[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).
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 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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[GRAPHIC] [TIFF OMITTED] T7573.041

                                       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.
  

                                
