs that are reaching
the end of their exclusivity periods.
GENERICS
Senator Specter. Your company, Mr. Hallquist, is Immunex
Corp. So you market generics as well as patented products?
Mr. Hallquist. Yes; Mr. Chairman, we have seven cancer
drugs in the United States now.
Senator Specter. It would impact on your company by raising
the prices, you are saying, and, therefore, raise the cost to
Medicare center?
Mr. Hallquist. Well, essentially extending the period in
which the first approved drug has exclusivity keeps us from----
Senator Specter. What I am looking for is just your
company's approach on it. I understand your intention. I am
just trying to understand your own position of interest.
Mr. Hallquist. We do research and we develop new drugs
which qualify either for patent protection or if they have no
patent protection for Waxman-Hatch. But since we have a family
of cancer drugs, we're also interested in developing additional
drugs to add to that portfolio and paclitaxel is one of those.
Senator Specter. Thank you very much.
STATEMENT OF DANIEL P. PERRY, EXECUTIVE DIRECTOR,
ALLIANCE FOR AGING RESEARCH
Senator Specter. We turn now to Mr. Daniel Perry, founding
executive director of the Alliance for Aging Research.
Mr. Perry, the floor is yours.
Mr. Perry. Thank you, Mr. Chairman. Mr. Chairman, you have
a copy----
Senator Specter. You may have been out of the room, but the
lights will function on 4 minutes leaving us more time for
dialog.
Mr. Perry. Thank you.
You have a copy of my testimony, as do the members of the
committee and the subcommittee. Rather than try to read that
testimony or to summarize it, I would just like to underscore a
couple of key points.
Senator Specter. That is fine.
Mr. Perry. My organization is a not-for-profit advocacy
organization that seeks to increase the priority of biomedical
and scientific research in aging and chronic diseases of the
elderly. Not surprisingly, we see that the greatest challenge
to the United States and, indeed, to the world is the graying
of nations.
It is the greatest medical, economic, social, and political
challenge that we face. We believe that only by finding
interventions and means to modify chronic, very costly long-
term conditions that now accompany aging will we be able to
navigate with success the aging of today's current
unprecedentedly large populations of older people and the baby
boom generation still to come.
It will only be if we can coax forward new innovations in
diseases such as Alzheimer's, osteoporosis, stroke, diabetes
related to aging that we will be able to see the success of
that generation. The Federal Government's responsibilities in
this area are key to--in supporting the National Institutes of
Health and research, the Veterans' Administration and
elsewhere. As Mr. Chairman, you and others in this committee
know all too well, the current appropriations process, in all
due respect, is broken when it comes to being able to provide
long-term insurance that we're going to be able to grow the
enterprise of medical research in this country. We're faced
with kind of a cruel zero sum game.
First of all, with the laudable effort to move toward a
balanced budget but with firewalls and the shrinking
discretionary funds, we find that medical research is pitted
against education, job training, low income energy assistance,
a zero sum kind of format. And even more cruel, we're in a
situation where we are having to pit breast cancer research
advocates against research for aids, diabetes against spinal
cord injury, diseases of the young against Alzheimer's disease.
We have heard the appropriators say to the health advocacy
community help us find new streams of revenue, help us find
public-private partnerships that can supplement what we are
currently trying to do at NIH.
The Alliance for Aging Research has endorsed in recent
months and years the Harkin-Specter legislation that would do
this. We've endorsed Harkin-Hatfield, we have supported levy on
tobacco taxes, on tobacco to increase funding for medical
research. We have supported moving savings from Medicare into
this area and a $1 per insurance policy in health. We have
tried all sorts of ways and today you have a proposal that I
think has some unique attractiveness in that it underscores
incentives for companies to invest private-sector money in
research. It provides a direct royalty feedback to NIH, and it
moves toward greater harmonization globally with our trading
partners.
Biomedical research is already providing a huge payoff. We
released a study from Duke University earlier this year that
showed that already disability among the Americans aged 80 and
older has declined some 15 percent from the early 1980's to the
present. This has already saved the Medicare system between $25
and $44 billion, according to this study from Duke University.
PREPARED STATEMENT
The benefits for Medicare are enormous in the savings we
will provide if older people stay out of nursing homes and stay
out of the need for hospital care as long as possible. This is
a mechanism that will underscore the current pipeline of
research, both public and private. We think it deserves your
consideration.
Senator Specter. Thank you very much, Mr. Perry. I am going
to have to take a very brief absence to return a call. Senator
Bennett will preside in the interim.
[The statement follows:]
Prepared Statement of Daniel Perry
Mr. Chairman and Members of the Subcommittee: Thank you for
the opportunity to testify before this subcommittee today. I am
Daniel Perry, Executive Director of the Alliance for Aging
Research, an independent, not-for-profit organization working
to stimulate academic, government and private sector research
into the chronic diseases of human aging. I am here today to
discuss the general need for continued increases in biomedical
research funding, and specifically to urge your careful
consideration of a proposed Demonstration Project to Fund
Biomedical Research at the National Institutes of Health.
The research that is carried out at virtually every
institute within the NIH has the potential to shed light on the
chronic diseases of aging. The benefit of biomedical research
at the NIH--namely, the ability to achieve longer, healthier
lives--accrues not only to older people, but to all Americans.
The processes of aging increases the risk of heart disease,
cancer, stroke, arthritis, osteoporosis, depression, diabetes,
and Alzheimer's disease, to name but a few. The cost of
treating those eight diseases alone is staggering, over $573
billion each year. Unless we discover better ways to treat,
prevent or postpone these diseases, this figure will grow
exponentially in the coming years, as our population grows
older.
The growing tide of older adults is just now beginning its
sharpest rise, as the members of the first wave of the ``baby
boom'' generation are turning 50 years of age. In just fourteen
years, these individuals will be collecting Medicare old age
benefits from the federal government. The Health Care Financing
Administration has projected that half of all health care
dollars spent in the U.S. will soon be used for treating
unsolved medical problems of the elderly. It is therefore
imperative that resources be dedicated today to research and
reduce the costs associated with the chronic diseases of aging.
Older Americans, aging Americans, their families, and the
nation as a whole, are benefited by discoveries in health care
that come from biomedical research. These innovations have the
potential to decrease significantly the need for, and cost of,
hospital and nursing home care. We are already seeing the
payoff in Medicare spending of past investments in research. A
study conducted by Duke University's Center for Demographic
Studies, released earlier this year, found that chronic
disability rates among older Americans declined nearly 15
percent from 1982 to 1994, resulting in savings for the
Medicare program of between $25.4 billion and $33.3 billion.
Finding ways to keep Americans healthy longer through medical
research simply has to be central to our efforts to keep
Medicare solvent. Even a brief delay in the incidence of age-
related disability can translate into dramatic savings for our
economy. We estimate that postponing physical dependency for
older Americans by just one month would save the nation $5
billion a year in health care and nursing home costs.
Postponing the onset of Alzheimer's disease by five years
would, in time, save $50 billion a year in health care costs.
And a five-year delay in the onset of cardiovascular disease
could save an estimated $69 billion a year.
The need for greater national biomedical research efforts
cannot be denied. Unfortunately, severely limited and shrinking
federal discretionary funding has left the American biomedical
research enterprise in jeopardy on many fronts. While we
appreciate Congressional support for increased NIH allocations,
we also understand that competing interests, budget
constraints, and the vagaries of the political process have
left the NIH budget in jeopardy and have removed the certainty
that NIH will be able to sustain ongoing high quality research.
At present, nearly 4 out of 5 peer-reviewed research
projects deemed worthy of funding by the NIH are forced to go
unfunded. No one can be satisfied when eighty percent of worthy
research projects cannot be funded. Not only does this cheat
the American public of the results of that research, the
funding crisis for medical research undermines the pipeline of
medical discoveries we will need in the future. Moreover, the
biomedical research rate of inflation has reduced research
funding in real terms, and has eroded the technology
infrastructure required for groundbreaking research and
discovery.
Mr. Chairman, no one knows better than you, Senator Harkin,
and the other members of the subcommittee how very difficult it
will be to increase direct federal funding for research in the
coming years. There are simply no remaining non-Defense
discretionary funds available to put into research. The
commitment to eliminate the deficit leaves medical research
funding in a cruel, double zero-sum game.
The first zero sum is within the context of the overall
discretionary budget. Any increase in funding for research must
come at the expense of some other worthy program. The second,
and frankly, more cruel, zero-sum game is the way in which an
increase in funding for research on any specific disease or
disability has to come at the expense of another disease or
disability. Pitting diabetes against spinal cord injury, AIDS
against breast cancer, diseases which predominate in women
against those which strike more men, is hardly a rational or
desirable way to function. Clearly, the current means of
funding medical research are broken and new ways must be found,
especially if there is to be any hope of realizing the Senate's
goal of doubling the amount spent by NIH over the next five
years.
In light of the current situation, it is critical for
Congress to explore creative and novel ways to increase
funding, including added incentives for private sector
contribution to biomedical research. The Alliance over the
years has supported various efforts to get more dollars into
research--such as an increase in tax on tobacco, or redirecting
Medicare savings, or a per capita fee on health insurance
premiums. The Demonstration Project to Fund Biomedical
Research, which is the subject of today's hearing, is another
example of an opportunity to boost research efforts which will
benefit the public both today and in the future. The
demonstration project's provision of limited extended periods
of market exclusivity for eligible new drug products in
exchange for royalty payments to further biomedical research at
the NIH would provide substantial off-budget revenues to
maintain the preeminence of American biomedical research and
deserves your careful consideration.
The Demonstration Project to Fund Biomedical Research is a
voluntary, time-limited demonstration project which would
generate funds in excess of $750,000,000 over five years for
increased NIH funding of peer-reviewed biomedical research on
serious or life-threatening diseases and conditions. As
cooperative partners, private industry would commit at least an
equivalent amount of funds to private sector research and
development efforts in these areas. Funds would be generated
from the extension of new data exclusivity for previously
approved drugs; the maximum possible extension would be five
years. During the extended period, the pharmaceutical company
would pay NIH a royalty on net U.S. sales of the product and be
obligated to invest an equivalent amount in private sector
research. No product would have more than 10 years of
exclusivity.
It is important to note that this additional five years of
exclusivity brings the United States up to the 10 year period
of exclusivity already granted in countries such as France,
Germany and Great Britain. Harmonizing the United States'
provision of 5 years of new drug exclusivity with the European
standard of 10 years is necessary to keep the United States
competitive in biomedical research and to maintain the ability
of Americans to access the most innovative research for the
treatment of chronic disease.
As a demonstration project, authority for this program
would expire in five years, at which time the benefits of this
boost in research funding may already be evident.
As a nation, we have choices. We can choose to make an
increased investment in finding new ways to prevent, cure and
treat age-related diseases now, or we can choose to wait and
pay for an unparalleled increase in the cost of caring for our
oldest citizens later. Clearly, the choice should be funding
the needed research. But we must be realistic and acknowledge
that we cannot rely solely on government financing for the
effort.
In closing, let me reiterate the paramount importance of
biomedical research to the health--both physical and economic--
of our nation. Dramatically increased funding for the American
biomedical research enterprise is good for the health of the
American people, good for the future of the Medicare program,
and good for the nation's economy. The challenge of funding
biomedical research requires the need to pursue creative
solutions, including the Demonstration Project before you
today. Failing to adequately fund biomedical research will
result in the continued precipitous rise in health care costs
for the American people.
Thank you for the opportunity to testify before you today.
I would be happy to respond to any questions which you may
have.
------
Letter From the Alliance for Aging Research
October 21, 1997.
Hon. Arlen Specter,
Chairman, Subcommittee on Labor-HHS-Education, Committee on
Appropriations, U.S. Senate, Washington, DC.
Dear Senator Specter: It is our understanding that the Alliance for
Aging Research has suggested an innovative demonstration program to
increase funding for the National Institutes of Health, a goal we all
share.
