    [Senate Hearing 106-772]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-772

     PIPELINE DRUGS: PROPOSED REMEDIES FOR RELIEF IN THE DRUG PATENT TERM
                    RESTORATION REVIEW PROCEDURE ACT OF 1999

    =======================================================================

                                    HEARING

                                   before the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                       on

                                    S. 1172

       A BILL TO PROVIDE A PATENT TERM RESTORATION REVIEW PROCEDURE FOR
                             CERTAIN DRUG PRODUCTS

                                   __________

                                 AUGUST 4, 1999

                                   __________

                              Serial No. J-106-44

                                   __________

             Printed for the use of the Committee on the Judiciary

                        U.S. GOVERNMENT PRINTING OFFICE
    67-573 cc                  WASHINGTON : 2000

                           COMMITTEE ON THE JUDICIARY

                         ORRIN G. HATCH, Utah, Chairman

    STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
    CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
    ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
    JON KYL, Arizona                     HERBERT KOHL, Wisconsin
    MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
    JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
    SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
    JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
    BOB SMITH, New Hampshire

                 Manus Cooney, Chief Counsel and Staff Director

                     Bruce A. Cohen, Minority Chief Counsel

                                      (ii)

                                C O N T E N T S

                                  ----------

                        STATEMENTS OF COMMITTEE MEMBERS

    Hatch, Hon. Orrin G., U.S. Senator from the State of Utah........     1
    Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont...    19
    Kennedy, Hon. Edward M., U.S. Senator from the State of
      Massachusetts..................................................    22
    Feingold, Hon. Russell D., U.S. Senator from the State of
      Wisconsin......................................................    22
    Torricelli, Hon. Robert G., U.S. Senator from the State of New
      Jersey.........................................................    24
    Ashcroft, Hon. John, U.S. Senator from the State of Missouri.....    30

                              PROPOSED LEGISLATION

    S. 1172, a bill to provide a patent restoration review procedure
      for certain drug products......................................     4

                        CHRONOLOGICAL LIST OF WITNESSES

    Panel consisting of Howard M. Metzenbaum, chairman, Consumer
      Federation of America, Washington, DC; Richard Jay Kogan,
      chairman and chief executive officer, Schering-Plough
      Corporation, Madison, NJ; Gerald F. Meyer, senior consultant,
      AAC Consulting Group, Inc., Potomac, MD; Carole S. Goldfine
      Ben-Maimon, M.D., senior vice president for research and
      development and scientific affairs, Teva Pharmaceuticals, Inc.,
      Sellersville, PA; Peter Barton Hutt, Covington and Burling,
      Washington, DC; and Bruce L. Downey, chairman, Barr
      Laboratories, Inc., Washington, DC.............................    25

                   ALPHABETICAL LIST AND MATERIALS SUBMITTED

    Ben-Maimon, M.D., Carole S. Goldfine:
        Testimony....................................................    39
        Prepared statement...........................................    41
    Downey, Bruce L.:
        Testimony....................................................    52
        Prepared statement...........................................    54
    Hutt, Peter Barton:
        Testimony....................................................    44
        Prepared statement...........................................    46
            Letters to:
                Fredrick S. Ansell, chief counsel, Senate Committee
                  on Governmental Affairs from Peter Barton Hutt,
                  dated May 12, 1997.................................    50
                John P. McLaughlin, executive vice president,
                  Genetech, Inc., from Peter Barton Hutt, dated Oct.
                  16, 1997...........................................    51
                Peter Barton Hutt from John P. McLaughlin, dated Oct.
                  31, 1997...........................................    51
    Kogan, Richard Jay:
        Testimony....................................................    31
        Prepared statement...........................................    33
    Leahy, Hon. Patrick J.: Prepared statement of Hon. Paul
      Wellstone, U.S. Senator from the State of Minnesota............    20
    Metzenbaum, Howard M.:
        Testimony....................................................    25
        Prepared statement...........................................    28
    Meyer, Gerald F.: Testimony......................................    37

                                    APPENDIX
                     Additional Submissions for the Record

    Prepared statements of:
        Hon. Edward Bryant, U.S. Representative in Congress from the
          State of Tennessee.........................................    79
        Hon. Jim McDermott, U.S. Representative in Congress from the
          State of Washington........................................    80
        The National Association of Pharmaceutical Manufacturers.....    81
            ``Patent Extension of Pipeline Drugs: Impact on U.S.
              Health Care Expenditures,'' by Stephen W.
              Schondelmeyer, Pharm. D., Ph.D., professor and director    85
                Various tables and graphs............................    97
            Letter to Senator Orrin G. Hatch from Alfred B.
              Engelberg, dated July 29, 1999.........................   122

     PIPELINE DRUGS: PROPOSED REMEDIES FOR RELIEF IN THE DRUG PATENT TERM
                    RESTORATION REVIEW PROCEDURE ACT OF 1999

                                  ----------

                           WEDNESDAY, AUGUST 4, 1999

                                           U.S. Senate,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 10:30 a.m., in
    room SD-628, Dirksen Senate Office Building, Hon. Orrin G.
    Hatch (chairman of the committee) presiding.
        Also present: Senators Specter, Ashcroft, Sessions, Leahy,
    Kennedy, Feinstein, Torricelli, and Schumer.

     OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
                           THE STATE OF UTAH

        The Chairman. I want them to get everyone in they can. This
    is standing room only. This is not the biggest room in the
    Senate, but I hope I can get everybody in. This is a very
    important hearing. These are very complicated issues. There are
    very important people testifying here today and I would like to
    have as many people from outside get in here as we can.
        Today, the Judiciary Committee will examine remedies
    proposed in S. 1172, the Drug Patent Term Restoration Review
    Procedure Act of 1999, sponsored by Senators Torricelli and
    Sessions. This hearing will help us gauge what legislative
    action is warranted.
        Article I, section 8, clause 8, of the U.S. Constitution
    reads,

              The Congress shall have the power * * * to promote
            the progress of science and useful arts, by securing
            for limited times to authors and inventors the
            exclusive right to their respective writings and
            discoveries.

        Congress' exercise of a constitutionally based patent power
    has important consequences for society and has led to
    occasional controversies between various business, consumer,
    and inventor interests. Yet, few would argue with the basic
    premise that people will be encouraged to produce inventions if
    there is some reward as an incentive.
        The fundamental question S. 1172 asks of this committee is,
    are there instances where, through regulatory delay or
    inefficiencies, Congress' constitutional responsibility to,
    ``promote the progress of science,'' is undermined to a level
    which warrants remedial action and, if so, should an objective
    mechanism be established for the consideration of such claims.
    Assuming the answer to these questions is yes, the sponsors of
    S. 1172 have proposed a mechanism for pipeline drugs.
        S. 1172 would establish a review process within the Patent
    and Trademark Office to assess the treatment of certain
    pipeline drugs that lost patent protection due to exceedingly
    lengthy regulatory reviews at FDA. Similar bipartisan
    legislation introduced by Congressmen Ed Bryant and Jim
    McDermott has also been introduced in the House of
    Representatives. The House bill was the subject of a hearing in
    the House Judiciary Committee on July 1, 1999.
        Proponents of S. 1172 believe that proper patent protection
    for pharmaceutical products is crucial for the discovery of new
    potentially life-saving drugs. I agree with this premise, and
    S. 1172 establishes a mechanism to determine if such protection
    has been provided for individual drugs or whether the dictates
    of Federal drug law and regulations undeservedly eat into this
    protection.
        The review process established in S. 1172 is one which
    supporters believe is fair and impartial because an independent
    body will employ specified, objective standards to determine
    whether or not to restore lost patent life. It is argued that a
    process-based solution is preferable to Congress acting on an
    ad hoc case-by-case basis, which certainly has been the case
    over the last number of years.
        Under the bill, only pipeline drugs that were involved in
    an FDA review process that took more than 60 months would be
    eligible for review. There is no doubt that the protections
    afforded a patent holder were significantly reduced and this
    delay may have been due to circumstances that were beyond the
    control of the applicant.
        On the other hand, critics of S. 1172 will argue that this
    legislation is unwarranted because the resulting additional
    period of exclusivity will result in additional costs to
    consumers. Opponents have suggested that inequities of the past
    should be given little consideration and that as a matter of
    public policy Congress' constitutional responsibility to
    promote the progress of science should be prospective in
    approach. Our focus, they argue, should be given exclusively to
    advancing policies which rely on innovation to replace products
    whose patents have expired.
        Finally, critics argue that S. 1172 creates a procedure for
    granting partial patent restoration through an entity, the
    Patent and Trademark Office, that may inherently favor a
    patentholder. There is some question about whether the PTO is
    the appropriate forum to make decisions relating to the details
    of an agency review.
        As we examine this important issue, I hope we can examine
    some of the following questions. Is legislation of this sort in
    the interest of the American public? Many believe that it is,
    and they may be right. Was the type of delay suffered by these
    drug manufacturers one that warrants legislative action, and
    will such action benefit others? What impact will S. 1172 have
    on the generic drug industry? Should the committee only be
    reviewing administrative delays affecting pipeline drugs, or is
    it a much broader problem which warrants a broader, more
    comprehensive solution?
        Now, I look forward to exploring these and other questions
    with our panel of distinguished witnesses. In the end, we must
    be mindful of the fact that Congress at one point in its recent
    history passed product-specific private relief bills which
    granted those products patent term extensions. In fact,
    Congress has enacted product-specific patent extensions for
    pipeline drugs.
        At the time, critics then argued that such product-specific
    legislation did not benefit the public or the institution.
    Instead, it was suggested that an objective process be put in
    place, a process that subjected the claims for equitable relief
    to a set of objective criteria and public scrutiny. S. 1172
    appears to be an effort to rise to this challenge.
        Therefore, it is appropriate that this committee closely
    examine the merits of this legislation, with an eye on
    Congress' constitutional obligation to promote the progress of
    science, and balance them with what is in the best interest of
    the American public. I believe that a fair and equitable
    solution is possible, and I look forward to hearing the
    recommendations of our witnesses on what they believe is the
    appropriate solution to this critical issue.
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        Mr. Chairman. In closing, I want to thank all of our
    witnesses for taking the time to join us today and I look
    forward to hearing their views on these critical questions.
        With that, we will turn to our ranking member.

      STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
                            STATE OF VERMONT

        Senator Leahy. Thank you, Mr. Chairman. I will be direct
    because we want to hear from the witnesses. I am concerned that
    Congress should not be in the business of approving individual
    patents for drugs, and I am also concerned that this bill could
    cost consumers $5 billion. Every time I go home, I hear from
    one Vermonter after another about the prohibitive cost of
    medications; I know I will this week when I go back home. I am
    concerned that the bill goes in the wrong direction. Americans
    need better access to affordable prescription drugs, and they
    deserve it.
        When I look at this legislation, it seeks to amend a bill
    that was crafted by the distinguished chairman, Senator Hatch,
    along with Congressman Henry Waxman. The Hatch-Waxman Act was
    intended to stop the practice of Congress legislating patent
    extensions one drug at a time. Now, when you have a bill
    sponsored by Senator Hatch and Congressman Waxman, it is either
    a darn good bill or one of them didn't read it. I suspect that
    it was a darn good piece of legislation.
        Now, the matter before us is that Schering-Plough has
    enjoyed patent protection for its most popular product, the
    allergy medication Claritin, for many years, also a product
    that they spent a great deal of money in producing and one on
    which they can and should enjoy the benefits of what they have
    spent in preparing it.
        When we passed the Hatch-Waxman Act, Claritin was granted a
    2-year patent extension because it was being developed, or in
    the pipeline, when the new law was passed. In 1994, Claritin
    received a second 22-month patent extension under the terms of
    the GATT. With these two patent extensions, the patent on
    Claritin will expire in June 2002, after approximately 21 years
    of protection. Since I am told the original Claritin patent was
    granted in 1981, you can see why there has to be a lot of
    convincing to support a third extension.
        I am also concerned the bill will increase the cost of
    medication to consumers and the Government. The PRIME Institute
    found that if we granted Claritin a 3-year extension, it would
    cost consumers $5.3 billion from 2002 to 2007. Over the same
    period, the bill would cost the Government approximately $2.5
    billion. Medicaid bears the brunt of the costs at $1.34
    billion. A Medicare prescription medication benefit would cost
    about $5 billion. So any true reform effort must preserve the
    balance that was so carefully created in the original 1984
    Hatch-Waxman legislation. Each change we make now will have
    some effect on another provision of the original bill.
        My final concern with S. 1172 is that it could create an
    unbalanced review process that would appear to undercut the
    responsibility of the FDA. It would create a new step in the
    patent review process by allowing the Patent and Trademark
    Office to have the ability to undercut the scientific judgments
    made by the FDA and its advisory committees. It is hard to see
    how that might work.
        Schering-Plough has expressed concerns that the patent
    approval process for Claritin was delayed at the FDA, and we
    should listen to these concerns. But because the patent review
    process at FDA is confidential, it has been difficult to
    determine the accuracy of this claim. So I asked, along with
    Representative Waxman, for the GAO to review the FDA process
    surrounding the Claritin patent to determine the cause of the
    delays.
        I think, Mr. Chairman, it might be premature for this
    committee to act on any piece of legislation that would alter
    the review process until we hear the results of the GAO report,
    which I understand will be out soon. We may want to have that
    before us when we discuss the matter further, but I think these
    hearings are well worthwhile. There are a lot of questions.
        As you know, I have a bill on the floor and I will be in
    and out.
        The Chairman. I understand.
        Senator Leahy. I would ask consent that after members of
    the committee enter statements or whatever they do that a
    statement by the distinguished Senator from Minnesota, Mr.
    Wellstone, be entered into the record.
        The Chairman. Well, thank you. We will add that statement
    to the record.
        [The prepared statement of Senator Wellstone follows:]

      Prepared Statement of Hon. Paul Wellstone, a U.S. Senator From the
                               State of Minnesota

        Today's hearing will consider possible patent extensions for a
    handful of brand-name prescription drugs under S. 1172. These patent
    terms were originally established by the Drug Price Competition and
    Patent Term Restoration Act (Hatch-Waxman Act), a landmark piece of
    legislation in 1984 that made drugs more affordable for American
    consumers. At the time of enactment of the Hatch-Waxman Act, Congress
    realized the importance of creating a more competitive marketplace in
    prescription drugs. That is why the Act provided for a process for the
    timely review of generic drugs. Hatch-Waxman Act offered something for
    everybody: the consumers, who benefitted from lower-priced generic
    drugs; the brand-name drug industry, who benefitted from patent
    protections; and, the generic drug industry, who benefitted from the
    establishment of a timely FDA process for generic drug approvals. At
    the hearing today, you will hear from individuals who wish to reverse
    course, and undo the progress that has been made.
        Many of the generic prescription drugs approved since that time
    have provided affordable prevention and treatment for a large variety
    of diseases. Unfortunately, the battle has not yet been won. There are
    still occasions when peoples' access to prescription drugs is limited
    by their costs--especially for senior citizens who most need these
    products. Prior to approval of a generic version of a brand-name drug,
    the price of that drug is typically very high. The brand-name
    pharmaceutical companies are fighting to keep the price high by
    extending patent protection for so-called ``pipeline drugs,'' which
    were under development during passage of the Hatch-Waxman Act. This
    issue was considered back in 1984, and appropriate provisions for
    patent extension were provided for in that law. Further extending the
    patents of pipeline drugs will only extend the length of time that
    patients may have difficulty paying the high price for their
    medications. This is completely unnecessary. The price of brand-name
    drugs is already too high!
        Under the Hatch-Waxman Act, the brand-name drug companies currently
    receive patent extensions. They take full advantage of this situation.
    Further, patent protections were added for some products under the
    General Agreement on Trade and Tariffs. While the brand-name
    pharmaceutical companies already receive great patent protection, they
    want more. Should we want to fix something that is not broken? The
    Hatch-Waxman Act has worked well and no changes are necessary. The
    patent protection system in this country is designed to first reward an
    inventor for new ideas, then to share the invention to serve society's
    need for this technology after the inventor has had a fair opportunity
    to make a profit. Any changes to the Hatch-Waxman Act should be made
    for the benefit of society, not for the benefit of a select few
    companies who desire greater profits. Passing this law would be a bad
    precedent. If this effort is successful, imagine every company lobbying
    to change the patent laws in a manner that suits their bottom line.
    Making changes to the length of patent protections for pharmaceutical
    products is a very serious matter.
        Let me be clear about where I stand on this issue. Brandname
    pharmaceutical companies do not need further patent extensions, and I
    will fight efforts to unfairly extend their patents through revisions
    in the Hatch-Waxman Act. These companies have already made tremendous
    profits on prescription drugs due to existing patent extensions.
    Regardless, these same companies are now lobbying hard for an extension
    of their patents. Of course these companies should make a ``fair''
    return on their investment, but they should not make an ``excessive''
    return on their investment.
        Schering-Plough Corporation produces Claritin, one of the products
    that is being considered for a patent extension. One of the arguments
    advanced is that Schering-Plough needs additional profits so that more
    money can be invested in new product development. In 1998, sales of
    Claritin were in the neighborhood of two billion dollars. Exactly what
    level of profits are needed for a company to invest in new product
    development? The reality is that much of the money generated from
    product sales is not devoted towards new product development, but
    rather is spent on television advertisements and lobbying or retained
    as profits by the companies. Without patent extensions, these companies
    will still have healthy research and development budgets. New products
    are necessary for companies to remain competitive, and patent
    extensions are unrelated to new product development.
        Considering a number of indicators of profitability, the brand-name
    pharmaceutical industry is one of the most profitable industry groups
    in America. Should this industry be granted patent extensions that
    would only increase their profits to obscene levels at the expense of
    Americans? Of course not. It is not fair to extend the patents for
    pharmaceuticals when the industry is already making profits that other
    industry groups could only hope for.
        It is ironic that we are considering legislation that will lead to
    an increase in the cost of drugs to consumers at a time when we are
    also considering a prescription drug benefit. We should be going in the
    opposite direction, decreasing the cost of prescription drugs. Drugs
    are very expensive right now. In fact, senior citizens in my district
    go all the way to Canada to purchase lower priced drugs because they
    cost too much in this country. Some senior citizens must decide between
    buying prescription drugs and buying food. Americans pay the highest
    prices for drugs in the world. The brand-name pharmaceutical companies
    are not doing any favors for Americans, but rather, these companies are
    taking Americans for a ride.
        One of the provisions of S. 1172 requires the Patent and Trademark
    Office (PTO) to make a determination regarding patent extensions. This
    is especially troublesome because Waxman-Hatch specified that the Food
    and Drug Administration (FDA) is charged with making key decisions
    about the conditions of review and approval related to patent term
    restoration processes. The responsibility should not be transferred
    from FDA to PTO. The Senate Health, Education, Labor and Pensions
    (HELP) Committee is the appropriate Committee to consider the transfer
    of authority from FDA, and this issue should therefore be considered by
    the HELP Committee.
        One purpose in enacting Hatch-Waxman was to stimulate investment
    into new products. Because this Act allowed generic competition after a
    period of patent and exclusivity protection, the brand-name
    manufacturers could not simply rely on the same products indefinitely.
    After the patent protection and exclusivity expired, the Act allowed
    for the approval of generic competition. The generic version of that
    product is less expensive and therefore cuts into the market share of
    the brand-name product. The brand-name pharmaceutical companies
    responded to that by spending more money on developing new products.
    The result of this effort was an increase in the number of new drugs
    that were brought to the market. Not only was this beneficial to the
    brand-name companies, it was also beneficial to the public who then had
    access to new drugs. Current efforts to extend patent protection, if
    successful, would lessen the need for brand-name companies to bring new
    drugs to the market. This erodes progress made after passage of Hatch-
    Waxman Act.
        Extending patent protections for brand-name prescription drugs is
    the wrong medicine at the wrong time. Americans should pay less for
    their drugs, not more. We should not be considering legislation that
    would serve the special interests of a small number of pharmaceutical
    companies. Instead, we should be considering legislation that would
    make drugs more affordable. I urge my colleagues on the Committee to
    reject this bill.

        The Chairman. Senator Kennedy and Senator Feingold also
    have submitted statements, and they will also be included in
    the record at this point.
        [The prepared statements of Senators Kennedy and Feingold
    follow:]

     Prepared Statement of Hon. Edward M. Kennedy, a U.S. Senator From the
                             State of Massachusetts

        Today, the Committee hears testimony about proposed changes to one
    of the most important health laws--the Drug Price Competition and
    Patent Term Restoration Act of 1984--the Hatch-Waxman Act, which has
    had an effective role in improving public health in America. The Act
    has enhanced research and development by pharmaceutical companies and
    encouraged the growth of the generic drug industry, which ensures
    affordable prescription drugs for patients at all income levels.
        The law, which has now been on the books for 15 years, streamlined
    the approval process for generic drugs, and allowed generic drug firms
    to make plans to enter the market before a brand-name drug's patent
    expires. It also gave brand-name pharmaceutical firms an extension on
    their patents to accommodate the often lengthy regulatory delays, so
    that research and development costs can be fairly recouped. The law
    strikes a balance between major interests on both sides and has served
    the nation well for many years. Congress must carefully consider any
    proposed changes to ensure that the balance is preserved.
        S. 1172, the Drug Patent Term Restoration Review Procedure Act of
    1999 proposes to amend the Act to provide greater patent term extension
    for so-called ``pipeline drugs''--drugs under consideration by the FDA
    when the Act became law. Proponents of the legislation believe it is
    necessary to ensure parity and fairness for such drugs--some of which
    currently reap millions of dollars--even billions of dollars--in
    revenue every year.
        Opponents of this legislation argue that it is unnecessary and
    unwarranted. They believe the process proposed in S. 1172 will only
    create a larger bureaucracy and add to the cost of health care for
    millions of Americans. They also argue that it will do relatively
    little to remove Congress from the annual, end-of-the-year rush to
    provide patent term extensions for individual drugs, a process that
    many of us find particularly disturbing.
        Before Congress takes action, we must ensure that patients are the
    beneficiaries. The careful balance that provides for research and
    development, and for affordable prescription drugs must be maintained.
    I look forward to today's testimony and to working with other members
    of the Committee on this important health issue.

                                   __________

    Prepared Statement of Hon. Russell D. Feingold, a U.S. Senator From the
                               State of Wisconsin

        Mr. Chairman, I want to thank you for holding this hearing. It is
    important that the issues raised by this bill receive searching
    examination.
        I have serious concerns about S. 1172, the Drug Patent Term
    Restoration Review Procedure Act of 1999. Our nation's patent system is
    designed to encourage creativity and ingenuity in the research and
    development of drugs, computer technology and so many other products
    that enhance our lives and keep our economy thriving. Giving exclusive
    market power to companies for a set period of time is a reward for the
    time and resources that the private sector puts into research and
    development. On the other hand, prolonged exclusive market power has an
    adverse impact on competition and consumers. Our patent laws strike a
    balance between these competing concerns. We should be very careful
    when we think about revisiting that balance.
        The brand name drug companies signed off on an agreement reached
    when the Congress passed Hatch-Waxman Act in 1984. Hatch-Waxman
    provided for a two-year patent extension for pipeline drugs. The
    pipeline drug makers now complain that this two-year period was
    inadequate. The Senate should rewrite the 1984 agreement only upon the
    most compelling justification, and I am not convinced that high
    standard has been reached here.
        I am concerned that rewriting Hatch-Waxman and providing for a
    patent extension for these drugs will result in an injustice to
    American consumers. Three more years of profits to the pipeline drug
    makers will come at the direct expense of consumers who rely on these
    drugs.
        Let's take the example of Claritin, produced by Schering-Plough,
    which is the most popular of the drugs affected by this bill. Claritin
    is an antihistamine used to treat sinus problems and seasonal
    allergies. Schering-Plough received a patent for Claritin in 1981, so
    it was ``in the pipeline'' when the Hatch-Waxman Act was passed. Under
    current law, the patent will expire in June 2002--almost three years
    from now and twenty-one years after Schering-Plough first received this
    patent. The FDA approved Claritin in 1993. This means that by June
    2002, Schering-Plough will have marketed and sold Claritin,
    competition-free, for nine years.
        Americans who use Claritin take one pill a day for anywhere from
    one to two weeks for sinus problems, to months at a time for seasonal
    allergies. At the Walgreens Pharmacy in Milwaukee, Wisconsin, a month's
    supply of Claritin costs $71.39. This cost comes straight from the
    pockets of Milwaukee residents and/or health insurers, depending on the
    consumers' health insurance status and whether their health plans pay
    for prescription medication.
        Now, with generic drugs usually priced at a 25 percent to 60
    percent discount, once the Claritin patent expires in June 2002 these
    same Milwaukee residents could buy a generic equivalent of Claritin at
    anywhere from roughly $28 to $53. It is probably fair to say that given
    the immense popularity of Claritin and the generic industry's intense
    interest in not extending the Claritin patent, there will be many
    Claritin competitors. The presence of numerous competitors, in turn,
    means the price of generic alternatives will be closer to the $28
    figure. In fact, Mr. Downey of Barr Laboratories, who is testifying
    today, suggested in recent testimony before the House Judiciary
    Committee that the price for generic Claritin could be a little over
    $15 per month. $71 versus $15 a month. That's a huge difference, Mr.
    Chairman, to Americans who need this drug. Instead of lining the
    pockets of drug companies, hardworking Americans could use this money
    to put food on the table or buy school clothes for their children.
        Schering-Plough and the other pipeline drug makers would like to
    delay the ability of Milwaukee residents and all Americans to buy
    generic Claritin at lower prices until June 2005. Thus, there is no
    other way to look at this bill than as a net loss for consumers.
    Consumers will pay roughly $71 per month for Claritin for an additional
    three years under this bill. Private health insurers will pay higher
    prices for pipeline drugs for an additional three years. Consumers will
    pay for this bill either out of their own pockets or through higher
    premiums for health insurance.
        Brand name drug companies like Schering-Plough have already
    benefitted quite handsomely from their exclusive sales periods. In just
    one of its patent years, 1998, Schering-Plough had $1.8 billion in U.S.
    sales and $2.2 billion in worldwide sales on Claritin. This is
    incredible. Claritin sales last year represented roughly one-third of
    Schering-Plough's total worldwide revenue. According to a study by Dr.
    Stephen Schondelmeyer of the University of Minnesota College of
    Pharmacy, Schering-Plough's R&D costs are generally only 12.5 percent
    of its revenue. Based on this data, I think it is fair to say that the
    enormous popularity of Claritin has more than amply compensated
    Schering-Plough for its R&D costs incurred in developing Claritin. It
    simply cannot be argued that Shering-Plough needs this extension to be
    repaid.
        Dr. Schondelmeyer also finds that Claritin sales are expected to
    continue to climb to almost three and a half billion dollars in 2002.
    American consumers will save over $7 billion during the first five
    years that generic alternatives to Claritin become available. But, if
    Schering-Plough gets its way and this legislation passes, American
    consumers can expect to pay--not save, but pay--anywhere from $1.6
    billion to over $5 billion on Claritin alone. American consumers can
    expect to pay roughly $11 billion for a three-year extension for all
    seven pipeline drugs. Mr. Chairman, each additional year of exclusive
    marketing for these pipeline drug companies means billions of dollars
    of additional profits for the companies, and billions of dollars of
    additional costs for consumers.
        Mr. Chairman, I do appreciate the fact that allies of the pipeline
    drug manufacturers have chosen to seek redress through the standard
    legislative process, by fashioning a bill and submitting it for hearing
    and debate in this committee and possible consideration on the floor.
    That is not the way things often happen around here. Patent extensions
    are a favorite item to be slipped into big bills in the dead of night
    at the very end of the process. So I am pleased that we're having a
    chance to consider this bill rather than finding out about it at the
    last minute.
        That having been said, this bill still has the scent of a special
    interest deal. It benefits a small number of drug companies at the
    expense of American consumers. And it comes as no surprise to this
    Senator, nor should it to anyone here, that the companies who are
    asking us to pass this bill have made major political contributions to
    the political parties and members of Congress. I will have more to say
    about this when I call the Bankroll on the floor if this bill gets that
    far, but let me give just a few examples. According to the Center for
    Responsive Politics, Bristol-Myers Squibb made $559,975 in soft money
    donations in the last election cycle. Schering-Plough contributed
    $287,021 in soft money for the 1998 cycle. Both companies have reported
    millions of dollars in lobbying expenditures in 1997 and 1998.
        This will be money well spent, of course, if the pipeline drugs
    succeed in convincing the Congress to pass this bill, which will result
    in not millions, but billions of dollars of additional profits for the
    manufacturers and costs for consumers. I believe we should think long
    and hard before we go along.

        The Chairman. I will permit one other statement. The
    sponsor of the bill has asked for a few minutes to express
    himself on this bill and so we will turn to Senator Torricelli
    at this time.

    STATEMENT OF HON. ROBERT G. TORRICELLI, A U.S. SENATOR FROM THE
                          STATE OPF NEW JERSEY

        Senator Torricelli. I wanted, among the other witnesses
    before the committee, particularly to welcome Richard Kogan,
    who is the CEO of Schering-Plough, one of the most respected
    corporations in New Jersey, and indeed one of the most
    respected business leaders in America. Mr. Kogan has provided
    extraordinary leadership to Schering-Plough and was invaluable
    in helping to draft this legislation in attempting to strike a
    balance between the understood and respected need of the
    pharmaceutical industry which is such a basis of the economy of
    New Jersey to be protected and provided with the incentives to
    continue in the multibillion-dollar investment in the
    production of new products, but also protecting the basic
    integrity of Hatch-Waxman and the redesign of the approval
    process which has proven so valuable to the industry.
        I also want to note that Agnes Veras is here today. Agnes
    Veras is also one of the leaders in the generic industry in our
    country. She has personally created several of the most
    successful companies in the generic industry, and was also
    invaluable in working on this legislation to ensure that the
    generics themselves and their own incentives and their ability
    to hold down costs and provide alternatives to consumers were
    protected in this process.
        As I am sure the testimony will reflect, this is not, as
    some would represent it, as the Congress has often done, simply
    a patent extension. This is not designed for any one product or
    any one company. It rather is an exception to the process to
    allow different companies and different companies that
    encounter difficulties in the approval process to have
    exceptions, those exceptions designed to provide the same
    incentives within the patent process, but nevertheless
    recognizing that sometimes delays and problems in the process
    involve unnecessary costs and therefore should be addressed
    specifically. That is what this legislation is designed to do.
        We have taken one approach in our Senate legislation. I
    know the House of Representatives has taken a different
    approach. But I think, Mr. Chairman, by virtue of this hearing
    we will learn a great deal about the differences and the
    virtues of each. And I am very grateful that you gave us this
    opportunity and once again want to thank Agnes Veras, Richard
    Kogan, and the other participants in the hearing who have done
    so much.
        I might also like to note on Senator Specter's behalf that
    Carole Ben-Maimon, of Teva Pharmaceuticals, has also been very
    important in this process, and for that I am also very
    grateful.
        The Chairman. Well, thank you, Senator.
        We have a distinguished panel of witnesses here today.
    First, we have our distinguished former colleague, Senator
    Howard Metzenbaum, who is testifying on behalf of the Consumer
    Federation of America.
        Our next witness will be Dick Kogan, the CEO of Schering-
    Plough, a major research-based pharmaceutical company with an
    important stake in Senator Torricelli's legislation.
        Next, we will be fortunate to have former FDA Associate
    Commissioner, Jerry Meyer, who will tell us about the
    intricacies of the FDA review process.
        Joining us for the first time today is Carole Ben-Maimon,
    who is the Senior Vice President of Research and Development
    for Teva Pharmaceuticals. Dr. Ben-Maimon will testify on the
    Torricelli bill from the perspective of the generic drug
    manufacturer.
        Next, a familiar face to this committee. We will hear from
    Peter Barton Hutt, a leading member of the food and drug bar,
    and a person for whom I think everyone has respect, as we do
    every witness here today.
        Finally, we will hear from Mr. Bruce Downey, who is CEO of
    Barr Laboratories. Mr. Downey has testified before this
    committee previously and he represents the views of many in the
    generic industry. We are happy to have you here, Bruce, as
    well.
        We are familiar with all of you and we appreciate having
    this distinguished panel here today.
        Senator Kennedy.
        Senator Kennedy. Could I just add a word of welcome to an
    old friend, Howard Metzenbaum. He was, of course, a member of
    this Judiciary Committee for many, many years, and he has been
    a real watchdog for consumers over a long and distinguished
    career. I admire not only his service in the Senate and service
    on the committee, but his willingness after serving in the U.S.
    Senate to continue his interest in public affairs.
        We thank you for joining us and we extend a very warm word
    of welcome.
        The Chairman. Well, from the former chairman of this
    committee and from me, we are glad to have you here, Howard,
    and we look forward to hearing your testimony.

