[Senate Hearing 107-359]
[From the U.S. Government Publishing Office]
S. Hrg. 107-359
COMPETITION IN THE PHARMACEUTICAL MARKETPLACE: ANTITRUST IMPLICATIONS
OF PATENT SETTLEMENTS
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 24, 2001
__________
Serial No. J-107-21
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JEFF SESSIONS, Alabama RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas CHARLES E. SCHUMER, New York
MITCH McCONNELL, Kentucky RICHARD J. DURBIN, Illinois
MARIA CANTWELL, Washington
Sharon Prost, Chief Counsel
Makan Delrahim, Staff Director
Bruce Cohen, Minority Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Brownback, Hon. Sam, a U.S. Senator from the State of Kansas..... 38
Cantwell, Hon. Maria, a U.S. Senator from the State of Washington 45
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin...................................................... 46
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 36
Schumer, Hon. Charles E., a U.S. Senator from the State of New
York........................................................... 6
WITNESSES
Boast, Molly, Director, Bureau of Competition, Federal Trade
Commission, Washington, D.C.................................... 14
Buehler, Gary, R.Ph., Acting Director for Generic Drugs, Food and
Drug Administration, Washington, D.C........................... 9
Griffin, James M., Deputy Assistant Attorney General, Antitrust
Division, Department of Justice, Washington, D.C............... 24
Shurtleff, Mark, Attorney General, State of Utah, Salt Lake City,
Utah........................................................... 27
SUBMISSIONS FOR THE RECORD
Aventis Pharmaceuticals Inc., Bridgewater, New Jersey............ 40
Pharmaceutical Research and Manufacturers of America, Washington,
D.C............................................................ 46
COMPETITION IN THE PHARMACEUTICAL MARKETPLACE: ANTITRUST IMPLICATIONS
OF PATENT SETTLEMENTS
----------
THURSDAY, MAY 24, 2001
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 2:07 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch, Chairman of the committee, presiding.
Present: Senators Hatch, Schumer, Cantwell, and Leahy.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Chairman Hatch. Good afternoon. I hate to tell you, but I
have just gotten through arguing for Ted Olson over on the
floor and I have to go back there, then to the tax conference,
and I cannot imagine a more important hearing than this one.
So, as you can imagine, I am under a lot of pressure, but good
afternoon.
Today, we are examining the antitrust implications of
recent settlements relating to pharmaceutical patents. As the
co-author, along with Henry Waxman, of the Drug Price
Competition and Patent Term Restoration Act of 1984, I have
long been interested in the laws and competitive forces that
underpin the American pharmaceutical industry. If there is
interest in revisiting these laws, I am willing to play the
same type of facilitator role that I did 17 years ago.
Indeed, there is a good deal at stake here. We want to make
available today's medicines at the most competitive and
affordable prices, but we also want to provide the necessary
incentives to encourage the development of tomorrow's
breakthrough drugs. Those are two very important goals and they
sometimes seem conflicting.
My preference is to develop a comprehensive consensus
legislative package that provides incentives for all segments
of the industry to better produce their products that have so
many benefits for the American public. We need to find ways to
just grow the pie, not just to slice it, or perhaps reslice it
would be a better word.
This is, of course, a very tall order that will demand a
good deal of bipartisan spirit, hard work, and leadership. I
commend Senator Leahy for his work in introducing legislation
aimed at helping to promptly identify any possible anti-
competitive pharmaceutical patent settlements. I believe there
is great merit in his notification approach and would like to
work with him on that legislation.
I must also commend our colleagues. Senator Schumer, who
has taken a great interest in this area and with whom I enjoy
working, has offered legislation with Senator McCain in some of
the areas that I have just outlined. And while I would prefer
to take a broader and more balanced approach than that
reflected in their bill, I want to recognize them for their
work. They are the catalysts in bringing this to everybody's
attention.
Now, let me focus on the specific issue before the
Committee today. The public deserves the effective and
affordable drugs that competition can bring, not elaborate
legal machinations that identify or create and then exploit
anti-competitive loopholes. Some have already concluded that
the 1984 law as implemented by the FDA regulation and
interpreted by the courts presents a legal framework that
invites improper anti-competitive settlements. The 1984 law
provides incentives for generic drug applicants to challenge
the validity of, or invent around the patents of pioneer drugs.
Each time a patent is found to be deficient or can be legally
circumnavigated, consumers can benefit from speedier access to
generic products.
In order to encourage such pro-consumer activities, the
1984 law awarded 180 days of marketing exclusivity for the
first generic firm to meet certain conditions. My friend, Bill
Haddad, helped negotiate this provision on behalf of the
generic industry. For many years, FDA practice provided that
exclusivity be awarded only to the first applicant to file a
substantially complete drug application, be sued by the pioneer
firm under the special terms of the statute, and win the suit.
However, due to the series of Federal court decisions, the
successful defense requirement has been struck down.
As the Senate author of the 1984 law, I am afraid, to
paraphrase the great philosopher Pogo, this may be a case of
``We have met the enemy, and he is me. Mea culpa.'' Mea culpa,
is all I can say. Many have observed that the blocking position
that the statute grants to first filers creates perverse
incentives for patent settlements. While as a general matter
the law smiles upon patent settlements under the joint DOJ-FTC
guidelines, not all such patent settlements will automatically
survive antitrust scrutiny.
Several recent pharmaceutical patent settlements have
triggered antitrust actions. The Committee needs to know if
these cases represent a few outliers or a pattern. We will get
more information about a major study that the FTC has recently
initiated to gauge the frequency and the nature of these
settlements. I am more interested in examining the pattern of
cases and whether the law needs to be changed than I am in
conducting a, ``Who struck John?'' analysis of the cases that
have triggered governmental involvement. I would hope that my
colleagues on the Committee will also step back and focus on
the forest rather than any particular tree.