As you well know, and in spite of your outstanding work on the
subcommittee, nearly four of every five peer-reviewed, approved
research projects at NIH remain unfunded. With the additional pressures
placed on domestic discretionary spending by the Balanced Budget Act,
there is clearly a need for creative and innovative sources of revenues
for NIH that will permit research to continue to advance.
The Alliance's demonstration program would extend the period of
data exclusivity for certain pharmaceutical products for up to five
years in exchange for royalty payments to the NIH, as well as a
requirement for an equal private investment in research. It is a
concept with a great deal of merit.
Your leadership in the field of biomedical research funding has
been critical in the progress we have made to date. We respectfully
encourage you, through your subcommittee, to move forward on a proposal
such as that advanced by the Alliance for Aging Research.
Alliance for Aging Research; Beckwith-Wiedemann
Support Network; Charcot-Marie-Tooth
Association; Cooley's Anemia Foundation;
Cystic Fibrosis Foundation; Depression and
Related Affective Disorders Association
(DRADA); Dysautonomia Foundation, Inc.;
International Patient Advocacy Association;
International Rett Syndrome Association;
Jeffrey Modell Foundation; Malignant
Hyperthermia Association of the U.S. (M-
HAUS); MPS Society, Inc.; National
Osteoporosis Foundation; Purine Research
Society; PXE International, Inc.
______
Letter From Dr. Robert L. Comis
October 20, 1997.
Hon. Arlen Specter,
U.S. Senate,
Washington, DC.
Dear Senator Specter: The undersigned organizations represent
people with cancer and the health care professionals who treat them. We
understand that you are conducting a hearing on a legislative proposal
to increase research funding for the National Institutes of Health
(NIH) through royalties paid in exchange for additional marketing
exclusivity for certain products. We are writing to express our support
for this provision.
If patients are to receive the benefit of basic biomedical
discoveries, there must be.more innovative approaches to encourage both
the public and private sectors to pursue greater clinical research
opportunities. The legislative proposal would provide incentives for
companies not only to contribute to NIH funding, but also to conduct
their own privately sponsored research in the same therapeutic area as
the drug receiving additional exclusivity.
Thus, the proposal fosters the sort of public-private collaboration
that is most likely to advance both basic and clinical cancer research.
In addition, enactment of this legislative proposal would bring U.S.
law into greater conformity with exclusivity provisions in Europe,
where ten years of exclusivity are generally available, in contrast to
five in this country.
While we support the package of incentives represented by this
legislation, we believe that it would be greatly enhanced if there were
a mechanism for ensuring that current levels of appropriated NIH
research funding would be maintained so that the royalty payments
supplement rather than simply replace public funds.
We appreciate your attention to this issue of great importance to
people with cancer and look forward to your hearing and subsequent
introduction of the legislation.
Sincerely,
National Coalition for Cancer Survivorship; Cancer
Care, Inc.; Candlelighters Childhood Cancer
Foundation; National Alliance of Breast
Cancer Organizations (NABCO); US TOO
International, Inc.; Y-ME National Breast
Cancer Organization (Y-ME); American
Society of Clinical Oncology; Alliance for
Lung Cancer Advocacy, Support and
Education; Oncology Nursing Society.
______
Letter From Eastern Cooperative Oncology Group, Group Chair's Office,
Allegheny University, Cancer Clinical Trials Research Center
Philadelphia, PA, October 14, 1997.
Hon. Arlen Specter,
U.S. Senate,
Washington, DC.
Dear Senator Specter: As president of a not-for-profit foundation
which represents the interests of the Eastern Cooperative Oncology
Group (ECOG), a National Cancer Institute clinical teals cooperative
group, and a practicing oncologist, I know first hand the vital role
biomedical research plays in battling life-threatening disease. I am
compelled to write at this time in support of the novel proposal for
increasing NIH finding for biomedical research currently scheduled for
hearings before the Senate Appropriations Labor, Health and Human
Services Subcommittee on October 24, 1997.
Over the last few decades federal dollars have been shrinking,
making it more and more difficult to carry out innovative cancer
clinical teals. In ECOG, as well as other national cancer cooperative
groups, funds are being stretched to encompass current projects and
trials. This allows little remaining resources to devote to planning
and execution of future trials. In fact, ECOG as well as the other U.S.
cooperative groups are funded at only about 50 percent of the level
approved by the peer review process. In order to survive, the nation's
cancer cooperative groups need to find ways to increase and diversify
their funding base, as does the entire research support structure of
the NIH.
The proposed legislation would create a 5-year demonstration
project in which pharmaceutical companies could agree to pay a royalty
on U.S. sales of certain eligible products in exchange for an extension
of up to 5 years of market exclusivity. The millions of dollars that
would be generated by this proposal would make an enormous impact on
the abilities of research organizations such as ECOG and other National
Cancer Institute funded programs to find better, more effective cancer
therapies. The developments made in research, as you may know,
ultimately impact standard care nationwide, thereby affecting the lives
of millions of Americans.
Assuming that such an innovative agreement can be made with
industry, it will be extremely important for the bill to be written in
such a way that the new dollars actually go to fund research, land not
other endeavors.
Research is the key to improving patients' quality of life now and,
ultimately, finding a cure for this disease. Without this type of
creative funding the limited federal funds currently available will
cause stagnation of treatment development and drastically affect
patient care. I, therefore, strongly urge you land your colleagues in
Congress to lend your support to this effort.
Sincerely,
Robert L. Comis,
President, ECOG Foundation.
STATEMENT OF KENNETH W. CLARKSON, Ph.D., DIRECTOR, LAW
AND ECONOMICS CENTER SCHOOL OF LAW AND
BUSINESS, UNIVERSITY OF MIAMI
Senator Bennett. Whom do we go to next, Mr. Chairman? Or do
I get to decide that?
Senator Specter. Yes.
Senator Bennett. Dr. Clarkson.
Mr. Clarkson. Good afternoon, Mr. Chairman, as you're
leaving, members of the subcommittee. Thank you for the
opportunity to testify before the subcommittee today. My name
is Ken Clarkson and I'm a professor of law and economics and
director of the law and economics center at the University of
Miami where my areas of research and publication focus on
regulating markets, public policy legislation, among other
topics.
I have conducted economic analyses of the pharmaceutical
industry for over 20 years and have published extensively on
the outcomes of alternative incentive systems, including the
relationship of incentives, financing and outcomes for
biomedical research. I also have a prepared statement which I
will submit and at this time and I'd like to just briefly
summarize.
Senator Bennett. By all means.
Mr. Clarkson. Clearly the central issue before the
committee today is how to best achieve reductions in the rates
of morbidity and mortality for the U.S. population in a
fiscally responsible manner. It involves a tradeoff between the
early introduction of lower prices and additional dollars for
NIH, increased company R&D, higher information infusion rates
and improved global incentives for American companies.
The demonstration project to fund biomedical research is a
novel mechanism to create additional research and development
efforts to address compelling health problems first, while
establishing extension of exclusivity to induce continued R&D,
the project provides off budget financing to the National
Institutes of Health. This will help reduce the four out of
five rejection rate at NIH.
Second, the demonstration project provides additional
research dollars for completion of existing clinical trials.
Third, it also provides incentives for examining a wide
spectrum of new indications, including potential spinoff
treatments and compounds, optimizing dosing amounts and
schedules, exploring the use with other compounds,
investigating the application to pediatric populations, and
developing improvements in drug formulation.
In the absence of incentives created by data exclusivity,
it is highly unlikely that the appropriate commitment to
conduct these activities will exist. When incentives are
improved, as they were in the Patent Restoration Act, R&D by
research intensive firms rose by 36 percent in the decade
following the passage of that act.
While controversial, the exclusivity for AZT caused
innovator companies to develop or discover other compounds,
creating an environment where cocktail therapy is now possible.
If AZT had been initially available as a generic, prices would
have been lower and innovation limited. As a result, morbidity
and mortality would have been higher.
The lower price of aspirin has significantly delayed
research and development for an improved indication for the
prevention of heart attacks, an example where the absence of
exclusivity has limited infusion and innovation.
Fourth, the demonstration project creates proper incentives
for more rapid information infusion and patient uptake.
And finally the demonstration project data corrects an
international imbalance between the rewards for conducting the
research and development in the United States versus major
European countries.
PREPARED STATEMENT
In conclusion, the expected societal benefits of increased
revenues to NIH, additional company R&D, more rapid information
infusion and the correction of international R&D incentives
compared to the projected limited cost savings generated by
earlier introduction of generic goods is more than sufficient
to undertake this demonstration project.
Thank you.
Senator Bennett. Thank you.
[The statement follows:]
Prepared Statement of Kenneth Clarkson, Ph.D.
Good afternoon Mr. Chairman, Members of the Subcommittee.
Thank you for the opportunity to testify before this
subcommittee today. My name is Kenneth Clarkson. I am Professor
of Law and Economics and Director of the Law and Economics
Center at the University of Miami, where my areas of research
and publication focus on regulated markets and public policy
legislation, among other topics. I have conducted economic
analyses of the pharmaceutical industry for over twenty years,
and have published extensively on the outcomes of alternative
incentive systems, including the relationship of incentives,
financing, and outcomes for biomedical research and
development.
The proposal before the subcommittee today, the
Demonstration Project to Fund Biomedical Research, relies upon
the extension of market exclusivity for a limited number of
pharmaceutical products to generate funds for both federal and
private sector research on serious or life-threatening
diseases. This is a novel mechanism by which to provide off-
budget financing to the National Institutes of Health, our
nation's premier biomedical research facility.
My objective today is twofold. First, I would like to help
you understand that market exclusivity is a necessity for
incentivizing further commitment of private research dollars
for pharmaceutical products, and that our system's current
provision of five years of exclusivity is insufficient to keep
the American biomedical research industry globally competitive.
Second, in your considered deliberations, I would like to ask
that you weigh the future reductions in societal morbidity and
mortality which will result from today's investments in
biomedical research against the short term costs associated
with prolonging the entrance of generic competitors into the
market.
Today, it is estimated that the amount of research and
development expense necessary to bring a significant new drug
to market exceeds several hundred million dollars. Yet while
this number continues to rise to reflect increasing research
costs, the life cycle over which these costs can be recovered
is shortening and new payor practices are preventing broader
use and full price reimbursement for innovator drugs.
Financial constraints imposed by more restrictive
reimbursement policies from both private and public insurance
programs have diminished the ability of pharmaceutical
innovators to recover the costs of research, development, and
market information dissemination for their products. This has
resulted in a slower rate of uptake for innovative drugs, as
well as shrinking aggregate payments for those drugs. These
factors, when combined with a too-short exclusivity period,
tend to drive innovator prices higher during the shortened
exclusivity period and create disincentives for further drug
development. Thus, under today's conditions of discouraged use
of innovator compounds, it is all the more imperative that
pharmaceutical firms be encouraged to increase their
expenditure on research and development, as well as on the
market-expanding information diffusion efforts critical to
spreading information--and costs--on innovative treatments as
broadly and quickly as possible.
Extension of periods of market exclusivity, as under the
proposed Demonstration Project, would help to counter the
current condensed rush to recover costs and the abandonment of
further research on these compounds that occurs at the end of
the prevailing five year period of market exclusivity.
Ultimately, under the Demonstration Project proposed today,
providing market exclusivity successfully capitalizes on
private industry to attain public goals of reducing morbidity
and mortality as well as resolving budgetary inadequacy and
uncertainty for the NIH. Increasing the period of market
exclusivity to a maximum of ten years also corrects a
competitive imbalance which exists, since the major European
nations have concluded that ten years of data exclusivity are
necessary to fully develop promising new drugs.