     PANEL CONSISTING OF HOWARD M. METZENBAUM, CHAIRMAN, CONSUMER
       FEDERATION OF AMERICA, WASHINGTON, DC; RICHARD JAY KOGAN,
         CHAIRMAN AND CHIEF EXECUTIVE OFFICER, SCHERING-PLOUGH
     CORPORATION, MADISON, NJ; GERALD F. MEYER, SENIOR CONSULTANT,
      AAC CONSULTING GROUP, INC., POTOMAC, MD; CAROLE S. GOLDFINE
       BEN-MAIMON, M.D., SENIOR VICE PRESIDENT FOR RESEARCH AND
    DEVELOPMENT AND SCIENTIFIC AFFAIRS, TEVA PHARMACEUTICALS, INC.,
      SELLERSVILLE, PA; PETER BARTON HUTT, COVINGTON AND BURLING,
          WASHINGTON, DC; AND BRUCE L. DOWNEY, CHAIRMAN, BARR
                   LABORATORIES, INC., WASHINGTON, DC

                   STATEMENT OF HOWARD M. METZENBAUM

        Mr. Metzenbaum. Thank you. Good morning, Mr. Chairman,
    Senator Leahy, distinguished members of the committee. I
    appreciate the opportunity to offer my comments regarding this
    legislation.
        As you know, my name is Howard Metzenbaum and I now serve
    on a pro bono basis as Chairman of the Consumer Federation of
    America. The Consumer Federation of America is a nonprofit
    association of some 240 pro-consumer organizations with a
    combined membership of over 50 million Americans.
        When I was in the Senate, I consistently opposed patent
    extensions as being a giveaway to the patentholder and a very
    costly and unwarranted invasion of the consumer's pocketbook.
    On more than one occasion, I went to the floor and held the
    floor in a one-man filibuster to keep such legislation from
    passing.
        Now, at a time when Americans are calling on Congress to
    take decisive action to make prescription drugs more
    affordable, S. 1172 would place an additional financial burden
    on American consumers and the health system. The bill is
    essentially a tax on the uninsured, the poor, the sick, and the
    elderly. I strongly urge you to reject it.
        Now, before I go on, let me make one important point. We
    will hear a lot of rhetoric today about intellectual property
    rights and FDA's delays in approving the so-called pipeline
    drugs. Don't be misled, don't be mislead, don't be distracted
    by these red herrings. This bill is unjustified on its face
    because it would turn the intent of patent protection and of
    the Hatch-Waxman Act on its head.
        Patent life is intended to encourage research and
    development, not after a drug is out on the market, but before
    a drug is granted approval, not to reward a drug manufacturer
    after the product has been on the market for a number of years.
    Moreover, the Hatch-Waxman Act deliberately made allowances for
    drugs already in the FDA review pipeline by granting two
    additional years of pipeline protection.
        Ten years later, in 1994, a number of those same pipeline
    drugs received additional patent extension. Claritin got an
    additional 22.5 months. Claritin has received more than its
    fair share of extensions. Enough is enough. The bill is the
    latest attempt by the drug manufacturer Schering-Plough to
    protect its lucrative monopoly for its best-selling
    antihistamine Claritin.
        Last year, CFA, the organization I represent, helped to
    defeat an attempt by Schering-Plough to get a back-door patent
    extension by attaching it to the omnibus appropriations bill.
    Schering-Plough has been well treated by the Congress and has
    made billions by having patent protection for Claritin for
    years. But I give Schering-Plough credit; they are very, very
    persistent and I respect them for that.
        As a matter of fact, before this hearing commenced I walked
    up to three old friends who were at separate locations, not
    standing with each other, and when I said to each one of them,
    what are you here for, each one of them separately indicated to
    me ``on behalf of Schering-Plough.'' Fortunately, I didn't talk
    to three other people because possibly they also would have
    been lobbyists on behalf of Schering-Plough. But they are
    certainly well, well represented, and maybe that is good for
    the economy, at least the lobbyist economy.
        The Chairman. Are you suggesting there are no consumer
    members here?
        Mr. Metzenbaum. Pardon?
        The Chairman. I was just kidding.
        Mr. Metzenbaum. It is time for Congress to call a halt. Let
    the free market prevail when the already extended patent
    expires.
        Senator Hatch, you provided great and wise leadership in
    authoring the Hatch-Waxman Act, even though I am prepared to
    confess that I was the only member of the Senate who voted
    against it. [Laughter.]
        The Chairman. And you have been repenting ever since, I
    know.
        Mr. Metzenbaum. Maybe it was just a knee-jerk reaction.
        The Chairman. It was just one of those days when you
    weren't thinking clearly, Howard. [Laughter.]
        Mr. Metzenbaum. I do not have to tell you that the Hatch-
    Waxman Act was and is a balanced Act. It was designed to
    increase access to affordable generic drugs, while ensuring
    that drug manufacturers have adequate patent protection to
    justify substantial investment in research and development.
        Unfortunately, S. 1172 would upset the careful balance by
    allowing the manufacturers of Claritin and six other so-called
    pipeline drugs to petition the Patent and Trademark Office for
    additional patent life. If the 3-year extensions are granted, a
    likely outcome under the terms of the bill, the cost will be an
    astonishing $11.1 billion according to an analysis just
    released by the PRIME Institute. Earlier figures had indicated
    $5 billion, but this new analysis by the PRIME Institute, which
    is a part of the College of Pharmacy at the University of
    Minnesota, says it will be over $11 billion. It is unthinkable
    that Congress should consider a patent extension for Schering-
    Plough's blockbuster drug Claritin which had sales of $1.8
    billion in 1998. That is nearly $5 million in sales each and
    every day.
        Now, let me tell you about some of CFA's other concerns
    with S. 1172. Although Senator Torricelli deserves credit for
    making this legislation somewhat less problematic than its
    House counterpart, it is still fatally flawed. S. 1172 would
    cut the agency with the most expertise on drug review, the FDA,
    out of the decisionmaking process.
        Right now, the Patent and Trademark Office performs a
    function regarding prescription drug patent disputes that can
    only be described and characterized as ministerial. Although
    the Patent and Trademark Office makes the final judgment on
    patent extension, the entire decision is based on key
    determinations made by the FDA.
        The FDA''s determination involves issues such as a drug's
    eligibility for patent extension, the appropriate length of
    extension based on a regulatory review period, and whether the
    manufacturer acted with due diligence during the FDA review
    process. S. 1172, on the other hand, would hand this
    decisionmaking authority over to an agency with no experience
    in drug review, the Patent and Trademark Office. It is sort of
    absurd on its face.
        S. 1172 further mandates a review process based in favor of
    the drug manufacturer. Although the review process in S. 1172
    is certainly less flawed than that outlined in H.R. 1598, the
    bill's short decisionmaking timeliness and narrow criteria are
    likely to result in unwarranted approval of patent extension.
        For example, while requiring the Commissioner of the Patent
    and Trademark Office to consider public interest and fairness,
    a job for which it is questionable as to its ability to
    evaluate, S. 1172 actually excludes the evaluation of the
    consumer's interest in lower prices or the negative impact of
    high prescription drug costs on taxpayers and their health. S.
    1172 could subject Congress to an onslaught of copycat
    legislation. Passage of 1172 would serve as a great precedent
    for other drug manufacturers who might want Congress to pass
    similarly unjustifiable patent extension.
        In closing, let me thank you, Senators Hatch and Leahy, and
    all the other members of this committee, for the opportunity to
    offer our comments on this misguided legislation. I urge the
    leadership of the committee, as well as each of the members of
    the committee, to continue your high-profile leadership on the
    issue of affordable prescription drugs by vigorously opposing
    this bill. It will promote high prescription drug prices and
    deny your constituents, our members, timely access to more
    affordable generic medicine.
        I thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Metzenbaum.
        [The prepared statement of Mr. Metzenbaum follows:]

                   Prepared Statement of Howard M. Metzenbaum

        Good morning, Mr. Chairman, Senator Leahy and members of the
    Committee. I appreciate your invitation to offer my comments regarding
    this legislation. My name is Howard M. Metzenbaum and I now serve as
    Chairman of the Consumer Federation of America (CFA). CFA is a non-
    profit association of some 240 pro-consumer organizations, with a
    combined membership of over 50 million Americans. CFA was founded in
    1968 to advance the consumer interest through advocacy and education.
        For 19 years in the U.S. Senate, I opposed patent extensions, even
    going so far as to use or threaten to use the Filibuster on many
    occasions. The organization for which I speak today, CFA, has worked
    very hard to improve access to affordable prescription drugs for all
    Americans. Unfortunately, the legislation before you today moves in the
    opposite direction. At a time when Americans are calling on Congress to
    take decisive action to make prescription drugs more affordable, S.
    1172 will place an additional financial burden on American consumers
    and the health system. The bill is essentially a tax on the uninsured,
    the poor, the sick and the elderly. I strongly urge you to reject it.
        The bill is also the latest attempt by the drug manufacturer
    Schering-Plough to protect its lucrative monopoly and achieve a patent
    extension for its best-selling antihistamine, Claritin. Last year, CFA
    helped defeat an attempt by Schering-Plough to get a backdoor patent
    extension by attaching it to the omnibus appropriations bill. Schering-
    Plough made similar efforts in 1997 and 1996.
                              the hatch-waxman act
        Senator Hatch, you provided great and wise leadership when you
    joined with Congressman Waxman in authoring the Drug Price Competition
    and Patent Restoration Act of 1984, also known as the Hatch-Waxman Act.
    It represents a careful balancing act. It was designed to increase
    access to affordable, generic drugs, while insuring that drug
    manufacturers have adequate patent protection to justify substantial
    investment in research and development.
        In other words, the Act promotes innovation and affordability. And
    it has helped bring down drug prices. The Congressional Budget Office
    estimated in 1998 that buyers saved roughly $8 billion to $10 billion
    in 1994 alone in pharmacy purchases, by substituting generic for brand-
    name drugs. At the same time, the wider availability of generic drugs
    certainly has not affected the profitability of drug manufacturers.
    According to researchers at Boston University, the pharmaceutical
    industry was the most profitable in the U.S. in 1998 and has been so
    for the last thirty years.
        Unfortunately, S. 1172 would upset the careful balance achieved by
    the Hatch-Waxman Act by allowing the manufacturers of Claritin and six
    other ``pipeline drugs'' to petition the Patent and Trademark Office
    (PTO) for additional patent life. If the three-year extensions are
    granted--a likely outcome under the terms of the bill--the cost will be
    an additional $2.2 to $4.5 billion. It is unthinkable that Congress
    should consider a patent extension for Schering-Plough's blockbuster
    drug Claritin, which had sales of $1.8 billion in 1998. That's nearly
    $5 million in sales each and every day.
        The Hatch-Waxman Act made allowances for drugs already in the FDA
    review ``pipeline'' at the time of enactment by deliberately granting
    two additional years of patent protection, instead of the five years
    granted to drugs approved after 1984. After all, the purpose of patent
    protection is to provide drug manufacturers with an incentive to pursue
    future research and development for new drugs, not to increase profits
    on existing drugs. At the time the Hatch-Waxman Act was enacted, drug
    manufacturers had already invested heavily in research and development
    for Claritin and the other pipeline drugs. Moreover, Claritin received
    an additional 22.5-month patent extension in 1994 under the General
    Agreement on Tariffs and Trade.
                   americans need access to affordable drugs
        As I've said already, this bill couldn't come at a worse time for
    Americans who desperately need access to affordable drugs. I'm sure
    that all of the members of this committee are aware of the scope of the
    problem, but let me provide you with a few ``hot off the presses''
    statistics from the publication, ``Affordable Medications for
    Americans: Problems, Causes and Solutions.'' This report was released
    just last week by Alan Sager and Deborah Socolar, researchers at the
    Access and Affordability Monitoring Project (AAMP) of the Boston
    University School of Public Health.

       Roughly 70 million Americans of all ages--about one in
            four--have no prescription drug coverage, according to AAMP
            estimates. Under-insurance for medications is also rising.

       Retail prescription drugs will consume 8.4 percent of U.S.
            health spending in 1999, up from 7.2 percent in 1997.

       Prescription drug spending is rising about three times as
            fast as overall health costs. Prescription drug prices are
            rising 2.4 times as fast as the overall Consumer Price Index,
            from April 1998 to April 1999.

       In 1998, pharmaceuticals were the most profitable industry
            in the U.S. in return on equity, on revenue and on assets. In
            fact, drug manufacturing has been the most profitable U.S.
            industry over the past thirty years. The median return on
            equity was 1.5 times the all-industry in the 1970s and 1980s,
            increasing to 2.3 times the industry average in the 1990s.

        These statistics provide compelling evidence of the need for more
    affordable prescription drugs, and of the fact that the drug
    manufacturing industry is in no need of the unjustifiable windfall that
    this bill would provide.
                         specific concerns with s. 1172
        Although Senator Torricelli deserves credit for making this
    legislation somewhat less problematic than its House counterpart, H.R.
    1598, it is still fatally flawed.

      1. S. 1172 would turn the intent of patent protection on its head.
        Patent life is intended to encourage research and development
        before a drug is granted approval, not to reward a drug
        manufacturer with additional profits after the drug comes to
        market. Despite the elevated rhetoric about intellectual property
        rights and FDA review timelines and procedures that you will hear
        this morning, this bill is really about one thing: protecting
        Schering Plough's lucrative monopoly on Claritin. The irony is that
        Claritin has undoubtedly earned back the investment made by its
        manufacturer in research and development many times over. Moreover,
        as mentioned above, Claritin has already received patent extensions
        of nearly four years.

      2. S. 1172 could cost consumers and the health system billions of
        dollars. A 1996 Congressional Research Service report found that
        generic competition reduced the price of a drug between 30 and 60
        percent. According to an analysis prepared by Public Citizen, this
        would mean savings on Claritin of between $1.6 billion and $3.2
        billion over three years. Savings on all seven ``pipeline'' drugs
        would be between $2.2 billion and $4.5 billion over three years.
        Some consumers, especially older Americans, will pay hundreds of
        dollars a year more in out-of-pocket costs.

      3. S. 1172 would cut the agency with the most expertise on drug
        review, the FDA, out of the decision-making process. The PTO is not
        equipped by experience or training to make a judgment call in this
        area. Questions involving the drug review process are well beyond
        its area of expertise. Right now, the PTO performs a function
        regarding prescription drug patent disputes that can only be
        characterized as ministerial. Although the PTO makes a final
        judgment on patent extension, the entire decision is based on key
        determinations made by the FDA. The FDA's determinations involve
        issues such as a drug's eligibility for patent extension, the
        appropriate length of extension based on the regulatory review
        period, and whether the manufacturer acted with ``due diligence''
        during the FDA review process. If a ``due diligence'' determination
        is challenged, the FDA will make a determination on the validity of
        the challenge and then convene a hearing to consider appeals. S.
        1172, on the other hand, would hand this decision-making authority
        over to an agency with no experience in drug review, the PTO.

      4. S. 1172 mandates a review process that is biased in favor of the
        drug manufacturer. Although the review process in S. 1172 is less
        flawed than that outlined in H.R. 1598, the bill's short decision-
        making timelines and narrow criteria are still biased toward
        approval of patent extension. For example, while ostensibly
        requiring the Commissioner of the PTO to consider ``public interest
        and fairness'', S. 1172 defines those terms to exclude
        consideration of the consumer's interest in lower prices, or the
        negative impact of high prescription drug costs on taxpayers and
        the health care system, when the Commissioner decides whether to
        grant patent extension approval. The bill also automatically grants
        an extension to drugs for which the patent expires during the
        bill's review process. Even if the application is denied, the
        applicant is authorized to apply to the Court of Appeals to
        continue the extension pending judicial review. All the dice are
        loaded to keep the patent extant while the appellate process drags
        on.

      5. S. 1172 could subject Congress to an onslaught of ``copy cat''
        legislation. Passage of S. 1172 will serve as a bad precedent for
        drug manufacturers who will want to push Congress to pass similarly
        unjustifiable patent extensions. If it is good for one, why not for
        all?

        You probably know that the General Accounting Office is
    investigating allegations that Schering-Plough may have contributed to
    the delay in approval of Claritin at the FDA. This delay is obviously
    the basis for Schering Plough's claim that they deserve a patent
    extension. As you have heard from my testimony, CFA believes that using
    an FDA delay as justification for this legislation, no matter what the
    cause, represents a serious misreading of the Hatch-Waxman Act. This
    legislation should be rejected outright as unjustifiable and costly to
    consumers.
        In closing, let me thank both Senators Hatch and Leahy again for
    the opportunity to offer our comments on this misguided legislation. I
    urge you both to continue your high-profile leadership on the issue of
    affordable prescription drugs by vigorously opposing this bill. It will
    promote high prescription drug prices and deny your constituents--our
    members--timely access to more affordable generic medicines.
        Thank you.

        Senator Ashcroft. Mr. Chairman?
        The Chairman. Yes, Senator Ashcroft.
        Senator Ashcroft. Due to pressing business on the floor,
    some of which is related to drugs, given the sanctions measure
    regarding medicine, I was late and didn't get a chance to make
    a statement and won't be able to stay. May I submit for the
    record my remarks which are in support of Senator Torricelli's
    bill?
        The Chairman. Without objection, we will put those in the
    record. We appreciate that and we understand the pressures on
    everybody here today.
        Senator Ashcroft. Thank you.
        [The prepared statement of Senator Ashcroft follows:]

    Prepared Statement of Hon. John Ashcroft, a U.S. Senator From the State
                                  of Missouri

        Good Morning. I would like to thank the Chairman for holding this
    hearing today on the important issue of the need for a system at the
    Patent and Trademark Office to consider applications for patent
    extensions for drugs that have been bogged down in regulatory
    bureaucracy at the FDA for an inordinate amount of time.
        I can't say I'm surprised that this situation exists. As President
    Reagan used to say, `the only example of eternal life on earth is a
    federal administrative agency.' President Reagan was right. Given this
    immortality, I guess it is only natural that to the bureaucrats, a
    delay of four, five, six or more years before approving the sale of a
    commercial product seems like a relatively short time.
        But to a company that has invested fortunes in research and
    development to produce these drugs, every minute of regulatory delay is
    time ticking against their patent. It is time that the company can't be
    selling their innovation under the protection of a patent to recoup
    these research and development costs, and to make a fair profit, This
    is something that we cannot afford, if we create disincentives to
    research and development, if we diminish the financial incentives to
    innovation, we won't get any innovation. The Chairman rightly
    understood this when he introduced and passed the Hatch Waxman Act in
    1984, setting the delicate balance between the intellectual property
    interests of pharmaceutical innovators and the public interest in a
    competition market for consumer drugs.
        Recently I became aware of the so-called ``pipeline'' drugs--the
    small group of drugs that were already in the FDA review ``pipeline''
    when Hatch-Waxman was enacted. These pipeline drugs may have been
    inadvertent victims of the legislative process.
        Because they were already in the pipeline, these drugs were given a
    shorter patent extension (2 years) than drugs that had not started the
    review process yet (5 years). Unfortunately, the review process for the
    pipeline drugs took on average twice as long as expected.
        Not surprisingly, the companies whose drugs were held up in the FDA
    review process don't think it is fair that they should suffer due to
    delay they claim was caused by the FDA. The companies want their
    patents extended to reflect this delay. There are others, however, who
    say that the delay at the FDA was warranted, or in some cases caused by
    the companies themselves. These others say that no patent extension is
    warranted.
        Now, it seems to me that if the companies that made the pipeline
    drugs are right that they are the victims of bureaucratic delay, it is
    only fair that they get some relief in the form of a patent extension.
    However, if their opponents are right, and the delay was due to the
    companies' own actions, they do not deserve an extension.
        One thing is clear, there needs to be a neutral and independent
    process to review these disputes, and it is not Congress that should
    make those determinations. That is why Senator Torricelli introduced S.
    1172, a bill that reflects a lot of thought and hard work, and a bill
    of which I am proud to co-sponsor. S. 1172 sets up an independent
    review process at the Patent and Trademark Office to handle these
    disputes. Interested parties can make their case for or against a
    patent extension on any of these pipeline drugs. If the Commissioner of
    the PTO believes that the manufacturer of the pipeline drug has shown
    by clear and convincing evidence that it used due diligence in the
    review process, and the Commissioner determines that an extension would
    be in the public interest, the Commissioner can grant an extension of
    up to 3 years. If the Commissioner is not convinced, no extension is
    granted. Furthermore, this decision is reviewable by a federal circuit
    court, and may be appealed by either party.
        Let me be clear, S. 1172 does not take sides. It does not express
    any opinion on the merits of granting an extension on any particular
    drug. What is does is simply set up a fair and independent process for
    these claims to be resolved, and that seems eminently reasonable to me.
    That is why I co-sponsored this bill. I again want to thank Senator
    Torricelli for his hard work and leadership on this issue and look
    forward to the testimony today and to hearing if there are ways that
    this process can be improved.

        The Chairman. We will now turn to Richard Jay Kogan.

                     STATEMENT OF RICHARD JAY KOGAN

        Mr. Kogan. Thank you, Chairman. My name is Richard Jay
    Kogan and I am chairman and chief executive officer of
    Schering-Plough Corporation. I appreciate the opportunity to
    testify in favor of S. 1172, a proposal by Senator Torricelli
    that would strengthen intellectual property protection in the
    important area of pharmaceutical research.
        The bill would establish an independent process within the
    Patent and Trademark Office to consider patent restoration for
    seven pipeline drugs that lost years of patent life because of
    unanticipated regulatory delays. The bill would give the
    companies that discovered and developed these innovative drugs
    the chance to make their case for patent restoration. Let me
    repeat, the bill gives the companies a chance, not a guarantee,
    to make their case on the merits. That is all we are asking
    for, a fair hearing by the Patent and Trademark Office.
        These seven drugs affected by S. 1172, because they were
    already in the regulatory pipeline and presumably close to
    approval for marketing, received 2 years of patent restoration
    under the terms of the Hatch-Waxman Act. By comparison, most
    other drugs that have come to market since the late 1980's
    received 5 years of patent restoration.
        One of the pipeline drugs at issue here, as has already
    been mentioned, is Claritin, which is a successful product and
    has earned our company significant revenues. It is also
    important to point out that millions of allergy sufferers live
    safer, more comfortable, and more productive lives thanks to
    the dedication of the Schering-Plough scientists who discovered
    and developed this drug.
        I was the company's Executive Vice President for
    Pharmaceutical Operations when Claritin was awaiting regulatory
    approval. An FDA advisory committee has recommended approval in
    October 1987, and it looked like the Hatch-Waxman 2-year patent
    restoration would be right on the mark. Unfortunately, though,
    it actually took another 5.5 years from the first advisory
    committee meeting before FDA allowed us to market the product.
        During that time, the agency had a major reorganization
    that slowed drug approvals. And because of limited resources at
    the FDA during this same period, the agency was correctly
    giving priority to the approval of life-saving drugs, so
    products like Claritin were sort of sent to the back of the
    line.
        We were also asked to respond to two new scientific
    questions that created further delays, and as a result, and
    despite Schering-Plough's diligence in responding quickly and
    fully to all FDA's requests, Claritin was stuck in the approval
    pipeline until 1983. Now, members of the committee, that is 9
    years after the enactment----
        The Chairman. You mean 1993?
        Mr. Kogan. I am sorry; 1993. Thank you, Chairman. So, that
    is 9 years; we were stuck for 9 years after the enactment of
    the Hatch-Waxman Act. In an industry where research is the key
    to success and where funds for research can only come from
    successful products, such a delay is highly detrimental.
        Growth through research is a fundamental business strategy
    at Schering-Plough. This is clear when one looks at our
    business performance. We have increased our research spending
    by an average of 13 percent every year. In 1998, we raised it
    even more, by 19 percent, to just over $1 billion, and this
    year we are going to spend 15 percent more than that.
    Pharmaceutical research involves both high risk and an enormous
    investment of resources, and without fair patent protection we
    simply could not generate the necessary capital that allows us
    to make these risky and large investments.
        Schering-Plough has targeted many serious medical
    challenges. Today, our scientists are working on drugs that
    show promise against several cancers, including ovarian,
    breast, lung, skin, pancreatic, and colon. We are also
    developing a drug that would treat brain tumors in children,
    and a new antibiotic that is highly effective against resistant
    bacteria.
        In the area of biotechnology, our research team is
    conducting studies to better address devastating chronic
    inflammatory diseases such as rheumatoid arthritis and Crohn's
    disease. Also, Schering-Plough's gene therapy group in
    California is presently in clinical trials with P-53, a
    treatment that has shown encouraging results in certain solid
    cancer tumors.
        Pharmaceutical research is one of America's great success
    stories. Generic drug companies provide a service by producing
    copies of our products, but they don't invest in innovation.
    Without research-based companies, generic companies would not
    have products. I hope the members of the committee will
    consider the strong connection between intellectual property
    rights and the research that produces breakthrough drugs. It is
    impossible to have one without the other.
        The independent review process proposed in S. 1172 at the
    Patent and Trademark Office is an important part of the
    continuing fight against disease and illness, but it is also
    about something larger, a continuing commitment to encourage
    the spirit of invention and innovation that has helped make
    America a world leader in almost every discovery area. I urge
    you to embrace that commitment and support this bill.
        Thank you.
        The Chairman. Thank you, Mr. Kogan. We appreciate your
    comments.
        [The prepared statement of Mr. Kogan follows:]

                    Prepared Statement of Richard Jay Kogan

        My name is Richard Jay Kogan. I am Chairman and Chief Executive
    Officer of the Schering-Plough Corporation. I appreciate this
    opportunity to testify in support of S. 1172, the Drug Patent Term
    Restoration Review Procedure Act of 1999.
        This Bill would establish an independent review process within the
    Patent and Trademark Office (PTO) to consider the possibility of patent
    term restoration for seven pipeline drugs.\1\ These seven drugs lost
    significant patent life because of lengthy review in the new drug
    approval process. In each case, FDA's review of the new drug
    application (NDA) took over five years. Yet these drugs received only
    two years of patent term restoration under the 1984 Hatch-Waxman Act,
    compared to the five years of patent term restoration that other drugs
    received.
    ---------------------------------------------------------------------------
        \1\ The seven drugs are Cardiogen-82, Claritin,
    Dermatop, Eulexin, Nimotop,
    Penetrex , and Relafen.
    ---------------------------------------------------------------------------
        S. 1172 is a major departure from the private patent extension
    bills that Congress has considered in the past. The Bill does not
    extend any patent or guarantee that any patent will be extended. Rather
    it creates a nonpolitical process in which the PTO determines if it is
    fair and equitable to restore patent term on any of these seven drugs.
    In providing this process, Congress will reaffirm its commitment to
    strong intellectual property protection which drives new drug research
    and development (R&D).
                      schering-plough's commitment to r&d
        Schering-Plough has been successful because we know our future will
    be determined by research and by how well we identify discovery targets
    and conduct our development projects. We also understand that the
    development of new drug therapies is an extremely capital-intensive
    endeavor.
        Schering-Plough's R&D expenditures in 1998 exceeded $1 billion,
    which was an increase of 19 percent over the prior year. R&D
    expenditures for 1999 will increase by more than 15 percent. Within our
    peer group of large research-driven pharmaceutical companies, Schering-
    Plough ranks fourth in terms of research expenditures as a percentage
    of total sales. Our R&D expenditures have increased steadily and
    significantly in the 1990s, as shown in Table 1.
    [GRAPHIC] [TIFF OMITTED] T7573.016

                   r&d is a high-cost and high-risk endeavor
        Because of the cost and time it takes to bring a new drug to the
    market, it is essential that we maintain, if not increase, our high
    level of R&D investment. Schering-Plough continues to invest steadily
    in new research and technologies. Through new technologies we have
    increased the number of sample compounds tested from around 400,000
    annually to an estimated 1.3 million this year.
        Even with the research advances of today, only one in every 5,000
    chemical compounds ever reaches the U.S. market. Bringing a drug to the
    market place takes 12 to 15 years and costs up to $500 million.
     r&d funding is dependent on revenues from currently marketed products
        The market introduction of our product Claritin in 1993,
    and its ongoing success since then, has fueled Schering-Plough's R&D
    efforts. Revenues generated in the current year from our marketed
    products are utilized to fund ongoing and future research initiatives.
    Strong sales support increases in R&D investment, which in turn
    delivers important new drug products to consumers. Especially critical
    are the revenues from a small number of very successful products.
                pharmaceuticals critically impact public health
        Schering-Plough's researchers are pursuing novel therapies that
    address important medical needs. Their efforts focus on cancer,
    infectious diseases (like hepatitis C), cardiovascular disease, central
    nervous system diseases (like Alzheimer's disease), and allergic and
    inflammatory disorders. Our scientists are developing drugs that can
    directly target the causes of disease, with the hope of offering
    significant improvements over existing treatments that only address
    disease symptoms.
        But many of these promising drug candidates are years away from
    marketing. A potential new drug must be evaluated for many years--in
    laboratory testing, animal testing, and human clinical studies--in
    order to develop the necessary data for a new drug application (NDA).
    The speed with which we are able to pursue this innovative research is
    directly dependent on earnings from marketed products, and those
    earnings are directly dependent on strong and fair patent protection.
                       the outlier pipeline drug problem
        Recognizing the importance of patent protection to pharmaceutical
    R&D, Congress enacted the Drug Price Competition and Patent Term
    Restoration Act of 1984, also known as the Hatch-Waxman Act.\2\ Under
    that Act, the holder of a patent for a new drug can apply to the Patent
    and Trademark Office for restoration of part of the effective patent
    life lost due to regulatory review. For most drugs, the Hatch-Waxman
    Act limits the restoration period to five years. For drugs whose patent
    issued and whose regulatory review straddled the enactment date of the
    legislation--so-called ``pipeline'' drugs--the statute limits the
    restoration period to two years.
    ---------------------------------------------------------------------------
        \2\ Pub.L.No. 98-417, 98 Stat. 1585 (Sept. 24, 1984).
    ---------------------------------------------------------------------------
        In 1984 when Hatch-Waxman was enacted, the average time for FDA
    approval of an NDA was 2.25 years.\3\ However, for the seven pipeline
    drugs that are covered by S. 1172, regulatory review took many years
    longer than Congress would have anticipated based on this 2.25 years
    average review time. FDA approval of the NDAs for these drugs took over
    5 years, more than twice the amount of time that would have been
    expected.
    ---------------------------------------------------------------------------
        \3\ FDA, ``New Drug Evaluation Statistical Report'' 53 (Oct. 1985)
    (FDA mean approval time of 26.9 months for new molecular entities in
    1984).
    ---------------------------------------------------------------------------
        The unfairness of applying the 2-year limitation on patent
    restoration to Claritin and the other six pipeline drugs can
    be seen by comparing these drugs to drug products which began clinical
    trials just after the Hatch-Waxman enactment date and thus were not
    subject to the 2-year limit on patent term extension. Products with
    much shorter NDA review periods than Claritin received much
    longer patent term extensions. For example, a blockbuster lipid
    lowering agent that just missed being classified as a pipeline drug
    spent 4.19 years in NDA review, received over 4.6 years of patent
    extension, and has an effective patent life of 14 years. Similarly, a
    well-known antibiotic that just missed being classified as a pipeline
    product spent only 1.56 years in NDA review, received 3.4 years of
    patent extension, and has an effective patent life of 14 years. In
    comparison to these successful drugs, Claritin had an NDA
    review time of 6.45 years, received only 2 years of patent extension,
    and has an effective patent life of just over 9 years. These are but
    two examples. There are numerous others.
        Even drug products that were approved by FDA just prior to
    enactment of the Hatch-Waxman Act received better treatment than many
    of the outlier pipeline drugs covered under S. 1172. While these
    already approved drugs did not receive any patent extension, they did
    receive 10 years of market exclusivity under other provisions of that
    Act. Thus, they received ten years of protection against generic drug
    competition.
        Pharmaceutical companies are under tremendous competitive pressure.
    Companies that do not discover and develop new products oftentimes do
    not survive. The number of pharmaceutical companies that have
    disappeared through mergers and acquisitions in recent years is
    evidence of this fact. Given this environment, and because so few
    compounds ever make it through the development process and to the
    market, it is critical that the rare successful product receive fair
    patent protection.
                 solution to the outlier pipeline drug problem
        Senator Torricelli has introduced legislation that would create a
    process by which the PTO could consider applications for patent term
    restoration for seven outlier pipeline drugs. The bill, S. 1172, would
    authorize the PTO to determine whether pipeline drugs that were
    subjected to more than five years of NDA review by FDA should be
    awarded patent term restoration of up to three years. The period of
    patent term restoration would be reduced for any period of time in
    which the applicant did not exercise due diligence in pursuing
    approval.
        In past years, Congress has been asked to award patent term
    extension directly to a specified drug product. In fact, Congress has
    enacted product-specific patent extensions for pipeline drugs three
    times since enactment of Hatch-Waxman. But this private bill approach
    has been criticized for politicizing the patent term restoration
    process.
        In contrast, S. 1172 creates a neutral administrative process.
    Under the Bill, the PTO--an informed decisionmaker with expertise on
    patent matters--conducts an administrative proceeding in which
    interested parties--including generic drug manufacturers--can
    participate. FDA is given a significant consultative role and PTO has
    access to all relevant documents and information. All seven outlier
    pipeline drugs would be eligible to participate in the process. No drug
    would automatically receive patent term restoration. We believe this
    process-oriented approach can effectively address the outlier pipeline
    drug problem.
        Under the Bill, the applicant must show that it acted with ``due
    diligence.'' This is the same standard an applicant must meet to
    currently receive an extension under Hatch-Waxman. Due diligence is
    defined as ``that degree of attention, continuous directed effort, and
    timeliness as may reasonably be expected from, and are ordinarily
    exercised by,'' an applicant during an NDA review period.\4\ Due
    diligence focuses on the applicant's actions, not on FDA's actions. As
    a result, the PTO is not put in the position of second-guessing FDA's
    scientific judgments.
    ---------------------------------------------------------------------------
        \4\ 35 U.S.C. Sec. 156(d)(3).
    ---------------------------------------------------------------------------
        I was President and Chief Operating Officer of Schering-Plough
    Corporation and Executive Vice President--Pharmaceutical Operations
    during the time that Claritin was awaiting FDA approval. Less
    than a year after the NDA for Claritin was submitted to FDA,
    on October 23, 1987, an FDA advisory committee recommended that FDA
    approve the Claritin NDA. FDA often promptly approves a drug
    that has received a favorable recommendation from an advisory
    committee. In the case of Claritin, however, approval did not
    come until April of 1993. Schering-Plough had to wait more than six
    years after the NDA was submitted to market Claritin in the
    United States. When the Claritin approval finally came, the
    public received access to a once-a-day, nonsedating antihistamine that
    did not present the kinds of cardiac risks that existed with the other
    nonsedating antihistamine products on the market at the time.
        Two unanticipated scientific issues arose after the FDA advisory
    committee recommended approval of Claritin in 1987--one
    involved toxicology data and the other involved bioequivalence. FDA
    addressed both of these issues with caution. Schering-Plough acted with
    due diligence during the entire process.
        The review of the Claritin NDA was complicated by FDA's
    reorganization of the Center for Drug Evaluation and Research (CDER)
    which began in 1987 and continued until 1989. Moreover, FDA reviewed
    Claritin prior to enactment of the Prescription Drug User Fee
    Act (PDUFA) in 1992. Before enactment of PDUFA, FDA lacked the funding
    and resources to review NDAs expeditiously, particularly for drugs that
    were not designated for ``priority'' review. During the CDER
    reorganization Claritin was assigned to the same division
    that reviewed cancer drugs, all of which received ``priority''
    designations. Claritin received a ``standard'' review
    designation.
        All of these factors certainly had an adverse impact on the time
    the Claritin NDA spent in the regulatory review. In contrast to the 6.5
    years spent in regulatory review in the United States,
    Claritin received approval in 2.5 years or less in many
    countries with sophisticated regulatory agencies, including Germany,
    France, Ireland, Italy and the United Kingdom.
        Claritin is a good example of why the manufacturers of
    the seven outlier pipeline drugs should be given an opportunity to
    present their case to the PTO for up to three years of patent term
    restoration. Claritin received the worst of both worlds,
    extraordinarily lengthy regulatory review, and minimum patent
    restoration.
        Congress recognized the importance of, and relationship between,
    fair and strong patent protection and pharmaceutical R&D when it
    enacted Hatch-Waxman. In order to properly fund R&D, successful
    products must have fair patent protection. S. 1172, in providing a
    nonpolitical forum and a fair process, furthers this goal. That is why
    Schering-Plough supports this Bill. That is why we urge you to do the
    same.

        The Chairman. Next, we will turn to former FDA Associate
    Commissioner Jerry Meyer, and we will listen to your testimony,
    Mr. Meyer.