While no parties to these settlements are testifying today,
in the interest of fairness, I will hold the record open until
Friday to allow the Committee to receive their written
testimony or the testimony of any other interested parties who
may take interest in these proceedings.
In closing, I want to remark again upon the tremendous
advances that we are making in scientific research and
discovery. I wish each of you could experience the sheer
excitement that Dr. Al Rabson conveys to me when discussing the
latest developments in cancer research. Dr. Rabson is one of
America's unsung heroes. He has long served as the Deputy
Director of the National Cancer Institute and we are fortunate
to have had him in government for the past 46 years. Al Rabson
tells me that cancers that have been virtually untreatable are
now succumbing to medications like the recently announced
leukemia drug STI-571, and that, in his 46 years, he has never
been so excited.
We are literally at the doorstep of a revolution in biology
that promises to benefit mankind in profound ways. With the
stakes so high, it is imperative that our intellectual property
laws provide the proper incentives to facilitate a new era in
our understanding of human biology, health, and disease. At the
same time, we must be sure that the pharmaceutical marketplace
is highly competitive so that patients and their families can
obtain their medicines at the most affordable prices.
These are the challenges before us today, challenges I hope
we will be able to meet as the Congress continues consideration
of these issues.
[The prepared statement of the Chairman follows:]
Statement of Hon. Orrin G. Hatch, a U.S. Senator from the State of Utah
Good afternoon. I am pleased that the Committee is holding this
hearing today on the antitrust implications of recent settlements
relating to pharmaceutical patents.
Not only is this a matter squarely within the jurisdiction of the
Judiciary Committee, but as a coauthor with Rep. Henry Waxman of the
Drug Price Competition and Patent Term Restoration Act of 1984, I have
long been interested in the laws and competitive forces that underpin
the American pharmaceutical industry. And as I have stated on
occasions, if there is interest in revisiting these laws, I am willing
to play the same type of facilitator role that I did in 1984.
The American public has a great stake in achieving the twin ends of
the 1984 law. These goals are:
First, making available today's medicines at the most
competitive and affordable prices; and,
Second, encouraging the development of tomorrow's
breakthrough cures.
We should all take pride in the fact that the United States is the
world's leader in biomedical research. Through a public/private
partnership that has grown steadily since World War II, it is our
country that is on the cutting edge of medicine. Just this year alone,
there has been a combined $50 billion investment in life science
research. It is America's scientists and technology that have led the
way for the mapping of the human genome. We stand poised to unravel the
mysteries of the human genetic code and translate this knowledge to
advance the health of public.
A1 Rabson is one of America's unsung heroes. Dr. Rabson has long
served as the Deputy Director of the National Cancer Institute. He
started his distinguished career at NIH 46 years ago. I wish all of you
could experience first hand the sheer excitement that Dr. Rabson
conveys to me when discussing the latest developments in cancer
research. He tells me that cancers that have been virtually untreatable
are now succumbing to medications like the recently announced leukemia
drug, STI-571.
We are literally at the doorstep of a revolution in biology that
promises to benefit mankind in profound ways. But this progress will
not come easily; nor will it come cheaply. When factoring in the costs
of false starts and blind alleys, it can take literally several hundred
million dollars to bring an effective new drug to market. Some estimate
that for every product that makes it through the complex scientific and
regulatory screening systems, five thousand failures fall by the
wayside--and do so with great expenditures of time, expense, and
talent.
When we speak about competition, we must not forget that, in
addition to critical price competition between pioneer and generic
firms, it is the competition among pioneer firms for the next
generation of diagnostic and therapeutic products where the future of
medicine resides. But we must never lose sight of the hard fact of life
that an unaffordable medication may be the same as no medication at
all.
With the stakes so high, it is imperative that our intellectual
property laws provide the proper incentives to facilitate a new era in
our understanding of human biology, health, and disease. At the same
time, we must be sure that the pharmaceutical marketplace is highly
competitive so that patients and their families can obtain their
medicines at the most affordable prices.
Congress is debating the question of developing a Medicare drug
benefit for one simple but powerful reason: too many of our seniors
have a hard time making ends meet when paying the out-of-pocket costs
of prescription drugs. For those of us who also serve on the Finance
Committee, the estimates of providing a Medicare drug benefit have
skyrocketed over the last several months. CBO tells us that it may take
at least $368 billion over ten years to pay for catastrophic drug
coverage alone; and these estimates, in my opinion, will continue to go
up.
I mention these staggering costs in part because of the growing
therapeutic importance of biological products which can sometimes be
very expensive. Therefore I think it is imperative, and frankly
inevitable, for policymakers to examine whether there ought to be
alternative regulatory pathways for biological products to enter the
market once patents have expired.
I know there are formidable scientific questions regarding the
wisdom of even beginning down the path of a fast track approval system
for equivalent biologics. But, as was evidenced yet again in the mad
dash to complete the mapping of the human genome, properly motivated
scientists have away of overcoming scientific obstacles. I just raise
the question of whether Congress can, or should, enact and sustain over
time a Medicare drug benefit in parallel with a FDA regulatory system
that acts like a secondary patent by barring bioequivalent biological
products. At some point, the forces of economics will compel discussion
of science and legal issues involved in the consideration of fast track
biologicals.
Also at the intersection of science and law are questions
pertaining to the patenting of human genes. We must also examine how
much science has changed since 1984 and whether our patent laws
facilitate both basic research and appropriate commercial development
of genetic discoveries.