Extending the period of market exclusivity for drugs which
would qualify under the Demonstration Project does raise the
possibility of delayed lower prices for those drugs in the
short run. However, any objective evaluation of the relative
merits of extending market exclusivity for drugs must weigh the
potential social benefits gained from continuing to incentivize
development against the potential social loss due to higher
product prices. Moreover, higher prices during exclusivity
would provide increased royalty payments to NIH.
Allowing exclusivity on these drugs to expire threatens the
funding and completion of their associated clinical trials and
research programs, reduces the chance of gaining new
understanding about efficient treatment methods or novel
applications of these drugs, and prevents wider information
dissemination concerning the drugs and their therapeutic areas
of application. Loss of exclusivity strongly reduces the
probability of further investment on compound development or
information diffusion activities. Diffusion or dissemination of
information broadens the exposure and use of a compound,
thereby making it more available to help patients requiring
treatment, and is more effectively accomplished by continued
marketing expenditures. A strong correlation exists between a
high level of pharmaceutical information diffusion and added
social welfare.
With extended exclusivity, the benefits which would occur
with further research on these drugs include widening the
spectrum of indications in which these drugs are known to be
effective, examining potential spin-off treatments and
compounds, optimizing dosing amounts and schedules, exploring
their sequential use with other compounds, investigating their
application to pediatric populations, and permitting
improvements in drug formulations. I hope you will consider
each of these benefits and their potential contributions to
societal welfare in your analysis of this proposal.
My experience in this field has led me to conclude that the
economic incentive established by an extension of exclusivity
is likely to generally produce societal benefits which outweigh
the limited cost savings generated by earlier introduction of
generic goods. The added benefit of off-budget financing for
the NIH under this Demonstration Project shifts the balance
even further in favor of exclusivity. Particularly in a time of
governmental fiscal restraint, providing economic incentives to
achieve social objectives is a prudent alternative to higher
federal spending.
Thank you for your time, and I would be happy to answer any
questions which you may have.
STATEMENT OF GINA CIOFFI, NATIONAL DIRECTOR, COOLEY'S
ANEMIA FOUNDATION
Senator Bennett. Ms. Cioffi.
Ms. Cioffi. Thank you. My name is Gina Cioffi. I'm the
national executive director of the Cooley's Anemia Foundation.
The foundation has been working for more than 40 years to
provide services to anemia patients, to provide educational
prevention programs and fund medical research.
At the outset, I just want to thank the committee for their
support for medical research, for innovative proposals, and
count on our support for the proposal here today.
You're asked to consider extending the market exclusivity
period of certain pharmaceutical products in a limited 5-year
demonstration product. We believe it is an incredible proposal.
We have 16 chapters throughout the country working to raise
medical research dollars. They have dinners, they have fashion
shows, they have done very, very well.
We have been able to increase this past year by 50 percent
the amount per fellowship. We're proud of our success, but
we're also limited in our resources and what we're able to do.
We're a rare disease, we're a small patient population.
In June we had an international symposium. We know that
there's a cure, that there's better treatment within our reach,
but we need the money, and the money has got to come from
somewhere, and this is an innovative proposal that we think
will be very helpful.
A number of the pharmaceutical products involved are for
conditions related to the blood. Many of our patients are
dealing with the effects of infection by HIV, hepatitis C and
other viruses. The deactivation of these viruses is important
to us. We think that the infusion of research funds in a given
area, as we all know, will lead to the discovery of new uses of
an existing product or a new compound or sometimes something
tangentially related.
For example, many of our patients would benefit
immeasurably from development of a way to deactivate the
viruses in the blood that they're receiving blood every 2
weeks.
At a meeting of the special emphasis panel last year, NIH
cited five areas of high priority research. They include: The
need for medication that can be taken orally to remove iron
from their organs; development of a noninvasive way of
measuring the iron in their body; development of medications to
treat fetuses in utero; and development of appropriate hormonal
therapies.
Our patients are suffering. They're in serious need of
medications and treatments identified by NIH last year. An oral
drug to help remove iron from their body would free them from
12 hours of daily painful drug infusion. Fetal and gene therapy
treatments could help relieve a lifetime of suffering.
The potential for breakthrough exists, just not the money
to make it happen. We understand that there's no guarantees
that there will be a breakthrough that will help our patients
as a result of this action, but we know that there could be.
With less than 25 percent of approved peer review research
products receiving funding, every additional dollar that can be
generated for research increases the possibility that someone
will find the means to relieve the suffering of our patients.
Funding has to come from the Government acting through the
NIH and it has to come also from the private sector. This
proposal embodies both of these elements. With NIH and an equal
investment in private research in the same therapeutic area,
you're creating additional opportunity for discoveries that
will cure disease, relieve symptoms and improve the lives of
your constituents.
When a baby is born with Cooley's anemia, it has a life
expectancy that's much more improved than 25 years ago; these
children didn't live past 10 years old. But just over the
horizon, we hope for a time that a baby can have the life
expectancy of any other and to reach that point will require a
commitment of research dollars.
PREPARED STATEMENT
And I just want to add that in terms of a generic drug,
Desferal is the only drug available for our patients right now,
and there hasn't been anybody stepping up to come up with a
generic drug because we're such a small patient population so
that's not an area where they can really avail themselves.
I just want to thank you all for your leadership and your
vision and thank you for inviting me to be here today.
Senator Bennett. Thank you.
Now Mr. Chairman, I must step out. We've heard from
everyone but Mr. Love, but I should be back as shortly as you.
Senator Specter. OK. We will put Ms. Cioffi's prepared
statement in the record at this point.
[The statement follows:]
Prepared Statement of Gina Cioffi
Mr. Chairman and Members of the Subcommittee, my name is Gina
Cioffi and I am the National Executive Director of the Cooley's Anemia
Foundation, which is headquartered in Flushing, New York.
At the outset, Mr. Chairman, I would like to thank you for the
invitation to testify before your subcommittee this afternoon. But,
even more importantly, I would like to thank you for your leadership in
supporting biomedical research in our country. Your efforts related to
the Senate's appropriations bill for the 1998 fiscal year in which you
obtained a 7.5-percent rate of growth for NIH is truly extraordinary.
Likewise, Mr. Chairman, your active stewardship, along with Senator
Harkin, of the Specter-Harkin Health Research Trust Fund, has firmly
established your credentials as the leader of this body in supporting
NIH and biomedical research. On behalf of my organization, and many
others like us, I thank you for the vision and the leadership you have
exhibited.
Cooley's anemia is a genetic blood disease. For our patients to
survive, they are required to have their blood transfused red blood
cells every ten to fourteen days. When a person has blood transfusions
that frequently, there is a life-threatening side effect that develops
silently and, initially, without symptoms. Iron accumulates in the
liver, the heart, and in other internal organs. If no steps are taken
to remove the iron, the patient will die.
Twenty-five years ago, a drug was developed which helps to remove
the iron from the internal organs. That drug is called Desferal, and it
remains today as the only effective treatment for this condition. But,
there is a terrible downside to the use of Desferal. It is not a pill
or a liquid that can be taken by mouth. It cannot even be given in the
form of a shot, like insulin. Desferal must be infused.
Cooley's anemia patients have this drug infused into their bodies
for ten to twelve hours a day, every day of their lives. It is painful;
it is severely limiting; it is their only option.
It is that lack of options that brings us to the legislative
proposal that is pending before the subcommittee this afternoon and
that is the subject of this hearing.
Mr. Chairman, the subcommittee is being asked to consider the
creation of a limited, five-year demonstration program. A
pharmaceutical company could receive up to five years of new market
exclusivity for a drug that has been previously approved by the FDA. In
exchange for that provision, the company would be obligated to pay a
three percent royalty on net U.S. sales of that product during the new
exclusivity period to the National Institutes of Health. At the same
time, it would also be required to invest not less than an equal amount
in research and development efforts in the general therapeutic area of
the eligible product.
It is my understanding, Mr. Chairman, that there are about sixty
pharmaceutical products that would potentially be eligible to
participate in this demonstration. It is my further understanding that
this demonstration program will result in more than a half billion
dollars in additional NIH funding over the next five years, with an
equal amount of private investment.
A half dozen or more of the products that are eligible for coverage
by this provision are related to blood and that has certainly caught
our attention. The infusion of research funding in a given area, as we
all know, often leads to the discovery of new uses for an existing
product. Similarly, it can lead to the development of a completely new
compound in an unexpected, but related area. That is why the Cooley's
Anemia Foundation is supportive of this proposal.
Last year, the NIH convened a Special Emphasis Panel to determine
the most promising areas of research for thalassemia, the formal name
for Cooley's anemia. They identified five:
--Support for clinical trials of more effective iron chelators and
measurement of patient compliance with drug therapy.
--To support clinical trials of fetal hemoglobin enhancing drugs.
--To support research on improved technology for non-invasive
measurement of iron deposits in human tissue.
--To develop plans for research into the need for hormonal therapy
and its long-term effects on patients with Cooley's anemia.
--To support clinical studies of the phenotype vs. genotype of beta-
thalassemia intermedia.
Our patients are suffering, Mr. Chairman. There is a serious and
critical need for the research and development that will result in the
medications and treatments that the NIH identified last year. An oral
drug to help remove iron from the body can free a patient from 12 hours
of daily, painful infusions with Desferal. Fetal and gene therapy
treatments hold the potential to relieve a lifetime of suffering. The
potential for a breakthrough exists. What we are lacking today is
sufficient resources to make it happen.
All of us that are involved in the voluntary health agency
community understand how medical research works. We know that there are
no guarantees that the adoption of this proposal, or any other, will
guarantee a breakthrough that will assist the patients that we care so
deeply about. However, we also recognize that there could be.
With 25 percent of approved, peer-reviewed research projects
currently receiving funding (in spite of the outstanding work of this
subcommittee), we know that every additional dollar that can be
generated for research increases the possibility that someone will find
the means to relieve the suffering of our patients.
We also understand that, in 1997, money has to come from more than
one source. Public/private partnerships are the way things get done
today. Funding has to come from the government, through the NIH, but it
also has to come from private industry. By requiring the payment of a
royalty to the NIH and equal investment in private research in the same
therapeutic area, this proposal creates the environment within which
there are additional opportunities for discoveries that will cure
diseases, relieve symptoms, and improve the lives of your constituents.
Mr. Chairman, twenty-five years ago, a baby born with Cooley's
anemia rarely lived much beyond ten years of age. Today, thanks to
treatment improvements that have been made, life expectancy is much
better. But, just over the horizon, we hope for a time when that baby
can have the same life expectancy as any other child. In order to get
to that point, however, will require a strong and unwavering commitment
of research dollars.
Everyone in this room, Mr. Chairman, knows that you have made that
commitment throughout your legislative career. The support of this
proposal by the subcommittee will go a long way toward furthering that
commitment, finding cures, and relieving human suffering. I
respectfully urge you to move forward with it.
Again, Mr. Chairman, I want to thank you for the opportunity to
address the subcommittee this afternoon. I would be pleased to try to
respond to any questions you may have.
STATEMENT OF JAMES LOVE, DIRECTOR, CONSUMER PROJECT ON
TECHNOLOGY, ON BEHALF OF THE CENTER FOR
STUDY OF RESPONSIVE LAW, WASHINGTON, DC
Senator Specter. Mr. Love.
Mr. Love. Thank you very much. I passed out my statement
kind of late. I hope you all got it. I'm not going to read my
statement but, rather, summarize a few points.
First of all, as I understand the proposal that is being
considered today, there's this idea that linking these R&D
percentage royalties or commitments on behalf of pharmaceutical
companies on the one hand to increase biomedical research with
an extension of their exclusive rights to data on the other
hand, and I think it's appropriate for the committee to hear
praise about one-half of the plan and to reject the other half.
That is to say, I think there's a lot of interest and I
think it's very innovative, the idea that you would impose
obligations on companies to sell drugs and reinvest in research
and development in the United States and impose research
royalties to help fund biomedical research by the NIH. That's a
completely separate issue which should be severed and
considered on its own merits, wholly apart from whether you
decide to extend rights in data.