                      STATEMENT OF GERALD F. MEYER

        Mr. Meyer. Thank you, Mr. Chairman. I appreciate very much
    this opportunity to appear and to speak in support of S. 1172,
    the Drug Patent Term Restoration Review Procedure Act of 1999.
        As you may know, I previously testified in support of this
    kind of legislation before the House Subcommittee on Courts and
    Intellectual Property of their Judiciary Committee on both July
    1, 1999, and on May 21, 1998. I also participated in a panel
    discussion on this subject with Surgeon General Koop and others
    sponsored by the Intellectual Property Institute that was held
    on the Senate side of this Capitol on June 10 of this year.
        Mr. Chairman, I remain convinced of the merits of this
    legislation, and I am personally pleased that this committee is
    pursuing it, as well as appreciative that I have been given
    this opportunity to appear in support of it. I say that from
    the perspective of having served on the front lines of FDA's
    drug review and approval processes as Deputy Director of FDA's
    Center for Drug Evaluation and Research some 8 years ago. I
    remember with both some pride and with some pain appearing
    before both you and the distinguished Senator from
    Massachusetts on a number of occasions.
        I also want to make clear that I am not here on behalf of
    anyone, and I am not being paid in any way by anyone in any
    manner for my appearance in connection with this legislation or
    any other activity in connection with this legislation. I am
    here as a former official of the Food and Drug Administration.
    I do now work as an independent consultant and I work for
    several other organizations, but I am here strictly on my own.
        Prior to enactment of the Prescription Drug User Fee Act of
    1992, as you and Mr. Kennedy will remember, FDA faced enormous
    difficulties in reviewing new drugs within the statutory
    timeframe because of a chronic lack of adequate funding and
    resources. And I believe that despite the very substantial
    efforts of a talented and dedicated review staff to carry out
    our responsibilities, our agency simply could not keep up with
    the number of new drug applications that were being submitted
    and are continuing to be submitted by the pharmaceutical
    industry. There are almost 150 NDA's that come in every year.
        Review and approval times increased, and it was not until
    enactment of the user fee legislation that the drug review
    activities of the agency began to receive the funds and
    manpower that were needed to make a significant impact on this
    extended review time. The fact is that the lack of sufficient
    staff before enactment of this legislation meant that when
    someone was ill or resigned or retired or had a child or was
    otherwise unavailable to work on an application, there was no
    one else available to step in.
        And when the number of applications in a particular drug
    class increased substantially, as they did for certain types of
    drugs at different times, they could simply overwhelm the
    available staff in a review division. You will remember this
    occurred, for example, over time with antihypertensive, with
    nonsteroidal antiinflammatory drugs, and with certain classes
    of antiinfective drugs. It also occurred when an application
    presented a difficult and complex scientific issue that
    required extended time to address, such as occurred with
    conjugated estrogens not very long ago.
        In such cases, a division would simply have to defer review
    until they could work through this backlog or this scientific
    question. In some cases, these kinds of delay could and did add
    years to review times. Mr. Chairman, I could cite examples, and
    I remember Dr. John Harter telling me that it would be 2 years
    before he could even pick up an application for a nonsteroidal
    antiinflammatory drug to begin review because there were that
    many applications in front of it.
        In all candor, Mr. Chairman, I also don't believe these
    kinds of problems will ever be completely eliminated. There
    will always be applications that come in in a rush in a
    particular class of drugs that overwhelm the reviewers who are
    trained in that class of drugs. There will always be some
    complicated scientific issue presented by a particular product,
    where making the risk/benefit decision will be difficult and
    require extended time. And there will also be situations where
    we have trouble in recruiting people.
        At the moment, the current number of applications for
    products to treat asthma is an example of a division that is
    almost overwhelmed with those applications. Learning how to
    measure how much of a drug gets into the lungs by a novel
    delivery system is a difficult and complicated task. Working
    through the scientific issues that are involved is tough, and
    the difficulty in recruiting pulmonologists for a government
    salary is also a worthy, worthy challenge.
        That is why a process like that proposed in this
    legislation is so important, and not just for those few
    problems that occurred in the past, but also for those problems
    that I believe will occur in the future. And I hope the
    legislation provides for that. I think there will always be
    those kinds of issues.
        It is true that the FDA did, and continues to assign
    priorities to applications for products that represent drugs
    for life-threatening diseases for which there is only limited
    or no adequate authority. I agree with that priority. You and
    others in our Congress agree with that priority. But I
    acknowledge that it only adds years to the review time and
    delays for other applications that may later on prove
    important. I say that because as you know, Mr. Chairman, all
    patients do not respond equally, in the same way, to all
    products.
        The additional resources provided to the drug process
    through user fee legislation and appropriations that have been
    made available are invaluable, but they have not eliminated all
    of the inequities that existed before this legislation and may
    somehow exist in the future. That is what I hope this new
    legislation will correct. And as a matter of public policy, I
    believe an open administrative process will almost always be
    preferable to other alternatives.
        Thank you, Mr. Chairman, for this opportunity and I will be
    pleased to respond to any questions.
        The Chairman. Well, thank you, Mr. Meyer. We are glad to
    have you before the committee again. We have always respected
    you and enjoy your point of view, or at least have enjoyed
    listening to it.
        Ms. Ben-Maimon, we look forward to hearing your testimony.
    I think this is the first time you have appeared before our
    committee, so we are happy to welcome you here and we look
    forward to hearing what you have to say.

            STATEMENT OF CAROLE S. GOLDFINE BEN-MAIMON, M.D.

        Dr. Ben-Maimon. Thank you. Good morning, and thank you for
    inviting me to testify before the Senate Judiciary Committee.
    My name is Carole Goldfine Ben-Maimon and I am a physician
    board-certified in internal medicine who has worked in research
    and development in the pharmaceutical industry since 1991.
        Currently, I am Senior Vice President for Research and
    Development at Teva Pharmaceuticals. Teva is a manufacturer of
    both pharmaceutical products and raw materials, with facilities
    in New Jersey, Pennsylvania, and Missouri. Teva is a member of
    the Generic Pharmaceutical Industry Association and the
    National Pharmaceutical Alliance, and my testimony today is on
    behalf of both of those trade organizations. In my current
    position, I have been responsible for obtaining the approval of
    a multitude of generic drug products, as well as working with
    the FDA to obtain approval for several novel and new orphan
    drug products.
        I would like now to focus on the legislation at hand.
    Hatch-Waxman is a law that was carefully and thoughtfully
    drafted to strike a balance between the brand industry and the
    generic industry, and to serve the public interest. The generic
    industry is dependent on the brand industry for its lifeblood.
    It is only through the brand industry's continued research and
    development that new products ultimately become available for
    the generic industry to develop and market.
        It would be naive to believe that the risks involved in
    drug development would be incurred without the anticipation of
    significant financial reward. Thus, we understand the need to
    protect intellectual property rights and the importance of
    incentives to stimulate the costly research and development for
    new drugs. We emphatically support the protection of these
    rights. The question now is only when does the patient deserve
    access to lower-cost generics.
        S. 1172 is a bill that proposes extending the patents on
    several branded pharmaceutical products, the most notable of
    which is Claritin, Schering-Plough's multibillion-dollar drug
    for allergy sufferers. I would ask that today we take a
    different look at this and look at the alternative. In our
    view, allowing Schering's Claritin patent to expire would
    accomplish exactly what Congress intended when they passed the
    Hatch-Waxman Act.
        First, Hatch-Waxman has already provided the incentive to
    continue the development of Claritin and ultimately bring the
    product to market. Second, American consumers will finally have
    access to more affordable generic versions of the drug. And,
    third, and most importantly, letting patents expire stimulates
    and encourages the development of new, improved and novel
    approaches to disease. Allowing the brand industry to rely on
    profits from an aging product line is not only inconsistent
    with the intent of Hatch-Waxman, but undermines the incentives
    to seek needed advancements in the treatment of disease.
        S. 1172 accurately, although inadequately, acknowledges
    some of the widely debated issues surrounding the 180-day
    generic exclusivity. One of the mechanisms by which the brand
    industry has delayed marketing of generic drug products is by
    abusing the listing of patents in the Orange Book. FDA has
    taken the position that they do not have the expertise to
    oversee the listing of these patents and has accepted for
    listing in the Orange Book any patent. This has resulted in a
    situation where inappropriate patent listings have become a
    major obstacle to the lawful market entry of competitive
    generic drug products. It is clear to us that as a matter of
    both law and policy, only patents on drug-active ingredients
    should be listed. FDA initially agreed with that approach and
    documented it in a letter to industry in 1984. Today, however,
    FDA lists any patent.
        S. 1172 in its current form creates additional inequities.
    Generic drug applications for these seven products, already at
    FDA, were forced to certify to all listed patents. If S. 1172
    is passed in its current form, applications being submitted in
    the future will not be required to certify to all the same
    patents. In order to create a level playing field, filing
    requirements for products which generic applications containing
    paragraph IV certifications are already on file at FDA should
    remain unchanged, while innovators should be required to remove
    irrelevant patents from the Orange Book for all other products.
        Finally, the extension of patents for pharmaceutical
    products must be considered in light of the impact on patients
    who will now be required to pay more for prescription drugs
    and, as importantly, who may now have to wait longer for new
    and improved drugs as the lack of incentive for their
    development may delay their market entry. Requests for patent
    extensions must be considered in an open forum in which
    knowledgeable parties can adequately and fairly debate the
    issue.
        In summary, as a physician and a representative of the
    generic industry, I implore you to consider the implications of
    approving S. 1172. This bill does not achieve anything other
    than an extension of several long-running monopolies at the
    expense of the patients who suffer from the diseases these
    products treat. I hope that if, prior to my testimony, Congress
    believes that a balance had been struck, I have convinced you
    to the contrary.
        The Chairman. Thank you, Ms. Ben-Maimon.
        [The prepared statement of Dr. Ben-Maimon follows:]

              Prepared Statement of Carole S. Goldfine Ben-Maimon

        Good morning. Thank you for inviting me to appear before the Senate
    Judiciary Committee today and for giving me the opportunity to share
    with you the generic pharmaceutical perspective on S. 1172. Before I
    begin to address the specific legislation at hand, I would like to take
    a moment to tell you a little about my background. My name is Carole
    Goldfine Ben-Maimon and I am a physician, board certified in Internal
    Medicine, who has worked in research and development in the
    pharmaceutical industry since 1991. Currently, I am Senior Vice
    President for Research and Development and Scientific Affairs at Teva
    Pharmaceuticals, Inc. Teva is a manufacturer of both pharmaceutical
    products and raw materials with facilities in Pennsylvania, New Jersey
    and Missouri. Teva is a member of the Generic Pharmaceutical Industry
    Association and the National Pharmaceutical Alliance and my testimony
    today is on behalf of both trade organizations.
        My responsibilities at Teva have included the development of both
    brand name drug products and generic drug products. As Senior Vice
    President of Research and Development, I manage the entire development
    process for our pharmaceutical products. This has included obtaining
    the approval of a multitude of generic products as well as working with
    the FDA to obtain approval for several new and novel orphan drug
    products, specifically a product called Copaxone for the treatment of
    Multiple Sclerosis and a product called Galzin for the treatment of a
    very rare and terminal disease, Wilson's Disease. I make this point
    because it is important and relevant to understand that many generic
    manufacturers, such as Teva, are engaged in the development and
    innovation of new medicines in addition to the development of more
    affordable generic medicines.
        My work in research and development for the pharmaceutical industry
    has allowed me to participate in some of the most exciting research
    occurring today. As a physician committed to advancing the health care
    profession's ability to significantly impact disease, there is nothing
    more rewarding than providing quality pharmaceutical products to the
    patients who need them. With this as my background and interest, I hope
    my testimony will provide the committee with a somewhat unique view on
    the issues presented in S. 1172.
        When one talks about the pharmaceutical industry, one must keep in
    mind that decisions made relating to drug development have a direct
    impact on a very large and vulnerable subset of consumers; those who
    are ill, those who are looking to pharmaceuticals sometimes to save
    their lives and almost always to improve the way they feel and thus
    their quality of life. As we all know, these necessary pharmaceuticals
    can be very costly, all too often forcing a patient to choose between
    spending their limited income on the drug or some other essential or
    desired commodity. We all also know that senior citizens are often the
    ones forced to make these unfortunate choices.
        With this in mind, in 1984 Congress tackled the task of balancing
    the public need for cost-competitive generic drug products while
    providing incentives to encourage innovation and creativity by the
    brand industry. The result was passage of the landmark Hatch-Waxman
    Act. The Act was carefully and thoughtfully drafted to strike a balance
    between the brand industry and the generic industry and to serve the
    public interest. The generic industry relies on the brand industry for
    its lifeblood. It is only through the brand industries' continued
    research and development that new products ultimately become available
    for the generic industry to develop and market. Thus, we understand the
    need for strong intellectual property rights and the importance of
    incentives to stimulate the costly research and development that is
    required to bring new, safe and effective drugs to market. Therefore,
    we emphatically support the protection of these rights. As I stated
    earlier, many generic companies actually have patents of their own and
    many also market branded products themselves. Thus, there is no
    controversy over the importance of adequate and appropriate patent
    protection, the question is only when does the patient deserve access
    to more affordable medicines.
        One can easily see the success of Hatch-Waxman worked when
    financial data is reviewed. Since 1984 brand sales have increased
    steadily, exceeding $80 billion in 1998. Last summer, the Congressional
    Budget Office concluded that, ``Between 1983 and 1995, investment in
    R&D as a percentage of pharmaceutical sales by brand name drug
    companies rose from $17 billion to $57 billion, thus demonstrating that
    the brand industry is not only continuing to invest in the development
    of novel pharmaceutical properties but it is increasing its
    commitment.'' During this time of escalating R&D, generic market share
    increased from 13 percent to 41 percent. This is proof that generic
    competition is the motivation for innovation.
        Let's be realistic the brand industry is not developing new
    products out the goodness of their hearts. They are doing this because
    of the profits that are realized when a novel product is introduced to
    the market place.
        In light of what I have just said, let's consider the specific
    issue at hand, whether or not so called ``pipeline drugs'' are entitled
    to seek additional patent life. Let me be clear. Teva and other members
    of the generic industry oppose patent extensions. There is a cost
    associated to patent extensions and it is the American consumer who
    ultimately pays the price. While the generic industry opposed patent
    extensions back in 1984, it was provisions like the Bolar safe harbor
    and the abbreviated new drug application process that rallied the
    generic industry behind passage of the Hatch-Waxman Act. The cost of
    the patent extension provisions were balanced out with the tremendous
    savings consumers would reap from having access to more affordable
    generic medicines the day after a patent expired.
        A pipeline drug is a drug for which a patent had been issued and an
    investigational new drug application (IND) or a new drug application
    (NDA) was pending at FDA before the enactment date of the Hatch-Waxman
    Act. While there were over 100 drugs in the FDA pipeline back in 1984,
    S. 1172 applies to only seven. The most notable of which is Claritin,
    Schering-Plough's multi-billion dollar drug for allergy sufferers.
        Congress specifically addressed the brand industry's concerns that
    their expected returns on their investment in these pipeline drugs
    would be diminished by the accelerated generic competition stemming
    from changes in the law. This would have led them to abandon the
    development of these products. Thus, they were awarded a two year
    extension as an incentive to bring the products to market.
        Let me reiterate that the intent of the Hatch-Waxman Act was to
    encourage future investment in research and development, not to reward
    past investment. This is why the Act provides new chemical entities
    with the opportunity to seek up to five years of additional patent life
    when drugs like Claritin were limited to the two-year patent extension.
    It is also important to note that that in addition to the two-year
    extension, Claritin enjoys a 22.5-month extension under the General
    Agreement on Trade and Tariffs (GATT). As a result of past extensions,
    in June 2002, Claritin will have enjoyed patent life of approximately
    21 years-- four years beyond the original patent term.
        I would ask that today you consider the alternative. What if
    Schering's patents were permitted to expire? In our view it would
    accomplish exactly what Congress intended when they passed the Hatch-
    Waxman Act.
        First, Hatch-Waxman provided the initial incentive to continue to
    development Claritin and ultimately bring it to market. Second,
    American consumers will finally have access to more affordable generic
    versions of the drug without additional costly delay. Third, and most
    importantly, allowing patents to expire stimulates and encourages the
    development of new, improved, and novel approaches to disease. Allowing
    the brand industry to rely on profits from an aging product line is not
    only inconsistent with the intent of Hatch-Waxman, it undermines the
    incentive to seek needed advancements in the treatment of disease. The
    knowledge that the Claritin patent will expire sooner rather than later
    has encouraged Schering to invest in new products like the metabolite
    of Claritin, desloratadine or better known as ``Super Claritin'', whose
    patent will not expire until 2014. This product according to Richard J.
    Kogan, Chief Executive of Schering-Plough is in late stage human
    testing. Hopefully this product will provide some advantages over
    Claritin, thus advancing medical therapy. At the end of the day
    Schering has rightfully profited from Claritin sales of approximately
    $30 billion.
        I'd like to address some of the other issues in S. 1172. The bill
    accurately acknowledges some of the widely debated issues surrounding
    the 180-day ``generic exclusivity'' provided for in the Hatch-Waxman
    Act. As you may know, this exclusivity was created to encourage generic
    companies to challenge or circumvent weak patents and thus bring lower
    cost pharmaceuticals to the market earlier. This provision has been
    surrounded by controversy. One of the mechanisms by which the brand
    industry manipulates the 180-day exclusivity clause is by abusing the
    listing of patents in the Orange Book. Although the generic industry
    whole-heartedly supports ``cleaning up'' the Orange Book, unfortunately
    the proposal contained in S. 1172 as written is completely inadequate
    to achieve that goal and may even exacerbate the problem.
        FDA has taken the position that they do not have the expertise to
    oversee the listing of drug patents, and has accepted for listing in
    the Orange Book any patent that the sponsor of a reference listed drug
    has submitted. This has resulted in a situation where inappropriate
    patent listings have become a major obstacle to the lawful market entry
    of competitive generic drug medicines. For example:

              A patent covering ``multifracationable tablets with
            bisectable/trisectable structures'' has been listed for the
            drug trazadone, even though the patent does not refer to
            trazadone or any other specific drug product. Because of this
            listing, a generic applicant was forced to file a paragraph IV
            certification to the patent, precipitating litigation that
            triggered the statutory 30-month stay on final ANDA approval,
            and causing substantial delay and expense.
              A listed patent covering Terazosin drug products was held to
            be expired in a 1996 federal district court case.
            Notwithstanding that decision, the patentholder insisted on
            maintaining the listing for the expired patent until
            specifically ordered by the court to request FDA to delist it,
            an order that was upheld by the Federal Circuit on appeal.
            Meanwhile, generic applicants were forced to incur additional
            expense and delay contesting a patent that had been held
            expired and ordered to be delisted. The reference drug sponsor
            ended up enjoying a de facto extension of patent protection for
            well over a year after the actual expiration date of the
            patent.

        Several method-of-use patents that cover unapproved uses of
    bupropion were listed, without use codes. Although ANDA applicants for
    bupropion are not seeking approval of such uses, those applicants were
    being forced to file paragraph IV certifications to these patents
    because, in the absence of use codes, FDA does not recognize them as
    use patents that may be omitted from an ANDA that does not seek
    approval of the corresponding indications. Subsequent to the innovator
    being notified and bringing suit these patents were delisted from the
    Orange Book.

              A patent is listed for the drug gabapentin that covers only a
            monohydrate form of the compound not found in the approved,
            marketed formulation. Yet because of this listing, generic
            applicants will be forced to file paragraph IV certifications
            to the patent, giving the patentholder the opportunity to
            trigger a 30-month stay, and invoking the 180-day exclusivity
            mechanism, over a patent that does not even claim a compound in
            the reference drug itself.

        It is clear to us that as a matter of both law and policy only
    patents on drug active ingredients (and on methods of using them)
    should be listed, and that patents that claim final formulations
    incorporating such active ingredients (i.e. drug product patents)
    should not be listed in the Orange Book, FDA initially agreed with that
    approach, and documented it in 1984 in a Letter to Industry from Harry
    M. Meyer, Jr., MD, Director, Center for Drugs and Biologics, dated
    November 16, 1984.

              The patents that FDA regards as covered by the statutory
            provisions for submission of patent information are those on
            the active ingredient or ingredients, or use patents for a
            particular indication or method of using the product. The
            agency will not publish patents relating to chemical
            intermediates, methods of manufacturing, excipients or
            formulations.

        Today, however, FDA lists any patent, and refuses to even consider
    ways to remedy the abuse potential its current approach has engendered.
        S. 1172 in its current form, creates additional inequities. You may
    not know there are generic drug applications (ANDA's) for these seven
    products already pending at FDA. Each of these applicants was forced to
    certify to all listed patents, whether or not these patents were
    appropriately listed. If S. 1172 is passed in its current form, generic
    applications submitted in the future will not be required to certify to
    all listed patents, but only to the compound patent. By reducing the
    burden of certification for these later-filed applicants, they could
    potentially avoid the 30-month approval stay and enter the market
    before the other ANDA applicants who filed first. Thus the current
    proposal is essentially backwards and creates an unlevel playing field
    within the generic market. Products for which generic applications
    containing paragraph IV certifications that are already filed at the
    FDA should remain untouched, while innovators should be required to
    remove irrelevant patents from the Orange Book for all other products.
    Resolution of this problem requires a more far-reaching and all-
    inclusive approach than that contained in S. 1172.
        Finally, we in the generic industry oppose any new process for
    obtaining patent extensions. The extension of patents for
    pharmaceutical products must be considered in light of the impact on
    patients who will now be required to pay more for prescription drugs
    and who may now have to wait longer for new and improved drugs as the
    lack of incentive for their development may delay their market entry.
    The Patent Office is not and has never been charged with this
    responsibility. They do not possess sufficient knowledge of the FDA and
    its processes nor do they possess sufficient knowledge of the impact on
    the public good or pharmaceutical policy to justify this delegation of
    authority. A truly fair and transparent process would insure that those
    making the decision would have complete information available, the
    expertise to evaluate this information, and would be capable of fully
    understanding the impact of the extension on patients, third party
    payors and the pharmaceutical industry. It is of the utmost importance
    to those of us who use drug products, prescribe them for others, and
    rely on generic products to help make ends meet, that requests for
    patent extensions be considered in a forum in which knowledgeable
    parties can adequately and fairly debate the issue. Given this type of
    process, we are of the opinion that there would be no patent extensions
    except in the most extreme of situations.
        11 Using Claritin as an example, one can clearly see the intensity
    with which a company will lobby for these extensions. This is the
    fourth effort to extend these patents. In May 1997, Schering attempted
    to add a patent extension amendment to the Omnibus Patent Act of 1997.
    In the closing moments of the 1997 congressional session, there was
    another attempt to extend the patent through the appropriation process,
    and last year there was an attempt to add this proposal to the 1998
    Omnibus Appropriations Bill. Schering is not the only company that has
    made these submarine attempts to extend patents. Debating this process
    in Congress has allowed the interests of the public to be kept at the
    forefront of the debate and thus has assured an open debate based on
    the merits. In contrast, such openness and fairness will be lost under
    the extension process proposed in S. 1172.
        In summary, as a physician and a representative of the generic
    industry, I implore you to consider all the implications of granting a
    patent extension for these products. S. 1172 is clearing focused on the
    extension of several long-running monopolies at the expense of the
    patients who suffer from the diseases these products treat. The
    improper listing of patents in the Orange Book definitely needs to be
    addressed, as must the problems surrounding the 180-day exclusivity
    provision. Other important patient oriented issues such as providing
    low cost generic biologics must also be confronted. However, this bill
    does not remedy any of the above controversially issues while it
    focuses on a self-serving strategy that only benefits a few select
    innovator companies. I hope that if prior to my testimony, Congress
    believed that S. 1172 struck a balance, I have convinced you to the
    contrary. S. 1172 provides no such balance in its current form; it is
    merely a patent extension for a multi-billion dollar allergy drug.
    Thank you for your time.

        The Chairman. We will turn to you, Mr. Hutt.

                     STATEMENT OF PETER BARTON HUTT

        Mr. Hutt. Thank you, Mr. Chairman. When the Hatch-Waxman
    was being considered during 1983 and 1984, I served as counsel
    to the pharmaceutical industry on that particular legislation.
    I was deeply involved in the development, negotiation, and
    drafting of the provisions in the ultimate statute. As a
    result, you have invited me to present testimony today on the
    origin of the pipeline drug provision in that legislation.
        The general rule under the 1984 Act was that the pioneer
    drug received up to 5 years of patent term restoration. There
    was, however, one general exception to this rule and it is the
    exception that brings us here today. A pipeline drug was
    limited to 2 years of patent term restoration. Pipeline drugs
    are defined as any drug for which a patent has been issued and
    an investigational new drug application submitted to FDA prior
    to the date of enactment of the 1984 Act, which was September
    24, 1984.
        Accordingly, there was 3 years of disparity, a full 3 years
    of difference in patent year restoration between two new drugs
    that were being developed at the identical time simply by
    reason of the fact either, first, that the IND was submitted
    shortly before the enactment date for one and the other was
    submitted shortly after the enactment date. Or, second, the
    patent for one went through the patent process quickly and was
    issued before the enactment date and the other went through the
    patent process slowly and was issued after the effective date.
        Now, 2 years ago, the chief counsel for the Senate
    Committee on Governmental Affairs asked me about the origin of
    this 3-year disparity. I provided a letter describing the two
    reasons for the 2-year limitation on pipeline drugs. Let me
    summarize those two reasons.
        First, it was felt the pipeline drugs would be approved by
    FDA shortly after enactment of the 1984 statute, and 2 years of
    patent restoration was therefore fair and equitable under those
    circumstances. Second, it was felt that because of anticipated
    short time to approval of only 2 years that less of an economic
    incentive was needed to assure continued pursuit of the drug to
    final FDA approval.
        Now, to make sure that my understanding was completely
    correct on this, in October 1997 I discussed the matter with
    John McLaughlin, who had been Representative Waxman's counsel
    to the Subcommittee on Health and the Environment and was
    involved in the legislation on a daily basis throughout 1983
    and 1984. Mr. McLaughlin wrote me to confirm my recollection
    that these two reasons were, in fact, the two reasons for the
    pipeline drug limitation. I have attached to my testimony, Mr.
    Hatch, all of that correspondence for the record.
        Now, for most of the pipeline drugs, the assumption that
    FDA approval would come shortly after enactment turned out to
    be quite accurate. At that time, the average time for FDA
    approval was approximately 2.25 years. For a few outliers,
    however, this assumption turned out to be quite inaccurate. For
    these outlier pipeline drugs, the time for FDA review and
    approval of an NDA was well over twice the average.
        It is important to understand that a number of post-1984
    new drugs that received a full 5 years of patent term
    restoration were, in fact, approved by FDA before the agency
    approved the pre-1984 outlier pipeline drugs, and they received
    only 2 years. This produced the anomalous result that the
    outlier pipeline drugs whose NDA approval time was more than
    twice the average received less than half the normal patent
    term restoration. I can assure you that none of us who
    participated in the drafting of the 1984 Act anticipated or
    intended this inequitable result. And I am sure, Mr. Hatch,
    that you as one of the leaders in that fight for legislation
    never thought this would happen either.
        Now, I want to make clear one part of this because there is
    a great deal of misunderstanding about it. FDA approval of the
    outlier drugs was not completed, as we have heard, until April
    1993, which was more than 8 years after enactment of the 1984
    statute. Within that 8-year period, many other drugs received
    FDA approval, together with a 5-year patent term extension.
        Now, like the pipeline drugs, these other drugs that got 5
    years of patent extension had begun development, testing and
    research prior to 1984, prior to the enactment date. Let me
    emphasize that point because the opposite has been stated twice
    so far in this hearing. Drugs that were approved by FDA prior
    to the outlier pipeline drugs, yet received a full 5 years of
    patent term extension, were undergoing active research,
    development and testing for more than 5 years before the
    enactment date of the 1984 legislation.
        Now, in conclusion, let me say that, without doubt, outlier
    pipeline drugs have not been treated fairly. These drugs
    received only 2 years of patent term restoration, whereas
    competitors who submitted their INDA applications later, but
    received their NDA approvals earlier, received a full 5 years
    of patent term restoration. This result cannot be justified on
    any principled basis.
        The assumptions on which the 2-year pipeline drug
    limitation was based have turned out to be erroneous for this
    very limited category of seven drugs. Under similar
    circumstances, Congress on seven prior occasions in the past
    has enacted specific legislation to redress the resulting
    inequity. In the case of these outlier pipeline drugs, this
    kind of redress of inequity could be accomplished either by
    drug-specific legislation, or I believe far more efficiently by
    establishing the type of new administrative procedure that is
    contained in S. 1172.
        Thank you very much.
        [The prepared statement of Mr. Hutt follows:]

                    Prepared Statement of Peter Barton Hutt

        Mr. Chairman and Members of the Committee, I am Peter Barton Hutt.
    I am a partner in the Washington, D.C. law firm of Covington & Burling.
        I have been asked by the Committee to present testimony on patent
    term restoration and S. 1172. For almost forty years, I have been
    engaged in the practice of food and drug law. During 1971-1975, I
    served as Chief Counsel for the Food and Drug Administration (FDA). I
    am the co-author of the casebook used to teach food and drug law in law
    schools throughout the country.\1\ I teach a full course on food and
    drug law during Winter Tenn at Harvard Law School and I have taught the
    same course during Spring Term at Stanford Law School. When the Drug
    Price Competition and Patent Term Restoration Act of 1984 was being
    considered during 1983-1984, I served as counsel to the Pharmaceutical
    Manufacturers Association (now the Pharmaceutical Research and
    Manufacturers of America) and was deeply involved in the development,
    negotiation, and drafting of the provisions in that statute.\2\ I have
    published articles on the subject of patent term restoration both
    before \3\ and after \4\ enactment of the 1984 Act. Finally, I have
    twice before testified on legislation intended, and ultimately enacted,
    to provide patent term restoration for specific products as a matter of
    fairness and equity.\5\
    ---------------------------------------------------------------------------
        \1\ Peter Barton Hutt & Richard A. Merrill, Food and Drug Law:
    Cases and Materials (1st ed. 1980 & 2d ed. 1991).
        \2\ See, e.g., my testimony on behalf of PMA in ``Patent Term
    Extension and Pharmaceutical Innovation,'' Hearing before the
    Subcommittee on Investigations and Oversight of the Committee on
    Science and Technology, U.S. House of Representatives, 97th Cong., 2d
    Sess. 123 (1982).
        \3\ Peter Barton Hutt, The Importance of Patent Term Restoration to
    Pharmaceutical Innovation, 1 Health Affairs, No. 2, at 6 (Spring 1982).
        \4\ Ellen J. Flannery & Peter Barton Hutt, Balancing Competition
    and Patent Protection in the Drug Industry: The Drug Price Competition
    and Patent Term Restoration Act of 1984, 40 Food Drug Cosmetic Law
    Journal, No. 3, at 269 (July 1985).
        \5\ ``Lopid Patent Term Restoration and Fairness Act of 1987,''
    Hearing before the Subcommittee on Courts, Civil Liberties, and the
    Administration of Justice of the Committee on the Judiciary, House of
    Representatives, 100 Cong. 1st Sess. 41, 72 (1987), 101 Stat. 1107,
    1569 (August 23, 1988); ``Patent Extension Hearing,'' Hearing before
    the Subcommittee on Patents, Copyrights and Trademarks of the Committee
    on the Judiciary, United States Senate, 102d Cong., 1st Sess. 44
    (1991), 107 Stat. 2040 (December 3, 1993).
    ---------------------------------------------------------------------------
     the origin and purpose of the drug price competition and patent term
                            restoration act of 1984
        In 1962, Congress enacted new legislation to increase the
    regulatory requirements for new drugs. The Drug Amendments of 1962 \6\
    replaced the 1938 requirement of premarket notification with a more
    stringent requirement of premarket approval, and added a requirement of
    proof of effectiveness to the 1938 requirement of proof of safety. In
    the years that followed, the time required to obtain the necessary
    evidence of safety and effectiveness increased, and the time required
    for FDA review and approval of a new drug application (NDA) also
    increased. As a result, instead of receiving the full statutory patent
    term of seventeen years, the effective patent life for a new drug
    gradually was reduced to less than ten years and at times to zero. The
    longer it took a company to prove safety and effectiveness and the
    longer it took FDA to review and approve the NDA, the shorter the
    effective patent life became.
    ---------------------------------------------------------------------------
        \6\ 76 Stat. 780 (1962).
    ---------------------------------------------------------------------------
        By 1980, the average effective patent life of new drugs had
    deteriorated to such an extent that many concluded it required remedial
    legislation. During 1981 and 1982, Congress considered legislation
    relating solely to patent term restoration. This legislation narrowly
    missed enactment in September 1982.
        Following enactment of the Drug Amendments of 1962, FDA approved
    the marketing of generic versions of pioneer drugs under abbreviated
    NDAs for those pioneer new drugs first marketed before the 1962
    Amendments, but not for new drugs with NDAs approved after the 1962
    Amendments. For two decades, generic versions of post-1962 new drugs
    were virtually precluded from the market. Both administrative and
    legislative approaches were considered during this time to permit FDA
    approval of generic drugs, but none was successful.
        In 1983 and 1984, the pending patent term restoration legislation
    was combined with legislation authorizing FDA approval of generic
    versions of post-1962 new drugs through an abbreviated NDA. That
    legislation was ultimately enacted in September 1984 as the Drug Price
    Competition and Patent Term Restoration Act of 1984 (which is shortened
    in this testimony to the ``Patent Term Restoration Act'' or the ``1984
    Act'').\7\
    ---------------------------------------------------------------------------
        \7\ 98 Stat. 1585 (1984).
    ---------------------------------------------------------------------------
        The 1984 Act was an attempt to balance two competing interests. The
    research-based drug industry obtained up to five years of patent term
    restoration for pioneer new drugs, to compensate for part of the
    diminished effective patent life resulting from the FDA requirements
    for the investigation and approval of a new drug. The generic drug
    industry received the assurance that generic versions of a pioneer drug
    would be approved by FDA following expiration of applicable patents and
    market exclusivity through an abbreviated NDA that did not require
    duplicative testing for safety and effectiveness.
                          the pipeline drug exception
        As noted above, the general rule under the Patent Term Restoration
    Act of 1984 was that the pioneer drug received up to five years of
    patent term restoration. There was, however, one important exception to
    this general rule. A pipeline drug was limited to two years of patent
    term restoration. Pipeline drugs are defined in what is now 35 U.S.C.
    156(g)(6)(C) as any drug for which a patent had been issued and an
    investigational new drug (IND) application had been submitted to FDA
    prior to the date of enactment of the 1984 Act, which was September 24,
    1984. Accordingly, there was a full three years difference in patent
    term restoration between two new drugs that were being developed at the
    same time, simply by reason of the fact that either:

      (1) The IND for one was submitted shortly before the enactment date
        and the other was submitted shortly after the enactment date or

      (2) The patent for one went through the patent process quickly and
        was issued before the enactment date and the other went through the
        patent process slowly and was issued after the effective date.
    the congressional rationale for the reduced patent term restoration for
                                 pipeline drugs
        The three-year disparity between the two years of patent term
    restoration provided where an IND had been submitted before the date of
    enactment and the five years provided for all other new drugs has
    provoked substantial interest and concern. Two years ago, the Chief
    Counsel for the Senate Committee on Government Affairs asked about the
    origin of this disparity. I provided a letter in May 1997 describing
    the two reasons for the two-year limitation on pipeline drugs. A copy
    of that letter is attached to this testimony.
        As already noted, I participated in the development, negotiation,
    and drafting of the 1984 Act on behalf of the industry trade
    association. My clear recollection of the reasons for the two-year
    limitation for pipeline drugs, as set forth in that May 1997 letter,
    are as follows:

              There were two fundamental reasons why the two-year
            limitation was included for pipeline drugs in what is now 35
            U.S.C. 156(g)(6)(C). These reasons were frequently discussed
            among those of us who were involved in the daily negotiations.
              First, it was felt that the pipeline drugs would be approved
            by FDA shortly after enactment of the 1984 legislation.
            Accordingly, it was thought that the five year period of patent
            term restoration granted to all post-enactment drugs would be
            unjustified for pipeline drugs, and that a two-year period of
            patent term restoration would more appropriately reflect the
            anticipated short period of time between the date of enactment
            and the date of FDA approval for pipeline drugs. (While this
            assumption has in large part proved to be true, I understand
            that for a handful of pipeline drugs the time between date of
            enactment and FDA approval has extended beyond the time needed
            for approval of post-enactment drugs and has in fact exceeded
            ten years--something clearly not contemplated by any of us when
            we were drafting the legislation in 1984.)
              Second, it was felt that, for any drug for which an IND had
            been submitted to FDA prior to the date of enactment, the
            manufacturer had already made the decision to invest resources
            in the drug and therefore less of an economic incentive was
            needed to assure continued pursuit of the drug to final FDA
            approval--particularly when it was anticipated that approval
            would come not long after enactment of the legislation.
            Accordingly it was concluded that two years, rather than five,
            would provide sufficient economic incentive to assure that a
            pipeline drug would not be abandoned.
              These were the two considerations that led to the two-year
            limitation on patent term restoration for pipeline drugs, as
            contrasted with the five-year grant of patent term restoration
            for post-enactment drugs, in the 1984 Act. To the best of my
            recollection, they were the only two considerations that were
            discussed at that time.

