[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
     EXAMINING ISSUES RELATED TO COMPETITION IN THE PHARMACEUTICAL 
 MARKETPLACE: A REVIEW OF THE FTC REPORT, GENERIC DRUG ENTRY PRIOR TO 
                           PATENT EXPIRATION
=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            OCTOBER 9, 2002

                               __________

                           Serial No. 107-140

                               __________

       Printed for the use of the Committee on Energy and Commerce








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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
RICHARD BURR, North Carolina         BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
GREG GANSKE, Iowa                    BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING,          GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                  THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                 BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire       JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky

                  David V. Marventano, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)
















                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Barondess, Mark A............................................    91
    Crawford, Hon. Lester M., Acting Commissioner, Food and Drug 
      Administration; accompanied by Daniel D. Troy, Chief 
      Counsel, Food and Drug Administration......................    27
    Glover, Gregory J., Ropes and Gray, on behalf of PhRMA.......    80
    Jaeger, Kathleen D., President and CEO, Generic 
      Pharmaceutical Association.................................    72
    Levine, Sharon, Associate Executive Director, the Permanente 
      Medical Group, on behalf of RxHealthValue..................    86
    Muris, Hon. Timothy J., Chairman, Federal Trade Commission...    35
Material submitted for the record by:
    American Association of Retired Persons, prepared statement 
      of.........................................................   123
    Glover, Gregory J., Ropes and Gray, on behalf of PhRMA, 
      letter dated November 21, 2002, enclosing response for the 
      record.....................................................   136
    Jaeger, Kathleen D., President and CEO, Generic 
      Pharmaceutical Association, response for the record........   127
    Levine, Sharon, Associate Executive Director, the Permanente 
      Medical Group, on behalf of RxHealthValueresponse for the 
      record.....................................................   135
    Motley, John J., III, Senior Vice President, Government and 
      Public Affairs, Food Marketing Institute, letter dated 
      October 8, 2002............................................   126
    Muris, Hon. Timothy J., Chairman, Federal Trade Commission, 
      letter dated November 22, 2002, enclosing response for the 
      record.....................................................   130

                                 (iii)












     EXAMINING ISSUES RELATED TO COMPETITION IN THE PHARMACEUTICAL 
 MARKETPLACE: A REVIEW OF THE FTC REPORT, GENERIC DRUG ENTRY PRIOR TO 
                           PATENT EXPIRATION

                              ----------                              


                       WEDNESDAY, OCTOBER 9, 2002

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Upton, 
Greenwood, Deal, Burr, Ganske, Norwood, Wilson, Pickering, 
Bryant, Buyer, Pitts, Tauzin (ex officio), Brown, Waxman, 
Barrett, Towns, Pallone, Eshoo, Stupak, Wynn, Green, and 
Dingell (ex officio).
    Also present: Representative Shimkus.
    Staff present: Patrick Morrisey, deputy staff director and 
counsel; Brent Del Monte, majority counsel; Steve Tilton, 
health policy coordinator; Eugenia Edwards, legislative clerk; 
John Ford, minority counsel; and Jessica McNiece, minority 
staff assistant.
    Mr. Bilirakis. Shall we please take our seats so that we 
can get started. Good morning.
    I would announce that the opening remarks by the chairman 
and the ranking member will be for 5 minutes, and remarks from 
the other members of the subcommittee will be limited to 3 
minutes, and I call this meeting to order.
    First, I would like to thank our witnesses for appearing 
before the subcommittee today. The subcommittee values your 
expertise and we look forward to your expert testimony. I am 
certain it will help us better understand the issues before us.
    The Hatch-Waxman amendments of 1984 established the 
framework that currently governs the entry of generic 
pharmaceutical products into the marketplace. The 1984 law 
attempted to accommodate two important public policy 
objectives. The first was to speed the entry of lower-cost, 
generic versions of brand-name drugs into the marketplace. The 
second, and more subtle, objective was to preserve an 
environment that encourages companies to develop innovative new 
pharmaceuticals.
    By all accounts, Hatch-Waxman has been a success. Almost 
half of the prescriptions filled in the United States today are 
for generic drugs, whereas only 19 percent of prescriptions 
filled in 1984 were for generics. However, there are 
indications that the law needs to be modified to ensure that it 
continues to meet its original intent.
    The Federal Trade Commission recently published an 
extensive report that identifies certain instances where 
innovator companies may be using questionable tactics to delay 
the entry of generic competitors. I am not going to go into the 
details of the FTC's findings right now or their 
recommendations. However, suffice it to say that the FTC 
recommendations could serve as a good starting point for 
discussions about potential Hatch-Waxman reforms.
    I want to emphasize, and members of this subcommittee have 
heard me say it, I trust, many times, that I have been a long-
time supporter of the generic drug industry. Generic drugs are 
often substantially cheaper than brand-name versions, and we 
should ensure that American consumers continue to have access 
to them.
    However, I think we must approach Hatch-Waxman reforms 
cautiously because poorly thought-out, Draconian changes in 
this area could dramatically reduce the incentive for innovator 
companies to develop new, lifesaving products. Some of us had a 
number of entertainers attend our offices last week who have 
particular illnesses, diseases, and who have asked us to take 
it slow.
    I want to make it perfectly clear that any Hatch-Waxman 
reforms should not be viewed as a substitute for a meaningful 
Medicare prescription drug benefit. Although I am disappointed 
that, once again, my constituents do not have access to a 
Medicare prescription drug benefit, I am very proud that this 
committee favorably reported a bill that was subsequently 
passed by the House.
    H.R. 4954, the Medicare Modernization of Prescription Drug 
Act, is a good bill. It is not a perfect bill. Nobody has ever 
said it is a perfect bill, but it is a good bill that, if 
enacted, would help low-income seniors, provide every 
beneficiary with stop-loss protection, and significantly lower 
the cost of prescription drugs for all Medicare beneficiaries.
    Let me emphasize that last point. Contrary to the rhetoric 
we hear in this committee, the House-passed Medicare 
prescription drug bill significantly lowers the cost of 
prescription drugs. It does so without resorting to an 
inefficient, government-administered price control scheme.
    Instead the bill allows Medicare prescription drug plans to 
negotiate deep discounts for manufacturers on behalf of 
Medicare beneficiaries. So every time someone talks about how 
the House-passed Medicare prescription drug bill does not 
address the issue of high drug costs, everyone here will know 
that that claim is absolutely indisputably false.
    That said, I believe it is important to carefully review 
the findings of the FTC report and to hear expert testimony on 
this matter, and that is why I decided to hold today's hearing. 
My hope is that members will use this opportunity to ask 
serious questions about a very complicated subject, and there 
is no reason why we shouldn't have a thoughtful, measured 
discussion today.
    My fear, however, is that some will, instead, use this 
opportunity to grandstand and demagogue this issue in an 
attempt to score some cheap political points. That is 
unfortunate. We can solve this problem if we work together, if 
we are not concerned about demagoguery and throwing stones at 
each other.
    I want to thank our witnesses again for taking the time to 
appear before our subcommittee today. I trust you will provide 
valuable perspective.
    Now I am pleased to yield to the ranking member from Ohio, 
the gentleman from Ohio, for an opening statement.
    Mr. Brown. Thank you, Mr. Chairman. I appreciate that.
    Earlier this year the chairman committed to holding a 
hearing on Hatch-Waxman reform. I want to thank you, Mr. 
Chairman, for fulfilling that commitment today. You 
consistently try to do the right thing. I recognize that and I 
appreciate that.
    If the impact of inflated drug prices on American 
purchasers were a minor problem or a recent problem, or if 
prescription drug affordability was a problem unique to 
seniors, and if we had passed a decent prescription drug 
benefit in this body, one not written by and for the drug 
companies, I would not question the majority's decision to hold 
this hearing just days before Congress adjourns.
    But exploding prescription drug inflation is not a minor 
phenomenon; it is not a recent phenomenon. It is driving up 
health insurance premiums; we know that. It undercuts the 
financial security of seniors; we know that. It drains scarce 
dollars from State and Federal health programs; we know that.
    Anti-competitive behavior in the prescription drug market 
is not a minor or a recent problem either. The FTC has 
acknowledged it. The Patent Office has acknowledged it. The 
President has acknowledged it.
    Thirty-two State attorneys general and businesses and trade 
groups and consumer groups and consumer unions throughout the 
Nation are fighting it, but the problem is statutory. It is 
something we have a responsibility to fix.
    CBO says this anti-competitive gaming, wherein brand and 
generic drug manufacturers improperly exploit provisions of 
Hatch-Waxman to block lower-priced competitors from the market 
will cost American consumers $60 billion over the next 10 
years. If Congress enacts Medicare prescription drug coverage, 
but doesn't close the loopholes on Hatch-Waxman, the Medicare 
program and seniors will spend as much as an extra $100 billion 
for that coverage over the next decade. This is not a minor 
problem.
    Earlier this summer Mr. Waxman and I asked the majority to 
work with us to come up with a bipartisan compromise. We were 
willing to start from scratch, if that is what it took to put a 
stop to the anti-competitive behavior in the prescription drug 
market. The majority refused.
    I recognize that many on this committee are under 
tremendous pressure to tow the drug industry's line. No one is 
ignorant in this body of the close alliance between PhRMA and 
Republican leadership in the House. No one is ignorant of the 
close connection and alliance between PhRMA and Republican 
leadership in the White House. Look at the fundraising; look at 
the President's appointments; look at the behavior of the new 
Food and Drug Administration; look at the votes in this House.
    But regardless of the majority's allegiance to the drug 
industry, at some point our inaction on this issue is important 
to consumers, to seniors, to State governments, to the 
taxpayers who support Federal and State health programs. At 
some point our inaction on this issue, on an issue this 
important to the American public, is more than irresponsible; 
it is inhumane.
    As you know, there are three bills pending in the House: 
H.R. 1862, H.R. 5272, H.R. 5311, co-sponsored by scores of 
Democrats and some courageous Republicans, bills that would 
address the concerns raised by the FTC report. These bills 
would help prevent anti-competitive manipulation of the 30-
month stay and the 180-day exclusivity provisions of the Hatch-
Waxman Act without curtailing the 14 to 17 years of patent 
protection which drugmakers receive for new products.
    In contrast to PhRMA's claim that these bill ``threaten 
medical promise''--by the way, I am not sure if you are 
familiar with the statement, Mr. Chairman, but it is quoted 
from the ad PhRMA ran where they counseled parents to pray for 
a miracle, because if we dare pass S. 812 or one of the bills 
in the House that I and others are working on, and close 
loopholes that some, not all, but some drug manufacturers use 
to cushion their profits, then all research and development 
will dry up. I will hand out that ad today. I think it is 
important for all members to see it, so you will know exactly 
what kind of organization and what kind of demagoguery we are 
dealing with.
    The truth is closing loopholes in Hatch-Waxman would 
invariably boost medical innovation on behalf of patients like 
Mr. Barondess from our second panel. Hatch-Waxman loopholes 
have given drug manufacturers a lucrative alternative, an 
alternative to innovation. Rather than develop new drugs, they 
squeeze additional revenues, using expensive attorneys, patent 
lawyers, and others, out of their old ones. Blocking generic 
competition to earn a buck doesn't help patients. It hurts 
innovation and hurts patients.
    Let me quote Merck CEO Ray Gilmartin, who runs one of the 
most profitable companies in America. ``We won't engage in any 
practices simply to delay the arrival of a generic to the 
market. Extending a patent inappropriately is not beneficial to 
the consumer or to the health care system because generic drugs 
play a very important role in keeping down the rate of increase 
in drug costs. It frees up resources, frankly''--get this--
``Generic drugs,'' CEO Gilmartin says, ``Generic drugs free up 
resources for health plans to be able to afford the new drugs, 
the breakthrough drugs, not the `me too' drugs, not the `gaming 
the patent system' drugs, but the breakthrough drugs that a 
company like Merck is bringing to the market.''
    Mr. Chairman, I appreciate again the opportunity for this 
hearing. I look forward to talking more about this.
    Mr. Bilirakis. And I thank the gentleman for his 
understanding.
    Three minutes, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman.
    As we embark on this hearing, let's keep one thing front 
and center--The 1984 Drug Price Competition and Patent Term 
Restoration Act is arguably one of the most successful and 
important health and consumer laws that we have ever enacted. 
It created this Nation's modern, vibrant generic drug industry. 
Prior to its passage, generic drug sponsors had to duplicate 
all of the pioneer drug sponsors' work, with all the attendant 
costs in both money and time.
    Then generics had about a 19 percent share of the U.S. 
prescription drug market. Well, since that 1984 law gave them 
an Abbreviated New Drug Application process and access to the 
pioneer drug's data and the right to use that data to perfect a 
copy well before the pioneer's patent has expired, generics' 
market share has grown rapidly. Today generics have 47 percent 
of the market, saving consumers $8 to $10 billion a year.
    At the same time, the 1984 law has provided the 
pharmaceutical industry with a very effective incentive to 
invest the many years and hundreds of millions of dollars 
needed to bring innovative drugs to the market, giving millions 
of suffering patients hope where once there was little or none.
    I am sure that every person here in this room has 
personally seen, and some have personally experienced, 
individuals for whom a new drug has literally meant the 
difference between life and death or a life lived in pain or a 
life lived with debilitating suffering. I know that all of us 
who have watched loved ones lose their battle with terrible 
diseases like cancers, Alzheimer's, ALS, have found ourselves 
sorely wishing that there were a miracle cure available for 
them.
    The law works because it is balanced. It recognizes--and we 
need to keep this well in mind, too--that without a vibrant, 
innovative pioneer drug industry, there can be no generic 
industry.
    I recognize there has been some gamesmanship with the law, 
and some modifications may be necessary to ensure that generic 
competition remains healthy. But let's make sure that any cure 
that we ultimately prescribe is not worse than the disease, and 
let's fairly evaluate and understand the extent of the problem 
under current law.
    Our Nation leads the world in the development of new drugs 
that enable us to effectively treat diseases and conditions. 
But if the incentives are not there to continue new drug 
discovery and development, and if people cannot afford to buy 
those drugs, their benefits will be lost to many.
    Mr. Bilirakis. Please finish up.
    Mr. Upton. How we ultimately address these and other 
fundamental issues relating to the 1984 law will determine 
whether we will continue our world leadership in drug 
innovation and whether patients will have access to the safe, 
effective, and affordable drugs that they need both now and in 
the future.
    Mr. Bilirakis. I apologize to the gentleman.
    Mr. Upton. I yield back the balance of my time.
    Mr. Bilirakis. He was actually on ``caution.'' Mr. Waxman, 
3 minutes, please, for an opening statement.
    Mr. Waxman. Thank you, Mr. Chairman. I appreciate all the 
comments that my colleagues have made about the success of this 
law, which I had an important part to play in its development.
    It has been a very successful law, and the idea of the law 
was to create a balance. We wanted to give incentives for 
innovation because the consumers of this country and around the 
world benefit from the investment that leads to new 
pharmaceutical products to deal with our diseases that 
otherwise couldn't be addressed.
    At the same time, on the other part of the balance we 
wanted competition. Consumers benefit when there is competition 
because they can get a better price; they can get a lower 
price.
    We have now seen in recent years--this wasn't a problem in 
the beginning, but only in recent years--an abuse of the law. I 
asked the Federal Trade Commission to look at this question and 
to see if they could determine whether there are tactics that 
are being used, games being played, by some of the brand-name 
companies to simply keep competition off the market.
    They found that since 1998--the law didn't have this 
problem from 1984 to 1998, but since 1998 companies have 
increasingly begun to file multiple late patents, triggering 
successive 30-month stays of generic competition. This tactic 
has been used for eight blockbuster drugs, has delayed the 
availability of generic competition between 4 and 40 months 
beyond the initial 30-month period.
    Moreover, the patents for these particular drugs, when the 
FTC looked at it, they didn't find that the patent challenges 
were valid challenges. At the same time they have also found 
that there is a significant number of collusive agreements 
between the brand-name companies and the generic manufacturer 
to keep generics off the market.
    They have taken a provision of the Hatch-Waxman law and 
turned it on its head. The provision was to encourage 
competition. They have used it to discourage competition, in 
fact, to stop competition.
    We ought to stop the games that are being played, restore 
the balance that we need in the pharmaceutical area. Let me 
assure my colleagues and friends that the biggest problem to 
innovation is with those companies that don't want to invest in 
new innovative drugs because they want to invest in legal fees 
to keep competition off the market. If they can continue their 
monopoly on a product that is a big seller, they don't feel 
that they need to get new drugs out there, or they are not 
being successful in getting new drugs developed.
    So if we want new drugs for the American people, let's get 
competition when the patents are through. The law was very, 
very generous in giving patent protection, the restoration of 
patent, more exclusive time through GAAP and other means. The 
patents have even been extended longer through the pediatric 
bill. We have given an additional 6 months. The companies have 
plenty of innovative incentives, and we ought to stop the games 
from occurring.
    Mr. Bilirakis. I thank the gentleman.
    There are four votes on the floor. The Chair will recognize 
Dr. Ganske for a 2-minute opening statement, and then we are 
going to break until we have completed those votes.
    Mr. Ganske. I thank you, Mr. Chairman.
    We need to pass a Medicare prescription drug bill. We 
passed one in the House that needs to become law. All across 
Iowa I have talked to seniors about it. They think that is a 
very significant improvement in Medicare.
    We also need to address the high cost of prescription 
drugs. We do that in the Medicare bill we passed in the House, 
but we also need to close some loopholes in the generic law.
    There is concern that some brand-name drug manufacturers 
are preventing generic competition by obtaining multiple 30-
month stays. There is concern that there are agreements between 
brand-names and generics that delay getting those generics onto 
the market.
    That is why I am a co-sponsor of H.R. 5311, the 
Prescription Drug Affordability Act of 2002, introduced by 
Representatives John Thune and Jo Ann Emerson. That bill would 
eliminate the potential for stacked 30-month stays. It would 
prevent the listing of frivolous patents. It changes market 
exclusivity rules to prevent collusion between brand and 
generic drug companies.
    Mr. Chairman, I think these are all important changes. I 
think Mr. Waxman's bill had good intentions, but, like many 
bills--in fact, maybe most of the bills that we pass here in 
Congress--after a while you begin to see that you need to do 
some reform on those bills.
    This is a bill that, if we could get it passed, or 
something equivalent to it, I think it would help bring down 
the cost of drugs for senior citizens and for everyone in the 
country. I think that is a laudatory goal.
    I appreciate the chairman for having this hearing, and I 
will yield back.
    Mr. Bilirakis. I thank the gentleman.
    All right, we will break for as long as it takes us, 
probably 40 minutes, something like that, maybe less than that.
    [Brief recess.]
    Mr. Bilirakis. We will continue with our opening 
statements, 3-minute opening statements.
    Mr. Dingell, for an opening statement.
    Mr. Dingell. Mr. Chairman, I thank you, and I thank you for 
scheduling this hearing. It is long overdue.
    It is at the end of a Congress in which we have sent the 
distressing message to millions of prescription drug consumers, 
and that is that the House is content to let the good, 
bipartisan work of the Senate go to waste.
    The Senate has tried to establish an appropriate balance 
between the legitimate interests of innovator companies and the 
interests of consumers who stand to benefit from price 
competition in the marketplace. This body has not. We're past 
the point of asking whether there is a problem. It is clear 
when seniors are compelled to choose between paying the rent or 
buying food to purchase needed prescription pharmaceuticals.
    There is a bipartisan agreement on this point, and there 
are some curious remedies being brought forward, including 
changing the laws on imports, something which poses significant 
difficulties to the consuming public and some substantial 
danger of dangerous pharmaceutical or pseudo-pharmaceuticals 
being brought into this country.
    The administration, which opposed S. 812, the Greater 
Access to Pharmaceuticals Act, even though it passed the Senate 
by a wide margin, still says it recognizes that adjustments to 
current law would improve the fair entry of generic substitutes 
in the market and prevent future abuses of the patent laws 
which do occur today.
    I would note that we may not all agree with the content of 
that legislation, but at least serious consideration of it, and 
allowing the process to go to work to correct the abuses that 
we find in terms of pricing, is very much in order and very 
much in the public interest.
    Major employers in this country, such as General Motors, 
are facing unsustainable drug cost increases due to a variety 
of factors that include costs associated with the delay or 
denial of generic price competition. I am aware that the answer 
to their concerns does not rest entirely with generic drugs, 
but more than $20 billion worth of prescription pharmaceuticals 
are due to come off their patent over the next few years. Any 
unreasonable delay or denial of the market entry of generic 
drugs has significant implications for the health of our 
citizens and the health of our country, as well as significant 
adverse impacts upon American employers.
    Mr. Chairman, I want to be as fair as possible in my 
approach to the subject. I continue to listen to the concerns 
of drug innovators as well as drug purchasers, but the House 
appears to be missing a major opportunity, and we are not 
carrying out our duty to the people in moving forward on this 
matter. I do not believe that we can hide that unfortunate 
fact.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. And I thank the gentleman. Mr. Tauzin, 
chairman of the full committee, for an opening statement.
    Chairman Tauzin. Thank you, Mr. Chairman. Let me express my 
appreciation to you personally for this hearing to consider the 
issues surrounding competition in the drug marketplace. As we 
know, this Nation has, in fact, enjoyed an enormous progress in 
competition in the drug marketplace because of Hatch-Waxman. 
Reviewing the problems with the act and also acknowledging its 
success is an important part of this hearing, I believe.
    Without adequate competition, all Americans would pay too 
much for their drugs, and many do in some cases. At the same 
time, if we skew the marketplace so much as to allow for 
immediate competition upon FDA approval of a generic 
challenging a patented brand drug, it would simply stifle 
innovation and eliminate the motivation to make those 
investments. So it is a delicate balance we seek, and I believe 
today's hearing will help us in seeking the balance and 
achieving it as quickly as we can.
    In 1984, the Congress passed the Hatch-Waxman act, which 
governs generic drug entry into the marketplace. In exchange 
for streamlining the generic drug approval process, brand-name 
drugs had patent life restored, so as to take into account the 
time lost during the FDA drug approval process. That was the 
trade: Get generics into the market quicker and at the same 
time give those who develop and produce new drugs a chance to 
enjoy the opportunity to recover those investments over the 
life of their patent, without the patent being used up in time 
spent at the FDA in approval.
    During that time we have seen generics now go up from less 
than 20 percent of prescriptions filled in the U.S. to nearly 
half of all prescriptions dispensed. That is remarkable 
progress. I've got pharmacists in my district, by the way, that 
are using email and fax technologies now to communicate 
directly with doctors when a prescription arrives at their 
pharmacy, and in those email and fax matrix systems they are 
setting up doctors can approve generics that they may not have 
thought about prescribing in the first place.
    They tell me they can drive the percentage of prescriptions 
dispensed with generics even higher than that one-half of the 
generics dispensed today in prescriptions to as high as 80 
percent. That would dramatically, I think, help all of us in 
this country take advantage of generic drugs, which in many 
cases are cheaper than brand-names.
    At the same time, Hatch-Waxman has allowed companies to 
continue to innovate, and they spend today roughly $30 billion 
per year on research and development. Every one of those new 
drugs produced and developed is saving lives, extending lives, 
and making life more bearable for people with illnesses and 
diseases in this country.
    So while we may complain that the act is not working 
perfectly, I think we will all concede that, I assume all of us 
would concede that it is working pretty good. I don't expect 
anyone on these panels to call for us to repeal it. What we are 
going to hear, hopefully, is how we can improve it. That is why 
this hearing is good.
    Recently, the FTC issued a report examining generic entry 
in the marketplace prior to the expiration of brand patent 
rights. The important words to stress here are ``prior to the 
expiration of brand patent rights.'' The sole focus of that 
report was whether generics were obtaining access to the market 
when a brand holds a valid patent issued by the Patent and 
Trademarks Office. To be sure, some patents may be improperly 
granted by the PTO, but, according to the FTC, this is not the 
rule. It has been the exception.
    Since passage of Hatch-Waxman, roughly 95 percent of all 
generics seeking access to the market raise no issue about the 
validity of the brand patents. That is a pretty high 
percentage.
    With few exceptions, generic access to the market has not 
been stymied through the system of gaming. There have been 
exceptions. We ought to correct them.
    What the FTC focused upon were eight drugs where brand 
manufacturers received multiple 30-month stays. At the onset, 
let me state that I support the notion of the 30-month stay. 
The 30-month stay allows for a cooling-off period, so tricky 
patent issues can be litigated. We believe a 30-month stay is 
appropriate because Hatch-Waxman allows generic manufacturers 
to commit activities that would otherwise be considered patent 
infringement prior to generic approval.
    So when a person tells me that a brand drug should be 
treated the same in patent litigation through a requirement 
that they seek injunctive relief to prevent the FDA from 
approving the generic, I tell them that that should be the case 
only if we treat generic manufacturers like all other 
manufacturers prior to approval. That is, you should not be 
allowed to infringe upon the front end and then demand to be 
treated like all the others in the back end.
    The question begins, however, and it still lays before us: 
Is more than one 30-month stay ever legitimate? Truthfully, I 
don't know that answer. The FTC has studied it and recommends 
one 30-month stay per drug. I want to hear that reasoning 
explained to us today.
    Further, FTC recommends that when brands settle patent 
litigation with generics, the FTC should be given notice of the 
settlement. This, to me, makes abundant sense. I understand the 
FTC is not calling for approval of the settlement, but rather 
simple notice. Since anti-competitive settlements do nothing to 
bring lower-priced generics to the market, this seems like a 
good starting point for discussion.
    Again, Mr. Bilirakis, I want to thank you for calling this 
hearing.
    Finally, let me mention one more thing before we go into 
the arcane details of Hatch-Waxman. We will hear a great deal 
of rhetoric today at this hearing about why we must quickly 
approve the Senate bill, Senate 812, or some similar 
legislation. Our friends on the other side of the aisle will 
say that such legislation is sorely needed to bring down the 
price of prescriptions for seniors. Let me be perfectly clear. 
The best way to reduce the prices paid by seniors for their 
prescription drugs is to pass comprehensive prescription drug 
benefit in Medicare.
    The bill we passed through this committee and through the 
House in June would reduce some seniors' drug spending by well 
over 50 percent. Approximately 44 percent of Medicare 
beneficiaries would pay nominal co-pays or no cost-sharing at 
all. That legislation ought to be signed into law, and it is a 
shame we are not in conference at this point making that 
possible for the seniors of America.
    As the Energy and Commerce Committee has enjoyed, I 
believe, a history of great bipartisanship, as we delve into 
the minutiae of Hatch-Waxman, I hope we can go back to that 
spirit.
    There are some problems in the act. We ought to fix them. 
There are some things we could do to improve them. But we ought 
to build on the success of Hatch-Waxman, and we ought to build 
on it as Americans, not as Democrats or Republicans. I hope as 
we learn about these important issues today, this committee 
will begin to see its way clear to doing that.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. W.J. ``Billy'' Tauzin 
follows:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Mr. Chairman: I appreciate you holding this hearing to consider the 
issues surrounding competition in the drug marketplace. As a Congress 
and as a nation, we must ensure that competition in the drug 
marketplace remains vibrant. Without adequate competition, all 
Americans would pay too much for their drugs. At the same time, if we 
skew the marketplace so much as to allow for immediate competition upon 
FDA approval, we would stifle innovation. So it's a delicate balance we 
seek, and I believe today's hearing will help us in seeking that 
balance.
    In 1984, the Congress passed the Hatch-Waxman Act, which governs 
generic drug entry into the marketplace. In exchange for streamlining 
the generic drug approval process, brand name drugs had patent life 
restored so as to take into account the time lost during the FDA drug 
approval process. Since the Act was passed, we have seen generics go 
from less than 20% of the prescriptions filled in the United States, to 
nearly half of all prescriptions dispensed. At the same time, the 
brands continue to innovate, spending roughly $30 billion per year on 
research and development. So while some may complain the Act is not 
working perfectly, I assume all would concede that it's working pretty 
well. Certainly, I do not expect to hear anyone call for a repeal of 
the Act.
    Recently, the FTC issued a report examining generic entry into the 
market prior to the expiration of brand patent rights. The important 
words to stress here are ``prior to the expiration of brand patent 
rights.'' The sole focus of the report was whether generics were 
obtaining access to the market when a brand holds a valid patent issued 
by the Patent and Trademark Office. To be sure, some patents may be 
improperly granted by the PTO. But, according to the FTC, this is not 
the rule, but rather the exception. Since passage of Hatch-Waxman, 
roughly 95% of all generics seeking access to the market raised no 
issue about the validity of brand patents. With few exceptions, generic 
access to the market has not been stymied through a system of gaming.
    What the FTC focused upon were 8 drugs where brand manufacturers 
received multiple 30-month stays. At the outset, let me state that I 
support the notion of a 30-month stay. A 30-month stay allows for a 
cooling off period so that tricky patent issues can be litigated. We 
believe that a 30-month stay is appropriate because Hatch-Waxman allows 
generic manufacturers to commit activities that would otherwise be 
considered patent infringement prior to generic approval. So when a 
person tells me that brand drugs should be treated the same in patent 
litigation, through a requirement that they seek injunctive relief to 
keep the FDA from approving the generic, I tell them that should be the 
case only if we treat generic manufacturers like all other 
manufacturers prior to approval. That is, you should not be allowed to 
infringe on the front end and then demand to be treated like all others 
on the back end.
    The question becomes, however, ``Is more than one 30-month stay 
ever legitimate?'' Truthfully, I don't know the answer. The FTC has 
studied this issue very carefully, and recommends one 30-month stay per 
drug. I want to hear this reasoning explained to me today.
    Further, the FTC recommends that when brands settle patent 
litigation with generics, the FTC should be given notice of the 
settlement. This, to me, may be sensible. I understand that FTC is not 
calling for approval of the settlement, but rather a simple notice. 
Since anti-competitive settlements do nothing to bring lower-priced 
generics to the market, this seems like a good starting point for 
discussion.
    Again, Chairman Bilirakis, I appreciate you calling this hearing on 
this very important topic. While it's easy to say we must rush to 
reform Hatch-Waxman, the one thing we cannot do is reform it in a way 
which threatens innovation. Without innovation, patients are harmed. 
Without innovation, research moves overseas. Without innovation, there 
is no generic pharmaceutical industry. Let us always remember: Hatch-
Waxman has worked very well. If reforms are needed, we must draft these 
reforms correctly.
    Finally, let me mention one more thing before we go into the arcane 
details of the Hatch/Waxman Act. You will hear a great deal of rhetoric 
at this hearing about why we must quickly approve S. 812 or some other 
similar legislation. Our friends on the other side of the aisle will 
say that such legislation is sorely needed to bring down the price of 
prescriptions for seniors.
    Let me be perfectly clear. The best way to reduce the prices paid 
by seniors for their prescription drugs is to pass a comprehensive 
prescription drug benefit in Medicare. The bill we passed through the 
House in June will reduce some seniors drug spending by well over 50%. 
Approximately, 44% of Medicare beneficiaries will pay only nominal co-
pays and no cost-sharing. That's legislation that should be signed into 
law right away.
    At the Energy and Commerce Committee, we have a proud history of 
bipartisanship. As our Committee delves into the minutia of Hatch/
Waxman, I hope that we do so in the spirit of that finest bipartisan 
tradition and examine this law on the merits. We have many important 
issues before us today. Let both sides approach them with an open mind 
and a willingness to be educated.

    Mr. Bilirakis. Thank you. I thank you for the wisdom of 
your remarks, Mr. Chairman, and would yield 3 minutes to Mr. 
Pallone for an opening statement.
    Mr. Pallone. Thank you. Let me say that I very much 
disagree with what the chairman of the full committee just said 
about what we should be doing and what the other body should be 
doing. I mean, the bottom line is that this generic Greater 
Access to Affordability Pharmaceuticals Act, the bill that 
passed the Senate, is really the only game in town.
    As much as I am happy that we are having this hearing 
today, we need to pass a generic bill. We need to make the 
changes to Hatch-Waxman and pass the Senate bill. The fact that 
we are having a hearing is not enough. The subcommittee, the 
full committee should be marking up the Senate bill.
    I am all for a Medicare prescription drug benefit, but the 
bottom line is that that is not going to happen. This can 
happen very easily if this committee would just take the bull 
by the horns and do what has to be done.
    Keep in mind also that the Medicare benefit, although it is 
a great thing, doesn't address costs. The Republican bill 
doesn't address cost. It only deals with senior citizens. If 
you pass the Senate generic bill, the Hatch-Waxman reform, it 
would lower costs for all Americans, not just for senior 
citizens.
    I think the Republican leadership on the committee, 
basically, what they are doing is they are saying, look, we 
know there are all these problems with Hatch-Waxman. The FTC 
report shows dramatically that the brand-name industry is 
causing the problem and causing all these delays for generics. 
Yet, they are not willing to bring it up.
    Why not? Well, the reason is simple: because the brand-name 
industry is financing campaigns. They are running ads for all 
the Republican candidates in the competitive districts telling 
them that you should vote Republican.
    You know, the brand-name industry is the problem here, and 
the Republican leadership on this committee is not willing to 
address the problem because they want the help that they are 
getting from the brand-name drug companies in their campaigns 
and in these competitive races. That is what this is all about.
    We don't need a hearing. We need to pass a bill and we need 
to deal with the issue of cost. The Republican bill, even the 
Medicare benefit bill, doesn't deal with the cost issue. I have 
mentioned many times in this committee about the non-
interference clause that is in the Republican prescription drug 
bill that specifically says that the person in charge of the 
program cannot essentially negotiate price reductions. That is 
what the bill says because that is what the brand-name industry 
wanted. They don't want us to deal with the cost issue. They 
don't want more generics brought to the market.
    I mean this FTC report unambiguously confirms that Hatch-
Waxman is being abused. It details that brand-name companies 
are manipulating the approval process. They are the problem. 
These additional 30-month stays are being triggered by the 
strategic submission of inappropriate patents by the brand-name 
drug companies, listings in the FDA's ``Orange Book,'' and they 
go on to talk about the other problems with the 180 days. I 
mean, we don't need anything more.
    The subject of this hearing clearly shows in this FTC 
report that the brand-name industry is abusing the system. 
Let's do something about it. Don't just keep talking.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Shimkus, opening statement, 3 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. I ask unanimous 
consent that the testimony of the Coalition for a Competitive 
Pharmaceutical Market be submitted for the record.
    Mr. Bilirakis. Without objection.
    [The prepared statement of the Coalition for a Competitive 
Pharmaceutical Market follows:]
Prepared Statement of Coalition for a Competitive Pharmaceutical Market
    Chairman Bilirakis, Congressman Brown, and distinguished 
Subcommittee members, the Coalition for a Competitive Pharmaceutical 
Market (CCPM) commends the Subcommittee for its leadership in 
addressing the critical issue of improving consumer access to 
affordable generic drugs in light of unsustainable increases in the 
cost of prescription drugs. On behalf of our members, we appreciate 
this opportunity to submit written comments to the Subcommittee.
    CCPM is an organization of large national employers, insurers, 
generic drug manufacturers, and others committed to improving consumer 
access to high quality generic drugs and restoring a vigorous, 
competitive prescription drug market. CCPM supports legislation to 
eliminate legal barriers to timely access to less costly, equally 
effective generic drugs.
    Our membership is broad and diverse, and includes numerous 
prominent purchasers of pharmaceuticals, such as General Motors 
Corporation, Caterpillar, Inc., Eastman Kodak Company, and Delphi 
Corporation. We are eager to share with the Subcommittee our experience 
regarding prescription drug cost increases and to underscore our belief 
that the House of Representatives needs to act now to eliminate legal 
barriers to timely access to affordable, equally effective generic 
drugs by passing H.R. 5311/H.R. 5272.
            impact of unsustainable prescription drug costs
    Large and small businesses, consumers, unions, governors, the 
federal government and health plans throughout the nation are 
aggressively attempting to manage soaring prescription drug costs. 
These expenditures are growing at annual rates of up to 20 percent and 
are unsustainable. Current pharmaceutical cost trends are increasing 
premiums, raising copayments, pressuring reductions in benefits, and 
undermining the ability of businesses to compete. CCPM members seeking 
to continue to provide prescription drug coverage to employees and 
subscribers face a tremendous challenge in light of these skyrocketing 
pharmaceutical costs.
    For example, General Motors--the largest private provider of health 
care coverage in the nation, insuring over 1.2 million workers, 
retirees, and their families--currently spends over $1.3 billion a year 
on prescription drugs. Despite GM's use of state of the art management 
techniques that assure the most appropriate and cost effective use of 
prescription drugs, its pharmaceutical bill continues to grow at a rate 
of 15 to 20 percent a year--more than quadrupling the general inflation 
rate.
    Similarly, Eastman Kodak Company, which insures 150,000 covered 
lives, spends 31 percent of its health care dollar on prescription 
drugs. Kodak is on track to spend $88 million on prescription drugs 
this year, and estimates that their drug costs will increase to at 
least $99 million in 2003.
    Likewise, equipment manufacturer Caterpillar Inc. spent $131 
million on prescription drugs last year, representing a 17 percent 
increase over the previous year. Moreover, Caterpillar has experienced 
drug cost increases ranging from 17 to 25 percent over the past five 
years.
    The experience of insurers is no different. The 42 Blue Cross and 
Blue Shield Plans that collectively provide health care coverage for 
84.4 million Americans, represented in CCPM by the Blue Cross and Blue 
Shield Association (BCBSA), are experiencing up to 20 percent increases 
in prescription drug costs each year. BCBSA expects these costs to 
continue to grow rapidly, exacerbating the difficulty of providing a 
meaningful level of coverage for prescription drugs while keeping 
premiums as affordable as possible.
    Such drug cost increases are driven by multiple factors, including 
higher utilization, direct-to-consumer advertisements, drug price 
increases, and, especially, delayed generic competition.
    CCPM members are growing increasingly concerned that a major 
contributor to the pharmaceutical cost crisis is the use of the Drug 
Price Competition and Patent Term Restoration Act of 1984 (Hatch-
Waxman) in ways clearly unanticipated by Congress and which effectively 
block generic entry into the marketplace. We believe that inappropriate 
Orange Book patent listings, the repeated use of the 30-month generic 
drug marketing prohibition provision and other legal barriers have 
resulted in increasingly unpredictable and unaffordable pharmaceutical 
cost increases.
              generic drugs provide critical cost savings
    Every day, the choice of generic products creates substantial 
savings for consumers; as much as 70 to 80 percent when compared to the 
brand product. This adds up to more than $10 billion dollars a year in 
savings for consumers, employers, insurers, and taxpayers, as well as 
state and federal governments. Generic drugs play a critical role in 
the search for answers about how to decrease health care costs, while 
increasing access to important medicines and assuring health care 
coverage availability.
    Like their brand-name counterparts, generic drugs are subject to 
thorough review by the Food and Drug Administration (FDA) to ensure 
that they are safe and effective. The generic manufacturer relies on 
the underlying safety and efficacy data supplied by the brand 
manufacturer when it submits its application to the FDA for approval. 
In addition, the generic manufacturer must demonstrate in its 
application that the generic drug is equivalent to the branded product 
based on bioavailability and/or bioequivalence studies to win FDA 
approval.
  legal barriers to generic access impede vigorous market competition
    Generic drugs offer consumers a safe, equally effective and 
affordable alternative to brand name prescription drugs. However, the 
lack of access to high quality generic drug choices for Americans leads 
to increased premiums, higher co-payments, fewer health benefits, and 
reduced access to quality care--particularly for the uninsured and 
poorly insured.
    CCPM commends the Subcommittee for focusing today on barriers to 
generic entry into the marketplace. We believe, and the recent report 
from the Federal Trade Commission ``Generic Drug Entry Prior to Patent 
Expiration'' confirms, that such barriers have cost consumers billions 
in lost savings and will continue to do so absent swift legislative 
action. Without relief from rising prescription drug costs, employers 
and other purchasers simply will be unable to effectively compete in 
the world marketplace.
    Specifically, such legislation should:

 End delays associated with the automatic 30-month stay;
 Accelerate generic drug introduction to market; and
 Expedite resolution of patent disputes.
End Delays Associated with the Automatic 30-Month Stay
    A brand name drug manufacturer can delay generic competition for 30 
months because current law requires the FDA automatically to stay 
approval of a generic application if the brand manufacturer sues for 
patent infringement. In fact, current law allows multiple, automatic 
30-month stays, further delaying market entry for generic drugs. 
Restricting the availability of the automatic 30-month stay would still 
permit brand manufacturers to sue generic companies. However, like 
patent holders in all other industries, brand manufacturers would have 
to obtain a preliminary injunction based on merit to delay generic drug 
approvals.
    For example, the manufacturer of Neurontin  strategically 
timed the submission of an additional patent to FDA, effectively 
converting the automatic 30-month stay into a 54-month delay of generic 
competition. The cost in lost savings to consumers has already amounted 
to well over $825 million. With each new day the public loses an 
additional $1.5 million.
Accelerate Generic Drug Introduction to Market
    Current law grants a 180-day period of market exclusivity to a 
generic applicant who first files an application with the FDA 
certifying that the patents on the brand product it intends to copy are 
either invalid or will not be infringed by the manufacturing and 
marketing of a generic version of the drug. However, the 180-day period 
does not begin until the first applicant goes to market or litigation 
surrounding the certification is resolved. In the interim, all other 
generic applicants are kept out of the market.
    The 180-day exclusivity provision now available to the first 
generic challenger should be available to a subsequent challenger, if 
the initial challenger does not go to market within a specified period 
or the FTC finds the applicant engaged in unlawful conduct (such as an 
agreement with a brand manufacturer to stay out of the market).
    Additionally, a Federal appellate court decision, or the date of a 
settlement agreement or consent decree that includes a finding of 
invalidity or noninfringement should be designated as ``triggers'' for 
the 180-day period to provide certainty for the generic applicant.
Expedite Resolution of Patent Disputes
    A brand manufacturer enjoys a statutory 45-day window during which 
it may file an infringement suit against a generic challenger and 
obtain an automatic 30-month stay. Under current law, a generic 
manufacturer must wait to be sued and complete litigation to achieve 
certainty of its right to market its product--or risk triple damages if 
it markets an approved generic drug while a suit is pending. Generic 
manufacturers should be permitted to challenge patents inappropriately 
listed with the FDA, with a correction or de-listing remedy available. 
This statutory change would reduce the amount of litigation surrounding 
drug patents and expedite consumer access to affordable medicines.
                      cost impact on ccpm members
    In addition to the well-documented cost savings that generic drugs 
provide, there is ample data on the lost savings to consumers when 
generic drug access is delayed. For example, the Congressional Budget 
Office (CBO) examined a bill passed by the Senate in July 2002 (S. 812) 
that would eliminate many of the barriers to generic drug market entry 
discussed above. CBO concluded that consumer savings generated from 
such legislation could reach as much as $60 billion over the next ten 
years. CBO further determined that if all barriers to generic drug 
market entry were eliminated, the total savings could reach $120 
billion over 10 years.
    CCPM member Eastman Kodak estimates that approximately one-third of 
its current expenditures on prescription drugs is spent on brand name 
drugs for which generic counterparts are expected to be available in 
the near future. Similarly, Caterpillar anticipates that if generic 
competition is introduced for the 15 most popular drugs expected to go 
off patent by 2006, it will save between $25 to $30 million per year.
    General Motors estimates that without new legislation, if just five 
pharmaceutical ``blockbuster'' product patents that are currently 
scheduled to expire are extended, GM will see increases in its 
prescription drug bill in excess of $204 million during the period of 
delay of generic market entry.
 support for bipartisan legislation to improve access to generic drugs
    In light of the unintended consequences of Hatch-Waxman provisions 
that serve to impede access to safe, affordable generic drugs, CCPM 
believes that Congress must act now to pass legislation that will 
restore the balance between competition and innovation that was 
initially intended by the Congress in 1984. Specifically, CCPM supports 
the Prescription Drug Affordability Act (H.R. 5311) and the 
Prescription Drug Fair Competition Act (H.R. 5272).
    Last week, CCPM joined with the RxHealth Value coalition and AARP 
in releasing a new AARP survey that found overwhelming support for 
legislation to close loopholes used by some pharmaceutical companies to 
prevent generic drugs from being made available to consumers. As the 
largest consumer group in the nation, AARP supports the House bills 
because, according to its survey, the vast majority (92 percent) of 
Americans age 45 and older is concerned about the impact of rising drug 
costs on their health care coverage.
    In addition, the AARP survey revealed that 84 percent of older 
Americans strongly believe that making generic drugs more available is 
an important part of the solution to rapidly increasing drug prices and 
two-thirds support legislation to make generic drugs more available.
    It is important to note that nothing in the legislation introduced 
by Representatives Waxman and Brown, or Representatives Thune and 
Emerson, diminishes the patent rights of brand-name pharmaceutical 
manufacturers. The legislation does not in any way amend Title 35 of 
the U.S. Code, which protects the patents of all manufacturers, 
including CCPM members. As innovators, patent-holders and competitors 
in the world market, CCPM members respect the integrity and value of 
intellectual property protection. However, we oppose practices that 
detract from true innovation and new product development and merely 
serve to preserve of old innovations.
                               conclusion
    CCPM applauds the Subcommittee and the FTC for examining the 
critical health care issue of assuring continued access to safe, 
affordable generic prescription drugs.
    CCPM believes that Hatch-Waxman reforms--such as the Prescription 
Drug Affordability Act (H.R. 5311) and the Prescription Drug Fair 
Competition Act (H.R. 5272)--can enhance competition and choice while 
also encouraging meaningful innovation. The Senate recognized as much 
when it passed similar legislation in July 2002 by an overwhelming 
bipartisan vote of 78-21. CCPM maintains its commitment and support for 
the Congress to pass this legislation this year; delay would mean yet 
another year of excessive prescription drug costs that create pressures 
that make it more difficult for businesses to compete and health plans 
to offer affordable, meaningful insurance.
    Mr. Chairman, we appreciate your leadership in holding this 
hearing. We look forward to working with you and providing any 
assistance possible in developing legislation in this area.