I am proud of the Drug Price Competition and Patent Term
Restoration Act--CBO estimates that it contributes to consumer savings
of $8 to $10 billion annually. We have had a substantial success on
both fronts: we have helped stimulate the development of many new drugs
all the while fostering an environment in which the generic segment of
the market has about tripled and now comprises almost half of all new
prescriptions in the United States. Some experts have projected that
each additional percentage point of generic drug usage represents over
$1 billion in consumer savings.
To those who would propose to change the 1984 legislation, I would
urge you to consider that this is a carefully balanced bill and caution
against making changes that tilts the balance. Yet no law is so perfect
that it cannot stand improvement as it gets tested by the realities of
a changing marketplace and society. There have been several
unanticipated and unintended consequences of the 1984 Act and other
changes in the landscape that need attention.
In this regard, I believe this Committee should
examine in detail the operation of the 30 month stay provision
of the 1984 law. Over the last several months, there have been
a number of controversial cases of late-issued patents that
have been entered into the FDA Orange Book. There are powerful
arguments that justify the 30 month statutory period to allow
pioneer firms a fair chance to attempt to resolve the status of
patents. Yet, there may be grounds to treat patents differently
that suddenly appear in the Orange Book so late in the day that
there are literally approved generic products on the loading
docks that must be destroyed. As well, the 30 month stay
provision has an effect on the nature of the patent settlements
we explore today although we want to concentrate on the
settlements themselves and the 180 day rule at today's hearing.
Similarly, the Committee should explore the
ramifications of the First Amendment and the U.S. Supreme
Court's Noerr-Pennington Doctrine as they relate to suggestions
to remedy the alleged abuses of the citizens' petition process
with respect to challenges to generic drug applications.
Sometimes, legitimate questions of science are raised by those
who might directly benefit from FDA delay. Maybe the 10 year
battle over premarin fits this model.
There has also been concern that FDA's bioequivalence
standards should be examined and that perhaps we should codify
the FDA guidelines in this area. Certainly this issue should be
fully examined.
As well, on the R&D side of the industry, there are
those who argue for day for day patent term restoration,
harmonization of U.S. law with European marketing exclusivity
rules, and for changes in the current limitations on the type
of patents and products that may receive partial patent term
restoration. Frankly, I think the Committee would be well
advised to put these issues on the table and learn about their
merits and down-sides. I believe it might be a worthwhile
inquiry to examine the implications of the fact that the 1999
American Inventors Protection Act generally permits all patents
to be restored up to 17 years of patent life if there is undue
delay at the PTO but under the 1984 HatchWaxman law, patent
term restoration in recognition of the lengthy FDA review of
new drugs is capped at 14 years. Why should PTO review time be
treated differently than FDA review time?
So there are many areas relating to pharmaceutical development that
Congress should examine.
My preference is to see if we can develop a comprehensive consensus
legislative package that addresses all of the issues I have just
outlined. Such a bill would provide incentives for all segments of the
industry to better produce their products that have so many benefits
for the American public. We need to find ways to grow the pie, not just
re-slice it.
This is, of course, a tall order. It will take a bipartisan spirit,
hard work, and leadership to craft legislation that can help usher in
the next generation of treatments and do so at more affordable prices.
I commend Senator Leahy for his work in introducing legislation
aimed at helping to promptly identify any possibly anti-competitive
pharmaceutical patent settlements. These settlements are the subject of
our hearing today and I believe there is great merit in his
notification approach and would like to work with him on this
legislation.
I must also commend our colleague from New York, Sen. Schumer, who
with my friend, Sen. McCain, has offered legislation on some of the
areas that I just outlined. While I personally would prefer to take a
broader and more balanced approach and have some reservations about how
they resolve some of the issues, I want to recognize them for their
work.
Having said that, I would like to focus in on the important matters
before the Committee today. The 1984 provides incentives for generic
drug applicants to challenge the validity of, or invent around, the
patents of pioneer drugs. Each time a patent is found to be deficient
or can be legally circumnavigated, consumers can benefit from speedier
access to generic products.
In order to encourage such pro-consumer activities, the 1984 law
awarded 180 days of marketing exclusivity for the first generic firm to
meet certain conditions. For many years, FDA practice provided that
this exclusivity be awarded only to that applicant first to file a
substantially complete drug application, be sued by the pioneer firm
under the special terms of the statute, and win the suit.
However, due to a series of federal court decisions, that FDA will
further explain in its testimony, the successful defense requirement
has been struck down. The courts in the Mova and Granutec decisions,
strictly construing the language of the law, awarded the exclusivity to
the first filer. As a drafter of the 1984 law, I am afraid that, to
paraphrase the great philosopher Pogo, this may be a case of ``We have
met the enemy, and he is me. Mea Culpa. Mea Culpa.''
Once the courts struck down the successful defense requirement
there has been a potential mismatch of the first filer and the party
who actually defeats the patent. Many have observed that the blocking
position the statute grants to first filers creates perverse incentives
for patent settlements.
As a general matter, the law smiles upon patent settlements. For
example, the 1995 joint DOJ-FTC Antitrust Guidelines for the Licensing
of Intellectual Property state:
``Settlements involving cross-licensing of intellectual property
rights can be an efficient means to avoid litigation and, in general,
courts favor such settlements.''
Yet, according to these guidelines not all such patent settlements
will automatically survive antitrust scrutiny:
``(w)hen such [settlement] involves horizontal competitors, [the
government] will consider whether the effect of the settlement is to
diminish competition among entities that would have been actual or
likely potential competitors.''