    In October 1997, I discussed this matter with John P. McLaughlin when I
    saw him at a meeting and then sent him my May 1997 letter to ask his
    recollection. Mr. McLaughlin had served as Counsel to the Subcommittee
    on Health and the Environment of the House Committee on Energy and
    Commerce, and was involved in the legislation on a daily basis,
    throughout 1983 and 1984. At the time I wrote him, Mr. McLaughlin was
    Executive Vice President of Genentech, a highly successful
    biotechnology company. Genentech has no interest of any kind in any
    pipeline drug. Mr. McLaughlin wrote back to confirm my recollection of
    the above reasons for the pipeline drug limitation. Copies of my letter
    to Mr. McLaughlin and his reply are also attached to this testimony.
                           the outlier pipeline drugs
        For most of the pipeline drugs, the assumption that FDA approval
    would come shortly after enactment of the 1984 Act turned out to be
    accurate. At that time, the average time for FDA approval of an NDA was
    approximately 2.25 years.\8\
    ---------------------------------------------------------------------------
        \8\ FDA, New Drug Evaluation Statistical Report 53 (October 1985)
    (FDA mean approval time of 26.9 months for new molecular entities
    approved in 1984).
    ---------------------------------------------------------------------------
        For a few outliers, however, this assumption turned out to be quite
    inaccurate. For these outlier pipeline drugs, the time for FDA review
    and approval of an NDA was more than twice the average, and they
    therefore suffered an even greater reduction in effective patent life.
    A number of post-1984 new drugs that received a full five years of
    patent term restoration were in fact approved by FDA before the agency
    approved these pre-1984 outlier pipeline drugs that received only two
    years of patent term restoration. This produced the anomalous result
    that the outlier pipeline drugs, whose NDA approval time was more than
    twice the average, received less than half the normal patent term
    restoration. None of us who participated in the drafting of the 1984
    Act anticipated or intended this result.
        FDA approval of the outlier pipeline drugs was not completed until
    April 1993 which was more than eight years after enactment of the 1984
    Act. Within that eight year period, many other drugs received FDA
    approval together with a full five years of patent term extension. Like
    the pipeline drugs, these other drugs that received five years of
    patent term extension also began development prior to the enactment
    date. The average time from first pharmacological testing to the filing
    of an IND in the 1980s was 5.2 years.\9\ Thus, drugs that were approved
    by FDA prior to the outlier pipeline drugs, yet received a full five
    years of patent term extension, were undergoing active research for
    more than five years before the enactment date of the 1984 Act.
    ---------------------------------------------------------------------------
        \9\ Tufts Center for the Study of Drug Development, Time From First
    Pharmacological Testing to New Drug Approval, 1963-1997 (1998).
    ---------------------------------------------------------------------------
        In testimony before the House Judiciary Subcommittee on Courts and
    Intellectual Property on July 1, 1999, on legislation (H.R. 1598) that
    is similarly designed to address the inequity suffered by outlier
    pipeline drugs, Representative Henry Waxman presented the following
    rationale for the pipeline drug provision in the 1984 Act:

              The pipeline drugs were not made eligible for five years of
            patent extension precisely because the point of the patent
            extensions was to encourage the research and development of
            future products. All products which had not yet undergone
            testing or review by the FDA were judged to be appropriately
            eligible for the full five years of patent extension.

        This statement is demonstrably inaccurate. Dozens of drugs that had
    already undergone testing prior to the date of enactment received the
    full five years of patent extension.\10\ It was no more necessary to
    provide five years of patent extension to these drugs, in order to
    encourage the research and development of future products, than it was
    for the pipeline drugs that received only two years of patent
    extension. If Mr. Waxman were correct, none of the drugs that were
    being tested and were under development before the enactment date would
    have received the five years of patent term extension that they in fact
    received. Thus, contrary to Mr. Waxman's contention, the criteria in
    the 1984 Act that define a pipeline drug--the filing of an IND and the
    issuance of a patent prior to the enactment date--were completely
    arbitrary. As Mr. Waxman's counsel at that time has verified, the
    rationale for these arbitrary criteria was the assumption that the
    pipeline drugs would be approved by FDA shortly after enactment. For
    the outlier pipeline drugs, however, that has proved to be an erroneous
    assumption.
    ---------------------------------------------------------------------------
        \10\ Mr. Alfred B. Engelberg makes an even more inaccurate
    statement in his letter to Senator Hatch dated June 11, 1999, where he
    states that five years of patent term extension was reserved for
    ``drugs which were first developed after the new law was enacted.''
    Initial ``development'' of a drug occurs prior to pharmacological
    testing, and thus even more drugs that received a full five years of
    patent term extension were under development prior to enactment of the
    1984 Act.
    ---------------------------------------------------------------------------
        These outlier situations, with approval times more than double the
    average, reflect the large new drug review workload imposed on FDA in
    the late 1980s and early 1990s, the increasingly restricted resources
    available to the agency to do this work, and thus the growing shortfall
    in the personnel assigned to these tasks. FDA was doing everything it
    could to meet its new drug review obligations throughout this time. But
    the resources simply were not there to satisfy the workload needs.
        Congress squarely faced this issue in the early 1990s and found a
    solution in the Prescription Drug User Fee Act of 1992.\11\ Using the
    additional funds made available under the 1992 Act, FDA hired
    approximately 650 new employees to handle NDAs in a more expeditious
    manner. As a result, the time for NDA approval was cut in half. If this
    approach had been adopted earlier, there would have been no outlier
    pipeline drugs and no need for legislation to redress the inequity in
    patent term restoration that has in fact occurred for these drugs.
    ---------------------------------------------------------------------------
        \11\ 106 Stat. 4491 (1992). The 1992 Act, which was limited to five
    years, was reauthorized for an additional five years in the Food and
    Drug Administration Modernization Act of 1997, 111 Stat. 2296, 2298
    (1997).
    ---------------------------------------------------------------------------
    legislative attempts to redress the inequity for outlier pipeline drugs
        The two-year limitation for pipeline drug patent term restoration
    in the 1984 Act was intended to deal with the expected FDA average
    approval time of about 2.25 years. It made no attempt to address
    unusual or unique situations of lengthy regulatory review for which
    accepted principles of fairness and equity would justify exceptions.
        As a result, Congress has on seven specific occasions enacted
    legislation to address particular FDA-regulated products where
    application of the general rules in the 1984 Act would have been unfair
    and inequitable. Two of those occurred in the middle of the
    congressional consideration of the 1984 Act, two occurred at the end of
    the congressional consideration of the 1984 Act and were enacted a
    month later, and the remaining three occurred in 1988, 1993, and 1996.
    In all seven instances, Congress concluded that the general rules
    applicable under the 1984 Act were insufficient to address the
    particular situations involved, and thus that legislation was necessary
    and appropriate. The following table lists those seven statutes:

                  Statutory Patent Term Restorations Since 1980
    ------------------------------------------------------------------------
                      Product                              Statute
    ------------------------------------------------------------------------
    Aspartame (food additive).................  95 Stat. 2049, 2065 (January
                                                 4, 1982)
    Forane (new drug).........................  97 Stat. 831, 832 (October
                                                 13, 1983)
    Impro (new animal drug)...................  98 Stat. 3430 (October 19,
                                                 1984)
    Glyburide (new drug)......................  98 Stat. 3434 (October 19,
                                                 1984)
    Lopid (new drug)..........................  102 Stat. 1107, 1569 (August
                                                 23, 1988)
    Olestra (food additive)...................  107 Stat. 2040 (December 3,
                                                 1993)
    Daypro (new drug).........................  110 Stat. 1321, 1321-320
                                                 (April 26, 1996)
    ------------------------------------------------------------------------

    In a number of other instances, similar legislation has been considered
    by Congress for other FDA-related products but has not been enacted.
        I have in the past supported this type of legislation, because I
    believe it is entirely appropriate for Congress to enact legislation
    addressing the inequities that inevitably arise in the application of
    general rules to unique situations. It is, however, time-consuming and
    inefficient for Congress to examine and take action on each specific
    product where a general problem has been identified, such as outlier
    pipeline drugs. During a Senate hearing held in August 1991 to consider
    patent term restoration bills for three specific products, Bruce
    Lehman, who later served as Commissioner of Patents and Trademarks,
    offered the thoughtful suggestion that Congress establish some type of
    new administrative procedure to consider identified problems of
    fairness and equity rather than to handle each individual product on an
    ad hoc legislative basis.\12\ As Mr. Lehman pointed out at that time,
    this alternative way of approaching the matter offers substantial
    advantages. This approach for outlier pipeline drugs has been discussed
    since 1991, and legislation incorporating it has recently been
    introduced as S. 1172.
    ---------------------------------------------------------------------------
        \12\ ``Patent Extension Hearing,'' note 5 supra, at 218.
    ---------------------------------------------------------------------------
                                   conclusion
        Without doubt, outlier pipeline drugs have not been treated fairly.
    These drugs received only two years of patent term restoration, whereas
    competitors who submitted their IND applications later but received
    their NDA approvals earlier received a full five years of patent term
    restoration. This result cannot be justified on any principled basis.
    The assumptions on which the two-year pipeline drug limitation was
    based have turned out to be erroneous for this limited category of
    drugs. Under these circumstances, Congress has in the past enacted
    legislation to redress the resulting inequity. In the case of outlier
    pipeline drugs, this could be accomplished either by drug-specific
    legislation or, more efficiently, by establishing a new administrative
    procedure to evaluate the few remaining outlier pipeline drugs involved
    as set forth in S. 1172.
                                     ______

                                           Covington & Burling,
                                          Washington, DC, May 12, 1997.
    Fredrick S. Ansell,
    Esquire, Chief Counsel, Senate Committee on Governmental Affairs,
            Dirksen Building, Washington, DC.
        Dear Mr. Ansell: This is in response to your request for
    information on the origin of the two-year limitation on patent term
    restoration for pipeline drugs under the Drug Price Competition and
    Patent Term Restoration Act of 1984. As counsel to the Pharmaceutical
    Manufacturers Association (now the Pharmaceutical Research and
    Manufacturers of America) with respect to that legislation, I
    participated in the development, negotiation, and drafting of the 1984
    Act.
        The 1984 Act established patent term restoration of up to five
    years for new drugs approved by the Food and Drug Administration (FDA)
    after the date of enactment, except that a two-year limitation was
    placed on pipeline drugs. Pipeline drugs were defined as those drugs
    for which an IND was submitted prior to the date of enactment.
        There were two fundamental reasons why the two-year limitation was
    included for pipeline drugs in what is now 35 U.S.C. 156(g)(6)(C).
    These reasons were frequently discussed among those of us who were
    involved in the daily negotiations.
        First, it was felt that the pipeline drugs would be approved by FDA
    shortly after enactment of the 1984 legislation. Accordingly, it was
    thought that the five year period of patent term restoration granted to
    all post-enactment drugs would be unjustified for pipeline drugs, and
    that a two-year period of patent term restoration would more
    appropriately reflect the anticipated short period of time between the
    date of enactment and the date of FDA approval for pipeline drugs.
    (While this assumption has in large part proved to be true, I
    understand that for a handful of pipeline drugs the time between date
    of enactment and FDA approval has extended beyond the time needed for
    approval of post-enactment drugs and has in fact exceeded ten years--
    something clearly not contemplated by any of us when we were drafting
    the legislation in 1984.)
        Second, it was felt that, for any drug for which an IND had been
    submitted to FDA prior to the date of enactment, the manufacturer had
    already made the decision to invest resources in the drug and therefore
    less of an economic incentive was needed to assure continued pursuit of
    the drug to final FDA approval--particularly when it was anticipated
    that approval would come not long after enactment of the legislation.
    Accordingly, it was concluded that two years, rather than five, would
    provide sufficient economic incentive to assure that a pipeline drug
    would not be abandoned.
        These were the two considerations that led to the two-year
    limitation on patent term restoration for pipeline drugs, as contrasted
    with the five-year grant of patent term restoration for post-enactment
    drugs, in the 1984 Act. To the best of my recollection, they were the
    only two considerations that were discussed at that time.
                Sincerely yours,
                                     Peter Barton Hutt.
                                     ______

                                           Covington & Burling,
                                      Washington, DC, October 16, 1997.
    John P. McLaughlin,
    Esquire, Executive Vice President, Genentech, Inc., South San
            Francisco, CA.
        Dear John: For the past several years, manufacturers of
    ``pipeline'' prescription drugs--those drugs that received only two
    years of patent term restoration under the Drug Price Competition and
    Patent Term Restoration Act of 1984 because a clinical trial had begun
    before the date of enactment--have pursued legislation to expand their
    term of patent term restoration to a full five years. They argue that
    the 1984 Act unjustifiably discriminated against the pipeline drugs and
    that the premises on which the reduction from five to two years of
    patent term restoration was based have turned out to be incorrect.
        Recently I was asked to provide a letter to the Senate Committee on
    Governmental Affairs to relate my views on why the pipeline drugs were
    provided a shorter term of patent term restoration. A copy is enclosed.
        I would be very interested in knowing your recollection of this
    matter. When you have a moment, please give me a call.
        With best regards,
                Sincerly yours,
                                     Peter Barton Hutt.
                                     ______

                                               Genentech, Inc.,
                             South San Francisco, CA, October 31, 1997.
    Peter Barton Hutt,
    Covington & Burling, Washington, DC.
        Dear Peter: Thank you for your letter of October 16, 1997. You ask
    whether I have a recollection as to the rationale for affording two
    years of patent restoration for ``pipeline drugs' (as compared to five
    years for certain other categories of drugs) in the Drug price
    Competition and Patent Term Restoration Act of 1984. Based on my
    service as Counsel to the House Subcommittee on Health and the
    Environment, I have a very clear recollection of the rationale. It is
    accurately summarized in your letter of May 12, 1997 to the Senate
    Committee on Governmental Affairs.
        If you would like to discuss this matter further, please feel free
    to give me a call.
                Sincerely,
                                            John P. McLaughlin,
                                              Executive Vice President.

        The Chairman. Mr. Downey, I have to go vote. That is why
    everybody has left here. I think what we had better do so we
    don't disrupt your testimony is wait until I can get back so we
    can resume the hearing. And I presume most of my colleagues
    will come back, as well. It is an important testimony.
        So, with that, I will recess until I can get back and I
    will try to hurry as fast as I can.
        [The committee stood in recess from 11:22 a.m. to 11:39
    a.m.]
        The Chairman. We will turn to you, Mr. Downey. I apologize
    for the delay, but I couldn't have taken your testimony before
    the vote and so we will take it now after the vote.

                      STATEMENT OF BRUCE L. DOWNEY

        Mr. Downey. Thank you very much, Mr. Chairman. It is good
    to be back before the committee. I am Bruce Downey. I am
    chairman and president of Barr Laboratories, a generic and
    proprietary drug firm located in New York, as a constituent of
    Mr. Schumer; in New Jersey, as a constituent of Mr. Torricelli;
    and in the State of Virginia.
        The Chairman. You know how to put the pressure on these
    people.
        Mr. Downey. I would remind them that, in fact, there are
    also generic companies in those districts. We are also a member
    of the National Pharmaceutical Alliance and the Generic
    Industry Association, two of the leading trade associations for
    our industry.
        I have prepared a written statement I would like to have
    submitted for the record. To go through that statement would
    take longer than the amount of time allotted and I would like
    to confine my remarks to some of the things that were said
    today.
        The Chairman. We will put the full statement in the record
    as though fully delivered.
        Mr. Downey. Thank you, Mr. Hatch.
        The first thing I would like to do really is address the
    questions that you asked at the beginning of the hearing
    because I think that really gets to the heart of what we are
    about today.
        Your first question was is this bill in the interests of
    the American public. I think the answer to that is decidedly
    no. The Hatch-Waxman Act that you helped craft in the 1980's
    was really built on two twin pillars. The first pillar was to
    provide incentives to stimulate innovation, and that is a value
    that we all share, something we all think is an important
    public policy interest.
        The other pillar of the Act was to guarantee competition
    and to make sure that a date certain generic pharmaceuticals
    were available to reduce the cost to the consumer. And by
    embracing those two concepts and writing them into the law, you
    were able to achieve remarkable success for consumers and for
    the branded and generic industry. I would submit that this
    legislation serves neither of those purposes.
        In the first instance, the reward or the extension of the
    patents that would be contemplated by this Act would reward
    work that was done years ago. It wouldn't stimulate anything.
    It might provide some funds for the Schering-Plough company or
    any other company that gains a patent extension, but it is
    certainly not directly designed to stimulate innovation. It is
    only rewards that are offered for the work that actually
    stimulates innovation in the way that I think your legislation
    contemplates.
        And, second, it certainly would not guarantee competition
    or serve the consumer interest of those allergy sufferers who
    take Claritin and the other products that are part of the
    pipeline bill. Clearly, they have an interest in early access
    to low-cost, high-quality generic products that will save them
    literally billions of dollars on Claritin alone. So in answer
    to your question, will this serve the public interest, I think
    the answer is clearly no.
        The second question you asked is, under the circumstances
    presented here, does the delay warrant legislative action.
    Again, I think the answer is clearly no. In the first instance,
    the approval time for Claritin, the principal drug product that
    precipitated this legislative proposal--that approval time was
    consistent with the time of other products being approved at
    the time. And that is all laid out in our written testimony,
    and I think when you review that you will see quite clearly
    there was no disparate treatment or no unfair treatment of
    Claritin at the time.
        In the second instance, I think you will see that the
    Claritin approval process, to the extent it was delayed, was
    delayed in substantial part because of the decision of the
    company to switch from a capsule to a tablet product. The
    original FDA advisory panel recommendation to approve the
    product that Mr. Kogan mentioned was one at a time when
    Claritin was in a capsule form. In 46 countries around the
    world, Claritin moved directly to the market in capsule form.
        In the United States, the company for their own reasons
    decided to change that product from a capsule to a tablet. As
    part of the approval process when you make that change you have
    to submit scientific data to show that the tablet performs in
    the same way as the capsule in bioequivalent studies. On two
    occasions, they submitted those studies with failing results.
    So it was the inability to promptly move from a capsule to a
    tablet that accounted for a good part of the delay in the
    approval of this product.
        So we think the answer to: Should there be some delay here
    or some extent for the pipeline drugs? We think the answer is
    no. And when you look at Claritin particularly, it is a product
    that is already enjoying 21 years of patent life, the original
    17 in the patent that was granted, 2 years' extension through
    the Hatch-Waxman Act, and 2 additional years through the GATT
    treaty implementation legislation. So at the time of expiry,
    there will be 21 years of patent life for this product and we
    think that is enough.
        The third question you posed is, is a new process required
    to allow for patent extensions to avoid this ad hoc
    consideration in the Congress. Again, I think the answer to
    that is clearly no. The Congress and the laws of our country
    establish a 20-year term for patents from date of application.
    And, second, they have a Hatch-Waxman provision to grant an
    extension under situations of regulatory delay.
        To a third really exception to the exception and provide
    for a second extension, I think is a political decision. It is
    a decision where the Congress needs to balance those twin
    pillars of stimulating innovation and guaranteeing competition,
    and look at the particular subject matter of that particular
    patent and decide how those interests are best served, whether
    they are served through a patent extension or allowing it to
    expire as the law contemplates.
        I would like to close by debunking two points that we have
    learned maybe some members of the staff and some members of
    Congress have come to believe because of the lobbying efforts
    that have been put forward on this bill.
        The first of those is do we think the Senate bill is
    somehow better than the House bill, we in the generic industry,
    so that the passage of Senate 1172 or some tinkering with that
    bill would solve our basic objections? And the answer to that
    is clearly no. I would describe the House bill as a wolf in
    wolf's clothing, and no one is fooled by what it is. I think
    the Senate bill is really a wolf in sheep's clothing, and so
    there is a little packaging around the sides. I don't think it
    is really clear.
        What we object to is the wolf, and the wolf in this case is
    the ability to extend patents beyond their natural period of
    expiration in a way that does not serve the interests of
    promoting competition or innovation. And for that reason, we
    would urge the Senate to oppose this legislation, to vote it
    down, because I think when you get down to the bottom line what
    you really have here is a piece of legislation, carried to its
    logical extension in granting the patent extension, that is
    really a multibillion-dollar tax on allergy sufferers. And from
    a consumer point of view, there is absolutely no difference
    between extending the patent life on Claritin, and on the other
    side imposing a tax on allergy sufferers, collecting the money,
    and wire-transferring those funds to Schering-Plough. I think
    when you look at it in that light, it is clear that this is a
    piece of legislation that should be defeated.
        Thank you, sir.
        [The prepared statement of Mr. Downey follows:]

                     Prepared Statement of Bruce L. Downey

        Mr. Chairman, members of the Committee, thank you for the
    opportunity to testify. My name is Bruce L. Downey, and I am Chairman
    of Barr Laboratories, Inc., which has facilities in New York, New
    Jersey and Virginia and manufactures and distributes a wide range of
    prescription medicines for the treatment of diseases ranging from
    cancer to heart disease to depression. Barr Laboratories is a member of
    the National Pharmaceutical Alliance and the Generic Pharmaceutical
    Industry Association, two of the three largest generic pharmaceutical
    industry associations.
        The future of the generic pharmaceutical industry is directly
    linked to a vibrant brand industry that has appropriate incentives to
    develop new and innovative pharmaceutical products. The flow of such
    products provides patients with improved alternatives to currently
    available therapies, and also generates the opportunities for our
    industry to develop more cost-effective versions of existing products.
    The best way for Congress to preserve the balance among competition,
    innovation and intellectual property rights is to preserve and expand
    the Hatch- Waxman Act. S. 1172 fails to meet this objective.
        The members of the generic pharmaceutical industry stand together
    in strong opposition to the approval of S. 1172. We believe it will
    upset federal drug policy that has served patients for nearly two
    decades for the sole purpose of extending patents protecting a specific
    product and thereby delaying generic competition.
        Our industry opposes S. 1172 because it:

       Imposes an unwarranted multi-billion dollar burden on
            patients through years of lost access to cost-saving generics;

       Establishes a process that substantially reduces brand
            company incentives to innovate new therapies by delaying
            competition;

       Imposes piecemeal changes to Hatch-Waxman that disrupts the
            delicate public policy balance that has generated a decade of
            increased innovation and patient savings;

       Invites imitation by other special interests for countless
            other products; and

       Diverts the attention of Congress from concentrating on ways
            to dramatically increase patient access to pharmaceutical
            products at reasonable costs.
                     history of claritin patent extensions
        Although this legislation is proposed in part as a mechanism to
    address suggested deficiencies within the Hatch-Waxman compromise, the
    driving force behind this initiative is Schering-Plough and its efforts
    to extend the patents that protect Claritin, a multi-billion dollar
    international allergy drug.
        This is the sixth effort by Schering-Plough to use the Congress to
    obtain a third extension of the patents protecting Claritin. Last
    month, the House Subcommittee on Court and Intellectual Property
    considered a similar legislative proposal for the second time in two
    years. While S. 1172 purports to improve upon the House version
    addressing procedural deficiencies, in fact the inevitable result--if
    not the purpose--of this bill and the House version are identical--a
    patent extension for Claritin.
        Previous efforts to extend these patents have been more direct, and
    not disguised as public health policy initiatives. In May 1997,
    Schering-Plough attempted to add a patent extension amendment to the
    Omnibus Patent Act of 1997, an effort that was blocked in this very
    Committee. In the closing moments of the 1997 congressional session,
    there was a second attempt to extend the patent through the
    appropriation process, while a bill was in conference. That effort was
    also rejected. Last year, there was an attempt to add this proposal to
    the 1998 Omnibus Appropriations Bill. That initiative failed as well. I
    am confident that when you have considered all of the evidence you will
    reach the same conclusions that the Congress has previously reached and
    reject S. 1172.
        A fundamental reason for the previous rejections of an extension to
    the Claritin patents is that the government has already granted two
    such extensions. If you look at the record, the patents protecting
    Claritin have already been extended far beyond what Schering-Plough
    could have expected at the time it was developing this product. The
    original patents for Claritin were filed on June 19, 1980 and granted
    on August 4, 1981. The product was launched in 1993 and without any
    extensions the patents would have expired on August 4, 1998, after 17
    years of protection.00
        According to a Federal Register Notice of August 31, 1993,
    Schering-Plough sought a two-year patent extension pursuant to Hatch-
    Waxman and was successful in extending the patent until August 4, 2000.
    As part of the GATT implementation legislation, the patent was further
    extended by another 22 months to June 19, 2002. As a result of these
    extensions, in June 2002 Claritin will have enjoyed patent life of
    approximately 21 years--four years beyond the original patent term.
                       potential lost savings to patients
        The two-year Hatch-Waxman extension protected approximately $5
    billion in Claritin sales from generic competition. The two-year GATT
    extension is estimated to protect approximately $7 billion in sales,
    based on projections by ABN AMRO Associates of Boston. From the
    patient's point of view, anywhere from 30-80 percent of this $12
    billion cost could have been saved if generic competitive market forces
    were in play. While analysts' projections for Claritin's growth end
    with the patent expiry, if one were to assume the same growth levels
    through 2005, S. 1172 would protect more than $20 billion from
    competition.
        Extending the patents will delay generic competition and force
    Claritin patients to continue to pay more than $80 per month for a
    typical prescription for three more years. For those patients covered
    by insurance these costs will be borne by the insurance firm
    subscribers and employers who pay for medical coverage. For those who
    must cover prescription costs themselves, the monthly cost will come
    directly out of their pockets. And taxpayers will be forced to pay the
    additional federal costs that these patent extensions will create.
        inhibiting innovation and investment in new product development
        Clearly, if Claritin were not protected from competition, the
    pressure on Schering-Plough to innovate new, equally effective and
    profitable therapies would increase significantly. In fact, it is this
    very pressure to innovate, while simultaneously providing an economic
    benefit to patients upon patent expiry, that was the heart of the
    Hatch-Waxman compromise.
        Mr. Chairman, any senior corporate executive can appreciate
    Schering-Plough's corporate motives in working to preserve its Claritin
    profit stream from competition. But there are few instances in our
    nation's history where corporate monopoly interests have made sound
    public policy. We don't need to tell you that competition in the
    pharmaceutical industry is good for the consumer, and our most needy
    citizens.
        When a product patent expires, it is not unusual for multiple
    generic pharmaceutical companies to launch versions of the product. As
    a result, prices fall rapidly and dramatically, as competition
    increases. One need only look at Zantac, an ulcer medication, for a
    good example. Following introduction, generics rapidly climbed to 80
    percent of the units sold in the market in less than three months. The
    cost savings were equally as dramatic for patients, falling from more
    than $80 a month to less than $12 per month.
        But perhaps as important, working with a finite period of
    protection promotes investment in new product innovation, encourages
    creativity and results in new and improved therapies. Last summer, the
    Congressional Budget Office considered the very issue of innovation
    when it examined the value and impact of generic competition. The CBO
    study concluded that, ``Between 1983 and 1995, investment in R&D as a
    percentage of pharmaceutical sales by brand name drug companies
    increased 14.7 percent ($2.7 billion) to 19.4 percent ($14.4 billion).
    Over the same period, U.S. pharmaceutical sales by those companies rose
    from $17 billion to $57 billion. Overall, then, the changes that have
    occurred since 1984 (the Hatch-Waxman Act) appear to be favoring
    investment in drug development.''
        Since the Hatch-Waxman Act, brand sales have increased steadily,
    exceeding $80 billion in 1998. Generic companies and consumers also
    have benefited. Since 1984, the generic industry has grown steadily and
    today has total annual revenues of approximately $11 billion. In fact,
    42 percent of all prescriptions filled today are for generics. Because
    of generic competition, consumers have saved literally billions of
    dollars by having access to generic pharmaceuticals that are priced as
    much as 70 percent-80 percent below their brand counterparts.
        There is compelling evidence today that the underlying premise of
    the Hatch-Waxman Act works--the entire pharmaceutical industry and all
    consumers will benefit if there is a proper balance between rewarding
    innovation and guaranteeing competition. A study recently commissioned
    by Warner Lambert and prepared by the Boston Consulting Group explored
    issues related to access to brand pharmaceuticals as related to market
    interventions outside the U.S. marketplace.
        The study considered market interventions, including government
    price controls, and concluded that, ``the net effect of reducing the
    degree of market intervention would be to encourage competition later
    in the product life cycle, and reward and encourage innovation in the
    early years * * * It is ultimately the patient who suffers from a
    poorly designed and ineffective intervention regime.'' S. 1172
    contradicts this conclusion.
                      piecemeal amendments to hatch-waxman
        The Hatch-Waxman Act was a delicate compromise that sought to
    encourage competition from generic pharmaceuticals while maintaining
    the brand industry incentives to invest in the development of
    innovative drugs. It has also provided American consumers and taxpayers
    with more than 15 years of multi-billion dollar savings in health care
    costs. The generic industry strongly encourages Congress to maintain
    the fundamental provisions of the Act while simultaneously expanding
    the benefits of this landmark consumer legislation through appropriate
    legislation. S. 1172 is not the vehicle for the consideration or
    approval of mechanisms to extend the benefits of Hatch-Waxman.
        However, two of the arguments made in support of S. 1172 would
    significantly recast the effect of this legislation. One of the
    arguments for extending the patents on Claritin is related to the
    product's status at the time of Hatch-Waxman, and the other argument is
    that the Claritin product was unnecessarily delayed by the FDA.
        At the time the compromise for extending patents under Hatch-Waxman
    was forged, all of the parties recognized that one of the key
    objectives of the Act was to promote innovation. The formula for these
    incentives was straightforward. The Act recognized the need to provide
    incentives for drug products in the early stages of development, and
    research projects initiated after the implementation of the Act. Hatch-
    Waxman also recognized that there was no need to provide incentives for
    those products that were already on the market, and therefore they
    received no patent extension. The parties recognized that there was no
    obligation to offer an incentive for investing in products that had
    already reached the marketplace because the investment in innovation
    had already been made. For those products that were in the middle
    stages of development, including Claritin, it was agreed that the Act
    should provide some incentive for the work remaining to be completed,
    so a partial extension of patents was granted for these products. The
    amount of time granted was based on the point in development when the
    Act was implemented. S. 1172 would repudiate this deal.
        In addition, Schering-Plough argues that Claritin deserves
    additional patent protection because FDA approval was unusually
    delayed. The facts, however, do not support this argument. The IND for
    the product was filed with the FDA in January 1983, and the NDA was
    filed in October 1986. An FDA advisory committee recommended approval
    for Claritin one year after the NDA was filed. Normally, prompt FDA
    approval would have followed. Schering-Plough, however, amended the
    application to change Claritin from a capsule product to a tablet
    product. This decision ultimately delayed the approval process by
    several years.
        In the pharmaceutical industry, changes in the dosage form require
    bioequivalence tests to ensure--as in the case of Claritin--that the
    capsule and tablet will work the same way. That is, Schering-Plough was
    required to prove that the active ingredient in the tablet would be
    absorbed into the patient's blood stream at the same rate and to the
    same extent as the capsule version. Schering-Plough twice provided
    failing bioequivalence data, which further delayed Claritin's approval.
        Had Schering-Plough proceeded with approval to market the capsules
    as originally intended, and as it did in 46 other countries, the
    product could have been launched years earlier and we would not be here
    today. Had it submitted appropriate bioequivalence data, the approval
    could have proceeded normally. Clearly the delay in entering the U.S.
    market rests solely with Schering-Plough's management and scientists
    and cannot be blamed on an FDA delay.
        Another defect in S. 1172 is the requirement that the patent holder
    exercise due diligence during the NDA review process. In the context of
    this bill, ``due diligence'' is a meaningless standard. The most
    minimal efforts to communicate with FDA during the review process, for
    example, would likely satisfy ``due diligence.'' This standard does not
    permit a proper determination of whether the patent holder was
    responsible for any delay or to apportion accountability.
        Proponents of S. 1172 suggest that they have corrected a deficiency
    in the House version (H.R. 1598) by placing the burden of proof for
    gaining an extension on the patent holder. (H.R. 1598 placed the burden
    of proof on those opposing the extension.) The problem with this
    argument is that engaging in the discussion of where the burden of
    proof belongs legitimizes the consideration of the validity of the
    patent extension process proposed under S. 1172. Congress has already
    established the appropriate period of patent life and the appropriate
    process for extending patents within the Hatch-Waxman Act. Only an act
    of Congress should extend the life of patents beyond the original and
    already generous extensions already existing. S. 1172 would substitute
    an administrative procedure that upsets the balance of Hatch-Waxman and
    replaces congressional scrutiny with an inappropriate bureaucratic
    decision-making process.
        As was true with H.R. 1598, S. 1172 would place the technical
    decisions of the FDA under scrutiny of a separate agency ill-qualified
    to address them. The bill requires the Commissioner of the United
    States Patent and Trademark Office to make a legal determination about
    whether a separate agency, the Food and Drug Administration, performed
    its responsibilities in accordance with its statutory mandate. At no
    time during the entire consideration of this legislation has there been
    a credible demonstration that the Commissioner of Patents has
    sufficient knowledge and understanding of the FDA and its processes or
    pharmaceutical policy to justify this delegation of authority. In
    addition, if Congress wanted to give PTO this type of authority, it
    would have specified it in the Hatch-Waxman Act. Instead, Congress made
    a conscious decision to give FDA the responsibility for reviewing and
    calculating agency delay to support an extension.
        Finally, the argument is made that S. 1172 provides a benefit to
    the generic industry by resolving issues related to the listing of
    product patents. In essence, this legislation is designed to offer
    something to the generic industry in exchange for their support for
    granting extensions to brand product patents. This proposal, however,
    offers the generic industry no real benefits. The generic industry
    believes that there are a number of more substantive, critical
    problems, that if corrected, would strengthen the Hatch-Waxman Act and
    directly benefit consumers. Unfortunately, the proposals put forth in
    S. 1172 are extremely limited and would generate additional inequities
    by benefiting some manufacturers at the expense of others.
        The bill is further evidence that the development of effective drug
    policy or the improvement of Hatch-Waxman can not be achieved by
    periodic, limited legislation designed to award a specific benefit to
    one or two companies. These issues are far too complex to be addressed
    in a procedural bill whose primary purpose is to protect one drug from
    the very competition envisioned by the Hatch-Waxman Act.
        For example, Section 2(a) of S. 1172 does attempt to limit the
    breadth of required Paragraph IV certifications to only the patents
    that claim, in one form or another, the active ingredient. In this way,
    the bill tries to exclude Paragraph IV certifications for extraneous
    patents.
        However, the bill's Paragraph IV limitation only applies to patents
    for the eight or so ``pipeline'' drugs affected by the bill itself and
    would apply only after the pipeline drugs had received the additional
    three years of patent protection proposed by S. 1172. Generic companies
    have already filed Paragraph IV certifications for some of these
    pipeline drugs, and have relied on the existing law in making
    investment decisions about the development of generic versions of these
    drugs. S. 1172 does not address that investment or the resulting
    inequity to the generic companies pursuing these products.
        The limitation also does not apply to the hundreds of patents that
    are presently listed erroneously in the Orange Book (FDA's Approved
    Drug Products With Therapeutic Equivalence Evaluations), or in any way
    limit future improper patent listings attempted by the brand industry.
        The generic industry has been concerned for some time about the
    brand industry's abuse of patent listings in the Orange Book. The
    Hatch-Waxman Act requires that FDA compile--the Orange Book, and that
    NDA applicants submit patent information to FDA for inclusion in the
    Orange Book. FDA may not approve a generic drug application until the
    listed patent terms have expired. For generic applicants, the listing
    of patents in the Orange Book triggers the Paragraph IV certification
    requirement discussed above.
        Thus, whenever an NDA holder has a patent listed in the Orange
    Book, the NDA holder is eligible to exercise the statutory 30-month
    stay against generic competition, thereby extending its product
    monopoly. With such a lengthy monopoly period at stake, it is no
    surprise that NDA applicants submit patent information to FDA that is
    voluminous or only tangentially related to the drug at issue. For
    example, some products, such as the osteoporosis drug Evista, have more
    than 100 patents listed in the Orange Book.
        The generic industry believes that only compound patents should be
    listed in the Orange Book and entitled to Paragraph IV certification
    and the 30-month stay. A separate ``Grey'' Book could then be created
    to provide industry notification of other patents. To accomplish this,
    the industry proposes three statutory changes to prevent the Orange
    Book listing of irrelevant patents.