    Mr. Shimkus. Thank you, Mr. Chairman, and I will be brief.
    First of all, this does address a cost issue across the 
country on prescription drugs, but I would remind my friends 
and Mr. Pallone, who just talked, that under the prescription 
drug bill many of you voted against the best pricing provision 
that the VA uses that would have saved $19 billion. That was a 
way in which, through passing that--so there was cost-benefit 
provisions in our prescription drug bill. The best pricing is 
what the VA uses. That is why we have been able to expand----
    Mr. Pallone. Will the gentleman yield?
    Mr. Shimkus. Yes, I will be happy to yield.
    Mr. Pallone. I don't know--if you are talking about trying 
to use the VA----
    Mr. Shimkus. Model.
    Mr. Pallone. [continuing] model, I know that----
    Mr. Shimkus. You all voted against it.
    Mr. Pallone. We supported that.
    Mr. Shimkus. No.
    Mr. Pallone. Mr. Stupak----
    Mr. Shimkus. In the amendments, the best pricing model.
    Mr. Pallone. It was Mr. Stupak's amendment, and we voted 
for it.
    Mr. Shimkus. There was $19 billion in savings in this bill. 
So to say that our prescription bill doesn't have price savings 
is wrong.
    Mr. Pallone. You have a non-interference clause in the bill 
that specifically says that the administrator of the program 
cannot negotiate----
    Mr. Shimkus. Reclaiming my time----
    Mr. Bilirakis. Gentlemen, this is an opening statement. The 
gentleman has the time.
    Mr. Shimkus. Reclaiming my time, I would just say that $19 
billion is a significant savings to the senior citizens for 
prescription drug benefits, and that was passed in our bill.
    I would also respond and concur with the chairman, who said 
the real question is, is one 30-month stay legitimate? That is 
the basic premise of the FTC report. That is what we are going 
to hear today.
    As many of the folks who are here know, we want to hear the 
testimony to make the case of reforms needed to make sure that 
we get low-cost prescription drugs and that we continue 
innovation and development, because innovation and development 
is only occurring here in the United States today because of 
our ability and our patent protections.
    So this is an important hearing. I thank the chairman for 
having the hearing and Chairman Tauzin for allowing us to have 
this, period, and I yield back my time.
    Mr. Bilirakis. And I thank the gentleman. Mr. Stupak, for 
an opening statement, 3 minutes.
    Mr. Stupak. Thank you, Mr. Chairman, and thank you for 
holding this hearing on competition on the prescription drug 
market.
    Last year prescription drug spending increased by $20.8 
billion or 18.8 percent. Seniors, one-third of whom lack 
prescription drug coverage, received a 2.4 percent cost-of-
living increase in their Social Security benefit last year. 
Simply put, the math just does not add up.
    This is not just about seniors, but all Americans cannot 
afford double-digit increases in costs each year for their 
pharmaceuticals. Something needs to be done.
    Let me be clear on one important point. I'm not blindly 
pro-generic; I'm pro-competition because competition has proven 
to be the great marketplace equalizer.
    Our hearing today was triggered by a report released in 
early August by the Federal Trade Commission, the FTC. The 
results of this report concluded that there were certain abuses 
of the Waxman-Hatch generic drug legislation and that 
legislative fixes are needed to close these loopholes that 
prevent generics from coming swiftly to the market.
    Legislative fixes are certainly needed, especially when 
States are now being sued for trying to keep down prescription 
drug costs by incorporating generics into their Medicaid 
formulas. My home State of Michigan is attempting to limit out-
of-control drug costs in this way and is being sued by PhRMA to 
prevent this from happening.
    PhRMA reasoning is this, and I quote: ``Our argument is, 
why would you want to put this in place when you're going to 
hurt some of the most vulnerable people in Society?'' That is 
attributed to John Brown, PhRMA State lobbyist.
    PhRMA apparently sees no irony in this statement while I 
do. This same PhRMA spokesman goes on to say that States 
shouldn't balance budgets on the backs of poor. I find it 
ironic and sad that they are willing to hurt these vulnerable 
people by forcing them to pay top dollar for drugs they cannot 
afford while using this same vulnerable populations as cover to 
ensure their financial bottom line, to make sure that their 
bottom line is the healthiest in the country.
    PhRMA's claim that the Senate-passed generics bill, S. 812, 
will chill innovation and we won't have new therapies, again, 
just the opposite is true. By closing the loopholes in the 
Waxman-Hatch, the brand industry will be able to go back to the 
lab to come up with new medicines to make money, instead of 
pouring financial resources into how best to use legal 
loopholes so as to make their money stretch out to protect 
their monopolies.
    They can also do it by reducing their advertising. They 
spend twice as much money on advertising than they do on 
development of new drugs. These abuses, outlined in the FTC 
report, are serious and cost the health care system billions of 
dollars in inflated drug costs.
    In closing, let me say that a solution to these abuses 
exists and has been passed overwhelmingly by bipartisan support 
in the Senate of 78 to 21. A broad range of groups--employers, 
insurance, consumers, labor, Governors--support congressional 
action. We should respond to their requests and to our 
constituents' requests for action to lower drug costs and 
follow the Senate's lead by passing our companion bill to S. 
812 and pass it this year.
    With that, Mr. Chairman, I yield back my time.
    Mr. Bilirakis. I thank the gentleman. Dr. Norwood, for an 
opening statement.
    Mr. Norwood. Thank you, Mr. Chairman. I appreciate you 
holding this hearing on what I consider to be a very 
complicated subject.
    I can't help but note that my friend, Mr. Pallone, doesn't 
agree with the chairman, and I would like to say that I could 
associate myself with his remarks real well. Though I am not 
certain where I want to be yet, I have had people, as all of us 
have, coming in and out of our office every day; one side 
saying, ``We're right and the other side's wrong,'' and the 
other side saying, ``No, we're right.'' It's been back and 
forth now for a while on this generic drugs and the Hatch-
Waxman amendment. I am not totally certain where I need to be, 
but I am absolutely certain that neither side is completely 
right and neither side is completely wrong.
    This is a very important issue because the cost of drugs is 
a driving factor in so much of health care today. For seniors, 
it is the force behind our efforts to pass a prescription drug 
bill, and for our employers and insurers, it is a driving force 
behind premium increases.
    Getting generic competition in the market is clearly in the 
public interest. Are there loopholes in Hatch-Waxman that need 
to be fixed? I believe the FTC was right in outlining certain 
areas of current or potential abuse in S. 812 or the Brown 
bill, but the answers to these concerns, is that the answer? I 
am not sure I believe so. I think they probably go a little too 
far.
    But one thing I am certain of is that the Hatch-Waxman bill 
has worked. We have increased generics in this country over the 
last 20 years from 20 percent of the market to 50 percent of 
the market. The brands have done a great job in their R&D. They 
have increased that by $30 billion.
    I think it would be an interesting question for us to 
answer, well, what would happen if generics had 75 percent of 
the market? What would happen to prescription drugs in this 
country if they had 95 percent of the market? Is that a good 
idea?
    Is the bill working perfectly? No, we need to fix some of 
the areas of political abuse, but I think we should be 
cautious, very cautious, before we dive head-long into 
tinkering with a law that has actually worked pretty well.
    I also want to mention that, even though we don't want to 
embarrass the Senate because they have put out a bill, and 
there hasn't been many, so the very little work they have done, 
we may not want to waste. But I would say to them also that we 
put out a bill, too, that helped senior citizens a lot, and 
that is the prescription drug bill, and they need to deal with 
the fact that our poorest seniors and our sickest seniors 
should be dealt with with a prescription drug bill. So I am not 
sure exactly which issue we should be on. Just because the 
Senate says it is dead, I am not sure we need not tell them 
their issue is dead, too, until they can learn to play.
    Mr. Chairman, I look forward to this testimony of our 
witnesses today. I view this as a great opportunity for 
learning and listening. We will see where we need to be, but I 
tend to agree with the chairman again: Perhaps the Senate bill 
is just not exactly what the House wants. We usually can come 
up with a little better solution, and we need to have our own.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Ms. Eshoo, for an 
opening statement.
    Ms. Eshoo. Good morning, Mr. Chairman, and thank you for 
having this hearing today. It is an important one because it is 
a very important issue for the American people.
    Being almost the last one to make an opening statement, I 
would like to make just a couple of observations that I didn't 
have part of my written copy. That is to say that I think that 
it is safe and sad to say that a prescription drug bill is not 
going to be passed by the Congress. We are going to be taking a 
vote on war tomorrow. The statements will be completed on the 
floor very shortly.
    As we talk about competition, here in the House of 
Representatives my friends on the other side of the aisle don't 
believe in the competition of ideas. When you talk about a 
prescription drug bill, you wouldn't allow another idea to be 
brought to the floor to be debated. That is wrong. That is 
wrong.
    This business about the Senate, I am sick and tired of it. 
The Senate, whether you like the bill or not, passed almost 
100-to-nothing. So it is the responsibility of the House to not 
only have a hearing at 2 minutes until midnight before we leave 
to go home for the mid-term elections, but to have had a markup 
here. I may not agree with everyone here about the innards of 
the Senate bill, but we have a responsibility to come up with 
something and, most frankly, we are not going to.
    I look forward to the distinguished people who are here to 
testify today because, if I am blessed enough to come back in 
the 108th Congress, we have to use your wisdom on what 
direction we need to go.
    Hatch-Waxman has been successful, but we know many years 
later that there are some abuses and that we need to straighten 
that out. Why? Because it creates an opportunity for the 
American people to not only benefit from generics, but also 
from the investments that are made in this country relative to 
drugs. So we need to keep innovation going, and we need to 
protect what the American people, especially the poor, the 
elderly, and those that are uninsured, benefit from.
    So there are abuses. We need to correct them, but let's not 
suggest at this very important hearing that the Congress of the 
United States is going to be taking care of this forthwith. 
Let's not be posing for ``holy card'' pictures because it is 
not going to be done. This is being brought up, as I said, just 
a few minutes before midnight before Paul Revere rides out of 
town.
    I know that our chairman always wants to do the right 
thing, and I appreciate that. He is a gentleman. He is a decent 
person, and I will always stand with that. But the tenor and 
the exaggeration that is here today on the part of some of my 
colleagues really does not befit a very distinguished committee 
and where we are in the last throes of a Congress that is 
debating war, and not passing either a bill to make the 
corrections that need to be made or a Medicare prescription 
drug benefit that actually is in Medicare. We can debate that.
    Mr. Bilirakis. The gentlelady's time has expired.
    Ms. Eshoo. I thank the chairman.
    Mr. Bilirakis. I thank the gentlelady. Mr. Pitts, for an 
opening statement.
    Mr. Pitts. Thank you, Mr. Chairman. Thank you for holding 
this important hearing today. I look forward to hearing about 
the state of competition between brand and generic drugs and 
whether improvements in this marketplace are necessary.
    Mr. Chairman, it has been said this is probably one of the 
more complicated issues the subcommittee has dealt with to 
date. I believe this hearing will allow all of us to get a 
better picture of the industry.
    I think it is important to note that the numbers show that 
Hatch-Waxman has been generally successful. It has maintained 
the balance of improving the generic drug approval process 
while at the same time providing patent term restoration to the 
brand drug industry. As we all know, a competitive market for 
the pharmaceutical industry relies on new innovation. I believe 
we have a responsibility not to hinder this innovation.
    That said, I am aware of the concern that some have 
expressed that generic drug approvals have been unnecessarily 
delayed due to patent listings. So I believe this hearing will 
be an excellent opportunity to examine these concerns. We need 
to know whether the reforms identified within the FTC report 
are appropriate. We need to know what the impact of the 
recommended FTC reforms may have on brand-name drug innovation.
    I will submit my entire remarks for the record, but say, in 
conclusion, Mr. Chairman, I look forward to hearing from our 
distinguished witnesses and yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman for his consideration. 
Mr. Green, for an opening statement.
    Mr. Green. Thank you, Mr. Chairman. I would like to join my 
colleagues in expressing regret that I think a lot of 
discussion on this bill would have been taken care of if we had 
actually been able to consider alternatives on the floor of the 
House to our committee product that took us all night.
    Although this bill, the bill we are holding hearings on, I 
appreciate, again even at this late date, the hearing on 
changes in the Drug Price Competition and Patent Term 
Restoration Act, also known as Waxman-Hatch, prescription drugs 
are a central part of our health care system, and advances in 
the area of pharmaceutical research have led to new treatments 
for diseases such as AIDS, diabetes, cancer, arthritis, and 
dozens of others.
    Although there is no doubt that we should do all we can to 
ensure that that kind of innovation continues, the cost of 
these drugs remains a concern to all Americans, but 
particularly our elderly. Health care costs rose 5 percent in 
2001, 3.7 times faster than the overall inflation rate, this in 
large part due to the increase in the cost of prescription 
drugs.
    Prescription drug cost spending is the fastest-growing 
component of health care costs and rose 17 percent in 2001. 
This increase has a ripple effect not only in the private 
sector, health insurance, State Medicaid programs, employers, 
uninsured, and seniors, but also in our Veterans' 
Administration health care programs.
    Congress tried to balance two conflicting interests when 
they passed Waxman-Hatch in 1984, and there is no question it 
is an extremely complex and challenging area of FDA law. It has 
been successful. In our committee memo it says that generic 
drugs have risen from 40 percent to 50 percent of all 
prescription drugs dispensed. At the same time, brand 
innovation and the research and development has increased to 
nearly $30 billion.
    Unfortunately, with these improvements have come new 
loopholes that have created the opportunity for abuse in our 
current system. Innovator companies often file a number of 
patent, staggering patent applications, to extend the patent 
protections and, thus, their market exclusivity.
    Each time an innovator lists a new patent, generic 
companies must file for a paragraph (IV) certification, which 
triggers an automatic 30-month stay before the FDA can approve 
their product. By staggering new patents, this loophole creates 
the possibility of innovator companies to receive multiple and 
unlimited stays on a single drug. The patent stacking results 
in lengthy delays.
    Additionally, these new patents are often for secondary 
changes, such as the pharmaceutical's color, labeling, or 
expiration date. These kinds of minor changes are not the 
innovations that Congress sought in the Waxman-Hatch bill.
    Additionally, the 180-month stay provision which was 
intended to promote generic competition has been abused by some 
generic companies who have colluded with their brand-name 
counterparts to keep lower generics off the market. There have 
been several pieces of legislation introduced to address these 
abuses, and Americans need timely access to affordable 
medications.
    Senate bill 812 would contain many of the provisions. 
Again, I don't think you would see as much support for this 
bill if we had considered and passed a real prescription drug 
benefit under Medicare.
    I yield back my time.
    Mr. Bilirakis. I thank the gentleman. Ms. Wilson, for an 
opening statement.
    Mrs. Wilson. Thank you, Mr. Chairman. I also appreciate 
your having this hearing because I think it is a beginning of a 
very important process of considering what we have to do to 
improve and buildupon the Hatch-Waxman bill, and that is kind 
of a big deal. I don't think it is easy, and I think the idea 
that we could quickly pass this bill is probably not true. I 
think there will be people who want to look at a lot of the 
different provisions of Hatch-Waxman, and we need to consider 
how we are going to do that.
    I come to this with the perspective of a consumer and a 
former small business owner, but the real issue is, what is the 
price to the consumer and whether small businesses, 
particularly, can continue to offer health insurance to their 
employees. It is now not even an issue so much for small 
business as medium-sized business and large business, where 
health insurance premiums continue to go up.
    I don't believe that there is a single-point solution to 
this problem. I don't think there is an ``only game in town,'' 
not in this town and not in the town that I live in.
    We need to add a prescription drug benefit to Medicare. We 
passed a plan through this House. I wish that the Senate had 
been able to pass one and we could come together in conference 
and get that done. We are going to have to come back and do it 
again in the next Congress, and I will be there to try to craft 
the best bill possible for our consumers and our seniors.
    I think we need to consider allowing the importation of 
safe prescription medicines that are made in FDA-approved 
facilities, and I think that that will put a little back 
pressure on the pharmaceutical companies, because, frankly, the 
difference between the cost of medicine in Juarez and the cost 
of the same medicine in Albuquerque is too big. It causes 
people to be traveling to Mexico to buy medicine.
    I drink my orange juice that may come from Mexico. It seems 
to me that we should be able to figure out a way to get safe 
medicine from other countries.
    We need to look at the generic medicine law, and that is 
what this hearing is about; both the 30-month stay and things 
like the difference in price is substantial. I think we need to 
look at that law.
    I think we need to also protect the motivation for 
innovation. You know, if we want to just freeze the 
prescription drug formulary where it is, we could come up with 
price controls, but we all want to see the next miracle 
medicine, the cure for Alzheimer's, the cure for AIDS, the cure 
for Parkinson's. It is the prescription drug industry that is 
most likely to bring us that next generation of miracles.
    Finally, I think we may want to look also at advertising 
and what the laws are with respect to prescription medicine 
advertising. I think there are a lot of things that are on the 
table that could achieve or help to achieve our goal, which is 
to lower the cost of miracle medicines to the consumer and make 
sure people continue to have health coverage through their 
employer.
    I look forward to hearing the testimony today. I look 
forward to learning more about this issue in my district and my 
constituents, but I agree with many of the things that have 
been said previously. But the first step is to deal with those 
who are most in need, and that is our seniors. We need to add a 
prescription drug benefit to Medicare.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentlelady. Mr. Shadegg, for an 
opening statement.
    Mr. Shadegg. Thank you, Mr. Chairman, and I, too, want to 
express my appreciation for your holding this important hearing 
today. There are many laws that come before this Congress which 
are not truly within the ambit of our responsibility, but the 
Constitution specifically gives the U.S. Congress the power to 
enact laws relating to patents. So this is our responsibility, 
and in this instance I think it is an extremely important 
responsibility.
    Just as Thomas Jefferson and James Madison differed over 
the merits of patent laws over 200 years ago, today there is an 
honest and genuine debate over the regulatory environment 
surrounding our pharmaceutical patents and our pharmaceutical 
industry. That debate deserves this hearing and deserves 
careful consideration.
    This is an incredibly complicated subject. My constituents 
do not understand the 30-month stay or the 180-day market 
exclusivity, but, Mr. Chairman, they clearly do understand and 
are concerned about the double-digit increase in the cost of 
prescription drugs and the double-digit increase in health 
insurance premiums. We simply as a nation cannot tolerate cost 
increasing at those rates.
    Now my constituents, Mr. Chairman, deeply value innovative 
medicines and are very much appreciative of the miracle drugs 
which have been produced. They also understand that producing 
those drugs is a capital-intensive process, and that if that 
capital isn't there, those drugs won't come to market.
    But, Mr. Chairman, it is important that we strike an 
appropriate balance. Some say, for example, that Hatch-Waxman 
strikes that proper balance. Others, of course, strongly 
disagree and say there are loopholes. I believe, indeed, that 
there have been some abuses, perhaps abuses on both sides, and 
we must fix this system.
    It seems to me that the witnesses today can bring us 
important evidence on that issue and that we owe it to our 
constituents to examine these laws and to ensure that they are 
correctly crafted. The miracle drugs that make our health care 
system the best in the world need to come to market. At the 
same time, the laws that allow those drugs to come to market 
should not be abused or twisted or used in a way to protect the 
market for one company long beyond what was intended and to 
keep others out of the market.
    This seems to me to be one of the most important challenges 
facing this Congress. We must strike the right balance. I am of 
the mind that we have not struck that balance correctly, that 
there are loopholes which need to be repaired and which need to 
be examined by this Congress. I am anxious to hear the evidence 
here today. I think this is an important, critically important, 
obligation for us because of the importance of health care to 
all Americans.
    I thank you, Mr. Chairman, for holding the hearing.
    Mr. Bilirakis. And I thank the gentleman, and would yield 
to Mr. Buyer for an opening statement, 3 minutes, please.
    Mr. Buyer. For all my education, I will articulate the word 
``pass.''
    I want to let us hear the witnesses.
    Mr. Bilirakis. Mr. Deal, for an opening statement.
    Mr. Deal. Pass.
    Mr. Bilirakis. ``Pass''--I like those opening statements.
    All right, that completes all of our opening statements, I 
do believe.
    [Additional statement submitted for the record follows:]
Prepared Statement of Hin. Albert R. Wynn, a Representative in Congress 
                       from the State of Maryland
    Mr. Chairman, thank you for holding this important hearing on 
whether there is adequate competition amongst brand and generic drugs, 
and whether improvements allowing for greater competition in the drug 
marketplace are necessary.
    Clearly, with the rising costs of prescription drugs and an 
inadequate prescription drug benefit, we should look at ways to lower 
prescription drug costs without providing a significant disincentive 
for brand drug companies from innovating.
    The issue of drug patents and the entry of generic drugs on the 
marketplace is interesting and complex subject. In 1984, the Hatch-
Waxman legislation streamlined the generic drug approval process, and 
restored the patent life lost during the FDA approval process for the 
innovator of the drug.
    Since 1984, generics have risen from less than 20 percent to 
roughly 50 percent of all prescription drugs dispensed. At the same 
time, brand investment in research and development has increased to 
nearly $30 billion.
    However, there are some concerns that some name brand manufacturers 
are preventing generic competition. Unfortunately, a lack of 
competition in the drug industry translates into higher prices for 
consumers.
    On the Senate side, S. 812 passed in July, which would allow 
generic drugs to get on the market more easily. I would like to hear 
from our witnesses about the impact that the measure would have in the 
industry--brand and generics--as well as consumers should it pass.
    I am hopeful that today's hearing will shed some light on the 
Hatch-Waxman bill and possible modifications that need to make in this 
day and age.

    Mr. Bilirakis. What I would like to announce at this point 
is that we will hear the statements of the witnesses of the 
first panel, Dr. Crawford and Mr. Muris. Then we will break for 
45 minutes to give everybody a chance to grab a quick bite or 
whatever the case may be. I hope it doesn't inconvenience you 
two gentlemen too very much, but give the opportunity, because 
I know there are people here who want to hear your testimony. I 
don't want to break, take that away from them. Is that all 
right, Dr. Crawford?
    Mr. Crawford. Yes.
    Mr. Bilirakis. All right. When we return after that 45 
minutes, then we will go into the questioning of the first 
panel.
    Mr. Brown. Mr. Chairman, I would like to ask unanimous 
consent to submit several documents for the record, distribute 
this ``Pray for a miracle'' PhRMA ad I mentioned in my remarks, 
and other testimony from Business for Affordable Medicine, if I 
could.
    Mr. Bilirakis. Without objection, those will be made a part 
of the record.
    [The prepared statement of Business for Affordable Medicine 
follows:]
         Prepared Statement of Business for Affordable Medicine
    Mr. Chairman, on behalf of Business for Affordable Medicine, we 
appreciate the opportunity to present our views on the need for reform 
of the 1984 Drug Price Competition and Patent Term Restoration Act 
(Hatch-Waxman Act).
    BAM is a non-partisan coalition of Governors, large employers, and 
labor leaders committed to containing drug costs by improving 
pharmaceutical competition. Our complete focus has been on helping 
Congress understand the need to reform the Hatch-Waxman Act.
                consumers and other purchasers need help
    No problem poses a greater threat to the economic well being of 
American consumers than the rising cost of prescription drugs. Our 
aging population is faced with the promise of longer and healthier 
lives as a result of important pharmaceutical discoveries, but we also 
face a nearly unbearable burden of paying for these medicines at rates 
that are breaking the budgets of consumers, states, and other 
purchasers.
    Americans will spend an estimated $4.7 trillion for prescription 
drugs over the next 10 years. Today, the cost of drugs is rising at 
nearly 20 percent annually. Those who can afford to pay are finding 
their budgets and patience wearing thin. Seniors, employers, government 
agencies, and taxpayers who must foot the largest part of the bill--
including millions of Americans without insurance--are desperate for 
help.
             congress must close hatch-waxman act loopholes
    Pending legislation before this committee provides Congress with 
the greatest opportunity in nearly two decades to make a difference. By 
closing loopholes in the Hatch-Waxman Act, HR 5311 will stop tactics by 
drug companies that prevent access to lower-cost generics. This simple 
effort will save Americans $60 billion in prescription drug costs over 
the next 10 years, according to the Congressional Budget Office.
    The Hatch-Waxman Act was passed in 1984 to encourage drug 
manufacturers to invest in research and development of new drugs. The 
law was also intended to ensure that lower-cost generic drugs would be 
available immediately after specifically designated market 
exclusivities provided under the Act expired. The problem is, drug 
manufacturers block access to more affordable generics even after these 
exclusivity periods expire.
                          case study--prilosec
    Among many examples of abuse, we encourage the committee to closely 
examine the actions by the manufacturer of Prilosec. British-based 
AstraZeneca manufactures Prilosec (omeprazole), the most prescribed 
drug in America for seniors. The base patents and market exclusivities 
that were intended to protect Prilosec from generic competition expired 
three years ago. Despite this fact, AstraZeneca has engaged in an 
apparently carefully crafted strategy to use provisions of the Hatch-
Waxman Act together with other legal maneuvers to prevent generic 
sales.
    First, AstraZeneca listed a patent with the FDA that covered the 
metabolite created in patients who ingest Prilosec. It also listed 
patents that cover the use of the drug with antibiotics, and that 
covered formulations not used to make or market the product.
    None of these patents covered approved ``methods or uses'' of the 
product. The result was to create a situation where generic 
manufacturers must litigate 90 claims on six patents, making it 
impossible to resolve any dispute within the 30-month stay provided 
under the Act. The fact that every patent adjudicated so far has been 
struck down by the courts seems to indicate that AstraZeneca took 
unfair advantage of the Hatch-Waxman provisions relating to listing of 
patents.
    Second, while patent term extensions were provided in the Hatch-
Waxman Act in return for explicitly established obligations on patent 
holders to reasonably cooperate with litigants to expedite claims, 
AstraZeneca has taken advantage of the provisions without upholding its 
obligations under the Act.
    AstraZeneca sued generic manufacturers in May 1998, but waited 
until late-1999 to respond to discovery requests, waited more than a 
year after filing the suit to file for multi-district consideration of 
the cases, and then argued that the cases should be returned to their 
original jurisdictions. AstraZeneca also obtained another patent in 
January 2000, and then waited nine months--after discovery ended in its 
litigation against generic competitors--to include the patent in the 
trial. Subsequent actions to delay the case resulted in an order by the 
court that condemned AstraZeneca's ``utter failure'' to comply with 
discovery obligations.
    Third, AstraZeneca listed four additional patents in March 2001 to 
obtain a 45-day extension of its market exclusivity. This tactic 
prevented FDA action to approve generic competitors until AstraZeneca 
could complete separate filings on unrelated patents and obtain a six-
month extension under the pediatric testing law.
    These actions make it impossible for purchasers to believe that the 
courts can adequately address abuses of the Hatch-Waxman Act, as some 
on the committee suggest.
 the system for regulating pharmaceutical competition is breaking down
    In fact, we are witnessing an outbreak of litigation by the Federal 
Trade Commission, state Attorneys General, and class action attorneys 
to claim damages from drug manufacturers for their actions. Rather than 
address legitimate claims that were contemplated by the Act, the courts 
are becoming filled with claims outside the Act because of its 
failures.
    It is particularly alarming to purchasers that the Act provides no 
regulatory avenue for relief to those harmed by apparently unlawful 
actions not anticipated by its framers--such as listing of patents with 
the FDA that do not cover approved methods or uses of a drug, filing of 
questionable citizen petitions that intentionally delay generic drug 
approvals, and frivolous litigation intended to trigger Hatch-Waxman 
provisions that also delay generic approvals.
    It is further alarming that the Act also does not allow any 
purchaser to have standing in court to contest alleged abuses of the 
Act. The result is a proliferation of litigation under anti-trust and 
anti-consumer laws that we believe could overwhelm the judicial system, 
lead to further breakdown in the pharmaceutical market, and ultimately 
harm the ability of the drug industry to remain competitive and robust.
    We also encourage the committee to consider the extent to which 
drug companies are misleading government agencies to obtain patents and 
trigger 30-month stays on FDA approvals of generic products. The tactic 
seems to be gaining popularity within the industry, and has been cited 
by the courts in cases relating to Buspar (an anxiety drug manufactured 
by Bristol Myers-Squibb), Tiazac (a heart drug manufactured by 
Biovail), and Prilosec.
          inaction by congress is costing billions of dollars
    Failure of the Hatch-Waxman Act to protect the interests of 
purchasers--including state and federal taxpayers, consumers, and 
employers is a growing problem at a time when billions of dollars worth 
of patented drugs face competition over the next few years.
    For example, Medicaid agencies in 46 states spent $1.2 billion 
dollars last year to purchase 16 prescription drugs that face patent 
expiration over the next three years. The nation's largest employers 
spent over $2 billion to purchase the same drugs, including Augmentin, 
Relafin, Flonase, Cipro, and Wellbutrin. Purchasers should expect to 
save 50 percent or more when the patents and exclusivities on these 
drugs expire and generic alternatives become available.
    Unfortunately, we have little faith that consumers will see these 
savings any time soon because loopholes in the Hatch-Waxman Act enable 
drug manufacturers to delay generic competition for months and, in some 
cases, years.
    Though generic competition for Prilosec should have begun in 
October 2001, seniors, consumers, employers and taxpayers have paid 
nearly $3 billion more over the past year--or nearly $6 million each 
day--than necessary for Prilosec.
    The brand drug industry will claim that generic manufacturers could 
make their products available to compete against Prilosec at any time. 
We predict, however, that they will refuse to discuss with this 
committee the brand industry strategy built around shortcomings of the 
Hatch-Waxman Act that has made launches of generic Prilosec all but 
impossible.
                purchasers have done everything possible
    Purchasers are doing everything possible on their own to reign in 
the growing cost of prescription drugs. For example, West Virginia 
produces significant savings by waiving co-payments for some generic 
drugs used by state employees. In South Dakota, the state Medicaid 
program requires physicians to obtain authorization before prescribing 
specific high cost drugs for which more affordable alternatives may be 
as good. Vermont and other states use preferred drug lists, which 
ensure their programs obtain the best possible rates from manufacturers 
who must compete on price.
    Employers are also finding ways to cut costs by negotiating 
directly with drug manufacturers, increasing generic utilization, and 
changing formularies. Their only remaining option is to reduce or 
eliminate prescription drug coverage altogether, a move that is picking 
up steam in corporate boardrooms.
    None of these efforts changes the fact that the nation will still 
waste billions of dollars to purchase drugs that should face generic 
competition. In fact, pharmaceutical purchasers are now counting 
entirely on Congress to fix the problem.
    The U.S. Senate responded on July 31, 2002 in a way that gives 
purchasers real hope. Bipartisan legislation passed by a vote of 78-21 
to provide genuine prescription drug cost relief by closing the most 
abusive loopholes in the Hatch-Waxman Act.
                  response to drug industry opposition
    While drug lobbyists argue that Congress should limit its focus to 
passing a Medicare prescription drug bill, it is plain to the rest of 
us that spending more taxpayer funds for prescription drugs without 
also ensuring faster access to generics makes no sense.
    The drug industry also points out that only six percent of generic 
drug applications since passage of the Hatch-Waxman Act have faced 
approval delays. In fact, while few generics faced approval delays in 
the early years, the majority face delays today. It is also a fact that 
manufacturers now delay competition for virtually all blockbuster 
drugs.
    Washington needs to face this reality. The Federal Trade Commission 
report issued in July 2002 clearly highlights the drug industry's 
growing efforts to ``game the system'' and delay the introduction of 
generic competition through the Hatch-Waxman Act. Even drug industry 
leaders acknowledge the problem. Novartis chairman and CEO Daniel 
Vasella told the media on June 6, 2002 that industry practices to delay 
competition are not fair. ``One has to accept that drug patents do 
indeed have an end,'' he told USA Today.
    The committee should consider these facts apart from the rhetoric 
provided by the drug industry. A recent national survey by AARP found 
that 81 percent of Americans over the age of 45 believe Congress should 
pass legislation this year to make generic drugs more available. 
Support for this legislation is strong among Republicans (83 percent), 
Democrats (86 percent) or Independents (84 percent).
    Finally, we hope the House will not buy into the drug industry's 
claim that passing Hatch-Waxman reform legislation will result in cut 
backs on research and development for new drugs. In fact, increased 
spending by the drug industry on research since 1984 is a result of 
generic competition, not in spite of it. Reduced competition resulting 
from an aging Act and ensured by legislative non-action will surely 
lead to less, not more investment in research.
    The AARP survey found that an overwhelming majority of Americans 
(73 percent) do not buy the drug industry scare tactic. In fact, 77 
percent of survey participants identifying themselves as either 
Republican or Democrat see threats of diminished research investment in 
the face of increased competition as nothing more than a smoke screen.
    We encourage the committee to immediately pass HR 5311 so the House 
of Representatives can pass Hatch-Waxman reform legislation before 
Congress adjourns this month. Billions of dollars are at stake. To do 
nothing this year will be a costly disappointment to every consumer in 
America. We urge you to provide genuine cost relief to all prescription 
drug purchasers by ending the delay tactics Americans can no longer 
afford.
    Thank you for the opportunity to make our views known.

    Mr. Bilirakis. The Chair now yields to Dr. Crawford. I 
would advise you both that your written statement is a part of 
the record, and, hopefully, you would sort of complement it, if 
you will, supplement it. Thank you, Doctor. Please proceed.

  STATEMENTS OF HON. LESTER M. CRAWFORD, ACTING COMMISSIONER, 
 FOOD AND DRUG ADMINISTRATION; ACCOMPANIED BY DANIEL E. TROY, 
 CHIEF COUNSEL, FOOD AND DRUG ADMINISTRATION; AND HON. TIMOTHY 
          J. MURIS, CHAIRMAN, FEDERAL TRADE COMMISSION

    Mr. Crawford. I am joined at the table by Daniel E. Troy, 
who is Chief Counsel of FDA.
    Before I go further, I would like to congratulate the House 
for the passage of the Medical Device User Fee Act. This is 
very important to the Food and Drug Administration, and I am 
very pleased to hear that that is one of the items that you 
addressed recently.
    I am going to discuss FDA's implementation of the Drug 
Price Competition and Patent Term Restoration Act, also known 
as the Hatch-Waxman amendments. I will also discuss the Federal 
Trade Commission's report on patent issues as they affect the 
approval of generic drugs.
    Since its enactment in 1984, Hatch-Waxman has become a 
valuable tool in making medications more affordable for 
American citizens. To date, FDA has approved more than 10,000 
generic drug products, providing high-quality, lower-cost 
prescription drugs to millions of consumers.
    Two of the key Hatch-Waxman provisions, however, have 
recently become associated with possible anti-competitive 
behavior, provisions for 180 days of marketing exclusivity for 
certain generic drug sponsors and for a 30-month stay on 
generic drug approvals while patent infringement issues are 
litigated.
    Section 505(j) of the Food, Drug and Cosmetic Act governs 
the Abbreviated New Drug Application, or ANDA, approval 
process. This permits generic versions of existing innovator 
drugs to be approved without submission of a full New Drug 
Application, or NDA.
    NDAs must include information about patents claiming a drug 
product, which FDA then lists in a publication called the 
``Orange Book.'' ANDAs must include a certification for each 
patent listed in the Orange Book for the innovator drug. A so-
called paragraph (IV) certification begins the process in which 
the validity of the listed patent or infringement by the 
generic product may be determined by the courts.
    If the NDA sponsor or patent owner files a patent 
infringement suit against the ANDA sponsor, FDA cannot approve 
the ANDA for at least 30 months from the date of the notice 
unless the court reaches an earlier decision. In return for 
risking a patent infringement lawsuit, the statute provides an 
incentive of 180 days of marketing exclusivity to the first 
generic applicant who challenges a listed patent.
    The 180-day exclusivity provision has been the subject of a 
series of Federal court decisions in recent years. Most 
notably, the courts have determined that the meaning of a court 
decision that begins 180-day exclusivity may be the decision of 
a district court if it finds the patent to be invalid, 
unenforceable, or not infringed.
    FDA had previously interpreted a court decision as a final 
decision of an appellate court, generally the Federal circuit. 
We took this position so that generic manufacturers would not 
run the risk of being subject to treble damages for marketing a 
drug if the appeals court ruled against it.
    Concerns have been expressed over FDA's role in the listing 
of patents in the Orange Book, which can delay generic drug 
approvals and the initiation of the 180-day exclusivity. As 
noted before, an applicant seeking approval for an ANDA must 
submit a certification to relevant listed patents. Under 
current law, even an applicant whose ANDA is pending must 
certify to any new patent submitted for listing by the sponsor 
within 30 days after they are issued by the Patent and 
Trademark Office.
    Clearly, when an innovator company submits a new patent 
listing to FDA for an existing product, the process of patent 
certification, the 45-day waiting period, litigation, and a 30-
month stay can result in a considerable delay in the approval 
of a generic product. Indeed, a pending generic drug 
application may be subject to multiple, overlapping stays if 
new patents are listed for the innovator drug.
    Of the 442 active ANDAs containing paragraph (IV) 
certifications, only 17 have had multiple 30-month stays. 
However, a significant number of these products have high-
dollar-value annual sales, and in some instances multiple stays 
have resulted in the delay of generic drug approval for years.
    FDA does not undertake an independent review of the patent 
submitted by the NDA sponsor. The statute requires FDA to 
publish patent information upon approval of the NDA, thus, 
making the agency's role ministerial.
    Generic and innovator firms may resolve any disputes 
concerning patent listings in private litigation. Some have 
suggested that FDA should review drug patents to determine if 
they should be listed in the Orange Book. We believe that FDA 
should not review drug patents because we do not have the 
expertise to make these assessments. It would fail to speed the 
availability of generic drugs.
    I want to commend the FTC for their comprehensive study on 
these issues. FDA has found the factual information provided in 
the report to be extremely valuable in our own discussions on 
the generic drug approval process.
    FTC recommends that only one 30-month stay be allowed for 
infringement disputes over patents listed in the Orange Book 
prior to the filing date of the NDA. FDA is sympathetic to this 
recommendation. FDA agrees that recently more ANDAs have been 
subject to 30-month stays than in years past, and that more 
patents on average are now being litigated for generic drug 
application than formerly.
    We would also like to note that the FTC report recognized 
that FDA does not have the capacity to review the 
appropriateness of patent listings. While FDA and the 
administration share a deep concern about the cost of drugs, we 
are opposed to S. 812, the Greater Access to Affordable 
Pharmaceuticals Act, because it would harm innovation and 
investment in new medicines, encourage litigation around new 
drug approval and the filing of patents, reduce patent 
protections for drug developers, and delay the availability of 
generic drugs.
    Rather than this harmful approach, the administration 
strongly supports the bill passed by the House earlier this 
year to provide a prescription drug benefit under Medicare. 
Under S. 812, sponsors who fail to file patent information for 
the Orange Book by certain deadlines permanently lose the right 
to bring future lawsuits for patent infringement. Similarly, if 
an innovator fails to file a lawsuit and obtain a preliminary 
injunction within 45 days of a paragraph (IV) challenge, it 
would be permanently barred from taking future actions to 
protect the patent. These are unacceptable rollbacks in the 
rights of patent-holders that will stifle innovation.
    In addition, provisions for rolling exclusivity would 
actually reduce access to affordable drugs, as consumers would 
have to wait longer for the entry of the second, third, and 
succeeding generic versions of a product, which is when 
significant price reduction takes place.
    In conclusion, Mr. Chairman, FDA has been actively engaged 
in addressing the issues that have been raised by brand-name 
and generics companies concerning the operation of the statute. 
We continue to implement the Hatch-Waxman amendments as best we 
can, given the statutory checks. In doing so, we have tried to 
maintain a balance between protecting innovation in drug 
development and expediting the approval of lower-cost drugs.
    Thank you very much.
    [The prepared statement of Hon. Lester M. Crawford 
follows:]
 Prepared Statement of Lester M. Crawford, Deputy Commissioner of Food 
                and Drugs, Food and Drug Administration
    Mr. Chairman and Members of the Subcommittee, I am Dr. Lester M. 
Crawford, Deputy Commissioner of Food and Drugs. I am pleased to be 
with you today to discuss the Food and Drug Administration's (FDA) 
implementation of the Drug Price Competition and Patent Term 
Restoration Act of 1984, commonly known as the Hatch-Waxman Amendments.
    This testimony will discuss a number of issues which affect the 
timely introduction of generic drugs into the U.S. marketplace. It will 
focus in particular, as you requested, on the question of whether 
certain ``later-listed'' patent filings by the sponsors or 
manufacturers of innovator drug products have resulted in the delay of 
generic drug approvals by the Food and Drug Administration (FDA or the 
Agency).
    The Hatch-Waxman Amendments were intended to balance two important 
public policy goals. First, Congress wanted to ensure that brand-name 
drug manufacturers have meaningful market protection to encourage the 
development of valuable new drugs. Second, once the statutory patent 
protection and marketing exclusivity for these new drugs has expired, 
consumers benefit from the rapid availability of lower priced generic 
versions of innovator drugs.
    Since its enactment in 1984, Hatch-Waxman has governed the generic 
drug approval process. One of its key provisions provides 180 days of 
marketing exclusivity to certain generic drug applicants. The 180-day 
generic drug exclusivity provision is one component of the complex 
patent listing and certification process, which also provides for a 30-
month stay on generic drug approvals while certain patent infringement 
issues are litigated. Both of these provisions are discussed in detail 
below.
                          statutory provisions
    The Hatch-Waxman Amendments amended the Federal Food, Drug, and 
Cosmetic (FD&C) Act and created section 505(j). Section 505(j) 
established the abbreviated new drug application (ANDA) approval 
process, which permits generic versions of previously approved 
innovator drugs to be approved without submission of a full new drug 
application (NDA). An ANDA refers to a previously approved NDA (the 
``listed drug'') and relies upon the Agency's finding of safety and 
effectiveness for that drug product.
    The timing of an ANDA approval depends in part on patent 
protections for the innovator drug. Innovator drug applicants must 
include, in an NDA, information about patents for the drug product that 
is the subject of the NDA. FDA publishes patent information on approved 
drug products in the Agency's publication Approved Drug Products with 
Therapeutic Equivalence Evaluations, also known as the ``Orange Book.'' 
The book is printed yearly by the Government Printing Office and is 
updated monthly and available to the public. It lists all approved drug 
products with their therapeutic equivalence codes in addition to the 
products' patent and exclusivity information (if such information 
exists). The ``Orange Book'' is also publicly available on FDA's 
website.
    The FD&C Act requires that generic drug applicants include, in 
their ANDAs, a certification for each patent listed in the ``Orange 
Book'' for the innovator drug. This certification must state one of the 
following:

(I) that the required patent information relating to such patent has 
        not been filed;
(II) that such patent has expired;
(III) that the patent will expire on a particular date; or
(IV) that such patent is invalid or will not be infringed by the drug, 
        for which approval is being sought.
    A certification under paragraph I or II permits the ANDA to be 
approved immediately, if it is otherwise eligible. A certification 
under paragraph III indicates that the ANDA may be approved on the 
patent expiration date.
    A paragraph IV certification, however, begins a process in which 
the question of whether the listed patent is valid or will be infringed 
by the proposed generic product may be answered by the courts prior to 
the expiration of the patent. The ANDA applicant who files a paragraph 
IV certification to a listed patent must notify the patent owner and 
the NDA holder for the listed drug that it has filed an ANDA containing 
a patent challenge. The notice must include a detailed statement of the 
factual and legal basis for the ANDA applicant's opinion that the 
patent is not valid or will not be infringed. The submission of an ANDA 
for a drug product claimed in a patent is an infringing act if the 
generic product is intended to be marketed before expiration of the 
patent, and therefore, the ANDA applicant who submits an application 
containing a paragraph IV certification may be sued for patent 
infringement. If the NDA sponsor or patent owner files a patent 
infringement suit against the ANDA applicant within 45 days of the 
receipt of notice, FDA may not give final approval to the ANDA for at 
least 30 months from the date of the notice. This 30-month stay will 
apply unless the court reaches a decision earlier in the patent 
infringement case or otherwise orders a longer or shorter period for 
the stay. A court may modify the length of a stay, under the FD&C Act, 
``if either party in the action failed to reasonably cooperate in 
expediting the action.'' (21 U.S.C. 335(j)(5)(iii))
    The statute provides an incentive of 180 days of market exclusivity 
to the ``first'' generic applicant who challenges a listed patent by 
filing a paragraph IV certification and thereby runs the risk of having 
to defend a patent infringement suit. The statute provides that the 
first applicant to file a substantially complete ANDA containing a 
paragraph IV certification to a listed patent will be eligible for a 
180-day period of exclusivity beginning either from the date it begins 
commercial marketing of the generic drug product, or from the date of a 
court decision finding the patent invalid, unenforceable or not 
infringed, whichever is first. These two events--first commercial 
marketing and a court decision favorable to the generic--are often 
called ``triggering'' events, because under the statute they can 
trigger the beginning of the 180-day exclusivity period.
    In some circumstances, an applicant who obtains 180-day exclusivity 
may be the sole marketer of a generic competitor to the innovator 
product for 180 days. But 180-day exclusivity can begin to run--with a 
court decision--even before an applicant has received approval for its 
ANDA. In that case, some, or all of the 180-day period, could expire 
without the ANDA applicant marketing its generic drug. Conversely, if 
there is no court decision and the first applicant does not begin 
commercial marketing of the generic drug, there may be prolonged or 
indefinite delays in the beginning of the first applicant's 180-day 
exclusivity period. Approval of an ANDA has no affect on exclusivity, 
except if the sponsor begins to market the approved generic drug. Until 
an eligible ANDA applicant's 180-day exclusivity period has expired, 
FDA cannot approve subsequently submitted ANDAs for the same drug, even 
if the later ANDAs are otherwise ready for approval and the sponsors 
are willing to immediately begin marketing. Therefore, an ANDA 
applicant who is eligible for exclusivity is often in the position to 
delay all generic competition for the innovator product.
    Only an ANDA containing a paragraph IV certification may be 
eligible for exclusivity. If an applicant changes from a paragraph IV 
certification to a paragraph III certification, for example upon losing 
its patent infringement litigation, the ANDA will no longer be eligible 
for exclusivity.
                    court decisions and fda actions
    The 180-day exclusivity provision has been the subject of 
considerable litigation and administrative review in recent years, as 
the courts, industry, and FDA have sought to interpret it in a way that 
is consistent both with the statutory text and with the legislative 
goals underlying the Hatch-Waxman Amendments. A series of Federal court 
decisions beginning with the 1998 Mova 1 case describe 
acceptable interpretations of the 180-day exclusivity provision, 
identify potential problems in implementing the statute, and establish 
certain principles to be used by the Agency in interpreting the 
statute. As described in a June 1998 guidance for industry, FDA 
currently is addressing on a case-by-case basis those 180-day 
exclusivity issues not addressed by existing regulations.
---------------------------------------------------------------------------
    \1\ Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1065 (D.C. 
Cir. 1998).
---------------------------------------------------------------------------
    One of the most fundamental changes to the 180-day exclusivity 
program, resulting from the legal challenges to FDA's regulations, is 
the determination by the courts of the meaning of the phrase ``court 
decision.'' The courts have determined that the ``court decision'' that 
can begin the running of the 180-day exclusivity period may be the 
decision of the district court, if it finds that the patent at issue is 
invalid, unenforceable, or will not be infringed by the generic drug 
product. FDA had interpreted the ``court decision'' that could begin 
the running of 180-day exclusivity (and the approval of the ANDA) as 
the final decision of a court from which no appeal can be or has been 
taken--generally a decision of the Federal Circuit. FDA's 
interpretation had meant that an ANDA applicant could wait until the 
appeals court had finally resolved the patent infringement or validity 
question before beginning the marketing of the generic drug.
    FDA had taken this position so that the generic manufacturer would 
not have to run the risk of being subject to potential treble damages 
for marketing the drug, if the appeals court ruled in favor of the 
patent holder. The current interpretation means that if the 180-day 
exclusivity is triggered by a decision favorable to the ANDA applicant 
in the district court, the ANDA sponsor who begins to market during 
that exclusivity period now may run the risk of treble damages if the 
district court decision is reversed on appeal to the Federal Circuit. 
As a practical matter, it means that many generic applicants may choose 
not to market the generic and thus the 180-day exclusivity period could 
run during the pendency of an appeal.
                        ``orange book'' listings
    Concerns have been expressed over FDA's role in the listing of 
patents in the ``Orange Book,'' which can have an impact on generic 
drug approvals by delaying their approval and the initiation of 180-day 
exclusivity. Under the FD&C Act, pharmaceutical companies seeking to 
market innovator drugs must submit, as part of an NDA or supplement, 
information on any patent that 1) claims the pending or approved drug 
or a method of using the approved drug, and 2) for which a claim of 
patent infringement could reasonably be asserted against an 
unauthorized party. Patents that may be submitted are drug substance 
(active ingredient) patents, drug product (formulation and composition) 
patents, and method of use patents. Process (or manufacturing) patents 
may not be submitted to FDA.
    When an NDA applicant submits a patent covering the formulation, 
composition, or method of using an approved drug, the applicant must 
also submit a signed declaration stating that the patent covers the 
formulation, composition, or use of the approved product. The required 
text of the declaration is described in FDA's regulations.
    The process of patent certification, notice to the NDA holder and 
patent owner, a 45-day waiting period, possible patent infringement 
litigation and the statutory 30-month stay may result in a considerable 
delay in the approval of ANDAs when an innovator company submits a new 
patent listing to FDA. Therefore, ANDA applicants often closely 
scrutinize these listings. FDA regulations provide that, in the event 
of a dispute as to the accuracy or relevance of patent information 
submitted to and subsequently listed by FDA, an ANDA applicant must 
provide written notification of the grounds for dispute to the Agency. 
FDA then requests the NDA holder to confirm the correctness of the 
patent information and listing. Unless the patent information is 
withdrawn or amended by the NDA holder, FDA will not change the patent 
information in the ``Orange Book.''
    If a patent is listed in the ``Orange Book,'' an applicant seeking 
approval for an ANDA must submit a certification to the patent. Even an 
applicant whose ANDA is pending when additional patents are submitted 
for listing by the sponsor must certify to the new patents, unless the 
additional patents are submitted by the patent holder more than 30-days 
after issuance by the U.S. Patent and Trademark Office. Moreover, a 
pending generic drug application may be subject to multiple overlapping 
30-month stays if new patents are listed for the innovator drug. A 
review of FDA's records indicates that of the 442 active ANDAs that 
contain paragraph IV certifications, only 17 have had multiple 30-month 
stays, representing 3.8 percent of all applications with patent 
challenges. However, we note that a significant number of these 
products have high dollar value annual sales, and we are aware of some 
instances where multiple stays have resulted in the delay of a generic 
drug approval for a number of years.
    FDA does not undertake an independent review of the patents 
submitted by the NDA sponsor. Issues of patent claim and infringement 
are matters of patent law, and FDA does not have the authority as well 
as the resources or capability to assess whether a submitted patent 
claims an approved drug and whether a claim of patent infringement 
could reasonably be made against an unauthorized use of the patented 
drug. FDA has implemented the statutory patent listing provisions by 
informing interested parties of what patent information is to be 
submitted, who must submit the information, and when and where to 
submit the information. The statute requires FDA to publish patent 
information upon approval of the NDA and, therefore, the Agency's role 
in the patent-listing process is ministerial. The Agency relies on the 
NDA holder or patent owner's signed declaration stating that the patent 
covers an approved drug product's formulation, composition or use. 
Generic and innovator firms may resolve any disputes concerning patents 
in private litigation. 2
---------------------------------------------------------------------------
    \2\ Mylan v. Thompson, 268 F.3d 1323 (Fed Cir. 2001)--A generic's 
claim of improper listing ``Is not a recognized defense to patent 
infringement.''
---------------------------------------------------------------------------
    The Agency is aware that in the past couple of years there have 
been new patents submitted to FDA for listing in the ``Orange Book'' 
shortly before patents already listed in the ``Orange Book'' are 
scheduled to expire. These new patents have been submitted to FDA 
within the required 30-days of issuance by the Patent and Trademark 
Office. If the NDA sponsor complies with the requirements of the 
statute and regulations in submitting a patent for listing in the 
``Orange Book,'' the Agency has no discretion to reject a patent merely 
on the basis that, but for the filing of the patent, ANDAs would be 
eligible for final approval.
    It has been suggested that FDA should review drug patents to 
determine if they should be listed in the ``Orange Book'' as protection 
for innovator drug products--that is, FDA should assess whether a 
submitted patent properly claims the approved drug product and could 
support a claim of patent infringement. The Agency believes that it 
should not review drug patents because such a review would be time 
consuming and would not speed the availability of generic drugs, but 
instead add a layer of complexity and delay.
    Because it is not established that FDA has authority under the FD&C 
Act to make substantive patent assessments, there would be lengthy 
litigation before the scope of Agency authority is established. FDA 
review of patents is unlikely to speed approval and marketing of 
generic drugs in a meaningful way because even if FDA were to decide 
not to list a patent, the innovator company could obtain an injunction 
against approval or marketing of the generic drug until the patent 
listing question is resolved. In such a case, FDA's review of the 
patents would have done nothing to speed approval of generic drugs. 
Patent reviews would lead to substantial litigation that will impose a 
new and substantial burden on FDA's Office of the Chief Counsel and 
Department of Justice litigation resources. Finally, the Agency does 
not have the resources or expertise to review patents and, even with 
additional funding, is unlikely to be able to obtain adequate expert 
resources to do so.
                     federal trade commission study
    In response to reports of brand-name and generic drug companies 
engaging in anti-competitive behavior, the Federal Trade Commission 
(FTC) conducted a study to determine if the 180-day exclusivity and the 
30-month stay provisions of the Hatch-Waxman Amendments are used 
strategically to delay consumer access to generic drugs. In July 2002, 
FTC published the findings of their study and provided two primary 
recommendations.
    FTC recommends that only one automatic 30-month stay per drug 
product per ANDA be permitted to resolve infringement disputes over 
patents listed in the ``Orange Book'' prior to the filing date of the 
generic applicant's ANDA. FDA is sympathetic to the recommendation for 
a single 30-month stay. FDA also agrees with FTC that recently, more 
ANDAs have been subject to 30-month stays than in years past, and that 
more patents on average are now being litigated per generic drug 
application than in the past.
    FTC's second recommendation is to pass legislation to require 
brand-name companies and first generic applicants to provide copies of 
certain agreements to FTC. This is a response to FTC's finding that 
brand-name companies and first generic applicants have on occasion 
entered into agreements to delay generic competition. FDA has no 
objection to this recommendation.
    FDA agrees with many of the conclusions of the FTC study and has 
found the factual information provided in the report to be extremely 
valuable in our own deliberations regarding the generic drug approval 
process. One example of this is the compilation of information on the 
disposition of litigation surrounding patents filed after NDA approval. 
Currently, the Agency is considering a citizen petition submitted by 
FTC concerning the appropriateness of listing patents that cover 
polymorphs, which are forms of the active ingredients of approved drugs 
different from the actual form approved in the NDA.
    Finally, we note that FTC's report recognized that FDA does not 
have the capacity to review the appropriateness of patent listings.
        other significant barriers to generic drug availability
    Although patent-related challenges have delayed approval of generic 
drugs in a number of high-profile cases, there are a number of other 
important barriers to generic competition. These barriers, which 
usually result from insufficient scientific knowledge and standards, 
are likely to become even more significant as scientific advances in 
drug development lead to new forms of therapy.
    Currently, some classes of drug products entirely lack generic 
versions because scientific methods for evaluating their bioequivalence 
are not available. Examples include the nasal and inhaled 
corticosteroids used for allergy and asthma treatment. Prospective 
manufacturers of inhaled or topical generic drugs face uncertainty and 
high development costs, and thus few such products have been developed. 
Other widely used drugs, such as conjugated estrogens (available since 
the 1940's), lack generic competition due to scientific uncertainty 
about the composition of the active ingredient (s). Disputes over 
composition and bioequivalence standards also have caused delays in 
approval of many generic drugs while innovator challenges to the 
standards are evaluated. Scientific research to support the development 
of additional standards in these areas would enable FDA to approve 
drugs in additional classes, and also to deal with scientific 
challenges to pending generic drug approvals more expeditiously.
    Innovations in drug therapy are leading to new methods of drug 
delivery, including via liposomes, implantable systems, transcutaneous 
or transmucosal products, and inhalation methods. At the same time, due 
to innovations in chemistry, drugs with very complex molecular 
structures are possible.
    If generic copies of such innovative therapies are eventually to be 
made available, standards must be developed to accommodate these 
products within the Hatch-Waxman framework. This includes work on 
issues of composition, formulation and bioequivalence. Scientific 
research in each of these areas is needed to support new standards.
                              legislation
    On July 31, the Senate passed S. 812, the Greater Access to 
Affordable Pharmaceuticals Act, sponsored by Senators Schumer (D-NY) 
and McCain (R-AZ). The Administration is opposed to this bill on the 
grounds that it would 1) harm innovation and investment in new 
medicines; 2) encourage litigation around the initial approval of new 
drugs and the filing of patents; 3) reduce patent protections for drug 
developers; and 4) delay availability of generic drugs and reduce price 
competition. The Senate also attached provisions to allow the 
importation of drugs from Canada that we believe would jeopardize the 
health and safety of the nation's consumers. The Administration 
supports the approach to drug price relief taken by the House of 
Representatives earlier this year, in passing legislation to provide a 
prescription drug benefit under Medicare.
    Provisions of S. 812 require sponsors to file patent information 
for ``Orange Book'' listings no later than 30 days after NDA approval, 
or 30 days after patents are issued for drugs already having NDA 
approval. Failure to file within these timeframes will permanently bar 
patent holders from bringing suits for patent infringement. The 
Administration believes this would be an unacceptable rollback in the 
rights of patent holders. Provisions to allow generic manufacturers to 
sue sponsors to correct or delete patent listings would encourage 
lawsuits.
    The Administration also opposes provisions that would allow 
innovators to protect their patents filed more than 30 days after NDA 
approval only by filing an infringement lawsuit and obtaining a 
preliminary injunction within 45-days of receiving notification of a 
paragraph IV challenge. If no lawsuit has been filed after 45 days have 
elapsed, the innovator would be permanently barred from filing future 
infringement suits to protect the patent.
    In addition, provisions for ``rolling'' 180-day exclusivity will 
actually reduce access to affordable pharmaceuticals, as consumers 
would have to wait longer for the second or third generic approvals 
after the expiration of exclusivity, which is when significant price 
reduction occurs. These provisions would also generate extensive 
litigation over the timing and validity of triggering events.
    Finally, we note that provisions to allow the importation of drugs 
from Canada by individuals, pharmacists and wholesalers, would open up 
the current ``closed'' drug distribution system to drugs of unknown 
quality, authenticity and origin. These provisions create opportunities 
for counterfeiting, drug diversion, and fraud.
                               conclusion
    FDA has been actively engaged in addressing the issues that have 
been raised by brand name and generics companies concerning the 
operation of the statute. We held a symposium in January 2002 where the 
generic and innovator industries engaged FDA in a discussion and debate 
on the issues each side wanted to bring to the Agency's attention. 
Issues included the 30-month stay, 180-day exclusivity, and patent 
listing, as well as other questions such as the use of citizen 
petitions and their role in approval of generic drugs.
    FDA continues to implement the Hatch-Waxman Amendments exclusivity 
provisions in the best manner possible given the text of the 
legislation, the history of the legislation and the numerous court 
challenges. In doing so, FDA has tried to maintain a balance between 
innovation in drug development and expediting the approval of lower-
cost generic drugs, as Congress sought to do in enacting this statute.
    Thank you for the opportunity to discuss these important issues 
with you, and I will be happy to answer any questions you may have.

    Mr. Bilirakis. Thank you very much, Dr. Crawford.
    Next we will hear from the Chairman of the Federal Trade 
Commission, Mr. Timothy Muris. Please proceed, sir.