As the FTC will explain, several agreements in the last few years
have triggered antitrust actions. The Committee needs to know if these
cases represent a few outliers or a pattern. The Committee needs to
know if the existing antitrust laws are sufficient to police this
situation. We need to know if there are ways to improve Sen. Leahy's
legislation that is designed to help solve the problem by assisting FTC
and DOJ to respond more quickly and effectively in this area.
The FTC will tell us about a major study that they have recently
initiated to gauge the frequency and nature of these settlements. This
will help the Administration and Congress examine whether there is a
pattern of behavior that requires a comprehensive legislative response
rather than the current case by case approach.
The public deserves the effective and affordable drugs that
competition can bring, not elaborate legal machinations that identify
or create then exploit anti-competitive loopholes. Some have already
concluded that the 1984 law, as implemented by FDA regulation, and
interpreted by the courts, presents a legal framework that invites
improper, anti-competitive settlements.
For example, as former FTC official, David Balto, has assessed the
situation:
``The competitive concern is that the 180-day exclusivity provision
can be used strategically by a patent holder to prolong its market
power in ways that go beyond the intent of the patent laws and the
Hatch-Waxman Act by delaying generic entry for a substantial period of
time.''
In short, the questions we face at today's hearing are
straightforward: Is the 180 day exclusivity law broken and, if it is,
how should we fix it?
I am pleased that the FTC, DOJ, and FDA will help us start to think
through these issues. I am also pleased that Attorney General Mark
Shurtleff from my home state of Utah will explain how a group of states
have responded to the current environment.
I am more interested in examining the underlying law, pattern of
cases, and whether the law needs to be changed than I am in conducting
a ``Who Struck John'' analysis of the cases that have triggered
governmental involvement. I would hope that my colleagues on the
Committee will also step back and focus on the forest rather than the
trees.
While no parties to these settlements--either pioneer or generic
firms--requested to testify today, I understand there may well be
interest in how these agreements may be characterized. Without
objection, I will hold the record open until next Friday to allow the
Committee to receive comments from all parties interested in today's
hearing.
I look forward to learning from the testimony we will receive
today.
Chairman Hatch. Senator Leahy is not here. Would you care
to represent the Democrats on the committee?
Senator Schumer. Thank you, Mr. Chairman.
Chairman Hatch. I need to say Democrats, not minority,
anymore.
Senator Schumer. We still are, for the last few hours.
Chairman Hatch. Well, we wish you well when you take over.
Senator Schumer. Thank you. Thank you. And seriously, you
have always been fair in the majority----
Chairman Hatch. Thank you.
Senator Schumer.--and we will try to be just as fair.
Chairman Hatch. Thank you.
STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE
STATE OF NEW YORK
Senator Schumer. This is not Senator Leahy's statement,
this is my own. I have been very interested in this issue, but
I do want to commend him for his leadership. He is on the floor
right now dealing with another issue that has been before this
committee, the nomination of three Justice Department
appointees.
But Mr. Chairman, I want to first thank you for holding
this hearing, and more importantly, for your longtime
dedication to the important issue of pharmaceutical
competition. Because of Senator Hatch's leadership, consumers
have saved billions of dollars on pharmaceuticals in the two
decades since the Hatch-Waxman Act was enacted, and you are, as
I told you privately, Mr. Chairman, I think this is one of the
most important pieces of legislation that this Congress has
passed in the last 20 years and you should be awfully proud to
have your name attached to it.
Chairman Hatch. Thank you.
Senator Schumer. Hatch-Waxman, as we know, reformed patent
laws and created a blueprint that provided additional patent
protection for research-based brand name drugs in conjunction
with a timetable to allow less-expensive generic equivalents on
the market. The law did two things. It preserved intellectual
property rights for the pharmaceutical companies that have put
lots of effort and produced wonder drugs that keep people
alive, but at the same time, it created competition after that
reward for the intellectual property was granted and it saved
consumers billions of dollars, still allowing brand name
companies to stay profitable and innovative. It was an
exquisite balance that worked.
Unfortunately, the balance has been thrown out of whack in
recent years. The large pharmaceutical companies basically have
been playing by their own rules. As the stakes and profits have
become higher, lawyers for that industry have picked the Hatch-
Waxman law clean. Again, I believe in intellectual property,
but we came up with a formulation, and to now extend patent
after patent after patent when that was never envisioned in the
Hatch-Waxman law for the reasons that they were is the reason
that we are here today and is the reason that we need real
reform once again.
The Drug Competition Act that Senator Leahy has introduced,
and which I am proud to cosponsor, is an important first step
in ensuring the full potential of the Hatch-Waxman Act. It
would provide the very cornerstone to ensuring fair competition
in the pharmaceutical marketplace. Too often, the agreements
between pharmaceutical companies are brokered with an anti-
competitive spirit. In requiring these agreements to be
disclosed to the FTC and DOJ, the legislation ensures anti-
competitive efforts on the part of these companies, both
generic and brand name, are identified and resolved quickly so
that consumers do not suffer unjustly. I find these agreements
outrageous. I am even more angry at the generic companies that
do them than the pharmaceutical companies because they are
basically selling their birthright for a few silver coins and
it is just awful.
But, Mr. Chairman, we have to do more than close just the
loopholes which allow the pharmaceuticals to too easily enter
into agreements that are not in the best interests of
consumers. Dovetailing with Senator Leahy's efforts, Senator
McCain and I reintroduced a bill last month called the GAAP
Act, the Greater Access to Affordable Pharmaceutical Act. Our
bill seeks to breathe new life into the Hatch-Waxman law, not
by redrawing ideological battle lines--that is for a different
day and time--but by restoring the intent of our patent laws.