       Limit patents eligible for listing in the Orange Book.
            Congress should amend the Act's patent listing and protection
            provisions to limit listings to patents that claim a new active
            molecule(s) of a pharmaceutical product. Only those new
            molecule patents would require a Paragraph IV or other patent
            certification. Furthermore, if eligible patents are submitted
            to FDA later than 30 days after the date the patents are
            issued, as required by Section 505(c)(2) of the Act, generic
            drug applicants would be excused from making the patent
            certification.

       Develop a ``Grey Book'' for patents that are merely related
            to the drug product. In addition, Congress should require that
            all NDA holders list all other patents related to a new drug
            product, including the use of the drug product or the method of
            manufacturing the drug product, in a new book to be compiled by
            FDA called the ``Grey Book.'' Patents listed in the Grey Book
            would not require patent certification by generic drug
            applicants.

       Provide administrative relief for improperly listed patents.
            Congress should authorize FDA, with assistance from the Patent
            and Trademark Office, to identify and remove improperly listed
            patents from the Orange Book. As a penalty for submitting
            improper patents to FDA, the patent holder and NDA applicant
            should lose the right to enforce the patent against a generic
            drug applicant.

        S. 1172 also purports to address the complex issue of market
    exclusivity. While clearly an area where there has been a great deal of
    controversy and litigation, this bill is not the appropriate vehicle
    for that debate. According to the Hatch-Waxman Act, FDA is to award 180
    days of market exclusivity to the first company that seeks to market a
    generic drug product and, in so doing, challenges the scope or validity
    of an existing patent covering the brand drug product.
        Numerous administrative challenges and court cases have ensued over
    the statutory provision itself and over how FDA has interpreted it.
    While the generic industry agrees that Congress should address the
    confusion by clarifying the meaning of the 180-day exclusivity
    provisions, the limited provision proffered in Section 2(b) is
    inadequate. The proposed amendment would not begin to address the
    numerous and complicated fact patterns that have arisen to make this
    section of the Hatch-Waxman Act such a controversial matter. It also
    does not provide relief for companies that have invested based on the
    current reading of the law. Only prospective application of solutions
    to these questions would be equitable for the generic industry and a
    benefit for consumers. Without prospective application, the delay in
    introduction and cost savings to consumers could be very significant.
        The generic industry believes that these are only a few of the
    areas where the Hatch-Waxman Act could be clarified, strengthened and
    expanded. However, these complex issues require measured consideration
    and complete, knowledgeable debate. Amending significant provisions of
    Hatch-Waxman, which is what is proposed in S. 1172, would occur without
    the benefit of such a comprehensive debate. It is bound to produce
    further inequities, disrupt innovation, and harm patient access to new
    and more affordable medicines, all in the name of extending the patent
    protecting Claritin from competition.
        Even though S. 1172 attempts to resolve procedural flaws contained
    in earlier proposals and tries to provide some a very limited benefit
    to some generic companies, it still fails what should be the
    fundamental test of any legislation affecting federal drug policy--
    namely, will this proposal benefit consumers by encouraging innovation
    while ensuring affordability or will it simply protect a product from
    competition? Schering-Plough has not demonstrated a true injustice that
    would support such an upset of the Hatch-Waxman balance.
                           the problem with imitation
        Success in moving S. 1172 will breed imitation. There is no reason
    to believe that the proposed legislation will not be amended to provide
    other companies with additional patent relief. In fact, some brand
    pharmaceutical firms have made it clear that they will attempt to amend
    this legislation to provide patent relief to other products should it
    be considered seriously by Congress. Thus, one of the real dangers of
    S. 1172 is its inexorable and inevitable disruption of the Hatch-Waxman
    Act, opening the door for the ultimate reversal of the most significant
    consumer health care access and savings act in history.
                                    summary
        In closing, I would like to pose a question, and then answer it.
    What will happen to Schering-Plough if they are unsuccessful in getting
    Congress to extend their Claritin patents? The answer comes directly
    from Schering-Plough's Chief Executive, Richard Jay Kogan. In a story
    published in the Wall Street Journal on June 28, Mr. Kogan is quoted as
    saying that his company had several add-on patents on Claritin that may
    protect the drug for years beyond 2002, when the first patent expires
    on the chemical compound. The story went on to note that the ``company
    was in late-stage human testing of desloratadine, a metabolite of the
    chemical in Claritin, whose patents expire in 2004 and 2014,'' and as
    such Schering-Plough is in a ``good position to compete on its own and
    isn't interested in a merger at this time.''
        It is our hope that when Congress considers the issues of federal
    pharmaceutical policy, the debate will not focus on how to construct a
    process designed to achieve only one outcome--the endless preservation
    of one company's product monopoly. Instead, we urge that the focus
    should be on how to protect the public health policy issue of balancing
    brand pharmaceutical research and development with the introduction of
    new generic medicines, and the economic balance of rewarding innovation
    while promoting competition.
        The American people would be better served by a debate on ways to
    extend access to affordable medicines, such as looking for ways to
    expand the benefits of the Hatch-Waxman Act. Some examples might
    include closing loopholes, speeding approvals, and expanding coverage
    to new classes of drugs such as biotechnology products.
        Today, the biotechnology industry is unique in the pharmaceutical
    industry in that it does not have generic competition. There is no
    explicit regulatory pathway for generic biotech approval, despite the
    fact that a number of blockbuster biotech products are already off
    patent or will be by the turn of the century. Not only would consumers
    and government purchasers benefit greatly from the cost savings
    attributed to generic biotech products, but allowing new competition
    from generic manufacturers would serve as an incentive for the biotech
    industry to innovate the next generation of biotech drugs. In this way,
    we could save money for all consumers, rather than tax consumers to the
    benefit of select companies.
        When you look at the headlines from the past several months, the
    cost of pharmaceutical products is of paramount concern to a broad,
    bipartisan group of legislators deeply concerned about the ability of
    Americans to afford their medicine. The generic industry encourages
    Congress to turn its back on this debate over special interest
    legislation and focus instead on the more important discussion over how
    to give every citizen access to the medicines they need.
        The brand and generic industries agree that affordable medicines
    are the key to longer, healthier and more productive lives. Let us work
    together with you to resolve the problems of dispensing medicines to
    all Americans, including the under-insured and uninsured, and not waste
    time debating the dispensation of special corporate favors that drive
    up the cost of medicines. We urge the Committee to reject S. 1172. I am
    happy to answer any questions.

        The Chairman. Well, thank you. We certainly have
    differences of opinion on this matter, but that is what makes
    this place interesting as far as I am concerned. And as the
    author of the Hatch-Waxman bill, I am very concerned about
    these areas. I am always concerned about equity and fairness
    both ways.
        Frankly, as I heard the testimony today, especially the way
    that Jerry Meyer and Peter Hutt tell the story, I am not clear
    in my own mind whether Senator Torricelli's bill should be
    thought of as a Hatch-Waxman reform measure. Perhaps the
    question here is should the Congress enact a process to provide
    relief for certain pipeline products. It seems to me that is
    the question. This process would be governed by standards that
    are applied by experts.
        So let me ask each of you, do you believe that pipeline
    drug issue and the way this bill attempts to address it is
    actually a legitimate exercise by Congress of the law of equity
    or should it be considered as part of a more general discussion
    of the Hatch-Waxman reform?
        Why don't we start with you, Mr. Hutt, and then why don't
    we go to Ms. Ben-Maimon, Mr. Meyer, Senator Metzenbaum, then
    Bruce Downey and then Dick Kogan?
        Mr. Hutt. Senator, let me state unequivocally this is not
    an attempt to reform the 1984 Hatch-Waxman law, nor have any of
    the seven prior statutes enacted to provide specific, equitable
    relief to one, or in one case a class of five patents, been
    attempts to reform the basic 1984 statute.
        This is a pure equitable relief bill targeted to solve a
    problem because a statute was enacted with very broad
    objectives and very broad terms, the original Hatch-Waxman Act.
    And no one back in 1984 could have anticipated this kind of
    inequitable result. And so what Congress has had to do--this is
    not the first time, as you pointed out--is to enact specific
    legislation each time one of those inequities surfaces.
        Here, this is a process rather than a product-specific
    bill, and I believe very strongly, as I stated in my prepared
    statement, that a process is much better. We will find out, in
    response to Mr. Downey, whether, in fact, there was a lack of
    due diligence on the part of the seven companies involved or
    whether they were engaging in due diligence.
        The Chairman. So you are saying they would have to prove
    their case within this process?
        Mr. Hutt. They must prove their case.
        The Chairman. Within this process?
        Mr. Hutt. Yes.
        The Chairman. Ms. Ben-Maimon?
        Dr. Ben-Maimon. I would like to answer the question on
    three specific points. First of all, I think it is very clear
    that the generic industry clearly does not endorse patent
    extension. We believe that the expiration of those patents is
    actually what stimulates research and development.
        The Chairman. But you do agree that patents are important
    in order to stimulate investment to begin with?
        Dr. Ben-Maimon. No question about it.
        The Chairman. OK.
        Dr. Ben-Maimon. But this is not a request necessarily for a
    guarantee of patent life, which they already have at 21 years.
    It is a request to guarantee market life; that because of what
    is occurring during the regulatory process, there should be a
    guaranteed market life for products. And that is very different
    than the extension of patent and the protection of intellectual
    property rights, which we clearly believe are exceptionally
    important.
        The intent of Hatch-Waxman clearly included in its concept
    the encouragement of research and development, and allowing
    patents to expire actually stimulates some of that research and
    development. So it is important that patents, in a timely
    manner--and clearly when is the question--are permitted to
    expire so that research and development is encouraged and aging
    products don't just remain on the market forever.
        From the standpoint of the process itself, the issue here
    is that in order for a process to be fair, it needs to
    understand the technical nature of the review process. It needs
    to understand and take into account what are the motivators of
    the innovator, why are things being changed. And the PTO
    clearly doesn't have the expertise to be able to evaluate the
    processes at FDA.
        Should we be granting extensions for products that there is
    a choice made during the regulatory review process to switch a
    formulation that actually delays the entry of market willingly
    by the innovator? I am not sure about that. Or should we be
    encouraging them to bring the product to market, especially if
    it truly is an advantage for patients over what is currently on
    the market? I don't know that we should be allowing them to
    make switches in formulations and things like that for drugs
    that we clearly want to have on the market.
        And, last, I think 1172 also does try to address some of
    the issues that we do consider important, such as the Orange
    Book issues which clearly get at the heart of Hatch-Waxman. And
    I think in other hearings this has been likened to the
    unraveling of a button, and I think we have to be very cautious
    when we start to unravel that button. We start to change things
    that were clearly discussed and negotiated and we can unravel
    the button to the point where it falls off.
        And I would hope that we take these issues in the context
    of what is good for patients and what is good for the public
    health, and look at them separately from a patent extension
    which is clearly what the intent of the bill was originally.
        The Chairman. Thank you.
        Jerry.
        Mr. Meyer. Thank you, Senator. I certainly did not intend,
    Mr. Chairman, to suggest that this bill or whatever form it
    finally takes would be viewed as a Hatch-Waxman reform bill.
    That is not my intent at all. I think that legislation was
    extraordinarily helpful and I think it continues to be so
    today.
        But I also believe there have been and there will always be
    a few outlier products that will have faced very extenuating
    circumstances. And there ought to be a process, and that is
    what I saw was a process being created that at least permits
    open public consideration of that issue. That is how I see that
    legislation, and I don't think it is limited to a few products
    in the past. I think it will probably include a few products in
    the future.
        There was one just recently. A constituent of yours,
    Senator, that was involved in obtaining approval faced
    circumstances that were certainly not anticipated--that is
    probably the kindest thing I could say--at the time the
    application was reviewed, and then extended by well over a year
    after an advisory committee has recommended approval, 19-0. So
    I believe there will always be a few of these products around
    and they will surface, and unfortunately no one could ever
    write legislation that would cover every conceivable
    circumstance. So I am hopeful that a process will be created
    that will provide at least public consideration of those kinds
    of issues.
        The Chairman. Thank you.
        Senator Metzenbaum.
        Mr. Metzenbaum. I think, Mr. Chairman, the question before
    the committee is what is equitable and fair to the consumers of
    this country. The focus should be on public policy and how to
    contain high drug prices.
        Now, let's face it. This company has been incredibly
    successful and able in its effort to extend its patent. Part of
    the reason for its delay originally was that it had switched
    from a capsule form to a tablet form during the process of
    going through the approval. And had they not done that, the
    process would have moved much more rapidly. But Schering-
    Plough, I give them double-A for being persistent and being
    determined because even coming in the middle of the night with
    an amendment to an appropriations bill, they attempted to get
    an extension.
        The real question is what is the right thing to do for the
    American consumer. This company has been treated fairly, very
    fairly by the Congress and by FDA, and now I think they are
    just being a bit hoggish in wanting to extend their patent
    which, as I previously stated, cost the American people an
    additional $11 billion, according to an impartial source.
        So, Mr. Chairman, I say to you as the author of a piece of
    legislation that was major legislation--the Hatch-Waxman Act
    was not just a piddling bill; it was a major piece of
    legislation. This is an effort to hang onto that, move forward
    and say, well, yes, but now we want an exception, we want to
    make another $11 billion, or whatever the actual number is, by
    getting an exception.
        And I just say to you, Mr. Chairman, and I urge upon you,
    you and I have differed at times on various issues, but on the
    matter of fairness we have never differed. And in this
    instance, the Congress and the FDA have been very fair to this
    company and I think they are just being rather hoggish in now
    asking the Congress to see to it that they can exploit the
    American public for an additional sum of about $11 billion.
        The Chairman. Thank you, Senator.
        Mr. Downey.
        Mr. Downey. I think it is clear that this bill as written
    is not a Hatch-Waxman reform or an expansion piece of
    legislation. I do think from our perspective in the generic
    industry, there are a number of issues that we would like to
    see taken up. Principal among those would be the expansion of
    Hatch-Waxman to biotech products, to biologics. There is no
    clear regulatory pathway to get a generic biotech product
    approved. We think that is a logical expansion. That is the
    kind of subject we think should be taken up rather than an ad
    hoc bill that benefits one or two companies.
        The balance was struck between innovation and competition,
    40, 50 issues resolved. There was compromise on both sides. To
    reach out and move one item from the pro-competitive side and
    move it over to the innovation side as an ad hoc approach, we
    think that is wrong. If we are going to approach it, we should
    do it on a comprehensive basis.
        The Chairman. Thank you.
        Mr. Kogan, we would like to hear your viewpoint.
        Mr. Kogan. Thank you, Mr. Chairman. The issue under
    consideration is to provide a fair and open process at the
    Patent Office to determine whether certain pipeline drugs--and
    here we are just limiting it to seven drugs--lose valuable
    patent time due to unanticipated regulatory delays. So I think
    this is clearly an issue of equity.
        But let me comment on some facts I think that have not been
    correctly presented to the committee, Mr. Chairman. I want to
    talk about the 17 years of patent protection, the 20 years of
    patent protection, and I think somebody mentioned the 23 years
    of patent protection that Claritin has received. That is really
    misleading.
        We have received, if Claritin runs to its normal patent
    life--we will receive 9.2 years of effective patent protection;
    that is, from the date we introduced the product, we will have
    9.2 years of patent protection, not 17, not 20, not 23.
        Furthermore, if we are successful in our attempt here, if
    S. 1172 is passed by the Congress, if we prevail at the Patent
    Office, if we then prevail on appeal in the Federal judiciary,
    we will gain 3 more years of patent extension which will give
    us an effective patent life for Claritin of 12.2 years. That is
    less, Mr. Chairman, than the average patent life drugs received
    in the 1980's. That was 12.6 years.
        So even if we go through the hurdles that are being set up
    here, even if we are successful in passing legislation, even if
    we are successful in the Patent Office and successful in the
    Federal judiciary, we still will receive a total effective
    patent life that is lower or less than the average of those
    products approved in the 1980's.
        The Chairman. But you are saying that you have to prove
    your way all the way up that tree?
        Mr. Kogan. That is right, sir.
        The Chairman. And you could lose at any time on the way up?
        Mr. Kogan. Well, that is correct.
        The Chairman. Even under this bill?
        Mr. Kogan. Yes, and even if we win all the way, we will
    have less effective patent protection for Claritin than the
    average product approved in the 1980's. So it is clearly an
    issue of equity.
        Just one other comment. It has been referenced here that
    there was an effort on Schering-Plough's part to delay approval
    of Claritin by, well, different vehicles. I mean, that is
    nonsense. We worked absolutely diligently and hard to get this
    product approved. We were in a competitive race to get it
    approved and we worked hard.
        The issue of bioavailability--I can explain that, but just
    let me say that we don't market this product in 46 countries in
    capsules. We market it pretty much the same way we market it in
    the United States, in tablet form, because that is the
    presentation that consumers like and that is the presentation
    that is safer in terms of product tampering, which was an
    issue, as you all will recall, back in the late 1970's and the
    1980's.
        Thank you, Mr. Chairman.
        The Chairman. Well, this whole area has always interested
    me. It is a very, very interesting area, and there are the two
    competing sides, plus the generic industry competing. Anything
    that is done has to be fair. But as I understand it, Claritin
    was approved in 1993. Let me just make sure I am right on these
    issues. It was approved in 1993 and its primary patent will
    expire in 2002. Am I right on that?
        Mr. Kogan. That is correct, sir.
        The Chairman. OK, so that gives you a marketing exclusivity
    period of 9 years?
        Mr. Kogan. Yes, sir.
        The Chairman. Now, under today's patent law the patent term
    is 20 years. Let me just ask you, Mr. Meyer, this. What is the
    effect of a legal and regulatory system that renders important
    pharmaceutical patents with a market exclusivity period of 9
    years as opposed to a widget that has 20 years? Does that
    affect a company's ability to raise capital and invest in
    research and plan their future business strategies?
        Mr. Meyer. Well, I certainly think it would. You know, I
    was here as a representative----
        The Chairman. It seems to me that is one of the issues
    here.
        Mr. Meyer. I mean, you know, it has to. You know, I work,
    Mr. Chairman, for both generic and innovative firms now.
        The Chairman. Right. Well, that is why your testimony is
    very important here.
        Mr. Meyer. This is a delicate balance that people try to
    do, and that is why I see the process as such an important
    process so they can at least have their views considered. But,
    you know, the current patent system is difficult from a
    pharmaceutical point of view because you file for a patent
    without ever knowing when you will be able to begin to achieve
    the protection of that patent, and that happens when the
    product is finally launched.
        Another firm that I worked with, as a matter of fact, faced
    an issue where they had built a manufacturing facility for
    millions and millions of dollars for a product whose review
    time was extended and extended and extended--it was an
    antibiotic--to the point where the firm had to make a decision
    as to whether it was worth to pursue because by the time they
    got approval, they wouldn't even be able to get back the money
    for the building they built that would never be used.
        So you can be very squeezed in the way our patent process
    is set up, and somehow I hope that the right committee will
    take a look at some point at some combination of marketing
    exclusivity and patent protection to establish it for when the
    product is approved and to start there so it will be equal for
    everyone. That is the position I argued. I am not an attorney,
    so I don't know how to craft that. When I was at FDA--and I
    still believe that is the only ultimate fair way to resolve
    that.
        The Chairman. Well, thank you. My time is up, but I would
    like to ask you and Peter Hutt and Dick Kogan this because you
    are for this bill, as I see it. Former Patent Commissioner
    Lehman and Judge Randy Rader of the Federal Circuit have
    proposed that Congress consider assigning the role of fact-
    finder with respect to pipeline drugs to the Federal Court of
    Claims.
        Do you have any opinions on the advisability of this
    recommendation? If you could answer it really quickly, I will
    go to you.
        Mr. Meyer. I don't have opinions on that issue, Mr.
    Chairman. I heard those arguments. I don't have a personal
    opinion on that.
        The Chairman. Mr. Hutt.
        Mr. Hutt. Senator, I believe that would be an unproductive
    approach. First, we need something that can be resolved very
    quickly because for these seven----
        The Chairman. That is why you want the Patent Office to do
    it?
        Mr. Hutt. That is exactly right.
        The Chairman. Then there would be an appeal to the Federal
    circuit court?
        Mr. Hutt. Exactly, but if this were given to the judiciary,
    particularly to a court that has thousands of cases in backlog,
    it is highly unlikely the court would ever even hear the case
    before the patent is expired. So we need an administrative
    process.
        Second, I don't believe that litigating this in court is
    the best way to resolve the issue. We need an independent,
    neutral administrative tribunal that can look at the entire
    record; can ask questions of FDA, of the company, of the
    generic industry; put it together quickly and resolve this in a
    matter of months. This is, I think, easily the best way to do
    it.
        The Chairman. Mr. Kogan.
        Mr. Kogan. I have nothing to add to that, Senator.
        Mr. Metzenbaum. Mr. Chairman.
        The Chairman. Yes.
        Mr. Metzenbaum. Let me just add one word in view of these
    comments.
        The Chairman. Sure.
        Mr. Metzenbaum. If there were to be some procedure,
    certainly under no circumstances should the determinative body
    be the Patent and Trademark Office. It ought to be FDA, where
    the original jurisdiction lay. At least they have some
    cognizance of what is right or wrong. I am not advocating that
    that be the solution, but I am saying that if the chairman and
    others should conclude to go forward, then I certainly think
    that the idea of giving the Patent and Trademark Office the
    authority with respect to this determination is absolutely the
    wrong place to put it. They don't have the background for it.
        The Chairman. What do you think of that, Mr. Meyer?
        Mr. Meyer. Well, I think the FDA should certainly be a
    party to the proceedings and provide information. But you must
    understand that when some of these applications are delayed, it
    is in part because of things the FDA has done. And I suppose I
    would worry about the FDA being so defensive of their actions
    that they would be less than partial.
        The Chairman. One of the actual parties then, if you took
    Senator Metzenbaum's view, would be making the determination.
        I have taken too long, but I have got to ask this. Why,
    Howard, do you have such a lack of confidence in the PTO? I
    mean, I have a lot of confidence.
        Mr. Metzenbaum. Not for matters within their normal
    jurisdiction, but I don't think they know anything at all about
    this subject.
        The Chairman. But they would have to deal with FDA as one
    of the interested parties, as well as in this case Schering-
    Plough and the genetic industry.
        Dr. Ben-Maimon. But, Senator Hatch, confidentiality is a
    major issue here.
        The Chairman. I see.
        Dr. Ben-Maimon. The genetic industry doesn't have access to
    any of the documentation at FDA.
        The Chairman. I see.
        Dr. Ben-Maimon. So unless FDA is able to play a major role,
    you will have no equity.
        The Chairman. I would presume they would play a major role.
        Mr. Meyer. I envision they would.
        Mr. Kogan. I think the issue is one that should be
    described as due diligence. I mean, that is the original basis
    of the Hatch-Waxman Act is that a company pursued its approval
    with due diligence. You need an independent party.
        The Chairman. And if the FDA is not doing its job----
        Mr. Kogan. Yes, sir, you need an independent party. The FDA
    may be embarrassed, may be concerned about the role they
    played. And we don't want to point the finger at anyone. We
    don't want anybody--we are not pointing blame.
        The Chairman. So it is more a question of equity, what
    should be done?
        Mr. Kogan. Yes, it is an issue of equity. The Patent Office
    has been looking at patent extension since 1984. It is not new
    to them.
        The Chairman. Yes.
        Mr. Kogan. They have been doing this as part of their role
    under the Hatch-Waxman Act. It is an independent body. It can
    react quickly. The patent commissioner said it is an
    appropriate thing for the Patent Office to look at, and so it
    seems like a fair and equitable place.
        The Chairman. Let me go to Senator Schumer.
        Senator Schumer. Thank you, Mr. Chairman.
        Senator Sessions. Well, Mr. Chairman, I will have to leave.
    Could I have 1 minute?
        The Chairman. Could I let him ask a couple of questions and
    then I will turn to you, because I know he has to go?
        Senator Schumer. Sure.
        Senator Sessions. I will just share the thought that Randy
    Owens, the lead singer and writer from the group Alabama, asked
    me recently--he said, do you believe in private property? And I
    said yes. He said, protect my songs. I know you share that
    view. [Laughter.]
        The Chairman. Yes, but not enough of you are buying those
    songs. [Laughter.]
        Senator Sessions. I think Senator Torricelli's bill has
    really, Senator Metzenbaum, emphasized public interest a lot
    more than the House bill has, and I feel pretty good about it.
    I do not suggest for one moment I am capable of deciding this
    matter, and I wouldn't begin to.
        The Chairman. Well, that is what has been happening.
    Congress has been deciding these matters, and you have the two
    very at-odds sides and we get into a fight every time and I
    feel like I am right in the middle all the time. You know, I
    would like to be fair to everybody.
        I am sorry to interrupt you.
        Senator Sessions. Well, I would just like to introduce for
    the record former Surgeon General, Dr. Koop's support for this,
    and a letter from Mr. Lehman, Assistant Secretary of Commerce
    for Patents and Trademarks. They may be part of the House
    record, but may not be part of this.
        The Chairman. That is fine.
        [The information referred to was not submitted.]
        Senator Sessions. I am sorry I will have to leave, Mr.
    Chairman. Thank you for your leadership.
        The Chairman. We understand. Thank you.
        Senator Schumer.
        Senator Schumer. Thank you, Mr. Chairman, and I appreciate
    the testimony and I appreciate everything that you are doing
    here, Mr. Chairman. Let me give you my thoughts on this and
    then ask people to comment.
        First, it is my view, Mr. Chairman, that if you had to
    choose a law during the last 20 years that has probably had the
    most impact on average people with the least amount of people
    knowing about it, it is Hatch-Waxman. The law has allowed for
    the creation of a vibrant generic drug industry. It has saved
    the consumer billions of dollars. At the same time, it has
    maintained the balance between brand and generic pharmaceutical
    firms so that brand name companies are still profitable--in
    fact, more profitable than ever--and they have ample incentives
    to conduct research and development into new drugs.
        Since the passage of Hatch-Waxman, pharmaceutical R&D has
    increased from $3 billion to $21 billion. So, obviously, these
    folks are doing it because they think they can make money under
    that regime, and that is fine. God bless America. Schering-
    Plough, the company that is testifying today, was recently
    mentioned in a news article, for instance, as being close to a
    vaccine for AIDS, and we all pray you are successful in that.
    So Hatch-Waxman has worked extraordinarily well.
        And one thing I would just add, Mr. Chairman, is even
    though 20 years was the full time in Hatch-Waxman, the average
    drug was supposed to get, and does get about 12 years. There is
    a difference, but it is not that great a disparity as 9 to 20
    would be; it would be 9 to 12.
        But in my view, the balancing act which Hatch-Waxman
    achieved has become more precarious over time, and that is
    because those with a vested interest in this complicated law
    have used, shall we say, innovative means. With the same
    innovation they use to produce drugs, they have been very
    innovative at trying to get around Hatch-Waxman and delay the
    entry of cost-saving generic drugs onto the market. They have
    been very good at finding new ways at market exclusivity.
        So if you look at the Claritin case in a vacuum, I can
    understand why Schering-Plough feels they deserve a patent
    extension. They were in the pipeline during Hatch-Waxman. It
    put them in a hazy category, a little less than everybody else
    gets. And rightly or wrongly, the FDA took a long time to
    approve Claritin, so they have had less time with an exclusive
    product than the typical drug. So I believe that saying that
    Schering-Plough is simply being greedy, as some opponents have
    argued, is an oversimplification. That is not what I would say.
        But we are not in a vacuum. Branded drug companies
    routinely list additional and sometimes inappropriate patents
    in the FDA's Orange Book to complicate and frustrate the
    generic drug industry's ability to develop a competing product
    and get it to market. The citizen's petition, originally
    intended to ensure that generic drugs are safe, has been
    abused, in my judgment, to delay the approval of a generic drug
    firm's application with the FDA. And there have been numerous
    attempts to pass rifle-shot amendments in the dark of night
    without hearings to extend a patent for a drug.
        So I am concerned that simply allowing, Mr. Chairman,
    Claritin and these six drugs to have a few more years is more
    of the sort of ad hoc-racy which has threatened Hatch-Waxman.
    So I have a suggestion. I believe that after 15 wonderful and
    highly effective years of Hatch-Waxman, it is time to modernize
    the law. It is time to restore the certainty for both sides,
    branded and generic, so that there is a definite period of
    market exclusivity after FDA approval, not different than what
    some have suggested. Maybe it is 10, maybe it is 12. I don't
    know. We could pick an amount of years that we thought was
    fair, with a balance, but it is a different period with a
    definite end date where generics can enter the market with no
    delays; no more of this Orange Book, no more of the citizen
    petitions, no more ways to extend the period beyond the other
    way.
        I would support an extension for a handful of drugs like
    Claritin which got less, provided there were limits to prevent
    other drugs from getting more. And when Mr. Kogan came to my
    office, he gave a very good presentation and then I asked him
    would he support a change on the other end. And to his credit
    to the fidelity he has to his fellow manufacturers, he said I
    couldn't say that. So I am a little frustrated here.
        Are we going to come and do this because there is a good
    reason on one side? But when there is a good reason to let the
    generic go ahead on the other side, we all know--you know it
    well, Mr. Chairman; you are the champion of this. The generic
    industry doesn't have the clout to do the cut-off for
    individual drugs. They are not going to come here and say, OK,
    drug ``x'' has more than the 12 years; they would have 16 by
    what they have done with the Orange Book or the citizen's
    petition.
        So let's put it all together. Let's reexamine Hatch-Waxman.
    Let's come up with a set period of years that might give some
    relief to these drugs which have too short a period, but
    prevent other drugs from getting too long a period. I think
    that would make the most sense.
        I am reluctant to vote for this bill if it doesn't include
    broader reform. I am reluctant to say that this one case should
    get an exception when we are going to find other instances
    everyday where maybe even Schering-Plough itself, but certainly
    other companies, are going before the FDA, are going before
    other things, and trying to get more than the 12 years through
    what I would consider, to be charitable, things that were never
    intended by Hatch-Waxman, such as use of these citizen
    petitions to actually extend the life of drugs.
        So, in conclusion, Mr. Chairman, I have sympathy for the
    makers of Claritin. I will keep an open mind should this bill
    move forward, but I hope that we also take this opportunity to
    realize that after 15 years of great success, it is a tribute
    to you, Mr. Chairman. I think that is one of the 10 laws that
    has been passed in the last 15 or 20 years that really has made
    this country a better place and done just what we wanted--new
    breakthroughs, lots of money going into R&D by a great
    industry, the pharmaceutical industry, but at the same time
    making those drugs, after the reward for all the research,
    available to people.
        I guess to sum up my position, to deal with the unfairness
    on one side of the equation without dealing with the unfairness
    on the other side of the equation might well be unfair. And so
    I have said my little piece here, but I would like the views
    particularly of those who advocate this particular piece of
    legislation, Mr. Meyer, Mr. Hutt and Mr. Kogan, about what I
    said about putting this in a bigger package to prevent the
    abuses on the other side.
        The Chairman. I think I am going to invite Senator Schumer
    to come with me to Iowa this next weekend and tell people about
    Hatch-Waxman----
        Senator Schumer. You deserve it, Mr. Chairman.
        The Chairman [continuing]. And how much we have benefited
    consumers all these years.
        Senator Schumer. You deserve it.
        The Chairman. I appreciate your kind remarks. I think it is
    really a very important bill, but it hasn't solved all the
    problems. No bill solves all the problems, but at least it
    comes close, but I wish we could get everybody together some
    way or other.
        Senator Schumer. Well, that is just what I would say. So in
    the remaining period, I would like Mr. Meyer, Hutt and Kogan to
    comment on what I had to say about doing it all in one package
    and being a little fair on the other side, too.
        Mr. Meyer. I would be very supportive, Mr. Chairman, of a
    fixed period of exclusivity, or whatever you want to call it,
    that begins at the date of approval. I would be very supportive
    of that, sir. I was when I was at FDA, and was ineffective in
    the position I was in to be able to see that through.
        Senator Schumer. Well, I hope I won't be able to say the
    same about myself a few years from now.
        Mr. Hutt. Senator Schumer, we are obviously dealing with
    two quite different issues here this morning. On the one hand,
    you and many others have raised the concept of structural
    reform of both the patent law and the generic drug approval
    system. That is a very complex matter that I assure you is not
    going to be resolved in a short period of time. It is not on
    the table today.
        What we are dealing with today is the last seven drugs.
    There are no others for people to come in and talk about. So
    when people say, well, this is just the beginning, no. This is
    the end.
        Senator Schumer. No, no. I disagree with you strongly, Mr.
    Hutt, and that is not a way to win me over because you can say
    that this particular inequity should be dealt with by itself. I
    want to know how we are going to deal with some of the other
    inequities, such as citizen petitions. To me, since I am, and
    we are on this side of the table elected officials,
    politicians, trying to balance interests, I would tell you if I
    let this horse go out of the barn, you may never get a chance
    to rope in the others.
        Now, do you believe that there are abuses on the other
    side? Just answer that, if you would, yes or no.
        Mr. Hutt. I do not.
        Senator Schumer. OK, then we are not on the same wave
    length.
        Mr. Hutt. And I will tell you why I do not, and let me
    explain very clearly. It happens I invented the citizen
    petition process when I was chief counsel for FDA, and that
    process depends upon FDA handling those citizen petitions in a
    forthright, effective way. What is the problem isn't the
    citizen petition process. What is the problem is FDA's lack of
    resources to provide responses.
        Now, just because there is delay at FDA doesn't mean it is
    the agency's fault. It isn't the fault of the person who
    submitted the petition. It isn't the fault of anyone there. It
    is the fault of our system of not having adequate resources at
    FDA. I will stand here and defend the citizen petition process
    as a process, as being the height of American democracy. If you
    can't petition your Government to take action, then there is
    something wrong in America.
        So, yes, the process works. It is the implementation
    because of resources that is the problem, and you are not going
    to solve that by another statute. That is not the problem. If
    this were an appropriation committee, then we could begin to
    address that problem.
        But let me turn back to where we were because there were
    some important points, I think, that have to be addressed. You
    are raising structural reform of the entire system. You can't
    just take one little thing like the citizen petition or another
    little thing--it is not little, it is large, as Jerry Meyer was
    talking about, the date when a patent begins to run. This is
    all part of a continuum. It is going to require several years
    of hearings, debate, intellectual thought about the best way to
    approach this.
        To hold these seven last drugs hostage to that process, I
    think, is the height of inequity. We ought to decide for these
    seven drugs are we going to be fair or not. Are we going to
    have a process that will decide whether there was due diligence
    or not? And we ought to get this off the table and then we can
    approach structural issues of the entire statute.
        Now, people have said this is a tax on the sick and the
    elderly. I look at this totally differently. What this does is
    provide funds so we can develop drugs for the sick and the
    elderly. If we don't have pharmaceutical process, if we don't
    have an industry willing to invest in the future research for
    our dread diseases in this country, then we are going to be
    stuck forever where we are today with the same diseases
    claiming the same number of lives every year. We are dependent
    on research and we are dependent on profits. We are dependent
    on the profits of these seven drugs.
        Senator Schumer. No one is disputing that. The dispute is
    where you find the equilibrium.
        Mr. Hutt. That is correct.
        Senator Schumer. And I would say this to you, in all due
    respect, sometimes it is better to look at the forest than the
    trees. You are looking at the trees, these seven little trees.
    I would argue to you that the forest here is the same exact
    argument--you can't separate the two--which is how long, how
    many years should a drug have once it is on the market--let's
    even define it that way, which is the way you would want to
    define it--and be protected from competition. That is the
    issue, at least the way I look at it.
        Again, I haven't had the years of looking at it in detail
    that you have, but I think it is a pretty sound way to look at
    it. I could re-term what you are saying as, well, to say that
    we should deal with it when the period is too short separately
    from dealing with it when the period is too long, I don't buy
    it.
        Mr. Hutt. Well, I am not suggesting that we should.
        Senator Schumer. Well, in effect, you are, sir.
        Mr. Hutt. No, I am not because the period--we are not
    arguing here for these seven drugs for a period that even
    remotely approaches either 17 or 20 years. We are arguing for a
    period that would bring these drugs----
        Senator Schumer. Mr. Hutt, in all due respect, there are
    pharmaceutical companies right now filing all sorts of extended
    petitions before the FDA to get 17 to 20 effective years. That
    is what is happening right now, not on these drugs but on
    others, as we speak.
        Mr. Hutt. But what you are suggesting then is we treat
    these drugs inequitably because other people are doing
    something that Congress may not agree with. That doesn't seem
    right.
        Senator Schumer. No; I am saying for the greater good--and
    my concern is not one company; my concern is having, as you
    say, a balance between consumer prices and the ability of
    somebody to recapture years of hard work, which I agree with. I
    believe in intellectual property very strongly. It is at the
    core of my beliefs. And to find that balance, you ought to find
    it in macro, not just looking at this little piece.
        The Chairman. Well, it is true that there is a cap of 14
    years under Hatch-Waxman, as I recall.
        Mr. Hutt. Yes, Senator.
        The Chairman. And so we do have----
        Mr. Hutt. There is a cap.
        Senator Schumer. But it can go beyond that when people file
    petitions.
        The Chairman. Only if they can make an equitable case, as I
    understand it.
        Mr. Hutt. That is true, and there is no question that
    Senator Schumer is right that some citizen petitions are not
    handled as quickly as they should be, just as some NDA's are
    not handled as quickly as they should be. But that isn't
    resolved by a statute.
        The Chairman. You are saying that would be resolved if we
    would give FDA the----
        Mr. Hutt. The adequate resources.
        The Chairman. I have always felt strongly about that, but
    we have failed to do that up here. It is our fault more than
    anybody else's.
        This has been a very interesting exchange, but I want to
    give Mr. Downey a chance to respond.
        Mr. Downey. I would like to respond to Senator Schumer's
    points because I think they are really at the core of our
    objection to this legislation. This legislation, given its best
    reading, is an ad hoc address of a problem that some people
    perceive in the Act. We disagree with whether that is a problem
    or not on the merits, but clearly we think there are problems
    in the Hatch--Waxman Act, things like the unavailability of a
    regulatory pathway for biologics; the unavailability of a
    regulatory pathway for nonabsorbed drugs; the Orange Book
    listings that Senator Schumer mentioned where, in fact, we are
    improperly, we think, delayed from market entry.
        So we see great inequities in particular provisions of the
    statute, while we see overall equity in the statute as a whole.
    So I think it is clearly wrong to take an ad hoc approach to
    pipeline drugs and move it around and do something there
    without addressing all of the problems that we see in the Act.
    So I support Senator Schumer's approach to this.
        The Chairman. This has been a good discussion.
        Senator Torricelli, we will turn to you. I have to leave
    for a minute, but if you will----
        Senator Torricelli. We will proceed immediately to a vote,
    then, Mr. Chairman. [Laughter.]
        Senator Schumer. It might be tied.
        The Chairman. Listen, any time we talk to the Senator from
    New Jersey, we have to be very, very careful is all I can say.
        If you would allow me time to get back in, I would
    appreciate it.
        Senator Torricelli. Thank you, Mr. Chairman. I have clearly
    succeeded in providing an unprecedented amount of unity on this
    subject, since everyone has had criticism of my bill. It didn't
    actually concern me until Senator Sessions spoke at length in
    endorsement of the Torricelli bill and I noted--perhaps I was
    the only one who did--it is actually the Torricelli-Sessions
    bill.
        Senator Schumer. It was noted, it was noted. [Laughter.]
        Senator Torricelli. First, let me just suggest to Senator
    Schumer's point, I not only agree with some of his thesis, but
    I attempt to accomplish some of his points in writing this
    legislation as someone who is both sympathetic and supportive
    of the generic drug industry. It was noted that in addition to
    the process that has been established, Orange Book
    certification and the Mauve decision have been addressed in
    this legislation because indeed there is some need for systemic
    reform.
        Hatch-Waxman, I agree with Chuck Schumer, is remarkable
    legislation that has impacted the health and the finances of
    almost every American family. But 15 years is a long time. No
    one, even the distinguished chairman of this committee, could
    have the kind of foresight to anticipate all problems and every
    way in which this industry would be impacted by the
    legislation.
        So if in some small measure by this legislation, or
    whatever vehicle ultimately is approved by this committee, we
    can address assorted other problems, I believe we should take
    the opportunity to do so. I believe in some small measure I
    have done so. Nevertheless, it is always a problem in
    legislating to make the perfect the enemy of the good. I would
    like a broader vehicle, I would like to deal with these
    problems, but I would like to not do so much in one vehicle
    that in the end we accomplish nothing, including dealing with
    the potential injustice of these seven specific products, which
    is before this committee with a deadline that is approaching.
    That is a problem that is before us.
        Now, I know that I have been in enough of these hearings
    that no matter what is said or no matter how much testimony we
    give, there are several inaccuracies that will come through the
    reporting of the hearing. And in a vain attempt to deal with
    those, though I know nothing will come of my efforts, I would
    like, Mr. Kogan, to ask several specific questions to you.
        What guarantees are provided to Schering-Plough as a result
    of this legislation on patent extension?
        Mr. Kogan. Senator Torricelli, there are clearly no
    guarantees.
        Senator Torricelli. None?
        Mr. Kogan. None whatsoever.
        Senator Torricelli. If this bill is passed, your assurance
    that Claritin gets a single day of patent extension amounts to
    nothing?
        Mr. Kogan. That is correct, sir.
        Senator Torricelli. And whom is the burden of proving that
    there is a need, a just end for patent extension? Where does
    that burden lie?
        Mr. Kogan. As I understand it--and, of course, you know,
    Senator Torricelli, I am not a lawyer.
        Senator Torricelli. We make allowances in this committee.
        Mr. Kogan. Thank you. The burden in the Senate bill rests
    on us, and I think that is quite unfair, sir. I would much
    prefer, if I might--I know you didn't ask this question, but
    the House bill----
        Senator Torricelli. I didn't, and you are breaking my whole
    rhythm here, but that is all right. [Laughter.]
        Senator Schumer. Did the dress rehearsal go like this?
    [Laughter.]
        Senator Torricelli. It really didn't. We need new
    consultants here.
        Can I get back to the House bill? It is in my sequence
    here. One, there is no guarantee. Second, the burden is
    entirely on you to prove the justice of your application, and
    the standard of proof that is before you is ``clear and
    convincing.''
        Mr. Kogan. I understand that that is the highest standard
    of proof.
        Senator Torricelli. Now, if indeed the FDA disagrees with
    your application or believes that you have not met a clear and
    convincing standard, the legislation has provided for the
    commissioner to be able to enter the process and be heard, is
    that not correct?
        Mr. Kogan. That is correct, sir.
        Senator Torricelli. Now, the commissioner then can make his
    or her own case as to whether or not they believe you have met
    the burden of proof. Now, even if they do so, and then even if
    the Patent Office is in agreement with your case, there is then
    a third hurdle you face, is that not correct, in an application
    to the Federal court?
        Mr. Kogan. That is correct.
        Senator Torricelli. So indeed not only does the legislation
    not give you a guarantee, but you have no guarantee because you
    may not meet the burden of proof. You have no guarantee because
    the FDA Commissioner may not agree with you and may meet their
    own burden. And then you have no guarantee because there may be
    an application to Federal court which finds a contrary
    judgment.
        Mr. Kogan. That is correct. Now, not to break your rhythm,
    but even if we make it through the Congress and even if we make
    it through the Patent Office and even if we prevail on judicial
    review, we will still get less effective patent life for
    Claritin than the average drug approved in the 1980's.
        Senator Torricelli. Mr. Kogan, I am getting to this now.
    [Laughter.]
        Mr. Kogan. Sorry, Senator.
        Senator Torricelli. Therefore, you have four of these
    independent hurdles over which you must pass. So clearly there
    is not only no guarantee, but indeed an arduous process through
    which you have to go. And indeed for those who will write this
    about Claritin, and indeed as we now have for the record, there
    are seven potential drugs that have dealt with this.
        Now, even if you pass these four hurdles and meet this
    burden and you succeed, the total amount of time, then, under
    this patent would compare how with other pharmaceutical
    products under Hatch-Waxman?
        Mr. Kogan. The effective patent life for Claritin, if we
    succeed, would be 12.2 years.
        Senator Torricelli. And how would that compare with other
    products?
        Mr. Kogan. The average, I am told, is 12.6 years, so it is
    less.
        Senator Torricelli. So if we pass this legislation and
    everything goes in your favor and every burden is met, the net
    result is you still have less patent life than otherwise is
    provided under the legislation?
        Mr. Kogan. Correct, sir.
        Senator Torricelli. Now, in spite of this extraordinarily
    thoughtful legislation which I believe gives you a very fair
    opportunity, it is my information that you actually still
    prefer the House equivalent, is that correct?
        Mr. Kogan. Yes, sir.
        Senator Torricelli. Could you explain why?
        Mr. Kogan. Well, I think the number of hurdles we have to
    go through here are sufficient. They ought not to be added on
    by higher standards than I understand were required in the
    original Hatch-Waxman bill.
        All we are saying is we believe we acted with due
    diligence. We believe we acted with appropriate resources and
    in an appropriate period of time to solve the scientific issues
    with Claritin. We were held up unduly for a long period of time
    at FDA. We are not pointing a finger there. That was an issue
    of priorities and resources. So all we think we have to prove
    to make this issue a very clear issue, rather than get a lot of
    lawyers involved and a lot of terminology, is did we do what we
    were supposed to do. Did we diligently pursue the approval of
    this drug at the FDA? That ought to be the hurdle we have to
    get over.
        Senator Torricelli. Mr. Kogan, thank you very much. I just
    want to conclude again by making an offer both to the chairman
    and to Mr. Schumer that I am very concerned that the continuing
    potential in the generic industry for the availability of
    products and the price competition be as available as possible.
    And if, in drafting this legislation to deal with this
    significant but individual problem, there are other ways to
    improve this process, I certainly want to be available to do
    so.
        Finally, Mr. Chairman, I neglected when I actually began
    and introduced Mr. Kogan at the beginning of this hearing to
    welcome Senator Metzenbaum, for which I apologize. While he may
    not be here to endorse my legislation, I endorsed most of the
    legislation that he has brought before this committee in his
    career, which has been a remarkable achievement for the people
    of our country.
        Mr. Metzenbaum. Thank you.
        Senator Torricelli. Also, Senator Metzenbaum, if, in the
    process of passing this legislation, there are other ways for
    consumers, for generics, or for other interests that we can
    make this more responsive and deal with other related problems,
    I am only too glad to work with you.
        Mr. Metzenbaum. Thank you.
        Senator Torricelli. Mr. Chairman, thank you very much.
        The Chairman. Well, thank you very much. Frankly, this has
    been a good hearing today. I hope that we can all agree on at
    least one thing, that the Judiciary Committee presented a
    balanced view of this issue. Without objection, I will hold the
    record open for an additional week so that any interested party
    may provide written comments on this important issue.
        Now, I wish to thank each of the panelists. I think you all
    did a tremendous job, and I hope that we can all continue to
    work together and exchange views as the legislative process
    continues. It is critical that we agree on one thing. We must
    be guided by what is in the best interest of the American
    public, and I am convinced that everybody on this panel shares
    that exact goal.
        Frankly, I think that the proponents of this legislation,
    including our colleagues, Senators Torricelli, Sessions and
    Ashcroft, have done a good job. They have made a good-faith
    effort in putting this bill together. I also believe that the
    critics of this legislation, some of whom are with us here
    today, have made some valid points. I plan to stay involved as
    this legislation continues to be reviewed by Congress. And who
    knows? Maybe this Congress and the affected parties will give
    consideration to Senator Schumer's proposal. Frankly, he is
    coming at it from a view that a lot of us have shared for a
    long time, and I am concerned about every one of these issues.
        We should not be against Schering-Plough's rights here just
    because they are a very successful company. They are, and I
    commend you for the leadership you have provided. If they
    haven't been treated fairly in this process, Howard, we ought
    to look at that. To be honest with you, if we don't have
    correct patent term extensions, we are not going to have the
    innovation and the products that we want.
        On the other hand, it seems to me what you are saying here
    is you want a chance to present your case. You may not win it,
    but you at least want a chance to present it. Howard is
    concerned about having the PTO handle it, but to be honest with
    you, I have a lot more confidence in the PTO, Howard, than you
    do. And I don't think it is particularly an organization that
    is going to go one way or the other on this issue. I would
    think that they would take this pretty seriously.
        I would have to believe, as Jerry Meyer says, that the FDA
    would play a significant and very important role in this
    process in every case, probably making it pretty tough for
    companies like Schering-Plough to present their case. So if I
    haven't misconstrued this, of course, Ms. Ben-Maimon and Mr.
    Downey are concerned about getting these matters out to the
    public in a less expensive form so that the public--and Howard
    feels this way, too--can save money. We have to balance these
    interests. They are all good interests. And, Mr. Hutt, there is
    hardly anybody in the industry who knows more about this
    subject than you. So this has been a great panel.
        I am very concerned about these issues because year after
    year we have had people coming to the Congress wanting to
    resolve these issues. I know, Senator Metzenbaum, there were a
    couple of times when you went along with a couple of
    extensions. All of us have, because it seemed equitably right.
    Now, a 9-year patent process versus the average of a 12 on its
    face looks like something is wrong here, even though you have
    been successful, and you have a right to be successful.
        So I am going to look at this as clearly as I can. I am
    going to ask each of you to give us any additional remarks or
    suggestions that you have for us. I am going to look at what
    Senator Schumer has to say because there may be some way of
    buttoning this down so it works better for everybody. But I
    have to say I agree with Senator Schumer that when we did the
    drug price competition and patent term restoration bill, the
    Hatch-Waxman Act, it was one of the toughest things I ever did.
    I mean, it was a solid 2 weeks, 18 hours a day, and I had a
    root canal right in the middle of it and I threatened to kill
    every one of the people who did not cooperate in getting that
    thing done. Finally, we did.
        And nothing is perfect, but that bill has saved consumers a
    considerable number of billions of dollars since 1984, but
    there are some inequities that still exist. And on its face,
    Mr. Kogan, it appears that there is an inequity in your case.
    Now, Mr. Downey feels that there is not. Well, you ought to
    both have a chance at presenting your case, it seems to me.
        Now, I am going to look at it. It is awfully hard for me
    because every one of you at this table is a close friend. I
    don't know you, Ms. Ben-Maimon, very well, but I am very
    impressed with your testimony, and it is clear that you are a
    very effective person for Teva Pharmaceuticals. But all the
    rest of you have been friends for a long time and I just want
    to do what is right. So, just help us to do it. We will keep
    this record open, and if we need further hearings, I think this
    is significant enough that we can do it. But, frankly, this
    hearing kind of covered it all, all of the respective points of
    view.
        The question is can we find some way of putting this
    together so that everybody at least is somewhat satisfied, like
    we did with the Hatch-Waxman bill. Everybody was somewhat
    satisfied, everybody was somewhat disappointed, but in the end
    the bill has worked. I am hoping that we can solve these
    problems, and I wish you all great luck. As someone who has
    wanted to see the generic industry be very successful and works
    hard to try and do that, I wish you luck, certainly, as well.
    But as somebody who has watched what Schering-Plough has gone
    through, I have got a lot of empathy for you, no question about
    it, and you ought to have a chance to present your case. The
    question is how can we provide that best opportunity and a fair
    opportunity, with both sides being able to present their
    cases--or all sides would be a better way of saying it because
    it is more than just generics versus mainline pharmaceuticals.
    It is the FDA, it is the consumers, it is a lot of different
    people.
        So it has been a great hearing. I want to thank each of
    you. I appreciate the comments that you have made and we will
    certainly think these things through even more. Last but not
    least, I would like to make sure that those out there who have
    comments on this or who believe that they can add to what has
    been said here today that you will submit--we will keep the
    record open until Friday for any additional comments or any
    additional written remarks.
        With that, we will adjourn until further notice.
        [Whereupon, at 12:44 p.m., the committee was adjourned.]
                                A P P E N D I X