               STATEMENT OF HON. TIMOTHY J. MURIS

    Mr. Muris. Thank you very much, Mr. Chairman, and thank you 
for holding this hearing and for inviting me to testify.
    I am pleased to appear today to testify on behalf of the 
Commission regarding competition in the pharmaceutical industry 
and, in particular, to discuss our study of generic drug entry 
prior to patent expiration. Let me address two issues briefly: 
our enforcement agenda, which influenced our study and the 
themes of the study that the Commission issued in July of this 
year.
    First, the Commission has challenged conduct by firms that 
allegedly have gamed the Hatch-Waxman framework to deter or 
delay generic competition. Our first generation of such cases 
involved agreements through which a brand-name drug 
manufacturer allegedly paid a generic drug manufacturer not to 
enter and compete. It used the generic's rights under Hatch-
Waxman to impede entry by other generic competitors.
    Our second generation of enforcement activities has 
involved allegations that individual brand-name manufacturers 
have acted to delay generic competition by using the Hatch-
Waxman provision that prohibits the FDA from approving a 
generic applicant for 30 months under certain circumstances. 
Brand-name drug manufacturers may sometimes act strategically 
to obtain more than one 30-month stay of FDA approval of a 
particular generic drug. We recently took action against 
Biovail Corporation for engaging in this type of activity for 
its drug product Tiazac, which is used to treat high blood 
pressure and chronic chest pain.
    Next, let me briefly discuss our study. The study was 
prompted by several factors, including cases such as those I 
just discussed, a request from Representative Waxman to look 
into these issues, and, of course, the large amounts we spend 
on pharmaceuticals.
    Looking at the timeframe from 1992 through 2000, the study 
asks whether and how generic drug companies entered and 
competed against brand-name drug manufacturers before the 
patents expired. An increasing number of generics have sought 
to enter before the expiration of patents. In all, the study 
examined the 104 brand-name drug products in which generic 
applicants sought entry prior to patent expiration between 1992 
and 2000.
    As we have heard in today's opening statements, under 
Hatch-Waxman the brand-name companies are required to list 
patents that claim each brand-name drug in the Orange Book. A 
generic applicant then may certify that its product does not 
infringe or that the patents are invalid. If, in response, the 
brand-name manufacturer sues the generic applicant for patent 
infringement, the FDA may not approve the generic application 
until a court's determination of invalidity or non-infringement 
or 30 months from the receipt of the certification.
    We found that 30 months historically has approximated the 
time necessary for FDA review and approval of the generics 
application, as well as the time necessary for a district court 
to resolve the patent infringement litigation. Thus, in most 
circumstances it does not appear that the 30-month stay itself 
has a significant potential to delay generic entry.
    However, there have been eight brand-name drug products in 
which the brand-name manufacturers have been able to obtain 
more than one 30-month stay. This has cost additional delay of 
FDA approval of the generic application from 4 to 40 months 
beyond the initial 30 months. Our study recommends a limit of 
one automatic 30-month stay per drug product per generic 
application to resolve infringement disputes over patents that 
were listed in the Orange Book prior to the filing of the 
generic application.
    We also researched the circumstances surrounding another 
Hatch-Waxman provision that awards 180 days of market 
exclusivity to the first generic applicant to apply to enter 
before patent expiration. During this 180 days, the FDA may not 
approve a subsequent generic application for the same drug 
product. This provision provides an economic incentive for 
companies to challenge patent validity and design around 
patents to find alternative, non-infringing forms of patented 
drugs.
    The data in the study suggests that generic applicants have 
mostly brought appropriate patent challenges. For the drug 
products covered by the FTC study, generic applicants prevailed 
in nearly 75 percent of the patent litigation resolved by court 
decision.
    Sometimes, however, the litigation is settled and not 
litigated to conclusion. Our study found 14 final settlement 
agreements that at the time they were executed had the 
potential to ``park'' the first generic applicant's 180-day 
exclusivity for some period of time and, thus, possibly to 
prevent subsequent generic entry.
    Such agreements may be pro-competitive, they may be 
competitive-neutral, and, of course, they may be anti-
competitive. Because they have the potential to raise antitrust 
issues, we support the Drug Competition Act of 2001, S. 754, 
introduced by Senator Leahy, as reported by the Committee on 
the Judiciary, which would require the filing of these type of 
agreements with the FTC and the Department of Justice.
    We will continue to be active to protect consumers from 
anti-competitive practices that inflate drug prices. Indeed, 
since my arrival as Chairman 16 months ago, we have increased 
our resources in health care by 50 percent, the vast majority 
of that dealing with pharmaceuticals.
    We look forward to working closely with the subcommittee, 
as we have in the past, to meet this goal. I want to thank you, 
Mr. Chairman, on behalf of the Commission for your support of 
our work.
    [The prepared statement of Hon. Timothy J. Muris follows:]
 Prepared Statement of Hon. Timothy J. Muris, Chairman, Federal Trade 
                               Commission
                            i. introduction
    Mr. Chairman, I am Timothy J. Muris, Chairman of the Federal Trade 
Commission. I am pleased to appear before the Subcommittee today to 
testify on behalf of the Commission regarding competition in the 
pharmaceutical industry.1
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    \1\ The written statement represents the views of the Federal Trade 
Commission. My oral presentation and responses are my own and do not 
necessarily reflect the views of the Commission or of any other 
Commissioner.
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    Advances in the pharmaceutical industry continue to bring enormous 
benefits to Americans. Because of pharmaceutical innovations, a growing 
number of medical conditions often can be treated more effectively with 
drugs and drug therapy than with alternative means (e.g., surgery). The 
development of new drugs is risky and costly, however, which increases 
the prices of prescription drugs. Expenditures on pharmaceutical 
products continue to grow. The growth of prescription drug spending at 
retail outlets has ``exceeded that of other health services by a wide 
margin, increasing 17.3 percent in 2000, the sixth consecutive year of 
double-digit growth.'' 2 Pharmaceutical expenditures are 
thus a concern not only to individual consumers, but also to government 
payers, private health plans, and employers.
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    \2\ K. Levit, C. Smith, C. Cowan, H. Lazenby & A. Martin, 
``Inflation Spurs Health Spending in 2000,'' 21:1 Health Affairs 179 
(2002), citing data from the Centers for Medicare and Medicaid 
Services, Office of the Actuary, National Health Statistics Group, of 
which the authors are members.
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    To address the issue of escalating drug expenditures, and to ensure 
that the benefits of pharmaceutical innovation would continue, Congress 
passed the Hatch-Waxman Amendments 3 (``Hatch-Waxman'' or 
``the Amendments'') to the Food, Drug and Cosmetic Act (``FDC 
Act'').4 Hatch-Waxman established a regulatory framework 
that sought to balance incentives for continued innovation by research-
based pharmaceutical companies and opportunities for market entry by 
generic drug manufacturers.5 Without question, Hatch-Waxman 
has increased generic drug entry. The Congressional Budget Office 
estimates that, by purchasing generic equivalents of brand-name drugs, 
consumers saved $8-10 billion on retail purchases of prescription drugs 
in 1994 alone.6 With patents set to expire within the next 
four years on brand-name drugs having combined U.S. sales of almost $20 
billion,7 the already substantial savings are likely to 
increase dramatically.
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    \3\ Drug Price Competition and Patent Restoration Act of 1984, Pub. 
L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended 21 U.S.C. 
Sec. 355 (1994)).
    \4\ 21 U.S.C. Sec. 301 et seq.
    \5\ See infra note 14 and accompanying text. The Amendments also 
were intended to encourage pharmaceutical innovation through patent 
term extensions.
    \6\ Congressional Budget Office, How Increased Competition from 
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical 
Industry (July 1998) (``CBO Study''), available at .
    \7\ Id. at 3.
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    Yet, in spite of this remarkable record of success, the Amendments 
have also been subject to some abuse. Although many drug 
manufacturers--including both brand-name companies and generics--have 
acted in good faith, others have attempted to ``game'' the system, 
securing greater profits for themselves without providing a 
corresponding benefit to consumers. This testimony will describe the 
Commission's past and present response to these anticompetitive 
efforts.
    The Commission has pursued numerous antitrust enforcement actions 
affecting both brand-name and generic drug manufacturers.8 
In addition, the Commission recently released a study entitled 
``Generic Drug Entry Prior to Patent Expiration'' (``FTC Study''). That 
study examines whether the conduct that the FTC has challenged 
represented isolated instances or is more typical of business practices 
in the pharmaceutical industry, and whether certain provisions of 
Hatch-Waxman are susceptible to strategies to delay or deter consumer 
access to generic alternatives to brand-name drug products.9 
The Commission has gained expertise regarding competition in the 
pharmaceutical industry through other means as well. The Commission 
staff has conducted empirical analyses of competition in the 
pharmaceutical industry, including in-depth studies by the staff of the 
Bureau of Economics.10 The Commission's efforts have 
included filing comments with the Food and Drug Administration 
(``FDA'') regarding the competitive aspects of Hatch-Waxman 
implementation,11 as well as previous testimony before 
Congress.12 Furthermore, individual Commissioners have 
addressed the subject of pharmaceutical competition before a variety of 
audiences, both to solicit input from affected parties and to promote 
discussion about practical solutions.13
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    \8\ See, e.g., Biovail Corp. and Elan Corp. PLC, Dkt. No. C-4057 
(Aug. 20, 2002) (consent order); Biovail Corp., Dkt. No. C-4060 (Oct. 
2, 2002) (consent order); FTC v. Mylan Laboratories, Inc. et al., 62 F. 
Supp. 2d 25 (D.D.C. 1999); Roche Holding Ltd., 125 F.T.C. 919 (1998) 
(consent order); Ciba-Geigy Ltd., 123 F.T.C. 842 (1997) (consent 
order).
    \9\ Federal Trade Commission, Generic Drug Entry Prior to Patent 
Expiration: An FTC Study (July 2002), available at .
    \10\ Bureau of Economics Staff Report, Federal Trade Commission, 
The Pharmaceutical Industry: A Discussion of Competitive and Antitrust 
Issues in an Environment of Change (Mar. 1999), available at ; David Reiffen and 
Michael R. Ward, Generic Drug Industry Dynamics, Bureau of Economics 
Working Paper No. 248 (Feb. 2002) (``Reiffen and Ward''), available at 
.
    \11\ FDA: Citizen Petition, Comment of the Staff of the Bureau of 
Competition and of the Office of Policy Planning of the Federal Trade 
Commission Before the Food and Drug Administration (Mar. 2, 2000), 
available at  (recommending 
modifications to the FDA's Proposed Rule on citizen petitions intended 
to discourage anticompetitive abuses of the FDA's regulatory 
processes); FDA: 180-Day Marketing Exclusivity for Generic Drugs, 
Comment of the Staff of the Bureau of Competition and of the Office of 
Policy Planning of the Federal Trade Commission Before the Food and 
Drug Administration (Nov. 4, 1999) (``Marketing Exclusivity Comment''), 
available at  (recommending that the 
FDA's Proposed Rule on 180-day marketing exclusivity be modified to 
limit exclusivity to the first ANDA filer and to require filing of 
patent litigation settlement agreements.
    \12\ Testimony of the Federal Trade Commission before the Committee 
on Commerce, Science, and Transportation, United States Senate, 
Competition in the Pharmaceutical Industry (Apr. 23, 2002), available 
at ; Testimony of the 
Federal Trade Commission before the Committee on the Judiciary, United 
States Senate, Competition in the Pharmaceutical Marketplace: Antitrust 
Implications of Patent Settlements (May 24, 2001), available at .
    \13\ See, e.g., Sheila F. Anthony, Riddles and Lessons from the 
Prescription Drug Wars: Antitrust Implications of Certain Types of 
Agreements Involving Intellectual Property (June 1, 2000), available at 
; Thomas B. Leary, 
Antitrust Issues in Settlement of Pharmaceutical Patent Disputes (Nov. 
3, 2000), available at ; Thomas B. Leary, Antitrust Issues in the Settlement 
of Pharmaceutical Patent Disputes, Part II (``Part II'') (May 17, 
2001), available at ; Timothy J. Muris, Competition and 
Intellectual Property Policy: The Way Ahead, at 5-6 (Nov. 15, 2001),, 
available at 
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    After reviewing the relevant Hatch-Waxman provisions, this 
testimony will address the Commission's vigorous enforcement of the 
antitrust laws with respect to generic drug competition. These efforts 
have entailed several types of conduct relating to certain Hatch-Waxman 
provisions. One type of conduct involves allegedly anticompetitive 
settlements between brand-name companies and generics. Because the 
Commission became aware of and challenged such settlements first, this 
testimony refers to those matters as ``first-generation litigation.'' 
Other, more recent types of conduct, such as allegedly improper Orange 
Book listings and potentially anticompetitive settlements between 
generic manufacturers themselves, are the subject of the Commission's 
``second-generation actions.''
    Next, the testimony will address the Commission's industry-wide 
study of generic drug entry prior to patent expiration. An 
understanding of the Commission's cases in this area will provide the 
framework for the issues that the Commission examined in this study.
   ii. regulatory background: the hatch-waxman drug approval process
A. The Hatch-Waxman Balance
    The stated purpose of Hatch-Waxman is to ``make available more low 
cost generic drugs.'' 14 The concern that the FDA's lengthy 
drug approval process was unduly delaying market entry by generic 
versions of brand-name prescription drugs motivated Congress's passage 
of the Amendments. Because a generic drug manufacturer was required to 
obtain FDA approval before selling its product, and could not begin the 
approval process until any conflicting patents on the relevant brand-
name product expired, the FDA approval process essentially functioned 
to extend the term of the brand-name manufacturer's patent. To correct 
this problem, Congress provided in the Amendments that certain conduct 
related to obtaining FDA approval, which would otherwise constitute 
patent infringement, would be exempted from the patent laws.
---------------------------------------------------------------------------
    \14\ H.R. Rep. No. 98-857, pt. 1, at 14 (1984), reprinted in 1984 
U.S.C.C.A.N. 2647, 2647.
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    Congress continued to regard patent protection, however, as 
critical to pharmaceutical innovation and an important priority in its 
own right. Hatch-Waxman thus represented a compromise: an expedited FDA 
approval process to speed generic entry balanced by additional 
intellectual property protections to ensure continuing innovation. As 
one federal appellate judge explained, the Amendments ``emerged from 
Congress's efforts to balance two conflicting policy objectives: to 
induce brand-name pharmaceutical firms to make the investments 
necessary to research and develop new drug products, while 
simultaneously enabling competitors to bring cheaper, generic copies of 
those drugs to market.'' 15
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    \15\ Abbott Labs. v. Young, 920 F.2d 984, 991 (D.C. Cir. 1990) 
(Edwards, J., dissenting) (citations omitted).
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    Pursuant to the FDC Act, a brand-name drug manufacturer seeking to 
market a new drug product must first obtain FDA approval by filing a 
New Drug Application (``NDA''). At the time the NDA is filed, the NDA 
filer must also provide the FDA with certain categories of information 
regarding patents that cover the drug that is the subject of its 
NDA.16 Upon receipt of the patent information, the FDA is 
required to list it in an agency publication entitled ``Approved Drug 
Products with Therapeutic Equivalence,'' commonly known as the ``Orange 
Book.'' 17
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    \16\ 21 U.S.C. Sec. 355(b)(1).
    \17\ Id. at Sec. 355(j)(7)(A).
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    Rather than requiring a generic manufacturer to repeat the costly 
and time-consuming NDA process, the Amendments permit the company to 
file an Abbreviated New Drug Application (``ANDA''), which references 
data that the ``pioneer'' manufacturer has already submitted to the FDA 
regarding the brand-name drug's safety and efficacy. Under the ANDA 
process, an applicant must demonstrate that the generic drug is 
``bioequivalent'' to the relevant brand-name product.18 The 
ANDA must contain, among other things, a certification regarding each 
patent listed in the Orange Book in conjunction with the relevant 
NDA.19 One way to satisfy this requirement is to provide a 
``Paragraph IV certification,'' asserting that the patent in question 
is invalid or not infringed.20
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    \18\ Id. at Sec. 355(j)(2)(A)(iv).
    \19\ Id. at Sec. 355(j)(2)(A)(vii).
    \20\ Id. at Sec. 355(j)(2)(A)(vii)(IV).
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    Filing a Paragraph IV certification potentially has significant 
regulatory implications, as it is a prerequisite to the operation of 
two provisions of the statute. The first of these is the automatic 
``30-month stay'' protection afforded to patent holders and the NDA 
filer--most typically, brand-name companies. An ANDA filer that makes a 
Paragraph IV certification must provide notice to both the patent 
holder and the NDA filer, including a detailed statement of the factual 
and legal basis for the ANDA filer's assertion that the patent is 
invalid or not infringed.21 Once the ANDA filer has provided 
such notice, a patent holder wishing to take advantage of the statutory 
stay provision must bring an infringement suit within 45 
days.22 If the patent holder does not bring suit within 45 
days, the FDA may approve the ANDA as soon as other regulatory 
conditions are fulfilled.23 If the patent holder does bring 
suit, however, the filing of that suit triggers an automatic 30-month 
stay of FDA approval of the ANDA.24 During this period, 
unless the patent litigation is resolved in the generic's favor, the 
FDA cannot approve the generic product.
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    \21\ Id. at Sec. 355(j)(2)(B). Although the patent holder and the 
NDA filer are often the same person, this is not always the case. 
Hatch-Waxman requires that all patents that claim the drug described in 
an NDA be listed in the Orange Book. Occasionally, this requires an NDA 
filer to list a patent that it does not own.
    \22\ Id. at Sec. 355(j)(5)(B)(iii).
    \23\ Id. For example, the statute requires the ANDA applicant to 
establish bioequivalence. Id. at Sec. 355(j)(2)(A)(iv).
    \24\ Id. at Sec. 355(j)(5)(B)(iii).
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    The second significant component of Hatch-Waxman is the ``180-day 
period of exclusivity.'' The Amendments provide that the first generic 
manufacturer to file an ANDA containing a Paragraph IV certification is 
awarded 180 days of marketing exclusivity, during which the FDA may not 
approve a potential competitor's ANDA.25 Through this 180-
day provision, the Amendments provide an increased incentive for 
companies to challenge patents and develop alternative forms of 
patented drugs.26 The 180-day period is calculated from the 
date of the first commercial marketing of the generic drug product or 
the date of a court decision declaring the patent invalid or not 
infringed, whichever is sooner.27 The 180-day exclusivity 
period increases the economic incentives for a generic company to be 
the first to file an ANDA.28 Of course, during the 180 days, 
the generic competes with the brand-name product. After the 180 days, 
subject to regulatory approvals and determination of the outcomes of 
any patent suits, other generics can enter the market.
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    \25\ Id. at Sec. 355(j)(5)(B)(iv).
    \26\ See Granutec, Inc. v. Shalala, 139 F.3d 889, 891 (4th Cir. 
1998).
    \27\ 21 U.S.C. Sec. 355(j)(5)(B)(iv).
    \28\ There has been litigation over what acts trigger the 180-day 
period of exclusivity. See FTC Study, supra note 9. This study is 
discussed in detail below.
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B. Competitive Implications
    The 30-month stay and the 180-day period of exclusivity were both 
parts of the Hatch-Waxman balance. The imposition of a 30-month stay of 
FDA approval of an eligible ANDA could forestall generic competition 
during that period of time. The 180-day period of exclusivity can, in 
some circumstances, limit the number of generic competitors during this 
180-day period. Over the past few years the Commission has observed 
through its investigations, law enforcement actions, and industry-wide 
study that some brand-name and generic drug manufacturers may have 
``gamed'' these two provisions, attempting to restrict competition 
beyond what the Amendments intended. The next section of this testimony 
discusses the Commission's efforts to investigate vigorously and to 
prosecute such abuses.
        iii. promoting competition through antitrust enforcement
A. First-Generation FTC Litigation: Settlements Between Brand-Name 
        Companies and Generic Applicants
    Studies of the pharmaceutical industry indicate that the first 
generic competitor typically enters the market at a significantly lower 
price than its brand-name counterpart, and gains substantial share from 
the brand-name product.29 Subsequent generic entrants may 
enter at even lower prices and cause the earlier entrants to reduce 
their prices. These are precisely the procompetitive consumer benefits 
that the Amendments were meant to facilitate.
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    \29\ See CBO Study, supra note 6; see generally Reiffen and Ward, 
supra note 10.
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    This competition substantially erodes the profits of brand-name 
pharmaceutical products. Although successful generic applicants are 
profitable, their gain is substantially less than the loss of profits 
by the brand-name product, because of the typical difference in prices 
between brand-name and generic products. As a result, both parties may 
have economic incentives to collude to delay generic entry. By blocking 
entry, the brand-name manufacturer may preserve monopoly profits. A 
portion of these profits, in turn, can be used to fund payments to the 
generic manufacturer to induce it to forgo the profits it could have 
realized by selling its product. Furthermore, by delaying the first 
generic's entry--and with it, the triggering of the 180 days of 
exclusivity--the brand-name and first-filing generic firms can 
sometimes forestall the entry of other generics.
    The Commission's first-generation litigation focused on patent 
settlement agreements between brand-name companies and generic 
applicants that the Commission alleged had delayed the entry of one or 
more generic applicants. Of course, resolving patent infringement 
litigation through settlement can be efficient and procompetitive. 
Certain patent settlements between brand-name companies and generic 
applicants, however, drew the Commission's attention when it appeared 
that their terms may have reduced competition through abuses of the 
Hatch-Waxman regime.
    Two leading cases illustrate the Commission's efforts in the area: 
Abbott/Geneva and Hoechst/Andrx. The first of these cases involved an 
agreement between Abbott Laboratories and Geneva Pharmaceuticals, Inc. 
relating to Abbott's brand-name drug Hytrin. The Commission's complaint 
alleged that Abbott paid Geneva approximately $4.5 million per month to 
delay the entry of its generic Hytrin product, potentially costing 
consumers hundreds of millions of dollars a year.30 The 
complaint further alleged that Geneva agreed not to enter the market 
with any generic Hytrin product--including a non-infringing product--
until (1) final resolution of the patent infringement litigation 
involving Geneva's generic Hytrin tablets, or (2) market entry by 
another generic Hytrin manufacturer. Geneva also allegedly agreed not 
to transfer its 180-day marketing exclusivity rights.
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    \30\ Abbott Laboratories, Dkt. No. C-3945 (May 22, 2000) (consent 
order), complaint available at ; Geneva Pharmaceuticals, Inc., Dkt. No. C-3946 (May 
22, 2000) (consent order), complaint available at .
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    The second case involved an agreement between Hoechst Marion 
Roussel, Inc. and Andrx Corp. relating to Hoechst's brand-name drug 
Cardizem CD. The Commission's complaint alleged that Hoechst paid Andrx 
over $80 million, during the pendency of patent litigation, to refrain 
from entering the market with its generic Cardizem CD 
product.31 As in the Abbott/Geneva case, the Commission's 
complaint also asserted that the agreement called for Andrx, as the 
first ANDA filer, to use its 180-day exclusivity rights to impede entry 
by other generic competitors.
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    \31\ Hoechst Marion Roussel, Inc., Dkt. No. 9293 (May 8, 2001) 
(consent order), complaint available at .
---------------------------------------------------------------------------
    The Commission resolved both cases by consent order.32 
The orders prohibit the respondent companies from entering into brand/
generic agreements pursuant to which a generic company that is the 
first ANDA filer with respect to a particular drug agrees not to (1) 
enter the market with a non-infringing product, or (2) transfer its 
180-day marketing exclusivity rights. In addition, the orders require 
the companies to obtain court approval for any agreements made in the 
context of an interim settlement of a patent infringement action that 
provide for payments to the generic to stay off the market, with 
advance notice to the Commission to allow it time to present its views 
to the court. The orders also require advance notice to the Commission 
before the respondents can enter into such agreements in non-litigation 
contexts.
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    \32\ The consent order in Abbott Laboratories is available at 
. The consent order in 
Geneva Pharmaceuticals is available at . The consent order in Hoechst/Andrx is available at 
. In another matter, 
Schering-Plough, the Commission resolved all claims against one of 
three respondents, American Home Products (``AHP''), by issuing a final 
consent order. Schering-Plough Corp., Dkt. No. 9297 (consent order as 
to AHP issued Apr. 2, 2002), available at .
    The case against the other two respondents is in litigation before 
the Commission. See Schering-Plough Corp., et al., Dkt. No. 9297 
(Initial Decision) (July 2, 2002), available at .
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    Although each case turns on its own specific facts, these cases 
highlight the Commission's concern about settlements whose primary 
effect appears to be to delay generic entry, leading to less vigorous 
competition and higher prices for consumers. Of course, not all 
settlements are problematic. The Commission has not attempted to 
provide a comprehensive list of potentially objectionable settlement 
provisions. However, it is possible to identify from the Commission's 
reported matters a few provisions that, within the Hatch-Waxman 
context, have drawn antitrust scrutiny. These include:
    (1) Provisions that provide for ``reverse'' payments. ``Reverse'' 
payments (i.e., payments from the patent holder to the alleged 
infringer) may merit antitrust scrutiny because they may represent an 
anticompetitive division of monopoly profits.
    (2) Provisions that restrict the generic's ability to enter with 
non-infringing products. Such provisions can extend the boundaries of 
the patent monopoly without providing any additional public disclosure 
or incentive to innovate, and therefore have the potential to run afoul 
of the principles of antitrust law.33
---------------------------------------------------------------------------
    \33\ Cf. Brulotte v. Thys Co., 379 U.S. 29, 33 (1964) (holding that 
``enlarg[ing] the monopoly of the patent'' by collecting post-
expiration royalties constitutes patent misuse).
---------------------------------------------------------------------------
    (3) Provisions that restrict the generic's ability to assign or 
waive its 180-day marketing exclusivity rights. Because a second ANDA 
filer may not enter the market until the first filer's 180-day period 
of marketing exclusivity has expired, restrictions on assignment or 
waiver of the exclusivity period can function as a bottleneck, 
potentially delaying subsequent generic entry for an extended 
period.34
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    \34\ But see Leary, Part II, supra note 13, at 7 (arguing that 
agreements regarding waiver of 180-day exclusivity period may have no 
anticompetitive effect absent reverse payment).
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B. Second-Generation FTC Actions: Improper Orange Book Listings
    1. In re Buspirone--A principal focus of the Commission's second-
generation activities has been improper Orange Book 
listings.35 Unlike the settled cases discussed above, which 
involved alleged collusion between private parties, an improper Orange 
Book listing strategy involves unilateral abuse of the Hatch-Waxman 
process itself to restrain trade. Such conduct has raised Noerr-
Pennington antitrust immunity issues, an area of longstanding 
Commission interest.
---------------------------------------------------------------------------
    \35\ The Commission first raised concerns about the potential 
anticompetitive impact of improper Orange Book listings in American 
Bioscience, Inc. v. Bristol-Myers Squibb Co., et al., Dkt. No. CV-00-
08577 (C.D. Cal. Sept. 7, 2000). See Federal Trade Commission Brief as 
amicus curiae, available at . In that case, the parties sought court approval of a 
settlement containing a specific factual finding that Bristol-Myers was 
required to list American Bioscience's patent of Bristol-Myers's 
branded drug Taxol in the Orange Book. The Commission was concerned 
that the court's approval of the settlement would amount to a judicial 
finding that the patent met the statutory requirements for listing in 
the Orange Book and would prejudice parties who might later challenge 
the listing.
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    The Noerr doctrine 36 provides antitrust immunity for 
individuals ``petitioning'' government. While the Noerr doctrine is an 
important limitation on the antitrust laws that protects the right of 
individuals to communicate with government entities, some courts have 
interpreted the doctrine too broadly in ways that are inconsistent with 
Supreme Court precedent.
---------------------------------------------------------------------------
    \36\ The Noerr doctrine was first articulated as an interpretation 
of the Sherman Act in Eastern R.R. Presidents Conf. v. Noerr Motor 
Freight, Inc., 365 U.S. 127 (1961), and United Mine Workers of America 
v. Pennington, 381 U.S. 657 (1965).
---------------------------------------------------------------------------
    To address the concern that the Noerr doctrine was being 
interpreted too expansively, a Noerr-Pennington Task Force of 
Commission staff began work in June 2001. One of the objectives of the 
Task Force was to examine certain aspects of the Noerr doctrine, such 
as the scope of ``petitioning'' conduct and the continuing existence of 
a misrepresentation exception to Noerr immunity.
    One of the first potential abuses the Task Force considered was the 
improper listing of patents in the FDA's Orange Book. Pursuant to 
current policy, the FDA does not review patents presented for listing 
in the Orange Book to determine whether they do, in fact, claim the 
drug product described in the relevant NDA.37 Instead, the 
FDA takes at face value the declaration of the NDA filer that the 
listing is appropriate. As a result, an NDA filer acting in bad faith 
can successfully list patents that do not satisfy the statutory listing 
criteria. Once listed in the Orange Book, these patents have the same 
power to trigger a 30-month stay of ANDA approval as any listed patent, 
thereby delaying generic entry and potentially costing consumers 
millions, or even billions, of dollars without valid cause.
---------------------------------------------------------------------------
    \37\ See 21 C.F.R. Sec. 314.53(f); see also Abbreviated New Drug 
Application Regulations--Patent and Exclusivity Provisions, 59 Fed. 
Reg. 50338, 50343 (1994) (``FDA does not have the expertise to review 
patent information. The agency believes that its resources would be 
better utilized in reviewing applications rather than reviewing patent 
claims.''); Abbreviated New Drug Application Regulations, 54 Fed. Reg. 
28872, 28910 (1989) (``In deciding whether a claim of patent 
infringement could reasonably be asserted . . . the agency will defer 
to the information submitted by the NDA applicant.'').
---------------------------------------------------------------------------
    In January of this year, lawsuits relating to Bristol-Myers's 
alleged monopolization through improper listing of a patent on its 
brand-name drug BuSpar 38 presented the Commission with an 
opportunity to clarify the Noerr doctrine in a way that might have a 
significant impact on the Commission's ongoing pharmaceutical cases. 
Specifically, plaintiffs alleged that, through fraudulent filings with 
the FDA, Bristol-Myers caused that agency to list the patent in 
question in the Orange Book, thereby blocking generic competition with 
its BuSpar product, in violation of Section 2 of the Sherman 
Act.39
---------------------------------------------------------------------------
    \38\ In re Buspirone Patent Litigation/In re Buspirone Antitrust 
Litigation, 185 F. Supp. 2d 363 (S.D.N.Y. 2002) (``In re Buspirone''). 
Some of the same plaintiffs previously had brought suit under the FDC 
Act, requesting that the court issue an order compelling Bristol-Myers 
to de-list the objectionable patent. Although plaintiffs prevailed at 
the district court level, the Federal Circuit reversed that decision, 
holding that the FDC Act did not provide a private right of action to 
compel de-listing of a patent from the Orange Book. See Mylan 
Pharmaceuticals, Inc. v. Thompson, 268 F.3d 1323, 1331-32 (Fed. Cir. 
2001).
    \39\ 15 U.S.C. Sec. 2.
---------------------------------------------------------------------------
    Bristol-Myers responded to these allegations by filing a motion to 
dismiss that raised, principally, a claim of Noerr-Pennington immunity. 
Given the importance of the issue to competition in the pharmaceutical 
industry, as well as to the Commission's ongoing investigations, the 
Commission filed an amicus brief opposing the motion to 
dismiss.40 On February 14, 2002, the court issued an opinion 
denying Bristol-Myers's immunity claim and accepting most of the 
Commission's reasoning on the Noerr-Pennington issue.41
---------------------------------------------------------------------------
    \40\ Memorandum of Law of Amicus Curiae Federal Trade Commission in 
Opposition to Defendant's Motion to Dismiss, available at . (The Commission argued that 
Orange Book filings are not ``petitioning activity'' immune from 
antitrust scrutiny.)
    \41\ In re Buspirone, supra note 38
---------------------------------------------------------------------------
    In light of the Buspirone decision, the Noerr-Pennington doctrine 
may not prove as large an obstacle to using the antitrust laws to 
remedy improper Orange Book filings as some may have anticipated. It is 
worth noting, and indeed emphasizing, that Buspirone does not mean that 
all improper Orange Book filings will give rise to antitrust liability. 
Any antitrust liability must be predicated on a clear showing of a 
violation of substantive antitrust law. Buspirone makes it clear, 
however, that Orange Book filings are not immune from those laws or 
exempt from their scrutiny.
    2. Biovail (Tiazac)--Last week, the Commission announced that it 
had issued a consent order against Biovail Corporation, 42 
settling charges that Biovail illegally acquired an exclusive patent 
license and wrongfully listed that patent in the Orange Book for the 
purpose of blocking generic competition to its brand-name drug Tiazac. 
This was the Commission's first enforcement action to remedy the 
effects of an allegedly improper, anticompetitive Orange Book listing.
---------------------------------------------------------------------------
    \42\ Biovail Corp., supra note 8.
---------------------------------------------------------------------------
    Prior to the events giving rise to the Commission's complaint, 
Biovail already had triggered a 30-month stay of FDA final approval of 
Andrx's generic Tiazac product, by commencing an infringement lawsuit 
against Andrx. Andrx prevailed in the courts, however, so that the stay 
would have been lifted by February 2001. According to the Commission's 
complaint,43 Biovail, in anticipation of pending competition 
from Andrx, undertook a series of anticompetitive actions to trigger a 
new stay and maintain its Tiazac monopoly. Just before the stay was to 
terminate, Biovail acquired exclusive rights to a newly issued patent 
from a third party and listed that patent in the Orange Book as 
claiming Tiazac--thereby requiring Andrx to re-certify to the FDA and 
opening the door to Biovail's suit against Andrx for infringement of 
the new patent and commencement of a second 30-month stay.
---------------------------------------------------------------------------
    \43\ The Commission's complaint against Biovail is available at 
.
---------------------------------------------------------------------------
    The Commission's complaint alleged that Biovail's patent 
acquisition, wrongful Orange Book listing, and misleading conduct 
before the FDA were acts in unlawful maintenance of its Tiazac 
monopoly, in violation of Section 5 of the Federal Trade Commission Act 
44 (``FTC Act''), and that the acquisition also violated 
Section 7 of the Clayton Act 45 and Section 5 of the FTC 
Act.
---------------------------------------------------------------------------
    \44\ 15 U.S.C. Sec. 45.
    \45\ Id. at Sec. 18.
---------------------------------------------------------------------------
    The consent order requires Biovail to divest the exclusive rights 
to their original owner with certain exceptions; to achieve dismissal 
with prejudice of any and all claims relating to enforcement of the 
patent in relation to Tiazac; and to refrain from any action that would 
trigger another 30-month stay on generic Tiazac entry. Further, the 
order prohibits Biovail from unlawfully listing patents in the Orange 
Book and requires Biovail to give the Commission prior notice of 
acquisitions of patents that it will list in the Orange Book for 
Biovail's FDA-approved products. These measures should not only remedy 
Biovail's allegedly unlawful conduct, but also send a strong message 
that the Commission will act decisively to eliminate anticompetitive 
practices in the pharmaceutical industry.
C. Settlements Between Generic Manufacturers
    Although agreements between first and second generic entrants have 
attracted significantly less attention to date, they too can raise 
competitive concerns and may draw antitrust scrutiny. As in the case of 
agreements between brand-name companies and generic applicants, the 
economic incentives to collude can be strong. Studies indicate that the 
first generic typically enters the market at 70 to 80 percent of the 
price of the corresponding brand 46 and rapidly secures as 
much as a two-thirds market share. The second generic typically enters 
at an even lower price and, like the first, rapidly secures market 
share. Collusion between the generic firms can thus be a means of 
preventing price erosion in the short term, though it may become 
substantially less feasible if subsequent ANDAs are approved and 
additional competitors enter the market.
---------------------------------------------------------------------------
    \46\ See CBO Study, supra note 6; Reiffen and Ward, supra note 10, 
at 22.
---------------------------------------------------------------------------
    In August 2002, the Commission issued a consent order against two 
generic drug manufacturers to resolve charges that they entered into an 
agreement that unreasonably reduced competition in the market for a 
generic anti-hypertension drug.47 According to the 
Commission's complaint, Biovail Corporation (Biovail) and Elan 
Corporation PLC (Elan) agreed not to compete, in violation of the FTC 
Act. The complaint alleged that the companies' agreement substantially 
reduced their incentives to introduce competing 30 mg and 60 mg generic 
Adalat CC products, and that the agreement lacked any countervailing 
efficiencies.48
---------------------------------------------------------------------------
    \47\ Biovail Corp. and Elan Corp. PLC, supra note 8.
    \48\ The Commission's complaint against Biovail and Elan is 
available at .
---------------------------------------------------------------------------
    The order, which has a ten-year term, remedies the companies' 
alleged anticompetitive conduct by requiring them to terminate the 
agreement and barring them from engaging in similar conduct in the 
future.49 The order maintains commercial supply of the 
incumbent generic Adalat products while the companies unwind their 
agreement, and eliminates the anticompetitive obstacles to entry of a 
second 30 mg and a second 60 mg generic Adalat CC product.
---------------------------------------------------------------------------
    \49\ The consent order in the Biovail/Elan matter is available at 
.
---------------------------------------------------------------------------
   iv. the commission's industry-wide generic drug competition study
A. Background and Introduction
    In light of the questions its various generic drug investigations 
raised, the Commission proposed an industry-wide study of generic drug 
competition in October 2000. The FTC Study focused solely on the 
procedures used to facilitate generic drug entry prior to expiration of 
the patent(s) that protect the brand-name drug product--that is, 
generic entry through the procedures involving Paragraph IV 
certifications.50 The Commission undertook the study for 
three reasons:
---------------------------------------------------------------------------
    \50\ The FTC Study does not address other procedures for generic 
entry.
---------------------------------------------------------------------------
    (1) To determine whether alleged anticompetitive agreements that 
relied on certain Hatch-Waxman provisions were isolated instances or 
more typical, and whether particular provisions of the Amendments are 
susceptible to strategies to delay or deter consumer access to generic 
alternatives to brand-name drug products;
    (2) To respond to Representative Henry Waxman's request for the 
Commission to ``investigate and produce a study on the use of 
agreements between and among pharmaceutical companies and potential 
generic competitors and any other strategies that may delay generic 
drug competition throughout the U.S.''; and
    (3) To ensure that there are no roadblocks in the way of generic 
competition for the substantial sales volume of brand-name drug 
products coming off patent in the next several years.51 
Brand-name companies seeking to protect the sales of brand-name drugs 
may have an incentive and ability to enter into agreements with would-
be generic competitors, or engage in other types of activities, that 
would slow or thwart the entry of competing generic drug products.
---------------------------------------------------------------------------
    \51\ National Institute for Health Care Management, ``Prescription 
Drugs and Intellectual Property Protection'' at 3 (Aug. 2000).
---------------------------------------------------------------------------
    In April 2001, the Commission received clearance from the Office of 
Management and Budget (``OMB'') to conduct the study.52 The 
Commission issued nearly 80 special orders--pursuant to Section 6(b) of 
the FTC Act 53--to brand-name companies and to generic drug 
manufacturers, seeking information about certain practices that were 
outlined in the Federal Register notices that preceded OMB clearance to 
pursue the study.54 The Commission staff focused the special 
orders on brand-name drug products that were the subject of Paragraph 
IV certifications filed by generic applicants. Only those NDAs in which 
a generic applicant notified a brand-name company with a Paragraph IV 
certification after January 1, 1992, and prior to January 1, 2001, were 
included in the FTC Study. The selection criteria resulted in 104 drug 
products, as represented by NDAs filed with the FDA, within the scope 
of the study and included so-called ``blockbuster'' drugs such as 
Capoten, Cardizem CD, Cipro, Claritin, Lupron Depot, Neurontin, Paxil, 
Pepcid, Pravachol, Prilosec, Procardia XL, Prozac, Vasotec, Xanax, 
Zantac, Zocor, Zoloft, and Zyprexa.
---------------------------------------------------------------------------
    \52\ The Commission was required to obtain OMB clearance before it 
could begin the study because the number of special orders to be sent 
triggered the requirements of the Paperwork Reduction Act of 1995, 44 
U.S.C. Ch. 35, as amended.
    \53\ 15 U.S.C. Sec. 46(b).
    \54\ See 65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512 
(Feb. 27, 2001).
---------------------------------------------------------------------------
    Responses from the 28 brand-name companies and nearly 50 generic 
applicants generally were completed by the end of 2001. The Commission 
staff compiled the information received to provide a factual 
description of how the 180-day marketing exclusivity and 30-month stay 
provisions affect the timing of generic entry prior to patent 
expiration. The FTC Study did not provide an antitrust analysis of each 
of the types of agreements submitted, nor did it examine other issues 
involved in the debate over generic drugs, such as bioequivalence or 
the appropriate length of patent restorations under Hatch-Waxman.
B. Findings: Litigation Frequency and Outcomes
    The FTC Study sought to determine the frequency with which brand-
name companies have triggered the 30-month stay provision by suing 
generic applicants for patent infringement within the required 45-day 
period. For 72 percent of drug products the study covered, brand-name 
companies initiated patent infringement litigation against the first 
generic applicant. There was no suit in the other 28 percent, and the 
FDA has approved most of the generic products, thus allowing generic 
entry to occur.
    In 70 percent of the cases (53 of the 75 drug products) in which 
the brand-name company sued the first generic applicant, either there 
has been a court decision (30 of the 53 drug products) or the parties 
have agreed to a final settlement without a court decision on the 
merits of the patent infringement lawsuit (20 of the 53 drug 
products).55 In the other 30 percent of the cases (22 of the 
75 drug products), a district court had not yet ruled as of June 1, 
2002.
---------------------------------------------------------------------------
    \55\ There were three additional suits that had other resolutions.
---------------------------------------------------------------------------
    Of all the patent infringement cases (with the first generic 
applicant) in which a court had rendered a decision as of June 1, 2002, 
generic applicants prevailed in 73 percent of the cases (22 out of 30) 
and brand-name companies prevailed in 27 percent (8 out of 30). Of the 
decisions favoring the first or any subsequent generic applicant, there 
were slightly more non-infringement decisions (14) than patent 
invalidity decisions (11). The U.S. Court of Appeals for the Federal 
Circuit overturned district court decisions of patent invalidity for 
drug products in this study in only eight percent of cases.
    In 62 percent of the cases involving litigation with the first and 
second generic applicants, brand-name companies initiated patent 
litigation in just five federal judicial districts--the District of New 
Jersey, the Southern District of New York, the Southern District of 
Indiana, the Northern District of Illinois, and the Southern District 
of Florida.
C. Findings: Orange Book Patent Listing Practices
    The 30-month stay provision of the Amendments protects brand-name 
companies beyond their existing intellectual property rights. It has 
received increased attention because it can have a significant impact 
on market entry by generic drugs. Since 1998, two new phenomena appear 
to be emerging in relation to patent listing practices that affect 
patent litigation: (1) an increase in the number of patents listed in 
the Orange Book for ``blockbuster'' drug products; and (2) the listing 
of patents after an ANDA has been filed for the particular drug 
product.
    The Commission found that, for drug products with substantial 
annual net sales, brand-name companies are suing generic applicants 
over more patents. Since 1998, for five of the eight ``blockbuster'' 
drug products for which the brand-name company filed suit against the 
first generic applicant, the brand-name company alleged infringement of 
three or more patents. In comparison, in only one of the nine 
``blockbuster'' suits filed before 1998 by a brand-name company against 
the first generic applicant did the complaint allege infringement of 
three or more patents.
    In the future, patent infringement litigation brought by brand-name 
companies against generic applicants that have filed ANDAs with 
Paragraph IV certifications may take longer to resolve. The data 
suggest that cases involving multiple patents take longer than those 
involving fewer patents. As of June 1, 2002, for six out of the seven 
cases that were pending for more than 30 months before a decision from 
a district court, the brand-name company has alleged infringement of 
three or more patents.
    By the timely listing of additional patents in the Orange Book 
after a generic applicant has filed its ANDA (``later-issued 
patents''), brand-name companies can obtain additional 30-month stays 
of FDA approval of the generic applicant's ANDA. In eight instances, 
brand-name companies have listed later-issued patents in the Orange 
Book after an ANDA has been filed for the drug product. For those eight 
drug products, the additional delay of FDA approval (beyond the first 
30 months) ranged from four to 40 months. In all of the four cases so 
far with a court decision on the validity or infringement of a later-
issued patent, the patent has been found either invalid or not 
infringed by the ANDA.
    Moreover, several of the later-issued patents in the Orange Book 
raise questions about whether the FDA's patent listing requirements 
have been met. For example, several of the later-issued patents do not 
appear to claim the approved drug product or an approved use of the 
drug. The FTC Study describes three categories of patents that raise 
significant listability questions--i.e., issues concerning whether the 
listed patents fall within the statutorily defined class. These 
categories include (1) patents that may not be considered to claim the 
drug formulation or method of use approved through the NDA; (2) 
product-by-process patents that claim a drug product produced by a 
specific process; and (3) patents that may constitute double-patenting 
because they claim subject matter that is obvious in view of the claims 
of another patent obtained by the same person.
D. Recommendations: The 30-Month Stay Provision
    To reduce the possibility of abuse of the 30-month stay provision, 
the Commission recommended in its study that only one 30-month stay be 
permitted per drug product per ANDA to resolve infringement disputes 
over patents listed in the Orange Book prior to the filing date of the 
generic applicant's ANDA. This should eliminate most of the potential 
for improper Orange Book listings to generate unwarranted 30-month 
stays. One 30-month stay period alone has historically approximated the 
time necessary for FDA review and approval of the generic applicant's 
ANDA 56 or a district court decision on the patent 
infringement litigation that caused the 30-month stay. Thus, it does 
not appear that, on average, one 30-month stay provision per drug 
product per ANDA would have a significant potential to delay generic 
entry beyond the time already necessary for FDA approval of the generic 
applicant's ANDA or a district court decision in the relevant 
litigation.
---------------------------------------------------------------------------
    \56\ FDA approval of ANDAs submitted by first generic applicants 
who were not sued by the brand-name company took, on average, 25.5 
months from the ANDA filing date.
---------------------------------------------------------------------------
    Limiting brand-name drug companies to one 30-month stay per drug 
product per ANDA is likely to eliminate most problems related to 
potentially improper Orange Book listings. Nonetheless, the Commission 
notes that there is no private right of action to challenge an improper 
listing, nor does the FDA review the propriety of patent 
listings.57 The lack of a mechanism to review or delist 
patents may have real-world consequences. For example, the Commission 
is aware of at least a few instances in which a 30-month stay was 
generated solely by a patent that raised legitimate listability 
questions. One proposal to deal with this problem has been to establish 
an administrative procedure through which generic applicants could 
obtain substantive FDA review of listability. At a minimum, it appears 
useful for the FDA to clarify its listing requirements as the FTC Study 
suggests. Another remedy that may warrant consideration would be to 
permit a generic applicant to raise listability issues as a 
counterclaim in the context of patent infringement litigation that the 
brand-name company already initiated in response to a Paragraph IV 
notice from the generic applicant. A challenge limited to a 
counterclaim would avoid generating additional litigation.
---------------------------------------------------------------------------
    \57\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------
    One minor change to the patent statute, which would clarify when 
brand-name companies can sue generic applicants for patent 
infringement, would ensure that brand-name companies have recourse to 
the courts to protect their intellectual property rights in later-
issued patents. To do this, Congress may wish to overrule a recent 
district court decision, Allergan, Inc. v. Alcon Labs, Inc., 200 F. 
Supp. 2d 1219 (C.D. Cal. 2002), which questions the rights of brand-
name companies to sue for patent infringement regarding patents 
obtained or listed after an ANDA with a Paragraph IV certification has 
been filed.
E. Findings: Patent Settlements and the 180-Day Marketing Exclusivity
    Certain patent settlement agreements between brand-name companies 
and potential generic competitors have received antitrust scrutiny in 
recent years because not only might they affect when the generic 
applicant may begin commercial marketing, but they also may affect when 
the FDA can approve subsequent generic applicants after the first 
generic applicant's 180-day exclusivity runs. Parties have debated 
whether these settlements increased or harmed consumer welfare. Twenty 
final 58 and four interim 59 agreements that 
settled litigation between the brand-name company and the first generic 
applicant were produced in response to the FTC's special orders.
---------------------------------------------------------------------------
    \58\ One of these agreements is subject to litigation currently 
pending at the FTC. See Schering-Plough Corp., et al., Dkt. No. 9297 
(Initial Decision) (July 2, 2002) supra note 32.
    \59\ For three out of the four interim agreements, see Abbott 
Laboratories, Dkt. No. C-3945 (May 22, 2000) (consent order) (relating 
to two drug products, Hytrin tablets and Hytrin capsules); Geneva 
Pharmaceuticals, Inc., Dkt. No. C-3946 (May 22, 2000) (consent order); 
and Hoechst Marion Roussel, Inc., Dkt. No. 9293 (May 8, 2001) (consent 
order), all supra note 32.
---------------------------------------------------------------------------
    The final patent settlements can be classified into three 
categories:
    (1) Nine of these settlements contained a provision by which the 
brand-name company, as one part of the settlement, paid the generic 
applicant (settlements involving ``brand payments'');
    (2) Seven of the 20 settlements involved the brand-name company 
licensing the generic applicant to use the patents for the brand-name 
drug product prior to patent expiration; and
    (3) Two of the settlements allowed the generic applicant to market 
the brand-name drug product as a generic product, under the brand-name 
company's NDA but not under not the generic applicant's own 
ANDA.60
---------------------------------------------------------------------------
    \60\ The remaining two settlements do not fit into any of these 
three categories.
---------------------------------------------------------------------------
    Fourteen of the final settlements with the first generic applicant 
had the potential to ``park'' the 180-day marketing exclusivity for 
some period of time such that the first generic applicant would not 
trigger the exclusivity, and thus FDA approval of any subsequent 
eligible generic applicant would be delayed. (If the 180-day 
exclusivity for the first generic applicant does not run, the FDA 
cannot approve subsequent eligible generic applicants.) The data from 
the FTC Study suggest, however, that the 180-day exclusivity provision 
by itself generally has not created a bottleneck to prevent FDA 
approval of subsequent eligible generic applicants.
    In addition to the final settlements with the first generic 
applicant, brand-name companies entered final patent settlements with 
the second generic applicant in seven instances. In six of the seven, 
the brand-name company also had settled with the first generic 
applicant.
F. Recommendations: The 180-day Exclusivity Provision
    To mitigate the possibility of abuse of the 180-day exclusivity 
provision, the FTC Study recommended that Congress pass the Drug 
Competition Act 61 to require brand-name companies and first 
generic applicants to provide copies of certain agreements to the 
Federal Trade Commission and the Department of Justice. The Commission 
believes that review of these agreements by these agencies will help 
ensure that the 180-day provision is not manipulated in a way to delay 
entry of additional generic applicants.
---------------------------------------------------------------------------
    \61\ S. 754, 107th Cong. (2001) (introduced by Sen. Leahy).
---------------------------------------------------------------------------
    Empirical research demonstrates that as additional generic 
competitors enter the market, generic prices decrease to lower levels, 
thus benefitting consumers. The FTC Study makes three minor 
recommendations to ensure that, once a subsequent generic applicant is 
ready to market, the 180-day exclusivity is not a roadblock to that 
entrant's beginning commercial marketing. The recommendations are:
    (1) To clarify that ``commercial marketing'' includes the first 
generic applicant's marketing of the brand-name product;
    (2) To clarify that the decision of any court on the same patent 
being litigated by the first generic applicant constitutes a ``court 
decision'' sufficient to start the running of the 180-day exclusivity; 
and
    (3) To clarify that a court decision dismissing a declaratory 
judgment action for lack of subject matter jurisdiction constitutes a 
``court decision'' sufficient to trigger the 180-day exclusivity.
                             v. conclusion
    Thank you for this opportunity to share the Commission's views on 
competition in the pharmaceutical industry. As you can see, the 
Commission has been and will continue to be very active in protecting 
consumers from anticompetitive practices that inflate drug prices. The 
Commission looks forward to working closely with the Subcommittee, as 
it has in the past, to ensure that competition in this critical sector 
of the economy remains vigorous. In keeping with this objective, the 
Commission will likewise endeavor to ensure that the careful Hatch-
Waxman balance--between promoting innovation and speeding generic 
entry--is scrupulously maintained.