In doing so, it will save consumers $71 billion over the next
10 years on their drug costs.
Our intention is not to cut innovators off at the knees. We
want to protect their rights. Our bill is not a freebie for the
generic drug industry, either. It only makes the approval
process fair and brings lower-cost alternatives to the market.
The bill would eliminate the 30-month stay automatically handed
to brand companies who file suit against a generic challenger,
regardless of the merits of the case. Another 30 months, way
out of line from what you, good sir, intended, simply by filing
a case. What could be more abusive and outrageous than that?
Whether the case has merits should be determined in the courts
before any 30-month extension is granted.
The GAAP Act also strengthens the citizen petition process,
intended to allow average people to express concern over a
drug, which has become a back door way for pharmaceutical
companies, both brand name and generic, to delay a competitor's
entry in the market. Today, the test to prove that a generic
drug is truly bioequivalent to the original drug is a contest
of exploiting loopholes in Hatch-Waxman to ensure that the
generic never sees the light of day, a total 180-degree turn
from what was intended in the law.
The GAAP Act reforms the so-called 180-day rule by closing
the loophole that enables a brand name company to pay a generic
manufacturer to stay off the market. We do not just ask for
disclosure. We prohibit these nefarious type agreements.
Closing the loophole would prevent problems like the cases we
are discussing here today, the Hytrin case, where Abbott
Laboratories paid Geneva Pharmaceuticals $4.5 million a month
to keep their hypertension drug off the market, or the recent
KDur 20 case, where Schering-Plough allegedly paid Upsher-Smith
and American Home Products millions of dollars to delay
launching a generic potassium chloride supplement. Again, these
are outrageous.
Now, I know some of the brand name large pharmaceutical
companies say, well, we have no choice, because sometimes there
are injustices done at the other end. In other words, it takes
too long for the drug to come on the market. I have no problem
with correcting those abuses, but one abuse--those are really
not abuses, but those injustices, if you want to elevate it to
probably a higher level than I would, given the level of
profitability of the industry, but these wrongs should be
corrected. I am open to correcting them, but not in the ad hoc
way that they are done in the way that people file petitions
and things like that, and they do them for drugs whether they
have been on the market 2 years, 4 years, 10 years, 8 years, 12
years. One has nothing to do with the other in the specific
case of each drug.
So, Mr. Chairman, as Congress wrestles with the complexity
of crafting and paying for a Medicare prescription drug
benefit, we must not overlook a straightforward solution to
escalating drug prices facing seniors, businesses, insurers,
and consumers. If we can ensure fair competition in the
pharmaceutical marketplace, a level playing field for both
brand and generic companies, everyone will win. For the
consumer, cheaper drugs. The generics can be out and the
pharmaceuticals' attempts at price controls and other type of
non-economic behavior will not have as much pointed weight.
So I thank you, Mr. Chairman, for holding this important
hearing and look forward to working with you, Senator Leahy,
and with the FDA and the FTC to encourage fair marketplace
practices while preserving both safety and intellectual
property rights to provide customers with affordable
pharmaceutical alternatives.
Chairman Hatch. Thank you, Senator.
Let me introduce today's witnesses. First, we will hear
from Mr. Gary Buehler, the Acting Director of FDA's Office of
Generic Drugs. Mr. Buehler will describe some of the key
statutory and regulatory provisions that have colored the
patent settlements under discussion today.
Next, we will get the perspective of the Federal Trade
Commission, the lead Federal agency in antitrust enforcement
for the pharmaceutical industry. Ms. Molly Boast is the
Director of the Bureau of Competition. We are surely glad to
have both of you with us today. Ms. Boast will tell us about
some recent pharmaceutical patent settlement cases and a major
survey into the industry's practices.
To fill out the first panel, we have Mr. James Griffin,
Deputy Assistant Attorney General for the Antitrust Division at
the Department of Justice. He will explain how the Department
of Justice and FTC divide the responsibility for antitrust
enforcement and how the Department retains the sole authority
for any criminal matters in the antitrust area.
Now, without objection, I think we can expedite today's
hearing by collapsing the witnesses into one panel. We have
only one witness on the second panel, Attorney General Mark
Shurtleff from my home State of Utah. Attorney General
Shurtleff will tell us what the States are doing in the area of
pharmaceutical patent settlement. So if we could get you to
take your seat there, as well, General Shurtleff.
If you could, please confine your oral testimony to 5
minutes. I know this is pretty complex stuff. If you need more
time, I have always been courteous about that. You will be able
to place your complete remarks in the record, but if you could
try and keep it to 5 minutes, it will help us, and especially
me today since I have so much pressure to do these other
things. I have just been told I have to be at leadership
meeting at four o'clock, as well.
Because of the interest in this hearing, I think we should
hold the record open for 1 week so that interested parties will
have a chance to provide their views, and although no company
involved in these settlements asked to testify today and I do
not plan to parse each paragraph of these settlements, they may
have some useful perspectives on these issues. Certainly,
consumer groups and purchasers of drugs will have views, too,
so we are hopeful that we will hear from all of you.
We will turn to you first, Mr. Buehler, and take your
testimony, and then we will just go across the table.
STATEMENT OF GARY BUEHLER, R.PH., ACTING DIRECTOR FOR GENERIC
DRUGS, FOOD AND DRUG ADMINISTRATION, WASHINGTON, D.C.
Mr. Buehler. Thank you, Mr. Chairman. Mr. Chairman and
members of the committee, my name is Gary Buehler. I am a
registered pharmacist and Acting Director of the Office of
Generic Drugs at FDA. I am here today to discuss FDA's
implementation of the exclusivity provisions of the Drug Price
Competition and Patent Term Restoration Act of 1984, the Hatch-
Waxman amendments, which govern the generic drug approval
process.