Now, the health registration issue has to be looked at in
the sense it's not the only way innovation in drugs is growing,
protected. Companies that invent drugs or invent uses for drugs
get patents on drugs. And companies which bring drugs to market
which have small client populations are protected under
exclusive provisions of the Organ Drug Act.
What's left over is drugs where the company does not claim
to be the inventor, drugs which are not for small client
populations, in fact for big client populations where there are
over 200,000 patients in the United States. And often, in the
case of the drug that was discussed earlier, they're
Government-funded drugs.
That's precisely why there are no intellectual property
rights assigned to the drugs or why the issue of data
exclusivity becomes the only way that the company marketing the
drug can prevent competition from bringing the price down to a
more affordable level.
Now, it's a shame that Bristol-Myers Squibb is not on this
panel to explain to the committee why, after making a billion
dollars in this next year on a drug invented by the Government,
for which it charges a very high amount, a very extremely high
markup over its own cost of manufacturing, producing the drug,
how it can justify a continued monopoly beyond the 5 years that
it's had which has generated literally billions for the
company.
Now, I attached to my testimony a copy of a bill from a
patient who contacted me about Taxol. This is a woman with
breast cancer. This is for one office visit. It was $4,200 for
an injection of Taxol and carboplatin. The Taxol injection
alone for a single office visit was $2,324.70. Her husband
contacted me. They're uninsured and she had to get these
treatments about once every 3 weeks or once a month for a
really long time. People, women that take Taxol for breast
cancer can easily run up $50,000 in bills at current prices.
Now, Bristol-Myers Squibb was able to acquire Taxol from
Hauser Chemical, which was the Government's own contractor, for
25 cents a milligram in bulk quantities, costs about 15 cents
to finish it. They sell it for almost $5 a milligram. This
patient paid nearly $9 a milligram.
My time's up. I just think to close, one thing I want to
mention is that we have worked--we're very active right now in
discussions with South Africa, The Netherlands, Canada, and
other countries which are trying to get Taxol on the market. In
discussions with U.S. trade negotiators over what norms are for
the protection of clinical trial data, and the alternatives,
even the current 5-year Waxman-Hatch provision, which many
people in the public health community and the world health
community believe are excessive and do not represent
appropriate international norms, let alone in 10 years, which
is the maximum in the countries currently provided.
PREPARED STATEMENT
There is no reason why U.S. consumers should be paying far
more for a drug like Taxol, which was invented in the United
States, than other consumers throughout the world, and the only
reason we're here is because companies want to make these big
profits on Government-funded drugs.
Thank you.
[The statement follows:]
Prepared Statement of James P. Love
Thank you for the opportunity to testify today on proposals dealing
with data exclusivity and funding of biomedical research. My name is
James Love. I am the Director of the Consumer Project on Technology
(CPT), which is a non-profit organization created by Ralph Nader. CPT
is engaged in a wide range of projects involving intellectual property
and pharmaceutical drugs. Much of this work is accessible through our
home page on the Internet is http://www.cptech.org (no period).
CPT shares the view of Representative Henry Waxman that the
proposal to tie a 10 year extension of market exclusivity to a 3-
percent royalty for biomedical research is an outrageous and cynical
proposal to exploit patients, under the color of addressing an
important public health need.
Pharmaceutical drugs marketed in the United States benefit from
several different forms of protection from competition. A firm that
invents a drug or a use for a drug can obtain a 20 year patent, not
including patent extensions. The U.S. Orphan Drug Act provides an even
broader form of market exclusivity for a very large class
pharmaceutical drugs. After a series of amendments which liberalized
the definition of an Orphan Drug, firms can now obtain seven years of
market exclusivity when the client population for a drug is less than
200,000 patients for any single indication. The subject of this hearing
is the 1984 Waxman-Hatch act provision concerning the use of health
registration data.\1\
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\1\ 21 U.S.C. Sec. 355(c)(3)(D)(ii) (1996).
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The current provisions regarding health registration data prevent a
new entrant from relying upon the evidence already presented to the FDA
to establish whether a drug is safe and effective, for five years,
without the permission of the ``owner'' of those research data. After
five years, a generic drug manufacturer can ``rely upon'' these data to
support an application to market a generic version of a drug. Of
course, this is only important in those cases where the drug is not
already protected by a patent or by the Orphan Drugs Act.
When we talk about drugs which are not protected by patent, we are
often talking about drugs which were invented by the U.S. Government,
such as Taxol, an unpatented cancer drug invented by the National
Institutes of Health (NIH).\2\ When we talk about drugs not protected
by the Orphan Drug Act, we are talking about drugs which have large
client populations.
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\2\ At the National Cancer Institute.
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Many health care experts believe the current five years of market
exclusivity for health registration data is excessive, and perhaps even
unnecessary, given the opportunities for market protection which are
available under patent and Orphan Drug laws. However, if one assumes
that unpatented drugs deserve special protections from competition, the
current open ended protections are excessive. The best evidence of this
is the current situation with Taxol, the unpatented drug invented by
the NIH, and marketed by Bristol-Myers Squibb (BMS).
From the very beginning, BMS was able to acquire Taxol in bulk from
Hauser Chemical, the former NIH contractor, for $.25 per milligram.
Industry experts say that bulk Taxol can be prepared for human use for
less than $.15 per milligram, for a total finished cost of less than
$.4. BMS says it sells Taxol in wholesale markets for $4.87 per
milligram. I am attaching a bill to an uninsured breast cancer patient.
The patient was asked to pay $2,324.70 for nine 30 mg vials of Taxol,
or $8.61 per milligram. The cost of the entire office visit, including
$1,171 for an injection of Carboplatin, another NIH funded cancer drug
now sold by BMS, was $4,200. Breast cancer patients are often expected
to repeat these treatments every three weeks or so for 18 months or
more, making the total cost of the treatment a great burden.
BMS's Taxol sales are expected to be about $1 billion this year,
making the drug an enormous profit center for the company.
Following a 1991 CRADA between NIH and BMS, NIH agreed to give BMS
exclusive rights to use NIH funded research on Taxol for commercial
purposes. The initial CRADA did not require BMS to provide the
government with any royalties. This agreement has been amended several
times, and NIH has also licensed a number of Taxol related parents to
BMS, including controversial patents on the doses used to treat cancer
patients. BMS hopes to use these additional NIH patents on recommended
doses to argue that generic entrants will infringe on the BMS ``use''
patents for Taxol, triggering automatic delays in the introduction of
generic versions of Taxol.
BMS's role in the events leading up to the FDA marketing approval
for Taxol was quite modest, as reported in BMS's own histories of the
development of Taxol.
For example, in an April 8, 1997 ``Application for Exclusive
License to NIH Taxol-Related Patent Portfolio,'' BMS describes its pre-
NDA role as taking over the production and manufacture of Taxol used in
the NIH sponsored clinical trials, and the collection of data for the
NDA application. BMS originally offered to provide NCI with 17 kilo's
of Taxol for use in government sponsored clinical trials, and to
investigate methods for harvesting and manufacturing Taxol. The amount
of money actually spent by BMS on Taxol prior to FDA marketing approval
was very modest. After the drug was approved for marketing, BMS has
increased its investments in a variety of technologies which relate to
the manufacture of the drug, which is a normal cost of businesses, and
it supported a variety of clinical trials, either by providing NIH with
Taxol for trials that would be ``owned by'' BMS, or by conducting its
own trials.
In one case BMS rushed an application to the FDA to qualify Taxol
as an Orphan Drug, for treating Karposi's sarcoma, after BMS determined
that another firm was about to seek marketing approval for its own
version of Taxol, on the basis of its tests on Karposi sarcoma
patients. As a consequence, BMS was able to use the Orphan Drug Act to
block the introduction of a competitor's versions of Taxol, even though
Taxol could not qualify as an Orphan Drug for breast cancer, the most
common prescribed use for Taxol.
CPT recommends that Congress reexamine current 5-year period of
health registration data exclusivity, to determine if a lesser level of
protection is appropriate, given the consequences to consumers of high
drug prices. It is important to appreciate the fact that this is only
an issue for drugs not protected by patent or by the Orphan Drug Act.
When drugs are not protected by patent, it is because the company does
not own the rights to the discovery of the drug, or the key inventions
relating to uses of the drug. What is at stake is a ``sweat of the
brow'' claim to protection from unfair competition.
Since exclusive rights to data can be an enormous barrier to entry,
as evidenced by the Taxol case, CPT recommends congress introduce
safeguards to protect consumers, such as a sunset provision after a
drug grosses a target of gross sales, or a provision for compulsory
licenses of the data, to protect consumers from monopoly power. This is
particularly appropriate given the fact that in most cases, unpatented
drug discoveries were invented by the government, or the invention was
funded by a government grant.
We are supportive of the suggestion that Congress impose R&D
royalty obligations on pharmaceutical companies, in order to promote a
higher level of biomedical research in the United States. We have
recommended this approach elsewhere. However, there is no need to tie
this proposal to a higher monopoly profits on unpatented pharmaceutical
drugs. The proposal for matching contributions for R&D has merit.
because society benefits from a mix of public and private R&D
investments.
Since January, 1997, CPT has been involved in several disputes
involving health registration data as a barrier to entry for
pharmaceutical drugs. Bristol-Myers Squibb is lobbying the United
States government to take trade sanctions against South Africa, Canada,
Australia, Argentina, the Netherlands and other countries which have
approved generic versions of Taxol, the NIH developed cancer drug
currently sold by Bristol-Myers Squibb. The United States government is
taking the position in International trade negotiations that Article
39.3 of the TRIPS agreement requires countries to provide 5 years of
data exclusivity, such as is currently the case in the United States,
under the Waxman-Hatch Act. The TRIPS language follows:
section 7: protection of undisclosed information
Article 39--
1. In the course of ensuring effective protection against unfair
competition as provided in Article 10 bis of the Paris Convention
(1967), Members shall protect undisclosed information in accordance
with paragraph 2 and data submitted to governments or governmental
agencies in accordance with paragraph 3.
2. Natural and legal persons shall have the possibility of
preventing information lawfully within their control from being
disclosed to, acquired by, or used by others without their consent in a
manner contrary to honest commercial practices (see footnote 10) so
long as such information:
(a) is secret in the sense that it is not, as a body or in the
precise configuration and assembly of its components, generally known
among or readily accessible to persons within the circles that normally
deal with the kind of information in question;
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps under the circumstances,
by the person lawfully in control of the information, to keep it
secret.
3. Members, when requiring, as a condition of approving the
marketing of pharmaceutical or of agricultural chemical products which
utilize new chemical entities, the submission of undisclosed test or
other data, the origination of which involves a considerable effort,
shall protect such data against unfair commercial use. In addition,
Members shall protect such data against disclosure, except where
necessary to protect the public, or unless steps are taken to ensure
that the data are protected against unfair commercial use.
We are telling foreign governments and the USTR that the U.S. law
is too protective of the pharmaceutical industry, and that compromises,
as were suggested above, are more appropriate international norms.
TAXOL ISSUE
Senator Specter. Ms. Cioffi, Dr. Clarkson, would you care
to respond to the Taxol issue?
Ms. Cioffi. The iron overload for our patients, that our
patients suffer from, they have iron overload and they have as
a result a lot of secondary conditions, diabetes, heart
disease, hepatitis, all kinds of things besides the primary
condition. So----
Senator Specter. The question is why should exclusivity be
granted to Taxol which is so expensive when it is a Government-
originated drug. Dr. Clarkson?
Mr. Clarkson. That's a more difficult question than I think
the first one you posed. Let me just make a couple of comments.
One, there was reference to a NERA study that I believe points
to something like $1 billion cost over several years.
If you look behind the numbers, the way they were
generated, about $3 out of every $4 are attributed to new
patients coming into the system, as opposed to higher prices.