    Mr. Bilirakis. Thank you very much, sir.
    Well, all right, as I said earlier, we are going to take a 
break, let's say, until one o'clock. We will recess until one 
o'clock. Thank you.
    [Whereupon, at 12:10 p.m., the subcommittee recessed, to 
reconvene at 1 p.m., the same day.]
    Mr. Bilirakis. Let's get started.
    Dr. Crawford, do you believe that in some instances 180 
days of generic exclusivity is not warranted? For example, for 
some blockbuster drugs, more than 10 generic manufacturers line 
up to challenge the brand patent, but only the first is 
entitled to the 180-day exclusivity. I would ask, isn't this 
proof that the market is working, there's enough of an 
incentive?
    Mr. Crawford. We have looked into that. It is, obviously, a 
part of the law, but it hasn't been proved that it is an 
incentive. So we think that it is working as intended, but we 
don't see it particularly as an incentive.
    Mr. Bilirakis. You don't see it as an incentive? Do you 
believe that in some instances that amount of exclusivity is 
not warranted?
    Mr. Crawford. There are instances where you would question 
it, but it has become part of the system. It is expected, and 
to some extent it drives the system. So I think changing that 
would need to be done very carefully.
    Mr. Bilirakis. Very carefully?
    Mr. Crawford. Yes, sir.
    Mr. Bilirakis. Can you describe for us the lengths that 
some generics go to just to be the company qualifying for that 
extra exclusivity?
    Mr. Crawford. Yes. There are instances that actually have 
been recorded, and I can attest to the veracity of, where 
people have lined up in the parking lot and spent the night, 
some companies in limousines, and I am told, although I haven't 
seen it, some in tents from time to time, waiting to be the 
first one in line. I don't know what all techniques are used in 
jockeying for first position, but it is something that is 
coveted, to answer your question.
    Mr. Bilirakis. How many patent attorneys does the FDA 
presently employ?
    Mr. Crawford. We don't have any.
    Mr. Bilirakis. You don't have any?
    Mr. Crawford. No, we do not.
    Mr. Bilirakis. So you have already said it, I think, you 
don't have the expertise to review patent listings to determine 
whether a patent's claim lists the drugs, right? You just don't 
have the expertise?
    Mr. Crawford. We do not. We do not, and we also do not 
presume to second-guess PTO in that regard. If they issue a 
patent, that basically is a statement of the government. So we 
do not and we have not seen the need to employ patent attorneys 
and also a patent staff.
    Mr. Bilirakis. Mr. Muris, in your recent report that, 
frankly, we thank you so very much for and we appreciate, you 
have recommended two narrow changes to the act, to the Hatch 
Waxman Act. Did the FTC consider other reforms and then reject 
them?
    Mr. Muris. In drafting the report, we looked at a variety 
of issues, but the report was premised on the idea that the 
original Hatch-Waxman balance made sense, and we didn't 
question that. What we sought to evaluate was whether the 
evidence showed that subsequent problems had arisen. We thought 
there were some problems, and, hence, we did make a few 
recommendations for legislation.
    Mr. Bilirakis. All right. Just to sort of close out my 
portion of the questioning, I think you have heard the opening 
statements, and I think you can see that we all feel that 
reforms have to be made. The extent of the reforms, of course, 
is where the arguments come in, but I like to think that on a 
bipartisan basis, if we take into consideration fairness, if 
you will, certainly the intent of the act, Mr. Waxman would be 
helpful in that regard, and that intent, obviously, being to 
allow generics to get on the market quicker, but at the same 
time to not take away from the research and the innovations 
that the industry and that all of our people need so very 
desperately.
    Having taken that into consideration, would you say that 
the recommendations that you have made in your report, Mr. 
Muris, is basically it? You have nothing further to recommend 
to us, knowing that we probably will address this problem, and 
try to address it as well as we can?
    Mr. Muris. Again, let me make clear, when I am answering 
these questions, I am answering them as an individual 
Commissioner and not on behalf of the Commission. The report is 
a report of the Commission. I believe it is comprehensive in 
the sense that it addresses the problems that we found with 
this empirical evaluation that we gathered.
    Mr. Bilirakis. Okay. Dr. Crawford, anything you want to add 
to that?
    Mr. Crawford. No. I want to reiterate, as we said in the 
testimony, we do not oppose the idea of a single 30-month 
extension. That concept is something that is agreeable to us.
    Mr. Bilirakis. Okay, but there aren't any other suggestions 
that you would make to this committee in terms of changes that 
should be made?
    Mr. Crawford. Not at this time. We have in our testimony 
several issues that we raised, but to make formal 
recommendations we are not prepared to do that.
    Mr. Bilirakis. I would urge you both to make those 
recommendations to us on a timely basis, when you come to them, 
if you do.
    But, Mr. Waxman, to inquire.
    Mr. Waxman. Thank you. Thank you, Mr. Chairman.
    Dr. Crawford, PhRMA has argued that provisions of S. 812 
undermine protection of significant innovations in already-
approved drugs by refusing to allow 30-month stays for late-
filed patents. They describe as examples of such innovations 
new dosage forms, new dosing regimens, and changes in side 
effect profile.
    Isn't it true that every one of these changes to a drug or 
its labeling would require a New Drug Application or 
supplement?
    Mr. Crawford. The way we are organized now, it would 
require supplements at the minimum in those cases, yes.
    Mr. Waxman. If it were more of an innovation than the ones 
I have mentioned, it would require a New Drug Application, 
wouldn't it?
    Mr. Crawford. If there is a substantial change in 
indications and also for the drug, it is a possibility. That is 
rare, as you know, that we would require a total resubmission, 
but it is possible.
    Mr. Waxman. Isn't it true that once there is a New Drug 
Application or supplement, the NDA-holder is once again free to 
file all patents to cover that new drug?
    Mr. Crawford. They are free to file, yes.
    Mr. Waxman. So limiting 30-month stays to patents filed 
near the time of NDA approval wouldn't eliminate protection of 
any of these innovations, would it?
    Mr. Crawford. Not in and of themselves, no.
    Mr. Waxman. What kinds of changes to already-approved drugs 
could an NDA-holder make that would constitute an innovation 
but wouldn't require a New Drug Application or supplement?
    Mr. Crawford. In terms of the usage of the drug, 
particularly?
    Mr. Waxman. Any changes to an already-approved drug.
    Mr. Crawford. Minimal things like changing the coloration 
or extension of the usage language. It would be cosmetic or 
minimal things.
    Mr. Waxman. You have testified that FDA has neither the 
expertise nor the authority to challenge patent listings by 
NDA-holders, and the result of this position is that NDA-
holders can file patents that do not cover the approved drug 
and, thus, do not meet the statutory requirements for filing 
without challenge by the FDA, is that correct?
    Mr. Crawford. Yes.
    Mr. Waxman. If the NDA-holder who has improperly filed a 
patent then sues a generic competitor for infringement of that 
patent, the NDA-holder gets an automatic 30-month stay of 
approval regardless of the merits of that patent, isn't that 
correct?
    Mr. Crawford. Yes.
    Mr. Waxman. One might think that this situation demands 
that we provide some avenue for generic companies to challenge 
improper patent listings. The FTC report says that we should 
consider providing for such an avenue. I understand that PhRMA 
has suggested, however, that there is no need to let a generic 
company challenge patent listings in court because in any case 
where a filed patent does not cover the approved drug FDA can 
bring a criminal action against an NDA-holder for filing a 
false statement with the government. Now this puzzles me.
    Is it your position that FDA does have the expertise to 
determine whether a patent covers an approved drug for purposes 
of bringing such a criminal action but does not for purposes of 
challenging the filing of the patent?
    Mr. Crawford. Mr. Troy is going to answer that.
    Mr. Troy. Congressman Waxman, what often happens is at the 
front end, it is not really clear whether or not what is being 
made is or is not a false statement. It is possible that after 
litigation it would become clear, but, as you well know and I 
think as you perceptibly pointed out in your comments, these 
issues are very, very, very carefully lawyered. So, basically, 
PhRMA companies are sophisticated enough not to sign something 
that is sufficiently false that we could prove beyond a 
reasonable doubt in court.
    Mr. Waxman. So the probability that FDA will be bringing 
criminal actions against patent-filers for false statements is 
pretty near zero, isn't it?
    Mr. Troy. I think it is quite low because, again, these 
things, as you say, are quite----
    Mr. Waxman. Have you ever filed a criminal action?
    Mr. Troy. No, we have not.
    Mr. Waxman. Okay. Is it your position that generic 
competitors should have no remedy for improper patent-filings 
that could result in 30-month stays, Dr. Crawford?
    Mr. Troy. Our view is that you can--proper resolution of 
this under Hatch-Waxman is for the courts. The courts have the 
expertise about patents and, as we understand the statute, the 
point is, if someone verifies the listing, then it is really 
for the courts to resolve. I think a court might have authority 
to require a company to delist----
    Mr. Waxman. Do you think that there ought to be a remedy 
for improper patent filings that a generic competitor can 
challenge, so that they don't get a 30-month delay?
    Mr. Troy. Not that would require FDA to get into overseeing 
and judging the patent listings. We don't have the expertise to 
do that or the authority.
    Mr. Waxman. Mr. Chairman, will we have a second round with 
this?
    Mr. Bilirakis. I don't contemplate it.
    Mr. Waxman. May I ask----
    Mr. Bilirakis. Let's see how we go.
    Mr. Waxman. Okay, but at some point I would like to ask 
that we have the opportunity to submit questions in writing for 
responses in writing.
    Mr. Bilirakis. We will definitely do that. Thank you.
    Mr. Deal, to inquire.
    Mr. Deal. We have heard reference made in your statements 
to the fact that there are anti-competitive agreements 
sometimes among brands and generics, and generics and generics. 
Which of those seem to be the most frequent, the anti-
competitive agreements with brands and generics or generics 
themselves with each other?
    Mr. Crawford. Brands and generics.
    Mr. Deal. What action, if any, can be taken with regard to 
that?
    Mr. Crawford. By FDA?
    Mr. Deal. Yes.
    Mr. Crawford. Almost nothing.
    Mr. Deal. Mr. Muris, what about with your agency?
    Mr. Muris. Under certain circumstances, those agreements 
can violate the antitrust laws. The Commission has brought four 
cases, three involving agreements between brands and generics, 
and one involving an agreement between a generic and another 
generic. We have also filed an amicus brief in another case, 
but it didn't involve an agreement. It involved unilateral 
activity.
    Mr. Deal. Do you also become involved in the generic-
versus-generic cases?
    Mr. Muris. Yes.
    Mr. Deal. Have you filed any actions there?
    Mr. Muris. We have had one case there, yes.
    Mr. Deal. Okay. Explain the relationship. Do you simply ask 
the Justice Department to initiate action or how does the 
process work?
    Mr. Muris. No, we have independent authority. Most of the 
cases that we bring, we bring administratively as opposed to 
going directly to Federal court. This is what we have done in 
the cases that involve these branded and generic drug issues. 
Of the four cases that have been filed, three of them were 
settled with consent agreements.
    Mr. Deal. Is that an area where there needs further 
statutory authority to act in that area or do you think there 
is adequate remedy?
    Mr. Muris. We think there is adequate substantive authority 
in terms of the antitrust laws, although there are some very 
tricky issues. We do recommend that the House pass the bill 
that the Senate passed, which would require notification of 
these agreements to the FTC and the Department of Justice.
    Mr. Deal. Mr. Muris, does the FTC ever consider restricting 
pharmaceutical patent rights, which I understand some witnesses 
are going to advocate here today? Do you support any 
limitations on manufacturers' patent rights?
    Mr. Muris. Under the antitrust laws there are situations 
where patent rights may be abused. The most prevalent kind of 
cases, however, involve cases where there was some problem in 
obtaining the patent rights or in this area where patents are 
improperly listed in the Orange Book.
    Mr. Deal. You recommend only one 30-month stay per drug. 
Others, of course, take an opposite position. What is the basis 
for that? Is it just simply that you think that is a way to 
game the system with additional extensions or what?
    Mr. Muris. I think it is important to identify what we mean 
by a late listing. Mr. Waxman suggested that late listing was 
after the NDA. When we are talking about a late listing, we are 
talking about after the ANDA is filed. Our report identified 
eight instances where that happened and where a subsequent 30-
month stay was allowed.
    In each instance, there are serious issues about the 
validity of listing the additional patents in the Orange Book. 
We think that, although the number is not large, the pattern is 
recent; the amount of commerce is very significant. We think 
that there is nothing in Hatch-Waxman, as it was first passed 
and as it was implemented, for most of its history, that 
indicates support for these multiple 30-month stays. Because of 
the problems we have seen with them, we recommend that just one 
30-month stay be permissible.
    Mr. Deal. Did I understand, though, that in those cases, 
that maybe only one of them ran the full length of the 
additional stay period? Were they cut short of the full 
extension period?
    Mr. Muris. Yes. The additional stays ran from 4 to 40 
months, but we are talking very significant amounts of money 
here, even on a per-month basis.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Brown, to 
inquire.
    Mr. Brown. Thank you, Mr. Chairman.
    Dr. Crawford--I am sorry, Mr. Muris, I would like to start 
with you.
    It is my understanding that drugmakers that own patents are 
protected by preliminary injunctions and by treble damages. The 
30-month stay is an extra layer of protection that has been 
subject to gaming, obviously, as you said in your report, and 
it provokes litigation, as you said in your report. Why do you, 
then, recommend maintaining one 30-month stay per drug?
    Mr. Muris. Again, we started with the premise that the 
original Hatch-Waxman balance made sense. We asked, was there 
any evidence that we had that indicated that there were 
problems? In terms of the 30-month stay, if you look at cases 
where there was no challenge at all, there was a period of 
about 25\1/2\ months before FDA approval. In terms of district 
court litigation, again, it took about 25\1/2\ months to obtain 
a district court decision of approval.
    So the 30 months does not cause a problem in itself and, in 
fact, approximates what would happen without the court 
challenges. It was the multiple 30-month stays where we thought 
that there was significant gaming and the significant problems.
    Mr. Brown. Can that 25\1/2\ months be accelerated? Can that 
be shortened? If you were not recommending one 30-month stay 
per drug, can that 25\1/2\ months be speeded up? Can the 
approval time ultimately be speeded up?
    Mr. Muris. Yes. The approval occurs at the FDA, and our 
report does not address that possibility. We just didn't study 
it.
    Mr. Brown. All right, Dr. Crawford, you have opposed S. 
812, as you said, and as the President had said. You have, 
however, the FDA has acknowledged, the President has 
acknowledged that there is a gaming of the patent system, that 
there is abuse, that there are problems here, that 32 attorneys 
general have said we need to do something; the FTC says we need 
to do something.
    What is the FDA's suggestion? What do you propose to fix 
this problem that you, in fact--even though you have opposed S. 
812, there can be other avenues--what do you propose to correct 
this?
    Mr. Crawford. Actually, what we are indicating is that this 
is not something that is in the usual ambit of what FDA does. 
We oppose the bill because of the intellectual property rights 
compromise and various other aspects.
    This particular thing of gaming with the 30-month stays and 
interactions between the pioneer and the generics would 
normally fall within the purview of the Federal Trade 
Commission, and not of the FDA.
    Could we ask Mr. Troy to add a bit to that?
    Mr. Troy. Thank you. Let me say three things. First of all, 
there is game playing. There is game playing on both sides. The 
generics engage in a fair amount of game playing that we see, 
and we in the Office of Generic Drugs, in the Office of Chief 
Counsel, spend an enormous amount of time trying to enforce the 
balance of Hatch-Waxman and to apply it--it is not easy--
according to its terms. We try, to the extent possible within 
the limits of the law, to cut down on game playing. That is 
point one.
    Point two, I think there are two other things that I think 
we can do at the FDA and are looking at doing. The second is we 
can clarify, as the FTC suggested, we can clarify that there 
are certain patents that we think should not be listed in the 
Orange Book. We can provide more guidance on that, and we 
intend to do so.
    The third thing that we are looking at doing, and that I 
have had some productive meetings with Kathleen Jaeger of GPhA 
about, is looking at a beefed-up declaration, meaning of the 
kind that is submitted by the innovator to provide additional 
information about the patents that they are claiming and the 
patents that they are listing. Those are things that are, I 
think, well within our administrative authority, and they are 
things we are actively considering and looking at doing.
    Mr. Brown. So, Dr. Crawford, can you do those things 
administratively and do you think correct this problem short of 
a statutory change?
    Mr. Crawford. These are the authorities we have. We 
actually do that as seriously as we can. There is one other 
aspect. There is another aspect, which is that if a patent that 
is filed seems to be one that is objectionable and that may be 
too widely drawn to fit what we normally expect, we have sent 
letters to the firm reminding them that their declaration that 
we enter into the Orange Book administerially--that is, we just 
put it in--but in the evaluation we have sent letters saying 
that you might want to reexamine this patent and what it is----
    Mr. Brown. But they still have gotten the 30-month stay?
    Mr. Crawford. Yes.
    Mr. Brown. Okay, so the letters really don't mean very 
much, except maybe they hurt the company in court? But the 30-
month stay, the clock still begins to tick?
    I have run out of time, Mr. Chairman, and I apologize for 
that.
    I do want to say, though, that, first of all, you oppose 
this bill. Second, you say that it is not in the purview of the 
FDA to make suggestions on what to change statutorily. You are 
part of the administration. You are both Presidential 
appointees. I would hope the Bush Administration would come 
forward with some suggestions on fixing this, if they are not 
going to support the Brown-Emerson bill--Ms. Emerson, a 
Republican, was here earlier sitting in the front row, I 
believe--or any of these other pieces of legislation. I would 
hope that the administration, through you or through HHS or in 
some other way, would say what they do support and do advocate.
    Mr. Crawford. Let me reiterate that we do favor the 
imposition of a single 30-month stay, not multiple----
    Mr. Brown. You support the FTC's recommendations?
    Mr. Crawford. Yes, we do.
    Mr. Brown. Okay, that has not been said before, has it?
    Mr. Deal [presiding]. The gentleman's time has expired. Mr. 
Shimkus.
    Mr. Waxman. Mr. Chairman, I ask unanimous consent for 30 
seconds to get a clarification on that.
    Mr. Deal. Without objection.
    Mr. Waxman. If you support limiting it to one 30-month 
stay, isn't that what the Senate bill does?
    Mr. Crawford. I think it has more in it than just that.
    Mr. Waxman. But that part you support?
    Mr. Crawford. We do, yes.
    Mr. Brown. To fill up the rest of the 30 seconds, I just 
wonder why you didn't, when you opposed S. 812 before the 
Senate vote, why you didn't weigh in that way saying, ``We 
support what the FTC does, but some of these other changes in 
S. 812 went too far or don't go far enough.'' I would just put 
on the record that I would hope that you would take that 
position.
    Mr. Crawford. Thank you.
    Mr. Deal. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    I am going to throw up a timeline and a chart. I am 
actually going to do it for both panels and probably will not 
ask too many questions of this panel on this.
    As many of the folks here who are observing this know, I 
don't serve on this subcommittee. I am honored that you let me 
be in this process.
    But what I am going to ask both panels is, the first 
question is: Based upon your involvement, is this a relatively 
accurate depiction of what goes on? I know the FDA, you are 
just checking whether the drug is safe for human consumption. 
We have you here at the New Drug Application, the New Drug 
Application approved, and that would be you. That is when it 
gets placed into the Orange Book, is that correct?
    Mr. Crawford. Yes.
    Mr. Shimkus. Do you actually have, it is actually a big 
orange book?
    Mr. Crawford. Actually, it is both electronic and published 
with an orange cover.
    Mr. Shimkus. Okay, good. I was hoping that it was just not 
a three-ring binder that we are sliding papers in.
    Then you are also, FDA is also involved at the Abbreviated 
New Drug Application, is that correct?
    Mr. Crawford. That is correct.
    Mr. Shimkus. Now, Mr. Muris, the patent infringement suit 
comes by the generic drug companies saying a lot of things. 
They are saying this shouldn't be patent-protected and we 
should have access to sell this drug now, is that correct?
    Mr. Muris. Yes. There is what is called a paragraph IV 
certification, where the generic applicant is claiming either 
the patent is invalid or the generic does not infringe.
    Mr. Shimkus. So if that occurs in that timeline and then, 
of course, the patent infringement suit is filed, that is the 
whole debate of the 30-month stay, is that correct? I mean, 
when that is filed, you get the 30-month stay?
    Mr. Muris. Yes, unless there is a court decision earlier.
    Mr. Shimkus. Okay. Now that is coming before the end of the 
original patent term for the most part?
    Mr. Muris. Yes. Obviously, this whole issue and our whole 
study was directed to the issue of prior to patent expiration.
    Mr. Shimkus. Have there been cases where, on the whole 
debate we just had on multiple 30-month stays, have there been 
multiple 30-month stays that still fall short of the original 
patent term of 20 years?
    Mr. Muris. Yes. Yes.
    Mr. Shimkus. Do we know how many?
    Mr. Muris. There must be. Of the eight cases that we have, 
the whole issue of paragraph IV becomes irrelevant once the 
stay expires. Thus this area involves through the life of the 
patent. If you are talking about beyond the life of the patent, 
you could file what is called a paragraph III certification.
    Mr. Shimkus. Okay. If----
    Mr. Muris. I'm sorry, go ahead.
    Mr. Shimkus. No, that is all right. If, the way I have 
talked to, again, many folks here, and as I have been trying to 
struggle with this understanding chemical compounds, if you had 
a basic chemical compound and it got a patent application and 
it got filed and it got approved, and you said that formula, 
the patent term for that formula is 20 years, if we would craft 
legislation that just said, at the end of the patent life, 20 
years for that chemical compound, it is over, wouldn't that 
solve a lot of problems and a lot of bureaucracy and a lot of 
court cases?
    Mr. Muris. I think part of the reason underlying Hatch-
Waxman is that there are a variety of patents and a variety of 
complexities. Certainly allowing the generics to cut through a 
lot of the drug approval process, which Hatch-Waxman allowed, 
in fact, dramatically increased generic entry.
    Mr. Shimkus. That is the term ``bioequivalency''? Is that 
what we are referring to, the ability that generics, because 
they in essence--I don't know the proper terminology--get the 
information, the research that has been done, through the 
pharmaceutical research and development, they can say, ``Okay, 
that's been done. We don't have to do that. Then we can jump up 
here.''?
    But the question is still the same. Then it marries up, as 
we tinker with reformulation. And I am going to ask this to the 
next panel; I am going to use the same chart. If a patent is 
filed and approved for a chemical compound and patent law says 
20 years, except for pediatric exclusivity, which we through 
public policy have said is a good thing to extend, why not just 
say it is done? Why not prohibit the immediate review and the 
post-review and these 30-month stays and just go to the end of 
the patent?
    Mr. Waxman. Would the gentleman yield to me?
    Mr. Shimkus. Yes, I would.
    Mr. Waxman. The idea of the law was that there is time 
spent at FDA to get a drug approved. A lot of the companies 
felt that, since they can't market their product until FDA 
approves it, that they should have restored to them part of the 
time at FDA. We felt that was a wise public policy measure to 
take because we wanted to give every encouragement for the 
investment.
    But we do want in that law the balance. At the end of the 
patent period and the patent restorations we want competition. 
We want generics to be approved and then to be able to go on 
the market.
    What we have seen is something we never envisioned when the 
law was adopted. The 30-month delay is different than what 
happens ordinarily in patents. Ordinarily in patents if a 
competitor goes out and sells a product, if you feel he has 
violated your patent, you sue him and you get treble damages. 
You can't stop him, oftentimes you can't stop him from 
infringing, but you can get tremendous damages.
    In 1984, a lot of the brand-name companies said to us, ``We 
are not sure that if we sue for treble damages these generic 
companies will be viable enough to pay us the damages. So we 
would like to have the assurance that, if there is an 
infringement of the patent, we will have a stop of any 
competition for 30 months.''
    What has happened is that these generic companies are 
viable. They could recover damages. I don't think any of these 
patent infringement lawsuits have ever succeeded. But the 
consequence of that 30-month stay has meant that in recent 
years, not in the beginning but in recent years, they can just 
file a frivolous lawsuit and then stop a generic from going on 
the market. Then they can come in with another frivolous patent 
and follow it with a lawsuit and get even a further extension--
--
    Mr. Shimkus. If I can reclaim my time, though, going back 
to the chart, if there are cases where there are duplicate 30-
month stays, that stills fall short of the original patent 
term?
    Mr. Waxman. Well, if the gentleman would yield, the time is 
restored, so that the original patent term is in effect 
extended to these under that time.
    Mr. Shimkus. Yes, this is really for infantrymen, a 
simpleton, this is--I am trying to get a handle on this, and I 
appreciate my colleague's patience. I will ask this again in 
the next panel.
    I yield back my time.
    Mr. Deal. Mr. Pallone.
    Mr. Pallone. Thank you.
    I have to say, Dr. Crawford, I am very frustrated by the 
testimony today because I don't think you are really being 
helpful in terms of telling us what needs to be done here. Let 
me just outline.
    I mean, I see this FTC report as being extremely helpful 
and basically saying that there is abuse of the system with the 
30-day stays, with the Orange Book listings. Then Mr. Troy 
says, ``Well, there's gaming on both sides of the aisle or both 
sides, generic and''--not the aisle, I guess that is wrong--you 
know generics and brand-name, almost like you are trivializing 
the problem that we have been highlighting here with the Orange 
Book listings and the 30-day stays.
    Then, Dr. Crawford, you say that the FDA can't really 
address the abuses outlined in the FTC report about the Orange 
Book listings. Then, with Mr. Waxman, you said that the agency 
doesn't have the resources or expertise to review patents, and 
even with additional funding, you are not going to be able to 
obtain the resources. Then you come and tell us, ``Well, we are 
not in favor of passing S. 812 because it is going to stifle 
innovation.''
    I mean you are either an expert or you are not. I mean you 
are either going to tell us that there is something to be done 
here to correct these abuses that the FTC report has outlined 
on both sides--I mean, S. 812 addresses the generic abuses as 
well as the brand-name abuses, if you will. But, you know, it 
can't be both ways. It seems to me you are almost like saying 
two things at the same time.
    You either have the expertise to tell us that S. 812 is not 
a good idea because it is going to stifle innovation and then 
you can't come back and tell us, ``Well, we don't have the 
expertise to deal with addressing the abuses.'' Why do you feel 
that S. 812 is going to stifle innovation? It seems to me that 
it doesn't do anything that is damaging to the patent system. I 
don't understand that statement at all, and I don't understand 
how you are saying both of these things at the same time.
    Mr. Crawford. I am going to ask Mr. Troy to follow up, but 
what I had reference to is that FDA basically does not have 
expertise in patent law.
    Mr. Pallone. Right, but then you tell us we shouldn't pass 
S. 812.
    Mr. Crawford. Yes.
    Mr. Pallone. So why, if you don't have the expertise, why 
are you telling us that?
    Mr. Crawford. I can give you two things. One is the 
original statement that the administration put out, which is 
very brief. That is, we support steps to encourage fair 
competition and appropriate use of generic drugs and recognize 
that some adjustments to current law would improve the fair 
entry of generic substitutes into the market and prevent future 
abuses of the patent law.
    Mr. Pallone. What do you want us to do? You say that S. 812 
is no good. Why is it----
    Mr. Crawford. I have already said that one thing that we do 
not oppose is a system where there is only one 30-month 
extension. Presently, there can be multiple 30-month 
extensions.
    Mr. Pallone. But tell us why you think that S. 812 is going 
to stifle innovation. Why is there a problem? It clearly 
addresses the problems on both sides that the FTC report brings 
up. So why is it a problem? Why isn't it a good thing? Because 
you say you don't have the power to address these abuses.
    Mr. Crawford. Right.
    Mr. Pallone. We are going to fix it by passing the Senate 
bill, but then you tell us it is not a good idea and you don't 
have the expertise, but you are telling us anyway.
    Mr. Crawford. I am going to ask Mr. Troy to make some 
specific references to our testimony, and then I will follow up 
with a more----
    Mr. Pallone. But I want an answer to my question about why 
we shouldn't pass S. 812.
    Mr. Crawford. That is what he is going to give you.
    Mr. Pallone. Okay.
    Mr. Troy. The problem with S. 812, Congressman Pallone, is 
not that it would restrict multiple 30-month stays. There are a 
host of other things that are unfortunate add-ons to S. 812, 
and I will give you two specific ones.
    Mr. Pallone. So you don't have a problem with the aspect, 
with the 30-day stay?
    Mr. Troy. The administration never said it had a problem 
with that.
    Mr. Pallone. Okay, keep going.
    Mr. Troy. One is that it would allow any generic 
manufacturer to sue sponsors to correct or delete patent 
listings, and we believe that that provision would encourage 
lawsuits.
    The second, and much more important, problem is that, if 
you fail to file certain things within timeframes, it would 
permanently bar patent-holders from bringing suits for patent 
infringement. It is one thing to target a bill that focuses on 
the later-listed patents and the 30-month stay issue, the 
multiple 30-month stay issue.
    What S. 812 does is it goes beyond that and seems to impose 
barriers and seems to attack the so-called good patents, the 
upfront patents, the $800 million patents----
    Mr. Pallone. I am running out of time. Aren't those a 
little specious by comparison to the good that is done in 
addressing the FTC problems that have been raised?
    Mr. Troy. The FTC does not call for any of those additional 
things that are in S. 812.
    Mr. Pallone. No, I understand, but I mean the things you 
are mentioning pale by comparison to the good that would be 
achieved.
    Mr. Troy. With all due respect, Congressman Pallone, it 
seems to me that, if you end up forfeiting patent rights, not 
the successive 30-month stay but forfeiting the patents, and 
these are the patents that go to the NDA, not the later-listed 
patents, that that could have very dramatic consequences for 
innovation. That is the problem.
    Mr. Waxman. Would the gentleman yield?
    Mr. Pallone. Yes.
    Mr. Deal. The gentleman's time has expired.
    Mr. Waxman. I ask unanimous consent the gentleman be given 
1 additional----
    Mr. Deal. Let's follow regular order.
    Mr. Waxman. I asked unanimous consent. If somebody 
objects----
    Mr. Deal. Are there objections?
    [No response.]
    All right.
    Mr. Pallone. I yield to the gentleman.
    Mr. Waxman. Just to clarify the point, Mr. Troy, you are 
saying you don't want the generics to be able to do anything to 
delist a patent they don't think is valid because you think it 
is going to encourage lawsuits. But the whole idea of the 30-
month stay, based on a lawsuit by the brand-name companies, 
encourages frivolous lawsuits on their part.
    In my point of view, as the original author of this bill, I 
don't even think we ought to have one 30-month stay. The reason 
for it originally doesn't exist today. But if you are talking 
about encouraging lawsuits, if you can't judge whether a patent 
is valid or not, why not let a generic company file a lawsuit 
to delist it and let the courts decide, because you don't have 
the capability at FDA to decide this issue?
    Either way, it is going to be a court deciding it. Either 
way, you think the lawsuits are not going to be meritorious; 
let a court decide it.
    Mr. Pallone. Before the time runs out, could I ask you to 
send us something, with the chairman's indulgence, to send us a 
followup about those issues that you mentioned with regard to 
S. 812? I would really like to see you provide more details 
about those comments that you made, if you could.
    Mr. Troy. I think what I am saying is in the statement of 
the administration policy----
    Mr. Pallone. Okay.
    Mr. Troy. [continuing] and we would be happy to send you 
that.
    Mr. Pallone. Okay.
    Mr. Troy. It is one thing, Congressman Waxman, if I may, 
for the consequence to be the loss of a successive or even 
first 30-month stay. That would be one thing. But if they don't 
list things properly, they lose the opportunity to get even a 
first 30-month stay. I am not saying that the administration 
endorses that, but that is one consequence or remedy.
    But the remedy that S. 812 imposes would be the loss not 
just of the 30-month stay, but of the ability to enforce the 
underlying patent. The intellectual property rights themselves 
would be at stake and would be at issue. That is the problem.
    Mr. Waxman. I don't see that. I don't see it. I know my 
time has expired, but I think you are offbase on that. I think 
you are wrong.
    Mr. Deal. Mr. Burr.
    Mr. Burr. I thank the Chair.
    I want to take this opportunity, Dr. Crawford, to say 
welcome, as well as to our witness from the FTC.
    It is not too tough to believe that we would have 
difficulty trying to interpret what Hatch-Waxman did because, 
in fact, it was a political document. It was as much a 
political document as it was a policy statement. At the end of 
a day in a room there was give and take to try to meet the 
needs and define the balance that, Dr. Crawford, you have 
mentioned as an agency you try to maintain.
    That is very difficult to maintain over time because times 
have changed. There are more generic manufacturers at the gates 
ready to produce products to fill the need in the pipeline, and 
there are clearly more New Drug Applications this year than 
there were last year that do seek some type of patent 
protection.
    I guess my first question to you is, if we eliminated 
patent protection for the pharmaceutical or biologics or 
medical device industry, what would happen?
    Mr. Crawford. Well, what would happen is what has happened 
in many other countries. That is that pharmaceutical research 
and development would decline.
    We have talked earlier in this hearing about prices and 
price schedules, and how drugs are cheaper in certain other 
countries. Those are, for the most part, countries that do not 
develop drugs. The world depends on the United States, the 
viability of the United States pharmaceutical research and 
development establishment.
    One of the reasons that it is able to do what it does to 
regularly supply the world not only with effective drugs of 
longstanding, but new, breakthrough drugs that really mean 
something to individual disease sufferers is because of the 
equanimity that has been imposed by bills such as Hatch-Waxman 
in its original form and also because of FDA's steady drive to 
do a more effective and efficient job of approving these drugs 
and getting them on the market.
    Mr. Burr. In fact, in doing that, the quality of life for 
patients across this country has been improved, and in many 
cases we have shifted what was before limited options, some 
surgical, some inpatient, and we have defrayed that cost. Even 
though pharmaceutical cost has increased, the options that we 
have supplied to patients are that much more. That is 
beneficial, and I think most in this country agree.
    The debate today is on a very small piece of the pie. We 
would all love to see more generics to the marketplace faster, 
but I think we all agree not until the patent life is over.
    Now both of our witnesses today have talked about some 
people who want to game the system. I want to go to the FTC 
study that was released in June. I think in that study it 
suggested that since 1992, if my numbers are correct, there 
were 8,000 Abbreviated NDAs filed. In fact, in that same period 
there were 104 NDAs and ANDAs with paragraph (IV) 
certifications, meaning there were 8,000 generics that wanted 
to come to the marketplace.
    There are 104 that fall into this category that we are here 
discussing today. Twenty-nine of the NDA-holders didn't 
question it. So that left 75 that NDA-holders sued on. Of those 
75, 53 of the NDAs have had resolution, two where the patent 
expiration expired before the litigation. Twenty cases were 
settled. Twenty-two generic applications were won. Eight brand-
name companies won. The NDA was withdrawn before litigation 
resolved in one.
    On the other side of the coin, there were 22 where the 30-
month stay and/or additional-month stays went into effect. 
Fifteen are in the initial 30-month stay period. Seven--seven--
are in additional 30-month stay periods because the initial 30-
month stay has expired, less than one-tenth of 1 percent of the 
applications that have been filed.
    Mr. Muris, am I correct with your chart?
    Mr. Muris. Yes, but I think the relevant universe is much 
smaller. I think the relevant universe that we studied, in 
fact, were the 104 brand-name drug products since 1992. Of that 
universe, we found 14 instances where there was an agreement 
with the potential to park the 180 days, which could be a 
problem, and we found eight cases of these late-listed patents 
that certainly appear to be problems.
    Thus, I certainly agree with the implication that in the 
overwhelming majority of instances there aren't problems, but I 
think the relevant denominator is somewhat smaller.
    Mr. Burr. My time has run out, but I would say that on a 
number of those that you just gave a number to, Dr. Crawford's 
and the FDA's intent to try to look at those patents and I 
guess evaluate whether they were substantial enough to 
contribute to the health of the individual and to the efficacy 
of the product, an enhancement, a true enhancement other than 
cosmetic, would, in fact, solve the majority of the numbers you 
just talked about.
    I believe the hope of every member of this committee is to 
develop a way for generics to come in a quicker way, in a more 
abundant way, to where there's competition throughout the 
marketplace. I thank both of you for helping us get there.
    I yield back.
    Mr. Deal. Dr. Norwood.
    Mr. Norwood. Thank you very much, Mr. Chairman.
    Dr. Crawford, nice to see you again.
    Mr. Crawford. Good to see you, sir.
    Mr. Norwood. Thank you for being here with us.
    Mr. Crawford. Thank you.
    Mr. Norwood. Over the last 20 years, we have gone from 80 
percent brand and 20 percent generic to 50 percent generic, 
which is probably a good thing. Tell me just your feelings 
about what would happen to those numbers should we pass the 
Senate bill and it becomes law.
    Mr. Crawford. Well, I think we would lose ground. It is not 
possible to say what the percentage change would be. One is 
tempted to say we might go back the way we were before Hatch-
Waxman, but we don't have enough evidence to make a statement 
like that. But it is my opinion that we would lose ground.
    Mr. Norwood. When you say, ``Go back like it was before we 
had Hatch-Waxman,'' does that mean we would go back and we 
would have 20 percent brand and 80 percent generic?
    Mr. Crawford. No. No, it doesn't mean that. I can't predict 
that. But I think that what would happen is, if there is a 
compromise of intellectual property rights such as Mr. Troy 
outlined, what happens in cases like that is a company has to 
determine whether or not they are going to pursue the approval 
of a product or a category of products or whether or not they 
would keep producing what are called ``me-too'' products, that 
is, those that are already on market in slightly different 
forms, as you well know.
    So I think there would be a compromise of the robust R&D 
environment that we have seen over the last few years, a great 
deal of which has been due to Hatch-Waxman.
    Mr. Norwood. Well, I get the feeling that those who would 
like the Senate bill just as it is like that idea because they 
think that we will get a great deal more generics to the 
market. I mean, that is what I sense out of this conversation 
that I hear for people who are for it.
    I keep wondering how the patient would fare in that, if in 
fact this bill allowed the market to change to the point where 
75 percent of the drugs--and, clearly, that has to relate to 
R&D is what I mean by the patient and innovative new drugs. 
Can't any of us even speculate a little bit? Might not that 
bill as it is almost reverse what has happened in Hatch-Waxman 
over the 20 years?
    Mr. Crawford. I would say one thing that it would do, in my 
opinion, as you know, for every generic drug and every 
application or certification under Hatch-Waxman there is a 
referenced innovator drug. There is a pioneer drug that is on 
the market and that was produced by this system that I 
described a few minutes ago.
    Eventually, if there is a tamping back of the R&D 
enterprise in this country, and I don't see any other country 
able to make up for that slack, there won't be as many generic 
drugs because there will be nothing to reference. Any viability 
in the generic drug industry would largely be a representation 
of imitations of products that we already have on the market.
    So, in order to have a viable generic drug industry and one 
that really does good for the sick people of this country, you 
need a viable R&D enterprise.
    Mr. Norwood. So might not we be where we need to be without 
passing this bill?
    Mr. Crawford. Without passing----
    Mr. Norwood. Passing the Senate version.
    Mr. Crawford. [continuing] the Senate bill?
    Mr. Norwood. Yes. Might not we be taking some risk in 
passing that bill?
    Mr. Crawford. Yes.
    Mr. Norwood. Mr. Troy, Mr. Waxman disagreed with you on S. 
812 and patent infringement and changing the patent laws. Were 
you giving a legal opinion?
    Mr. Troy. Not really. I was reading from page 10 of S. 812 
which says, ``No claim for patent infringement,'' that says, 
``An owner of a patent with respect to which a holder of an 
application under subsection (b) of 505, if they fail to file 
information on or before a date required, shall be barred from 
bringing a civil action for infringement of the patent against 
a person that.''
    So the point is, if you fail to file the requisite 
information or a court determines that you didn't file the 
requisite information, then you lose the ability to have, to 
quote the title, ``No claim for patent infringement.'' Later, 
on pages 15 to 16, it says, ``Failure to bring an infringement 
action,'' and ``you are barred from bringing a civil action for 
infringement of the patent in connection with the development 
and manufacture, use, offer to sell.''
    The point is it is not just about eliminating one 30-month 
stay per NDA, as the FTC recommends. What S. 812 does is it 
goes far beyond that, and it would compromise intellectual 
property rights in a manner that is damaging, as you suggest 
and as you propose and as you are talking about.
    Mr. Norwood. Mr. Chairman, I see the red light. I am sure 
not through, but I will thank you for the time.
    Mr. Deal. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Muris, what can you tell me about these late-filed 
patents? We have heard that some of them don't actually cover 
the approved drug. What about the late-filed patents that do 
appear to cover the approved drug? PhRMA would argue that they 
cover important innovations that must be protected, but in the 
FTC's experience how often do they represent important 
innovations?
    Mr. Muris. Our complaint and problem with these eight late-
listed patents on eight drug products deals with the 
listability. We think that patents on all eight drug products 
could be the subject of non-frivolous challenges, and in four 
of them, courts have ruled that the patent was either invalid 
or not infringed. In a fifth, we have a consent agreement where 
we have successfully challenged a late-listed patent.
    We therefore think there are serious problems with late-
listed patents. Again, by late-listed, I mean our definition, 
which is different than S. 812's definition. Our definition 
would be after the ANDA.
    Mr. Stupak. Sure. Well, the possibility that significant 
delays do occur, and I think we have seen somewhere from after 
the 30 months it was 4 months to as many as 40 months----
    Mr. Muris. Yes.
    Mr. Stupak. [continuing] before the issue is resolved, so 
you have a lot of delay. Based upon either it is late-listed or 
improperly filed patents, it would suggest at least that we 
need some mechanism to challenge these patent listings. Is 
there currently a viable method for generics to challenge 
questionable patent listings? Do you agree or disagree that 
there should be some mechanism involved?
    Mr. Muris. There is not. In fact, the courts have held 
there is not. But we recommended a narrower right of action 
than S. 812. We recommended that the generic be allowed to file 
a counterclaim challenging the listing. We think, if there 
wasn't a suit against the generic in the first place, there 
wouldn't be a problem. So we think the counterclaim would take 
care of the issue.
    Mr. Stupak. Okay. Dr. Crawford, if I may, along these lines 
of questioning then, who is responsible for assuring that 
patents are properly listed in the Orange Book?
    Mr. Crawford. We enter in the Orange Book on an annual 
basis with an updating of each approximately every 30 days, but 
FDA does that ministerially. When the patents are submitted to 
FDA, we simply list them. We make no judgment about them.
    Mr. Stupak. Well, don't you think there should be some 
judgments made before they are listed in the Orange Book, so we 
don't have these problems and delays, especially with generics?
    Mr. Crawford. The problem is that the PTO has granted the 
patent, and it has never been, ever since the advent of the 
Hatch-Waxman, it has never been the province of FDA to 
challenge that. Another agency of the government expert in 
patents and trademarks has basically issued a patent, and we 
have not done that.
    Mr. Stupak. Sure, but since the Waxman-Hatch Act has been 
involved, this has been an ongoing problem. Since 1998, it has 
only increased, hasn't it?
    Mr. Crawford. Since 1998----
    Mr. Troy. Well, if I may, Congressman?
    Mr. Stupak. Sure.
    Mr. Troy. In fact, the problem is, if you end up allowing a 
lawsuit against the FDA, because that is what would happen if 
you got us into the judgment of listing and delisting patents 
on a discretionary basis, you would end up having a lawsuit 
anyway. So I thought that the wisdom of Hatch-Waxman was to 
say, ``Look, the courts really are the province. They are 
experts in assessing the validity of patents once they have 
been granted by the Patent and Trademark Office.''
    So the statute says, upon the submission of patent 
information under this subsection, the Secretary ``shall'' 
publish it. Courts, including the Fourth Circuit Court of 
Appeals have held that that is an administerial burden on us, 
and we have no discretion.
    In addition to the----
    Mr. Stupak. You have no discretion, so you are claiming. 
But, obviously, you have recognized a problem here. So my 
question is: Has the FDA sent up to Congress--because they say, 
``We wash our hands of it. Congress has to resolve this.'' Have 
you sent up any language or anything to Congress saying, 
``Here's how we would suggest you fix this, so we don't have 
these loopholes and delays in getting generics to the 
market.''?
    Mr. Troy. Well, to the extent that any such language would 
get us in the business of reviewing patent listing, we are not 
actually interested in sending such language because it gets us 
into a business that we don't think we can do. Again, I don't 
think it would fix the problem because it would just engender 
litigation against us. We've got enough.
    We have promised, I have talked about here, a number of 
things that we think we can do, like beefing up the declaration 
and like clarifying which patents can and cannot be listed in 
the Orange Book.
    Mr. Stupak. But even if you did all that, how do you intend 
to enforce the regulations, and then what goes into the Orange 
Book?
    Mr. Troy. Again, I think a beefed-up declaration, along the 
line that GPhA has proposed, would cut down, that plus 
clarification about what patents we think can and cannot be 
listed in the Orange Book would do a lot to cut down on 
listings that are improper. That is point one.
    Point two, again, we have said we do not oppose the idea of 
a single 30-month stay per ANDA. One of the reasons why people 
are so concerned about listings is because of the effect on the 
multiple and successive 30-month stays. If that problem were to 
go away, then you don't really have to spend a lot of time, it 
seems to me, on the listabilities and the listings issues.
    Mr. Stupak. But what I am hearing is, ``if this problem 
goes away''; that is a lot of ``what if's.'' The problem hasn't 
gone away. That is why, graciously to the chairman, we are 
having a hearing on this today.
    Actually, if you take a look at the brief that you filed in 
the Apotex case--is that the way you say it?
    Mr. Troy. Yes, yes.
    Mr. Stupak. You took the position there that there is a 
sufficient sanction to penalize companies who do not list 
patents in the Orange Book. On the other hand, the agency has 
opinioned that there is no penalty within the Food, Drug and 
Cosmetic Act for overlisting patents in the Orange Book.
    So which is it? You've got sanctions or you don't have any 
sanctions? What is the appropriate enforcement mechanism, is 
what I am trying to get at?
    Mr. Troy. As we have said, I think the appropriate 
enforcement mechanism is for the courts to assess the validity 
of the patents, as in the context of that challenge, we have 
neither the resources, the expertise, nor the authority to be 
reviewing the substance of the listings. Again, it wouldn't 
really help because we would end up in court with us being sued 
instead of the parties suing one another.
    Mr. Deal. The gentleman's time has expired. Mr. Buyer.
    Mr. Buyer. To the FDA, on page 15 of your testimony, you 
lay out four specific positions of the administration: harm to 
innovation and investments, will encourage litigation, reduce 
patent protections for drug developers. The Senate bill will 
also delay availability of generic drugs, reduce price 
competition. Those are four biggies.
    If the Senate bill were to be adopted as written by the 
House, based on these four positions, is this a piece of 
legislation that the President would veto?
    Mr. Crawford. I cannot speak for the President.
    Mr. Buyer. All right, let me repose the question.
    Mr. Crawford. Yes.
    Mr. Buyer. Would you submit a recommendation to the 
President to veto this bill, based on these four criteria?
    Mr. Crawford. That would be done north of me.
    Mr. Buyer. Now let me rephrase. Let me rephrase. You have a 
tremendous responsibility here.
    Mr. Crawford. Yes.
    Mr. Buyer. So what is your personal opinion in 
recommendation to the President, based on these four criteria, 
the administration's position?
    Mr. Crawford. I would hope this bill would not become law.
    Mr. Buyer. That would be your personal opinion?
    Mr. Crawford. Right.
    Mr. Buyer. To the FTC, in reviewing Senate bill 812, I 
notice that the bill would bar innovators from suing to enforce 
patents not listed in the Orange Book by certain deadlines. Is 
that something that the FTC recommended in its report?
    Mr. Muris. No, it was not.
    Mr. Buyer. I also see, under Senate bill 812, an innovator 
would have to sue within 45 days' notice in order to enforce 
its patent or lose all future rights to sue. Is that something 
that was recommended in the FTC report?
    Mr. Muris. No.
    Mr. Buyer. I also notice that it would create rolling 
eligibility for an award of 180 days' exclusivity. Is that 
something that the FTC recommended in its report?
    Mr. Muris. No. There are, as you are going through here, 
there are several differences and inconsistencies between S. 
812 and the FTC report.
    Mr. Buyer. What about the limiting 30-month stays for 
certain kinds of patents? Was that in the FTC report?
    Mr. Muris. I am not sure what you are driving at.
    Mr. Buyer. I will get there. What about creating a private 
right of action for delaying patents? Was that a recommendation 
from the FTC report?
    Mr. Muris. No.
    Mr. Buyer. The FTC report was over a year in the making and 
represents the agency's views on how Hatch-Waxman should be 
amended to facilitate generic entry while protecting incentives 
to innovate, is that correct?
    Mr. Muris. Yes, I believe that it was clearly a balance.
    Mr. Buyer. So, as I go through and hit the highlights here, 
none of these things that are in Senate 812 were recommended by 
the FTC. Your agency examined this a year in the making and now 
has testified that you attempted to strike a balance. So your 
testimony here today would be that Senate 812 does not strike 
the proper balance for this country?
    Mr. Muris. Let me make clear what the Commission said and 
what I am----
    Mr. Buyer. No. Will you answer that question yes or no?
    Mr. Muris. I can't answer it yes or no. So I won't say 
anything.
    Mr. Buyer. So Senate--all right, let me ask this.
    Mr. Muris. Would you like an honest answer or would you 
like----
    Mr. Buyer. No, I am going to ask this.
    Mr. Muris. Okay, fine.
    Mr. Buyer. I don't want you to waffle and that is what you 
are about to do.
    Mr. Muris. No, I am not about to waffle.
    Mr. Buyer. It is a very simple question.
    Mr. Muris. Happiy, I am not about to waffle.
    Mr. Buyer. Then give me your answer.
    Mr. Muris. All right, thank you. The Commission--I am just 
trying, and I apologize for getting a little hot there, I am 
just trying to distinguish between the Commission----
    Mr. Buyer. I asked you a very simple yes-or-no question, 
sir.
    Mr. Muris. I am trying to distinguish between the 
Commission, which is five people, and me, which is one 
Commissioner. That is all I am trying to do. If you will let me 
do it, I will do it.
    Mr. Buyer. Do it.
    Mr. Muris. All right. The Commission issued a report which 
it thought addressed the problems. There are some 
inconsistencies with S. 812, and there are some differences.
    Now when the Commission was doing the report, we didn't 
have before us S. 812. My personal opinion is that there are 
several parts of S. 812 that I would not favor. Indeed, I would 
favor what is in the Commission's report as to what is in S. 
812. But, again, the full Commission itself has not taken a 
position on S. 812.
    Mr. Deal. Mr. Pickering.
    Mr. Pickering. Mr. Muris, to follow up on that line of 
questioning, what are the provisions in H.R. 5311 or the Senate 
bill where you do agree?
    Mr. Muris. Well----
    Mr. Pickering. Not where you disagree, but where you would 
agree?
    Mr. Muris. I certainly agree that we should have one 30-
month stay.
    Mr. Pickering. There is some disagreement on whether it 
starts with the NDA or the ANDA.
    Mr. Muris. Yes. Yes.
    Mr. Pickering. What are the consequences of those two?
    Mr. Muris. That is an important question, and I am not 
positive of the consequences. Let me explain why.
    If you look at what we found, and this is not in our report 
because, again, we did not have S. 812 before us; we had these 
late-listed patents on eight drug products. That means late-
listed after the ANDA was filed. But if you look at the 75 
cases that we had where the NDA-holder sued the first ANDA 
filer, 17 of those would fit in the period between the NDA 
approval plus 30 days, which is the S. 812 standard, and the 
filing of the ANDA. In all of those cases I believe the patent 
was sought before the NDA approval plus 30 days.
    Most of these issues deal with formulation patents. Unless 
the branded companies could, under the S. 812 standard, have 
the patents approved more quickly, then the S. 812 standard 
would result in a significant difference with what we have 
proposed.
    What I don't know, and what you could ask the next panel, 
is what extent does that difference make. We found there are 
actually 23, and not 17. Six of the 23 were, in fact, issued 
before the NDA was approved. But they just didn't get around to 
filing them in the Orange Book. That is one of the differences.
    I realize this is very complex, but this could be a very 
significant difference between S. 812 and the recommendation 
that we made.
    Mr. Pickering. Would you oppose the S. 812 standard of NDA 
versus ANDA when the clock starts on a 30-month stay?
    Mr. Muris. I prefer our standard, but what I am saying is, 
I could be convinced----
    Mr. Pickering. Yes, you are not as adamant on that issue as 
you may be on some of the other issues?
    Mr. Muris. Yes, because I don't know to what----
    Mr. Pickering. That might be an area of compromise?
    Mr. Muris. What I would want to know, the reason is I am 
uncertain factually about the significance of this group in the 
middle, the 17 that we had. If, in fact, they could not 
accelerate patent approval, then I think that S. 812 would be 
working a major difference.
    Mr. Pickering. But the objective would be to stop the 
gaming and to have the generic available on time, when the----
    Mr. Muris. Right, but what I am saying is, these 17 cases 
did not involve, as far as we could tell, the kind of gaming 
that the later-filed patents on the eight drug products did. So 
I am saying, again, I would want to know factually from people 
in the industry and talk to people at the FDA about what the 
significance would be of adopting the S. 812 standard.
    Mr. Pickering. But would it be fair to say that the FTC is 
open on that issue?
    Mr. Muris. Well, again, when I am answering these 
questions, I am speaking only for myself.
    Mr. Pickering. You just want more information? You could be 
convinced by the industry if you see no adverse consequence?
    Mr. Muris. Sure, if, in fact, the 17, for a variety of 
reasons, could have qualified under the S. 812 standard, that 
would be very important to know.
    Mr. Pickering. Okay, Mr. Chairman, if I could have just one 
other line of questioning?
    On the 180-day exclusivity, does the FTC recommendation 
conform to S. 812 and the Thune legislation in the House? Does 
it differ? Do you have a significant issue with the proposed 
legislation as it addresses exclusivity?
    Mr. Muris. Yes. Again, the Commission did not address S. 
812, but the report does not suggest that the 180 days should 
roll. Again, not speaking for the Commission because the 
Commission hasn't talked about this--I think that rolling can 
be a process for gaming.
    We have seen in some of our cases, when you treat the 180 
days as a currency that can be traded----
    Mr. Pickering. Should we just do away with the 180-day 
exclusivity?
    Mr. Muris. We approached this as accepting the original 
Hatch-Waxman balance and accepting the 180 days as a fact. We 
saw nothing that we looked at that told us that there was a 
major problem with the 180 days in and of itself. Thus, I 
personally would not recommend eliminating the 180 days.
    Mr. Pickering. Could you modify it to have 180 days but you 
must go to market within that time?
    Mr. Muris. We have made three recommendations for 
clarifying when the 180 days begins to run. We think those 
recommendations, if they were accepted, would go a considerable 
way to eliminating problems.
    Mr. Pickering. Let me summarize real quickly where I think 
we might be. So FTC would make a compromise on NDA versus ANDA 
and on the 180-day exclusivity. On the rights to litigate, that 
is a more complicated and difficult task of reaching agreement. 
Would that be a fair summary of where we are?
    Mr. Muris. Let me summarize very quickly. There are several 
provisions of S. 812 that are inconsistent or different. Again, 
not speaking for the Commission--I personally would prefer to 
stick with what is in the Commission's report and not what is 
in S. 812. But, the Commission, not just me, does believe there 
should be legislation.
    Mr. Pickering. Thank you.
    Mr. Deal. The gentleman's time has expired. Mr. Wynn.
    Mr. Wynn. No questions. I yield.
    Mr. Waxman. I thank you for yielding. I thought Mr. 
Pickering's line of questioning was very helpful.
    Let's go back to the 180 days. The 180 days was put in 
there to give an incentive for a generic to step to the plate 
and challenge it, but we never thought the 180-day right to the 
generic to block another generic was going to be used as a way 
for a collusive agreement to stop any generics. So aren't we 
trying to deal with that problem, not to eliminate the 180 days 
but make sure that the 180-day does not become a barrier for 
any generic to get on the market?
    Mr. Muris. I agree with that, and that is the issue to 
which the Commission's report was addressed. I am afraid that 
S. 812, by allowing it to roll, could result in analogous sorts 
of games where, in fact, 180 days is extended and does become a 
barrier.
    Mr. Waxman. That is a fair issue to look at.
    Now on the question on the 30-month stay, the FTC 
recommended that if the patent-holder/approved drug 
manufacturer wants to stop a generic from competing, they can 
simply claim another patent. Then if the generic manufacturer 
wants to come in and compete, they can file a lawsuit, and that 
automatically stops that generic from competing for 30 months, 
which is a substantial period of time.
    The FTC has suggested that the generic manufacturer ought 
to be able to go to court in a counterclaim and say that the 
listing of the patent was not legitimate. Now my question to 
you is, what good does it do for the manufacturer of a generic 
company to make a counterclaim if they still get that 30-month 
period where they still can't compete, even if it was 
completely frivolous?
    Mr. Muris. I understand. Again, we support eliminating the 
multiple 30-month stays. There is an additional issue here 
which some of you have raised, which is there is no way to 
challenge the validity of a listing.
    Mr. Waxman. Right.
    Mr. Muris. We think, rather than a new private right of 
action, a counterclaim would be adequate to the task.
    Mr. Waxman. But a counterclaim doesn't solve the problem of 
the 30-month stay that would go into effect. So by the time 
they have their issue resolved, and it turns out that it was a 
frivolous patent, they have still lost 30 months.
    Mr. Muris. I agree, but, again, you need to couple our 
recommendations. You've got to consider our recommendations as 
a group.
    We would eliminate the multiple 30-month stays. We think 
the problem----
    Mr. Waxman. I am talking about if we have one 30-month 
stay.
    Mr. Muris. Okay, we found very few examples of the same 
sorts of challengeable patents in the original group as 
compared to the late-listed group.
    The second point is, the 30 months turns out to be a fairly 
good approximation of what happens in reality, how long it 
takes----
    Mr. Waxman. A lot of the generic companies dispute that. 
Some of them say they are getting approved faster, and the 
public ought to have the ability to have a generic, lower-
priced drug whenever it is appropriate. We shouldn't have an 
artificial 30-month stay if it is not based on a legitimate 
application of the law.
    Mr. Muris. But the reality is--let me make two last points. 
One, obviously, the counterclaim would terminate, if you went 
with the counterclaim, it would terminate the 30-month stay, 
just as now, if you win, it terminates a 30-month----
    Mr. Waxman. That is only if you win.
    Mr. Muris. Sure.
    Mr. Waxman. But the 30-month stay was supposed to stop a 
generic from competing 30 months or before the court acts, but 
there is no reason to want to get into court faster. Isn't the 
issue here the ability of a generic manufacturer to get some 
kind of resolution of the issue of whether the patent should 
have been listed or not? The FDA believes they can't make that 
decision, and I certainly sympathize with them.
    Mr. Troy is saying that these other provisions of stopping 
of a lawsuit up to 45 days and maybe losing your rights to sue 
up to 30 days, the essential point is to let the generic 
company be able to challenge the improper listing of a patent 
from which they are stopped for at least one 30-month period, 
maybe under existing law for more than one 30-month period. So 
we need some adjudication of that issue quickly, so that the 
public isn't denied the right for a generic drug, if it is 
appropriate that they should have a generic drug under the 
clear purpose of the law.
    Mr. Muris. There are several balls in the air here, and let 
me try to address at least two of them.
    In terms of what would the world look like without the 30-
month stay, we found, with or without litigation, it takes 
about 25\1/2\ months before the district court opinion or FDA 
approval. Obviously, they can't enter before FDA approval if 
there is no lawsuit, and they don't enter during the pendency 
of the district court litigation.
    So the difference between 30 months and 25\1/2\ months is 
not all that significant. Thus, if you eliminated the 30-month 
stay, what I am----
    Mr. Waxman. If it is a blockbuster drug, it is very 
significant, and why should you have something that is 
arbitrary? If FDA is improving in the speed at which they get 
drugs on the market, whether it is a brand-name drug or a 
generic drug, which we want to encourage, why should we have 
some artificial 30-month period based on a patent that wasn't 
appropriate to list and for which there should be any stay of a 
generic competitor?
    I guess let me have that out there----
    Mr. Bilirakis. The time has expired. Mr. Muris, just 
respond to that question, and then let's move on because we've 
got a panel that has been sitting here since 10 o'clock.
    Mr. Waxman. I had that more as a rhetorical question, but I 
think it is an issue that needs to be addressed.
    Mr. Muris. May I respond?
    Mr. Bilirakis. Please, briefly.
    Mr. Muris. We accepted the validity of the 30 months, and 
we said that, in fact, 25\1/2\ months and 30 months are not 
that far apart. It is true for a blockbuster drug that it would 
be significant.
    If you wanted to reopen the question as to what was the 
right period of time, obviously, then you could look and say, 
well, 25\1/2\ months is shorter than 30 and make your decision. 
Again, we accepted the validity of the 30 months, the 180 days, 
and tried to see what the evidence bears on those issues.
    Mr. Bilirakis. All right, the gentleman's time has expired. 
I think we should just consider this finishing up with this 
panel.
    Mr. Brown. Mr. Chairman, could I have 2 minutes to follow 
up with----
    Mr. Bilirakis. Are we ever going to finish here?
    Mr. Brown. Yes, if I have my 2 minutes, we will, Mr. 
Chairman.
    Mr. Bilirakis. Well, your 2 minutes will result in----
    Mr. Brown. The chairman promised Mr. Waxman a couple of 
minutes on a partial round.
    Mr. Bilirakis. I understand Mr. Waxman has had considerably 
more than a couple of minutes. We made that promise, but----
    Mr. Brown. But, no, he had Mr. Wynn's time. Mr. Chairman, 
Mr. Muris said several things. I just want to----
    Mr. Bilirakis. Without objection, the gentleman has 2 
minutes.
    Mr. Brown. This is such an important----
    Mr. Waxman. I object.
    Mr. Bilirakis. Objection?
    Mr. Waxman. Would the gentleman permit, if he would yield 
to me? Look, I was able to get additional time on Mr. Wynn's 
time. Mr. Brown is requesting two more. This is a complicated 
issue, and I don't think anybody else is going to ask for more 
time.
    I will withdraw the objection.
    Mr. Bilirakis. Yes, I appreciate the gentleman withdrawing, 
but the truth is we've got to finish sometime with this panel. 
We have had another panel sitting there 4\1/2\ hours. Let's be 
fair. The Chair yields to Mr. Brown.
    Mr. Brown. On your 25\1/2\ months versus the 30 months, 
first of all, I think the extra 4\1/2\ months on a drug like 
Prilosec or a drug that has $3, $4, $5, $6 billion in sales, 
there is a huge amount of money at stake for the Nation's 
consumers or the Nation's businesses, or whatever.
    Second, I am not sure that there is any incentive to 
squeeze that 25\1/2\ months down when it really doesn't matter 
because they are getting this 30-month extension anyway.
    Third, I wonder why we can approve a new drug so much more 
quickly and a generic drug so slowly when one would think that 
you could do the generic drug at least as quickly. But we have 
shoveled more and more money into the approval process on new 
drugs and we have underfunded the generic drug approval.
    So couldn't we, couldn't the FDA--and I am asking Mr. Muris 
or maybe both of you, quickly--couldn't we get the FDA to 
shrink that 25\1/2\ months significantly? Then there is no 
longer the discussion, why should the 30-month--it doesn't 
matter if we repeal it because the 30-month one is arbitrary.
    Second, it is not so similar in time if we can reduce that 
25\1/2\ down to 18, which many say it has been, and maybe down 
further, if we can provide the resources for----
    Mr. Muris. But the issue is what happens in a lawsuit. What 
happens in a lawsuit is obviously both parties are involved.
    When there is a district court lawsuit, and we found the 
generics win most of the cases, if that judgment dissolves the 
30-month stay, as we believe it does and should, then you will 
have generic entry in most cases.
    We have found that the generics, because they have won 13 
out of 14 cases on appeal, the generics are willing to enter 
after a district court decision. So I think that we are mostly 
talking about a non-issue here. In fact, that is probably why 
none of these bills that I know of are talking about getting 
rid of the initial 30-month stay.
    Mr. Brown. Actually, the original Brown-Emerson bill does. 
We pursued the Senate version because we thought, if we can get 
Republican leadership to schedule it for a vote, we wanted to 
do it quickly, get the Senate version, get it back in its 
identical version and get it to the President.
    So, no, in fact, the first bill out there, the original 
Schumer-McCain and the original Brown-Emerson did have 
elimination of the 30-month.
    Mr. Bilirakis. The time of the gentleman has expired.
    Mr. Brown. Thank you, Mr. Chairman.
    Mr. Bilirakis. Dr. Crawford and Mr. Muris, thank you so 
very much. We appreciate your patience. We customarily do have 
written questions that we submit to you. We would hope that you 
would plan to respond to those questions in a reasonable period 
of time.
    Thank you so very kindly for being here.
    Mr. Crawford. Thank you.
    Mr. Muris. Thank you.
    Mr. Bilirakis. Panel two, finally: Ms. Kathleen Jaeger, 
President and CEO of Generic Pharmaceutical Association; Dr. 
Gregory J. Glover, Ropes and Gray here in Washington, DC, on 
behalf of PhRMA; Dr. Sharon Levine, Associate Executive 
Director of The Permanente Medical Group, on behalf of 
RxHealthValue, and Dr. Mark Barondess of Annapolis, Maryland, 
Dr. Barondess being a J.D.
    Well, ladies and gentlemen, the clock is set at 5 minutes. 
Your written statement, of course, is a part of the record. We 
would hope you would complement it or supplement it. We would 
appreciate it if you could stay as close to the 5 minutes as 
you can.
    We will kick off, if she is ready, with Ms. Jaeger.