                                  ----------

                     Additional Submissions for the Record

                                  ----------

      Prepared Statement of Hon. Edward Bryant, a U.S. Representative in
                      Congress From the State of Tennessee

        Thank you, Mr. Chairman, for providing me with the opportunity to
    journey to the other side of the Capitol in order to present my views
    on the important issue before you. It is, indeed, a pleasure to have
    the opportunity to visit again with a number of my former colleagues
    from the House who have exchanged one view of Washington for another.
        I would like to commend one of those former House members, Senator
    Torricelli, for his commitment to fair patent treatment for
    pharmaceutical products and for his support of an independent process
    to review possible inequities in the patent treatment of pipeline
    drugs.
        But before I do so, Mr. Chairman, I also would like to acknowledge
    your leadership on this issue over the years. I want to emphasize that,
    despite my belief that we need a process to review the patents of some
    pipeline drugs, I consider the 1984 Hatch-Waxman Act a monumental
    achievement. It has helped spur pharmaceutical research and also
    enabled consumers to experience the benefits of this research in a more
    timely fashion.
        We are here to discuss S. 1172, Senator Torricelli's proposal to
    establish an independent process within the Patent and Trademark Office
    to review the status of seven pipeline drugs that faced significant
    delays in the regulatory approval process. While the bill differs in
    some respects from the Bryant-McDermott measure, we are in accord on
    the core proposal.
        This effort is about three principles--fair play, equity, and
    removing politics from the patent process. We believe in fair and
    equitable treatment of all involved in this issue--both in the
    regulatory process and in the independent review process that we and
    Senator Torricelli propose. Importantly, the review process would be a
    public process open to all interested parties and--by taking it out of
    Congress--we would provide for a decision on the legal merits.
        Hatch-Waxman, as you know, limited patent restoration for pipeline
    drugs to two years, which was intended to deal with a Food and Drug
    Administration approval time that averaged slightly more than 2.25
    years. But it later turned out that several drugs were caught in the
    regulatory approval pipeline much longer.
        Since 1984, Congress has occasionally enacted specific legislation
    to deal with inequities discovered in the implementation of Hatch-
    Waxman. In each case, Congress concluded that the general rules adopted
    in 1984 were insufficient when applied to a particular situation. But
    Representative Jim McDermott and I, and more than [50] cosponsors from
    both sides of the aisle, have concluded that Congress needs a better
    way of addressing regulatory delays that have diminished the useful
    life of a pharmaceutical patent. We believe that Congress needs to
    enact a process to handle these issues rather than tackling each
    situation on an ad hoc basis.
        Our approach--and I believe this is true of Senator Torricelli's
    proposal as well--is based on two worthwhile principles. One principle
    is that patents are an important incentive for research and inventions.
    The second principle is that Congress should not make patent extension
    decisions on a case-by-case basis.
        First, there is no question that our prosperity in America is
    built, to a great extent, on research and development. Patents foster
    that research. In fact, the relationship of R&D and patent integrity is
    one of mutual dependence in which each fosters the other for the
    benefit of us all. We know that those who conduct pharmaceutical
    research help provide one of the best patient protection policies that
    we can buy as Americans. Just ask anyone who has benefited from the
    healing powers of a new breakthrough pharmaceutical. At the same time,
    we also know that R&D can be expensive. This is particularly the case
    when it comes to pharmaceutical innovations. Without strong and fair
    patent protection, research-based pharmaceutical companies would not
    have the incentive or the wherewithal to continue research that would
    lead to tomorrow's breakthrough drugs.
        The second principle involves the necessity of establishing a fair,
    consistent process to protect the integrity of patents. In this
    context, it is vitally important to say what H.R. 1598 and S. 1172
    would not do. They do not automatically extend a patent. Rather, they
    would establish a fair and open process that is conducted in a public
    forum. This would be an independent, non-political review. These bills
    would apply to seven pipeline drugs than spent over 60 months in the
    FDA's New Drug Approval process. All affected parties would be able to
    make their case before the appropriate body--the PTO, an independent
    agency whose experts deal with the legalities of patent issues day in
    and day out.
        I believe strongly that these bills fulfill the intent of Congress.
    The record since 1984 is clear. When Congress passed Hatch-Waxman, it
    believed that there would be relatively quick FDA approval for drugs
    that were in the approval ``pipeline'' at the time. In fact, that did
    not occur. Because of lengthy regulatory reviews, many pipeline drugs
    received substantially less patent coverage than Congress intended.
    Often in Washington we talk of ``unintended consequences.'' Hatch-
    Waxman truly involves a case of unintended consequences. But they are
    consequences that, nevertheless, should be dealt with.
        Mr. Chairman, I am gratified that H.R. 1598 has attracted so many
    co-sponsors--Democrat and Republican alike. I also am gratified that
    Senator Torricelli has introduced parallel legislation. I think this
    support demonstrates that there is widespread and growing support to
    enact a fair, independent process that protects patent integrity.
        In sum, Mr. Chairman, I believe these bills have identified the
    right solution. It is a solution that provides patent integrity and, in
    so doing, ensures the continuation of research that leads to
    breakthrough drugs and other innovations that truly help people live
    longer and better lives. Thank you.
                                   __________

      Prepared Statement of Hon. Jim McDermott, a U.S. Representative in
                     Congress From the State of Washington

        I am pleased that the Senate Judiciary Committee is taking the time
    to review the facts behind the Drug Patent Term Restoration Review
    Procedure Act of 1999. I have sponsored similar legislation in the U.S.
    House of Representatives, H.R--1598--the Patent Fairness Act, and I
    appreciate the opportunity to share with you the reasoning behind the
    proposal.
        The Patent Fairness Act encompasses three principles--fair play,
    equity and taking politics out of the process.
        Maintaining the integrity of our system of patents is central to
    whether or not our society continues to receive the desired public
    benefits from pharmaceutical research--or any other type of cost-
    intensive research for that matter.
        Creating a fair and impartial process where an independent body can
    determine whether or not to restore lost patent life is a matter of
    fairness. And it is the right thing to do. It also is a matter of
    ensuring adequate incentives for research and development in the
    future.
        This bill takes the first step in attempting to find a long-term
    solution to the patent integrity issue that is impacting several drugs
    that were caught in a review process that took significantly longer
    than Congress anticipated.
        As a result of this lengthy delay, the patent life of these
    ``pipeline'' drugs--drugs that were at FDA for more than 60 months--was
    reduced by an unintended consequence that had nothing to do with their
    medical safety. I believe that the developers of these pharmaceuticals
    deserve to have their grievances evaluated in a fair and impartial
    manner.
        There are two important questions: What type of process can we put
    in place to guarantee a fair and reasonable evaluation of the issues?
    And, what types of assurances should be embedded in this process to
    make sure it is equitable and removed from politics?
        H.R. 1598 answers these questions. Our bill establishes a process
    that is fair, equitable, independent, separated from politics, fully
    open to the public, and subject to judicial review. Let me expand on
    these features.
        The bill establishes an independent and public review process
    within the U.S. Patent and Trademark Office. This would be a new
    administrative procedure--one that is fair and impartial.
        The Patent and Trademark Office is the right place to hold a
    hearing about these issues, because these issues involve questions not
    of medical research, but go to the core of the definition of patent
    life.
        Within the office, a procedure would be established to review
    claims for patent term restoration to compensate for unanticipated
    lengthy regulatory review of five years or more in the FDA's New Drug
    Approval proceeding.
        The process established by this legislation would be akin to a
    court hearing.
        Any company that believed its product was unintentionally deprived
    of patent protection would have the opportunity to present its case.
    Any other interested party would also be free to make its case. Both
    sides would be treated equally.
        Everything would occur in the open. The review board would be bound
    by objective criteria. And, after an opinion has been rendered, each
    side would be allowed an additional opportunity for judicial review.
        Now contrast the process H.R. 1598 would establish with the way
    things usually work around here. Patent extensions--regardless of their
    merits--are snuck into a bill in the middle of the night, by some
    Congressman or Senator, regardless of the consequences. I disagree with
    that tactic and I think it's a lousy way to legislate.
        By turning over the issues of patent integrity to an independent
    panel of experts, as H.R. 1598 would do, the process would be driven by
    public policy objectives-not politics.
        This is an important point. Our bill is driven by the principle
    that it is best to take politics out of the equation, to de-politicize
    the process, to take Congress out of the job of deciding individual
    patent issues.
        And finally, our legislation would require the Commissioner of
    Patents and Trademarks to evaluate the review procedure established by
    the bill and report to Congress.
        Another way to describe the legislation is to outline what it does
    not involve.
        There is no preferential treatment for any affected pipeline drug.
    There are no arbitrary decisions. There are no guarantees. Our bill is
    about process, not about a predetermined outcome.
        There is one more point that I would like to make that strikes at
    the heart of the argument being made by the generic drug industry
    against the Patent Fairness Act. They argue against a fair and open
    process to resolve patent disputes because they feel that if a party
    wins its case before the PTO and then its case survives judicial
    review, the American consumer win then be harmed. Well, I hope that you
    keep an open mind about this claim. The idea that generic drug makers--
    copiers of prescription drugs developed by pharmaceutical companies--
    offer lower prices to consumers should NOT be assumed as fact.
        For example, last December the Federal Trade Commission filed an
    unprecedented $120 million suit against Mylan laboratories for its
    conspiracy to horde pharmaceutical ingredients. The hoarding, according
    to the FTC, led to more than a 3,000 percent increase in the cost of a
    hypertension generic drug and more than a 2,000 percent increase in the
    cost of an anxiety drug.
        Due to Mylan's actions, the cost of a bottle of pills rose from $11
    to $377 a bottle, for a drug which the company did not spend one
    research dime to develop but copied from one of its competitor's. So to
    say that the generic industry is somehow a victim of any attempt to
    look at the fairness of our current patent system in protecting the
    rights of companies that spend billions of dollars to develop life
    saving drugs is dearly a stretch of the truth.
        I am convinced that the Patent Fairness Act--or similar legislation
    that also initiates an equitable process to resolve patent disputes--is
    the right solution. As a medical doctor and psychiatrist, I have seen
    the benefits of breakthrough drugs and innovations. They truly can make
    people's lives better, and there is more to do.
        Thank you.
                                   __________

       Prepared Statement of the National Association of Pharmaceutical
                                 Manufacturers

        The National Association of Pharmaceutical Manufacturers (NAPM) is
    a national, not-for-profit trade association representing manufacturers
    and distributors of finished, multi-source generic pharmaceuticals,
    manufacturers and distributors of bulk active pharmaceutical chemicals,
    and suppliers of other goods and services to the generic drug industry.
    NAPM appreciates the opportunity to submit this testimony to the Senate
    Committee on Judiciary regarding S. 1172, the ``Drug Patent Term
    Restoration Review Procedure Act of 1999.''
        We believe it is ironic that as this Congress debates ways to
    reduce the high cost of prescription medications to the elderly and
    Medicare Reform, we are here today to discuss S. 1172, which would
    grant special-interest patent extensions of up to three years to eight
    brand name drug products.\1\ S. 1172 denies the American consumer the
    choice of selecting a more affordable generic version of these brand
    products. According to a recent study by the PRIME Institute of the
    College of Pharmacy at the University of Minnesota, a three-year delay
    in generic competition for Claritin, the drug that would most benefit
    from S. 1172, would cost consumers $7.36 billion from 2002 to 2012.
    (See attached report.) There would also be a tremendous fiscal impact
    on government programs offering a drug benefit, such as Medicaid and
    programs offered by the Veterans Administration and the Department of
    Defense.
    ---------------------------------------------------------------------------
        \1\ The eight drugs are Claritin, Eulexin,
    Nimtop, Relafen, Dermatop,
    Penetrex, Cardiogen-82, and Daypro.
    ---------------------------------------------------------------------------
        This being said, by this testimony, NAPM will demonstrate that S.
    1172 would, in fact:

       Increase the cost of prescription medicines by foreclosing
            generic competition;

       Undo the delicate, agreed-to compromise and policy decision
            essential for the passage and success of the Hatch-Waxman Act
            of 1984;

       Establish a procedure for extending patent terms, despite
            the fact that the need for a procedure outside of Congress,
            much less the need for the bill itself, has not been
            satisfactorily demonstrated; and,

       Offer a gesture at Orange Book reform that would have a
            minimal benefit because the reform would be limited to the
            eight pipeline drugs.

    In short, NAPM strongly opposes S. 1172. The bill would not be a
    constructive way to reopen a successful law that put public health
    concerns, and not company pocketbooks, first.