So the overall effect really is something in the neighborhood
of $1 out of every $4 in terms of higher prices.
And that also gives you some good information about what
are the consequences of extended exclusivity? Because behind
those dollars is essentially an increased effort to find new
populations, a much higher rate of diffusion of information.
Senator Specter. Is it your contention that the increase in
exclusivity will enable the companies to spend more money on
more research to find better products?
Mr. Clarkson. Absolutely, and also to find more patients.
Senator Specter. Mr. Perry, you represent the people who
are in the aging population and you are supporting this
legislative concept. What is the impact on your clientele with
respect to higher costs when the generics would be past this
extended period of exclusivity?
Mr. Perry. I don't think there's any question that we're
talking about a conflict of values. There is a value for early
access to less expensive generic drugs. There is also a value
both to today's elderly and those tomorrow to see an investment
in research so that we have better treatments, better means to
prevent, postpone the diseases of aging tomorrow. From our
perspective, the benefits that will come from helping people
avoid Alzheimer's disease and Parkinson's and stroke or greatly
diminish those in the future far outweighs the near-term
benefit for lower cost drugs.
Senator Specter. We are searching for ways to increase
funding for NIH, and I do not accept what you said, Mr. Perry,
that we cannot find more money for NIH. This subcommittee found
$952 million more this year for NIH. And my own sense is if we
have a presentation from NIH as to what it will cost for all of
the unawarded grants, we could find more money. We have a
budget of one trillion, seven hundred billion dollars, and you
can fit $900 million into that quite a few times.
The concern that I have is the tradeoff. I'm apprehensive
about more money for NIH in exchange for a greater period of
exclusivity. If the period of exclusivity is warranted because
it will generate more research and find more products, help
more people live longer lives, then I think that is a very
powerful argument if that can be quantified, and I would be
looking for that quantification to the extent it can be
demonstrated.
When you start talking about the greater period of
exclusivity in return for payment to NIH, then I wonder about
the cost to the consumers and have a hard time with that kind
of an exchange. We have to deal with the public interest when
we consider the longer period of exclusivity, which means more
research products with the higher cost on generics. That is the
overall layout I have. To the extent you can address these
factors, in advance of Senator Bennett's questions and Senator
Harkin's questions, they will not like it but I will.
Senator Harkin?
Senator Harkin. Mr. Chairman, thank you. Again, this is an
intriguing proposal. I share the chairman's statement that we
are trying to find new funding for NIH, trying to get the money
we need for more biomedical research which in the long run is
going to save us lives and save us money. I am sure you all
agree with that. That seems to be like God, mother and apple
pie. The question is where do we come up with the money?
This seems to be a novel approach. Although, again I agree
with the chairman that we are here to represent the public
interest in trying to figure out what all the varying balances
are. I was intrigued by the testimony on Taxol, and what the
taxpayers would have to pay over 5 additional years if the
price were kept up rather than having market exclusivity expire
at the end of this year. That testimony indicated we would wind
up spending more than we would invest in NIH.
Is that correct? Is that what you are saying?
Mr. Hallquist. Yes, Senator.
Senator Harkin. What assurances do we have that if the
patent expires that the price really is going to come down?
Mr. Hallquist. I would submit almost any study that's done
of the price erosion of branded pharmaceuticals after generics
are introduced, almost in every case--in fact, I can't think of
a single case that has ever been cited to me where the price
hasn't gone down and it hasn't gone down precipitously.
Typically the price will decline by more than 50 percent within
the first 3 months after the introduction of generic
competitors.
Senator Harkin. But your company is what, Immunex?
Mr. Hallquist. Immunex Corp.
Senator Harkin. And you have developed or you have gotten
the ingredient in Taxol that is the anticancer agent. I forget
what the name of it is.
Mr. Hallquist. Senator, we use the same supplier that
originally supplied NCI and supplied Bristol. We picked up the
supply contract after Bristol let it lapse, and so we have a
very high quality product. My chairman has authorized me to
offer a royalty to NIH directly if we're allowed to sell our
product.
Senator Harkin. How much?
Mr. Hallquist. I think we can do better than 3 percent,
I'll put it that way. But we've been relying upon the Waxman-
Hatch compromise, we've been relying on the dialog that Bristol
had with the government several years ago and we just want our
chance to compete.
Senator Harkin. Mr. Love?
Mr. Love. If you want to selloff market exclusivity to one
company so they can charge high prices to consumers to fund
biomedical research, why not make it a competitive process? Why
not put a notice in the Federal Register and say whoever will
bid the highest amount of money will get the market exclusivity
for this drug? And then you can fund medical research. That,
and we can let the market determine what is the appropriate
royalty, instead of having Bristol-Myers Squibb or somebody
offer 3 percent.
Senator Harkin. Dr. Clarkson?
Mr. Clarkson. Let me try to put this a little bit more in
perspective. In 1971, it was an NIH grant, I think, that helped
isolate the paclitaxel drug, which is the basis for--or the
same thing as Taxol. 20 years later, you still had a
significant supply problem. And at this time, there was an
arrangement made with NIH to develop an adequate supply to
submit to NDA's and other commitments with respect to spending
research dollars.
And what happened after that is that the agreement resulted
in an expansion from about 15 trials up to over 500. It moved
from a roughly 400, 500 patient population to several thousand,
around 40,000. The dollars spent exceeded are over $500
million, as opposed to $170 million set forth in the contract,
and they still have just touched the tip of the iceberg. There
are three approved indications now. There are many more cancers
out there. And no one can guarantee what the future is.
But if we compare the roughly 5 years that Taxol is under
this agreement with the outcomes with the 20 years beforehand
when everybody had access to that information, you get
startling results. And that's why I think that it's important
to look at what are the incentives of exclusivity? If you have
exclusivity, you get action.
Senator Harkin. I am not opposed to exclusivity and I see
that being a necessary thing to do and to give certain
exclusive rights for a certain period of time. What I am
worried about is extending a period of time when other
companies have relied upon the time and invested money and
research, ready to bring a product out. All of a sudden the
Congress says bang, no, you cannot. That is a concern of mine.
I mean, companies relied upon this, I would think. I do not
know anything about your company but I would think----
Mr. Clarkson. I think that you're at the end of a cycle of
discovery with respect to new indications and you've already
identified the populations, I think that's a very real concern.
I'm an economist, and I support competition and I think
competition ultimately is the best outcome. The question is
when?
Senator Harkin. I agree with that. I worry about when there
has been a set time and the company has relied on it and they
have put money into research and they are getting toward coming
out with their generic product.
Senator Specter. Suppose we did it prospectively from this
point forward?
Senator Harkin. You could do it prospectively, I suppose,
for anything in the future. Senator Bennett's future.
Excuse me, Mr. Perry, I wanted to ask him a question.
Senator Specter. Just one last one?
Senator Harkin. Just one last one.
Mr. Perry. This is--both the generic and the name brands
industries is a highly regulated area. And the downside to
finding legislation like this that would affect one company, I
think, has to be considered against the public interest, not
only in the short run but in the long run. And the long-term
public interests that I believe members of this committee have
very close to their hearts is the need for more research.
I'm looking right now at some of the strongest
Representatives in the Congress, and I take second to no one in
praising the work of this subcommittee in helping make sure the
research is there. But from 1970, when 1 out of 2 NIH
applications that were peer reviewed and passed peer review
were funded, to 1997, when it's 2 out of 10 and we know the
competitions within that limited funding pool for discretionary
funding is going to lead to a smaller NIH in the out years than
what we have today, and what a tragedy at a time when the
innovations are waiting to be discovered and when the public
health needs need those breakthroughs, and what a time to lose
that momentum.
This is just one more--this demonstration project, which is
time limited and voluntary, is one more lever under that big
rock, Senator, one more effort to try to get it and see if it
works in 5 years. And I think we'll be able to better weigh the
impact on the legitimate interest of lower prices for consumers
and the complementary interest of more research.
Senator Specter. Senator Bennett?
Senator Bennett. Thank you, Mr. Chairman.
First, Mr. Hallquist, I do not in any sense accuse you of
bad faith. I think you gave us your numbers in perfectly good
faith. But I have and will make available to the committee for
the record other numbers, and I think ultimately this means
this thing is going to have to be scored by CBO. A former CBO
employee was asked to score this, and he says that this
proposal would yield for the Federal Government $824 million in
royalty revenue, lose $254 million in Medicare costs for a net
gain to the Government of over half a billion dollars, $570
million.
So I just put that on the table to indicate that we better
be careful before we start making sweeping statements, let us
get this thing properly scored.
Now, the other thing that I want to make clear from my
understanding and let you comment, and correct me if I am
wrong, I hear all of the conversation about research and
focusing on NIH as if NIH is the only place where research is
going to be done here. And as I understand this proposal, this
is the way it works.
A company develops a drug for disease A and the clock
starts ticking, the 5 years start running. And in that 5-year
period, they discover, as they bring the drug to market, that
it possibly has an application for B, C, D, and E, and they put
some research dollars into that. Well, if they are putting the
research dollars in in the first year, they will get a return
for them because they have 4 years in which that research can
come to fruition.
Say that they discover in the first year with their
research that B, which they had not thought of, when the 5
years started running, does respond to the drug, maybe C will,
and so they start to put some money in research for C, and then
there are indications out of the market experience that D and E
also will respond. But now the 5 years are gone and someone
says look, if we put in another $100 million, $200 million,
whatever, into research, we may have the application of this
drug for D and E. But no, the 5 years are up. It is now going
to go generic, at which point the company says we are going to
stop all research on D and E and probably not even launch the
research on C because it is not going to go forward.
So this is research that the company has to put up its own
money to do. And it is an incentive not just to have royalty
for--for NIH. Mr. Love, I agree with you if that were the only
issue, we might as well put this up for bid. It is for the
company itself to say we are going to put our own money at risk
based on our own experience, and we think the payoff is
sufficiently great that we will gamble the extra $100 or $200
million or whatever it is that we will do that for D and E.
And as I understand the process, what we are saying in this
demonstration project is if a company is willing to pledge
those additional moneys, the company does not just
automatically pledge the royalty. The company has to pledge the
research dollars, as well. If the company is willing to pledge
the additional research dollars plus the royalty, it can get
the extra 5 years. It is taking a gamble, because if in that 5-
year period D and E don't pay off, they have lost the money
that they put into research. But if D and E pays off, we have--
you are an economist, Dr. Clarkson, we have a return on our
investment from a public point of view that is really quite
substantial.
Now, have I categorized correctly? I see some people
shaking their heads no and some people shaking their heads yes.
Mr. Clarkson. Yes.
Senator Bennett. Can we get a response as to----
Mr. Hallquist. Senator, in the specific example you just
cited, under U.S. patent law, the company doing the research on
indications B, C, D, and E would be entitled to apply for
method of use patents that would extend to 17 to 20 years
covering that research and the benefits of that research
provided that it was inventive. As Mr. Love pointed out, the
specific legislation that's on the table today only covers this
narrow spectrum of specialty favored drugs which don't qualify
for patent protection and for which the 5 years of exclusivity
has already expired.
So you know, you can't look at Waxman-Hatch as though it
were the only form of exclusivity available to U.S. drug
researchers and manufacturers. There also is the patent system.
There's also the orphan drug act. So it can't be looked at in a
vacuum.
With respect to your comments on our financial analysis, we
can only address Taxol, it's the biggest pig in the litter.
It's a huge drug and the economics, to our mind, disfavor this
proposal.
Senator Bennett. The numbers I have were also based on
Taxol.
Mr. Hallquist. I'd be happy to comment on it. Our analysis
definitely does show that growth in the Taxol market for the
precise reasons that Mr. Perry talked about, the U.S.
population is getting grayer, older, and we have more cancer
patients.
Senator Bennett. Anyone else want to comment on--Mr. Love,
you do?