 STATEMENTS OF KATHLEEN D. JAEGER, PRESIDENT AND CEO, GENERIC 
PHARMACEUTICAL ASSOCIATION; GREGORY J. GLOVER, ROPES AND GRAY, 
    ON BEHALF OF PhRMA; SHARON LEVINE, ASSOCIATE EXECUTIVE 
     DIRECTOR, THE PERMANENTE MEDICAL GROUP, ON BEHALF OF 
              RxHEALTHVALUE; AND MARK A. BARONDESS

    Ms. Jaeger. Chairman Bilirakis, Congressman Brown, and 
members of the subcommittee, thank you for the opportunity to 
testify on the very important subject of the refinements to the 
Drug Price Competition and Patent Restoration Act of 1984.
    The 1984 act is a landmark consumer piece of legislation 
that has opened the door to prescription drug competition. In 
1984, Congress determined that the balance between incentives 
for innovation and the opportunities for competition were out 
of kilter. This subcommittee and its members played a central 
role in the adoption of the legislation that was intended to 
restore this balance.
    The incentive piece of the act has been extremely 
successful. It has yielded important new medicines and generous 
profits to drug companies.
    On the competition side, the benefits of the act have also 
been significant. The percentage of prescription drugs sold in 
generic form has risen from 19 percent in 1984 to 47 percent 
today. So that generics are currently saving consumers, the 
Federal Government, and health care providers $10 billion each 
year.
    But we are losing important opportunities to save more. 
This is despite the fact that there's been an increase in 
generic usage, and the percentage of prescription drug 
expenditures dedicated to generics has been declining and is 
now at 8 percent. In other words, 92 cents of every 
prescription dollar goes toward a brand product.
    This is important because an increase of just 1 percent in 
generic utilization would save an additional $1.3 billion. 
Doing simple math, an increase of just 10 percent yields $13 
billion in savings.
    Relevant to today's hearing is that the balance has shifted 
as a result of some brand companies using innovative and 
creative skills to exploit the system's loopholes in order to 
block generic competition. One of these loopholes which we have 
heard a lot about, and is the subject of the FTC report, is the 
30-month stay. The FTC report identified and confirmed that, 
indeed, abuses are occurring, and that these abuses must be 
addressed if goals of the act are to be preserved.
    The greatest area of abuse, as I said, is the 30-month 
stay. Under this provision, when a generic challenges a brand 
patent and the brand company sues on that patent, FDA approval 
of the generic product is automatically blocked for 30 months. 
This block occurs regardless of the patent's merits.
    In other words, the system bestows a financial windfall to 
the brand company for merely suing a generic firm, regardless 
of whether the patent at issue is properly listed. 
Inappropriate patents, patents that do not claim the brand 
product, cannot only trigger a 30-month stay, but in some 
instances result in multiple stays.
    Let's look at some facts. Patent listings have increased 
from two patents in 1984 to on average for blockbusters today 
of 10 patents. Correlating to this fact is that patent 
challenges have increased from 2 percent of generic 
applications in 1984 to 1989, to 12 percent in 1990 to 1998, 20 
percent in 1998 to 2000, and last year to 28 percent. There is 
no reason why this trend will not increase unabated.
    The FTC report documents that abuse of the 30-month stay by 
the brand industry is a strategy used by some brand companies 
in the last few years to maximize profits on blockbusters. The 
FTC report suggests that not only will this trend get worse, 
but this abuse has real-world consequences.
    Despite the FTC's findings, the Senate's approval of GAAP 
by a 78-to-21 vote, and the coalition members supporting that 
bill, PhRMA charges the generic industry is overstating its 
case. It argues that the current system works well.
    Clearly, they have not put this argument to a vote by 
consumers, businesses, and other purchasers. PhRMA's argument 
ignores the single mother of an asthmatic child requiring the 
drug Maxar who can't get an affordable equivalent because the 
patent is listed, not on Maxar, the drug, but on the new 
container that houses Maxar.
    PhRMA's argument also ignores the cancer patient who will 
have to pay the higher brand price for years to come because 
the brand company listed two patents that define how product 
information should be inserted into pharmacy computers, solely 
to block generic competition.
    Another well-known example is the anti-depressant Paxil, 
which has annual sales of $2 billion. The two major patents, 
the basic compound patent and the first-method-of-use patent, 
expired in 1992 and 1994, respectively. Yet, the brand company 
has sued a generic firm for infringement of five other patents, 
thereby generating five new 30-month stays, totaling 65 months, 
and costing consumers billions of dollars.
    Like many of our coalition partners, GPhA believes a 30-
month stay provision should be eliminated in its entirety, 
although we do endorse the one 30-month stay compromise 
recently passed overwhelmingly by the Senate. This compromise 
is also included in the House companion legislation that is 
currently pending before this committee.
    The Congressional Budget Office reported that American 
consumers will save $60 billion over the next 10 years if 
Congress enacts GAAP. CBO has already proven our main point of 
this debate. Fair competition is pro-consumer and pro-savings.
    Mr. Bilirakis. Please summarize, Ms. Jaeger.
    Ms. Jaeger. I would be pleased to.
    GAAP does not change patent law. GAAP is merely a rule 
change, if you will, a refinement of existing law that 
addresses current system abuses and trends. GAAP would restore 
the intended balance between innovation, competition, and 
access. We urge the House to immediately approve legislation 
like H.R. 5272 and H.R. 5311. Thank you.
    [The prepared statement of Kathleen D. Jaeger follows:]
  Prepared Statement of Kathleen D. Jaeger, President & CEO, Generic 
                       Pharmaceutical Association
    Chairman Bilirakis, Ranking Democrat Brown, and distinguished 
Members of the Subcommittee. My name is Kathleen Jaeger, and I am 
President and CEO of the Generic Pharmaceutical Association. I am also 
a pharmacist and an attorney, who specializes in FDA-regulatory law. 
Coming from a family-owned pharmacy background, I understand the 
critical role that both brand and generic pharmaceuticals play in our 
health care system. Thus, the relevant debate is not about the value of 
brand products or generic products--again both provide tremendous 
value. Rather, the issue is the need to restore predictability to the 
Hatch/Waxman system--to ensure that the system is fair and just for all 
affected parties, especially consumers.
    GPhA represents manufacturers and distributors of finished generic 
pharmaceutical products, manufacturers and distributors of bulk active 
pharmaceutical chemicals, and suppliers of other goods and services to 
the generic pharmaceutical industry. GPhA members manufacture more than 
90 percent of all generic drug doses dispensed in the United States. 
Over one billion prescriptions are filled with our products every year. 
We are a significant segment of America's pharmaceutical manufacturers. 
No other industry has made, or continues to make, a greater 
contribution to affordable health care than the generic pharmaceutical 
industry.
    On behalf of GPhA and its more than 140 members, I want to thank 
you for convening this hearing. It is critically important that we 
address the issues related to increasing access to prescription drugs 
while assuring that American consumers can afford the medicines they 
need. With such a short time remaining before Congress recesses, a 
unique opportunity exists: to pass legislation that will take a 
meaningful step towards reducing the cost of prescription drugs over 
the next decade.
    Today, I will discuss the current landscape of the pharmaceutical 
industry, both generic and brand, and how the Federal Trade Commission 
(FTC) identified abuses under the present construct, with their trend 
analysis indicating that these abuses will only get worse in the 
future. The FTC report accurately diagnoses system abuses involving the 
30-month stay provision among others. Congressional Representatives 
have proposed thoughtful and a narrowly targeted legislative solution 
that would address these abuses by closing several unintended loopholes 
in Hatch/Waxman. Legislation that is critically necessary to avoid 
unnecessary future expenditures, which cost consumers billions of 
dollars in lost savings.
    I will explain why the approval by the House of Representatives of 
H.R. 5311 and H.R. 5272, the Greater Access to Affordable 
Pharmaceuticals Act (``GAAP''), would create billions of dollars in 
prescription drug cost savings without harming the brand pharmaceutical 
industry or sacrificing brand product innovation.
    I will also provide compelling evidence that legislation such as 
this would restore the balance between brand-name innovation and 
generic competition that lies at the heart of the Hatch/Waxman Act. In 
doing so, I will review the positions of the Congressional Budget 
Office and the FTC, which confirm the need for legislative intervention 
in this area.
       i. background--generics save consumers billions each year
    I will start with a brief overview of the contribution of the 
American generic pharmaceutical industry.
    The Drug Price Competition and Patent Term Restoration Act of 1984, 
also known as Hatch/Waxman, extended product monopolies on brand drugs 
in exchange for the establishment of a regulatory process for 
affordable medicines--an Act that created the modern generic 
pharmaceutical industry. This process was designed to streamline the 
approval process for generic drugs, which can only enter the market 
after the expiration of all valid and non-infringed patents that 
protect the equivalent brand drug products.
    Since 1984, the use of generic pharmaceutical products saves 
millions of dollars for consumers and taxpayers each and every day. 
These savings amount to more than $10 billion dollars in lower health 
care costs each year. For the last couple of years, about 45 percent of 
all prescriptions were filled with generic drugs. But while nearly one 
in every two prescriptions was filled with a generic drug, only about 8 
percent of all dollars spent on drugs were spent on generic medicines. 
Conversely, brand name prescription drugs represented 53 percent of all 
prescriptions but consumed approximately 92 percent of all drug therapy 
dollars spent. The top ten brand pharmaceutical companies accounted for 
61 percent of all pharmaceutical sales.
    These numbers reveal a stark reality: brand name prescription drugs 
exceed the cost of generics by almost ten-fold, and brand companies 
dominate the marketplace in terms of dollars spent on prescription 
drugs.
    Let's look at these same statistics from another perspective; 
namely, that of the patient or payer. The average price of a 
prescription dispensed with a generic drug in 2001 was $16.85. The 
average price of a prescription dispensed with a brand name drug in 
2001 was $72. That is an average savings of 76 percent when a generic 
product is substituted for a brand product.
    While generic substitution has increased from 19 percent in 1984 to 
47 percent in 2000, the amount of money spent on generic drugs as a 
percentage of overall dollars spent on medicines has declined five 
percentage points, from 12 percent to 7.5 percent, over the past five 
years. So, consumers used more generics and spent less on them. But at 
the same time, the cost of prescription drugs continued to increase at 
double-digit rates.
    Currently, 7,602 of the 10,375 drugs listed in the FDA's Orange 
Book (which identifies therapeutically equivalent generic drugs and 
their brand counterparts) are available in generic form. Over the next 
decade, a number of the most well-known brand name pharmaceuticals will 
lose patent protection, theoretically allowing the introduction of more 
affordable generic versions of these blockbuster products. Within the 
next three years, 27 brand name pharmaceuticals with annual sales of 
more than $37 billion should go off patent. If the law and regulatory 
system were working as intended, this development would create an 
important opportunity to save critical health care dollars.
 ii. the tremendous savings that generics offer consumers, the federal 
         government and other institutional health care payers
    As I previously discussed, the generic prescription utilization 
rate is 47 percent. An increase of 1 percent in this utilization rate 
would generate payer savings of $1.3 billion each year. An increase of 
10 percent would save $13 billion.1 We cannot afford to miss 
this opportunity.
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    \1\ Tim R. Covington, Executive Director of The Managed Care 
Institute at Samford University.
---------------------------------------------------------------------------
A. Brand Pharmaceutical Innovation
    The debate over restoring the balance created under Hatch/Waxman 
has been falsely cast as a threat to brand pharmaceutical innovation. 
We endorse the brand pharmaceutical industry's role in discovering new 
drugs, and the societal value of a patent system that fosters the 
development of new innovative medicines. However, we reject--as do so 
many others involved in our broad-based, bi-partisan coalition--the 
notion that the status quo is fair and consistent with the aims of the 
Hatch/Waxman Act. To the contrary, the current system allows for the 
exploitation of unintended loopholes to preserve profits and 
monopolies, long after valid patents and patent extensions have 
expired, at the expense of the American consumer.
    One of the best ways to promote innovation, to provide an incentive 
to develop the next medical breakthrough product, is to foster 
competition. Allowing a brand product to have unlimited monopoly 
protection distorts the incentive, and results in the adoption of a 
brand preservation strategy, rather than an innovation strategy.
    The intent of Hatch/Waxman was to define and establish a natural 
and limited period of monopoly protection, in recognition of the 
societal value of brand innovation. However, after the expiration of 
that monopoly, more affordable generic alternatives should have 
unfettered access to the marketplace. But in recent years, loopholes in 
the Act have been identified and manipulated to expand this protection 
well beyond what the drafters of Hatch/Waxman intended or even 
imagined, and to deny consumers access to affordable medicines. It is 
time to recognize that these efforts are nothing more than attempts at 
monopoly extensions, which actually harm innovation and penalize 
consumers in various ways.
    A number of organizations have in recent years explored whether 
generic competition poses a risk to brand pharmaceutical innovation and 
the ``search for cures.'' The results of these separate analyses are 
consistent. Competition is good for innovation, and the brand 
pharmaceutical industry has thrived since 1984.2
---------------------------------------------------------------------------
    \2\ Congressional Budget Office, 1998; How Increased Competition 
From Generic Drugs has Affected Returns in the Pharmaceutical Industry; 
Pharmaceutical R&D: Costs, Risks & Rewards, 1993.
---------------------------------------------------------------------------
    Moreover, one such study also concluded that after Hatch/Waxman 
extensions were added, 44 percent of the drugs examined had effective 
patent lengths of 14 years or more. Equally important was the 
observation in another study that brand manufacturers manage patent 
protection for blockbusters more aggressively resulting in longer 
effective patent lengths.3
---------------------------------------------------------------------------
    \3\ Office of Technology Assessment, Pharmaceutical R&D: Costs, 
Risks & Rewards, 1993.
---------------------------------------------------------------------------
    The brand pharmaceutical industry's opposition to reforming Hatch/
Waxman is not about the threat to innovation; it is about a threat to 
profits.
B. The Current System Is Being Abused To The Detriment of American 
        Consumers
    As previously noted, Hatch/Waxman guaranteed brand companies a 
period of market exclusivity to recoup their investment in research and 
development. It also established a specific period of exclusivity, 
including a five-year patent extension for most drugs, but it was also 
intended to create a regulatory system that allowed the generic 
manufacturers to bring their products to market immediately upon 
expiration of the brand patents.
    Over the past decade, some aggressive brand companies, enjoying the 
profits of market exclusivity, have gamed the system to obtain 
unintended extensions to this exclusivity. This has hurt consumers and 
taxpayers, and upset the balance between innovation and competition 
that was initially created under Hatch/Waxman. The cost of these 
activities has been in the billions of dollars. It should be noted that 
these games have not been played by all the brand companies. A number 
of the largest and most research-oriented brand companies have declined 
to exploit the recently discovered loopholes as a way of extending 
their patents.4
---------------------------------------------------------------------------
    \4\ Merck; Novartis, Pharmacia to name a few.
---------------------------------------------------------------------------
    The recently released FTC Report on ``Generic Drug Entry Prior to 
Patent Expiration'' (the ``FTC Report'') identified gaming of the 
Hatch/Waxman patent challenge process by brand companies and analyzed 
its impact on pharmaceutical competition. The over-arching conclusion 
of the report is that abuses of the current system have cost consumers 
billions in lost savings, and may cost even more if not remedied by 
legislative action. The primary tool for the abuse has been the 
automatic 30-month stay provision. This statutory provision bestows 
brand companies free 30-month injunctions regardless of the merits of 
the case, which bar the Food and Drug Administration (FDA) from 
approving generic competitor's products.
    The 30-month stay is available for all patents that are ``listed'' 
by the brand company in FDA's ``Orange Book,'' a publication containing 
a list of patents that cover approved drugs. Over the past several 
years, certain brand companies have discovered that FDA does not police 
patent listings. FDA takes the position that it has no authority, nor 
the expertise to determine if patents submitted for listing meet the 
statutory requirement of claiming the approved brand drug 
product.5 In other words, even if a brand company lists a 
patent that on its face does not cover the brand product, FDA will 
automatically list the patent as long as the brand company maintains 
its listing. Moreover, courts have found that no legal means exist for 
generic firms to challenge improperly listed patents. Still, this lack 
of balance, coupled with the windfall of the 30-month stay, provides a 
perverse incentive for brand companies to adopt an over-reaching patent 
listing strategy for large selling ``blockbuster'' drugs. The average 
number of patents listed for each blockbuster has increased from 2 in 
1984, when Hatch/Waxman was enacted, to 10 today.
---------------------------------------------------------------------------
    \5\ FDA's brief (dated September 23, 2002), field in Apotex, Inc. 
v. Thompson (No. 02--1295). FDA also opined that if there is an 
``enforcement gap,'' redress lies with Congress, not FDA or the courts. 
Id at 35.
---------------------------------------------------------------------------
    The driving force behind the substantial increase in patent 
listings is a free 30-month stay, which occurs in 85 percent of the 
cases when the brand company sues a generic. The only reason for 
listing patents that do not claim the brand drug, and therefore have 
little or no chance of surviving a challenge by a generic competitor, 
is to obtain a financial windfall that flows from the free stay. This 
strategy is evidenced by the dramatic increase in the number of patent 
listings and, correspondingly, in the number of patent challenges in 
order to bring generic drugs to market. These patent challenges have 
increased from 2 percent of all generic applications in 1984-1989, to 
12 percent in 1990-1998, to 20 percent in 1998-2000, and to 28 percent 
in 2001.
    FTC also identified the fact that multiple patent listings result 
in protracted litigation, causing significant consumer delay. By 
listing multiple patents, brand companies can, among other things, 
obfuscate the proceedings to insulate a certain patent from 
adjudication. Equally important is the fact that they also can design 
their patent strategy to yield several consecutive 30-month stays. The 
FTC, in its report, found that singularly, and in combination, the 
automatic 30-month stay has ``real world consequences'' for consumers. 
This activity is clearly a trend that is destined to continue and most 
likely intensify if not checked.
    From a consumer's perspective, the most alarming aspect of these 
abuses is that they involve almost exclusively the most popular, and 
sometimes the most needed drug products. Specifically, we are seeing 
the most abuse with those drug products with annual sales over $500 
million. The cost to an individual healthcare plan can be significant; 
the cost the healthcare system can be enormous. For example, General 
Motors estimates that if five pharmaceutical blockbuster patents 
scheduled to expire are extended, they will see increased prescription 
drugs costs in excess of $204 million during the delay of generic 
entry. Similar losses are being felt by the federal and state 
governments as they struggle to meet their budgets and provide Medicaid 
coverage.
    When one considers the totality of the circumstances surrounding 
these abuses, several facts emerge.

 First, absent congressional action, the future is likely to be 
        worse. Given the current trend, and the financial windfall that 
        brand companies can achieve through the exploitation of these 
        loopholes, the abuses are almost certain to increase over the 
        next decade.
 Second, more patents are appearing, and will continue to 
        appear, in the Orange Book and these additional patents will 
        cause significant delays in the availability of lower cost 
        generic drugs.
 Third, these abuses have seriously degraded the predictability 
        of generic drug approval that was a cornerstone of Hatch/
        Waxman. This loss has already resulted in tremendous harm to 
        the nation's health care system, especially to Federal, state, 
        and private health care providers who are struggling to keep up 
        the escalating cost of prescription drugs. It also undermines 
        the ability of generic companies to manage their businesses 
        efficiently.
 Lastly, 27 blockbuster drugs are ``scheduled'' to come off 
        patent in the next five years. If the loopholes in the 30-month 
        stay and patent listing provisions are not closed, a delay in 
        the availability of low cost equivalents of these drugs is 
        almost certain to occur.
C. The FTC Report Confirms The Brand-Name Abuses and Supports The 
        Modest Reform
    In response to alleged abuses, FTC was asked to investigate the 
operation of the Hatch/Waxman patent challenge process. FTC looked at 
the 30-month automatic stay, and at the 180-day generic exclusivity 
incentive that is available to generic companies that are first in time 
to challenge improper, weak, or invalid brand-name patents. This past 
July, the FTC issued its final report. Its findings clearly confirm 
that:

(1) the 30-month stay is being abused and is delaying competition; and
(2) the 180-day exclusivity provision is an efficient means of 
        eliminating illegitimate barriers to competition.
    The FTC found that the 30-month stay provision in of itself is 
problematic. FTC also found that subsequent 30-month stays unfairly 
block generic competition, particularly since none of the patents 
supporting those stays had been held to be valid.
    Accordingly, like many of our coalition partners, GPhA believes 
that a 30-month stay provision should be eliminated in its entirety, 
although we did endorse the one 30-month compromise recently passed by 
the Senate. Contrary to the findings of the FTC, which focused on past 
FDA practices, we believe that in the future FDA will take 
significantly less than 25 months to review and approve generic drug 
applications. The dramatic improvements in review of brand applications 
(which are now completed in about 6-10 months) demonstrate that this is 
clearly possible. Moreover, the long review times in the past may be 
explained, in part, by the fact that often a generic will not be 
eligible for marketing after its application is filed, because the 
application was filed in advance of the expiration of a valid patent or 
because the 30-month stay blocks approval. If the 30-month stay 
provision was eliminated, there would be new incentives for FDA and the 
generic companies to work to expedite review and approval of generic 
drugs.
    Additionally, FTC found that, since 1998, brand companies are 
listing more and more patents for drugs with substantial annual sales. 
Prior to 1998, patent litigation for most blockbuster drugs involved 
only 1 or 2 patents. Since 1998, 5 of the 8 blockbuster drug cases 
considered by FTC involved 3 or more patents. As FTC observed, ``with 
additional patents to be litigated, the average time to obtain a court 
decision has increased.'' 6 Furthermore, FTC found that many 
of these new patents do not meet the statutory requirements for listing 
in FDA's Orange Book. We draw the Committee's attention to Appendix H 
of FTC's report, where FTC analyzes three types of patent listing 
abuses: patents not claiming the approved drug or an approved use of 
the drug; product-by-process patents 7; and double patenting 
8. FTC's efforts to take enforcement action to address the 
anticompetitive effects of these improperly listed patents may have 
been significantly hindered by FDA's failure to respond to a 2001 FTC 
petition requesting guidance on the patent listing requirements.
---------------------------------------------------------------------------
    \6\ FTC Report at p. 37.
    \7\ These are patents that are the functional equivalent of 
``process patents,'' which are specifically prohibited from listing in 
the Orange Book.
    \8\ These are patents that claim the same invention as a prior 
patent, but are nevertheless issued by the Patent and Trademark Office 
because the patent applicant agrees to have the new patent expire on 
the same date as the earlier patent.
---------------------------------------------------------------------------
    FTC noted that patent listing abuses are being fueled by (1) the 
lack of patent listing policing and (2) the total lack of a statutory 
mechanism to ``delist'' patents once they are submitted for inclusion 
in the Orange Book. The courts, supported by FDA, have held that that 
there is no private right of action under the Patent Act or the Federal 
Food, Drug, and Cosmetic Act to have a patent ``delisted,'' even where 
it is obvious that the patent does not meet the requirements for 
listing.9 In other words, the brand company may illegally 
list a patent (which, significantly, is a prerequisite to a paragraph 
IV certification and triggers the 30-month stay provision), but the FDA 
alleges that it lacks the authority to assess the appropriateness of 
patent listings. Yet, the courts have held that the generic company 
cannot challenge the listing in court. The GAAP Act corrects this 
inequity by permitting the generics to bring a suit in court.
---------------------------------------------------------------------------
    \9\ Mylan Pharm. v. Shalala, 81 F.Supp.2d 3 (D.D.C. 2000); AAIPhRMA 
v. Thompson (CA-01-153-F) July 10, 2002 (Until Congress takes further 
action to address the enforcement gap in Hatch/Waxman's patent listing 
provisions, the FDA may persist in its purely ministerial approach to 
the Orange Book Listing Process.).
---------------------------------------------------------------------------
    Another activity observed by FTC is the ``stacking'' of multiple 
30-month stays. As discussed above, this practice consists of listing 
as many patents as possible once a patent battle has begun in order to 
obtain successive 30-month stays that keep the generic competition out 
of the market. FTC found that brand companies have just recently 
discovered the potentially unlimited monopoly profits that can be 
reaped by taking advantage of the lack of a patent delisting mechanism 
and the automatic 30-month stay. According to FTC, the ``stacking'' of 
multiple 30-month stays has delayed generic approval for not 30 months, 
but for 34 to 70 months--4 to 40 months beyond the first 30-month stay. 
Furthermore, six of the eight ``stacking'' abuses cited by FTC occurred 
since 1998, and all occurred since 1996--demonstrating that the 
discovery of this loophole is relatively new, but steadily on the rise.
    FTC also correctly observed that, like all other patent owners, 
brand companies can prevent generic marketing by demonstrating 
entitlement to a preliminary injunction. FTC further concluded that 
there were no instances where a generic drug entered the market and was 
later found to be infringing on the brand's patent--so in essence, the 
generic industry self-polices itself given the potential liability 
exposure.
    In regard to patent challenges, the FTC data confirms that patent 
challenges by generic companies under Hatch/Waxman result in greater 
competition and consumer access to affordable medicine. FTC's analysis 
revealed that generics are winning nearly 75 percent of the patent 
cases and, therefore, are bringing ``appropriate challenges'' to brand 
patents. This percentage would be even larger if one included some of 
the patent suit settlements that were the equivalent of a generic 
victory. This is compelling evidence that, in the overwhelming majority 
of cases, patent challenges brought under Hatch/Waxman are removing 
illegitimate barriers to competition and making a real difference in 
the cost of prescription drugs. Thus, the FTC Report is entirely 
consistent with eliminating 30-month stay provision from Hatch-Waxman.
D. Reform is Needed Now
    Americans need relief from out of control prescription drug costs. 
Generics can help. GAAP will not provide all the answers, but it does 
represent a constructive step in closing loopholes that delay the 
introduction of generic drugs after the valid brand patents and 
corresponding patent extensions have long expired.
    In 2000, NIHCM released a study that analyzed the issue of brand 
innovation and patent extensions. The study suggested that changes in 
the law over the last two decades have increased by at least 50 percent 
the effective patent life for new drugs. That means drug companies 
have, in addition to five years of patent restoration time, recovered 
an extra four or five years to reap profits before low-priced generics 
enter the market. The NIHCM study concluded that delays in generic 
competition are forcing customers to incur billions of dollars in 
prescription drug costs they otherwise may not have paid.
    In opposition, PhRMA has been using a chart to bolster its case. 
This chart allegedly indicates that reform of Hatch-Waxman is not 
necessary by showing the cumulative value of brand products coming off 
patent in the next ten years. What PhRMA neglects to mention for a 
multitude of reasons--one of which involves 30-month stays--is that 20 
of the 30 possible products that should have gone off patent in 2000 
failed to have generic competition during that year. This represented 
$5.4 billion in sales. Likewise, in 2001, generic competition did not 
commence for 23 of the 26 products, representing $11.4 billion in 
sales.
                  iii. highlights of gaap legislation
    GAAP achieves significant savings by closing loopholes in the 
current laws that allow brand name drug companies to block generic drug 
approval and thereby delay consumers' access to more affordable 
medicine.
    The significant provisions of GAAP, which the Senate overwhelmingly 
passed by a vote of 78-21, include:

 Limiting brand drug companies to a single 30-month automatic 
        stay of generic drug approvals. When a generic applicant 
        challenges a patent, and is subsequently sued by the brand name 
        drug company, there is an automatic 30-month stay, in essence a 
        free preliminary injunction, which prevents FDA from approving 
        the generic product. In other words, the system bestows a 
        financial windfall to the brand company for merely suing the 
        generic--regardless of the fact that brand companies lose these 
        lawsuits nearly 75 percent of the time. This 30-month stay of 
        course is unique to the pharmaceutical industry with respect to 
        classical drug products. To obtain a preliminary injunction 
        against a competitor in all other industrial sectors, including 
        antibiotic and medical device cases, patent owners must meet a 
        significant burden of establishing the likelihood of success on 
        the merits of the patent before a competitor's product is kept 
        off the market. Thus, because the thirty-month stay is not 
        based on the patent's merits, it can be quite problematic in 
        and of itself, resulting in needless health care costs. In 
        addition, the brand company can currently list multiple patents 
        while a lawsuit is ongoing, resulting in additional 30-month 
        stays for each new listing. This can delay generic approval 
        virtually indefinitely. GAAP would limit brand companies to a 
        single 30-month stay for the patents that are listed in the 
        Orange Book when the brand drug was originally approved. For 
        all other patents, GAAP provides an easier preliminary 
        injunction standard by which brand companies can seek to keep 
        generic competitors off the market during the litigation.
 Providing an accurate list of patents for brand name drugs. 
        There is currently no method for correcting the information in 
        the FDA Orange Book, the document that lists the patents that 
        protect brand drugs from generic competition. The courts have 
        held that there is no right to challenge a patent listing and 
        FDA alleges it has no authority in this area. The FTC, in its 
        recent report, noted several examples where patents that 
        ``raised legitimate listability questions'' were listed solely 
        to generate 30-month stays. GAAP allows the private sector to 
        insure the correctness of patent listings by giving generic 
        applicants and patent owners the right to sue brand companies 
        to correct improper patent listings in the Orange Book.
 Providing a complete list of patents for brand name drugs. The 
        proper listing of all relevant patents is essential to 
        providing timely access to affordable medicine. This will be 
        especially true when the 30-month stay loophole is closed. 
        Without the potential for a 30-month stay, brand companies may 
        be encouraged to NOT list their patents and therefore shift the 
        litigation outside of the Hatch/Waxman system. By doing so, 
        brand companies could wait longer to sue, thereby delaying the 
        timely resolution of patent issues. GAAP would address this 
        potential future loophole by preventing brand companies from 
        suing generic manufacturers over patents that are not listed in 
        a timely manner. This imposes little or no burden on brand drug 
        companies, but is imperative to the efficient operation of 
        Hatch/Waxman to facilitate the timely access of affordable 
        pharmaceuticals.
 Ensuring the timely resolution of patent disputes. Currently, 
        the potential for a free 30-month stay drives brand companies 
        to sue generics within 45 days of being notified of a patent 
        challenge. When the free 30-month stay is taken away for 
        patents listed after the brand approval, brand companies may 
        seek to make an end-run around the system by waiting until the 
        eve of generic approval before bringing their lawsuit. This 
        would have the effect of keeping generic competition out of the 
        market because it would create too much risk for the generic 
        company to introduce the product. GAAP requires generic 
        applicants to provide a detailed notice to brand companies of 
        their intent to market a lower priced version of the drug. GAAP 
        also requires the brand company to sue the generic company 
        within 45 days of receiving this notice or lose its right to 
        sue that particular company. This provision is essential to 
        prevent future gaming of the system.
 Preserving the incentive to challenge patents. The current law 
        grants 180 days of exclusive generic marketing to the first 
        generic company to successfully challenge a brand drug patent. 
        As the FTC noted in its recent report, the generic industry has 
        been extremely successful in selecting weak and invalid patents 
        to challenge. As a result, consumers have received affordable 
        versions of blockbuster drugs such as Prozac years ahead of 
        when they otherwise would have been available. However, recent 
        court decisions have drastically reduced the value of this 
        incentive by triggering the exclusive marketing period 
        following the initial court ruling in the case. As a result, it 
        is possible for the 180-day generic exclusivity period to 
        expire before the appeals process is completed. GAAP fixes this 
        by moving the triggering event out to the date of an appeals 
        court decision.
 Forfeiture of 180-Day Exclusivity. The current law does not 
        adequately address situations where the first generic 
        challenger does not, or cannot, go to market after the 
        resolution of the lawsuit. GAAP provides for the forfeiture of 
        the first challenger's exclusive marketing period if they do 
        not go to market within 60 days of specified events.
                               conclusion
    The Congressional Budget Office reported that American consumers 
will save 60 billion dollars over the next ten years if Congress enacts 
the GAAP bill currently under debate. CBO has already proven our main 
point in this debate: fair competition is pro-consumer and pro-savings. 
Moreover, these savings will make a prescription drug benefit more 
affordable.
    The Generic Pharmaceutical Association believes that modest 
legislative fixes contained in GAAP could stop abuses and restore the 
balance between innovation, competition and access originally sought in 
the Hatch-Waxman Act. GAAP does not rewrite Hatch/Waxman. GAAP does not 
change patent law. GAAP simply restores balance to a system created two 
decades ago. It is a rule change, if you will, a refinement of existing 
law, not a rewrite of Hatch/Waxman.
    I would be happy to answer any questions.

    Mr. Bilirakis. Thank you. Dr. Glover, please proceed, sir.

                 STATEMENT OF GREGORY J. GLOVER

    Mr. Glover. Mr. Chairman and members of the committee, on 
behalf of the Pharmaceutical Research and Manufacturers of 
America, I am pleased to appear at this hearing today. I am 
here to discuss the importance of innovation and competition in 
maintaining patent incentives for discovering new medicines and 
the critical, highly successful role of the Hatch-Waxman Act in 
fostering a competitive market that drives innovation.
    Competition in the pharmaceutical industry is robust. 
Innovation results in new products that compete with products 
of other research-based companies, thereby providing patients 
with important therapeutic options. Thanks to the Hatch-Waxman 
Act, the generic industry's share of the prescription drug 
market has jumped from less than 20 percent in 1984 to almost 
50 percent today. This demonstrates the system is working as 
intended by Congress.
    However, we are concerned that the current debate is 
heading toward eroding legitimate intellectual property rights 
and legitimate efforts to enforce those rights. The findings of 
the Federal Trade Commission do not demonstrate patterns of 
widespread abuse of the Hatch-Waxman Act, nor do they justify 
the sweeping measures included in pending legislation.
    The FTC reported concerns about only eight cases out of 
more than 8,000 generic drug applications since 1984, less than 
one-tenth of 1 percent. Any congressional legislation that 
works 99.9 percent of the time should be heralded as an 
unqualified success.
    As the FTC explains in the report's preamble, the study 
addresses only consumer access to the generic drugs. It does 
not address the Hatch-Waxman objective of promoting innovation. 
This limited focus does not address the need to maintain 
current incentives for innovation and the creation of new 
treatments and cures.
    One mechanism for preserving these incentives is the 30-
month stay. During this time period the FDA cannot grant final 
market approval for a generic product that is involved in 
timely initiated patent litigation. Contrary to many 
assertions, the 30-month stay does not extend the patent.
    Currently pending legislation would deny the 30-month stay 
for any patent filed with FDA more than 30 days after new drug 
approval. The FTC report suggests a very different, but still 
flawed, policy that would deny a 30-month stay to any patent 
listed in the Orange Book after the relevant ANDA was filed.
    Both limitations are arbitrary and are based on a fictional 
version of research and development, where innovation for a 
product ceases as soon as the innovator begins the FDA approval 
process. The reality is that pioneer companies continue to 
innovate even after the FDA approval process begins. Companies 
continue to innovate to improve the side effects profile, 
improve stability, increase the efficiency of drug delivery, 
improve dosage regimens, and develop changes in dosage forums.
    The patents are filed when the innovation occurs. However, 
depending on the timing of the innovation and the review 
processes of the Patent and Trademark Office, many, if not all, 
of those patents can be issued more than 30 days after NDA 
approval.
    In addition, the legislative proposals include several 
provisions that extinguish the patent owner's rights to enforce 
its patents, either inside or outside the context of the Hatch-
Waxman Act. These provisions demonstrate that the patent system 
itself is at the heart of the debate, patent protection that is 
guaranteed by the United States Constitution.
    Indeed, purported benefits of legislation now before 
Congress will prove elusive because the increased availability 
and use of innovative medicines is what really helps reduce the 
cost of overall health care. As the Patent and Trademark Office 
wrote in a July 30 letter to Senator Hatch regarding the 
Senate's proposal, quote, ``This bill would likely do the 
opposite of what its title suggests by limiting access to 
cutting-edge drugs, decreasing innovation, and ultimately 
harming the quality of treatments available to patients.''
    Continuing attacks on patent rights will lead to less 
consumer choice and decreased availability of new drugs and 
will undermine the careful balance of the Hatch-Waxman Act that 
protects legitimate patent rights while facilitating the 
marketing of generic drugs. Thank you.
    [The prepared statement of Gregory J. Glover follows:]
       Prepared Statement of Gregory J. Glover, on Behalf of the 
          Pharmaceutical Research and Manufacturers of America
    Mr. Chairman and Members of the Committee: On behalf of the 
Pharmaceutical Research and Manufacturers of America (PhRMA), I am 
pleased to appear at this hearing today on the Hatch-Waxman Act. I am a 
physician and an attorney with the law firm of Ropes & Gray, 
specializing in the relationship between intellectual-property and FDA 
regulatory law. PhRMA represents the country's major research-based 
pharmaceutical and biotechnology companies. Having invested over $30 
billion in 2001 alone in discovering and developing new medicines, 
PhRMA companies lead the way in the search for new treatments and cures 
that enable patients to live longer, healthier, and more productive 
lives.
                              introduction
    I am here to discuss the importance to innovation and competition 
of maintaining patent incentives for discovering new medicines and the 
critical, highly successful role of the Hatch-Waxman Act in fostering a 
competitive market that drives innovation for pharmaceutical 
development. Competition in the pharmaceutical industry is robust. 
Innovation results in new products that compete with products of other 
research-based companies in given therapeutic areas. Different patented 
medicines to reduce cholesterol and limit blood pressure are just two 
examples of strong competition between products within therapeutic 
classes. Even before generic competition occurs, competition from other 
innovator products takes place, providing patients with various 
therapeutic options.
    In addition, innovation promotes competition between research-based 
companies and generic companies by providing new treatments and cures 
for generic companies to copy. As we all recognize, it is the function 
and business model of generic companies to copy products developed by 
research-based companies. Current interpretations of the 180-day 
generic drug exclusivity period encourage the quick filing of ANDAs 
containing a Paragraph IV certification to challenge the pioneer patent 
as soon as possible after the NDA has been approved. In many cases, 
generic manufacturers apply as early as 48 months after approval of the 
pioneer product. The result is that generics come onto the market even 
earlier than anticipated by Hatch-Waxman.
    This highly competitive environment rests on a bedrock of 
innovation from the pharmaceutical industry. To the extent innovation 
does not occur, research-based companies and generics alike will have 
fewer new products, less competition will result, and more importantly, 
patients will wait longer for future treatments and cures.
    Let me say upfront that the research-based pharmaceutical industry 
recognizes that generic drugs play an important role in health care. 
The Hatch-Waxman Act also acknowledges the important role of generics. 
And, because of that Act, the generic industry's share of the 
prescription drug market has jumped from less than 20 percent to almost 
50 percent today. This marketplace shift demonstrates that the system 
is working as intended by Congress by maintaining incentives both for 
research on new drugs and for generic copies of older drugs.
    However, we are concerned that the current debate is heading toward 
eroding legitimate intellectual property rights and legitimate efforts 
to enforce those rights. Today, we want to respond to frequent claims 
that it is anti-competitive for pioneer companies to seek and obtain 
intellectual property protections for their innovations and to protect 
those presumptively valid rights under the provisions of the Hatch-
Waxman Act and the patent law.
    The findings of the Federal Trade Commission, published in its 
report that is the subject of today's hearing, do not support either 
the allegations of widespread abuse of Hatch-Waxman and patent law or 
the sweeping measures included in legislation pending before Congress. 
The FTC study focused on eight cases of concern to the Commission--out 
of more than 8,000 generic drug applications since 1984 under the 
Hatch-Waxman Act--less than one-tenth of one percent. Any Congressional 
legislation that works 99.9% of the time should be heralded an 
unqualified success.
                       response to alleged abuses
    I would like to turn now to some of the alleged abuses raised by 
the generic industry.
    1. There has been a lot of talk about a pioneer company that 
supposedly had a patent on a brown bottle. The allegation is simply 
false. The brown bottle was described as one of many ways to protect 
the drug from being degraded by light, a significant concern for this 
drug. Indeed, in the litigation in question, the court specifically 
held that ``no brown bottle appears as part of the claim,'' and focused 
instead on ``[the patent claiming] a composition for treating cancer 
with cisplatin.'' The court's ruling that the invention in question was 
an obvious modification of prior patents in light of the scope and 
content of the prior art was the result of a complex analysis of 
patentability standards, a judicial determination legitimately and 
appropriately sought and provided.
    2. There have been complaints about a pioneer patent on the scoring 
of a pill. However, the scoring was an important element of the dosing 
regimen for the drug. Indeed, it was so important that the generic 
manufacturer tried to work around the patent by making minor 
modifications to the scoring pattern. The generic industry cannot 
seriously maintain that the patent is frivolous when it has worked so 
hard to recreate the innovation that is covered by the patent.
    3. There are allegations that patents claiming particular uses of 
Wellbutrin IR  stalled competition for one of the forms of 
Wellbutrin IR  for five years. However, since October 2000, 
there have been four generic versions of the drug on the market. The 
patents in question were never challenged by any generic.
    4. The pioneer for Nicorette  has also been criticized 
unfairly for patenting flavors in addition to its original non-flavored 
product. But the pioneer only received a period of exclusivity for the 
first approved form of flavored Nicorette  because the FDA 
required additional studies demonstrating that a flavored product did 
not create an increased risk of nicotine addiction. The period of 
exclusivity did not apply to the initial form of (non-flavored) 
Nicorette '.
    5. There have also been accusations about a pioneer improperly 
extending exclusivity for Prilosec ', asserting that generic 
competition should have begun when the patent claiming the drug's 
active ingredient expired on October 5, 2001. I want to review the 
facts of this situation, which simply do not support the rhetoric.
    In 1998, AstraZeneca filed patent infringement cases to enforce its 
rights under certain patents that claim among other things the Prilosec 
' formulation. Prilosec's ' active ingredient, 
omeprazole, by itself does not make an effective drug. To work, 
omeprazole must be absorbed in the small intestine, but the chemical is 
fragile and normally destroyed by stomach acid and decomposes quickly 
upon storage. To get the active ingredient safely through the stomach 
to the intestine, AstraZeneca's scientists had to come up with a way to 
shield the omeprazole from the stomach acid that would destroy it and 
to keep the drug from degrading. The solution was the innovative 
formulation.
    The reason for the absence of generic products has nothing to do 
with any Hatch-Waxman-related activity. Although there are a number of 
patent infringement suits currently pending, there are no 30-month 
stays blocking generic approval. In fact, Andrx, one of the ANDA 
applicants has had FDA approval to market its drug for nearly eleven 
months, since November 16, 2001. Andrx's failure to market its approved 
product is not based on a 30-month stay, but on its own business 
decisions regarding when and how to prepare for commercial marketing.
    6. Another drug on the list of alleged abuses is Paxil 
'. Paxil ' was approved by the FDA in 1992 and 
first sold in 1993. Generic competitors wishing to copy this drug 
launched patent challenges on the drug in 1998--little more than 5 
years after the drug was on the market. All of the other patents the 
pioneer has listed will expire before the initial patent covering the 
active ingredient. Further, if the pioneer successfully enforces its 
patents in court, generics can enter the market in 2007--no more than 
14 years from when the drug was first marketed.
    7. Finally, there have been allegations of an instance where a 
pioneer attempted to patent the color of a pill. We have not yet been 
able to find any alleged patent on pill color, and hope that the 
generic industry can clarify this allegation or retract it.
    None of these examples represents abuse of the Hatch-Waxman Act, 
and several of these examples have nothing to do with the Hatch-Waxman 
Act at all. What these examples illustrate is that there is fundamental 
unhappiness with patent protection itself--protection that is 
guaranteed by the United States Constitution.
             anti-competitive practices in the marketplace
    We are also concerned about the highly selective approach to 
discussing anticompetitive conduct. For example, the debate about the 
status of competition in the marketplace often does not include a 
discussion of the anti-competitive effect of the 180-day generic drug 
exclusivity. This provision assures that the first generic company to 
begin commercial marketing of a copy will not face other generic 
competition for the first 180 days its copy is on the market.
    The 180-day exclusivity period awarded to qualifying generic patent 
challengers allows generic companies the opportunity to make 
significant profits during their period of exclusivity. But it is not 
at all clear that this 180-day exclusivity period is in fact needed as 
an incentive to bring generic drugs to market. Even without it, the 
generic copy business offers significant financial rewards--that's why 
18 generic companies now have approval to market generic copies of 
Prozac ' even though only five received 180-day exclusivity. 
Furthermore, where the generic firm is able to show that its product 
does not infringe the pioneer product, but cannot demonstrate the 
invalidity of the patent, its 180-day exclusivity provides little 
public benefit and is essentially a windfall to that generic.
      ftc report is more appropriate basis for serious discussion
    While the FTC report does not identify patterns of abuse, the 
report discusses circumstances that might give rise to abuses and 
proposes limited adjustments to address these circumstances. The FTC 
has concluded that preemptive adjustments should be pursued as an 
alternative to relying on antitrust enforcement to address any actual 
abuse should it arise.
    Having said that, the FTC explains in the report's preamble, the 
report addresses only consumer access to generic drugs; it does not 
address the Hatch-Waxman objective of promoting innovation. 
Accordingly, the FTC report focuses on only half of the story. By 
considering solely consumer access to generic drugs, the study focuses 
on copying existing drugs rather than maintaining current incentives 
for innovation and the creation of new cures and treatments. In short, 
despite having found no patterns of abuse and not having considered 
potential impacts on innovation (which is the role of the Patent and 
Trademark Office), the FTC has proposed limited changes to a highly 
successful regime at the risk of harming innovation. Even with this 
limited focus and set of priorities, the FTC study does not support the 
radical changes encompassed in the bills pending before Congress.
  proposed ``patent reform'' legislation (s. 812, h.r. 5311, hr. 1862)
    The legislation pending in Congress reflects a focus on the 30-
month period in which the FDA cannot grant final market approval for a 
generic product that is involved in timely initiated patent litigation. 
We must bear in mind that the Hatch-Waxman Act requires the pioneer to 
wait until the generic manufacturer files its patent challenge before 
bringing this suit. This unique Hatch-Waxman benefit to generic drug 
manufacturers--giving the generic drug manufacturer the use of what 
otherwise would be patent-protected pioneer medicine data to obtain 
bioequivalency data for their FDA applications--is often forgotten in 
this debate.
    Currently pending legislation would deny the 30-month stay for any 
patent filed with FDA more than 30 days after new drug approval. 
Remarkably, this even encompasses patents filed many years prior to FDA 
approval, but not issued until long after FDA approval. The FTC report 
suggests a very different, but still flawed policy that would deny a 
30-month stay to any patent filed after the relevant ANDA was filed. 
Both limitations are arbitrary, and neither approach recognizes a 
corresponding need to modify the application of the patent infringement 
exemption. Both approaches fail to recognize the need to provide 
pioneers with a viable means to protect their patent rights. Both also 
fail to recognize that the current law on 180-day generic drug 
exclusivity encourages generic applicants to file patent challenges as 
soon as possible--even when they have no basis for a patent challenge 
and even when they have an inadequate application that they will need 
to fix later.
    Furthermore, the legislation's limitation of the 30-month stay is 
largely based on a fictional version of research and development where 
innovation for a product ceases as soon as a pioneer has an approved 
version of that product. Therefore, nearly all patents related to the 
product would be issued by the Patent and Trademark Office (PTO) by the 
time of NDA approval. Further, drugs that receive fast-track 
approvals--because they represent significant improvements in the 
treatment of life-threatening diseases--would not get the full benefits 
of the Hatch-Waxman Act protections. Real examples of patents for drugs 
that received fast-track approvals and would not receive the full 
patent protections under the generic industry's proposed changes to the 
Hatch-Waxman Act include AZT, the first product approved for treating 
AIDS, and some protease inhibitors, the current state-of-the-art 
treatment for HIV. Other products that would be denied full protection 
under the generic industry proposals are important drugs for 
cardiovascular diseases and mental health disorders.
    This scenario bears no relation to the real world of research-based 
science. The reality is that pioneer companies do not stop innovating 
once the approval process for a product begins. As countless examples 
demonstrate, pioneer companies continue to innovate after beginning the 
approval process for a product to improve the side-effects profile, 
improve stability, increase the efficiency of drug delivery, improve 
dosage regimens, and develop changes in dosage forms. The patents are 
filed when the innovation occurs. However, depending on the timing of 
the innovation and the review process at the Patent and Trademark 
Office, many if not all, of these patents from continuing innovation 
can issue more than 30 days after NDA approval. Yet, the legislative 
proposals would deny these patents the full protection of the Hatch-
Waxman Act while, at the same time, continuing to make these patents 
subject to the patent infringement exemption.
    In addition to the provisions on the 30-month stay, the legislative 
proposals include several provisions that extinguish the patent owner's 
right to enforce its patents--either inside or outside the context of 
the Hatch-Waxman Act. These provisions support my earlier statement 
that the heart of the complaints in the current debate are about the 
patent system itself. PhRMA urges Congress to recognize that playing 
games with the patent protections of the Hatch-Waxman Act for the 
benefit of generic profits and short-term cost savings does gamble on 
jeopardizing the incentive for the important and risky investments in 
future treatments and cures that are undertaken by the research-based 
pharmaceutical industry.
    Indeed, the short-term benefits of the legislative proposals now 
before Congress will prove elusive because the increased availability 
and use of innovative medicines is a true driver of reduced overall 
healthcare costs. There are many examples of rapid improvements in 
medicines in recent years that, while leading to increased expenditures 
on medicines, also have led to far better results for patients, and 
often avoidance of much costlier hospitalizations, emergency care, and 
nursing home admissions. For instance, innovations in recent years have 
brought us both improvements in medicines and the first medicines to 
treat Alzheimer's Disease, diabetes, asthma, depression, AIDS, various 
types of cancer, and heart disease. These medicines--which save and 
improve lives and allow people to continue work rather than struggle 
with disability--are all products of our strong patent system that 
protects intellectual property rights, not a weak one that fails to do 
so.
                               conclusion
    Our health care system would be far less affordable without new 
medicines--as demonstrated by purchasers embracing disease management 
as one of their leading cost containment strategies. In these programs, 
drug spending often increases while total health spending decreases. 
Weakening patents ultimately will increase health care costs, as the 
disincentive to innovate leads to fewer new medicines and, thus, 
foregone opportunities to cure or better manage costly diseases. As the 
Patent and Trademark Office (PTO) wrote in a July 30, 2002 letter to 
Senator Orrin Hatch, ``This bill [S.812] would likely do the opposite 
of what its title [Greater Access to Affordable Pharmaceuticals] 
suggests--by limiting access to cutting-edge drugs, decreasing 
innovation, and ultimately harming the quality of treatments available 
to patients.''
    Part of Hatch-Waxman's foundation is the protection of legitimate 
patent rights of pioneer companies. Without that protection, the 
research-based pharmaceutical industry will have reduced incentives to 
innovate and to create safe and effective cures and treatments of 
illnesses. Without that protection, the production of new drugs will 
suffer. Attacks on legitimate patent rights will lead to less consumer 
choice and less availability of new drugs, and will undermine the 
careful balance of Hatch-Waxman between legitimate patent rights and 
getting generic drugs to market.
    Thank you.

    Mr. Bilirakis. Thank you very much, Dr. Glover. Dr. Levine.