        In 1984, the U.S. Congress fairly balanced all the interests of the
    pharmaceutical industry and consumers by passing the Drug Price
    Competition and Patent Term Restoration, Act of 1984 (Hatch-Waxman
    Act). This law created a framework for patent term extensions and non-
    patent exclusivity periods for brand name drug products and a system
    for speeding the Food and Drug Administration (FDA) approval of generic
    drug products. As a result of the Hatch-Waxman Act, generic competition
    entered the marketplace, which in turn served to motivate the brand
    name industry to innovate the next generation of life-saving drugs.
    Since 1984 brand name drug companies' profits and research and
    development expenditures have grown exponentially. The generic drug
    industry has enabled American consumers and taxpayers to save billions
    of dollars in the purchase of medicines, while creating new jobs and
    investment opportunities in every region of the country.
        During the negotiations that led to the Hatch-Waxman Act, it was
    agreed by all parties, including the brand name industry, that brand
    name drug companies would receive up to a two-year patent term
    restoration for so-called ``pipeline drugs'' \2\ instead of up to a
    five-year patent term restoration granted for later developed products.
    Patent term extensions were more generous for future development rather
    than for pipeline drugs because a purpose of the Hatch-Waxman Act was
    to encourage future investment.
    ---------------------------------------------------------------------------
        \2\ A drug for which a patent had been issued and an
    investigational new drug application (IND) or a new drug application
    (NDA) was pending at FDA before the enactment date of the Hatch-Waxman
    Act (September 24, 1984).
    ---------------------------------------------------------------------------
        Representative Henry Waxman, the co-author of the Hatch-Waxman Act,
    recently stated on the House floor that the difference in the maximum
    times of patent term restoration was far from arbitrary. He stated
    ``the pipeline drugs were not made eligible for five years of patent
    extension precisely because the point of the patent extensions was to
    encourage the research and development of future products.'' \3\ This
    explicitly demonstrates that the decision to grant a two-year extension
    to the pipeline drugs was a carefully considered policy decision to
    create a process which has proven successful in assuring high-quality
    research and development in conjunction with providing access to
    affordable pharmaceuticals in a competitive marketplace. With S. 1172,
    certain brand name companies, led by the Schering-Plough Corporation,
    are selectively attempting to undo the policy decision struck in 1984--
    the policy that all sides agreed to--in order to extend their monopoly
    periods at the expense of competition, consumer savings, and healthcare
    costs without a corresponding benefit to the consumer.
    ---------------------------------------------------------------------------
        \3\ Congressional Record, H4220, June 14, 1999.
    ---------------------------------------------------------------------------
        S. 1172 purports to put eight pipeline drugs on an equal footing
    with later developed drugs products, a result that was clearly not
    Congress' intent. Specifically, S. 1172 would permit the holder of a
    patent that was in force as of 1984 and remains in force today the
    opportunity to seek additional patent life by filing an application
    with the Patent and Trademark Office (PTO). A product meeting these
    criteria and whose NDA was under review by FDA for at least 60 months
    would have its patent term restored for up to three years, assuming the
    PTO determined that ``granting the patent restoration would not be
    detrimental to the public interest and the interest of ``fairness'' as
    defined through five factors set forth in the bill.\4\ These factors
    require a very subjective determination of what the result of a patent
    extension would be. These factors do not take into consideration delays
    in the FDA approval process that are due to the company's internal
    decisions (e.g., Schering-Plough's decision to switch from capsule to
    tablet form after clinical trials were completed) or instances when FDA
    should fully and completely explore concerns (e.g., when
    carcinogenicity concerns arise.) While S. 1172 is not the out-and-out
    grant of a three-year extension that H.R. 1598 is, S. 1172 merely sets
    up a few more hoops for the brand name companies to clear. One only
    needs to witness the vigor with which Schering-Plough is pursuing the
    passage of S. 1172 to determine what Schering-Plough believes the
    outcome for their Claritin application would be.
    ---------------------------------------------------------------------------
        \4\ The three-year restoration would be reduced by any period in
    which the applicant did not act with due diligence. In the years since
    passage of Hatch-Waxman, there has never been a determination of a lack
    of due diligence by a brand name company with regards to an application
    for an extension.
    ---------------------------------------------------------------------------
        S. 1172 would place the responsibility for extending patent terms
    for the pipeline drugs with the PTO. The PTO lacks the expertise to
    evaluate the FDA decision-making process to determine if there was due
    diligence on the part of the company, and the bill does not appear to
    require an examination of the company records. While S. 1172 would
    allow for FDA consultation, NAPM believes that FDA is best equipped for
    any evaluation of due diligence.
        S. 1172 would provide compensation to a generic applicant with an
    application pending at FDA for one of the pipeline drugs at the time of
    enactment. In fact, S. 1172 is generous enough to double the amount of
    compensation granted under H.R. 1598. A generic applicant would be
    entitled to compensation of $2 million from the patent owner. A holder
    of a Type II DMF that has permitted a reference to its DMF in such an
    application would be entitled to compensation of $1 million from the
    patent owner. The patent owner's liability would be capped at $10
    million to drug applicants and $5 million to DMF holders. This
    provision is yet another thinly veiled attempt at an appearance of
    ``fairness,'' but in reality there is nothing fair about this provision
    to the generic applicant, the DMF holder, and the consumer. The generic
    industry is committed to bringing quality generic medicines to the
    public, not receiving renumeration in exchange for ``correcting'' brand
    name companies' ``unanticipated'' delays.
        S. 1172 offers a gesture to the generic drug industry by making
    modest reforms to the Orange Book. Unfortunately, these reforms are
    limited to the eight pipeline drugs' listings in the Orange Book, and,
    therefore, do little to thwart the brand name industry's abuses of the
    Orange Book. The bill also attempts to address the widely debated issue
    of granting 180 days of market exclusivity for generic drugs. S. 1172
    does not begin to address the numerous and complicated fact patterns
    that have arisen to make this section of the Hatch-Waxman Act such a
    controversial matter. FDA is in the process of revising its regulation
    on this issue to better reflect the recent related court decisions.
    Thus, it may be prudent for Congress to address this issue, if
    necessary, after FDA attempts to clarify the procedures involved.
        The extra costs to consumers and taxpayers from this legislation
    would be enormous. The PRIME study concludes that a three-year delay
    (from 2002 to 2005) in the availability of generic versions of Claritin
    if the legislation passes would cost American consumers $7.36 billion
    from 2002 to 2012. For all eight pipeline drugs, the estimated total
    cost impact from delaying generic competition for three years would be
    $11.15 billion from 2002 to 2012. The study projects that the
    government's total share of U.S. outpatient prescriptions, now at 20
    percent-25 percent percent of all prescription expenditures, would
    increase to 45 percent-50 percent if a Medicare prescription drug
    benefit is enacted. If S. 1172 is enacted, the cost to the government
    would be a minimum of $1.89 billion, with that figure rising to $5.0
    billion if a prescription drug benefit is added to Medicare.
        The huge increase in costs to consumers and taxpayers from this
    legislation would lead to very minimal stimulation of research and
    development leading to the discovery of the next generation of drugs.
    By delaying generic competition for three years, the study estimates
    that Schering-Plough would receive an additional $9.64 billion from
    Claritin sales. Based on current research and development spending by
    Schering-Plough and industry trends, the study estimates that only 3.6
    percent of this windfall for Schering-Plough, or $350 million, would be
    used for research and development leading to the discovery of new
    drugs.
        While the national association representing the interests of brand
    name pharmaceutical firms, Pharmaceutical Researcher and Manufacturers
    of America (PhRMA), has not, to our knowledge, supported or taken any
    position on this special interest legislation, Schering-Plough has been
    most vigorous in promoting S. 1172 because it would reap a huge
    unanticipated windfall by the patent extensions for its blockbuster
    drug, Claritin, and its cancer drug, Eulexin. This is not
    their first money grab. Schering-Plough has pressed Congress on this
    issue on multiple occasions. Schering-Plough lobbied tenaciously to add
    this monopoly extension to last year's Omnibus Appropriations Act for
    fiscal year 1999, an effort that continued until the bitter end despite
    news reports exposing the provision as another infamous ``special
    interest'' rider. Schering-Plough had already attempted to add this
    extension onto the Omnibus Patent Act of 1997. And, at the end of the
    1997 session, there was an effort to award additional market
    exclusivity for specific products in exchange for a 3 percent royalty
    payment to the National Institutes of Health, with no prohibition
    against the companies passing on this royalty payment to consumers.
        These mostly behind-the-scenes, secret efforts to secure longer
    monopoly times were rightly denied by the Congress, but Schering-Plough
    has clearly not given up--even though it received a two-year Hatch-
    Waxman extension and a 22.5-month extension under the General Agreement
    on Trade and Tariffs (GATT), and now is reportedly poised to secure an
    additional six-month extension for conducting pediatric studies under
    the Food and Drug Administration Modernization Act of 1997--pediatric
    studies which the brand name drug industry refused to conduct without a
    payoff to them in the form of longer monopolies. These extensions were
    ``unanticipated'' by Schering-Plough when it first began development of
    Claritin. Schering-Plough argues that this legislation is fair because
    of unanticipated delays in FDA's review of Claritin. If this is the
    argument, wouldn't it also be fair to reduce any new extension by the
    lengths of the unanticipated extensions it has already secured?
        Schering-Plough has also failed to adequately address openly the
    reasons why Claritin's review was delayed. Schering-Plough instead has
    blamed FDA and the reviewers for moving too slowly. While we have no
    access to internal company documents nor to FDA review documents, trade
    press articles discussed two reasons for the length of the review time.
    After Claritin received an FDA advisory committee recommendation for
    approval on October 23, 1987, Schering-Plough decided to market
    Claritin in a tablet form as opposed to the capsule form used in its
    clinical trials. This change--which was purely a marketing decision
    made by Schering-Plough--raised bioequivalency questions that had to be
    addressed by FDA. Schering-Plough cannot possibly claim that it was
    unaware such questions would be raised by their internal decision that
    they wanted to market a tablet instead of a capsule, and this ``delay''
    cannot be blamed on FDA. By 1991 FDA was examining carcinogenicity
    concerns with Claritin. Certainly even Schering-Plough cannot fault FDA
    for focusing on concerns as serious as cancer. FDA's mission is to
    ensure efficacy and safety, and carcinogenicity concerns cannot be and
    should not be resolved overnight.\5\
    ---------------------------------------------------------------------------
        \5\ The Pink Sheet, articles dated October 31, 1986, November 9,
    1987, November 27, 1989, June 24, 1991, and April 19, 1993.
    ---------------------------------------------------------------------------
        This year a House Judiciary Subcommittee heard testimony from Peter
    Barton Hutt, Esq., that brand name drug companies had received a
    maximum two-year rather than five-year patent extension for pipeline
    drugs under the Hatch-Waxman Act because:

      (1) It was anticipated that pipeline drugs would be approved by FDA
        shortly, and

      (2) ``less of an economic incentive was needed to assure continued
        pursuit of [pipeline drugs] to final FDA approval.'' \6\ Mr. Hutt
        argued that several pipeline drugs were not approved by FDA as
        quickly as anticipated by the negotiators of the Hatch-Waxman Act.
        Yet, Mr. Hutt failed to establish that additional patent time was
        needed as an economic incentive to brand name drug companies to
        pursue final approval of these pipeline drugs. The fact is,
        pipeline drugs did not need more than two years of extra monopoly
        time because the companies making those drugs were at a point in
        the review process where it was highly unlikely the development of
        the drugs would be abandoned. The 1984 Congress obviously
        recognized this situation and, therefore, passed into law the
        language which Schering-Plough is trying to undo today. Extending
        these patent terms would not be consistent with Congressional
        intent, nor would the establishment of a sham ``process'' that
        merely purports to examine the merits of each application.
    ---------------------------------------------------------------------------
        \6\ Testimony of Peter Barton Hutt, Esq., before the Subcommittee
    on Courts and Intellectual Property of the Committee on the Judiciary,
    U.S. House of Representatives, on H.R. 1598, at 6 (July 1, 1999).
    ---------------------------------------------------------------------------
        Schering-Plough claims that it only wants to set up a process. NAPM
    hopes that the Congress can recognize not only that S. 1172's version
    of a process is a stacked deck against consumers and the generic drug
    industry, but also that a process was created and is still in place
    under the Hatch-Waxman Act. Congress should send the message now that
    this special interest legislation is not about intellectual property
    rights or about fairness and equity. Congress should send the message
    that it is serious about containing healthcare costs and about ensuring
    a competitive marketplace to the benefit of all Americans.
        Perhaps the brand name drug companies are correct in labeling this
    issue as one of ``fairness'' and ``equity''--it is not fair and
    equitable for the Federal Government and consumers, especially the
    elderly on fixed incomes, to continue to pay inflated prices for
    pharmaceuticals in a competition-free market. Congress has told
    Schering-Plough ``no'' before. Congress must tell Schering-Plough
    ``no'' again, for what will hopefully be the final time.
        NAPM appreciates the opportunity to present our views.
                                     ______

        Patent Extension of Pipeline Drugs: Impact on U.S. Health Care
                                  Expenditures

      stephen w. schondelmeyer, pharm.d., ph.d., professor and director\1\
    ---------------------------------------------------------------------------
        \1\ This study was funded in part by a research grant from the
    National Association of Pharmaceutical Manufacturers.
    ---------------------------------------------------------------------------
                               executive summary
    Background
       HR 1598 will affect 7 drug firms and 8 drugs worth $2.7
            billion; that is 3.3 percent of U.S. Rx sales in 1998.
       Congress addressed additional exclusivity for the ``pipeline
            drugs''when it passed the Hatch-Waxman Act.
       Pipeline drugs have already benefitted from 2 to 5 years of
            additional protection from generic competition.
       Drugs covered by this legislation currently have effective
            patent lives ranging from 6.8 to 13.8 years.
    Drug Products Affected
       Claritin TM had sales of $1.9 billion in 1998,
            RelafenTM had $450 million, and DayproTM
            had $300 million.
       There are 45 million allergy sufferers and 40 million
            arthritis sufferers who may be affected by this bill.
       U.S. sales of ClaritinTM ($1.9 billion) in 1998
            accounted for 84 percent of ClaritinTM worldwide
            revenue ($2.3 billion).
       ClaritinTM sales provide 34 percent of Schering-
            Plough's total worldwide revenue of $7.3 billion in 1998.
       The Canadian price of ClaritinTM is one-third of
            the U.S. price for the identical drug from Schering-Plough.
       ClaritinTM 10 mg (#30) in the U.S. costs $54.72,
            while the same drug costs $18.34 in Canada (mfg price).
    Cost to Consumers from Three-Year Delay in Generic Competition
       A case study of ClaritinTM was done to estimate
            the economic impact of a 3-year delay in generic competition.
       ClaritinTM sales are expected to reach $3.46
            billion by 2002 and $3.78 billion (NPV, 2000$) by 2005.
       Generic competition for ClaritinTM is expected to
            begin in July 2002; with a delay, it is expected in July 2005.
       Consumer savings from generic competition for
            ClaritinTM is estimated at $0.70 billion (NPV 2000$)
            in 2003; $1.15 billion in 2004; $1.55 billion in 2005; $1.82
            billion in 2006; and $2.01 billion in 2007.
       Consumers can expect to save $7.33 billion (NPV, 2000$) from
            generic versions of ClaritinTM in the first 5 years.
       A 3-year delay in competition for ClaritinTM will
            cost consumers $5.31 billion (NPV, 2000$) from 2002 to 2007;
            and $7.36 billion (NPV, 2000$) from 2002 to 2012.
       The total cost to consumers from an exclusivity extension
            for the 8 ``pipeline drugs'' will be about $11.1 billion.
    Effect on Schering-Plough
       Two Schering-Plough products (ClaritinTM and
            EulexinTM) represent 68 percent of the market value
            of affected product.
       Schering-Plough's marketing, advertising & admin. expenses
            are above industry average (39 percent vs. 25 percent-30
            percent).
       Schering-Plough's R&D expenditures are considerably below
            the industry average (12.5 percent vs. 20.0 percent).
       This legislation will add $9.64 billion to Schering-Plough
            revenue from 2002 to 2012.
       More than 60 percent (-$5.83 billion) of Schering-Plough's
            added revenue will go to marketing, sales, and profits.
       Less than 30 percent of R&D expenditures is typically
            allocated to discovery of new medicines.
       Less than 3.6 percent of the added costs to the American
            public is expected to go toward discovery of new drugs.
    Effect on Pharmaceutical Firms
       Pharmaceutical firms had higher net profit as a percent of
            revenue than any U.S. industry group for 20 years.
       The profitability gap between pharmaceutical firms and the
            median Fortune 500 firm (America's best corporations) has grown
            wider since passage of Hatch-Waxman.
       Both R&D expenditures and drug firm profits have shown
            dramatic growth since the Hatch-Waxman Act.
       The rate of return to pharmaceutical firms is higher than
            other industries in the U.S., even when risk-adjusted.
       CBO says lengthening patent periods is not the most
            effective means of encouraging R&D.
       Reduction of FDA review times is a more effective means of
            stimulating research and development.
       The FDA's NDA review time has been reduced substantially
            from >30 months (1984) to 11.7 months in 1998.
    Economic Impact on Consumers and Government
       The cost to American consumers from this proposed
            legislation exceeds $11 billion (NPV, 2000$).
       Medicaid will bear about $1.34 billion of the cost, and
            other government programs will bear $0.55-$1.34 billion.
       Govt. programs will bear a cost of about $2.5 billion, and
            with a Medicare drug benefit about $5.0 billion.
       This legislation will have very real costs in terms of
            increased pharmaceutical expenditures for Americans.
                                     ______

                               Table of Contents

                               executive summary
    I. Introduction
    II. Pipeline Drugs Affected by HR 1598
    III. Patent Monopoly Periods for Pipeline Drugs
    IV. Method for Economic Impact Analysis
        A. Pipeline Drugs Proposed for Additional Patent Extension
        B. Added Years of Market Monopoly
        C. Time Frame of the Analysis
        D. Market Value and Net Present Value of Impact
        E. Generic Market Penetration and Generic Pricing
    V. Economic Impact of Patent Extension for Pipeline Drugs
        A. Cost to American Consumer's of Patent Monopoly Extension for
    Pipeline Drugs
        B. Benefit to Pharmaceutical Firms from Patent Monopoly Extension
    of Pipeline Drugs
              ClaritinTM Sales Revenue
              Schering-Plough Revenue Distribution
              ClaritinTM Marketing and Advertising Expense
              ClaritinTM Price
              Research & Development
              Net Profit and Return on Investment
        C. Cost to Consumers and Government from Patent Monopoly Extension
    for Pipeline Drugs
    VI. Summary and Conclusions
    References
                                     ______

                           list of tables and figures
    List of Tables
        Table 1  Pipeline Drugs Affected by Proposed Legislation (HR 1598)
        Table 2  Market Value of Pipeline Drugs Affected by Proposed
    Legislation (HR 1598)
        Table 3  ClaritinTM Annual Sales With & Without Generic
    Competition: Assumes Generic Competition Begins in July 2002 (Current
    Year $)
        Table 4  ClaritinTM Annual Sales With & Without Generic
    Competition: Assumes Generic Competition Begins in July 2002 (Net
    Present Value $)
        Table 5  ClaritinTM Annual Sales With & Without Generic
    Competition: Assumes Generic Competition Begins in July 2005 (Current
    Year $)
        Table 6  ClaritinTM Annual Sales With & Without Generic
    Competition: Assumes Generic Competition Begins in July 2005 (Net
    Present Value $)
        Table 7  Schering-Plough Annual ClaritinTM Revenue with
    3-year Delay in Competition Percent Distribution By Expense Type: 1993
    to 2012
        Table 8  Schering-Plough Annual ClaritinTM Revenue with
    3-year Delay in Competition Amount Distribution By Expense Type (Net
    Present Value $): 1993 to 2012
        Table 9  Schering-Plough Additional ClaritinTM Revenue
    from 3-Year Delay in Generic Competition Amount Distribution By Expense
    Type (Net Present Value $): 1993 to 2012
        Table 10  Price of ClaritinTM 10 mg Tablets: United
    States vs. Canada (loratidine, Schering-Plough, #30, July 1999)
        Table 11  R&D Expenditures as a Percent of U.S. Ethical
    Pharmaceutical Sales, Research-Based Pharmaceutical Firms, 1980-1999
        Table 12  Profitability of Pharmaceutical Firms and Fortune 500
    Firms
    List of Figures
        Figure 1  Pipeline Drugs Affected by Proposed Legislation (HR
    1598): 1998 U.S. Sales Volume
        Figure 2  Annual Loss of Consumer Savings Due to 3-Year Delay in
    Generic Competition
        Figure 3  Generic Penetration of Brand Market by Units Sold and
    Price per Unit
        Figure 4  Consumer Savings from Generic Competition for
    ClaritinTM: 1993 to 2012
        Figure 5  Lost Consumer Savings Due to 3-Year Delay in Generic
    Competition for ClaritinTM
        Figure 6  Annual Loss of Consumer Savings Due to 3-Year Delay in
    Generic Competition for ClaritinTM
        Figure 7  Schering-Plough Revenue Percent Distribution by Expense
    Type: 1993 to 2012
        Figure 8  Schering-Plough Additional ClaritinTM Revenue
    from 3-Year Delay in Generic Competition Amount Distribution by Expense
    Type: 2002 to 2012
        Figure 9  Price of ClaritinTM 10 mg Tablets: United
    States vs. Canada (loratidine, Schering-Plough, #30, July 1999)
        Figure 10  U.S. Research & Development Expenditures Financed by
    Firms: 1970 to 1999
        Figure 11  Research & Development Expenditures as a percent of
    Sales Revenue for Pharmaceutical Firms: 1970 to 1999
        Figure 12  Fortune 500 Firms: Profit as a percent of Revenue
        Figure 13  Fortune 500 Firms: Profit as a percent Return on Equity
                                     ______

     Patent Extension of Pipeline Drugs: Impact on Health Care Expenditures

                                i. introduction
        Legislation has been proposed to extend the patents of a special
    set of drug entities defined under the Hatch-Waxman Act as ``pipeline
    drugs.'' The Hatch-Waxman legislation specifically mentioned the set of
    drugs which had submitted a new drug application (NDA) to the Food and
    Drug Administration (FDA) prior to passage of the Hatch-Waxman Act, but
    which had not yet received approval to market from the FDA. When
    Congress defined this set of drugs, it explicitly indicated that these
    drugs would have their patent monopoly extended by two years. Proposed
    legislation (HR 1598) has been offered which would provide an
    additional patent extension of up to 3-years for these pipeline drugs
    which have already had patent extensions under the Hatch-Waxman
    legislation.
        The implementation of this proposed legislation (HR 1598) is
    delegated to the U.S. Patent and Trademark Office (PTO), despite the
    fact that PTO does not have expertise in either FDA approval procedures
    or assessment of the economic impact of its actions on public health
    programs (e.g., Medicare and Medicaid) or consumers. In addition to the
    patent extension proposed in this act, these drug products have already
    benefitted from other legislation extending their patent monopoly or
    market exclusivity periods including:

      (1) Hatch-Waxman Act adding 2 years;

      (2) GATT extensions up to 3 years;

      (3) Pediatric study extensions up to 6 months; and

      (4) Other special-interest legislation extending the exclusivity of
        drug products (e.g., DayproTM).

        Pipeline drugs have already received the benefit of 2 to 5 years of
    patent monopoly extension from the Hatch-Waxman Act and other
    legislation. Further lengthening the period of patent protected
    monopoly for pipeline drugs will create a barrier to the presence of a
    free market with competition. If legislation is passed to award
    additional years of patent monopoly to the pipeline drugs, American
    consumers would experience a delay in the opportunity for savings which
    result from generic competition in the pharmaceutical-market. The delay
    of generic competition will result in awarding a ``windfall profit'' to
    the pharmaceutical firms whose products are affected by the proposed
    patent extensions. In other words, pharmaceutical firms stand to
    benefit from extended patent monopolies, while consumers and payers in
    health care will experience an increase in expenditures due to lack of
    competition. Much of this added cost for prescription drugs will be
    paid by individual consumers such as senior citizens, low income
    families with no health insurance, and others who do not have
    prescription drug coverage. Insurers, managed care plans, self-insured
    employers and corporate sponsors of health benefit plans will also bear
    some of the cost of this legislation.
        The consequences in the pharmaceutical market from additional
    patent extension for pipeline drugs will include the following:

      (1) The pharmaceutical firms marketing these drug entities will
        benefit from a ``windfall extension'' in market exclusivity time;

      (2) The pharmaceutical firms (i.e., generic firms) preparing generic
        versions of currently patented drug products will face delays in
        approval and may have added costs due to the delay in market entry;
        and

      (3) The consumer will have delayed access to lower-cost, generically
        equivalent pharmaceutical products. While each of these effects
        deserves substantial analysis, the focus of this study is on the
        added costs to consumers from a three-year delay in generic
        approval and market entry.
                     ii. pipeline drugs affected by hr 1598
        Eight drug entities will benefit from additional patent monopoly
    granted by the proposed legislation (HR 1598). Various characteristics
    of these drug entities are described in Table 1. Collectively these
    eight drugs accounted for more than $2.72 billion in U.S. sales at the
    manufacturer level in 1998 (Table 2). The $2.72 billion represented by
    these special-interest drugs is 3.3 percent of the total U.S.
    pharmaceutical sales in 1998.
        ClaritinTM, the best-selling of these drugs, had $1.9
    billion in 1998 sales and accounted for two-thirds of the total value
    of the eight pipeline drugs included in this legislation.
    ClaritinTM is indicated for seasonal allergy symptoms. In
    the United States there are approximately 45 million seasonal allergy
    sufferers.\1\ This drug could potentially be used by one in six
    Americans. Claritin'sTM U.S. sales of $1.9 billion in 1998
    accounted for 84 percent of the $2.3 billion reported as worldwide
    sales for ClaritinTM. Worldwide pharmaceutical revenue for
    Schering-Plough Corp. was reported to be $7.3 billion in 1998.\2\ In
    other words, ClaritinTM provides 34 percent of Schering-
    Plough's total revenue worldwide.
    ---------------------------------------------------------------------------
        \1\ Schering-Plough, 1998 Annual Report.
        \2\ Ibid.
    ---------------------------------------------------------------------------
        RelafenTM and DayproTM are also major drugs
    with 1998 sales of $450 million and $300 million, respectively (Figure
    1). Both RelafenTM and DayproTM are non-steroidal
    anti-inflammatory drugs (NSAID) used for treatment of arthritis. An
    estimated 40 million Americans have some form of arthritis.\3\
    RelafenTM has been the number one NSAID (by. sales volume)
    for more than five years and had U.S. sales of about $450 million in
    1998. U.S. RelafenTM sales account for about 88 percent of
    worldwide RelafenTM sales. RelafenTM provided
    nearly 12 percent of Smith-Kline Beecham's total pharmaceutical revenue
    in the U.S. in 1998. DayproTM became the second-leading
    NSAID in the U.S. during 1997 and in 1998 produced revenue of about
    $300 million.
    ---------------------------------------------------------------------------
        \3\ NIH News Release, May 5, 1998, ``Arthritis Prevalence Rising as
    Baby Boomers Grow Older.''
    ---------------------------------------------------------------------------
        The other five pipeline drugs are Cardiogen-82TM (Bracco
    Diagnostics), EulexinTM (Schering-Plough),
    NimotopTM (Bayer), DermatopTM (Hoechst Marion
    Roussel), and PenetrexTM (Rhone-Poulenc Rorer).
    Collectively, these drugs are estimated to have had 1998 U.S. sales of
    about $170 million (Table 2). In summary, three pipeline drugs account
    for 93 percent, while the other five pipeline drugs account for less
    than 7 percent of the collective 1998 U.S. sales volume for pipeline
    drugs.
                iii. patent monopoly periods for pipeline drugs
        A single pharmaceutical product today may have two, three, or more
    patents each with different implications for the manufacturer of
    competing products. Patents may be issued for:

      (1) The chemical composition of the drug entity or intermediate
        chemical entities;

      (2) One or more processes by which the drug can be made;

      (3) The formulation of the drug product or the dosage form in which
        the drug is delivered (e.g., a sustained release tablet); or

      (4) A specific medical indication or use of the product.

    When the drug product, TagametTM, went off patent (May 1994)
    with respect to the principal drug entity, the patent holder (Smith-
    Kline Beecham) made it known to potential generic manufacturers that it
    holds at least 26 other patents related to Tagamet and that it intended
    to vigorously enforce them.\4\ A compilation of drug products and
    certain related patents can be found in the Food and Drug
    Administration's publication titled, Approved Drug Products with
    Therapeutic Equivalence Evaluations published by the U.S. Food & Drug
    Administration (also known as The FDA Orange Book). Process patents are
    not eligible for listing in the FDA Orange Book.
    ---------------------------------------------------------------------------
        \4\ Scrip, No. 1927, May 31, 1994, p. 16.

        Although the language of the proposed legislation refers to
    ``patent term restoration'', the additional monopoly period proposed is
    beyond the existing patent term. Furthermore, each of the affected
    pipeline drugs in this proposed legislation has already had its patent
    term extended by other legislation. Each of these drugs was granted a
    2-year patent extension by the Hatch-Waxman Act. Three of the drugs
    (ClaritinTM, DayproTM, and DermatopTM)
    have also received a previously unexpected patent extension from the
    GATT legislation which changed the basis for calculating the patent
    period from 17 years after patent issue to 20 years after patent
    filing. Three drugs (ClaritinTM, DayproTM, and
    RelafenTM) have also submitted written requests to FDA for a
    6-month exclusivity extension based on the conduct of pediatric studies
    on the drug. One drug (DayproTM) has benefitted from
    additional special-interest legislation to further extend its non-
    patent market exclusivity period.
        The pipeline drugs covered by this legislation currently have
    effective patent lives ranging from 6.8 to 13.8 years and some have an
    additional 6 months exclusivity for conducting pediatric studies. These
    periods of market monopoly are typical of the monopoly periods for
    other prescription drug products and do not suggest that these pipeline
    drugs have been disproportionately disadvantaged in a manner that
    warrants further extension of their patent monopoly period. Since each
    of these drugs has already benefitted from extensions of market
    exclusivity ranging from 2 to 5 years, there appears to be no reason to
    legislate an additional 3 years of market exclusivity for pipeline drug
    products. ClaritinTM, for example, has already received
    about 5 extra years of patent monopoly and market exclusivity
    extension.
        There does not appear to be any ``equity'' basis for the proposed
    legislation (HR 1598) which requests up to 3 years of additional patent
    monopoly beyond the 2 to 5 years of added monopoly already received by
    these pipeline drugs. To further extend the patent monopoly of these
    pipeline drugs would put other drug products on the market at a
    disadvantage. If this legislation is passed, then the other drug
    companies may request legislation to extend patents on their drug
    products to be ``fair and equitable'' compared to the deal the Hatch-
    Waxman pipeline drugs received.
                    iv. method for economic impact analysis
        The purpose of this section is to explicitly describe the methods
    and assumptions used to estimate the economic impact of additional
    patent extensions for pipeline drugs proposed by certain pharmaceutical
    firms. Several aspects of the methodology deserve description and
    comment including:

      (1) Identification of the drugs affected by the proposed legislation;

      (2) The method for calculating added years of market monopoly;

      (3) The time frame of the analysis;

      (4) The market value and the net present value used to express the
        cost to American consumers; and

      (5) The expected level of generic market penetration and generic
        pricing.

        A. Pipeline Drugs Proposed for Additional Patent Extension. This
    analysis is a case study of ClaritinTM, which represents
    two-thirds of the economic value of the pipeline drugs covered by this
    proposed patent extension legislation. Since ClaritinTM is
    such a dominant drug in terms of U.S. sales in relation to the other
    pipeline drugs, it is assumed that ClaritinTM will be
    responsible for the vast majority of the economic impact of this
    proposed patent extension legislation. ClaritinTM
    represented two-thirds of the U.S. sales for pipeline drugs in 1998,
    while the remaining seven pipeline drugs, collectively, generated only
    one-third of the U.S. sales for the affected drugs. Certainly a 3-year
    patent extension for RelafenTM, DayproTM, and the
    other five pipeline drugs will also have an economic impact on American
    consumers.
        B. Added Years of Market Monopoly. The legislation proposed by HR
    1598 would extend the patent monopoly of Hatch-Waxman pipeline drugs
    for a period of up to 3 years. ClaritinTM is expected to
    receive 3 years of additional patent monopoly if this legislation is
    passed.
        C. Time Frame of the Analysis. If implemented, the economic impact
    of the added patent monopoly from this proposed special-interest
    legislation will be felt by American consumers well into the first
    decade of the 21st century. The present patent exclusivity period of
    pipeline drugs extends out as far as 2002. The effect of implementing a
    3-year extension of the patent for these pipeline drugs will move the
    patent expiration date to some time in 2005. The full effect of this
    legislation requires assessment of the economic impact from delay of
    generic competition well beyond a 3-year period. The 3-year delay in
    generic competition means that the savings curve is shifted to the
    right on the time axis.
        This means that the consumer savings from competing generic
    products will be three years behind where it would have been for every
    year moving out into the future (Figure 2). Note from the illustration
    of this effect (Figure 2) that the majority of loss in consumer savings
    occurs after the first three years of the delay in generic competition.
    Therefore, any fair evaluation of the impact of this proposed
    legislation must examine the effect for at least 6 to 7 years beyond
    the extended patent period (i.e., at least to 2011 or 2012).
        Since a 3-year delay in generic competition for the affected drug
    products will continue to have an economic impact 6 to 7 years beyond
    the 3-year patent extension, the overall time frame of this analysis
    should be at least 9 to 10 years beyond the current patent expiration
    dates. Consequently, an economic impact analysis that uses a time frame
    of less than 10 years beyond the current patent dates would not capture
    the full impact of this legislation and could grossly understate the
    cost of this proposed legislation to the American government and
    public.
        D. Market Value and Net Present Value of Impact. The market value
    of drug sales reported in this analysis is based on sales at the
    manufacturer level. By reporting sales at the manufacturer level, the
    impact of wholesale and retail mark-ups are not taken into account. The
    focus on sales at the manufacturer level results in under-reporting of
    the expected effect by about 25 percent. This approach, however,
    results in a more conservative and lower estimate the cost of a 3-year
    delay in generic competition for pipeline drugs.
        Net present value (NPV) is a means of reporting economic data over
    a long period of time so that dollar values are represented in
    comparable terms. Over time the spending power of the dollar declines.
    For example, it would take about $1.42 in 2012 to have the same
    spending power as $1.00 in 2000 using a 3 percent inflation rate over
    that time period. The dollar values reported in the analysis section of
    this report, unless otherwise noted, have been converted to net present
    value or constant dollars for the year 2000. For purposes of this
    analysis, the consumer price index-all items (CPI-all) for urban
    consumers was used as the deflator to determine the net present value
    for amounts from all years prior to 1998. An inflation rate of 2
    percent was assumed for 1999 and 2000, and 2.5 percent for the year
    2001. The inflation rate for 2002 through 2012 was assumed to be 3
    percent.
        E. Generic Market Penetration and Generic Pricing. Generic
    competition cannot begin until after each patent listed in the FDA
    Orange Book (including patents on the drug's active ingredient,
    formulation, dosage form, or indications for use) has expired, unless
    the patent is challenged by a generic applicant as invalid or not
    infringed. In many cases, generic applicants have not challenged basic
    patents regarding the drug's active ingredient or the indications for
    use, but they have challenged other FDA Orange Book patents
    (particularly formulation and composition patents) as invalid or not
    infringed. Therefore, it will be assumed that generic competition
    begins after the initial (or ``blocking'') patent expiration.
        This is a conservative assumption which does not take into account
    other barriers which may impede generic competition, such as tactics
    used by the original marketer to delay the FDA in establishing a
    bioequivalence standard, the 6-month exclusivity period awarded to the
    first approved generic, contractual agreements between the initial
    patent holder and the first approved generic to delay marketing of that
    first generic and thereby blocking entry of other generic products,
    difficulty in obtaining a source of raw material, administrative delays
    in approval by the FDA, or other factors. This assumption would tend to
    underestimate the cost to American consumers if generic competition is
    delayed for several months to several years beyond the expiration of
    the ``blocking'' patent.
        Two primary factors determine the savings which American consumers
    can realize from access to generic competition among drug products.
    First, the penetration of generic drug products into the original
    marketer's unit volume must be estimated. The generic penetration can
    be assessed by examining the proportion of units (tablets or capsules)
    of a given drug product which are filled with generic versions of the
    drug product. The second factor is the price of generic drug products
    in relation to the original marketer's price over time. This determines
    the amount of savings realized for each unit of the original brand
    which is filled with a lower-cost generic.
        Empirical evidence related to these two critical factors, market
    penetration and pricing of generic products, was examined. An October
    1994 market analysis of the generic drug market evaluated the generic
    pricing and unit penetration of twenty-five major drug products that
    had gone off patent in the previous few years.\5\ The analysis used
    data from IMS America, one of the leading sources of pharmaceutical
    market information used extensively by the pharmaceutical industry, to
    determine the dollar and unit sales volume for these products from 1989
    to 1994. The effect of both generic unit penetration and competitive
    generic pricing is shown in Figure 3.
    ---------------------------------------------------------------------------
        \5\ Jerry I. Treppel and Edward A. Neugeboren, Generic Drug
    Industry Overview, Kidder, Peabody, October 5, 1994).
    ---------------------------------------------------------------------------
        Off-patent drug products were found to have lost 3 percent of the
    units in the first month, 14 percent in the second month, and 21
    percent by the third month after generic competition entered the
    market. After one year generics, averaged 45 percent of the unit volume
    and at two years generic penetration had grown to 52 percent. The
    effect of generic competition on prices was measured by examining the
    average price of generics in comparison to the originator product price
    over time. Generics entered the market at a price averaging 73 percent
    of the originator price. By the second month after generic competition,
    the price was typically at 67 percent of the originators price and at
    12 months it was at 55 percent. After two years, the average generic
    was priced at only 39 percent of the originator's price.
        Evidence from the market in the past few years suggests that
    generic penetration may occur even faster today than it did in 1994.
    While this is quite likely, use of the 1994 penetration rates would be
    more conservative in that it would understate the cost to consumers
    from delay of generic entry into the market.
           v. economic impact of patent extension for pipeline drugs
        The relevant parties who stand to be significantly impacted by this
    proposed extension of patent monopolies include:

      (1) Individual Americans who purchase their own prescription
        medications (about 25 percent to 30 percent of the population);

      (2) Corporate employers who purchase managed care and insured health
        benefit programs that pay for prescription medicines (about 55
        percent to 60 percent of the market);

      (3) Government health programs that pay for outpatient or inpatient
        prescription drugs including Medicaid, Medicare, the Veterans
        Administration, Indian Health Service, and others;

      (4) Multinational brand name pharmaceutical manufacturers with
        pipeline drugs; and

      (5) Generic pharmaceutical manufacturers planning to compete with the
        brand name product upon patent expiration.