Mr. Love. The situation described happened once before with
the same company Bristol-Myers with another cancer drug that
was a Government-funded drug. In the early 1980's, Syspat was
the largest selling cancer drug in the world as Taxol is today.
There used to be, you could only get 5 years of exclusivity
even under a patent if it was from a university. And so when
the 5 years ran out, Bristol-Myers Squibb came to the
Government and they said we can't justify more research on
Syspat unless you extend our monopoly another 5 years. And it
was like five or six companies which asked the Government to
let them sell Syspat, too, and compete against Bristol-Myers
and drive the price down.
So Bristol-Myers made a proposal that they would pay $35
million to fund cancer research that was supervised by the NIH.
This is back in the early 1980's and they--and that they would
lower the price of the drug 30 percent, which was the other
part of the proposal, maybe they forgot about this time around.
In any event, though, what happened is one of the companies
that came said, lookit, if this is about money for research, if
that's all we're talking about, you name the number, we'll make
the contribution. It's just like that gentleman there said, he
said if you want research on biomedical research, tell all the
new entrants that they pay 5 percent, 10 percent. They don't
really care what the number is as long as everybody pays the
same percent. It could be a dollar amount per drug sold, it
could be a percentage of revenue. The Government could take the
money, put it in a foundation or give it to NIH or have the
company set up its own research funds.
The point they were making is that it is a problem when you
eliminate monopolies because all the R&D profits disappear
because the generic competition prices moves prices down to
cost. But if you want to preserve that cushion for R&D, you
don't want to have one company have a monopoly. You can put, as
Senators Harkin and Specter proposed in the past, some kind of
guideline like a royalty or something like that that has to go
into research. And that was proposed in the area of Syspat. The
Government rejected that advice.
They gave the monopoly to Bristol-Myers, just like it's
being proposed right here. It's just like a deja vu. And you
know, so we've been down that road before. As a result,
patients in the United States pay a lot more for Syspat than
they do in other parts of the world.
Senator Specter. Anybody else want to respond to Senator
Bennett? Because we want to wrap up here.
Senator Bennett. Before, Mr. Love, you stopped the story, I
was waiting for the punch line and you never gave it to me. Did
in fact Bristol-Myers do more research and was there a medical
benefit that came out of that deal?
Mr. Love. They did spend portions of the research, we have
the documents that they submitted in terms of the reports. But
later on in the Reagan administration, the reporting basically
petered off, and the fellow that was supervising the research
for Bristol-Myers Squibb, Dr. Wittest went to work for Bristol-
Myers Squibb and helped organize their application for the
Taxol patent. I mean Taxol CRADA. Dr. Wittest was an employee
of Bristol-Myers Squibb and it was under his direction that
they got the Taxol CRADA. Now Dr. Wittest is back with NIH.
Senator Bennett. You were not answering my question.
Mr. Love. The answer is they did spend some money, but it
was not as much money as the consumers paid to Bristol-Myers
Squibb.
Senator Bennett. You are still not answering my question.
Was there a medical benefit that came out of the money that
they spent?
Mr. Love. There was a medical benefit. It was not as big as
what the consumer cost was, but there was indeed a medical
benefit for medical research.
Senator Specter. Ms. Cioffi, you want to respond? Go ahead.
Ms. Cioffi. Yes; just to take it away from Taxol and speak
about my patient population for just a second, I would suspect
that there's very much a medical benefit that was involved
here, but I can speak from experience in a new drug for oral
kelation that's through a company where they do have the
exclusivity and they've been able to spend this extra time on
the drug, to find out that the application of the drug is
broader than what they suspected and will have more benefit for
a larger patient population. So that's an experience that's
worked really well in this kind of proposal.
The other thing is that for our small patient population,
again, even after all the credits and that experience, you get
to a point where a company is not going to invest in generic
drugs for this small population. So I need any additional
amount of research for our patients to cure this.
Mr. Clarkson. Just a couple quick comments. One, a
footnote. NERA also did a study on that earlier grant where
they came to the opposite conclusion, they were supporting
exclusivity, and I urge the committee to try to get a copy of
that report.
I wish you could teach my class because you have it right.
You're right on in terms of the sequencing. And since it is
focusing on this particular drug, Taxol, I do think that with
so many other cancers that still exist, there's research going
on in small lung and several other activities that I suspect--I
wouldn't be able to predict for any particular country, but I
would suspect would be curtailed substantially if not
eliminated.
Mr. Perry. Senator Bennett, I believe the explanation that
you gave is exactly correct. As I understand the proposal, it
rewards in three ways. It strengthens patent and nonpatent
incentives for research, provides a royalty mechanism back to
NIH, and it requires the companies that opt for this to match
that with an equal amount of additional R&D and perhaps
another--in other applications of the particular drugs.
It is a novel benefit that I think meets and perhaps in
some ways exceeds some other ways that we're trying to find
additional research. Let me remind the audience at least that
the Senate is on record calling for a 100-percent increase in
National Institutes of Health over the next 5 years. I think
we're all going to put our shoulder to the wheel to see if we
can't help achieve that. But unless we can find some creative
public-private partnerships, instead of relying on the
appropriations process and the non--and the nondefense
discretionary fund which is so squeezed right now, I don't see
how we're going to get there and I salute those of you that are
helping us to get there.
Senator Specter. Thank you all very much. This is the
beginning of a process on considering a very complex issue.
Also, we will include the CBO cost estimate on this issue, when
it is received, in the record at this point.
[The information follows:]
Letter From June E. O'Neill
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 18, 1997.
Hon. Arlen Specter,
Chairman, Subcommittee on Labor, Health and Human Services, and
Education, Committee on Appropriations, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: At the request of your staff, the Congressional
Budget Office has prepared the enclosed cost estimate for a proposed
demonstration project that would grant up to 10 years of additional
market exclusivity for certain drugs and antibiotics in exchange for
royalty payments to the Federal Government.
If you wish further details on these estimates, we will be pleased
to provide them. The CBO staff contact is Anne Hunt, who can be reached
at 226-9010.
Sincerely,
June E. O'Neill,
Director.
Enclosure.
______
Congressional Budget Office--Cost Estimate--November 18, 1997
proposed demonstration project to fund biomedical research
Summary
CBO estimates that the proposed demonstration project would
increase both federal outlays and federal revenues over the 1998-2002
period, with the increase in revenues exceeding the increase in
outlays. During the 2003-2007 period, however, outlays would increase
more than revenues, and the deficit would rise. Because the bill would
affect direct spending and receipts, pay-as-you-go procedures would
apply.
Beginning in 1999, the proposal would increase costs for Medicaid,
the Federal Employees Health Benefits Program (FEHBP), and Medicare.
Outlays would increase by $12 million in 1999 and $236 million over the
1998-2002 period. The proposal would increase revenues through
collections of royalty payments, but it would reduce federal income and
payroll tax revenues by raising the costs of employer-sponsored health
insurance and correspondingly reducing the amount of taxable
compensation. On balance, revenues would increase by $19 million in
1998 and $458 million over the 1998-2002 period.
The proposal contains no intergovernmental mandates as defined in
the Unfunded Mandates Reform Act of 1995 (UMRA). However, extending
market exclusivity for certain drugs would increase costs for state
Medicaid programs, other programs that provide prescription assistance,
and employee benefit programs at the state, local and tribal level.
The proposal would constitute a private-sector mandate as defined
in UMRA because it would prohibit the production of generic versions of
the brand-name drugs eligible to participate in the demonstration. CBO
estimates that the cost of this mandate would surpass the $100 million
statutory threshold established in UMRA.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of the proposed amendment is shown
in the following table. The costs of this legislation fall within
budget functions 550 (Health) and 570 (Medicare).
ESTIMATED BUDGETARY IMPACT OF PROPOSED AMENDMENT
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
Direct spending:
Medicaid........................ ..... ..... 1 28 123 185 191 206 199 190
FEHB............................ ..... ..... ..... 1 3 8 13 20 27 34
Medicare........................ ..... 12 21 24 24 25 12 2 ...... ......
---------------------------------------------------------------------------
Total......................... ..... 12 22 52 151 219 216 228 226 224
Revenues:
Royalty payments................ 19 34 59 177 219 203 224 202 207 53
Income and payroll taxes........ ..... ..... ..... -6 -44 -76 -86 -91 -87 -88
---------------------------------------------------------------------------
Total......................... 19 34 59 171 175 127 138 111 120 -35
----------------------------------------------------------------------------------------------------------------
Basis of estimate
The proposed demonstration project to fund biomedical research
would grant up to 10 years of additional market exclusivity for certain
drugs and antibiotics. In return for the extension of market
exclusivity, manufacturers would make royalty payments to the federal
government to help fund biomedical research--subject to authorization
and appropriation--and agree to spend an equal amount on biomedical
research.
Products eligible to be included in the program are those for which
a new drug application (NDA) was filed and approved under sections
505(b)(1) or 507 of the Food Drug and Cosmetic Act (FD&CA) during the
five years preceding enactment of the proposal. Manufacturers of these
drugs could elect to participate in the demonstration project through
the end of fiscal year 2002. For the purposes of this estimate, CBO
assumes that a manufacturer would not elect to participate in the
program until the patent on its product was about to expire.
The proposal would prohibit the Food and Drug Administration (FDA)
from accepting, reviewing, or approving any application for a drug
containing the active ingredient(s) of an eligible product. This
prohibition would extend for ten years after the approval of the NDA
filed under section 505(b)(1) or 507 of the FD&CA.
To obtain extended market exclusivity, the manufacturer of an
eligible product would agree to pay the Secretary 3 percent of its net
U.S. sales of the eligible products--including all forms and dosages--
and to spend an equal amount of money on biomedical research. Subject
to authorization and appropriation, the royalty payments would be
available to the Secretary of Health and Human Services to fund
biomedical research projects approved by the Director of the National
Institutes of Health (NIH).
It is unclear how the proposal would affect abbreviated new drug
applications (ANDAs) that have already been filed under the FD&CA and
are pending FDA approval. The proposal does not address whether the FDA
could continue reviewing these ANDAs or whether it would have to stop
work on them until the end of the ten-year exclusivity period. It is
clear, however, that manufacturers of generics who were preparing to
submit ANDAs--but have not yet done so--would be penalized financially
if the proposal were enacted.
Outlays
The award of additional years of market exclusivity would increase
costs for Medicaid, FEHBP, and Medicare by delaying the availability of
generic products. Medicaid currently has a very high generic
substitution rate because the program requires pharmacists to dispense
lower-cost generic products once they are available, unless the
prescribing physician specifies otherwise. Additionally, many states
have laws permitting generic substitution with the patient's consent.
Therefore, CBO assumes that Medicaid would usually substitute generic
for brand-name products. Generic substitution would probably occur at a
slower rate among health plans participating in FEHBP and in Medicare.
Under the proposal, spending for Medicaid, FEHBP, and Medicare
would increase by $236 million over the 1998-2002 period. CBO estimated
this increase in spending by comparing the level of spending that would
occur in the absence of generic entry with projected spending under
current law. To estimate payments by Medicaid, FEHBP, and Medicare
under current law for the set of drugs that would be affected by the
proposal, CBO adjusted 1995 spending to account for projected inflation
and the reduction in prices that would occur as generic entry took
place. Using information from Approved Drug Products With Therapeutic
Equivalence Evaluations (the ``Orange Book''), CBO determined when
patents would expire under current law for affected drugs and
calculated the incremental period of exclusivity. For Medicaid, the
estimate takes into account rebates paid by manufacturers.
For Medicare, the estimate takes into account the change in payment
rates under the Balanced Budget Act of 1997.
Revenues
The proposed demonstration project would affect revenues in two
ways. First, it would increase revenues because of the royalty payments
made by participating drug manufacturers. CBO estimates that these
payments would total $19 million in 1998, and just over $500 million
over the 1998-2002 period. For the purposes of this estimate, CBO
assumed that a manufacturer would not choose to participate in the
demonstration until the patent on its product was about to expire and
that it would stop participating at the end of the exclusivity period.