                   STATEMENT OF SHARON LEVINE

    Ms. Levine. Mr. Chairman, Congressman Brown, distinguished 
committee members, I am a pediatrician and Associate Executive 
Director of The Permanente Medical Group in the Kaiser 
Permanente Medical Care Program. I am testifying today on 
behalf of RxHealthValue, a broad coalition of more than 20 
organizations nationally, consumer organizations, purchasers of 
drugs, providers, health benefit sponsors and health plans, 
including AARP, General Motors, AFL-CIO, United Auto Workers, 
DaimlerChrysler, Verizon, and Visteon. Collectively, 
RxHealthValue's members represent more than 100 million 
American consumers who have a great interest in the outcome of 
hearings such as this.
    As a physician and as a member of RxHealthValue, my primary 
concern and the reason I am here today is the affordability of 
prescription drugs and the viability of prescription drug 
coverage. Reform of the laws covering generic availability is a 
key concern not only of this committee and of our coalition, 
but of American consumers, as was sharply reflected in the 
survey released last week by AARP. It is clear that there is 
strong consumer support for generic drugs and for the kind of 
reforms that would make generic drugs more accessible.
    Congress has the ability to do any number of things to make 
prescription drugs more affordable. While reform of Hatch-
Waxman is not the only step, it is an important step and 
presents an important opportunity to address a piece of what is 
going on that is making prescription drugs and prescription 
drug coverage increasingly unaffordable for American consumers.
    Consumers, businesses, unions, the Federal Government, and 
health plans are aggressively attempting to manage staggering 
increases in prescription drug expenditures. Members of 
RxHealthValue spend billions of dollars each year on 
prescription drugs and have experienced anywhere from 17 to 20 
percent annual increases for the last 5 years, threatening the 
viability of prescription drug coverage.
    Our goal as a coalition and our goal as individual 
organizations is to provide value to our beneficiaries and to 
ensure that our members or patients get a dollar's worth of 
help at least for every dollar they spend on prescription 
drugs. Generic drugs are an important part of the value 
equation. As you know, they are subject to rigorous FDA review 
to ensure that they are as safe, as effective, as their brand-
name counterparts; they have the same active ingredients, 
dosage forms, standards for purity, quality, and manufacturing, 
and the same clinical effect. The only substantive difference 
between generic drugs and their brand counterpart is the price.
    The passage of Hatch-Waxman in 1984 was an important step 
in increasing the availability of generics. It established a 
regulatory framework to balance the incentives and the reward 
for continued innovation by research-based pharmaceutical 
companies with opportunities for consumers to actually benefit 
from those drugs based on market entry by genetics.
    RxHealthValue members are growing increasingly concerned, 
however, that the provisions of Hatch-Waxman have been 
inappropriately exploited to delay market entry and to delay 
access to high-quality, cost-effective generic drugs. 
Inappropriate Orange Book patent listings, repeated use of the 
automatic 30-month stay granted to the patent-holder has 
resulted in significant expense for consumers and 
unpredictable, unaffordable, and increasingly unmanageable 
pharmaceutical costs.
    While it represents a very small percentage in terms of 
market share or in terms of the number of drugs, when we look 
at the expense associated with these drugs, it is quite large. 
General Motors testified that ``evergreening'' of the patents 
of five drugs, one each to treat ulcers, cholesterol, diabetes, 
allergies, and depression, increased its pharmaceutical costs 
by over $142 million. In Kaiser Permanente these same drugs, 
the same five drugs, resulted in an expenditure of over $120 
million.
    Just to give you some perspective, that $120 million could 
have built and equipped a 100-bed hospital. This is a non-
trivial expense even though it represents a small number of 
drugs.
    Last-minute delays in generic availability make it 
difficult to plan and to budget for drug costs and to budget 
the appropriate resources. Our members have had to absorb 
unanticipated cost of hundreds of millions of dollars based on 
this small number of evergreening patents.
    Delays in generic availability, though not the sole reason 
for the staggering increases in drug costs, certainly 
contribute and they result in efforts and activities by 
providers of health care coverage that have impacted consumers 
significantly.
    Mr. Bilirakis. Please summarize, would you, please, Doctor?
    Ms. Levine. Modifying benefits to reduce coverage, increase 
in cost-sharing, these have real impact on consumers, and the 
delay in the availability of quality generics contributes to 
this.
    Our coalition recommends either eliminating the automatic 
30-month stay, decreasing its length--and I would argue that 
the difference between 25\1/2\ and 30 months is substantive 
when we look at the expense related to these drugs--and if that 
is not possible, at least limiting it to one 30-month stay.
    In addition, we support the fact that there ought to be 
regulation requiring the actual use of the 180-day exclusivity 
for generic drugs to actually result in a benefit to consumers 
and the generic actually coming to the market. Thank you very 
much.
    [The prepared statement of Sharon Levine follows:]
  Prepared Statement of Sharon Levine, Kaiser Permanente Medical Care 
                   Program on Behalf of RxHealthValue
    Chairman Bilirakis, Congressman Brown, and distinguished Committee 
members, I am Dr. Sharon Levine, a pediatrician and Associate Executive 
Director of The Permanente Medical Group, in the Kaiser Permanente 
Medical Care Program.
    I am here today testifying on behalf of RxHealthValue, a broad and 
diverse coalition of more than 20 national organizations representing 
consumer organizations, purchasers of pharmaceuticals, health benefits 
sponsors and health plans including AARP, Families USA, Ford, General 
Motors, DaimlerChrysler, Verizon, Visteon Corporation, the United Auto 
Workers, the AFL-CIO, the Academy of Managed Care Pharmacy, the 
Alliance of Community Health Plans, the Blue Cross Blue Shield 
Association, and Kaiser Permanente. RxHealthValue is committed to 
research, education and both public- and private-sector solutions to 
assure that Americans receive the full health and economic value from 
their prescription drugs. It is an honor to appear before your 
Subcommittee to share our views regarding prescription drug spending 
growth and access to generic drugs and to underscore our belief that 
federal policy reforms are needed to restore balance in the 
pharmaceutical marketplace.
    As a physician, my primary concern today is the affordability of 
prescription drugs and prescription drug benefits. Reform of the laws 
governing availability of generic drugs is a key objective of our 
coalition; it is also an important concern of American consumers 
surveyed in recent weeks by AARP who recognize the value that these 
drugs represent and who have shown strong support for reforms that 
would make generic drugs more accessible.
    As the House Subcommittee with primary jurisdiction over 
prescription drug development, use and marketing, we want to 
particularly thank you for your leadership in holding this hearing. We 
also want to commend the Federal Trade Commission (FTC) and Chairman 
Murris for the extensive and thoughtful work the FTC has put into 
analyzing and addressing competitive concerns in the prescription drug 
marketplace over the past several years. It is our hope that today's 
hearing will continue the strong bipartisan effort to develop 
legislation to bring relief to consumers, as well as public and private 
purchasers of prescription drugs.
    Congress could take any number of steps to make prescription drug 
more affordable. The step closest at hand is the one we are discussing 
today. We in RxHealthValue urge you to take action this session of 
Congress to make drugs that are more affordable more available.
                   the pharmaceutical cost challenge
    Consumers, businesses, unions, the federal government and health 
plans throughout the nation are aggressively attempting to manage 
soaring increases in prescription drug expenditures. Collectively, 
RxHealthValue's members represent more than 100 million Americans. The 
employer, insurer and consumer members of RxHealthValue spend billions 
of dollars each year on prescription drugs and report that year-to-year 
prescription drug spending is growing by as much as 20 percent, 
threatening the very viability of prescription drug coverage. Not 
surprisingly, a poll of Americans age 45 and over recently released by 
AARP indicated that there is growing concern among this group that 
rapidly rising prescription drugs costs are a threat not just to 
prescription drug coverage, but to all health care coverage.
    The broad-based, diverse and respected organizations within 
RxHealthValue are growing increasingly concerned that the Hatch-Waxman 
law contains loopholes or provisions that have been exploited to allow 
the brand-name pharmaceutical industry to delay competition and access 
to high-quality, cost-effective generic drugs. We believe that 
inappropriate Orange Book patent listings and repeated use of the 
automatic 30-month stay granted to the patent holder has resulted in 
unpredictable, unaffordable and increasingly unmanageable 
pharmaceutical costs.
    Kaiser Permanente is the largest private, non-profit health care 
system in the country, providing medical care to more than 8 million 
Americans. Permanente physicians prescribe and Kaiser pharmacists 
dispense more than $3 billion a year in prescription drugs. Our 
physicians and pharmacists work very hard to deliver to our members the 
highest quality and most cost-effective pharmaceutical care possible 
based on the best available clinical evidence. Through this 
partnership, we are able to achieve significant economies in 
pharmaceutical care. Nevertheless, even our pharmaceutical costs 
continue to soar, growing at an annual rate of about 15 percent in 
recent years.
    We expect pharmaceutical costs to increase significantly each year, 
frankly at rates that far exceed inflation. We recognize that 
prescription drugs can improve treatment, enhance the quality of life, 
and increase longevity. There are circumstances in which increased use 
of pharmaceuticals improves health and/or reduces spending for hospital 
or medical services. In these circumstances--for example, the use of 
lipid-lowering drugs to moderate coronary artery disease, or the use of 
SSRIs to treat depression--we work very hard to increase appropriate 
drug utilization, taking advantage of quality generics when available. 
Unfortunately, most increases in drug spending supplements rather than 
substitutes for other health care costs.
    Generic drugs are important tools for managing rising 
pharmaceutical costs. Typically, generic drugs enter the market at 
prices reflecting a 30 percent discount over their brand-name 
counterparts. Within two years, the generic price may be as much as 60 
to 70 percent less than the brand-name price.
    As you know, generic drugs are subject to rigorous review by the 
Food and Drug Administration to ensure that they are as safe and 
effective as their brand-name counterparts. When compared to brand-name 
drugs, FDA-approved generic drugs have the:

 Same active ingredients,
 Same dosage form,
 Same standards for purity and quality,
 Same standards for manufacturing,
 Same amount of drug absorbed over the same time, and
 Same clinical effect.
    The only real difference between generic drugs and their brand name 
counterparts is the price.
                    barriers to generic competition
    From our perspective, delays in the availability of generic drugs 
have lengthened in recent years and, if not addressed, will almost 
certainly force public and private purchasers to make difficult, 
painful benefit decisions that will almost certainly increase consumer 
out-of-pocket costs. The large companies that come to us for health 
care coverage tell the story: in an absolute sense, the ability of U.S. 
companies to compete effectively in the global marketplace without 
relief from rising prescription drug costs will be significantly 
diminished.
    Last minute delays in generic availability make it very difficult 
to plan for future drug costs, a key concern for employer, health plan 
and governmental payers who need to budget the necessary resources in 
advance to pay for prescription drugs. By creating significant 
budgetary uncertainty, delays in generic availability force payers of 
all kinds ``health plans, employers or state Medicaid programs--to seek 
ways to mitigate budgetary risk including modifying benefits to reduce 
coverage and in some cases increasing patient cost-sharing, both of 
which are opposed and resisted by employees, unions, and members of 
both public and private health plans. Such plan changes can lead to 
significant conflict among corporate purchasers, insurers, health plans 
and the people who depend on the health benefits they provide. The 
year-after-year double-digit drug cost increases make this problematic 
approach unavoidable. If the large increases in drug spending were in 
fact matched by reductions in hospital and medical spending, this would 
not be as significant a problem. But the promise of such an offset 
largely has proved illusory.
    Mr. Chairman, over the last several years, as the patents of costly 
brand-name prescription drugs have approached expiration, purchasers 
have planned and budgeted for generic drug competition to reduce costs 
and increase enrollee choice. Such competition is critical to effective 
pharmaceutical benefit management programs as generic competition 
reduces costs by 60 to 70 percent. Time and again, however, purchasers 
have underestimated their liability, as brand-name pharmaceutical 
companies have been able to extend their drugs' market exclusivity 
through repeated use of the automatic 30-month stay included in the 
Hatch-Waxman Act.
    In addition, the brand-name pharmaceutical industry has 
successfully protected its older products from generic competition by 
listing unapproved and unmarketed uses or altering non-active 
ingredient components of the product in the Orange Book or through the 
U.S. Patent and Trademark Office.
    For many of these product listings, however, independent experts 
have raised serious questions about whether such product changes really 
are true innovations meriting such protections. And when a brand-name 
pharmaceutical company contests a generic's challenge of a questionable 
patent or exclusivity claim, the pharmaceutical company routinely is 
granted a 30-month market exclusivity extension, regardless of the 
merits of the case.
    We are not aware of a single industry besides the brand-name 
pharmaceutical industry that has the ability to extend unilaterally and 
automatically protection against competition and believe that Congress 
never intended nor expected this provision to be repeatedly utilized 
for this purpose. We believe that the expiration of patents after their 
intended statutory term creates a strong incentive for companies to 
continue to develop innovative new products.
    As a consequence of the practices of many in the brand-name 
pharmaceutical industry, Kaiser Permanente and other members of 
RxHealthValue have seen our prescription drug costs skyrocket. Since 
the enactment of Hatch-Waxman, the average number of patent extensions 
filed for ``blockbuster'' drugs has increased five-fold--from two to 
ten patents filed. And this trend has a very real and all-too-
frequently devastating effect on the affordability of prescription 
drugs and ultimately all health care costs. 1Our concerns about 
inappropriate practices in the marketplace are not limited to the 
brand-name industry. We are troubled by and strongly opposed to brand-
to-brand and brand-to-generic settlements that are designed to delay 
market entry of generic competition.
    There have been cases where generic pharmaceutical companies that 
initially filed a challenge to a brand-name patent and thus were 
eligible for the no-generic competition, 180-day exclusivity period 
reached an agreement with the brand-name company not to bring their 
generic drug to market. Such agreements, which can benefit both brand-
name and generic companies handsomely, create no value for purchasers 
and consumers of prescription drugs.
    I want to underscore our view that our support for restricting 
questionable practices that delay generic drug market entry does not 
mean that we oppose strong intellectual property protection. On the 
contrary, we fully appreciate the fact that without strong protection, 
the innovations that lead to breakthroughs for patients would not 
occur, nor would similarly important advances in other industries. At 
the same time, we do not believe that H.R. 5272 or H.R. 5311 would 
reduce intellectual property rights or threaten that principle that 
these rights are vital to a vibrant economy.
                 cost impact on rxhealth value members
    Within the last several years RxHealth Value members have literally 
had to increase our budgets for pharmaceuticals by hundreds of millions 
of dollars a year. At Kaiser Permanente, a single manufacturer's 
efforts to ``evergreen'' just three of its drugs increased costs to our 
Program by over $30 million despite the fact that we strive to avoid 
unnecessary costs whenever possible. General Motors, in earlier 
testimony before the Senate Health, Education, Labor, and Pension 
Committee reported that ``evergreening'' of the patents of five drugs 
designed to treat ulcers, cholesterol, diabetes, allergies and 
depression increased its pharmaceutical costs by over $142 million.
    Even more ominous is our fear that this trend will continue with 
increasingly negative impact. For example, without new legislation, GM 
estimates that if another five pharmaceutical ``blockbuster'' product 
patents that are currently scheduled to expire are extended, they will 
increases their prescription drug bill in excess of $204 million during 
the period of delay of generic market entry.
    Mr. Chairman, when access to lower cost generics is inappropriately 
delayed, consumers and other purchasers have no remedy or recourse--no 
way to recoup the excessive costs paid for pharmaceuticals. We are 
appearing before you to highlight the tremendous challenge confronting 
us and to seek legislative relief.
              support for bipartisan hatch-waxman reforms
    We believe that this is the time for Congress to intervene and pass 
legislation that will restore the balance between the value that 
accrues to consumers from competition and the benefits that accrue to 
brand-name manufacturers and consumers in return for innovation that 
was initially intended by Congress in the Hatch-Waxman Patent 
Restoration Act of 1984.
    Consumers share the concerns of employers, insurers, and government 
purchasers regarding the implications of rising prescription drug 
costs. Consumers understand the need for policy interventions that 
would eliminate barriers to generic competition and are extremely 
accepting of generic drugs as an affordable, quality alternative to 
brand-name products.
    Just last week, AARP released a landmark survey in conjunction with 
RxHealthValue that found older Americans:

 Are concerned about the impact of rising drug costs on their 
        health care coverage. More than 9 in 10 Americans age 45 and 
        older (92%) expressed concern about the impact of rising drug 
        prices on the ability of insurance plans and employers to 
        provide affordable health care coverage, including prescription 
        drugs.
 Frequently struggle to access needed prescription drugs 
        without lower cost alternatives. Nearly one in four (24%) of 
        the survey respondents said that they were unable to afford a 
        prescription drug medication when there was no generic 
        available.
 Believe that greater availability of generic drugs helps 
        combat rising drug costs. More than 8 in 10 (84%) of survey 
        respondents strongly believe that making generic drugs more 
        available is an important part of the solution to rapidly 
        increasing drug prices. Moreover, 9 in 10 older Americans say 
        they are willing to take generic drugs in order to reduce their 
        drug costs.
 Support legislation to make generic drugs more available. Two-
        thirds of survey respondents (age 45+) support legislation to 
        close loopholes used by some pharmaceutical companies to 
        prevent generic drugs from being made available to consumers.
    We in RxHealthValue agree. If possible, Congress should eliminate 
the 30-month stay and transfer the 180-day generic exclusivity 
protection away from any generic company who has agreed to a settlement 
and award it to the next generic competitor who will enter the 
marketplace. If eliminating the 30-month stay altogether is not 
feasible, then Congress should enact legislation that provides for a 
single 30-month stay.
    We greatly appreciate the leadership of Congresswoman Emerson and 
Congressman Thune and Congressmen Brown and Waxman, in raising this 
issue and developing thoughtful legislative solutions in the form of 
H.R. 55272 and H.R. 5311, respectively. We urge the Subcommittee to 
report out legislation and call on Congress to pass a bill before the 
session comes to a close.
    Finally, I want to make clear that, speaking both for the 
physicians of Kaiser Permanente and the members of RxHealthValue, we 
are strongly committed to and supportive of pharmaceutical research and 
development. Kaiser Permanente itself conducts a great deal of 
pharmaceutical research. Pharmaceutical innovation requires patent 
protection to assure innovation. At the same time, excessive market 
exclusivity can be as great a deterrent to innovation as insufficient 
exclusivity. We fear that certain practices currently employed in the 
industry have effectively misdirected its attention away from true 
innovation and new product development and towards preservation of its 
revenue stream.
                               conclusion
    The intent of the Hatch-Waxman law was to achieve a balance between 
incentives to industry to stimulate innovation and patient access to 
the products of this innovation and affordable care. Over 18 years the 
balance has shifted as a result of questionable practices. But the law 
has not kept pace. It's time to restore the balance.
    Mr. Chairman, we appreciate your leadership in holding this 
hearing. We look forward to working with you and providing any 
assistance possible in developing legislation in this area. I would be 
happy to answer any questions you may have.
                             RxHealthValue
    RxHealthValue is a national coalition of large employers, consumer 
groups, labor unions, health plans, health care providers and pharmacy 
benefit managers that, through its members, represents more than 100 
million Americans. RxHealthValue is committed to research, education 
and both public- and private-sector solutions to assure that Americans 
receive the full health and economic value from their prescription 
drugs.
                      participating organizations
Blue Cross/Blue Shield; Kaiser Permanente; AARP; National Consumers 
League; Alliance of Community Health Plans; General Motors; Ford; 
DaimlerChrysler; Verizon; Families USA; Visteon; American Academy of 
Family Physicians; Academy of Managed Care Pharmacy; National 
Organization of Rare Disorders; International Union, UAW; AFSCME; 
Pacific Business Group on Health; Midwest Business Group on Health; 
Washington Business Group on Health; Advance-PCS; Caremark Rx; and AFL-
CIO.

    Mr. Bilirakis. Thank you, Doctor. Mr. Barondess. Did I 
pronounce that correctly? Okay, thank you. Please proceed.

                 STATEMENT OF MARK A. BARONDESS

    Mr. Barondess. First of all, thank you, Mr. Chairman and 
Congressman Brown, for allowing me the opportunity to address 
this astute body today.
    I am here today to discuss what I deem to be an extremely 
important issue in my life, and that is the entry of generic 
drugs into the marketplace prior to the expiration of lawful 
pharmaceutical patents. I thank you because this issue is 
directly about me, and it is about me and every other patient, 
and it is about me and most of your constituents. It affects 
all of us. I am not here today as a lobbyist. I am not here as 
an advocate. I am here today solely as a patient.
    I am greatly concerned as a patient about the potential 
harm that would come to the pharmaceutical research industry in 
the event there were any erosion of the patent protection that 
presently exists under existing law. I am really not interested 
today in entering into a political argument between the 
generics on one end of the table and me as a patient on the 
other end of the table, or what Kaiser Permanente wants or what 
Blue Cross/Blue Shield wants. I really don't care what they 
want. I care about what patients want and what constituents 
want.
    In December 1999, if you would have asked me what was my 
most significant health problem, I probably would have told you 
male pattern baldness, and it is still a major problem for me. 
But, unfortunately, I discovered I had one other problem. In 
March of 2000, I heard the words for the first time, ``multiple 
sclerosis.'' I had no idea what it was. I was upset. I was 
hurt.
    I want to apologize to the committee in advance only 
because one of the manifestations of my disease is that my 
speech sometimes gets slurred and I go a little bit slower. 
Please understand that that is part of the problem, and I am 
not trying to delay or lengthen my speech for any other reason.
    The best way I can describe MS to you is to imagine your 
own immune system attacking itself. Right now I have six 
lesions that are on my brain. When I first started with MS, I 
had three. My nerves are like frayed extension cords. You know 
what an extension cord looks like when it gets cut. It doesn't 
get the right signal. Well, sometimes my brain doesn't get the 
right signal; my legs don't get the right signal; my arms don't 
get the right signal, and it affects me.
    Multiple sclerosis is a disease with no cure and with no 
known cause. While research from the pharmaceutical industry 
has yielded five, what have been called, I guess, these 
blockbuster-type drugs in the last 5 years, there is still no 
cure on the horizon. The best that I can hope for, the best 
that friends of mine that have MS can hope for, is that I stay 
out of a wheelchair. That is my daily goal, to hope that my 
condition does not progress any further.
    Now on November 30, 2001, I did something that for me was 
somewhat extraordinary. I ended my career as a trial lawyer. I 
had been a trial lawyer for almost 20 years. During that 20-
year period, I had the great honor of representing Members of 
this august body. I represented members of the Executive branch 
of government. I represented athletes, sports figures, Olympic 
gold medalists, celebrities, stars. I mean, you name it, I was 
very, very fortunate to represent them. Some of them, like 
Larry King or Montel Williams, I can still represent, but I 
can't go into court for them anymore. I am not allowed to do 
that because my multiple sclerosis has affected my ability to 
do my trial work.
    Like the passion that each one of you have for your 
legislative goals and for your constituents and for your 
individual careers, I lost mine. It is kind of like if I was 
the captain of the Concorde, and all of a sudden I was told, 
``You can't fly anymore.'' My wings got taken away.
    It is difficult for me to articulate to you the pain and 
frustration that I felt 1 day as I stood in a crowded courtroom 
in a hotly contested case and I passed out because a spinal tap 
that I had had the day before started leaking, and all the 
cerebral fluid from my little brain started to leak out my 
spine. It was a pain that I will never forget, and it is a pain 
that I still feel today.
    But that is my disease. That is my MS. Although I look 
healthy, I am not healthy. MS is an invisible disease. Looking 
at me right now, I am sure that you cannot tell that I have no 
feeling on my left side, none at all. You could take a nail and 
put it in my left foot, and I wouldn't feel it. Last week at 
BWI Airport I was coming off the Park and Shuttle bus; I 
couldn't feel my left foot. So what did I do? I fell down the 
stairs of the bus.
    Now a lot of people think lawyers have big egos. I like to 
think that I am not one of them, but I've got to tell you I was 
devastated. It was very embarrassing to fall down in front of a 
group of people and have people older than me rushing over, 
``Can I help you?'' It is a humiliating experience.
    Three weeks ago I went blind in my left eye. I don't know 
if any of you have ever lost your vision before, but I will 
tell you it is a scary thing to happen.
    Almost every day I get seasick, but I don't go out on 
boats. It is all part of the disease.
    Now why am I telling you each one of these stories? The 
reason I am telling you these stories is because, first of all, 
I want you to understand from a patient perspective; I could 
care less about PhRMA; I could care less about generics; I 
could care less about Kaiser Permanente. I care about what it 
means as a patient to be affected by disease in America. It 
doesn't matter that I have MS or if your mother has Alzheimer's 
or if Michael J. Fox has Parkinson's. We are all affected the 
very same way.
    You do not know how it feels, and I hope to God that you 
never do know, what it feels like not to be able to play with 
your children because you are too tired. Imagine standing in a 
courtroom where you are examining a witness and, as you stand 
there, you totally forget what it is that you are asking the 
witness. It is a terrible thing to happen. That is the effect 
of the disease.
    So why am I here? I am here to ask you to do the following:
    I am asking you not to take any steps whatsoever that would 
in any way hinder the pharmaceutical industry in their 
development and innovation of drugs. It is too important.
    We went through this whole thing--and I am skipping through 
all my comments because I realize I am running out of time. We 
went through this whole thing last year with Napster. I 
represent music artists; I know what Napster is about. 
Everybody was up in arms, ``My God, we can't get our free music 
anymore. What's going to happen? We're going to protect the 
music. The music is important.'' Well, Elvis may be dead, but, 
I've got to tell you, his copyrights, they are alive and well. 
He is doing great.
    We are in the same situation here, except you have 
something very unique. You have the power. You have the 
obligation, I would submit, to protect people like me, to 
protect your constituents, to protect your family, so that 
pharmaceutical innovation is not halted.
    Generics do serve a good goal. They should continue to 
serve that goal. I am asking you to use your conscience, to use 
your compassion, and to exercise your best judgment in order 
that the pharmaceutical industry can continue to make 
breakthroughs to help people like me and to help people that 
are even less fortunate than me.
    Thank you for your time.
    [The prepared statement of Mark A. Barondess follows:]
            Prepared Statement of Mark A. Barondess, Patient
    Chairman Bilirakis, Representative Brown, and Members of the 
Subcommittee, my name is Mark A. Barondess. I am an attorney who has 
given up my litigation practice because my diagnosis of multiple 
sclerosis precluded my ability to continue as a trial lawyer. I am here 
today because the subject of this hearing is one that is crucial to me 
and to many others like me who are affected by incurable diseases. The 
one belief all of us as patients have in common is that we continue to 
hope that some day, the word ``incurable'' will not apply to us. How 
this Subcommittee, and this Congress, treat the protection of 
intellectual property owned by research pharmaceutical companies has 
everything to do with whether or not our hopes will ever be realized.
    As I am sure you know, Mr. Chairman, multiple sclerosis is a 
disease of the central nervous system that occurs in a minimum of 
400,000-plus patients in North America. With the assistance of the 
Gallup organization, we are presently conducting a poll to hopefully 
gain a more accurate delineation of the actual number of MS sufferers. 
I believe the actual number may approach 3 million people. Multiple 
sclerosis can be a progressive disease, which causes a range of 
symptoms including loss of muscle strength in the arms and legs; 
compromised balance, coordination, and cognitive function; fatigue; 
blurred vision; pain; vertigo and bladder dysfunction. Its cause is not 
understood. MS generally is first diagnosed when a person is 20-40 
years of age and its symptoms and progression are variable. MS can 
progress slowly or quickly, with an increase in symptoms or silently. 
The loss of physical and cognitive function may occur gradually over 
many years, or more dramatically over a shorter period of time. It can 
be difficult to predict the course of the disease in any given patient, 
so all of us are in a wait-and-see mode. We basically meet each day 
with the expectation that we will take it as it comes, and the hope 
that that day will be better than--or at least no worse than--the day 
before. And we always hope that this will be the day research will 
yield results that can be translated into a cure.
    Today, MS patients have several therapies available to them, which 
palliate some of the symptoms and appear to slow the progression of the 
disease. The remarkable thing about that statement is that just 9 years 
ago, I could not have made it. Although patients have been affected by 
MS for many years, the first drug treatment that actually was targeted 
to this disease was not discovered and approved by the FDA until 1993. 
Since then, several other products have been approved that have 
provided incremental improvement. But no cure is on the horizon, and 
even the most optimistic experts in the field tell patients that nobody 
can predict when, or IF, there will be a cure. We know there is a great 
deal of research under way that could lead to greater understanding of 
this disease and even to a realization of how to cure it. But for that 
research to benefit patients, it must be translated into a real, 
tangible treatment. All of the basic research in the world put together 
does not benefit a single patient unless someone applies that research 
to bring it to the patient's bedside. And for patients who are waiting 
for a cure for MS, the people who will bring the research home to us 
are the research pharmaceutical companies.
    With all due respect to the generic drug industry, Mr. Chairman, no 
generic drug company will ever take a basic research finding and turn 
it into a drug. The application of basic research in MS, through bench 
science, animal studies, and finally through human clinical trials will 
be accomplished by companies in the research pharmaceutical industry--
the industry that some in Congress want to blindly characterize as 
evil, greedy, and uncaring. I don't agree with that characterization, 
Mr. Chairman, and I consider it to be offensive not just to the 
industry but also to every single patient in America who relies on the 
pharmaceutical industry for a viable treatment and for a cure.
    It is astonishing to me that Congress has expended a massive effort 
to protect patents and copyrights on rock music, music videos and 
movies but seems quite eager to literally toss away protections for the 
industry that makes the most significant difference in the lives of 
patients. I was stunned to learn about the recent Senate debate on 
legislation called the Greater Access to Affordable Pharmaceuticals 
Act. The debate seemed to be not at all about the pros and cons of the 
bill. In fact, there seemed to be an extremely poor understanding on 
the part of those who advocated this bill of what the legislation does 
or of the impact it would have. Instead, there seemed to be statement 
after statement about the cost of drugs and about various Senators' 
very negative views of the research pharmaceutical industry. It seemed 
to be statement after statement about insurance companies complaining 
about the cost of drugs. I found myself asking when the insurance 
industry suddenly had become the champion of the little person--the 
champion of the patient.
    Mr. Chairman, as a patient whose disease requires a variety of 
treatments, I can tell you that insurance companies find very clever 
ways to reduce their costs, which mostly involve denying patients 
treatments they need. On September 30, 2002, I received a letter from 
Trigon Blue Cross/Blue Shield advising me that they would no longer 
reimburse me for a drug called Provigil, and innovative pharmaceutical 
product that helps me overcome the debilitating fatigue of MS. Why? 
Because the drug was originally designed to treat patients with 
narcolepsy, not MS. So now I am faced with the decision to pay $1195 
for 30 tablets, or just endure the fatigue. I am a victim of the 
insurance industry; by contrast, I am a beneficiary of the benefits of 
research-derived pharmaceuticals. To me, the truly sad thing about this 
debate was not what was said, but what was not discussed--patients who 
are waiting for new drugs that will cure their diseases. This so-called 
pro-consumer legislation didn't seem to be about consumers at all.
    Mr. Chairman, the title of today's hearing indicates that is about 
pharmaceutical marketplace competition. And I think this is an 
important opportunity for all of us to be educated about this. But I 
want to urge you to look at this from another perspective--the 
perspective of whether Congress could take actions that threaten the 
availability of new drugs altogether. Speaking as a patient with MS, 
who is hoping and waiting for a cure, and as an attorney, I am telling 
you that this legislation WILL affect whether new drugs are available. 
I take this personally, Mr. Chairman, because what the Senate did, and 
what some in the House seem determined to do, will affect me 
personally. For me, this is not an academic exercise, and it is not a 
political prank; it is life in a wheelchair; it is life or death--mine.
    Today, patent protection for pharmaceutical products is identical 
with that for all other patented inventions, except for one key matter. 
This is that software, microchips, automobile components, and video 
equipment have 20 years of protected life in the market because as soon 
as the invention is ready, and as soon as it is patented, it can go on 
the market. If potential competitors violate these patents, or appear 
to violate them, they can be prosecuted immediately; patent and 
invention are preserved. But drug products must be approved by FDA 
before they can go on the market. And to secure this approval requires 
years of research and human testing. So, for these products, the 
original patent may be issued many years before the product actually 
reaches the market. The so-called ``effective'' patent life is never 20 
years and can be less than half that time. Provisions of the Hatch-
Waxman Act were designed to restore some patent life to account for 
research time and FDA review time. But in no case does that extension 
ever come close to equaling the protections on high-technology 
developments in other areas.
    Hatch-Waxman provisions also recognized that getting generic copies 
to market as soon as possible required actually allowing a generic 
company to infringe existing patents for the purpose of getting data 
needed for FDA approval. So, generic companies literally can start 
using the information in the patent the next morning. Unlike any other 
business, they don't have to wait until the patent expires to get their 
competitor product ready for market. The balance for this in Hatch-
Waxman was to allow the patent holder a 30-month period to prosecute 
any potentially infringed patents, before a generic drug can be 
approved by the FDA. Remarkably, Hatch-Waxman also established a reward 
for the first generic company to infringe a patent, awarding that 
company 6 months of exclusive marketing.
    So, to review the bidding, Mr. Chairman, here is what Hatch-Waxman 
did: (1) took away basic patent protections from drug companies by 
allowing generic copiers to use the patent information and make copies 
of the product beginning on the very day the patent is issued; (2) 
encouraged generic companies to infringe patents by rewarding the one 
who reached the patent infringement finish line first; (3) allowed a 
fraction of patent life to be restored for the time spent by a research 
company in conducting human studies and in waiting for FDA review to be 
completed; and (4) allowed a 30-month period for a drug patent holder 
to prosecute its infringed patents in court, before FDA can approve a 
generic copy.
    So, we have essentially four components; two that benefit the 
generic company, and two that help the research company. In my book 
that's a balance. It might not be a ``one-for-one'' trade, but it's 
sure a flat see-saw. The Senate legislation and bills pending in the 
House tilts that see-saw precipitously, destroys the intended balance 
of the law, and threatens the future of research pharmaceuticals. It 
threatens my hope and well-being.
    These bills go well beyond the recommendations of the Federal Trade 
Commission, an organization that I certainly believe is independent 
from the pharmaceutical industry. Even the FTC, in a report designed 
and executed in an effort to uncover flaws and abuses of the Hatch-
Waxman law, does not say Congress should abrogate the fundamental 
patent rights of the research pharmaceutical industry. The Senate and 
House bills absolutely do that. In this report, certainly no ``white 
wash,'' the FTC unequivocally states that the Hatch-Waxman law has 
worked and has been literally responsible for the success of the 
generic drug industry. The FTC, after exhaustively digging for 
``abuses,'' found fewer than 10 cases where there can be even the 
suggestion of going beyond the intentions of Hatch-Waxman; and these 
are not clear ``abuses.'' FTC does not paint a picture of an evil 
industry stomping out the benevolent intentions of a poor, struggling, 
philanthropic generic industry. Instead, FTC makes modest suggestions 
dealing with two of the rewards in the statute--the 30-months reward 
for the research company and the 6-months reward for the generic 
company.
    Mr. Chairman, when you pass legislation--or even when you argue 
about it as fiercely and as maliciously as has been done in recent 
months--the effect will be a chill on pharmaceutical research, and that 
chill will--whether you want to admit it or not--affect patients like 
me. Will research in the pharmaceutical industry cease forever? Of 
course not. Will companies re-evaluate their research investments? 
Absolutely, unequivocally, yes. Patent protection is part of the 
calculus of research investment. Intellectual property is a mark of the 
value, the significance, and the quality of a research portfolio. 
Change the rules, and you will change those attributes of the system. 
Change the rules capriciously and you will have substituted politics 
for patients. I reject such a change
    Mr. Chairman, I am all for access to affordable drugs. I am all for 
appropriate transition from an older, branded drug product to a generic 
copy. I am all for the system working the way it was intended, and I am 
not against change. But I am against arbitrary change. I am against 
changing a system that is working because it makes a good sound bite in 
an election year. I am against attacking the research pharmaceutical 
industry in favor of the insurance industry.
    Mr. Chairman, if you were to ask me what to do about pharmaceutical 
patent law, I would say strengthen it. Rather than weakening patent 
laws, I would urge you to enhance protections to provide greater 
incentives for companies to look for the cures that are deeply buried 
and very difficult to uncover. These are the kinds of cures for 
patients like me, whose diseases challenge even the most committed 
researchers. I would make the patent life of these products begin on 
the first day they are sold, not when the underlying molecules are 
created.
    I am asking you to proceed with caution, and to make any changes on 
the basis of real--not fabricated--reasons. I am asking you to 
recognize that this law has worked by helping generic products get to 
market through a very abbreviated FDA review process that uses data 
gathered by a research drug company, allowing about $1 million worth of 
development costs to substitute for about $500+ million worth of 
research. I am asking you to recognize that the research pharmaceutical 
industry is one with huge risks as well as great rewards, and that 
those rewards accrue to people waiting for treatments and cures as well 
as to the companies who find them. And finally, Mr. Chairman, I beg you 
to approach this issue from the perspective of patients and to make 
your choices and your decisions based not on politics but on the needs 
of real people, suffering from real diseases for which there are no 
cures. Without your support, my dreams and those of my children may 
never become a reality.
    Thank you.