    This analysis has focused on economic impact from the perspective of
    those who pay for prescription medicines either individually or
    collectively.

        A. Cost to American Consumers of Patent Monopoly Extension for
    Pipeline Drugs. The combined effect of generic unit penetration and
    competitive pricing can be used to estimate the savings that will
    result from generic competition in the market, and to estimate the cost
    to American consumers from the proposed extension of patent monopoly
    periods of the previously marketed pipeline drugs. The generic unit
    volume penetration and pricing pattern (Figure 3) was used to estimate
    the consumer savings expected from the availability of generics in the
    pharmaceutical market.
        To illustrate the economic impact of a 3-year delay in generic
    competition as proposed in this legislation, ClaritinTM was
    used as a case study. ClaritinTM sales since introduction to
    the market have been quite brisk. In 1993 ClaritinTM
    recorded $107 million in U.S. sales and then showed a 192 percent
    increase to $316 million in 1994. Since then the annual sales growth
    has been 92 percent in 1995, 52 percent in 1996, 37 percent in 1997 and
    42 percent in 1998 (columns A and 6 of Tables 3 and 4 and Figure 4).
    Sales have been projected forward for ClaritinTM assuming a
    conservative declining rate of growth curve. By the year 2002,
    ClaritinTM should be selling $3.46 billion (NPV, 2000$) and
    by 2005 it should be up to $3.78 billion (NPV, 2000$) (Table 4).
        The sales revenue for ClaritinTM was projected forward
    to the year 2012 assuming that no generic competition enters the
    market. Patent 4,282,233 covers the use of ClaritinTM for
    treating seasonal allergies. This patent expires June 19, 2002, but the
    patent monopoly period would be extended by 3 years under the proposed
    legislation (HR 1598). The FDA Orange Book also lists other patents
    with later expiration dates in connection with ClaritinTM.
    This study assumes that generic competition for ClaritinTM
    can begin upon expiration of the 4,282,233 patent, and that other
    patents listed in the FDA Orange Book will not serve as impediments to
    generic competition.
        Therefore, the savings to consumers from generic competition for
    ClaritinTM. will begin after July 2002. Savings in the first
    6 months of generic competition during 2002 are estimated to be $94
    million (NPV, 2000$). Then, annual savings will be $0.70 billion in
    2003 and will grow to $2.52 billion in 2010 (column F of Table 4 and
    Figure 4). If generic competition for ClaritinTM begins in
    2002 as would be expected under the current Hatch-Waxman Act and other
    relevant patent laws, American consumers can expect to save $7.33
    billion (NPV, 2000$) in the first 5 and \1/2\ years (July 2002 to
    2007).
        Extension of the exclusivity period for ClaritinTM, and
    the consequent delay of generic competition, was evaluated next.
    Assuming a 3-year patent monopoly extension, as proposed in HR 1598,
    the impact of generic competition beginning in July 2005 was calculated
    (Tables 5 and 6). Initial generic competition in the last six months of
    2005 would produce consumer savings of nearly $100 million (NPV, 2000$)
    and $0.73 billion annual savings would accrue in 2006. In 2007 annual
    savings would be $1.19 billion and in 2008 $1.60 billion in annual
    consumer savings would be realized.
        The savings lost by American consumers from a 3-year delay in
    competition for ClaritinTM can be calculated by subtracting
    the savings achieved each year with a 2005 generic launch from the
    savings achieved each year with a 2002 generic launch. [Note: this is
    column F on Table 4 minus column F on Table 6.] The net present value
    (NPV, 2000$) of consumer loss from this 3-year delay in generic
    competition would be $94 million in the last six months of 2002. The
    impact will grow to nearly $0.70 billion in 2003, and $1.15 billion in
    2004. During the first 5 \1/2\ years (July 2002 to 2007) after this
    delay of competition, American consumers would pay an additional $5.31
    billion (NPV, 2000$) and in the next five years (2008 to 2012) will add
    another $2.05 billion in cost to American consumers.
        To summarize, the cost of this proposed patent extension
    legislation upon those who pay for prescription drugs is estimated to
    be $7.36 billion (NPV, 2000$) between the years 2002 and 2012 (Figures
    5 and 6) for ClaritinTM alone. Recall that
    ClaritinTM represents only 66 percent of the market value
    for the pipeline drugs covered by this proposed legislation. If one
    extrapolates these ClaritinTM findings to the other pipeline
    drugs covered by this proposed legislation, the total cost to American
    consumers could reach more than $11.15 billion. If wholesale and retail
    margins were taken into account, the total cost to the American public
    would reach nearly $15 billion.
        B. Benefit to Pharmaceutical Firms from Patent Monopoly Extension
    for Pipeline Drugs. The eight drugs known to be affected by this
    special-interest legislative proposal are marketed by seven different
    firms (Table 1). Schering-Plough Corp. has two drug products affected
    (ClaritinTM and EulexinTM). Not only does
    Schering-Plough have the most products affected, but these two drug
    products are 68 percent of the 1998 U.S. market value for the pipeline
    drugs affected (Table 2).
        ClaritinTM Sales Revenue. As noted earlier,
    ClaritinTM had U.S. sales in 1998 estimated to be $1.9
    billion and worldwide sales of $2.3 billion. U.S. sales of
    ClaritinTM represent about 84 percent of
    ClaritinTM worldwide revenue.\6\ If ClaritinTM is
    to receive $9.64 billion additional revenue because of a 3-year patent
    monopoly extension, it is reasonable to ask how is this money likely to
    be used (Tables 8 and 9). One can not always second guess the corporate
    decisions which will be made in the future, but examination of the
    distribution of revenue for a company over time can provide some fairly
    good clues about how a 3-year continuation of monopoly revenues might
    be used. Annual reports and market information for Schering-Plough were
    reviewed and the actual distribution of revenues across major expense
    categories were identified. The expense categories were net profit
    (after taxes); research and development (R&D); marketing, advertising,
    selling, and other administrative expense; cost of production (or cost
    of goods sold); and taxes and other expenses. Although there were minor
    variations, Schering-Plough showed a fairly consistent pattern for
    distribution of revenues across these expense categories for the years
    1993 to 1998 (Table 7). For purposes of this study it was assumed that
    a similar distribution of revenues will continue by Schering-Plough in
    future years.
    ---------------------------------------------------------------------------
        \6\ Schering-Plough, 1998 Annual Report.
    ---------------------------------------------------------------------------
        Schering-Plough Revenue Distribution. Schering-Plough Corp.
    retained 21.7 percent of 1998 revenues as net profit after taxes, while
    expenditures on research & development accounted for 12.5 percent of
    revenue. The cost of production was reported to be 19.8 percent, and
    taxes and other expenses consumed 7.1 percent of revenue. Finally, 38.9
    percent of revenue was spent on marketing, advertising, selling and
    other administrative expense (Figure 7). It should be noted that
    Schering-Plough's marketing, advertising, selling and other
    administrative expenditures are somewhat above industry averages (38.9
    percent vs. about 25 percent to 30 percent) and the R&D expenditures
    are considerably below the industry average (12.5 percent vs. 20.0
    percent).\7\
    ---------------------------------------------------------------------------
        \7\ Pharmaceutical Research and Manufacturers of America, PhRMA
    Annual Survey, 1998, Table 2, p. 91.
    ---------------------------------------------------------------------------
        ClaritinTM Marketing and Advertising Expense. If
    Schering-Plough continues these expenditure trends into the future, the
    majority of the additional revenue (60 percent or about $5.83 billion)
    from this proposed legislation will go toward marketing, advertising,
    selling, and administrative expense or toward corporate profits (Table
    9 and Figure 8). ClaritinTM was the most heavily promoted
    prescription drug by direct-to-consumer advertising in 1998. In 1998,
    alone, Schering-Plough spent an estimated $172,802,900 on direct-to-
    consumer advertising and $81,814,000 on professional promotion of
    ClaritinTM.\8\ These expenditures were an increase of 149.8
    percent over the 1997 expenditures. Direct-to-consumer advertising may
    include television, radio, magazines, and newspapers as well as direct
    mail to consumers.
    ---------------------------------------------------------------------------
        \8\ Taren Grom, Medical Advertising News, May 1999, 18(5) p.8.
    ---------------------------------------------------------------------------
        ClaritinTM Price. The U.S. wholesale acquisition cost
    for a one-month supply (30 tablets) of ClaritinTM 10 mg
    tablets in July 1999 was $54.72 (US $).\9\ The Canadian wholesale
    acquisition price of a one-month supply of the same drug entity in the
    same strength and the same dosage form manufactured by Schering-Plough
    was $18.34 (US $) in July 1999 (Table 10 and Figure 9).\10\ The
    Canadian price is just one-third of the price of the same drug product
    being sold in the United States. Since the cost of production for this
    drug product is expected to be the same for the product whether it is
    sold in the U.S. or in Canada, the difference in price must be from
    other differences in expense such as net profit, administrative
    expenses, or marketing and advertising expenses.
    ---------------------------------------------------------------------------
        \9\ Price is the wholesale acquisition price for
    ClaritinTM 10 mg tablets in a bottle of 100. PriceChek PC,
    First Databank, Indianapolis, IN, July 1999.
        \10\ Price at ex-factory level provided by pharmacist at a Shoppers
    Drug Mart, Toronto, Canada, July 1999. Note: ClaritinTM in
    Canada is over-the-counter, but the dosage form and strength are the
    same as the prescription version in the U.S.
    ---------------------------------------------------------------------------
        Research & Development Expense. Schering-Plough Corp. currently
    spends 12.5 percent of their revenue on R&D. Based on industry
    standards, less than 30 percent (29.1 percent) of R&D expenditures is
    typically allocated to research which leads to the discovery of new
    medicines.\11\ This would mean that only about 3.6 percent of the
    additional revenue to Schering-Plough would be used for discovery of
    new drugs. The actual net present value of this estimate of the R&D
    expenditure would be as follows:
    ---------------------------------------------------------------------------
        \11\ Cathy Spence (editor), The Pharmaceutical R&D Compendium: CMR
    International/Scrip's Complete Guide to Trends in R&D, 1997, p. 31.

      $9.64 billion added revenue  x 12.5 percent for R&D  x 29.1 percent
    ---------------------------------------------------------------------------
        for discovery research = $350 million.

        If the intent of this legislation is to stimulate R&D, this is very
    inefficient legislation because it requires a cost to the public of
    $9.64 billion to achieve $350 million in R&D discovery.
        The R&D expenditures of the pharmaceutical industry have been
    growing dramatically since the time of Hatch-Waxman. A review of the
    R&D expenditure trend does not show any adverse effect from the Hatch-
    Waxman legislation. The U.S. R&D expenditures of pharmaceutical firms
    totaled nearly $3 billion in 1984 (Table 11 and Figure 10).\12\ This
    expenditure rate had more than doubled by 1990 to $6.8 billion. From
    1990 to 1998 the R&D expenditure rate has again doubled reaching more
    than $17.2 billion. The growth in R&D expenditures has been at a double
    digit rate in all but two years since 1984, the era of the Hatch-Waxman
    Act (Figure 11). The growth rate of R&D expenditures does not appear to
    raise questions about difficulty in securing private market funds for
    R&D investment.
    ---------------------------------------------------------------------------
        \12\ Pharmaceutical Research and Manufacturers of America, PhRMA
    Annual Survey, 1998.
    ---------------------------------------------------------------------------
        The Congressional Budget Office conducted a study of the Hatch-
    Waxman Act.\13\ That study concluded that ``reducing FDA approval
    times-if it is done without sacrificing safety concerns-would be much
    more effective in helping both the drug industry and consumers than
    would lengthening the patent-protection period.'' \14\ In fact, the FDA
    has done an excellent job of reducing the review time for new drug
    applications (NDAs). The average review time for an approved NDA was
    more than 30 months at the time the Hatch-Waxman Act was passed (1984).
    In 1998, the FDA averaged only 11.7 months per NDA review--a two-thirds
    reduction in the NDA review time.\15\ This notable reduction of NDA
    review times by FDA has done far more to provide an incentive for
    research and innovation than legislation such as HR 1598 would provide.
    ---------------------------------------------------------------------------
        \13\ Congressional Budget Office, How Increased Competition From
    Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
    Industry, July 1998.
        \14\ Ibid.
        \15\ Food and Drug Administration, web site.
    ---------------------------------------------------------------------------
        Net Profit and Return on Investment. Empirical evidence on rewards
    for innovation indicates that no other industry in the United States is
    more rewarded than the pharmaceutical industry. According to Fortune
    magazine, the pharmaceutical industry has the highest level of net
    profit as a percent of revenue of any industry group in the United
    States.\16\ Pharmaceutical firms have been the most profitable industry
    for nearly two decades, and for two decades prior to that time
    pharmaceuticals were the second most profitable industry (Table 12).
    Not only have pharmaceuticals been the most profitable industry, but
    the gap between pharmaceuticals and the median Fortune 500 firm
    (America's best corporations) has been widening in the last one and a
    half decades (Figures 12 and 13). Both the net profit as a percent of
    revenue and the return on equity have risen dramatically since the mid-
    1980s, while the growth of other industries has been much more modest.
    From the Fortune 500 measures of profitability, it would appear that
    the Hatch-Waxman Act had a very positive effect on the pharmaceutical
    industry.
    ---------------------------------------------------------------------------
        \16\ Fortune 500 survey results, Fortune, April issue for years
    from 1970 to 1999.
    ---------------------------------------------------------------------------
        Because of the risk involved in discovery and development of
    pharmaceutical products some analysts have argued that a comparison of
    profits in the pharmaceutical industry with profits in other industries
    should be adjusted for risk. A study by the Office of Technology
    Assessment (OTA) included an analysis which used an internal rate of
    return adjustment rather than the usual accounting rate of return.\17\
    The OTA report concluded that ``the economic rate of return to the
    pharmaceutical industry as a whole over a relatively long period (1976-
    1987) shows returns that were higher than returns to non-pharmaceutical
    firms by about 2 to 3 percentage points per year after adjustment for
    differences in risk among firms.'' The OTA report went on to say ``This
    is a much lower differential than is suggested by conventional
    comparisons of profit ratios, but it is still high enough to have made
    the industry a relatively lucrative investment.'' \18\ During the
    period (1976-1987) studied by OTA the average difference in net profit
    as a percent of revenue between pharmaceutical firms and the Fortune
    500 median was 5.6 percent. In the years since that study (1988-1998)
    the average difference in net profit between pharmaceutical firms and
    the Fortune 500 median grew to 10.2 percent. This growth in the profit
    gap between pharmaceutical and other Fortune 500 firms would suggest
    that return on investment in pharmaceutical firms has been even more
    lucrative in the past decade (the 1990s) than the OTA study indicated
    for the previous decade (the 1980s).
    ---------------------------------------------------------------------------
        \17\ Office of Technology Assessment, Pharmaceutical R&D: Costs,
    Risks, and Rewards, February 1993.
        \18\ Ibid, p. 104.
    ---------------------------------------------------------------------------
        C. Cost to Consumers and Government from Patent Monopoly Extension
    for Pipeline Drugs. American consumers will be impacted by this
    proposed legislation, not only through the cost of medications directly
    purchased, but also through the cost of such medications to government-
    related health programs. The current expenditure patterns of Medicaid,
    and other government programs such as the Veterans Administration and
    the Department of Defense, indicate that the government pays directly
    for about 16 percent to 18 percent of outpatient prescription drugs in
    the United States. If one included federal and state employee health
    benefit plans, as well as active and retired military personnel with
    dependents, the government share of outpatient drug expenditures in the
    U.S. approaches 25 percent or more. Also, there is debate about
    coverage of outpatient prescription drugs for the elderly under
    Medicare. The elderly consume 34 percent of the outpatient
    prescriptions even though they represent only about 12 percent of the
    population.
        The added cost of prescription medications from this proposed
    patent extension legislation would be borne proportionately by
    individuals and institutional payers for health care services including
    federal and state governments. The government has a substantial role in
    paying for outpatient prescription drugs at present (estimated to be 20
    percent to 25 percent), and the future potential for a significant
    expansion in responsibility for purchase of prescription drugs with
    Medicare coverage of outpatient prescriptions (another 20 percent to 25
    percent). If the Medicare expansion occurs, this would place the
    government's total share of U.S. outpatient prescriptions as high as 45
    percent to 50 percent of all expenditures.
        The economic impact of this proposed legislation was estimated to
    be more than $11.15 billion (NPV, 2000$). Approximately $1.34 billion,
    or 12 percent of this amount, would be borne by Medicaid (both federal
    and state shares). Other current government programs would bear another
    $0.55 billion to $1.34 billion (5 percent to 12 percent of the total
    impact). Coverage of outpatient prescriptions by Medicare could result
    in government being liable for an additional 20 percent to 25 percent
    of the cost of this legislation ($2.23 billion to $2.79 billion). In
    total, the government share of the cost of this proposed patent
    extension legislation will range from $1.89 billion to as high as $5.0
    billion, if Medicare drug coverage is adopted.
                          vii. summary and conclusions
        The proposed legislation sets up a patent extension process for a
    special set of products known as ``Hatch-Waxman pipeline'' drugs. At
    least eight drugs will receive patent extensions from this proposed
    legislation, purportedly due to inequities resulting from the Hatch-
    Waxman legislation. The effective patent life of these eight drugs
    appears, however, to be consistent with the effective patent life of
    other drugs approved at the time of the Hatch-Waxman Act. These eight
    drugs would have market exclusivity ranging from 7 to as much as 14
    years.
        Both R&D expenditures and pharmaceutical company profits have shown
    dramatic growth since the passage of the Hatch-Waxman Act.
    Consequently, it is hard to accept the argument that research-intensive
    pharmaceutical firms have been significantly disadvantaged by this Act.
    R&D expenditures over the past two decades have grown at double digit
    rates in most years while the economy and inflation have slowed to low
    single digit growth rates in recent years. The pharmaceutical industry
    has been America's most profitable industry for nearly two decades. The
    pharmaceutical industry is more profitable than other industries even
    after considering a risk-adjusted rate of return. In addition, the gap
    in profits between pharmaceutical firms and other Fortune 500 firms
    (the best of corporate America) has grown wider in the last decade.
        The major product (ClaritinTM) affected by this proposed
    legislation sells for a price which is three times the price of the
    same product in Canada. If consumers in the U.S. market had access to
    the same price as in Canada, American consumers would have saved $1.2
    billion in 1998. With passage of the proposed legislation, the
    projected cost to American consumers from patent monopoly extensions
    will exceed $11 billion (NPV, 2000$) over the next 10 years. The
    majority of the added cost ($7.36 billion) will benefit one corporation
    (Schering-Plough). Less than 3.6 percent of this added cost to the
    American public is expected to go toward discovery of new drugs, while
    it is quite likely that more than 60 percent of the total cost (greater
    than $6.6 billion) will go for marketing and advertising or for
    corporate profits.
        This legislation would increase barriers to competition and to a
    free market. Without generic competitors in the market, American
    consumers will pay higher prices for their prescription drugs. The
    lower price and high market penetration of generics, when available,
    results in substantial savings to American consumers. These savings
    also benefit Medicaid, federal and state government, private insurers,
    managed care, employers, unions, ERISA plans, and others who pay
    directly for prescriptions. The cost of this patent extension
    legislation could add as much as $1.32 billion in costs for the joint
    federal and state Medicaid programs and another $0.55 billion to $1.32
    billion to the cost of other federal and state government health
    programs.
        13 The extension of patent monopolies for these marketed drugs will
    mean that the introduction of lower cost generics will be delayed up to
    three years. Therefore, the American consumer will have to pay more for
    prescription medications. Although the patent extension may have
    positive benefits for those few pharmaceutical companies whose products
    are affected, this proposed legislation will have some very real costs
    in terms of increased pharmaceutical expenditures by Americans. These
    increased pharmaceutical expenditures will be felt by individual
    American citizens, by hospital and community pharmacies, by managed
    care and health insurance plans, and certainly by federal and state
    government health programs. The impact of this drug legislation will be
    even more dramatic if Congress adopts some form of coverage of
    outpatient prescriptions for Medicare recipients.
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                                           Alfred B. Engelberg,
                                         Palm Beach, FL, July 29, 1999.
    Senator Orrin G. Hatch,
    Chairman, Committee on the Judiciary, U.S. Senate, Washington, DC.
        Dear Senator Hatch: I was patent counsel to the Generic
    Pharmaceutical Industry Association (GPIA) in 1984 and was intimately
    involved in drafting and negotiating the Drug Price Competition and
    Patent Term Restoration Act which was cosponsored by you and Rep. Henry
    Waxman. While I have retired from the practice of law and no longer
    represent GPIA or anyone else, I believe that I have an obligation to
    make my knowledge and experience regarding the 1984 Act available to
    Congress in order to preserve and protect the public's interest in
    affordable pharmaceuticals. Therefore, I respectfully request that this
    letter be considered and made part of the record in the Judiciary
    Committee's deliberations with respect to S. 1172, a bill which seeks
    to create a procedure, for granting additional patent term extensions
    to certain pipeline drugs.
        One of the principal concerns of the research-based drug companies
    in the negotiations leading to the 1984 Act was to insure that the
    contemplated changes in the law would occur gradually and in a fashion
    which would not affect the near term balance sheets of those companies.
    Protecting pipeline drugs was critical to that process. This was not an
    easy task since it was also recognized that patent term extension
    should be perceived as providing incentives for future research
    investments and not as a reward to pharmaceutical companies, at public
    expense, for past investment. These seemingly contradictory goals were
    addressed by legislating a series of non-patent exclusivities in Title
    I of the 1984 Act which were unrelated to the patent term extension
    provisions of Title II. By limiting the FDA's ability to approve
    Abbreviated New Drug Applications (ANDAs) under certain circumstances,
    the potentially adverse near term economic consequences of the new law
    were neutralized, At the same time, as the Rep. Waxman's House
    Committee report shows,\1\ the important concept of prospectivity was
    preserved by limiting patent term extensions for drugs which were in
    the pipeline \2\ prior to the 1984 Act to 2 years while granting a 5
    year patent extension to drugs which were first developed after the new
    law was enacted. The Committee's rationale for the relatively short
    patent term extension for pipeline drugs is succinctly stated in the
    Committee Report at p. 41 as follows:
    ---------------------------------------------------------------------------
        \1\ House Committee on Energy & Commerce, Rept. 98-857, Part 1,
    98th Congress, 2d Sess. The provisions of the 1984 Act with respect to
    pipeline drugs were originally drafted as part of H.R. 3605 and there
    are no Senate reports.
        \2\ A ``pipeline'' drug is a drug on which tests in humans had
    begun prior to the enactment of the 1984 Act.

              The Committee established different maximum periods of
            extension to provide greater incentive for future innovations.
            By extending patents for future innovations for up to five
            years for products developed in the future, and by providing
            for up to fourteen years of market exclusivity, the Committee
            expects that research intensive companies will have the
            necessary incentive to increase their research and development
    ---------------------------------------------------------------------------
            activities.

        The principle profit protection mechanism which was incorporated in
    the earliest drafts of the 1984 Act was a so-called ``transition'' rule
    which prohibited the FDA from approving an ANDA for 10 years on any new
    chemical entity which was the subject of a New Drug Application (NDA)
    approved between December 31, 1982 and the date of enactment of the
    1984 Act. This provision insured that the newest and most important
    drugs would have 10 years of monopoly protection irrespective of their
    patent expiration dates. In the late stages of the negotiations, 2
    additional non-patent exclusivities were added. First, the FDA was
    prohibited from accepting any ANDA for any new chemical entity first
    approved in an NDA filed after the date of enactment of the 1984 Act
    for a period of 5 years thereby assuring a monopoly of at least 7 years
    since the ANDA review process typically takes 2 years. Secondly, the
    FDA was prohibited from approving any ANDA covering a new use or form
    of a previously approved chemical entity for a period of 3 years. The
    drugs for which S. 1172 now seeks additional protections have all
    received the benefit of these non-patent exclusivities in addition to a
    2-year patent extension.
        There may well be areas where the 1984 Act was flawed either as a
    result of poor draftsmanship or because of unforeseen circumstances.\3\
    Those issues should be addressed by Congress. But to suggest that the
    parties who agreed to the 1984 Act did not completely address the issue
    of protection for pipeline drugs is absurd. Assuring protection for
    those drugs was, in fact, at the very heart of the deal. It may well be
    that certain pipeline drugs did not get as much protection as others,
    but each company got what it felt it needed in terms of product line
    protection to sign on to the compromise. It is simply wrong for a new
    generation of legislators and lobbyists to ignore that history and seek
    to pile additional patent term extensions on top of the patent and non-
    patent exclusivities which those pipeline drugs have already received
    on the theory that the 1984 Act produced unintended hardships for some
    companies or products.
    ---------------------------------------------------------------------------
        \3\ I have addressed several such areas in my recent article
    entitled ``Special Patent Provisions for Pharmaceuticals; Have They
    Outlived Their Usefulness?'', IDEA, The Journal of Law & Technology,
    Vol. 39, No. 3 (1999).
    ---------------------------------------------------------------------------
        In his recent testimony before the House, Peter Barton Hutt, who
    represented the Pharmaceutical Manufacturers Association (PMA) in the
    negotiations leading to the 1984 Act has crafted a personal
    recollection of the rationale for the 2-year pipeline extension. Mr.
    Hutt states that the two-year limitation on extensions for pipeline
    drugs resulted from the fact that ``it was felt that the pipeline drugs
    would be approved by FDA shortly after enactment of the 1984
    legislation''. No statement remotely resembling Mr. Hutt's recollection
    can be found in any committee report, floor statement or any other
    document that could be legitimately described as being a part of the
    official or unofficial legislative history of the 1984 Act. Moreover,
    prior to the enactment of the 1984 Act, Mr. Hutt was vigorously
    advocating for patent term extension legislation which would have
    provided up to seven years of extension for all pharmaceuticals at the
    time of their approval without regard to their ``pipeline'' status.\4\
    ---------------------------------------------------------------------------
        \4\ See, Hutt ``The Importance of Patent Term Restoration to
    Pharmaceutical Irmovation'', Health Affairs, Vol. 1, No 2, p. 6 (1982).
    ---------------------------------------------------------------------------
        In his 1982 article, Mr. Hutt states that by 1980, the testing and
    approval process for drugs was taking seven to thirteen years.
    Therefore, his current assertion that there was an expectation that
    these pipeline drugs would be approved shortly after enactment of the
    1984 Act makes no sense. According to Senator Torricelli's testimony of
    July 1, 1999 on the House version of S. 1172 (H.R. 1598) there were 123
    drugs in the pipeline on the day the 1984 Act became law. Some of these
    drugs were in the very early stages of human testing, i.e. the IND
    stage whereas others were either at advanced stages of clinical testing
    or pending before the FDA for approval. Therefore, as expected; some
    pipeline drugs were approved shortly after enactment of the 1984 Act
    while many others were not approved for many years because they were
    only in the early stages of development in 1984. The records of the PTO
    show that 2-year patent extensions were being granted for pipeline drug
    approvals well into the 1990's.
        The testimony of Mr. Hutt and Senator Torricelli also raises
    serious questions regarding the timing and scope of S. 1172. If, as now
    alleged, pipeline drugs were improperly treated by the 184 Act, why was
    no broad-based remedial legislation introduced in Congress until after
    almost all of the patents covering pipeline drugs had expired? If, as
    Sen. Torricelli indicates, there were 17 pipeline drugs that had FDA
    review times greater than five years (as compared to an average review
    time of 2+ years), why is this legislation only being offered now after
    10 of those 17 patents have expired? In seeking answers to these
    questions, the Judiciary Committee should take note of the fact that of
    the 7 patents potentially affected by S. 1172, 4 of them \5\ were
    discovered and developed in foreign countries by non-US citizens
    working for foreign-owned companies and were first patented in a
    foreign country. There is no policy rationale for granting additional
    patent extensions to those foreign products. Moreover, of the three US-
    based patents, the patent covering Eulexin provides 12.3 years of
    market exclusivity; and the patent covering Cardiogen provides 12.7
    years of exclusivity without the additional extensions contemplated by
    S. 1712. According to a report issued by the Congressional Budget
    Office \6\ the average length of market exclusivity for drugs developed
    after 1984 is 10 to 11 years. Given all of these facts, it seems rather
    clear that the only purpose of S. 1172 is to provide Schering with an
    opportunity to extend its multi-billion dollar/year monopoly on
    Claritin. Therefore, Schering's entitlement to that relief (or lack
    thereof) should be directly addressed by Congress rather than creating
    an elaborate and unnecessary administrative process.
    ---------------------------------------------------------------------------
        \5\ The patents covering Relafen, Nimotop, Penetrex and Dermatop
    are all based on patents first filed in foreign countries and later
    filed in the United States.
        \6\ How Increased Competition From Generic Drugs Has Affected
    Prices and Returns in the Pharmaceutical Industry, July, 1998.
    ---------------------------------------------------------------------------
        It is undisputed that the FDA was prepared to approve the capsule
    dosage form of Claritin, on which the clinical trials had been based,
    in October 1987 just one year after the NDA was filed. In fact,
    Schering publicly announced in December 1997 that Claritin would be
    launched during the first half of 1988. If Schering had proceeded as
    planned, it would have enjoyed more than 14 years of market exclusivity
    before its basic Claritin patent expired and would be ineligible for
    any patent term extension under either the 1984 Act or S. 1172.
    However, Schering made a belated market-based decision to switch from
    the approved capsule form of Claritin to a tablet dosage form. Under
    FDA rules, the burden was on Schering to prove that its new tablet was
    bioequivalent to the approved capsule. It was this belated change in
    the NDA and subsequent technical difficulties in proving bioequivalence
    that apparently delayed the approval of Claritin for several years.\7\
    Therefore, Schering is seeking compensatory patent extension for its
    own actions and not for a delay caused by the FDA.
    ---------------------------------------------------------------------------
        \7\ The full facts with respect to the timing and events relating
    to the NDA review and approval process for Claritin are confidential
    and Schering has refused to waive confidentiality so that the process
    can be independently reviewed. It is unconscionable for Schering to
    claim that it has been wrongly treated and to simultaneously refuse to
    make the facts available. An adverse inference should be drawn from
    this conduct.
    ---------------------------------------------------------------------------
        There are those who argue that the foregoing facts are irrelevant
    because S. 1172 merely creates a process for determining whether
    Claritin is entitled to an extension without prejudging that issue. I
    respectfully disagree for two reasons. First, before Congress puts a
    process in motion which has the potential for creating billions of
    windfall profits for Schering at the expense of the millions of
    patients who take Claritin, there should at least be a prima facie case
    which establishes that Schering was treated inequitably and is entitled
    to the relief being sought. Here, the available facts and law establish
    that Schering's shortened exclusivity is the result of its deliberate
    business decision to belatedly abandon the original dosage form of
    Claritin for business reasons.
        Second, the ``process'' established by S. 1172 is seriously flawed.
    It would only require Schering to prove that it acted with ``due
    diligence''. Schering has already received a 2-year patent extension on
    that theory. Additional relief should be available, if at all, only if
    it can be shown that the unusually long regulatory review period for
    Claritin was caused by improper delays by the FDA. Schering may well
    have acted with due diligence in seeking approval for a new dosage form
    but it could have marketed the capsule form of Claritin beginning in
    1988 and apparently did so in many other countries. Schering should not
    be entitled to a patent extension for marketing time lost as a result
    of its business decision to refrain from marketing Claritin in the
    United States until it could gain approval for a more preferred dosage
    form. Yet, S. 1172 is not drafted in a manner which would require the
    PTO to examine that question of who or what caused the delay in
    approving Claritin. Nor does the bill prohibit the granting of an
    extension if the delay was caused by the applicant. Indeed, the bill
    does not even require an applicant for extension to publicly disclose
    all of the facts and proceedings relating to the approval process so
    that the cause of any delay can be independently determined. In short,
    the ``process'' established by S. 1172 is lopsided and essentially
    guarantees Schering an extension by merely asking for it.
        For all of the foregoing reasons, no case has been made to support
    the notion that the 1984 Act erroneously short-changed pipeline drugs
    or that the FDA acted in a manner which improperly denied any pipeline
    drug the full measure of market exclusivity to which a drug was
    entitled. Without such evidence, it would be wrong for Congress to
    establish a process for providing farther patent term extensions for
    pipeline drugs.
        I appreciate this opportunity to provide my views on this important
    issue and would be pleased to answer any questions that may arise from
    my comments or related matters.
                Sincerely,
                                   Alfred B. Engelberg.