Because the federal government's collection of the royalties would stem
from its sovereign powers, these funds would be classified as
governmental receipts.
Second, the proposal would affect income and payroll tax revenues.
By delaying generic entry for eligible drugs, it would increase the
prices insurers paid for pharmaceuticals, leading to higher premiums
for employer-sponsored health insurance. Correspondingly, the amount of
employee compensation subject to income and payroll taxes would
decrease. CBO estimates federal income and payroll tax revenues would
fall by $50 million through 2002.
Pay-as-you-go considerations
The Balanced Budget and Emergency Deficit Control Act of 1985 sets
up pay-as-you-go procedures for legislation affecting direct spending
or receipts. Because the proposal would affect direct spending and
receipts, pay-as-you-go procedures would apply. For purposes of
enforcing pay-as-you-go procedures, only the effects in the budget year
and the succeeding four years are counted.
Estimated impact on State, local, and tribal governments
The proposal would place no enforceable duty on state, local, or
tribal governments, and thus it contains no intergovernmental mandates
as defined in the Unfunded Mandates Reform Act of 1995. However, the
delayed availability of generic drugs would result in increased costs
for health care. State and local governments would thus face higher
costs both in the Medicaid program and in their employee health
insurance programs.
CBO estimates that the state government portion of Medicaid costs
would increase by $114 million over 5 years. In addition, any state,
local or tribal government that offers health insurance coverage to its
employees would face increased pharmaceutical costs. Based on the
number of these employees who receive pharmaceutical benefits, CBO
estimates that governments would face additional costs of approximately
$23 million over 5 years. Economists generally believe, and CBO's cost
estimates have long assumed, that workers as a group bear most of the
cost of employers' health insurance premiums. The primary reason for
this conclusion is that the supply of labor is relatively insensitive
to changes in take-home wages. Because most workers continue to work
even if their take-home pay declines, employers have little trouble
shifting most of the increase for health care costs to workers' wages
or other fringe benefits. Consequently, after the first few years,
state and local governments would likely shift these costs to their
employees.
Also, some states provide assistance for low-income individuals who
are not eligible for Medicaid. States that provide this type of
prescription assistance would face additional costs for these programs.
At this time, CBO does not have sufficient information on the number of
states that provide this type of assistance and on the types of
prescriptions covered to provide an estimate of these costs.
Estimated impact on the private sector
The proposal contains a private-sector mandate over the statutory
threshold ($100 million in 1996, adjusted annually for inflation) in
2001 and 2002 because it would prohibit generic manufacturers from
producing copies of certain brand-name drugs containing an active
ingredient that was initially approved by the FDA during the last 5
years. CBO estimates that prohibition would cost the generic drug
industry over $500 million in lost profits (after taxes) between 1998
and 2002. Also, many purchasers would pay more for certain prescription
drugs because of the reduced competition from generic manufacturers.
CBO estimates that those indirect costs to prescription drug purchasers
would total $1 billion over the 1998 to 2002 period, net of the
increased costs to the Medicare, Medicaid and FEHBP.
Estimate prepared by:
Federal Cost Estimate: Anne Hunt (226-9010).
Impact on State, Local, and Tribal Governments: Leo Lex (225-3220).
Impact on the Private Sector: Anna Cook (226-2940).
Estimate approved by: Paul N. Van de Water, Assistant Director for
Budget Analysis Division.
ADDITIONAL SUBMITTED STATEMENTS
Senator Specter. But this is the start of a debate which I
think we will have. And these figures are not immutable as to 3
percent, et cetera, et cetera. This is something that we are
searching for in trying to find more research dollars. We thank
you for coming. And if you take a look at those questions, we
would appreciate it.
For the record, we are inserting statements from Senator
Wellstone, Senator Durbin and a statement of Congressmen
Waxman, Brown, Deutsch, and Stark. We will also include a
statement from the National Alternative Fuels Association.
[The statements follow:]
Letter From Senator Paul Wellstone
U.S. Senate,
Washington, DC, October 20, 1997.
Hon. Arlen Specter,
Chairman, Subcommittee on Labor, Health and Human Services, and
Education and Related Agencies, Washington, DC.
Dear Senator Arlen Specter: I am writing to express my concern
about the proposal to include language concerning patent extensions for
certain drug products in the Labor HHS appropriations conference. As
you know, I have worked diligently in the past to retain the provisions
that are in the 1984 Hatch-Waxman Act. That Act provides an equitable
process for providing patent extensions when they are warranted.
The proposal that has been brought forth would grant branded
pharmaceutical companies unearned, windfall profits at the expense of
American consumers. Drugs such as Claritin, which has had an increase
in U.S. sales of over 50 percent in the past 2 years, would receive
this benefit. The manufacturer of this drug is expected to see even
higher sales in the next few years than the $1.2 billion it saw in
1996. It is likely that a generic equivalent of this drug will be ready
to go to market at the time the drug is due to come off patent in 2002.
The availability of the generic will greatly decrease the cost of this
drug to consumers, who rely on the product for treatment of allergies.
This is important not only for consumers, but for health plans that pay
for drug benefits for their members.
It is interesting that the latest proposal includes an attempt to
decrease the controversy surrounding patent extensions by creating a
demonstration project that would require that a manufacturer pay a 3
percent royalty to the Secretary in exchange for a patent extension, in
order to fund research. While it is certainly beneficial to increase
health research funding, I am not convinced that this method is the
appropriate one. The proposed strategy appears to be a buy-off, with
significant implications for consumers and others who pay for health
care.
In addition, I am concerned about changing provisions of the Hatch-
Waxman Act without fully understanding the implications of doing so.
Major changes such as the one that is proposed should be fully vetted
with those affected by them.
I am hopeful that you will understand the need to proceed
cautiously with any attempt at patent extensions, and will make certain
that any proposals to do so are fully and properly vetted.
Sincerely,
Paul Wellstone,
U.S. Senator.
______
Prepared Statement of Senator Richard J. Durbin
Mr. Chairman, I want to thank the Subcommittee for this opportunity
to submit testimony on this new proposal for NIH funding which is tied
to extending prescription drug market exclusivity.
I have long been a supporter of increased NIH funding. I have also
cosponsored bills to set up a trust fund for the National Institutes of
Health (NIH) to supplement their appropriations. However this proposal
under consideration today will be costly to those that its proponents
claim to help, namely patients.
This proposal is extremely misleading. It masquerades as a means of
supplementing NIH resources to increase research for new cures. As
currently drafted the three percent royalty could merely substitute for
current NIH funding. This proposal is really nothing short of a highly
profitable quid pro quo for the drug companies who will reap billions
of dollars in additional revenue by shutting out of the market new,
cheaper generic drugs.
Unlike the Orphan Drug Act, this increased market exclusivity is
not tied to developing new drugs. Instead extended exclusivity goes to
companies that already have drugs on the market. This proposal in fact
stifles the production of new second generation drugs that would be
more affordable to patients.
This proposal could conservatively cost American consumers $10
billion in higher drug costs, based on the proponent's own estimates
that it will increase revenue to NIH by $750 million over five years.
For one drug alone, Taxol, this special interest provision would cost
consumers $1.3 billion, including $288 million for Medicare for the
period of 1999-2005. Up to 350 drugs potentially are eligible for this
special treatment. Consumers of some of the drugs targeted for this
lucrative patent extension include breast cancer patients, AIDS
patients and seniors. They would be forced to pay billions in higher
prices while taxpayers will pay more in Medicare and Medicaid costs.
While the proposal calls for the drug companies who would benefit
from the measure to pay a percentage for NIH research, the expense to
patients and taxpayers and the companies' windfall profits would far
exceed any corporate payout to the government. It is also highly likely
that the companies will pass the price of the royalty on to patients in
the form of higher prices for these drugs. The cost to the federal
government of this provision is likely to be far greater than the $750
million that proponents estimate will be added to NIH's budget. CBO is
currently analyzing the cost to the government of this proposal.
This morning I was joined by U.S. Rep. Henry Waxman and consumer
and patient groups at a Capitol Hill news conference, to discuss the
possibility that this provision might find its way into the Labor-HHS
spending bill. The Consumer Federation of America, AARP, Public Citizen
and the Women's Health Network spoke out strongly about how harmful it
would be to consumers to give certain drug companies an extra five to
ten years of patent exclusivity.
Similar to the secret $50 billion windfall for the tobacco industry
that was snuck in to the tax cut bill, this proposal is another
``moonlight mackerel'' being floated on Capitol Hill that could cost
consumers and taxpayers billions of dollars, and it similarly, to
paraphrase John Randolph, ``shines and stinks like rotten mackerel by
moonlight.''
Special interest groups will always try to sneak in a backdoor deal
and call it a benefit. But not all benefits are public benefits. The
odor emanating from this provision can't be masked by a flower for the
NIH. I urge the committee to reject this proposal and protect consumers
from unnecessarily inflated drug costs.
______
Prepared Statements of Representatives Henry A. Waxman, Sherrod Brown,
Peter Deutsch, and Fortney Pete Stark
Mr. Chairman, we thank the Subcommittee for the opportunity to
submit testimony on the subject of NIH funding and proposals to extend
prescription drug market exclusivity.
For many years, the Congress has increased this Nation's investment
in biomedical research out of recognition of the important benefits it
creates for ourselves and the entire world. Most remarkably, Congress
has sustained this real growth in the budget of the National Institutes
of Health (NIH) in an era of shrinking federal resources. That is a
striking testament to the importance we in the House and the Senate
attach to basic research.
The proposal which is subject to this hearing has been clothed in
the appearance of sustaining this worthy cause. It purports to provide
additional resources to the NIH. It is being sold as a panacea to the
difficult choices the Congress has had to make to sustain our country's
scientific crusade against diseases like AIDS, cancer, diabetes and
heart disease.
In reality, this is a stark special interest deal which only serves
the financial interests of a small number of prescription drug
companies. The funds which this deal would generate for research would
not appear painlessly and miraculously from the air. They would be
taken directly from the pockets of American consumers and taxpayers.
This special interest deal is breathtaking in its audacity. It
boils down to a simple but profitable quid pro quo for the beneficiary
companies--``give us up to 10 years of market exclusivity and we will
give the U.S. government a 3-percent payoff.'' If this deal were to be
enacted by the Congress, a handful of brand name drug companies would
bar competition through lucrative market exclusivities, continue to
charge exorbitant prices for drugs which will have already enjoyed full
patent terms and exclusivities under existing law, and simply pass on
the cost of the 3 percent government ``payoff'' directly to consumers.
This special interest proposal is offensive to simple equity for a
variety of reasons. First, it would delay access to affordable generic
drugs and force consumers to subsidize higher prices on products which
have already received the full extent of patent protections and market
exclusivities which are already available under current law. Since this
deal would include any drug approved in the past 5 years and any future
drug approved in the next 5 years, the direct costs to consumers,
health payers, hospitals and HMO's would be unimaginably high.
Companies which have spent years to prepare competitive generic drugs,
and even secured tentative FDA approval, by complying with current law
would be barred overnight by this proposal from the market for another
5 or 10 years, forcing them without warning to shutter plants, lay off
workers and break contracts.
Second, American consumers would be forced to pay twice for this
special interest subsidy. Taxpayers pay for the Federal government's
health care programs, such as Medicare, Medicaid, veteran's health
programs, the Public and Indian Health Services, and Federal Employee
Health Benefit programs. The government would be forced to pay much
higher prices for the drugs which qualify for this special interest
deal, undoubtedly costing taxpayers billions of dollars over and above
their direct drug costs. Our colleague, Congressman Pete Stark, ranking
member of the House Ways and Means Subcommittee on Health, has
requested that the Congressional Budget Office (CBO) examine these
questions. We all look forward with great interest to CBO's findings.