    Mr. Bilirakis. Thank you, Mr. Barondess, and we made you 
wait 5 hours to give your testimony, and we apologize for that.
    People on the street often--that didn't come out the right 
way, but, in any case, there have been concerns raised over the 
years I've heard of the efficacy, if you will, of generic 
drugs. We have even had a doctor, a member of this 
subcommittee, who questioned their efficacy in many cases, in 
other words, as related to the brand-name drug.
    I would just ask very, very quickly, Dr. Levine, do you 
have an opinion on that, very briefly?
    Ms. Levine. I do. The FDA has done an excellent job, and I 
think the situation in regards to generic drugs today is very 
different than it was when I started practice 25 years ago. The 
FDA has ensured that the quality, safety, and efficacy of 
generic drugs matches, and the bioavailability and clinical 
effectiveness matches, their brand counterparts.
    Mr. Bilirakis. Okay. I think it is important, and I am 
going to ask Dr. Glover the same thing in a moment. But we have 
television here, and I think it is important for the American 
people to see that, so that they have a level of confidence.
    Ms. Levine. I think the survey that I alluded to that AARP 
released a week ago actually was remarkable in that it showed 
how much American consumers actually have confidence in 
generics.
    Mr. Bilirakis. All right, Dr. Glover, do you have any very 
brief opinion? Are you basically in agreement with Dr. Levine?
    Mr. Glover. We certainly agree that the standards that FDA 
has established for their pool of generic drugs generally makes 
those drugs safe and effective. We do note, however, that there 
are circumstances in which the generic drugs are not, in fact, 
identical to the pioneer drug. In some circumstances for some 
patients those are relevant issues.
    Mr. Bilirakis. Thank you. Well, Ms. Jaeger, how much does 
it cost the average generic manufacturer to produce a generic 
drug?
    Ms. Jaeger. Actually, that is a very good question. I think 
it really would depend on actually the drug product. There are 
a lot of complex issues involving each and every drug product. 
So it can range from just shy of $1 million all the way up to 
perhaps $10 to $12 million.
    It really has to do with the scientific issues associated 
with that product, like with respect to conjugated estrogens. 
It also has to do with how many patents improperly listed or 
those that are deemed to be invalid that the generic company 
has to challenge. That all, basically, gets tied into how much 
it costs to bring a generic to market.
    Mr. Bilirakis. As related, and you started, I guess, to get 
into it, as related to--well, in terms of the cost for 
development of the drug to conduct the bioequivalency studies, 
which are required by the FDA, which generally, as I understand 
it, doesn't really include that many people, how much of a 
cost? Would that cost be included in the dollar figure that you 
gave me?
    Ms. Jaeger. Yes, it would. Again, that study will range 
depending upon the drug product.
    Mr. Bilirakis. Dr. Glover, what would you say is the cost 
to the average brand-name manufacturer to produce a generic 
drug?
    Mr. Glover. The number of recent studies shows that it 
costs about $800 million to produce the drugs that actually get 
approved. That, of course, takes into account some of the 
failures for drugs that do not get to the approval process.
    Mr. Bilirakis. Mr. Barondess, in your written testimony you 
stated that the reforms passed in the Senate would tilt, I 
think using your word there, would tilt the balance struck by 
Hatch-Waxman, thus, threatening innovation. Well, you have sort 
of addressed this, but I just wanted to give you a little more 
time.
    What impact would the Senate legislation--maybe we can 
expand that into, and we have all indicated that there have to 
be changes made to the Hatch-Waxman and we have all indicated 
that we want to be a party to all that, but maybe we can add to 
that the other pieces of legislation, some that have been 
initiated here in the House. What impact would all that have on 
your hopes for a cure?
    Mr. Barondess. It would have a devastating impact. I was 
fortunate enough this week to have a 45-minute meeting with 
Senator John McCain, and Senator McCain was very receptive and 
open to certain issues that he, I believe, had not considered 
in terms of the passage of the legislation in the Senate.
    Generic drugs are great in terms of providing care for 
people, but generics are not innovative. Generics are not what 
you are going to look for to cure AIDS, to cure cancer, or 
anything else.
    I would like to go just for a minute to the question that 
was asked of Ms. Jaeger in terms of cost. I would think that as 
the president of whatever it is, the generic group, that you 
would know the answer to the question. For instance, 
Fluoxetine, which would be the generic for Prozac, costs about 
71 cents to make, but if you go to Wal-Mart you will pay $63 
for 30 pills that cost 71 cents. That is a generic markup of 
over 4,000 percent.
    So when we are picking on the pharmaceutical industry, 
don't lose sight of where the generic companies are making 
money. Barr Lab's profits this past year are up 284 percent. 
Why is no one complaining about that? Why? Because it is good. 
They are providing a service. The generics should provide a 
service. But they are not creating any new medicine and they 
are no hope for me or anyone else to cure any disease.
    Mr. Bilirakis. Thank you. Thank you, sir. My time has 
expired.
    Mr. Brown.
    Mr. Brown. Thank you.
    Ms. Jaeger, Mr. Barondess I thought spoke eloquently about 
pharmaceutical innovation, and you have heard Mr. Glover and 
others say that S. 812 and other attempts to bring competition 
into the drug industry will destroy innovation. I also see huge 
numbers of dollars being spent on 600 lobbyists in PhRMA to 
protect things like this, not to mention huge amounts of 
litigation costs on 30-month and 6-month exclusivity, and all 
of that.
    Explain why you think present law hurts innovation to come 
up with drugs that would help Mr. Barondess and why S. 812 
could stimulate innovation.
    Ms. Jaeger. Sure. I would be pleased to.
    I think under today's system what is happening is this 
automatic 30-month stay, instead of giving the incentive for 
the brand companies to go back and do what we call true 
innovation, and bring novel medical products into the 
marketplace, instead this 30-month stay is giving some of these 
companies the incentive to go out and use what we call legal 
loophole innovation.
    Now going out and getting patents and listing patents in 
this Orange Book that are improperly listed, I mean they don't 
cover the brand products. They have nothing to do with the 
brand product. Yet, they are there just to block generic 
competition for 30 months.
    What the Senate bill does is, basically, it is designed to 
curve this abuse and abuses that we see today in the system, as 
well as abuses tomorrow. Really what the whole bill will do is, 
basically, tell the brand companies: Go back and innovate, but 
stop misusing patents to block generic competition.
    With respect to the example that was raised just a few 
minutes ago with respect to Prozac, that is a great example. 
There a generic company came in and challenged a patent. The 
patent was deemed invalid. It cost that particular generic 
company about $10 million to take on that challenge. They were 
able to break down the patent, and the patent was deemed 
invalid. The product, their product came into the market almost 
3 years earlier than it should have, saving about $2.5 billion 
to consumers.
    I also think it is important to note that we have members 
that innovate as well. We have a lot of members who innovate as 
well. One of our members is Teva. Teva is one of the leading 
generic manufacturers in the world as well as the United 
States. Teva basically brings a product into the marketplace 
called Copaxone that actually does treat MS.
    All our companies want to bring innovative products. At the 
same time, they want to bring their generic products into the 
market. There should be a balance there.
    So what we are asking right now is just saying there has 
been abuse. Clearly, like in the world of sports, you see an 
issue, like in basketball the 3 seconds rule, that is an issue. 
It is a problem in the game. You don't scrap the game; you just 
change the rule.
    We are saying we all see the abuse here with respect to the 
30-month stay. It is driving the companies to basically 
manipulate the system to extend their products. We are just 
asking for this to be changed so that we can bring our 
affordable medicines into the marketplace, so that consumers 
can actually afford their medicines and perhaps afford the 
miracle drugs as well.
    Mr. Brown. Dr. Glover, Hatch-Waxman allows the 6-month, 
180-day exclusivity, as you know. I have talked to Waxman today 
and numerous times about this. Neither he nor the other authors 
20 years ago envisioned where a name-brand would pay the 
generic that had the 6-month exclusivity, and the generic then 
would not go on the market for that 180 days, for all intents 
and purposes, giving an extra 6 months of exclusivity to the 
name-brand. I mean that is, obviously, what actually happens 
there.
    Should that be permitted?
    Mr. Glover. Sir, I would like to just explain that while we 
always expected that the 180-day exclusivity would give the 
generic the ability to be on the market without competition 
with other generics, the scenario that has arisen within the 
last several years that was the focus of some of the FTC issues 
is a circumstance whereby in the context of patent litigation 
the parties have decided to settle that litigation by virtue of 
having one party make payments in some cases to another party.
    As the Chairman of the FTC said this afternoon, those 
settlements, even those involving payments, can be pro-
competitive, competitive-neutral, or anti-competitive. The 
particular circumstance that I believe you are concerned about 
is a circumstance whereby an agreement involving that first 
ANDA's 180-day exclusivity has an impact on subsequent generic 
applicants entering the marketplace beyond the ability of those 
subsequent applicants to affect the system themselves.
    Mr. Brown. If I can interrupt, it also means during that 6 
months the price continues to be higher, rather than having the 
generic and compete it.
    Mr. Glover. But that is generally not the principal concern 
of the FTC about those settlements. The principal concern was 
something that was brought about by a change in the law in 
1998, whereby we changed the criteria under which the generic 
was eligible for the 180 exclusivity. The criteria had been, 
since 1984 until 1998 or so, that in order to get the 180 
exclusivity, the generic had to successfully defend a suit, the 
patent infringement suit. Then they would get it.
    The change in the law that was brought about by a court 
case was that, in order to get the 180-day exclusivity, all the 
generic had to do was be first. Only in that circumstance do 
you generate the particular problem that the FTC was most 
concerned about.
    Mr. Bilirakis. The gentleman's time has expired. The 
gentleman from Illinois.
    Mr. Shimkus. Shimkus, Shimkus.
    Mr. Bilirakis. I knew that.
    Mr. Shimkus. I don't serve on this subcommittee, but I 
appreciate the chairman, again, for having the hearing and 
allowing me to be a full partner in this debate.
    We have got my little chart up there. Again, maybe you have 
had a chance to look at it over the break. Is this an accurate 
depiction? Why don't I just go, Ms. Jaeger, do you think this 
is an adequate depiction of what goes on?
    Ms. Jaeger. Well, I think, actually----
    Mr. Shimkus. And as short as possible.
    Ms. Jaeger. Sure. I think actually what is relevant here is 
that, before 1984, the brand companies were enjoying about 8.1 
years----
    Mr. Shimkus. Is this an accurate depiction of what is going 
on right now? I don't want the history. I just want to know, is 
this what is going on currently?
    Ms. Jaeger. Generally speaking, this is----
    Mr. Shimkus. Thank you.
    Ms. Jaeger. [continuing] yes, the trendline.
    Mr. Shimkus. All right, Dr. Glover?
    Mr. Glover. This is a representative example, yes, it is.
    Mr. Shimkus. Great. And Dr. Levine?
    Ms. Levine. I am not a patent attorney.
    Mr. Shimkus. Okay. Either am I. I still ask these 
questions, though.
    And Mr. Barondess----
    Mr. Barondess. Yes.
    Mr. Shimkus. [continuing] you are an attorney and a 
patient. Is that how you see this process? Obviously, you are 
pretty informed.
    Mr. Barondess. Yes.
    Mr. Shimkus. Now let me ask a question. On the bottom part 
it says, ``Effective patent life,'' which is the time that 
looks like--and I know it fluctuates, but it is the time that 
the pharmaceutical company has those high prices to cover the 
research and development, is that correct?
    Mr. Barondess. Correct.
    Mr. Shimkus. Okay. Now I know that the intent of my friend, 
Mr. Waxman, when he helped craft this law was the 30-month 
extension was a tradeoff, as I understand--and here we can go 
to history--a tradeoff for the generics to file before the 
patent life expires. Is that a correct historical premise? That 
is what happened? Yes, Ms. Jaeger?
    Ms. Jaeger. Yes. The generics are allowed to do the 
research and development during the patent time. In exchange, 
the brand companies are basically provided with 5 years of 
patent restoration in time. Therefore, the distortions on both 
sides of the equation were equalized.
    Mr. Glover. I would have to disagree with that, if I may.
    Mr. Shimkus. Sure, Doctor.
    Mr. Glover. We need to recognize that while the first 
change that Ms. Jaeger reported on is accurate, namely, the 
Hatch-Waxman Act created an inability for the pioneer companies 
to enforce their patents during the time generics were doing 
their research and development, it is not the case that we were 
given 5 years of data exclusivity. Because the circumstance 
prior to the Hatch-Waxman Act is that our proprietary data, for 
which we pay substantial amounts of money and investment, was 
proprietary for a substantial period of time beyond 5 years.
    The tradeoff for the generics being able to take advantage 
of our patents early in the process was that at the time they 
filed the generic drug application, it would have the 
opportunity to try to start at least litigation to resolve the 
patent issues before the generics got to market, and that is 
the 30-month stay.
    Mr. Shimkus. Let me go on, and my time is short and I want 
to be respectful, but I do want to say to Mr. Barondess that 
Mr. Waxman and I and this committee and the floor, we have been 
pushing our orphan drug bill, which is an incentive to make 
sure that in the small populations that we continue to have 
research and development for a lot of diseases that are of 
small population size. So even though it might seem that we are 
contentious, there are things where this committee and Mr. 
Chairman, whom I respect, have been very, very successful.
    If this chart is correct and the effective patent lifeline 
is at the bottom, and we have the Abbreviated New Drug 
Application line, and if that gets approved, it seems like it 
cuts into the effective patent life recovery time. If that is 
correct, Mr. Barondess, isn't that your concern?
    Mr. Barondess. It is exactly the concern. You know, you try 
to look at these things and figure out what would be a simple 
solution to this. Just speaking as a public citizen, it would 
strike me that, instead of getting into 30 months here, 30 
months there, and you have to file litigation in 45 days, and 
if you don't do this, you lose that right, wouldn't it be more 
simplistic if we just said, ``Look, from the date that the FDA 
approves the drug that you get so many years.''? That's it. No 
extensions, no modifications, no anything. You just keep it 
nice and simple and clean. You avoid all this other.
    I have heard a lot of discussion going back and forth 
concerning this 30-month period and everything else. Let me 
tell you, it is not the pharmaceutical companies that start the 
problem. It is the lawyers. You all have developed solutions 
for dealing with lawyers, and it is called Rule 11. So I would 
urge you to avoid any type of litigation-type solutions. Just 
make it simple.
    Mr. Shimkus. And I will thank the chairman and really all 
the folks that have helped try to educate me before the 
hearing. I think this has been a good hearing. I appreciate the 
panelists. I think we have work to do. I will yield back.
    Mr. Bilirakis. We certainly do have work to do. I thank the 
gentleman.
    Mr. Pallone.
    Mr. Waxman. What about me?
    Mr. Bilirakis. I haven't gone to you yet? That was not 
intentional. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    I thank all the witnesses for their testimony. Mr. 
Barondess----
    Mr. Barondess. Yes, sir.
    Mr. Waxman. --I, too, have a very close member of my family 
suffering from MS. I can assure you, not just for MS, but 
anybody suffering from any disease, we want to give the 
greatest incentive and encouragement for innovation and 
development of new drugs to fight these diseases.
    Dr. Glover, I want to ask you a series of questions I think 
you can answer yes or no.
    Does the Senate bill diminish the patent term restoration 
provisions of Hatch-Waxman?
    Mr. Glover. In the context of, if I am not able to defend 
and enforcement my extended patent, it diminishes the value----
    Mr. Waxman. Well, okay, but does it address the patent term 
restoration?
    Mr. Glover. It does because it affects my ability to 
enforce my patents.
    Mr. Waxman. Does it diminish the 5-year exclusivity granted 
each new chemical entity by the Hatch-Waxman Act?
    Mr. Glover. I do not believe it addresses that.
    Mr. Waxman. Does it diminish the 3-year exclusivity granted 
to each change in a new drug, such as a new dosage form?
    Mr. Glover. Such as new dosage form, no.
    Mr. Waxman. Does it diminish the 6-month exclusivity 
granted for pediatric testing of drugs?
    Mr. Glover. It does not amend 505(a) of the----
    Mr. Waxman. I would submit to you that we don't want to, 
nor does this Senate bill, diminish any of the provisions we 
put in Hatch-Waxman to encourage innovation. The only provision 
that it diminishes is the 30-month stay. That 30-month stay was 
never intended as an incentive for innovation. It was put there 
to deal with the problem of generic companies who were in 1984 
too small to be able to pay treble damages. At least that was 
the theory advanced to us. So we said we would have this 30-
month stay.
    But, Mr. Barondess, the lawyers did get into this whole 
thing. What happened is that the drug companies waited until 
1998, and then they saw that they could use this 30-month stay 
to extend the period of time over which they would have a 
monopoly.
    Now what happens is, when there is a monopoly, you can't 
have competition. Now my family member and you are very 
fortunate to have health insurance, but a lot of people don't. 
I know that MS drugs cost $10,000 to $12,000 a year. A person 
without health insurance is not going to be able to afford to 
pay it. If they had a generic version of these drugs, maybe, 
undoubtedly, the price would come down.
    Dr. Levine, Dr. Glover has testified that the drugs 
examined in the FTC report constitute a tiny fraction of the 
drugs for which there is generic competition and provide no 
basis to conclude that there are no problems with the system.
    Now the drugs identified by the FTC as having multiple 30-
month stays based on late-issue patents were Platinol, Hytrin, 
Paxil, Taxol, BuSpar, two versions of Neurontin, and Tiazac. I 
may not be pronouncing all of them correctly, but, according to 
the FTC, these drugs have net sales ranging from $100 million 
to over $1 billion per year and combined sales of as much as $5 
billion per year. The FTC also found that obtaining multiple 
30-month stays was a new phenomenon in the last 4 years with 
the potential to increase in the future.
    Do you agree with Dr. Glover that the recent delays of 
generic competition on these eight drugs represents a trivial 
problem and not evidence of abuse?
    Ms. Levine. Not at all. It represents a huge problem, not 
because of the number of drugs, but because of the cost 
associated with each drug.
    The issue around access to prescription drugs, I can't 
support strongly enough Mr. Barondess' contention that we 
absolutely need to provide incentive and reward for true 
innovation. American consumers are willing to pay a premium 
today for innovation in the future. They are quite angry about 
paying a premium to reward clever legal maneuvering.
    Mr. Waxman. I think that one of the best ways to get 
innovation is to make clear that at some point your monopoly 
will end, and once the monopoly ends, your pipeline of highest 
possible charges is going to come to an end as well. You are 
going to have to compete.
    Therefore, you had better get new drugs on the market. You 
had better put your money into research and development of new 
products, not into lawyers to figure out how to play games with 
the law to keep the monopoly going as long as possible.
    Now PhRMA says, if we enact this law, it would have a 
negligible effect on cost of drugs. Do you agree with that, Dr. 
Levine?
    Ms. Levine. Not at all. I mean, I think I stated that for 
General Motors these five drugs, $142 million. Kaiser 
Permanente is a not-for-profit organization. This money comes 
out of the pockets of our members and it comes out of the 
pockets of the purchasers and sponsors of health benefits who 
pay on their behalf. These are forgone wages.
    Mr. Waxman. Let me ask Ms. Jaeger a question. Some people 
argue that if we eliminate the multiple 30-month stays, 
incentives for innovation will be undermined. That is the real 
issue.
    Now to test this hypothesis, don't we need to know whether 
the patents that have triggered the successive 30-month stays, 
in fact, cover significant innovations? What kinds of 
innovations are covered by these patents?
    Ms. Jaeger. I think it is a very good point. For the most 
part, the basic compound patents and the first-method-of-use 
patent, the patents that represent about 98 percent of the 
intellectual property rights on a brand product, are not 
involved in patent challenges. What are involved right now are 
the 2 percent of these patents that have to do with a 
container, computer methods, unapproved formulations, 
unapproved uses, kits. They have nothing to do with the brand 
product itself.
    Mr. Waxman. So they can file a phoney patent that has 
nothing to do with the original drug, stop a competitor for 30 
months, after all their patent time, plus all the time we 
restored to them and the exclusivity we granted them in 
addition runs out, and then they can still keep competitors off 
the market because they file a frivolous lawsuit based on a 
phoney patent?
    Ms. Jaeger. That's absolutely correct.
    Mr. Norwood [presiding]. Thank you very much, Mr. Waxman. 
Your time has now expired.
    Ladies and gentlemen of the committee, I am going to play 
by the clock. I don't mind if we have rounds from now until 
midnight.
    Mr. Waxman. Is this time coming out of your time?
    Mr. Norwood. No, it is not. Since I am the chairman, Mr. 
Waxman, I can make an announcement.
    We are going to stay on the clock. We will go around as 
long as any of you want to, but let's, please, when the red 
light comes on, it is over for that time period.
    Mr. Waxman. Point of information: What if a witness is 
answering a question? You will allow them to----
    Mr. Norwood. We will decide that as we face the facts.
    Mr. Waxman. You are revising the rules under which this 
committee has always operated. The members have to complete 
their questions, but I don't think we ought to cutoff 
witnesses, if they have something to add to us that goes beyond 
the time.
    Mr. Norwood. Thank you, Mr. Waxman, for your help.
    Mr. Buyer, you now have 5 minutes.
    Mr. Buyer. One of the things I am concerned about at the 
moment here, when Mr. Shimkus brought up this question about 
the 30-month stay, and I am glad Mr. Waxman is still on the 
committee so we can use him as a great resource, Mr. Waxman.
    I am a little concerned here when you say, do away with the 
30-month time period. Does that mean that we are to then go 
back to LaRoche v. Bolar? Are we to go back to that case and 
let that be the rule?
    Ms. Jaeger. Mr. Chairman, can I answer?
    Mr. Buyer. Well, you are the one that said do away with the 
30-month.
    Ms. Jaeger. Yes. No, we believe, again, that the offset for 
the research and development phase is the 5-year patent 
restoration time. So, therefore, we don't believe we have to go 
back and look at the balance.
    Mr. Buyer. You want it both ways?
    Ms. Jaeger. Well, the----
    Mr. Buyer. Wait a minute. You can't have it both ways, can 
you?
    Ms. Jaeger. The 30-month stay, as Congressman Waxman 
indicated, was a safety net, and it was devised in 1984 to 
ensure that generic companies don't put a product into the 
marketplace that would infringe a patent. Since 1984, there 
hasn't been one generic product going into the marketplace that 
has infringed a patent. So the safety net is no longer needed. 
If anything, it is being exploited, to the detriment of 
consumers.
    Mr. Buyer. Because the scientists are sophisticated enough 
to put into the marketplace an alternative compound or the 
bioequivalent, am I getting this sort of right?
    Ms. Jaeger. Generics are therapeutic equivalents.
    Mr. Buyer. Pardon?
    Ms. Jaeger. Generics are therapeutic equivalent to their 
brand counterpart, yes.
    Mr. Glover. You are correct in suggesting that perhaps the 
reason that we have not had generic drug market entry in the 
face of valid patents is because of the 30-month stay, which 
gives a 30-month period of time during which the pioneer and 
the generic can begin to resolve the dispute over patent 
litigation. That substantially reduces the likelihood that a 
generic who receives final FDA approval would enter the market 
in a manner that is not responsible.
    Mr. Buyer. Do you concur with this, Counsel, that we should 
do away with the 30-month?
    Mr. Glover. We do not. We believe the 30-month is 
important, and contrary to assertions otherwise, it means 
nothing for us to have patents or patent term restoration if we 
do not have an effective way to enforce those patents. Where 
the patent infringement exemption has already limited our 
ability to enforce those patents, it is only appropriate that 
we be given the opportunity to try to enforce those patents 
before the generic has gotten final FDA approval.
    Ms. Jaeger. May I respond?
    Mr. Buyer. I am not going to be able to pronounce your name 
very well.
    Mr. Barondess. Barondess.
    Mr. Buyer. Sir, you are very articulate as a witness. I 
have been here 10 years, and your personal story is, in fact, 
very moving. I think that even though on this committee, when 
you leave here today, even though we may be of different 
parties and we have our different perspectives and we have our 
philosophies, I think all of us dream that if, in fact, it is 
ourselves or someone in our family who have some form of 
disease or an ailment, that we, in fact, want some form of an 
access.
    We live in a great country, and that country makes these 
drugs available. Why? Because the great minds of the world all 
want to come to America because they can push the bounds of 
science.
    Your plea to us was sincere and it was compassionate, and I 
just want to appreciate you. I think it takes bravery, it takes 
courage, for you to be in a public forum and do so in such a 
personal manner. When you leave here today, I want you to be 
proud of yourself----
    Mr. Barondess. Thank you.
    Mr. Buyer. [continuing] because I think you have made a 
valued contribution to this legislation.
    I yield back my time.
    Mr. Barondess. Thank you.
    Mr. Norwood. The gentleman yields. Mr. Pallone, you are now 
recognized for 5 minutes.
    Mr. Pallone. Thank you, Mr. Chairman. I am going to have to 
rush because I have to go to another meeting.
    I just wanted to ask Dr. Glover a couple of questions. I 
have to say that, when I looked at your testimony, Dr. Glover, 
I was concerned because, you know, you say at one point that 
the findings of the FTC and the report do not support either 
the allegations of widespread abuse of Hatch-Waxman and patent 
law or the sweeping measures included in the legislation 
pending before Congress.
    I have to say, I don't think there is any question, from 
looking at the report, that there is widespread abuse. I mean 
that is what it says. You've got all these groups, 78 Senators, 
Governors, AARP, FTC, you know even the Bush Administration's 
statement of administration policy, some of the Republicans 
like Mr. Thune all agree that there are abuses. Yet, you seem 
to say that there isn't really a widespread problem.
    But then you go on to say that the FTC study focused on 
eight cases of concern to the Commission, and you sort of 
trivialize those, and you go through each one to say why it is 
not true. I have some information with regard to No. 3, which 
is the Wellbutrin. In your testimony you specifically claim 
that no challenge was ever brought against the patent on 
Wellbutrin. However, from what I understand, it is just 
completely false.
    In fact, I have some documents here that I would like to 
submit to the committee that indicate that in June 1988 Teva, 
which was already mentioned, Teva Pharmaceuticals, filed a 
challenge to this patent. In addition, I have a copy of the 
stamp that shows it was sent by certified mail and received.
    So why do you say in your testimony that no generic 
challenge was ever filed? Where does that come from?
    Based on the documents, if I could, Mr. Chairman, if I 
could submit these documents to the committee----
    Mr. Norwood. So ordered.
    [The information referred to follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    
    Mr. Pallone. Where are you getting this statement that the 
patents in question were never challenged by any generic? They 
were, in fact, challenged.
    Mr. Glover. Congressman Pallone, I, obviously, would need 
to review the documents that you have in order to be able to 
respond fully, but I do believe that you are not challenging 
the statement that I did make, which is that there are multiple 
versions of Wellbutrin that are generic and that are currently 
on the market.
    Mr. Pallone. But you say, ``The patents in question were 
never challenged by any generic.'' They clearly were.
    Mr. Glover. Mr. Pallone, as I said, I've got to see your 
documents----
    Mr. Pallone. Well, I will be glad to give them to you. I 
don't know how that works.
    Mr. Glover. It is not going to work now because your one 
page is not going to be sufficient for me to make a----
    Mr. Pallone. Okay, well, I would ask you to look at it. I 
will submit it for the record. I have asked you to look at it. 
I would ask you to respond, because the bottom line is they 
were challenged.
    It makes me question to what extent your effort to try to 
refute these eight cases of concern to the Commission are 
accurate. I mean if the one isn't, I wonder whether the other 
seven are.
    Mr. Glover. As I said, Congressman Pallone, whether that 
particular fact is accurate or not, it is still true, as I 
said, that contrary to concern that these patents were 
preventing generic versions of Wellbutrin from getting in the 
market, there are, in fact, several versions of Wellbutrin that 
are generic that are already in the market.
    Mr. Pallone. But are you denying, Dr. Glover, do you deny 
that there have been at least eight brand-name pharmaceutical 
products that have had greater than 30-month periods of market 
exclusivity, and that these are costing consumers, employers, 
and insurers, and states billions of dollars? You seem to be 
trivializing this and saying that this FTC report isn't really 
accurate. Are you saying it is not accurate; it doesn't show 
widespread abuse? That is what you say. I don't know how you 
can make that statement.
    Mr. Glover. I stand by that position. The mere fact that 
patent protection prevents generic drugs from going on the 
market does not mean that there is abuse. Moreover, the view 
that the FTC studied the cases, that there are, indeed, patents 
that have resulted in 30-month stays that have been overlapping 
and non-current also does not indicate----
    Mr. Pallone. Well, what about the cost to consumers, the 
billions of dollars that consumers pay because generics don't 
come to market?
    Mr. Glover. I understand. The mere fact that there is cost 
to consumers does not indicate abuse. We have patent protection 
for the particular purpose that the pioneers are able to 
recover some of the cost of R&D. That is to be expected.
    Mr. Pallone. So you don't think that excessive costs of 
that nature are something that we need to address?
    Mr. Glover. I do not believe that the excessive cost 
indicates that there is abuse in the patent system. What the 
excessive cost might mean is that there is a greater need to 
have a more effective way for patients to access medicines, not 
that the pharmaceutical companies should be undermined in being 
able to enforce their patent rights.
    Mr. Pallone. I guess what I don't understand--and, again, I 
have to go--I just don't understand. We know that generics 
bring costs down. It seems to me that the whole purpose of this 
exercise by the FTC was to point out that, unfortunately, that 
is not happening as effectively as it should because generics 
aren't coming to market and we are not saving money.
    So, I mean, for you to suggest that that is not significant 
in some way, I don't understand.
    Mr. Glover. I do not believe the FTC took the position 
that, in the face of a valid patent, that there was anything 
inappropriate about a pioneer being able to enforce those 
patents, even if the effect of that was to prevent generic 
market entry.
    Mr. Norwood. Thank you, Mr. Pallone. I will let you go over 
there a little, knowing you will be back.
    The Chair now recognizes himself for 5 minutes.
    Dr. Glover, the generic manufacturer can qualify for the 
180 days of generic exclusivity by being the first generic to 
challenge a patented drug, and the generic now, since 1998, 
need not successfully defend this patent legislation. I would 
like for you to take a minute and explain to me, by eliminating 
this successful defense, what has that done to the landscape 
out there for brand-name drugs and generic drugs?
    Mr. Glover. For perhaps brand-name drugs, it is a much more 
simple case. What it means is that the time on the market that 
the pioneer drug has between NDA approval and the first generic 
challenge has been trending toward a shorter period of time.
    What we are finding is where the drug is what we call a new 
chemical entity, a molecule that had never been approved 
before, in that circumstance we are finding generic challenges 
about at 48 months, which is about as early as you can do it.
    With products that are not of this new chemical entity 
class but are new uses for an old molecule, for example, where 
in those circumstances generics are able to file their 
applications at any time after new drug approval, we are 
finding that the time that those products enjoy on the market 
before a generic challenge is also shrinking.
    The reason in part that those are shrinking is because 
there is an incentive for the generics, when they make a 
challenge to the patents, claiming that they are invalid or not 
infringed, the incentive for them to be first is quite strong; 
i.e., they get the 180-day exclusivity.
    But because the rule for qualifying to be first has 
changed--namely, all you have to do is be first; you don't 
actually have to both be first, have a valid case, and 
successfully defend it--then you are going to have people who 
are going to file applications in circumstances where they know 
that they do not have a good challenge, and then try to enter 
an agreement that may prevent them from actually having to lose 
or they will file a case and then continue to modify what they 
intend to make; that is, continue to amend their generic drug 
application so that they can actually get it to the state that 
it should have been in at the time of the file.
    Now the consequence of that is twofold. When the generic 
files its application early, it is quite likely that the 
generic is going to file its application before all of the 
patents that the pioneer has applied for have been issued by 
the Patent and Trademark Office and entered into the Orange 
Book. Accordingly, you enter a circumstance where the 
likelihood that the ANDA will be filed before all the patents 
have issued is increased, and that is exactly the circumstance 
that we have been observing, whereby you are getting an 
increase in so-called non-concurrent 30-month stays, because 
that is the particular circumstance that you need to have to 
happen for that to occur.
    Mr. Norwood. Well, it is your opinion, or yours either, Ms. 
Jaeger, that the law actually should reverse the court finding 
and let's simply say that the successful defense is important 
for you to get the 180 days?
    Ms. Jaeger. One, I would like to clarify the record that we 
don't believe that the dismissal of the successful defense 
really has anything to do with the increase in patent 
challenges. What we believe is the support for the increase in 
patent challenges is the fact that more and more patents are 
being listed in the Orange Book.
    So you think about it; back in 1984, there were two drug 
patents that listed, and today we are looking at on average 10. 
So there is going to be more and more patent challenges, 
especially when you consider the fact that 98 percent, I said, 
of this intellectual property protection around a brand product 
has to do with a basic compound patent and first-method-of-use 
patent. The vast majority of challenges by a generic company 
have nothing to do with those patents. They have to do with the 
improperly listed patents in the Orange Book.
    Mr. Norwood. You like it like it is?
    Ms. Jaeger. We would be happy--actually, we endorse Senate 
bill 812, and we believe that successful defense is perhaps a 
very necessary element. We have no problem with it. We support 
it.
    Mr. Norwood. Well, part of the reason I think we are having 
this hearing is you are probably not going to get that bill, 
and we need to work this out because there is right and wrong 
on both sides.
    What happens in a generic company after you have the 180 
days of the exclusive right? What happens to the price during 
that period of time? My understanding is that it isn't much 
different than the brand-name price during the 180 days.
    Ms. Jaeger. That is true. I think we will just go back, 
since we have been using Prozac as an example, a generic 
company came in and challenged the validity of patent, and the 
patent fell for double patenting. There the challenge basically 
cost about $10 million.
    Mr. Norwood. So that really hurts the consumer that you 
have the 180 days?
    Ms. Jaeger. Well, no, not necessarily, because if you think 
about it, during that 180 days in which the generic company 
gets to go into the marketplace, that generic product was 
basically about 20 to 30 percent less than the brand. The brand 
was at about $2.60 a tablet before the generic went in.
    Mr. Norwood. How much lower would it be if you didn't have 
the 180 days?
    Ms. Jaeger. Actually, it is a very good question. It went 
down to 6 cents a tablet. So if you think about it, at 6 cents 
a tablet with 14 companies in there, there would be no way a 
company could take on a mega-challenge and spend $10 million in 
breaking down a patent that provided $2.5 billion in cost 
savings. So at 6 cents a tablet, there would be no way that 
these companies would go forward with patent challenges. They 
wouldn't have the resources, and the consumers wouldn't have 
the ability to have affordable medicine in a timely fashion.
    Mr. Norwood. I noticed that my time is up. I would like to 
point out to my friend, Mr. Waxman, that I did let the witness 
finish.
    Mr. Towns, you are now recognized for 5 minutes.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me first thank all the witnesses for their testimony.
    Let me begin with you, Dr. Glover. The former National 
Medical Association Dr. Lucy Perez has stated over and over 
that there is no such thing as one-size-fits-all drugs. Given 
that fact, shouldn't we be concerned about new medical 
discoveries and how changes to Hatch-Waxman may harm our 
ability to get access to the best drugs for the minority 
population, in particular?
    Mr. Glover. Absolutely correct. What you have to be 
concerned about when you make any challenges to intellectual 
property protection for pharmaceutical companies is that you 
change their decisions about the types of risks they are 
willing to take, the types of investments they are willing to 
make. Where they are faced with the opportunity to make 
investments in small population products, whether it be orphan 
drugs or whether they be drugs for particular subgroups of the 
entire U.S. population, you have to be concerned that they will 
make their investment decision not to pursue those drugs 
because there are risks associated with trying to pursue 
targets that are often difficult to reach, at the same time 
knowing they are going to have a smaller market in which they 
can recover their cost. So, indeed, in those circumstances the 
drug companies may very well decide not to take those risks, to 
the harm and detriment of patients with the diseases that need 
to have very focused treatments.
    Mr. Towns. I just want to follow up. Biologic products have 
provided some of the only cures for various neurologic 
diseases, actually, that disproportionately--let me put it this 
way--affect women, like MS and rheumatoid arthritis. What are 
some of the different investment constraints faced by this 
industry that we don't see with the regular pharmaceutical 
companies? Are there any?
    Mr. Glover. They are substantial, but bear in mind that 
they are, of course, not part of the generic drug system. But 
they are substantial for the following reasons:
    As a general matter, it is a substantially more difficult 
task to manufacture biologics products once you have found 
them, but the process of finding these products that affect the 
immune system, that have very subtle effects on biological 
systems that tend in many cases to be much more subtle than 
small molecule drugs, and knowing that the diseases that you 
are trying to affect will require you to have a long study 
time, those drugs are likely to be drugs that will have 
substantially greater costs associated with their development 
than some other products. Obviously, on a case-by-case basis 
you have to review that, but as a general matter these drugs 
tend to be a bit more challenging for the industry.
    Mr. Towns. Right. Let me just throw this out to all the 
panel members. This way, I will be able to get my extra time.
    I have to work this system here.
    In your opinion, is cost the only concern we should have 
when it comes to the access to medication? Shouldn't we also be 
concerned about the right kind of medication for the patients?
    Let me start with you, Ms. Jaeger.
    Ms. Jaeger. Of course, we should be concerned with bringing 
new, innovative medicine into the marketplace. At the same time 
we also should be concerned about having affordable 
pharmaceuticals available for consumers. So it is, basically, 
we are looking at products that are quality, that have the 
effect that you need, and that provide patients with good 
health care.
    Here, sitting today, the issue before this committee is how 
to fix the abuses that have been identified by FTC and the 
industry and the others. I think the issue here that we are 
seeing that we clearly need to curb the abuse, but in no way 
does Senate bill 812 in any way touch the intellectual property 
rights as provided by title 35 for the brand industry.
    So that this bill will not touch innovation and the generic 
industry, for the record, as amended. We will never support a 
piece of legislation that will have any chilling effect on 
innovation because we, too, realize it is a very critical 
component of our health care system.
    Ms. Levine. I absolutely agree with you that cost is not 
the only issue that affects access, but cost is a serious 
issue. To invest in innovation without the knowledge that 
people can actually benefit from the products of those 
innovations is an illusory promise to the American people.
    What is happening in the marketplace, what is a real-time 
issue today is that increasingly consumers are faced with 
shrinking coverage, shrinking drug benefits. This is a serious 
issue.
    Dr. Glover is right; the cost of the biologics is enormous. 
Some of these therapies are $20,000-$30,000 a year. No 
individual is going to be able to access those biologics 
easily.
    In order to ensure the viability of insurance coverage to 
cover these very expensive, high-value, high-health-value 
drugs, we have to absolutely ensure that we are getting a 
dollar's worth of health from other drugs.
    Mr. Barondess. Just very quickly, because I think that this 
ties together everything that you are saying, do you remember 
there was a list over here of names, and it was everybody that 
was for the one bill? It listed Kaiser Permanente, General 
Motors, Blue Cross/Blue Shield, and then there was one name on 
the other side, and that was PhRMA, opposed.
    Well, I just got a letter dated September 30, 2002 from 
Trigon, Blue Cross/Blue Shield. They were on the list. This is 
a letter where they are denying medication for my multiple 
sclerosis, and the reason that they are denying the medication 
is they are saying it is an off-label use, that there is not, 
as they put in their letter, that the therapeutic use of what 
this drug is is not supported by adequate evidence in clinical 
literature.
    Yet, right here an article dated from February 2002, The 
Journal of Neurological Neurosurgery Psychiatry, underwritten 
by the Department of Statistics at Kaiser Permanente, says that 
this data suggests that 200 milligrams a day of this drug 
significantly improves fatigue and is well-tolerated in 
patients with MS.
    Why is this important to me, Congressman? Because I was 
paying $40 a month for this medicine under my health insurance. 
Now for 30 pills I have to pay $1,195. I am not going to pay 
it. I am going to be tired, and I am going to be tired until 
every citizen has that medicine available to them. Just because 
I can afford it, I don't want to take it. I want to do 
everything that I can in my power to make sure that everybody 
else can get it at the same time that I can.
    Mr. Towns. Thank you, Mr. Chairman. I yield back.
    Mr. Norwood. Well, in our effort to allow all the witnesses 
to finish, Mr. Glover, you wanted to respond to the question?
    Mr. Glover. As you are aware, we believe that the cost is 
not the only issue when we are talking about effective, 
efficient, and cost-effective health care in the United States. 
We believe that it is quite important that we have new and 
innovative medicines that decrease overall health care costs 
because they decrease hospitalizations, surgeries, emergency 
care, and things of that nature.
    What is important, and principally important, in terms of 
health care costs is that you allow both for the innovation of 
these drugs and you allow people to have access to these drugs 
by having drug benefit programs.
    Mr. Towns. Thank you very much, and thank you, Mr. 
Chairman, for your generosity.
    Mr. Norwood. Thank you, Mr. Towns. Mr. Shadegg, you are now 
recognized for 5 minutes.
    Mr. Shadegg. Thank you, Mr. Chairman. I want to begin by 
congratulating my good friend, Mr. Towns, on the efficacy of 
his strategy. He got almost double the standard amount of time. 
Well done.
    First of all, let me begin by thanking all of you. This is 
an extremely complex topic, and it is one where striking, I 
think, the right balance is very important, and it is a 
difficult balance to strike. I think each of you has brought 
important information to that effort.
    Mr. Barondess, I want to thank you for what you are doing. 
I appreciate your efforts. I am particularly glad that Senator 
McCain gave you time to discuss those issues.
    Dr. Glover, let me start with you. I am one who strongly 
believes that the capital has to be there for you to go find 
the drugs, the new, cutting-edge drugs that we all need. I 
appreciate very much that that really is at the edge of 
medicine right now, and it is improving health care for people 
in America and around the world.
    Having said that, one cannot help but be concerned about 
the staggering increase in drug costs and the contribution of 
that increase to the cost of overall health care. Those numbers 
are in the neighborhood of 17 to 20 percent a year.
    I want to ask you kind of a multiple question and let you 
kind of respond to it the way you would like. One, I hear from 
your testimony that you seem to think that you don't have a 
serious problem here. I would like, in that context, for you to 
tell me if you have some other idea on how we are going to deal 
with the increasing cost of drugs.
    I would like you to also address what you believe the 
effect on your industry would be of codifying the FTC 
recommendations; that is, specifically, of limiting to one 30-
month stay and of requiring that people file with the FTC an 
agreement between a generic and a pioneer drugmaker in the 
process of 180 days.
    Mr. Glover. Okay. Bear in mind that our comments regarding 
whether there is a serious problem or not are addressed to 
whether there is a serious problem under the functioning of the 
Hatch-Waxman Act. Obviously, there are components to increasing 
health care costs that go beyond pharmaceuticals and go beyond 
the fact that we have patents.
    Indeed, it is probably irrefutable that at some point the 
country will not be able to afford increases in health care 
costs.
    Mr. Shadegg. We are close to that.
    Mr. Glover. We believe that we are more a solution to that 
problem rather than a problem in that scenario, in that we 
provide benefits by virtue of having innovative medicines that 
we believe reduce what would otherwise be the health care costs 
if we had not innovated drugs 10 or 20 years ago and we are not 
able to continue to innovate drugs for the next generation.
    With respect to the effects on our industry of the 
proposals in S. 812, we need to start and be clear about the 
difference between what the FTC report recommends and what S. 
812 does. The FTC report recommends a single 30-month stay, and 
they do that by saying that any patents or the only patents 
which are eligible for the 30-month stay are those patents 
which are in the Orange Book at the time the relevant ANDA is 
filed.
    In contrast, S. 812 takes the position that any patent that 
is not in the Orange Book within the first 30 days after new 
drug approval is not going to be eligible for the 30-month 
stay. As I explained in my testimony, and probably more fully 
in my written testimony, the scenario whereby S. 812 cuts off 
the ability of patents to get the benefit of the 30-month stay 
30 days up to the end of your approval does not have any basis 
in the way that companies really do their research and 
development.
    Contrary to the perhaps implications but not actual 
statements of FDA earlier, where they were asked simply about 
the number of circumstances in which products were modified 
post-NDA approval and whether they got patents on those, the 
scenario that the pioneer industry wants to emphasize here is 
that there are often patents that are applied for before NDA 
approval that do not get issued by the Patent Office until more 
than 30 days after NDA approval. It is those patents that are 
often important innovations in the originally marketed product 
that need to get the protection of the 30-month stay. Those are 
things that would be cutoff by the provisions in S. 812.
    With respect to the other provision which you asked about, 
which is the need to report to the FTC any settlements between 
pioneer and generic companies, while PhRMA has not taken a 
position on that, I would like for you to remember that 
Chairman Muris said earlier today that those settlements, even 
if they do get reported, can, indeed, be pro-competitive, 
competitive-neutral, or anti-competitive. Indeed, in those 
circumstances we do not believe that there should be a 
presumption that, because there is an agreement between a 
pioneer and a generic, that it is, in fact, hurting competition 
and preventing generic drugs from getting to the market.
    Mr. Shadegg. Ms. Jaeger, I would like to give you an 
opportunity to respond to the same question.
    Ms. Jaeger. With respect to the Senate bill 812, it is 
really quite interesting that what we are asking for really is 
that all these patents that come after brand product approval, 
that they just be subject to the same standards that every 
other industrial sector actually abides by. So that if a patent 
truly represents innovation, a court is going to issue a 
preliminary junction.
    What is important to note, that in Senate bill 812 it 
actually reduces the standard, so there is a higher likelihood 
of actually a court issuing a preliminary injunction to the 
brand company against FDA approving a generic product. So it is 
very important to realize that we are not saying that they are 
not going to be able to assert their intellectual property 
rights. What we are saying is that this extra special 
protection, this 30-month stay, that has nothing to do with the 
merits of the patent, should not attach to those patents.
    It is those patents that are the ones right now in our 
current system that are causing a lot of these consumer delays. 
So we are saying these patents, the ones that are 
inappropriately listed, should not get the automatic 30-month 
stay. They should have to stand or fall on the merits. That is 
why we believe that Senate bill 812 would solve this issue.
    As to the listing issue that was raised earlier, the bill 
does have a provision in the bill whereby the brand companies 
do have to list their patents at the time of brand product 
approval plus 30 days. That is merely a codification of what we 
have today. Today, under the current statute, the brand company 
must file with FDA all patents they believe claim the brand 
product, and they do so today at the time of NDA approval. This 
will be no different.
    The only difference is under current law there is no 
penalty provision for not listing. So what Senate bill 812 was 
designed to do was to stop the abuses of today as well as the 
abuses of tomorrow. So we want to ensure that all patents are 
basically put into the system and that way we could get 
affordable pharmaceuticals to the consumers in a timely 
fashion.
    Mr. Norwood. Thank you, Mr. Shadegg. You did pretty well 
yourself.
    Mr. Waxman, you are now recognized for 5 minutes.
    Mr. Waxman. I just want to follow up on that last question. 
We have the Federal Trade Commission recommending only one 30-
month stay. We have the witnesses from the Bush Administration 
saying they would like to limit it to only one 30-month stay.
    Dr. Glover, is it PhRMA's position that you are against 
limiting it to one 30-month stay?
    Mr. Glover. That is correct, Congressman.
    Mr. Waxman. Mr. Barondess, you I think captured the 
frustration that you are feeling about a drug that you can't 
afford because your insurance company isn't willing to pay for 
it. What we want to do is achieve a balance. We want a balance 
that on one hand will encourage innovation and research and 
development of products that people are desperately looking for 
to help them with disease. On the other hand, we want lower-
cost drugs.
    So the balance we struck was that we give a patent to the 
monopoly, and at the end of the monopoly we want competition 
because that does lower the price of drugs. If we can't lower 
the price of drugs, if people don't have insurance, they can't 
afford it. But even insurance companies are refusing to pay 
because the costs are so incredibly high to them. So the shift 
is onto those who are insured. That is really the dilemma we 
have.
    But I want to tell you a story because this Hatch-Waxman 
bill of 1984, I was around, obviously, when it was adopted. But 
I was also around in Congress when we adopted a law called the 
Orphan Drug Act. We had people affected with diseases in so 
small numbers that the pharmaceutical companies didn't want to 
put money into developing drugs for them because they didn't 
see a high potential for profit.
    So we held hearing after hearing after hearing. We didn't 
wait until the end of a session to hold the hearings. We held 
hearings, and then throughout that period of time worked out 
legislation to give the incentive for the pharmaceutical 
companies to develop these new drugs.
    One of the incentives we gave them was an exclusivity over 
a product that they would develop for people with rare diseases 
because we will let them capture whatever profit there was and 
not have competition so that nobody will want to be involved.
    Well, it turns out that MS is considered a rare disease for 
this purpose. When the companies were working on products for 
rare diseases, they had one drug called Avonex out there, and 
another company wanted to produce another drug that was pretty 
much like that.
    Mr. Barondess. Betaseron?
    Mr. Waxman. Not Betaseron but Rebif.
    Mr. Barondess. Well, Rebif, Betaseron, and Avonex are all 
interferon-based drugs.
    Mr. Waxman. So they wanted this other one, and the first 
manufacturer came in and said, ``Well, they shouldn't be 
allowed to compete with us.'' So they held up the second drug 
for a very long time. I wrote to the FDA and I said, ``Well, we 
wrote the law. We said that if there is an improvement in a 
second drug, we should allow it to be available.'' But the FDA 
took the most conservative position and refused to allow that 
second drug to go on the market. Well, that meant that the 
patients were being denied the benefit of another drug that 
would have helped them.
    Now, again, the balance: We wanted to give the full 
incentive for the manufacture of a drug for a small patient 
population, but they took advantage of what we were trying to 
do to give an encouragement for one purpose and try to use it 
for their own profits. There is nothing wrong with that.
    But when we see that when the laws are used by people for 
their own self-interest but contrary to what we ever envisioned 
when we adopted them, Congress has to act. I submit to all of 
the witnesses here that the Hatch-Waxman Act--we used to call 
it the Waxman-Hatch Act--never intended this 30-day period to 
be a way to stop a generic from coming on the market. We never 
thought that 180 days, which we adopted for an incentive for a 
generic to step up and compete, would be the basis for blocking 
any generic competition.
    So it is time, I think, for us to revise this law, to 
revisit these issues. Those who have the benefit of the status 
quo never want to give it up, even if it is in the public 
interest.
    I submit, Dr. Glover, I think PhRMA is taking a very 
appropriate position for its self-interest, but its self-
interest is not, in my view, in this regard, to not change this 
law at all, consistent with, I think, the public interest of 
maintaining that balance of giving incentives for innovation 
and giving the benefit to the consumer at the same time or at 
least at some time for competition and lower prices.
    That is a balance I think Congress has to revisit. I hope 
that we can follow the example of the Senate, if not taking 
their exact bill, at least struggling with those issues and 
seeing if we can resolve them.
    Thank you, Mr. Chairman.
    Mr. Norwood. Thank you, Mr. Waxman. I will recognize myself 
now for 5 minutes and to follow up on that.
    PhRMA may be taking a position that is in their best 
interest, but it may be in mine, too; it may be in yours, too. 
That is what makes us have this hearing. We are trying to 
understand that we don't do anything that interferes with 
innovation, which Mr. Barondess has pointed out is so 
important.
    By the way, the insurance company that denied you the 
medication, was that an HMO?
    Mr. Barondess. No, sir. I actually----
    Mr. Norwood. That is good. I just wanted to know if it was 
or wasn't.
    Let me follow up just a little bit, Dr. Glover, because you 
have stated that you are unhappy with simply one 30-month 
period in here. I would like for you to very carefully explain 
to the committee instances where a brand should be allowed to 
invoke multiple 30-month stays. Help me understand that.
    Mr. Glover. Right. I think the easiest-to-understand 
circumstance is where in the development of a drug, after we 
have started the FDA approval process, that is, we are in phase 
1, 2, or 3 trials, we do something to the drug that is 
important for its ability to be a marketable product. That is, 
we do something to reduce its side effects, to make it be 
delivered more efficiently, allow it to have more stability on 
the shelf so that it can actually be used and shipped in an 
appropriate way.
    Mr. Norwood. That is at a time that it is already on the 
market?
    Mr. Glover. No, this is at a time before it is on the 
market.
    Mr. Norwood. Okay, you are still working on it?
    Mr. Glover. Right. But when we make those innovations, we 
apply for the patent. We send the application into the Patent 
and Trademark Office.
    Nevertheless, having made those innovations, we are still 
fairly far along in the process, and the drug gets approved 
before the patent gets issued by the Patent and Trademark 
Office. Indeed, it doesn't get issued by the Patent and 
Trademark Office until more than 30 days after new drug 
approval, but bear in mind it was a patent that was applied for 
beforehand.
    In that circumstance, under the scenario that S. 812 would 
have, we wouldn't get the ability to have more than one 30-
month stay. Now we take that circumstance and, as counsel is 
probably whispering into your ear, in order to get the 
multiple, non-concurrent 30-month stay, that patent has to be 
issued after the generic drug files this application.
    Now in the circumstance of a 3-year data exclusivity 
period, that is, not non-new chemical entities, the generic can 
file their generic drug application the day after the pioneer 
goes to market. So, obviously, this circumstance can happen.
    In the case of a new chemical entity drug, this 
circumstance would have to have the patent delayed by the 
Patent Office for 4 years before it is actually issued by the 
Patent Office. The reason that is is because the generic 
applicant cannot file their application until 48 months after 
new drug approval.
    So they file their application at 48 months. A new patent 
or the patent previously applied for gets issued by the Patent 
Office, and it goes into the Orange Book. They then end up with 
a non-concurrent 30-month stay.
    Now then there is a much, much rarer circumstance, which is 
you have a product that is on the market, and although there 
was some exchange with FDA about this earlier, I am not sure it 
was clarified. There are several things that you can, in fact, 
do to a marketed product that would be innovations that are 
covered by patents, but that do not require you to get a 
supplemental NDA or a new NDA.
    In those circumstances, the patent for that modification, 
which may be things such as shelf life, greater stability, and 
things of that nature, will be listed for the original NDA. So 
now you have a new patent that is getting listed after the 
original NDA approval. In those circumstances it is more likely 
in terms of timing that those patents might be issued by the 
Patent Office after the first generic files, and then, once 
again, you would have a non-concurrent 30-month stay.
    We do not believe that the mere fact that some non-
concurrent 30-month stays have been viewed by the FTC as being 
inappropriate or anti-competitive is a reason to prevent the 
possibility of a legitimate multiple 30-month stay from being 
available to pioneer companies.
    Mr. Norwood. Are they right? Have any of them been 
inappropriate?
    Mr. Glover. I would say that to the extent that they have 
been successful in challenging some of the multiple 30-month 
stays, they have done it under the antitrust laws, and, 
therefore, we do not believe we need to change the Hatch-Waxman 
Act to take care of those issues.
    Mr. Norwood. So are you saying to me that perhaps this bill 
isn't the way, but maybe we need to look at that because there 
is an issue here?
    Mr. Glover. I am certainly saying that this bill is not the 
way. It is our view that there are currently laws in place to 
take care of it. Indeed, on the particular issue that we are 
concerned about, which is that someone is actually knowingly 
filing a patent that should not be listed and knowingly 
bringing litigation on a patent that they know is invalid, the 
antitrust laws take care of that very clearly right now, and 
they are doing so in some circumstances that have been 
challenged by the Federal Trade Commission and the Department 
of Justice.
    Mr. Norwood. Mr. Brown.
    Mr. Brown. I thank you, Mr. Chairman.
    Dr. Glover, for the record, please provide a list of 
patents just discussed that have been issued after NDA 
approval, but that cover the already-approved drug, and 
describe the innovation that the patent covered, if you would 
be willing to do that for us?
    Mr. Glover. That is very difficult to find, sir. I am not 
sure I know about most of----
    Mr. Brown. I am sure that you and PhRMA's resources can put 
that together.
    Mr. Glover. I cannot--first off, it is not within PhRMA's 
information; it is within the company's information, and I 
can't promise to do so. But to the extent that we can, we will 
try to be responsive.
    Mr. Brown. I appreciate that. PhRMA runs very coordinated 
efforts all kinds of ways with its member companies, and I am 
sure they will cooperate with you as well as they do in 
political campaigns. So I appreciate that.
    Dr. Levine, my understanding is that employers in your 
coalition, which has been involved in some of this legislation, 
very much value and respect the protection of patents. I 
listened to you list the names of Verizon, a telecommunications 
company, and General Motors, and companies that live and die 
really on innovation and patents and intellectual property.
    Do any of those members of your coalition believe that 
policies before the Congress in this area, that any of the 
legislation we are working on in any way undermines that 
interest?
    Ms. Levine. The coalition members have agreed and have 
great concern about the issue of multiple 30-month extensions 
of patent. They also strongly support intellectual property 
protection.
    One of the things that is challenging our members is the 
unpredictability, the inability to plan and to budget and to 
understand what the effective patent life is going to be, and 
when it is going to end.
    Patents and intellectual property protection represent a 
legitimate return on the research and development efforts of 
innovative research-based pharmaceutical companies. No one 
argues with that.
    The question is, how much return for how long and how 
predictable is it? Is the profitability of a company, of a 
research-based pharmaceutical company, to be driven from 
revenue based on clever lawyering to extend patents or should 
the rewards go to the company with the most innovative drugs?
    I think our members have been frustrated by having to 
absorb enormous, unplanned, and unanticipated costs for drugs 
based on an expected expiration of patent, and then finding 
that the process of challenging the patent is leading them to 
have to manage what is essentially becoming unmanageable. The 
response to that is even more problematic both for the 
companies and for the beneficiaries they represent, because 
people are having to do things with drug coverage.
    I absolutely agree with Dr. Glover that the issue is 
access. Ultimately, with a contraction of drug benefits, and we 
only have to look at what has happened to the Medicare+Choice 
Plans, look what has happened to the drug coverage available to 
seniors in Medicare+Choice Plans over the last number of years. 
The cost of prescription drugs, escalating at 17 to 20 percent 
a year, has resulted in significant decreases for 
Medicare+Choice members to prescription drugs, which is why 
many of them joined those plans in the first place.
    The mismatch between the revenues and the cost of 
prescription drugs has meant that many, many seniors now cannot 
afford the prescription drugs that they need, whether it is for 
an orphan drug for a rare condition or it is drugs for high 
blood pressure for which there is no generic available.
    Mr. Brown. Thank you, Dr. Levine.
    Ms. Jaeger, you have heard Mr. Burr at the beginning with 
the FDA and the FTC here outline the number of ANDAs filed, the 
number of generics, the number of 30-month stays, on and on. It 
seems to me that this 30-month stay and 180-day exclusivity 
issue, while still in the course of 20 years, has been 
proportionately a very small number of drugs, obviously; that 
the number of drugs has increased, the number of times this has 
been done has increased as the years go by, as the companies, 
as the name-brands have seen the opportunities there and are 
driven by profit, as they should be, and are doing the right 
thing for their bottom line, and would not be very good 
companies if they weren't trying to take advantage of it.
    We have also seen, obviously, the drugs they choose are 
those that have the highest dollar sales. Explain, if you 
would, and you have talked some about this, that the average 
number of patent filings for breakthrough drugs has increased 
fivefold, I think you and some others have said from two to ten 
since original Hatch-Waxman. Give us a couple of specifics 
there, if you would.
    Ms. Jaeger. Sure. I think that I will stay with the example 
for Paxil. Again, as I was saying, back in 1984, Congress 
envisioned there would be two patents listed in the Orange Book 
that would be subject to this automatic 30-month stay, the 
basic compound patent, the first-method-of-use patent.
    Since that time, especially in the mid-nineties, we started 
to see an increase, an incline in how many patents were being 
listed in the Orange Book per major blockbuster. Some were up 
into the twenties. On average, we are seeing ten. So these 
other eight, allegedly, protect the drug product.
    But when we are looking at the particular drug product, 
they don't cover the brand product marketed. When you look at, 
as an example, Paxil, as I said, the basic compound patent, the 
first-method-of-use patent expired in 1992 and 1993, 
respectively. The next patent that was issued that was there at 
the brand product approval time was a patent for the hemi-
hydrate form of the active ingredient. That, indeed, covered 
the brand product. That was appropriately listed.
    If you were thinking if it was the only patent that was 
there, then from a competitor's standpoint generics could come 
in, and if they can design around that particular patent, they 
should be able to come to the market like every other 
industrial sector.
    But, lo and behold, we have this automatic 30-month stay 
that kicks in. So even though they are going to be able to 
design around, theirs is kept off the market for an additional 
30 months.
    To complicate the matter, the company filed additional 
patents that went into the Orange Book for unapproved uses. 
There is complicated product-by-process patents and others. 
These patents we do not believe should be listed in the Orange 
Book because they do not claim the drug product. These are the 
type of the patents that are actually causing more litigation, 
extending litigation, extending and making the litigation more 
protracted, so that we can't get resolution of an issue. So 
these are the type of things that we are seeing.
    Senate bill 812 actually solves this issue because it would 
basically roll back the automatic 30-month stay. It would 
reduce the extra-special protection of this 30-month stay to 
only those patents that are listed at the time of brand product 
approval.
    All other patents that come afterwards, again, would have 
the same intellectual property protection and rights as every 
other industrial sector and would be subject to a preliminary 
injunction standard.
    So what we are seeing is a trend, and FTC's report actually 
said that right now we are seeing more and more patents listed. 
The more patents that are being listed, the longer the 
litigation, the longer the delay to the consumer.
    What we are concerned about is that, when you think about 
it, we are hoping that in the future that the review times for 
generic applications should actually decrease. Then if we can 
get rid of some of these improperly listed patents, perhaps we 
can get immediate resolution or at least accelerated resolution 
as to a reasonable patent. So the product can go into the 
market in a timely fashion.
    Mr. Glover. May I comment?
    Mr. Norwood. Yes, you may. I am certainly going to abide by 
Mr. Waxman's wishes. Dr. Glover, I would like for you to 
comment. I would like to hear that.
    Mr. Glover. Well, first, we need to go back to one of the 
earlier statements that Ms. Jaeger said. It cannot be stated 
accurately that the contemplation in 1984 was that there would 
only be two patents listed in the Orange Book. Indeed, there 
are three categories of patents that were deemed appropriate 
for listing, and of course you can have more than one member in 
each of those categories. Those were composition patents, 
formulation patents, and method-of-use patents.
    Second, we need to also recognize that, as the number of 
patents per product that are getting listed in the Orange Book 
has increased over the years, it may have nothing to do with 
anything other than we are getting much more sophisticated in 
our science and our research and development.
    We should also recognize that, regardless of the number of 
patents that are listed in the Orange Book, if they are all in 
the Orange Book at the time the ANDA applicant files its 
application, there will be a single, concurrently running 30-
month period in which FDA cannot give final approval.
    The last thing to note, though, is that the premise of the 
generic industry here and the proponents of S. 812 is that, if 
you get rid of the 30-month stay, that the generics will be 
able to get to market sooner. But as the FTC has already told 
us, the litigation, if there is litigation to the district 
court level, takes you at least 25\1/2\ months. If the generics 
intend to get to the market earlier, obviously, their intent is 
to go to market without having a resolution of the patent 
infringement matter and, therefore, taking the risk that they 
are going to violate presumptively patents that belong to the 
pioneer.
    Mr. Norwood. I would like to thank all of you. I know it 
has been a long afternoon, but it has been an important 
afternoon. This issue is very important to all of us, to 
Members of Congress and our constituents.
    We are concerned about the increased cost in prescription 
drugs. I am also very interested in what that really means in 
net cost in terms of the lifesaving pharmaceuticals that are 
being produced and the cost savings that are being produced 
because of the efficiency of new drugs. None of us on this 
committee want to do anything with any law that interferes with 
new innovations in the marketplace that are saving so many 
lives and making so many people's lives worth living.
    So thanks to all of you for your participation and thanks 
to the members.
    We are now adjourned.
    [Whereupon, at 4:20 p.m., the subcommittee adjourned 
subject to the call of the Chair.]
    [Additional material submitted for the record follows:]
   Prepared Statement of the American Association of Retired Persons
    Mr. Chairman and members of the Committee, on behalf of our 
organization and its 35 million members, thank you for convening this 
hearing. AARP strongly believes there must be better containment of 
prescription drug costs. Key to that is better access to generics, 
which we are working to achieve through education, litigation, and 
especially legislation that we urge you to enact.
    Modern medicine increasingly relies on drug therapies, but the 
benefits of these drugs elude more Americans every day because of high 
costs that have reached crisis proportions. Spending for brand name 
drugs tripled in the last decade, rising from $40.3 billion in 1990 to 
$121.8 billion in 2000, and is expected to more than triple to $414 
billion in this decade. This is a tremendous problem for older and 
disabled Americans who rely so heavily on prescriptions. In fact, 
Americans age 65 and older make up only about 15 percent of the 
population but account for 40 percent of total prescription drug 
spending. And 75 percent of Americans age 45 and over use prescription 
drugs on a regular basis.
    The failure of Congress to enact a Medicare prescription drug 
benefit this year has left our members disappointed--and more than ever 
in need of help in affording the drugs they rely on. That makes the 
need to improve access to generics all the more critical now.
    Improving access to generic drugs is a safe and effective way to 
lower total drug costs. A survey we released last week found an 
overwhelming majority of Americans say generic drugs are an important 
part of controlling drug costs.1 Indeed, switching from 
brand name to equally effective generic alternatives commonly saves 
consumers as much as 50 percent or more. Yet one in four of our survey 
respondents reported not being able to afford a prescription drug 
because no generic was available.
---------------------------------------------------------------------------
    \1\ The survey of 1,046 adults age 45 and above was conducted by 
ICR of Media, Pennsylvania and had a 3 percent margin of error for 
overall results. It was released by AARP along with two coalitions--Rx 
Health Value and the Coalition for a Competitive Pharmaceutical Market 
(CCPM)--on October 1, 2002
---------------------------------------------------------------------------
    Americans are finding that they cannot get the generics they need 
because of loopholes in the law that allow brand-name manufacturers to 
keep these low-cost lifesavers off the market. Our survey shows that 
two thirds of Americans want Congress to close those loopholes now.
    Legislation to close these loopholes was passed by the Senate in 
July by a wide bipartisan margin of 78-21. It would let brand-name drug 
companies receive only one 30-month patent extension per product, 
prevent brand-name companies from paying generic manufacturers to keep 
their products off the market, and allow generic companies to challenge 
brand-name patents for frivolous modifications like superficial changes 
in a drug's color or physical design. We strongly urge you and your 
House colleagues to enact such a bill this year so that our members and 
all Americans can afford the drugs they so desperately need.
                          aarp survey details
    Because generics have so much potential to help curb skyrocketing 
drug costs, we went to the American people to learn what they think 
about these effective and affordable alternatives. We found Americans 
age 45 and above readily accept generic drugs as substitutes for brand 
names. For example:

 Ninety percent are willing to accept generic drugs as a way to 
        reduce their drug costs.
 Two-thirds of Americans 45 and older already usually choose 
        generics over brand names when available.
    Americans also understand the importance of generics in addressing 
their growing concerns about drug prices.

 More than 90 percent are concerned--and 72 percent are very 
        concerned--that high drug costs are making it more difficult 
        for employers and health plans to provide affordable coverage.
 Eighty four percent believe strongly that greater availability 
        of generics would help combat increasing drug prices.
    Of course, nine out of ten people surveyed said enacting a Medicare 
drug benefit this year is a priority. And, importantly, other research 
suggests that proper use of generic drugs in a Medicare prescription 
drug plan could save the program from $50 to $100 billion over 10 
years.2 Our survey also found that:
---------------------------------------------------------------------------
    \2\ Greater Use of Generics: A Prescription for Drug Cost Savings. 
Grant Ritter, Cindy Thomas, Stanley S. Wallack. Schneider Institute for 
Health Policy, Heller Graduate School, Brandeis University. Waltham, 
MA, 2001.

 Four out of five (81 percent) say it is important for Congress 
        to enact legislation this year to make generics more available.
 And two thirds (67 percent) say closing patent loopholes that 
        keep generics off the market is more important if Congress 
        fails to enact a Medicare benefit.
    Yet cynicism is high. The survey found that:

 Nearly three quarters (72 percent) of respondents say 
        pharmaceutical companies exert too much power over Congress; 
        only 11 percent disagree.
 And despite the brand-name manufacturers' mantra that their 
        high prices are key to bringing new drugs to market, nearly 
        three out of four (73 percent) respondents do not believe 
        better access to generics will cause cuts in research and 
        development.
    Our survey results make clear that consumers, like so many public 
and private payers, are comfortable with and eager for generic 
alternatives to expensive brand-name drugs and unsustainable annual 
double-digit drug cost increases. Congress still has an opportunity 
this year to make drugs more affordable and end unfair industry 
practices.
    We urge you to act now to close the loopholes that are keeping safe 
and effective generics off the market and costing consumers billions of 
dollars each year.
                        additional aarp efforts
    Legislation is just one of three prongs in AARP efforts to reduce 
prescription drug costs through wider access to and use of generics. We 
are also working to educate our members on the importance and value of 
generics. And we are working through the courts to challenge actions by 
brand-name manufacturers that keep generics off the market.
    Education: On the education front, we are working to encourage our 
members to understand and use generics when appropriate, and to 
otherwise use drugs wisely, through the AARP ``Check Up on Your 
Prescriptions'' campaign. The campaign is designed to increase 
understanding of generics as alternatives to brand name drugs when 
appropriate, improve patient compliance with prescribed drug regimens, 
and reduce harmful drug interactions and overmedication. It includes 
national television and print ads, broadly distributed materials, and 
other joint efforts with the American Geriatrics Society, United Health 
Group, and the American Medical Women's Association. The messages are 
also being carried by AARP's own publications, AARP Modern Maturity, My 
Generation and the AARP Bulletin.
    In addition to promoting generics, the AARP ``Check Up'' campaign 
is urging patients to tell their doctors about other medications they 
are taking. Currently about one third do not always do so, putting them 
at risk for adverse interactions. The campaign also encourages 
consumers to take drugs as prescribed. Skipping doses, not filling 
prescriptions and unauthorized pill splitting are some of the measures 
consumers take in the wake of rising drug costs.
    AARP research has found that 28 percent of consumers have stopped 
taking a drug before the prescription ran out and one in five have had 
a prescription in the past two years that they did not fill--usually 
because of the cost. Unfortunately, these misguided cost-saving 
measures can also prolong an illness or medical condition and increase 
the total cost of care.
    Our prescription ``check up'' is simple to do. We are telling 
people to:

 Ask their doctor and pharmacist if there is a generic 
        equivalent for brand name prescriptions.
 Make sure their doctor or pharmacist knows if they are taking 
        more than one medication.
 Always take the right dose and full course of a prescription.
 And last, but not least, not let drug advertising talk them 
        into believing they need a drug their doctor hasn't prescribed.
    These and other ``Check Up on Your Prescriptions'' tips can help 
bolster health and boost savings. More information about ``Check Up on 
Your Prescriptions'' can be found at the AARP Web place at 
www.aarp.org/wiseuse.
    Litigation: The third prong of our efforts to increase use of 
generics is in the courts. AARP attorneys are serving as co-counsel, or 
have filed amicus briefs, in several cases charging brand-name 
companies with patent abuse, suppression of generic competition, and 
collusive agreements with generic manufacturers. The cases include:

 In Re: Buspirone Antitrust Litigation, a suit against Bristol-
        Myers Squibb Company (BMS) for alleged patent abuse related to 
        a drug for anxiety. Just as BMS' patent for the drug was about 
        to expire, BMS brought patent infringement litigation against 
        the generic competitors and thereby triggered an automatic 30-
        month stay of FDA's approval of the generics.
 In Re: K-Dur Antitrust, a class action anti-trust suit 
        alleging illegal agreements by three pharmaceutical companies 
        that prevented the marketing of a low-cost generic alternative 
        to a drug used to treat side effects of high blood pressure 
        medications. K-Dur20 is manufactured by Schering-Plough 
        Corporation and is one of the most frequently prescribed drugs 
        to people over the age of 65. Schering-Plough paid $75 million 
        to two generic manufacturers in exchange for the promise to 
        refrain from producing a lower-priced competitor.
 In Re: Tamoxifen, a class action against AstraZeneca 
        Pharmaceuticals LP and Barr Laboratories, Inc., for an 
        allegedly anti-competitive agreement involving one of the most 
        widely prescribed breast cancer drugs. Barr abandoned a 
        challenge to AstraZeneca's patent and agreed to refrain from 
        marketing a generic despite a federal district court ruling 
        that AstraZeneca's patent was unenforceable. In return, 
        AstraZeneca agreed to pay Barr $21 million and supply Tamoxifen 
        to Barr for resale as a ``generic'' priced only five percent 
        below the brand name version.
 In Re: Cardizem CD, antitrust litigation in which AARP argued 
        that an agreement by Aventis Pharmaceutical, the maker of 
        Cardizem, a high blood pressure medication, and Andrx, a 
        generic manufacturer, to keep a generic off the market has 
        harmed consumers.
    AARP is involved in two other drug suits involving state efforts to 
contain costs.

 In Pharmaceutical Research and Manufacturers of America 
        (PhRMA) v. Michigan Department of Community Health, AARP 
        supports the state program to persuade prescription drug makers 
        to offer rebates to lower the costs the state pays for its low-
        income residents.
 In PhRMA v. Tommy G. Thompson, AARP's brief supports Maine's 
        Medicaid waiver demonstration project requiring drug makers to 
        rebate a portion of the price of drugs purchased directly by 
        individuals who are not otherwise covered by the state's 
        Medicaid program.
                               conclusion
    Improving access to generic drugs is key to controlling 
skyrocketing prescription drug costs and ensuring that older and 
disabled Americans have affordable access to the prescription drugs 
they need. Our survey results demonstrate that Americans are ready, 
willing, and eager to make the most of generic drugs. The survey also 
makes clear that the public is expecting Congress to act this year to 
close loopholes that keep generics off the market. Doing so is within 
reach this year. AARP urges you to enact such legislation.
                                 ______
                                 
                                   Food Marketing Institute
                                                    October 8, 2002
The Honorable Mike Bilirakis
Chairman
House Energy and Commerce Health Subcommittee
2125 Rayburn House Office Building
Washington, D. C. 20515
    Dear Mr. Chairman: The Food Marketing Institute (FMI), on behalf of 
our 2,300 supermarket and food wholesaler members, submits the 
following statement for the record in support of legislation (H.R. 5311 
and H.R. 5272) that would provide consumers with greater access to 
affordable medications. In brief, these initiatives now before the 
House Energy and Commerce Health Subcommittee will bring modest but 
long overdue reforms to the Drug Price Competition and Patent Term 
Restoration Act of 1984 (P.L. 98-417) by closing loopholes in the 
Hatch-Waxman law that allows brand-name pharmaceutical companies to 
unfairly delay less expensive generic drugs from entering the 
marketplace.
    As an industry that has approximately 3.5 million employees, our 
members are becoming increasingly concerned over the runaway costs for 
prescription drugs which are increasing by a much as 10 to 20 percent 
annually. If this disturbing tend continues unabated, it will undermine 
the ability of our members who are self-insured companies to provide 
their associates with health care coverage, and it may in fact force 
many supermarket companies to increase employee premiums, raise their 
co-payments or reduce benefits in order to offset these rising costs. 
In this regard, it is our firm belief that reform of Hatch-Waxman is 
needed now so that we can once again have a greater degree of balance 
and competition in the marketplace in terms of the availability and 
access to quality, cost effective generic drugs.
    FMI's support for H.R. 5311 and H.R. 5272 is further predicated by 
the fact that many of our members have in-store pharmacy departments. 
We currently estimate that our supermarket members operate close to 
12,000 pharmacy departments in the United States accounting for nearly 
14 percent of the outpatient prescription drug market. Recognizing that 
rising drug costs adversely affects all consumers, especially seniors 
with limited incomes, the underinsured and the uninsured, we must make 
a concerted effort to increase the availability of more affordable 
generic drugs. It is simply wrong to allow brand-name pharmaceutical 
companies to unfairly extend their patent protection beyond the time 
allotted by Hatch-Waxman law. When Congress enacted this landmark 
statute, it granted extended patent protection for new brand-name 
medications for up to an additional five years to compensate 
pharmaceutical manufacturers for the time lost in obtaining market 
approval from the Food and Drug Administration (FDA). As part of that 
compromise, the Hatch-Waxman law provides for an expedited approval 
process for generic versions of post-1962 drugs.
    Unfortunately, Congress never envisioned a system in which brand-
name companies would file questionable last-minute patents which 
effectively blocks a generic equivalent from entering the marketplace.
    This ``gaming'' of the system which has been occurring for the past 
five years must be corrected, and it is FMI's position that this can 
best be achieved by enactment of modest reforms as reflected in H.R. 
5311 and H.R. 5272. Specifically, these initiatives would end needless 
delays associated with the automatic 30-month stay, accelerate generic 
drug introductions and would expedite resolutions of patent disputes. 
The Federal Trade Commission (FTC) has endorsed these reform to Hatch-
Waxman, and the Congressional Budget Office (CBO) estimates that these 
changes to the 1984 law will save consumers and employers some $60 
billion over the next 10 years. Most importantly, reforming Hatch-
Waxman would not discourage pharmaceutical companies from making future 
investments in the development of the next generation of innovative 
drugs.
    To conclude, FMI appreciates the opportunity to submit this 
statement for the record in support of legislation (H.R. 5311 and H.R. 
5272), and we look forward to working with the Chairman of Members of 
the Health Subcommittee on this important issue.
            Sincerely,
                  John J. Motley III, Senior Vice President
                                      Government and Public Affairs
cc: Members of the Health Subcommittee
                                 ______
                                 