These amendments are intended to balance two important
public policy goals. First, drug manufacturers need meaningful
market protection incentives to encourage the development of
valuable new drugs. Second, once the statutory patent
protection and market exclusivity for these new drugs has
expired, the public benefits from the rapid availability of
lower-price generic versions of the innovator drug.
The FD&C Act requires that an ANDA contain a certification
for each patent listed in the Orange Book for the innovator
drug. The certification relevant to exclusivity is a Paragraph
IV certification that states that such patent is invalid or
will not be infringed by the generic drug for which approval is
being sought. 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 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.
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
running the risk of having to defend a patent infringement
suit. The 180-day period of exclusivity will begin either from
the date the generic applicant begins commercial marketing 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.
Approval of an ANDA does not trigger exclusivity. 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 latter 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 that innovator product.
The 180-day exclusivity provision has been the subject of
considerable litigation and administrative review in recent
years as the courts, industry, and the 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. In light of the court decisions
finding certain FDA regulations inconsistent with the statute,
the agency proposed new regulations in August 1999 to implement
the 180-day exclusivity. Since then, many comments have been
submitted and there have been additional court decisions
further interpreting the statute and complicating the
regulatory landscape.
The agency has not yet published a final rule on 180-day
exclusivity. As described in the June 1998 guidance for
industry, until new regulations are in place, FDA is addressing
on a case-by-case basis those 180-day exclusivity issues not
addressed by the existing regulations.
One of the most fundamental program changes is the
determination by the courts that a district court decision
favorable to the generic applicant will trigger the 180-day
exclusivity period. This interpretation means that if 180-day
exclusivity is triggered by a decision favorable to the ANDA
applicant in the district court, the ANDA sponsor who wishes 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.
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. FDA has tried to balance
innovation and drug development and expediting the approval of
lower-cost generic drugs.
Thank you, Mr. Chairman. I would be pleased to answer any
questions if I can.
Chairman Hatch. Thank you, Mr. Buehler.
[The prepared statement of Mr. Buehler follows:]
Statement of Gary Buehler, RPh, Acting Director, Office of Generic
Drugs, Center for Drug Evaluation and Research, Food and Drug
Administration, Department of Health and Human Services
Introduction
Mr. Chairman and Members of the Committee, I am Gary Buehler, RPh,
Acting Director of the Office of Generic Drugs in the Center for Drug
Evaluation and Research (CDER), at the Food and Drug Administration
(FDA or Agency). I am here today to discuss FDA's implementation of
provisions of the Drug Price Competition and Patent Term Restoration
Act of 1984 (HatchWaxman Amendments) which govern the generic drug
approval process. These provisions give 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.
The Hatch-Waxman amendments are intended to balance two important
public policy goals. First, drug manufacturers need meaningful market
protection incentives to encourage the development of valuable new
drugs. Second, once the statutory patent protection and marketing
exclusivity for these new drugs has expired, the public benefits from
the rapid availability of lower priced generic versions of the
innovator drug.
Statutory Provisions
The Hatch-Waxman Amendments amended the Federal Food, Drug, and
Cosmetic (FD&C) Act and created section 5050). Section 5050)
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 new drug
application (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'' (the. Orange Book) (described in
more detail below). The FD&C Act requires that an ANDA contain 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 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.
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 running 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 effect 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 application 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
This 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.
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\1\ Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1065 (D.C.
Cir. 1998).
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In light of the court decisions finding certain FDA regulations
inconsistent with the statute, the Agency proposed new regulations in
August 1999 to implement the 180-day exclusivity. Since then many
comments have been submitted and there have been additional court
decisions further interpreting the 180-day exclusivity provision and
complicating the regulatory landscape. The Agency has not yet published
a final rule on 180-day exclusivity. As described in a June 1998
guidance for industry, until new regulations are in place, FDA is
addressing on a case-by-case basis those 180-day exclusivity issues not
addressed by the existing regulations.
One of the most fundamental changes to the 180-day exclusivity
program that has resulted 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 wishes 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.
In one of the cases rejecting FDA's interpretation of the ``court
decision'' language in the statute, the court determined that the
applicant who relied in good faith on FDA's interpretation of the 180-
day exclusivity provision should not be punished by losing its
exclusivity. The court, therefore, refused to order FDA to begin the
running of 180-day exclusivity upon the decision of the district court
in the patent litigation at issue. FDA has taken a similar approach in
implementing the courts' decisions: the new ``court decision''
definition will apply only for those drugs for which the first ANDA was
submitted subsequent to March 30, 2000. In adopting this course, a
primary concern for the Agency was to identify an approach that would
minimize further disruption and provide regulated industry with
reasonable guidance for making future business decisions.
To advise the public and industry of this position, FDA published a
Guidance for Industry in March 2000. FDA intends to incorporate the
courts' interpretation of the ``court decision'' trigger for 180-day
exclusivity into the final rule implementing the changes in 180-day
exclusivity.
Orange Book Listings
There have been concerns 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 approval and 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. FDA
publishes patent information on approved drug products in the Orange
Book.
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 mean there is the
possibility of a considerable delay in the approval of ANDAs as a
result of new patent listings. Therefore, these listings are often
closely scrutinized by ANDA applicants. 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 listed 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 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.