Third, this proposal is a fraudulent effort to soften the choices
the Congress must always make in allocating Federal resources. We would
simply caution our colleagues that there is no such thing as a free
lunch. Proponents of this measure claim that NIH could obtain $750
million without dipping any deeper into the Federal budget. This
conveniently ignores the additional costs to Federal health programs
generated by this proposal, but even more egregiously dispenses with
the cold reality that it would be consumers who pay out of pocket for
their drugs, especially older Americans, who would bear the brunt of
the $750 million bill for this special interest proposal.
Congress should indeed explore imaginative ideas for expanding our
country's biomedical research effort, not schemes sponsored by the
prescription drug industry and intended to protect the market shares of
drugs such as Bristol-Myers Squibb's cancer drug taxol, Glaxo's
migraine drug Imitrex and HIV therapy Epivir, and Parke-Davis'
Alzheimer's drug Cognex.
Finally, as Congressman Waxman is one of the coauthors of the 1984
Waxman-Hatch Act, we are deeply disturbed by the implications of this
special interest proposal for the interests of consumers. This proposal
would completely overturn the delicate balance of equities in the 1984
Act, without any careful or systematic regard for the implications for
all of the commercial interests at stake, as well as the public
welfare. Our colleagues Senator Hatch and Congressman Waxman have
publicly stated on numerous occasions that any revisions to the 1984
Act must be made in the same spirit and to the same effect as the
original statute. For this reason alone, we would strongly oppose this
proposal and seek its defeat in the House of Representatives.
There have been numerous efforts in recent years to obtain special
patent extensions and special extensions of market exclusivity in
direct contravention of the Waxman-Hatch Act and its underlying
purpose. Some of these efforts have literally taken place in the dead
of night. For example, one patent extension was smuggled into the
conference report of the 1997 Kennedy-Kassebaum Health Care Reform Act.
Only the strenuous, last minute efforts of Congressmen Stark and
Waxman, and Senators Kennedy and Wellstone, prevented it from becoming
law.
We urge our colleagues in the Senate to reject any notion of
adopting this special interest proposal. Biomedical research may be
expensive, but it is among the most valuable activities undertaken by
the government and should be defended and protected on this basis. We
should strenuously resist efforts by certain industries to
``piggyback'' their own interests on the cause of biomedical research.
______
Prepared Statement of R. Douglas Chiappetta, President, National
Alternative Fuels Association
Chairman Specter and Members of the Senate Appropriations Health
Subcommittee, my name is R. Douglas Chiappetta, President of the
National Alternative Fuels Association (NAFA). Thank you for the
opportunity to testify on the proposal to expand pharmaceutical patents
(for up to 5 years). As noted, pharmaceutical companies are proposing
to pay the Federal Government to extend their market monopolies on
best-selling brand name drugs. In return for these extensions, (a
percentage of) company monies would be used for national research on
cancer, heart disease, AIDS and other diseases.
Although NAFA is not a patient advocacy organization representing
beneficiaries to this proposal, we applaud any effort to expand the
Federal Government's commitment to reducing and eradicating life
threatening illnesses. However, we believe our membership would be
adversely impacted by the enactment of this proposal in its present
form.
For the record, the National Alternative Fuels Association was
founded in 1992 to support public policy and federal legislation
resulting in the advancement of pollution reducing technologies. Our
membership comprises concerned citizens, research scientists and
entrepreneurial alternative fuel manufacturers, committed to preserving
and enhancing the earth's air quality through expanded use of
alternative fuel technologies.
Earlier this year, NAFA discussed (related) patent term extension
concerns with staff to Senator Orrin Hatch, prime sponsor of omnibus
patent legislation (S. 507) currently pending before the full Senate.
(We have also convened discussions [on this issue] with some of the
pharmaceutical companies in attendance at this hearing).
NAFA supports ``a level playing field'' for alternative fuel
manufacturers struggling with federal patent laws and environmental
regulations in their attempts to enter the commercial fuel additive
market in the United States. It is my understanding that alternative
fuel manufacturers (like other patentees) are protected for a period of
20 years from the filing of a patent application. However, due to
regulatory delays, pharmaceuticals are accorded extensions to their
patent monopoly.
Alternative fuel companies are subjected to EPA regulatory and
other delays which are perhaps much more onerous then pharmaceuticals,
but are not accorded extensions. Several of our members (with promising
air pollution abating alternative fuel technologies) will not be able
to introduce pollution reducing technologies if federal legislation or
regulation is not adopted to remedy this problem.
NAFA has submitted (to Senator Hatch) draft legislation to address
this matter. We are advocating amending Section 155 of Title 35 of the
U.S. Code to insure extended patent protection for alternative fuel
manufacturers subjected to regulatory review by the Federal
Environmental Protection Agency pursuant to the Federal Clean Air Act
(including Sections 211(f) and 211(k), such that sufficient motivation
exists to encourage implementation of pollution reducing fuel
technologies.
Under this proposed amendment, Fuel manufacturers would, like
pharmaceutical manufacturers, be granted extended patent protection to
provide for the additional time to meet the requirements under EPA
regulation. Alternative fuel manufacturers typically expend 4-15 years
grappling for EPA regulatory approval [e.g. Section 211(f), 211(k) of
the Clean Air Act]. (Ethyl Corporation, for example, spent
approximately 15 years in it's recent effort to obtain a Section 211(f)
waiver for a fuel additive).
Although the enactment of this amendment will have a significant
impact in ``leveling the playing field'' for alternative fuel
manufacturers, its effect should not be overstated. Alternative fuel
manufacturers will not begin to construct their physical plants until
after final EPA approval is granted. Initial merchant facilities
require a lead time (between 3-7 years) before a fuel can even enter
commercial markets. Under this scenario, alternative fuel manufacturers
find themselves with expired or substantially expired patent protection
before they can generate revenues. Such facilities can only serve a
fraction of the total market.
It is my understanding that pharmaceutical companies, once FDA
approval is granted, require anywhere from no lead time to 12 months to
bring a product or drug to the marketplace to meet total world wide
demand. Thus, alternative fuel manufacturers are greatly handicapped
under today's regulatory environment, perhaps much more so then
pharmaceuticals.
The text of NAFA's proposal to Senate Hatch is as follows:
Amend U.S. Code Annotated (Title 35, Section 155). Section 155
(Patent term extension), the U.S. Code to read as follows:
``Notwithstanding the provisions of section 154, the term of a patent
which encompasses within its scope a composition of matter or a process
for making or using such composition or a combination shall be extended
for a period not less than the total time commencing with test relating
to appropriate applications, until their ultimate EPA or FDA approval,
or if such composition, [or] process or combination has been subjected
to a regulatory review by the EPA, or Federal Food and Drug
Administration pursuant to the Federal Food, Drug, and Cosmetic Act,
related legislation or regulation thereof said term shall be
accordingly extended, or if review leads to the publication of
regulation permitting the interstate distribution and sale of such
composition or process and for which there has thereafter been a stay
of regulation of approval imposed pursuant to section 409 of the
Federal Food, Drug, and Cosmetic Act which stay was in effect on
January 1, 1981 by a length of time to be measured from the date such
stay of regulation of approval was imposed until such proceedings are
finally resolved and commercial marketing permitted.''
NAFA invites Members of the Senate Appropriations Health
Subcommittee to review this proposed legislation and consider drafting
a letter of support (to Senator Hatch) in favor of this measure. As
previously stated, expanded patent protection for alternative fuel
technologies will usher in a new class of ``clean fuel'' technologies
for the next century.
While NAFA does not take issue with the merits of the proposal
under review today, we strongly believe that the adoption of a proposal
this narrow in scope would afford pharmaceutical manufacturers similar
(preferential) treatment, already provided through the signing of the
``Hatch/Waxman Act''. Moreover, congressional enactment of the
aforementioned patent term extensions (to alternative fuel
technologies) will not only improve our nation's air quality, but have
its own corresponding impact on reducing and eradicating serious
illnesses in the United States.
Mr. Chairman, thank you for the opportunity to present testimony on
this critical issue before yourself and Members of the Appropriations
Health Subcommittee. I will be happy to respond to any questions.
Additional committee questions
Senator Specter. We have prepared some questions which we
would invite any panelist to respond to for the record.
[The following questions were not asked at the hearing, but
were submitted to the panelists for response subsequent to the
hearing:]
Questions Submitted by Subcommittee and Responses of Gina Cioffi
Question. Under the proposed 5-year demonstration project,
pharmaceutical companies would receive an additional 5 years of
data exclusivity on a product in exchange for agreeing to
provide a 3-percent royalty payment to NIH on all net U.S.
sales of the product during the 5-year extension period.
Why is this change in the law necessary? Who would be
expected to benefit from this proposal? Who would be harmed?
Answer. The National Institutes of Health (NIH) is the
premier biomedical research facility in the world. It has
reached that status, in large part, as a result of the
consistent and strong support it has received from the United
States Congress, in general, and this subcommittee, in
particular. However, even with that support, nearly four out of
five approved research projects remain unfunded.
By changing the law in a manner consistent with this
proposal, Congress will be generating additional funds for NIH
which will be applied to research that will otherwise not be
done. For any institute that is funding 20 or 21 or 22 percent
of approved projects, who is to say that the research proposal
that will result in the surprising breakthrough, or the
unexpected--maybe even unrelated--discovery isn't just below
the pay line. Maybe it is in the 23rd or 24th percentile.
Cooley's anemia is a unrelenting genetic disease that
afflicts children from birth, robs them of their childhoods,
takes away their ability to live a ``normal'' life, and
occupies much of theirs and their family's time. It requires an
daily, 12-hour infusion of a drug called Desferal to help
remove the iron that accumulates in the organs as a result of
the 30-35 blood transfusions that patients receive every year.
There has not been a new drug to treat this disease, or its
symptoms, in a generation. Research is ongoing, but it is slow,
it is under-funded, and every day another patient dies without
ever having obtained the benefit of it. It is those little
patients, having Desferal pumped into their bodies, who would
benefit from the proposal. And, if I may be so bold, Mr.
Chairman, the question is not who would be harmed by the
proposal. The question to be considered by the subcommittee is,
``Who is being harmed by not adopting the proposal?''
Question. Opponents of this proposal argue that it would
increase costs to consumers and state and federal governments
by keeping cheaper generic substitutes off the market.
How would consumers benefit from this proposal?
Answer. Consumers of pharmaceutical products would benefit
from the investment in research that would result both for the
NIH and in private industry as a result of this proposal. That
investment may result in a breakthrough in cancer research, or
Parkinson's disease, or Alzheimer's disease, or Cooley's
anemia. The breakthrough might come in the form of a new
product, a new use for an existing product, the discovery of
the perfect vector for gene therapy, or in some other way.
Opponents who suggest that consumers' interests lie solely
in obtaining pharmaceutical products at the lowest possible
prices do a terrible disservice to millions of Americans who
are suffering from disease and disorders. To carry that
argument through to its logical conclusion, one would have to
argue for no market exclusivity and, in fact, no patents. But,
then there would be no pharmaceuticals, for who would do the
research?
Question. Proponents of this proposal argue that the
current 5-year period of data exclusivity is insufficient to
keep America's biomedical research global industry globally
competitive.
Do you agree or disagree with this statement and why?
Answer. I agree. There are a number of European countries
that currently provide ten years of market exclusivity. Given
the global nature of companies today, there is nothing that
would stop a major company from moving its production off-
shore. In fact, many of the large companies operating in the
United States today are not even American companies. They are
British, or Swiss, or German, or some other nationality. To
keep our industry strong, our research well funded and our
people supplied with the best products that are available, it
is important that the United States remain a global leader in
drug research and development.
CONCLUSION OF HEARING
Senator Specter. Thank you all very much for being here,
that concludes our hearing. The subcommittee will stand in
recess subject to the call of the Chair.
[Whereupon, at 5:50 p.m., Tuesday, October 21, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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