Response for the Record of Kathleen Jaeger, President and CEO, Generic 
                       Pharmaceutical Corporation
    Question 1. Generic Drug manufacturers have said that you want drug 
patents to be treated just like other patents during patent litigation. 
That is, you argue that brands should not have a 30-month stay, but 
rather should have to argue for an injunction to prevent generic ANDA 
approval. Isn't it true, however, that the ``Bolar Amendment'' allows 
generic manufacturers to conduct what would otherwise be infringing 
activity prior to marketing? Why should drug patents be treated like 
all other patents during litigation, when they're treated differently 
when generic manufacturers are copying them prior to approval?
    Response. The Generic Pharmaceutical Association (GPhA) agrees with 
President Bush's position that while brand name pharmaceutical 
manufacturers ``deserve the fair rewards of [their] research and 
development, [they] do not have the right to keep generic drugs off the 
market for frivolous reasons.'' We believe that the 30-month stay 
provisions of Hatch-Waxman are increasingly manipulated by some brand 
companies to delay the timely introduction of more affordable generic 
products. We believe that several measures are necessary to ensure 
timely resolution of patent disputes and restore predictability to the 
system.
    When a generic applicant challenges a patent and the brand company 
sues the generic for patent infringement, the generic drug cannot be 
approved for 30 months (unless they win the lawsuit). This ``30-month 
stay'' that automatically delays generic approval is unique in the 
patent litigation world and is awarded to the brand company regardless 
of the merits of their case. The Greater Access to Affordable 
Pharmaceuticals Act (GAAP) passed by the Senate in July would limit 
brand companies to a single 30-month stay for the patents that are 
listed in the Orange Book at the timer of brand product approval.
    The FTC study, issued in July 2002 during the Senate debate on 
GAAP, found that ``[f]rom 1992 to 2000, brand-name companies have 
listed patents in the Orange Book after ANDA has been filed for the 
drug product in 8 instances; 6 of these 8 instances occurred since 
1998. For the 8 drug products, the additional delay of FDA approval 
caused by the additional 30-month stays (beyond the first 30-month 
stay) ranged from 4 to 40 months. In all 4 of the cases so far with a 
court decision on the validity or infringement of a later-issued 
patent, the patent has been found either invalid or not infringed by 
the ANDA.'' (July 2002 Generic Drug Entry Prior to Patent Expiration: 
An FTC Study)
    The study went on to note, ``[i]n the future, patent infringement 
litigation brought by brand-name companies against generic applicants 
that have filed ANDAs with paragraph IV certifications may take longer 
to resolve. The data suggests that cases involving multiple patents 
take longer than those involving fewer patents. As for June 1, 2002, 
for 6 out of 7 cases that have been pending for more than 30 months 
before a decision from a district court, the brand-name company has 
alleged infringement of 3 or more patents.'' (July 2002 Generic Drug 
Entry Prior to Patent Expiration: An FTC Study)
    Let's look at an example of the abuses that result from multiple 
30-month stays.
    The well-known anti-depressant Paxil, which has annual sales of $2 
billion, is a good example of a drug that has benefited from the 
GlaxoSmithKline's ability to get multiple 30-month stays and stack 
patents in a successful effort to delay generic competition and 
consumer savings.
    The original patents covering Paxil expired in the 1990s. 
GlaxoSmithKline was able to obtain a patent claiming a particular 
crystalline form of the drug. This patent expires in 2006. Generic 
companies have sought to bring a version of Paxil to market that does 
not infringe on this patent.
    In 1998, several generic companies filed applications to bring a 
generic version of Paxil to market, claiming they did not infringe the 
still unexpired patent listed in the Orange Book. At the time the 
generics filed, GlaxoSmithKline sued, triggering a 30-month stay.
    Since 1998, GlaxoSmithKline has been able to obtain nine new 
patents and list them in the Orange Book. Some of these patents are for 
minor modifications of the active ingredient, different formulations, 
and unapproved uses. These patents do not even claim the product that 
is currently being sold, yet they are listed in the Orange Book.
    As a result of these patents, GlaxoSmithKline sued the first 
generic company four additional times, resulting in five additional 30-
month stays. The last stay will expire in November 2003. If these 
patents are upheld in court, a more affordable generic will not be 
approved until 2016.
    Thus, through patent ``stacking,'' even after the original patents 
on Paxil expired, GlaxoSmithKline was successful in getting four 
additional 30-month stays, and may delay the introduction of generics 
for more than a decade.
    The 30-month stay provisions of GAAP make important process changes 
that will lead to a more predictable, rational pharmaceutical 
marketplace. GAAP limits brand companies to a single 30-month stay for 
patents listed at the time of brand product approval. This eliminates 
the brand companies' ability to get multiple 30-month stays from 
generic competition by listing new patents.
    Taken as a whole, the 30-month stay provisions of GAAP along with 
other provisions in the legislation, will ensure timely resolution of 
patent disputes and prevent end-run tactics that delay competition.
    With regard to the Bolar Amendment, this provision provides a 
mechanism by which generic companies may begin research and 
development, and other activities necessary for FDA approval of a 
generic drug product prior to the expiration of a patent on a brand-
name product. The Bolar Amendment specifically provides that such 
activities ``shall not be an act of patent infringement.''
    In Eli Lilly & Co. v. Medtronic, Inc. (496 U.S. 661 (1990)), the 
Supreme Court, in an opinion by Justice Scalia, found that the Bolar 
Amendment was intended to work in tandem with the patent term 
restoration provisions of Hatch-Waxman to respond to ``two unintended 
distortions'' in the patent law. The patent term restoration provisions 
address the fact that a patent holder cannot profit prior to obtaining 
FDA marketing approval. Likewise, the Bolar Amendment assures that the 
patent holders do not enjoy a de facto patent term extension during the 
period after expiration but prior to marketing approval for a generic 
product. Thus the patent term restoration provisions and the Bolar 
Amendment are complementary mechanisms intended to achieve a balance in 
the law.
    Question 2. S. 812, as passed by the Senate, restricts brand 
manufacturers right to sue if patent litigation is not initiated within 
45 days. Besides pharmaceutical patents, what other industry patents 
should become unenforceable if not sued upon within 45 days?
    Response. The issues with the 45-day ``statute of limitations'' are 
closely linked to the issues of appropriate patent listing and stacking 
multiple patents.
    Several interlocking provisions stop the abuse of the 30-month stay 
provision. One of them is creating a 45-day window for listing patents. 
Currently brand manufacturers lists patents within 45 days of the 
generic filing because they know they can get an automatic 30-month 
stay on each patent. Once the 30-month stay loophole is removed, the 
incentive to list patents in a timely fashion, or at all, may be 
eliminated.
    The generic pharmaceutical industry proposed the 45-day window 
provision as a compromise that prevents brand companies from 
circumventing a new potential loophole created by the single 30-month 
stay provisions of GAAP. It requires the brand companies assert their 
intellectual property rights during the 45-day window that starts any 
patent challenge. This ``statute of limitations'' (which was merely 
borrowed from other industrial sectors) concept ensures that brand 
companies plays on a level playing field.
    Question 3. How much does it cost the average generic manufacturer 
to produce a generic drug? You state in your testimony that brand drugs 
exceed generic drug costs by a factor of ten. To be fair, it also costs 
roughly $600-800 million to develop a brand drug. How much does it cost 
a generic manufacturer to develop its drug and conduct bioequivalency 
studies?
    Response. The issue of pharmaceutical research and development is 
used repeatedly by the brand pharmaceutical industry to suggest that 
eliminating barriers to a competitive market will somehow harm the 
introduction of new medicines. GPhA disagrees with this premise. It is 
our position that the current system harms innovation by rewarding 
patent creation rather than the discovery of medicines. Further, we 
believe that the current system encourages litigation instead of 
research and development. The proposals we seek if implemented would 
refocus the brand industry on true R&D rather than on legal loophole 
innovation.
    Based on our experience, the cost for the development of a generic 
drug can range anywhere from $250,000 to tens of millions of dollars. 
Generic drugs may take anywhere from 1-10 years to develop.
    In 1998, the Congressional Budget Office (CBO) published an 
analysis of the contributions of generic medicines to consumers since 
1984. The CBO study concluded that the savings to consumers generated 
by a vibrant generic pharmaceutical industry is enormous. ``CBO 
estimates that in 1994, purchasers saved a total of $8 to $10 billion 
on prescriptions at retail pharmacies by substituting generic drugs for 
their brand-name counterparts.''
    The study also found that generic competition has been good for 
innovation within America's brand pharmaceutical industry. ``Between 
1983 and 1995, investment in R&D, as a percentage of pharmaceutical 
sales by brand name drug companies, increased 14.7 percent to 19.4 
percent. Over the same period, U.S. pharmaceutical sales by those 
companies rose from $17 billion to $57 billion. Overall, then, the 
changes that have occurred since 1984 (the Hatch-Waxman Act) appear to 
be favoring investment in drug development.''
    One additional fact is worth noting in response to the brand 
pharmaceutical industry's continued insistence that leveling the 
competitive playing field will hurt innovation: the statistics on brand 
company investment in innovation versus its investment in marketing. 
From 1997 to 2000, drug maker spending on consumer advertising more 
than doubled. At the same time as billions were being spent to sell 
expensive brand pharmaceutical products to the public, research 
employment dropped by nearly 2%, while marketing employment increased 
by 58%. An industry analysis by Boston University experts showed that 
brand pharmaceutical companies employ 81% more people in marketing than 
in research.
    According to the latest available data, the total prescription drug 
expenditure in 2001 was $172 billion, or approximately $601 per person. 
That represents an increase of 17% over the previous year. Of that 
total, approximately $13 billion, or approximately $48 per person, was 
spent on generic pharmaceuticals.
    As a result, the amount of money invested by generic pharmaceutical 
manufacturers, on the basis of sheer dollars, pales by comparison. 
However, if you compare R&D investment for brand and generic companies 
on the basis of a percent of gross profit, the leading generic 
companies and the leading brand companies' average 15-17% of gross 
profits invested in research and development. We believe that this 
statistic demonstrates that the commitment to product development is as 
strong in the generic industry as it is for our larger brand 
pharmaceutical counterparts.
    Question 4. You speak of the intent of Hatch-Waxman in your 
testimony. Do you honestly believe that the authors of Hatch-Waxman 
intended for the first generic to challenge a patent to qualify for the 
180-day exclusivity, regardless of whether or not they're sued?
    Response. Clearly, the framers of Hatch-Waxman, who included 
Congress, experts, and members of both the brand and generic 
industries, understood that the 180-day exclusivity period is a 
powerful incentive for generic companies to bring patent challenges. 
And this process works well in removing barriers that have prevented 
consumer access to affordable generic medicines.
    When the Hatch-Waxman Act was enacted in 1984, it included a 
provision that created a process by which generic pharmaceutical 
companies could challenge patents on brand name pharmaceuticals that 
they believed unfairly delayed generic competition and consumer 
savings.
    Under the Hatch-Waxman Act, brand companies ``list'' the patents 
with the FDA that claim their drug. When a generic manufacturer files 
an application with the FDA, it must tell the FDA whether it is 
challenging any of the patents listed by the brand. If so, the brand 
company is given 45 days to sue the generic for patent infringement. 
This results in a court case that allows the generic company to attempt 
to invalidate patents preventing competition. With the average cost of 
a patent challenge estimated at $10 million for the generic company, 
and requiring a multi-year development and legal commitment, the 180-
day exclusivity provision provides a powerful incentive.
    It is important to note that if a generic company successfully 
challenges a patent, then the intent of the Hatch-Waxman framers has 
been effectuated. The 180-day exclusivity award is a critical aspect of 
that intent.
    Clearly, the impact of this incentive has been positive for 
consumers. Over the past several years, a total of 12 patent challenges 
have created more than $27 billion in savings for consumers. These 
patent challenges include:

 Prozac: 2.5 Years early at a cost savings of $2.5 Billion
 Buspar: 17 Years early at a cost savings of $8.8 Billion
 Terazosin: 13 Years early at a cost savings of $4.6 Billion
 Taxol: 11 Years early at a cost savings of $3.5 Billion
 Zantac: 4 Years early at a cost savings of $2.45 Billion
 Procardia: 8 Years early at a cost savings of $2.4 Billion
 Plantinol: 11 Years early at a cost savings of $1.0 Billion
 Ticlid: 3\1/2\ Years early at a cost savings of $492 Million
 Lodine: 7 Years early at a cost savings of $414 Million
 Relafen: 2 Years early at a cost savings of $413 Million
 Climara: 7 years early at a cost savings of $378 million
    But even this component of Hatch-Waxman would benefit from reforms 
included in the GAAP legislation.
    The current law grants 180 days of exclusive generic marketing to 
the first generic company to successfully challenge a brand drug 
patent. However, recent court decisions have reduced much of the 180-
day exclusivity's incentive value by triggering the exclusive marketing 
period on a successful trial court decision. As a result, the 180-day 
period expires before the appeal can be heard. The bill fixes this by 
moving the triggering event out to the date of an appeal decision.
    The current law does not adequately address situations where the 
first generic challenger does not, or cannot go to market after the 
resolution of the lawsuit. GAAP addresses this problem by providing for 
the forfeiture of the first challenger's exclusive marketing period if 
they do not go to market within 60 days of specified events.
    In sum, Hatch-Waxman recognized that brand companies need and 
deserve a period of market exclusivity to recoup their investment in 
research and development. It established a specific period of 
exclusivity, and then permitted the date-certain introduction of more 
affordable generic versions of these brand drugs. But no generic drug 
can be approved, or enter the market as long as a patent protects the 
brand product. GAAP does not change this fact. Rather, it ensures that 
patents expire when Congress intended. It closes loopholes that in 
essence create an indefinite period of exclusivity. It ensures that 
patents come to an end, and that generic products can enter the market 
when the patents expire.
    The legislative proposals supported by GPhA benefit both the brand 
and generic segments of the pharmaceutical industry, as well as the 
American consumer, by restoring predictability to the marketplace.
                                 ______
                                 
                           Federal Trade Commission
                                             Washington, DC
                                                  November 22, 2002
The Honorable Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
United States House of Representatives
Washington, D.C. 20515
    Dear Chairman Bilirakis: I very much appreciated the opportunity to 
present the Commissions testimony at the October 9, 2002 hearing 
regarding ``Examining Issues Related to Competition in the 
Pharmaceutical Marketplace: A Review of the FTC Report, `Generic Drug 
Entry Prior to Patent Expiration' '' before the Health Subcommittee of 
the House Energy and Commerce Committee. Enclosed please find my 
written responses to the follow-up questions submitted by Subcommittee 
members.
    Please let me know if I can be of further assistance.
            Sincerely,
                                           Timothy J. Muris
                                                           Chairman
Enclosure
cc: The Honorable Sherrod Brown
   The Honorable Henry Waxman
          questions from chairman bilirakis to chairman muris
    Question 1) In your testimony you state that some have attempted to 
``game'' the system. Do both brand and generic manufacturers attempt to 
``game'' the system? Further, how prevalent is such ``gaming'' with 
respect to the total number of abbreviated new drug applications which 
have been filed since passage of the Hatch-Waxman Act?
    Answer: The FTC Report noted that pharmaceutical manufacturers have 
attempted to ``game'' the system in two ways. First, both brand-name 
and generic manufacturers have entered into agreements that the 
Commission has alleged to be anticompetitive. The FTC Report indicated 
that brand-name manufacturers and the first generic applicants had 
entered into such final agreements for 14 brand-name drug products that 
had the potential to be anticompetitive because the agreement could 
delay FDA approval of subsequent eligible generic applicants.
    In other instances, brand-name companies have listed patents in the 
Orange Book that raise questions as to whether they should in fact have 
been listed. The FTC Report detailed 8 drug products for which this 
occurred and that triggered additional 30-month stays of FDA approval 
of generic applicants' abbreviated new drug applications (ANDAs).
    The FTC Report examined generic competition for those brand-name 
drug products (1) subject to an ANDA notice containing a paragraph IV 
certification; 1 and (2) that brand-name companies received 
after January 1, 1992 and prior to January 1, 2001. According to the 
FDA, 8,019 ANDAs were filed with the FDA from the time Hatch-Waxman 
became effective in 1984 through December 31, 2000. Of these 
applications, 7,536 (94 percent) raised no patent issues. A substantial 
portion of the total number of ANDAs, however, relate to the same 
brand-name drug product or new drug application (NDA). Thus, the total 
number of ANDAs does not represent 8,019 unique brand-name drug 
products, and it is unclear as to how many unique brand-name drug 
products the total 8,019 relate.
---------------------------------------------------------------------------
    \1\ A paragraph IV certification means a certification that a 
patent listed in the FDA's Orange Book is invalid or will not be 
infringed by the generic drug for which the ANDA applicant seeks 
approval.
---------------------------------------------------------------------------
    Four hundred eighty-three (483) (or 6 percent of the total number 
of ANDAs filed) contained paragraph IV certifications. The 483 ANDAs 
related to 130 brand-name drug products as measured by unique NDAs. The 
FTC Report examined 104 drug products, which had ANDAs filed between 
1992 and 2000, out of the 130 total from 1984 to 2000.
    Question 2) Did the FTC ever consider restricting pharmaceutical 
patent rights, which some of our witnesses today will advocate? Does 
the FTC support limiting any manufacturer's patent rights?
    Answer: The Commission did not consider or take a position on the 
issue of limiting pharmaceutical patent rights. It did examine whether 
there had been abuse of the ``30-month stay provision'' of the Hatch-
Waxman Act, in order to make recommendations designed to eliminate any 
such abuse. The Commission recommended permitting only one automatic 
30-month stay per drug product per ANDA to resolve infringement 
disputes over patents listed in the Orange Book prior to the filing 
date of the generic applicant's ANDA. Thus, the recommendation was 
tailored to mitigate the possibility of continued abuse of Hatch-Waxman 
that may deter market entry of more generic drugs.
    Question 3) You recommend only one 30-month stay per drug. You also 
recommend that the 30-month stay should apply to all patents listed at 
the time of the abbreviated new drug application (ANDA) submission. 
Others support one 30-month stay applicable to all patents listed at 
the time of the brand drug's approval. Why is it better to have the 30-
month stay apply to drugs listed at time of ANDA submission?
    Answer: The FTC Report did not examine whether the 30-month stay 
should apply to patents listed at the time of the brand-name drug's 
approval. Rather, the harm that the FTC Report addressed and 
recommended remedying was the use of 30-month stays for patents listed 
in the Orange Book after a generic applicant had filed an ANDA for a 
particular drug product. The FTC Report revealed 8 drug products (out 
of 104 in the study) for which the brand-name company listed a patent 
in the Orange Book after the first generic applicant had filed its 
ANDA.2 In these cases, the brand-name company obtained one 
or more additional 30-month stays of FDA approval of an ANDA for that 
particular drug product. The 30-month stays caused by the filing of 
later-issued patents are problematic because they delay FDA approval 
beyond the average time necessary for ANDA approval. Moreover, in 
nearly all cases, there are significant questions about whether the 
patents causing these additional 30-month stays fall within Hatch-
Waxman's requirements for Orange Book listings.3 Four courts 
that have ruled so far on the patents causing more than one 30-month 
stay have each found the relevant patent to be invalid or not 
infringed.
---------------------------------------------------------------------------
    \2\ This total does not include instances in which the brand-name 
company initiated suit on a different strength of the same drug 
product.
    \3\ These questions are discussed in Appendices G and H of the FTC 
Report.
---------------------------------------------------------------------------
    Subsequent to the release of the FTC Report, FTC staff examined 
patents listed in the Orange Book between approval of the NDA and the 
filing of the first ANDA for that particular drug product. The staff 
found 23 drug products in which the brand-name company sued the first 
generic applicant for patent infringement only for patents listed in 
the Orange Book after NDA approval and before filing of the ANDA. The 
patents for these 23 products do not appear to raise the same issues of 
whether they claim the approved drug product or otherwise should be 
listed in the Orange Book as do the patents for the 8 drug products 
where the patent was listed after the ANDA had been filed. It is 
unknown whether these 23 patents could have been obtained from the 
Patent and Trademark Office (PTO) early enough to have been listed in 
the Orange Book simultaneously with approval of the NDA.4 If 
the brand-name companies could have obtained these patents earlier from 
the PTO, arguably there is no difference between the two proposals.
---------------------------------------------------------------------------
    \4\ For 6 of these 23 drug products, the patent was issue prior to 
FDA approval of the NDA, but the brand-name company did not list the 
patent in the Orange Book until after 30 days after the NDA was 
approved, although it could have filed it earlier.
---------------------------------------------------------------------------
    Question 4) Right now, to qualify for the 180-day exclusivity 
period, all a generic manufacturer need do is to be the first to 
challenge the patent. The manufacturer need not be sued. Do you think 
that the 180-day exclusivity should be available only to those 
manufacturers who successfully defend patent suits?
    Answer: I am not in a position to answer that question right now. 
The Commission did not reexamine the policy basis for the 180-day 
exclusivity provision, nor does it have the facts necessary, to 
determine whether only those generic manufacturers who successfully 
defend patent suits should be entitled to the 180-day exclusivity. 
Rather, the FTC Report examined whether the current 180-day provision 
had been abused, given the initial balance Congress struck between 
creating incentives for continued innovation and streamlining the 
generic drug approval process. Nonetheless, the FTC Report indicated 
that when a first generic applicant was not sued and received FDA 
approval, it began commercial marketing in a timely manner that 
triggered the running of the 180 days and allowed FDA approval of any 
subsequent eligible generic applicant once the 180 days had run.
    Question 5) The 180-day exclusivity can be gamed if a generic 
manufacturer ``parks'', i.e. does not use, the exclusivity. In cases 
where a manufacturer ``parks'' the exclusivity, should the manufacturer 
forfeit it?
    Answer: The FTC Report did not address whether manufacturers should 
necessarily forfeit exclusivity should they enter into an agreement 
that results in a manufacturer ``parking'' the exclusivity. Rather, the 
Report examined whether pharmaceutical manufacturers were abusing the 
current 180-day provision, given the initial balance Congress struck 
between creating incentives for continued innovation and streamlining 
the generic drug approval process. The FTC Report noted that 14 of the 
20 final settlement agreements obtained through the study had the 
potential at the time they were executed to ``park'' the 180-day 
exclusivity for some period of time. Nonetheless, agreements that 
``park'' exclusivity may be procompetitive, competitively neutral, or 
anticompetitive. Thus, the Commission sought notification of these 
agreements to allow the agency to challenge agreements that adversely 
affect pharmaceutical competition. To this end, the FTC Report 
recommended that pharmaceutical manufacturers provide copies of certain 
agreements to the FTC that may affect, among other things, when the 
180-day exclusivity is triggered.
    Question 6) When is a settlement in which a brand pays a generic 
money legitimate, and when is it anti-competitive? What factors guides 
the FTC in drawing this distinction?
    Answer: While the Commission has not attempted to set forth a 
comprehensive list of potentially objectionable settlement provisions, 
it is possible to identify from the Commission's reported cases a few 
types of provisions that, within the Hatch-Waxman context, have drawn 
antitrust scrutiny. These include:

 Provisions that provide for ``brand'' payments. ``Brand'' 
        payments (i.e., payments from the patent holder to the alleged 
        infringer) may merit antitrust scrutiny, because they may 
        represent an anticompetitive division of monopoly profits.
 Provisions that restrict the generic's ability to enter with 
        non-infringing products. Such provisions can extend the 
        boundaries of the patent monopoly without providing any 
        additional public disclosure or incentive to innovate, and 
        therefore have the potential to violate the antitrust laws.
 Provisions that restrict the generic's ability to assign or 
        waive its 180-day marketing exclusivity rights. Because a 
        second ANDA filer may not enter the market until the first 
        filer's 180-day period of marketing exclusivity has expired, 
        restrictions on assignment or waiver of the exclusivity period 
        can function as a bottleneck, potentially delaying subsequent 
        generic entry for an extended period.
    Question 7) Since the FTC began bringing enforcement actions 
against brands and generics for collusive settlements, has this 
activity diminished?
    Answer: The FTC Report indicated that no interim patent litigation 
settlement agreements similar to the ones that the Commission had 
challenged were executed between April 1999 (shortly after the 
investigations in this area became public) and the end of the period 
covered by the Study.
    Question 8) In your report, you note 8 drugs for which multiple 30-
month stays were acquired, and in your testimony you recount two FTC 
enforcement actions. Why isn't FTC enforcement action enough to address 
this problem?
    Answer: Certainly vigorous enforcement of the antitrust laws in the 
pharmaceutical area is one of the Commission's priorities, and the 
Commission will continue its aggressive law enforcement activities. I 
cannot guarantee that all potential antitrust violations in connection 
with Hatch-Waxman will come to the agency's attention. Based on the 
evidence of abuse of Hatch-Waxman that the Commission analyzed in its 
study, the Commission made two main recommendations to restore the 
balance that Hatch-Waxman struck between encouraging innovation and 
providing for a streamlined generic drug approval process. I believe 
that these recommendations are an efficient and cost-effective means to 
address the problems documented in the FTC Report.
    Question 9) Which occurs more frequently: Anti-competitive 
agreements by brands and generics, or anti-competitive agreements by 
generics and generics?
    Answer: The FTC Report did not characterize the competitive or 
anticompetitive nature of the agreements found between brands and 
generics or between generics and generics. The FTC Report indicated 
that, among the 104 drug products included in the study, there were 
settlement agreements between brands and the first generic applicant 
for 20 different drug products and there were agreements between 
generic firms for 6 different drug products.
    Question 10) You note that in 28% of cases where generics seek 
approval of patented drugs, the brand company does not invoke the 30-
month stay by filing suit in a timely manner. Are there instances in 
these cases where the brand later sues the generic for infringement?
    Answer: Of the drug products where the brand-name company did not 
sue the first generic company (29 drug products out of 104 drug 
products included in the Study), there was no evidence that the brand-
name company later sued the generic manufacturer of the particular drug 
product for patent infringement.
    Question 11) On page 20 of the FTC report, the Commission states 
that recent empirical evidence suggests that the rate at which drug 
patents are found to be invalid is ``not out of line with that of 
patents generally.'' Can you explain how the FTC reached this 
conclusion? Doesn't this tend to undermine the claims that brand-name 
manufacturers are filing frivolous patents? Doesn't it tend to support 
the brand-name industry's claim that later listed patents represent 
important incremental innovation?
    Answer: The Commission examined the recent empirical literature 
regarding the rate at which courts find patents invalid.5 
The FTC Report compared the invalidity rate found in data with that 
found in broader populations and it showed, as indicated in the FTC 
Report, that the invalidity rates are similar. The patent invalidity 
rates found in the broader empirical studies ranged between 27 and 36 
percent. The Commission found the invalidity rate of the patents 
involved in the study to be 28 percent. Thus, the Commission concluded 
that the invalidity rate is ``not out of line with that of patents 
generally.'' 6 The Commission did not obtain information to 
determine whether the patents claiming the drug products in the study 
that were not invalidated were ``frivolous'' or ``represent important 
incremental innovation.''
---------------------------------------------------------------------------
    \5\ See, e.g., Kimberly A. Moore, Judges, Juries & Patent Cases: An 
Empirical Peek Inside the Black Box, 98 Mich. L. Rev. 365 (2000); John 
R. Allison, Mark Lemley, Empirical Evidence on the Validity of 
Litigated Patents, 26 AIPLA L.Q. 185 (1998).
    \6\ In some regards, the comparison may not be comparable, as noted 
in the FTC Report. The invalidity rate calculated in the FTC Report may 
be understated because patent validity may not have been determined in 
the cases when there was a decision of non-infringement or in cases 
when the brand-name company abandoned the litigation.
---------------------------------------------------------------------------
    Question 12) S. 812 would bar innovators from suing to enforce 
patents not listed in the Orange Book by certain deadlines. This isn't 
something the FTC recommended in its report, is it? Also, under S. 812 
an innovator would have to sue within 45 days of ANDA notice in order 
to enforce its patent, or it would lose all future rights to sue. That 
isn't something the FTC recommended, is it? Further, S. 812 would 
create rolling eligibility for the award of 180 day exclusivity. That's 
not something the FTC recommended, is it? What about limiting 30-month 
stays to certain kinds of patents? What about creating a private right 
of action for delisting patents?
    Answer: The Commission in the FTC Report did not take a position on 
S. 812. Rather, the Study examined whether certain provisions of Hatch-
Waxman have been subject to abuse that can delay generic entry given 
the framework initially established by the Amendments. The Study 
indicated the potential for ongoing problems with respect to two 
provisions--30-month stay and 180-day exclusivity. The Commission in 
its Report, therefore, recommended changes to those two provisions to 
restore the balance that Hatch-Waxman initially struck between 
encouraging innovation and providing for a streamlined generic drug 
approval process.
    The Commission observed, however, that the FDA does not review the 
propriety of patents listed in the Orange Book, and courts have ruled 
that generic applicants have no private right of action to challenge 
those listings. The lack of any mechanism to challenge a listing may 
have real world consequences in that the Commission is aware of a few 
instances in which a 30-month stay was generated solely by patents in 
which the propriety of the Orange Book listing was questionable. To 
address this situation, the Commission suggested that the FDA may want 
to clarify its listing regulations along the lines the FTC Report 
suggested. It also recommended that Congress consider enacting a 
private right to counterclaim and raise the issue of whether the patent 
properly claims the brand-name product; this may eliminate the delay 
that the 30-month stay could be causing for improperly listed patents 
in the Orange Book.
    Question 13) Several provisions of the Senate-passed bill would 
limit brand-name drug patent holders from suing to enforce their 
patents. In your July 2002 report you suggest that Congress consider 
overturning Allergan Inc. v. Alcon Labs, Inc. in order to ensure brand-
name manufacturers access to courts. This is a key distinction between 
the Senate bill and the FTC approach--could you explain how and why the 
FTC thought it is important for patent holders to have the rights to 
enforce those patents?
    Answer: The Commission concluded that overruling the holding in the 
Allergan case (which questions the rights of brand-name companies to 
sue for patent infringement regarding patents obtained or listed after 
an ANDA with a paragraph IV certification has been filed) is necessary 
to ensure access to the courts and to encourage the resolution of any 
patent disputes prior to the beginning of commercial marketing of the 
drug product. Simultaneous resolution of patent infringement suits with 
FDA approval time of the ANDA will redound to the benefit of consumers 
by resolving any possible uncertainty that prevents a generic applicant 
from marketing its products.
         questions from representative waxman to chairman muris
    Question 1) The report suggests that the 180-day exclusivity period 
has not been a significant barrier to market entry of 2nd and 3rd 
generic applicants. Please provide the information on which you based 
this conclusion.
    Answer: The data suggest that if the first generic applicant is 
sued for patent infringement by the brand-name company, the generic 
applicant begins commercial marketing only after it has some measure of 
certainty that its generic product does not infringe the brand-name 
drug's patents (i.e., it obtains a court decision of non-infringement 
or patent invalidity). Once it receives such certainty, it begins 
commercial marketing, which triggers the 180-day exclusivity period. 
Thus, the 180-day exclusivity by itself does not act as a significant 
barrier to market entry by 2nd and 3rd generic applicants beyond the 
180-day period. The FTC Report indicated, however, that the resolution 
of patent infringement litigation over 14 drug products (out of a total 
of 53 drug products) involved an agreement in which the brand-name 
company and the generic applicant agreed to ``park'' the first generic 
applicant's 180-day exclusivity for some period of time, thus 
potentially delaying FDA approval of subsequent eligible generic 
applicants. The FTC Report indicated that agreements to ``park'' the 
180-day exclusivity are not necessarily anticompetitive, but can be 
procompetitive or competitively neutral. Moreover, the Report indicated 
that when the first generic applicant is not sued, it begins commercial 
marketing in a timely manner after receiving FDA approval.
    Question 2) Please provide any information you have developed, 
either before or after the report was issued, on the number and types 
of patents that have been filed with FDA between approval of an NDA and 
submission of the first ANDA for that drug. In describing the types of 
patents, please provide as much detail as possible, including (a) when 
the patent was filed with the PTO; (b) whether the patent claims the 
drug substance, a method of suing the drug, a formulation of the drug, 
a process for making the drug, or some other feature of the drug; (c) 
whether the patent appears to claim the approved drug; (d) to the 
extent the patent appears to claim the approved drug, any information 
on the significance of the claimed innovation to the therapeutic value 
of the drug; and (e) whether they are reasons for or against protecting 
these patents with 30-month stays.
    Answer: Out of the total 75 drug products in the FTC Report where 
the brand-name company sued the first generic applicant based on 
patents listed in the Orange Book, brand-name drug companies listed 
patents in the Orange Book between NDA approval and submission of the 
first ANDA for 34 drug products.
    Of the 34 products in which the brand-name company listed a patent 
during this period, for 11 products, the generic applicants filed ANDAs 
with paragraph IV certifications for patents both listed within 30 days 
of NDA approval and listed after 30 days following NDA approval. Thus, 
in each of these 11 instances, the 30-month stay that issued was based 
both on patents filed within 30 days of NDA approval and patents filed 
after 30 days of NDA approval.
    For the remaining 23 drug products, the patents listed during this 
period were the only patents over which the brand-name company sued the 
generic applicant, and thus obtained a 30-month stay of FDA approval of 
the ANDA.7 The patents for these 23 products do not appear 
to raise the same issues about whether they are appropriately listed in 
the Orange Book as those described in Appendices G and H of the FTC 
Report. None of the patents for these 23 products were applied for 
after the NDA had been approved. All except one of the patents were 
formulation patents; the exception was a drug substance patent. The FTC 
Report did not examine the significance of the claimed innovations in 
these patents to the therapeutic value of the drug.
---------------------------------------------------------------------------
    \7\  For 6 of these 23 drug products, the patent was issue prior to 
FDA approval of the NDA, but the brand-name company did not list the 
patent in the Orange Book until after 30 days after the NDA was 
approved, although it could have filed it earlier.
---------------------------------------------------------------------------
    Question 3) Your report focuses on the best way to avoid market 
abuses of today and tomorrow. Is it not true that if the 30-month stay 
were eliminated altogether, or were limited to products filed at the 
time of new drug application, that it would more effectively limit, if 
not altogether stop these abuses?
    Answer: The FTC Report did not reveal what would happen in the 
absence of the 30-month stay. It appears as though the 30-month stay 
has been a motivating factor for brand-name companies to file suit 
within 45 days of being notified that an ANDA has been filed for one of 
its drug products. The FTC Report showed that both brand-name and 
generic companies assumed that, if patent litigation were to occur, it 
would be filed within 45 days of the ANDA filing in order for the 
brand-name company to obtain the 30-month stay. Generic applicants who 
were not sued during that time frame proceeded to commercial marketing 
without significant delays and, at least for the drug products included 
in the study, were not sued for patent infringement once commercial 
marketing had begun.
    Question 4) Almost a year and a half ago, you filed a citizen 
petition to the FDA to determine whether various patents were listed 
for anti-competitive reasons. To date, you have not received a 
response. Please describe the importance of your requests to the 
interests of consumers and a competitive marketplace.
    Answer: The FDA recently has released a Notice of Proposed 
Rulemaking that addresses many of the issues raised by the FTC Citizen 
Petition. The FTC is in the process of studying the FDA's proposals and 
plans to provide a comment to the FDA. The listing of patents in the 
Orange Book can affect the timing of FDA approval of generic drug 
products. Thus, it is critical to ensure that the patents in the Orange 
Book are appropriately listed.
                                 ______
                                 
Response for the Record of Sharon Levine, Associate Executive Director, 
                   The Permanente Medical Group, Inc.
    Question 1: You state in your testimony that you are ``unaware of a 
single industry besides the brand-name pharmaceutical industry that has 
the ability to extend unilaterally and automatically protection against 
competition.' Are you aware of any other industry which has their 
patents infringed by competitors, as is allowed under the ``Bolar 
Amendment''?
    Response: In Eli Lilly & Co. v. Medtronic, Inc. (496 U.S. 661 
(1990)), the Supreme Court, in an opinion by Justice Scalia, found that 
the Bolar Amendment was intended to work in tandem with the patent term 
restoration provisions of Hatch-Waxman to respond to ``two unintended 
distortions'' in the patent law. The patent term restoration provisions 
address the fact that a patent holder cannot reap profits during the 
early years of the patent term prior to obtaining FDA marketing 
approval. Likewise, the Bolar Amendment assures that the patent holders 
do not enjoy a de facto patent term extension during the period after 
expiration but prior to a generic company obtaining FDA marketing 
approval for a generic product. Thus the patent term restoration 
provisions and the Bolar Amendment are essentially two sides of the 
same coin.
    The Supreme Court held in Medtronic that the Bolar Amendment 
applies to all of the products eligible for a patent term extension 
under the Hatch-Waxman Act, including medical devices, food additives, 
color additives, new drugs, antibiotic drugs, and human biological 
products.
    Moreover, it is important to understand that the Bolar Amendment 
does not permit patent infringement. The Bolar Amendment is merely a 
mechanism by which generic companies may begin research and 
development, and other activities necessary for Food and Drug 
Administration (FDA) approval of a generic drug product prior to the 
expiration of a patent on a brand-name product. In fact, the Bolar 
Amendment specifically provides that such activities ``shall not be an 
act of patent infringement.''
    Question 2: Generic manufacturers can earn 180 days of exclusivity 
for being the first to challenge a brand patent, without having to 
successfully defend suit. Of course, for many larger drugs, ten to 
twelve generic manufacturers file ANDAs with paragraph IV 
certifications, irrespective of exclusivity. Wouldn't repeal of this 
exclusivity save insurers money in the long run?
    Response: The landmark Hatch-Waxman Act recognized that the process 
of patenting pharmaceutical products represents the opportunity for 
patents to be granted that may unjustly prevent generic competition. To 
further the public policy goal of improving consumer access to 
affordable generic drugs, the Hatch-Waxman Act provided an incentive 
for generic companies to challenge these suspect patents. It provides 
180-days of generic market exclusivity to allow the generic company to 
recover some of the costs associated with the patent challenge process.
    The 180-day exclusivity period provides a useful economic incentive 
to encourage the patent challenge process. The patent challenge process 
reduces health care costs, when successful, by permitting the 
introduction of generic competition years earlier than otherwise would 
have been possible. The exclusivity is the generic company's reward for 
removing questionable patents that act as barriers to consumer's access 
to affordable drug products. The competition that follows a successful 
patent challenge can generate billions of dollars in savings for the 
consumer.
    For example, the successful challenge of the patent for the anti-
depressant drug Prozac (generically fluoxetine) eventually resulted in 
a wholesale price reduction for fluoxetine therapy from $2.65 to $0.10 
for a daily dose of the drug. That this pricing did not occur 
immediately when generic Prozac first because available partly 
validates your question about whether the 180-day exclusivity provision 
delays the establishment of such commodity market prices.
    However, your question is only part of a more complex and important 
one: Does the180-day exclusivity provision delay commodity market 
pricing on a generic drug to a point in time beyond which such pricing 
on the drug would have been available without 180-day exclusivity? On 
this point, I have no information suggesting that without the 180-day 
exclusivity incentive payers like employers, insurers and consumers 
would be better off. It is my own view that the 180-day provision more 
likely increases competition sooner than would otherwise be the case, 
resulting in lower drug prices, more consumer choice, and greater 
savings to all aspects of the U.S. economy.
    Patent rights are a vital incentive for innovation, and therefore 
deserve protection. The 180-day exclusivity provision probably 
represents a useful check and balance to assure that only the owners of 
worthy patents are rewarded, and questionable patents are not permitted 
to deny or delay Americans' access to affordable prescription drugs.
                                 ______
                                 
      Response for the Record of Gregory J. Glover, on behalf of 
          Pharmaceutical Research and Manufacturers of America
Hatch-Waxman's Unique Limitations on Brand-name Drug Patents
    This answer responds to the Honorable Michael Bilirakis' Question 
3, and the Honorable Ralph M. Hall's question regarding ``Patent law 
applicable to the pharmaceutical sector.''
          I hear generics constantly say they want brand patents to be 
        treated just like all other patents during patent litigation. 
        Aren't brand patents treated differently prior to litigation 
        however? Could you please explain the benefit of the ``Bolar 
        Amendment'' to the generic industry?
          The generic industry has argued that the patent laws 
        applicable in the pharmaceutical sector are more innovator-
        friendly than those applicable in other sectors of the economy. 
        What is the research-based pharmaceutical industry's response 
        to this?
    Brand-name drug patents are treated very differently from other 
patents. Ordinarily, upon issuance, patents are presumed to be valid 
and enforceable. See 35 U.S.C. Sec. 182. Under the Patent Act, the 
holder of a patent has the right to exclude others from making, using, 
selling, or offering to sell the patented invention during the term of 
the patent, which is 20 years from the date on which the patent 
application is filed. Id. Sec. 156. The right is absolute and anyone 
who, without authority, makes, uses, sells, or offers to sell a 
patented invention during the term of the patent is an infringer of the 
patent. The patent holder can obtain an injunction prohibiting the 
infringing activity, and recover up to three times its damages caused 
by the infringing acts.
    Hatch-Waxman limited pharmaceutical patent rights by immunizing 
generic drug manufacturers from suits for infringement based on their 
manufacture and use of patented drugs for purposes of seeking FDA 
approval to market a generic copy. In this special exception to patent 
law, Hatch-Waxman permits a generic drug company to manufacture and use 
the brand-name drug to obtain bioequivalence data for its FDA 
application, so that it can be approved for marketing immediately upon 
patent expiration. Ordinarily under patent law, manufacturing a 
patented product--whether or not during the research and development 
phase for a competing product--constitutes patent infringement. Hatch-
Waxman overruled Roche Inc. v. Bolar Pharms. Co., Inc., 733 F.2d 858 
(Fed. Cir. 1984), where the Federal Circuit had found patent 
infringement based on a generic company's use of a patented drug in 
testing for purposes of seeking FDA approval.
    Before generic pharmaceutical manufacturers were granted these 
preferences, they controlled only 19 percent of the prescription drug 
market share and roughly only 1 out of 3 top-selling innovator drugs 
with no unexpired patents had generic competition. Today, the generic 
share of the market is nearly 50 percent and every top-selling drug 
subject to Hatch-Waxman whose patents have expired can expect generic 
competition.
Effective Patent Life for brand name products
    This response answers the Honorable Edolphus Towns question 
relating to ``Patent Life.''
          Can you explain the concept of ``effective patent life''? How 
        does this 14-year term compare with the patents available in 
        other industries?
    The patent term is 20 years from the date an application is filed 
with the Patent and Trademark Office. Because it takes between 10 to 15 
years on average to develop a drug--from the earliest stages of 
discovery to final FDA approval--significant portions of a prescription 
drug's patent life are used up before the product even enters the 
market.
    Effective Patent Life (EPL) refers to the amount of time a product 
is on the market before patent(s) covering it expire. Research by Henry 
Grabowski and John Vernon at Duke University places the EPL on 
prescription drugs at 11-12 years. Estimates by the American 
Intellectual Property Law Association quote the EPL for products other 
than pharmaceuticals at 18.5 years.
    Under Hatch-Waxman, an innovator may be granted patent term 
restoration for time lost during the regulatory review process. 
Innovators may receive one-half day restoration for each day of 
clinical trials, and day-for-day restoration for time lost during FDA 
review of a drug application. The total amount of restoration may not 
exceed five years, and the effective patent life of the drug may not 
exceed 14 years.
Use of 30-Month Stays
    This answer responds to the Honorable Michael Bilirakis' Questions 
1, 2, 4, 5, and 10, the Honorable Ralph M. Hall's questions regarding 
``Late listing of patents' and ``Time of patent listing,'' and the 
Honorable Edolphus Towns' question regarding ``Frivolous listings.''
          1) Could you please explain for the Committee instances where 
        a brand should be allowed to invoke multiple 30-month stays. In 
        other words, when can you both innovate enough to get a patent, 
        but not enough so that you can still claim the approved drug?
          2) GPhA has argued that the prospect of receiving the initial 
        30-month stay, combined with FDA's policy of permitting 
        successive 30-month stays, provides brand name manufacturers 
        with an enormous incentive to submit patents for listing in the 
        Orange Book, even if they do not satisfy the listing criteria 
        contained in the Hatch Waxman Act. Do you agree? What is 
        PhRMA's response?
          4) Why do brand manufacturers file so many patents per drug 
        now? Wasn't it the case that when Hatch-Waxman was passed, most 
        drugs had one or two patents? Why are there, sometimes, ten 
        patents per drug now?
          5) You state in your testimony that the FTC focused on 8 
        examples of abuse, and that in 99.9% of the cases there are not 
        multiple 30-month stays. Isn't true, however, that multiple 30-
        month stays are a recent trend, and that without reform we 
        might expect more examples in the future?
          10) In your statement, you quote the Patent and Trademark 
        Office, where they state that S.812 ``would likely to the 
        opposite of what its title suggests--by limiting access to 
        cutting-edge drugs, decreasing innovation, and ultimately 
        harming the quality of treatments available to patients.'' 
        Precisely what in S.812 would harm patients?
          Can you explain for us why a brand-name pharmaceutical 
        company might need to list a patent in the Orange Book 
        significantly after NDA approval? Why is this practice, and the 
        subsequent litigation resulting in additional 30-month stays, 
        not an abuse of the Hatch-Waxman Act?
          One of the key differences between the FTC Report and the 
        Senate-passed bill, one of the issues that people have been 
        focusing on, is this question of when patents must be listed, 
        in order to be eligible for a 30-month stay. The FTC report 
        recommends that stays be limited to patents listed when the 
        ANDA is filed. S.812 recommends that stays be limited to 
        patents listed within 30 days of NDA approval. Can you shed 
        some light on the importance of this issue? What does it matter 
        which cutoff date Congress picks? What is the significance of 
        the cutoff date?
          GPhA has argued that the prospect of receiving the initial 
        30-month stay, combined with FDA's policy of permitting 
        successive 30-month stays, provides brand name manufacturers 
        with an enormous incentive to submit patents for listing in the 
        Orange Book, even if they do not satisfy the listing criteria 
        contained in the Hatch Waxman Act. What is PhRMA's response?
    The 30-month stay allows for the resolution of patent disputes 
before a generic manufacturer enters the market with a potentially 
infringing product. Hatch-Waxman stripped innovators of their right to 
sue before a generic manufacturer submits an application for approval 
to FDA, although that generic manufacturer has performed acts that, in 
other industries, would amount to patent infringement. The statute 
therefore created the 30-month stay to permit the innovator to enforce 
its patent rights by bringing a suit for infringement before the 
generic product receives approval for marketing. The stay does not 
extend the term of a patent and is initiated only in response to an 
innovator's filing suit to enforce an un-expired patent.
    When a generic manufacturer seeks approval to enter the market 
before all patents on the innovator product expire, it must file a so-
called ``paragraph IV'' certification to each patent listed in the 
Orange Book. The generic applicant must certify to all patents listed 
at the same time. If the innovator exercises its right to file a 
paragraph IV lawsuit under the Hatch-Waxman Act, each patent generates 
a 30-month stay, but these stays run concurrently. In rare instances, 
however, patents covering the innovator product may issue and be listed 
in the Orange Book after the ANDA is filed. These cases are uncommon, 
but they may lead to non-concurrent 30-month stays. This could be the 
case, for example, if a patent was filed with the PTO for improvements 
that allow manufacturing of the drug without production of an impurity 
that presents toxicity risks. This would likely be filed well after the 
original patents, and--depending on the speed with which it was 
reviewed at PTO--could issue from PTO and be listed in the Orange Book 
well after NDA approval or even ANDA submission. If an ANDA applicant 
amended its ANDA to include this innovation and patent and the patent 
owner sued within 45 days of notice, there would be a new non-
concurrent stay of up to 30 months. As PTO explained in a July 30 
letter to Senator Hatch, ``the timing of issuance bears no relation to 
the importance of innovation.''
    Contrary to assertions by others, there is no evidence that the 30-
month stay provides an incentive to list inappropriate patents. That 
several patents may be listed for a single drug is not unusual in other 
types of commercial products: multiple patents simply reflect years of 
complex research and multiple innovations, many of which are patentable 
under standards as set forth in patent law and enforced by the Patent 
and Trademark Office.
    In fact, the July 2002 Federal Trade Commission study found only 
eight instances since 1992 in which an innovator obtained a second 30-
month stay. There is no evidence that this will become more common in 
the future, though the trend of generic manufacturers filing ANDAs 
earlier and earlier in the life of an approved new drug could provide a 
justified reason for maintaining the availability of non-concurrent 
stays.
    S.812, a bill passed by the Senate on July 30 that contains 
multiple revisions to the Hatch-Waxman Act, would treat patents 
differently depending on their issuance date. S.812 would apply a 30-
month stay only to patents that issue from PTO within 30 days of the 
new drug application approval.1 As PTO points out, this 
limitation is ``arbitrary and unrealistic'' because ``the timing of 
issuance bears no relation to the importance of innovation'' and 
because ``the patent applicant often has no control over when a patent 
issues.''
---------------------------------------------------------------------------
    \1\ Alternatively, the FTC report suggests the denial of a 30-month 
stay to any patent listed after the relevant ANDA was filed.
---------------------------------------------------------------------------
    I also note one recent regulatory development: The FDA has issued a 
proposed rule that would change its current interpretation of allowing 
multiple 30-month stay provisions for each ANDA to allowing only one 
30-month stay for each ANDA. An ANDA applicant would not have to 
provide notice that it had made a paragraph IV certification 
challenging the validity or infringement of a listed patent if the 
paragraph IV certification was added as an amendment to the ANDA and 
the application already contained a paragraph IV certification to 
another patent. Although the ANDA applicant would have to make a new 
certification, it would not need to provide notice under the statute, 
eliminating the ability of the innovator to seek a 30-month stay in 
which to litigate the patent. The innovator would retain its right to 
obtain a preliminary injunction from a court to prevent the ANDA 
applicant from entering the market.
    At bottom, limitations on the 30-month stay are based on the 
incorrect assumption that innovation stops when the innovator has an 
approved version of its product. The reality is that pioneer companies 
do not stop innovating once the first patent has been applied for at 
the PTO, or once the product approval process begins at the FDA. 
Instead, innovation continues in order to improve a drug's side effect 
profile, to improve its stability, to enhance the efficiency of its 
delivery, to improve its dosing regimens, and to develop changes in 
dosage forms.
    A legislative framework that deprives patent owners of their core 
rights, and that arbitrarily and irrationally deprives innovators of 
the benefit of their innovation, will not provide the incentives 
necessary for further research and development, and will result in 
fewer new medicines for U.S. patients.
Use of Proposed 45-day Provision to Cut Off All Patent Enforcement 
        Rights
    This answer responds to the Honorable Michael Bilirakis' Question 6 
and further responds to Question 10.
          6) Some would propose limiting brand patent rights if a brand 
        company does not sue within 45 days. What impact would this 
        have on innovation?
          10) In your statement, you quote the Patent and Trademark 
        Office, where they state that S.812 ``would likely to the 
        opposite of what its title suggests--by limiting access to 
        cutting-edge drugs, decreasing innovation, and ultimately 
        harming the quality of treatments available to patients.'' 
        Precisely what in S.812 would harm patients?
    S. 812 currently provides that when a generic drug manufacturer 
files an application with FDA stating its intent to market a copy of an 
innovator drug before relevant patents on that drug expire, the patent 
holder has 45 days to file a lawsuit to enforce its patent. If the 
innovator does not bring a patent infringement suit within 45 days, all 
rights to sue for future enforcement of that patent would be forfeited. 
Though the Hatch-Waxman Act mandates that the patent holder sue within 
45 days of notice of a paragraph IV certification in order to obtain 
the benefit of the 30-month stay provision, the patent holder may 
always seek patent enforcement remedies either against other generic 
applicants or outside the context of the Hatch-Waxman Act. S.812 would 
foreclose those options if the pioneer did not sue within 45 days.
    It is well established law that a patent is a property right. By 
diminishing the core right of a patent holder--the right to sue to 
prevent infringement by others--the government would be infringing a 
fundamental right. The courts have found this is equivalent to the 
total occupation of a piece of real property, which is 
unconstitutional. Further, the harm from this sort of taking is 
irreparable. The ability to enforce a patent on pharmaceutical 
innovation is one of the major incentives for research and development. 
An arbitrary deadline for suit after which all property rights in the 
patent would be forfeited would function as a significant disincentive 
to innovate in the first instance.
180-day Generic Exclusivity (Questions 7, 8)
    This response answers the Honorable Michael Bilirakis' Questions 7 
and 8.
          7) Does the 180-day generic exclusivity make sense in cases 
        where multiple generic applicants are lined up to challenge the 
        patent?
          8) Does the I80-day exclusivity make more economic sense to 
        society when a patent is invalidated, rather than in instances 
        where a generic finds a way to innovate around the patent?
    The operation of the 180-day Generic Drug Exclusivity Provision has 
been primarily a question for the generic industry, FDA, and Congress. 
Nevertheless, the circumstances that led to enactment of the 180-day 
exclusivity provision have changed significantly since 1984. The 
exclusivity provision was intended to provide an incentive to generic 
manufacturers to challenge listed patents. It operates by shielding the 
first generic from competition with other generic companies, even if 
they are ready, willing, and able to enter the market. Today, however, 
there is no shortage of generic companies willing to challenge patents 
and file ANDAs. Since 1984, the generic share of the prescription drug 
market has grown to nearly 50 percent. Senator Hatch has recently 
suggested that it might be timely to assess the continuing need for and 
utility of such an incentive.
Support for Statement that ``the increased availability and use of 
        innovative medicines is a true driver of reduced overall 
        healthcare costs.''
    This response answers the Honorable Michael Bilirakis' Question 9.
          In your statement, you state ``the increased availability and 
        use of innovative medicines is a true driver of reduced overall 
        healthcare costs.'' What proof do you have to back up this 
        statement?
    Despite the attention paid to increases prescription drug spending, 
medicines remain the smallest portion of the health care dollar. 
According to National Health Care Expenditure data, prescription drugs 
accounted for 9 percent of health care spending in 2000, while hospital 
care amounted to 32 percent and physician services were 
22%.2
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    \2\ Centers for Medicare and Medicaid Services, Office of the 
Actuary, National Health Statistics Group ``National Health Care 
Expenditures,'' 17 July 2002,  (8 November 
2002).
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    The economic and medical literature is replete with studies 
demonstrating reductions in health care spending resulting from 
increased use of pharmaceuticals. For example:

 Recent work by Columbia University Professor Frank Lichtenberg 
        demonstrated that each additional dollar spent on replacing 
        older medicines with newer ones reduces total health care 
        spending by $6.17.3
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    \3\ Frank Lichtenberg, ``Benefits and Costs of Newer Drugs: An 
Update,'' NBER Working Paper 8996. Available online 07/23/02: http://
www.nber.org/papers/w8996.
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 In recent years, breakthrough medicines offered Alzheimer's 
        patients their first real hope. An estimated 4 million 
        Americans currently have Alzheimer's disease. By 2030, that 
        number is projected to increase to as many as 9 million. 
        Currently, the direct and indirect cost of caring for people 
        with Alzheimer's is $100 billion nationally.4 
        According to a study published in the March issue of Managed 
        Care Interface a four-fold increase in spending on drug therapy 
        for mild to moderate Alzheimer's disease resulted in a one-
        third decline in total health costs. For a group of patients 
        taking drugs to treat their Alzheimer's, drug costs went up by 
        over $1,000, but hospital costs dropped by $2,883 and nursing 
        home costs by $1,842. The result--nearly $3900 in savings 
        compared to patients not taking Alzheimer's drugs.5
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    \4\ National Institute on Aging, Progress Report on Alzheimer's 
Disease, 2000: Taking the Next Step, (Washington, DC: National 
Institutes of Health, 2001), 3.
    \5\ Jerrold W. Hill, et al., ``The effect of donepezil therapy on 
health costs in a Medicare managed care plan,'' Managed Care Interface 
15 (March 2002): 3, 63-70.
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 In research presented at the 12th World AIDS Conference in 
        1998, the Department of Veterans Affairs found that by giving 
        patients full access to new AIDS drugs it helped realize a 
        savings of $18 million in AIDS treatment costs in 
        1997.6
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    \6\ Abid Rahman et al., ``Inversion of Inpatient/Outpatient HIV 
Service Utilization: Impact of Improved Therapies, Clinician Education 
and Case Management in the U.S. Department of Veterans Affairs,'' AIDS 
Service Department of Veterans Affairs, International Conference on 
AIDS, July 1998.
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 A study which reviewed patient records in the North Carolina 
        Medicaid program for one year before and one year after the 
        introduction of inhaled corticosteroid therapy found that for 
        those patients using the inhaled steroid therapy for asthma, 
        there was a 50 percent decrease in hospitalization rates and a 
        26 percent decrease in outpatient visits. The comparison group 
        had a 23 percent increase in hospitalization rates and a 36 
        percent increase in outpatient visits. According to a cost 
        analysis, use of the inhaled corticosteroid therapy reduced 
        total health care costs by 24 percent per asthma patient per 
        month.7
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    \7\ R. Balkrishnan, MS (Pharm), et al., ``Outcomes and Cost 
Benefits Associated With the Introduction of Inhaled Corticosteroid 
Therapy in a Medicaid Population of Asthmatic Patients,'' Clinical 
Therapeutics, Vol. 20, No. 3, 1998.
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    Rather than citing pharmaceuticals as the principal source of most 
health cost increases, it must be recognized that prescription drug 
spending is small relative to total health care spending and can in 
fact achieve savings on hospitalization and other medical costs. 
Pharmaceuticals save lives and increase quality of life while creating 
offsetting savings on other health services.
Response to the ``15 most egregious examples of Hatch-Waxman abuse'' 
        (Question 14)
    This response answers the Honorable Edolphus Towns' question 
regarding ``Examples of Hatch Waxman Abuse.''
          The generic industry claims that fifteen drugs represent the 
        ``15 most egregious examples of Hatch-Waxman abuse.'' Do you 
        agree or disagree that these are in fact examples of abuse? And 
        if not, why not?
    The generic industry claims that 15 drugs--Neurontin ', 
Taxol ', Platinol ', Prilosec ', Paxil 
', BuSpar ', Tiazac ', Ultram 
', Zantac ', Coumadin ', Nicorette 
', Temovate ', Wellbutrin ', Questran 
', and Glucophage '--represent the ``15 most 
egregious examples of Hatch-Waxman abuse.'' The generic industry is 
simply wrong about the innovator industry's actions. At bottom, the 
assertions boil down to complaints about continuing innovation on 
pioneer drugs and the identification of significant consumer safety and 
public health issues associated with generic copies of pioneer drugs. I 
have arranged my response by the issues raised in these examples.
Non-Patent Issues
    The Coumadin ', Nicorette ', Temovate 
', Questran ', and Glucophage ' 
examples involve various issues of critical importance to the 
pharmaceutical industry--the public health, the right to petition 
agencies concerning agency action, bioequivalence, and clarifying 
unsettled areas of the law. These examples do not relate to the patent 
scheme of Hatch-Waxman but to the FDA's exercise of its regulatory 
authorities.
Patent Infringement Findings
    Neruontin ', Zantac ', and Wellbutrin 
' are examples of patent holders attempting to protect 
legitimate intellectual property rights. Finding patent infringement is 
a matter for the courts that frequently involves difficult and complex 
issues of fact and law. In these cases, the patent holder sought only 
to enforce its patent rights.
Patent Validity
    Platinol ' and BuSpar ' each involve highly 
technical disputes on the validity of relevant patents. Under the 
relevant law patents are presumed valid and can be found invalid only 
after substantial evidence has been produced to the contrary to the 
presiding court.
Operation of Hatch-Waxman
    The Prilosec ' and Ultram ' examples 
demonstrate appropriate operation of the Hatch-Waxman Act's patent and 
exclusivity provisions, which provide incentives for continued 
innovation. There were no non-concurrent 30-month stays at issue in 
either case.
Use of a 30-month stay
    In the Taxol ' matter the patent owner sought a single 
30-month stay in which to litigate its patent rights.
Realities of Innovation
    The Paxil ' example makes clear that innovation in the 
pharmaceutical industry frequently comes long after the issuance of the 
initial patent. That fact, in combination with earlier filings of ANDAs 
by generic manufacturers, results in the possibility for multiple 
patents to cover the additional discoveries made concerning a product. 
As explained by the PTO in a July 30 letter to Senator Hatch, ``the 
timing of issuance bears no relation to the importance of innovation.''
Manipulation by Generic Manufacturers of Hatch-Waxman
    Biovail, a generic drug manufacturer, has been accused of using 
successive 30-month stays to extend its period of exclusive marketing 
of Tiazac '. Through litigation and settlement not involving 
the research-based pharmaceutical companies, generic forms of Tiazac 
' are now on the market.
Response to request to ``provide a complete list of patents that claim 
        an approved drug, were issued by the PTO more than 30 days 
        after NDA approval, and were filed with FDA pursuant to 
        Sec. 3505(c)(2)'' and to provide related information.
    This response answers the Honorable Henry A. Waxman's question.
          Please provide a complete list of patents that claim an 
        approved drug, were issued by the PTO more than 30 days after 
        NDA approval, and were filed with FDA pursuant to section 
        505(c)(2). Be sure to include all such patents that have 
        triggered a 30-month stay of approval. For each such patent, 
        provide the following information:
          (a) the date on which the patent was filed with the PTO;
          (b) the name of the approved drug claimed by the patent, the 
        date of its approval, and the date of first marketing;
          (c) whether the patent was a continuation patent or the 
        subject of a terminal disclaimer, and if so, the original 
        patent whose termination date the new patent also took;
          (d) what innovation the patent claimed;
          (e) the cost of developing that innovation;
          (f) whether that innovation was the subject of an FDA 
        approval, and if so, the date of that approval;
          (g) whether the patent was the subject of litigation and the 
        outcome of the litigation; and
          (h) whether any 30-month stays were imposed pursuant to the 
        filing of a patent infringement suit to enforce the patent;
          (i) whether there was more than one 30-month stay associated 
        with the approved drug claimed by the patent.
    PhRMA does not have a list of patents issued by PTO more than 30 
days after NDA approval. Furthermore, some of this information that you 
request--such as the cost of developing the innovation that is the 
subject of the patent in question--would be viewed as confidential and 
proprietary by the companies.
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