FDA does not undertake an independent review of the patents
submitted by the NDA sponsor. FDA does not 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 what patent information is
to be submitted, who must submit the information, and when and where to
submit the information. As the Agency has stated, since the
implementation of the 1984 HatchWaxman Amendments began, FDA has no
expertise or resources with which to resolve complex questions of
patent coverage, and thus the Agency's role in the patent-listing
process is ministerial. The statute requires FDA to publish patent
information upon approval of the NDA. 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. As noted above, if the generic applicant files a
paragraph IV certification and is sued for patent infringement within
45 days, there is an automatic stay of 30 months, substantially
delaying the approval of the generic drug and, thus, the availability
of lower cost generic drug products.
Conclusion
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. Again, as previously noted, FDA has tried to balance
innovation in drug development and expediting the approval of lower-
cost generic drugs.
Chairman Hatch. Ms. Boast, we will turn to you now.
STATEMENT OF MOLLY BOAST, DIRECTOR, BUREAU OF COMPETITION,
FEDERAL TRADE COMMISSION, WASHINGTON, D.C.
Ms. Boast. Thank you, Mr. Chairman and members of the
committee. It is a true privilege for me to be able to
participate in this hearing today on a topic that I think is
fundamentally important, the ready availability of
pharmaceutical products at competitive prices.
The Commission has been very active in the pharmaceutical
area generally, and in particular in considering the
relationship between pioneer and generic drug manufacturers as
their relationship has evolved under the Hatch-Waxman Act. And,
frankly, speaking for myself, since I am here as the Director
of the Bureau of Competition, not as a spokesman for the
Commission itself, I think this is among the Commission's most
important work. We know that generic products, once they are
introduced to the marketplace, tend to bring prices down in the
range of 20 to 50 percent within a very few months. It is quite
a dramatic change. I would estimate that over the last 2 years,
approximately 25 percent of the resources of the Bureau of
Competition have been devoted to the pharmaceutical industry.
So you are able to see the high degree of importance we assign
to this.
My comments here are going to highlight the three recent
enforcement actions the Commission has taken challenging
settlement agreements between branded and generic drug
manufacturers.
Chairman Hatch. Did you say 25 percent of your time is
spent on----
Ms. Boast. Twenty-five percent of the Bureau of
Competition's resources have gone----
Chairman Hatch. Is that right?
Ms. Boast. This is an estimate, Mr. Chairman, to the
pharmaceutical industry generally. That includes----
Chairman Hatch. The important thing, I am just showing how
important this is, though.
Ms. Boast. It is very important.
Chairman Hatch. Even I am amazed.
Ms. Boast. It includes our merger enforcement work in this
industry, as well.
Chairman Hatch. Sure. Sorry to interrupt you. I apologize.
Ms. Boast. I am always happy when I capture someone's
attention with that kind of information.
[Laughter.]
Chairman Hatch. I know I look tired, but I am not that
tired.
[Laughter.]
Ms. Boast. Let me briefly try to summarize what the
Commission's recent enforcement actions challenging these
settlement agreements between branded manufacturers and generic
firms are about, and then talk very briefly about the
Commission's Section 6(b) study.
The Commission's enforcement initiatives address settlement
agreements reached between the branded and generic firms in the
context of the patent litigation that is spurred by the Hatch-
Waxman Act. Now, I agree with both Chairman Hatch and Senator
Schumer's characterization of Hatch-Waxman. This was a
remarkable creation, an effort to bridge our interest in
encouraging innovation through protection of intellectual
property rights and our interest in competition introduced
through generic entry.
But as Mr. Buehler has described, Hatch-Waxman provides a
mechanism pursuant to which the generic firm can certify to the
branded manufacturer that its proposed product does not
infringe the pioneer's patent or that the patent is invalid,
and this often triggers patent litigation between the two
firms.
Settlements have been reached in this context, and it is
not the fact that settlements have taken place that is our
concern. Rather, the Commission has become concerned that there
are incentives created quite inadvertently under Hatch-Waxman
that have led to settlements on anti-competitive terms. The
agreements in question share two things in common.
First, the Commission has alleged in each of these three
cases that payments have been made by the branded manufacturer
who has a strong incentive to discourage generic entry to the
generic firm to delay the date of entry, rather than letting
litigation resolve the question of the patent validity, which
would, if resolved favorably in the generic's favor, trigger
the 180-day exclusivity and begin the process of generic entry,
and rather than allowing the generic to come to market on the
date at which it might absent the payment.
The second feature that links these cases is a provision,
or variations of a provision, that preclude entry with non-
infringing products, that is, products entirely outside the
scope of the patent litigation in which the settlement takes
place. In light of these provisions, in all three cases, the
Commission has found reason to believe that the arrangements
constitute unreasonable restraints of trade.
To give you a sense of the magnitude of the potential harm,
we can take an example such as was involved in the Commission's
case against Hoechst and Andrx. The product there was called
Cardizem CD. This is a product that is used to treat angina and
other heart-related disease. It is very widely prescribed. In
1998, Cardizem CD enjoyed sales of $700 million in 1 year
alone, and over 12 million prescriptions were written. So you
can see that if you allow generic entry and this substantial
price decrease I described earlier, the benefits to consumers
are quite substantial.
Let me turn quickly with my remaining time to the
Commission's 6(b) study which is underway. This study was
undertaken by the Commission in its unique role as an advisor
to Congress and specifically at the request of Representative
Waxman, who is interested in using the study vehicle to
determine whether the problems we have identified in the
Commission's recent cases are prevalent or just isolated and
whether there are other features of the statutory and
regulatory framework that need to be addressed.
The study will shed light on issues such as how pervasive
are these agreements? How do the exclusivity provisions operate
to affect the incentives of the generic firms? Is the Orange
Book listing process being abused? Are the stay provisions of
Hatch-Waxman being abused? And how frequently is the citizen
petition process being used to delay entry? I hope it will make
a substantial contribution to this committee's work and to the
work of Congress in general.
I would be very happy to answer any questions, Mr.
Chairman, and I look forward to the Commission's further work
with you.
Chairman Hatch. Thank you, Ms. Boast. When do you project
that your survey will be completed, the data analyzed and
distributed to the Congress and the public?
Ms. Boast. The responses are due from the firms next month
and it is our hope that the report will be given to Congress by
the end of the year, end of the calendar year.
Chairman Hatch. Can we have some advance things?
Ms. Boast. I would need to confer with my colleagues about
that, but----
Chairman Hatch. Some of us might want to know as much as we
can in advance of the end of the year distribution.
Ms. Boast. I am unaware of what legal constraints might
exist----
Chairman Hatch. I understand.
Ms. Boast.--but I certainly have no principled objection to
some consultative process, if that is----
Chairman Hatch. If we could, I would like to be kept up to
speed because we do need to do some things in this area and I
would like to do them right.
Ms. Boast. I completely agree.
Chairman Hatch. Thank you.
[The prepared statement of Ms. Boast follows:]
Statement of Molly Boast, Director, Bureau of Competition, Federal
Trade Commission, Washington, DC
Mr. Chairman and Members of the Senate Judiciary Committee, I am
Molly Boast, Director of the Federal Trade Commission's Bureau of
Competition. I am pleased to appear before you to present the Federal
Trade Commission's (``Commission'' or ``FTC'') testimony on our
activities involving the pharmaceutical industry in general and patent
settlement cases in particular.\1\ The benefits to consumers from
generic competition are dramatic. A Congressional Budget Office
(``CBO'') report estimates that consumers saved $8 billion to $10
billion on prescription drugs at retail pharmacies in 1994 by
purchasing generic drugs instead of brand name products.\2\ The CBO
also noted that the 1984 Hatch-Waxman Act had ``greatly increased the
number of drugs that experience generic competition and, thus,
contributed to an increase in the supply of generic drugs.'' \3\
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\1\ The views expressed in this statement reflect the views of the
Commission. My oral statement and responses to questions are my own and
are not necessarily those of the Commission or any individual
Commissioner.
\2\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
lndustry (July 1998) .
\3\ 3 Id
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The surging cost of prescription drugs is a pressing national
issue. Recent reports suggest expenditures for retail outpatient
prescription drugs rose in the year 2000 to $131.9 billion, an 18.8%
increase from the previous year.\4\ This dramatic increase has helped
focus attention on the need to ensure competition in pharmaceutical
markets. The Commission is encouraged that Congress, and particularly
the members of this Committee, have shown a strong interest in this
issue, both in Chairman Hatch's decision to convene this hearing and in
recent bills introduced by Senators Leahy, Schumer, Kohl, Durbin and
McCain, among others.\5\
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\4\ See National Institute for Health Care Management Research and
Educational Foundation, ``Prescription Drug Expenditures in 2000: The
Upward Trend Continues'' at 2 (May 2001) (available at www.nihcm.org).
\5\ See S. 754, ``Drug Competition Act of 2001,'' introduced by
Senators Leahy, Kohl, Schumer, and Durbin; S. 812, ``Greater Access to
Affordable Pharmaceuticals Act of 2001,'' introduced by Senators
Schumer and McCain.
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The Commission has gained substantial recent experience concerning
competition in the pharmaceutical industry from its antitrust
enforcement activities affecting both the branded and generic drug
industries.\6\ In 1999, the staff of the FTC's Bureau of Economics
released a report on competition issues in the pharmaceutical
industry.\7\ In addition, the Commission's staff has submitted comments
over the past two years in connection with the Food and Drug
Administration's (``FDA'') regulation of generic drugs,\8\ and has
recently filed a Citizen Petition with the FDA seeking clarification of
certain issues relating to patent listings with the FDA.\9\
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\6\ E.g., Federal Trade Commission v. Mylan Laboratories, Inc. et
al., 1999-2 Trade Cas. (CCH) para.72,573 (D.D.C. 1999);
Roche Holding Ltd, C-3809 (February 25, 1998) (consent order);
CibaGeigy, Ltd, 123 F.T.C. 842 (1997) (consent order); Hoechst AG, 120
F.T.C. 1010 (1995) (consent order). For a discussion of recent FTC
pharmaceutical enforcement actions, see FTC Antitrust Actions Involving
Pharmaceutical Services and Products, ;
see also David A. Balto & James Mongoven, Antitrust Enforcement in
Pharmaceutical Industry Mergers, 54 Food & Drug Law Journal 255 (1999).
\7\ Staff of the Federal Trade Commission, ``The Pharmaceutical
Industry: A Discussion of Competitive and Antitrust Issues in an
Environment of Change'' (March 1999) . The report reviews significant
informational, institutional, and structural changes that have
influenced price and non-price competition strategies of brand-name
pharmaceutical companies, particularly during the last 15 years. The
study considers the possible antitrust implications of these changes by
examining alternative anticompetitive and procompetitive explanations
for the pricing, vertical contracting, and vertical and horizontal
consolidation strategies that have emerged in this environment of
change.
\8\ Comment of the Federal Trade Commission Staff, In the Matter of
Citizen Petitions; Actions That Can be Requested by Petition; Denials,
Withdrawals, and Referrals for Other Administrative Action, Docket No.
99N-2497 (Mar. 2, 2000), ; Comment
of the Federal Trade Commission Star, In the Matter of 180-Day Generic
Drug Exclusivity for Abbreviated New Drug Applications, Docket No. 85N-
0214 (Nov. 4, 1999), .
\9\ The Bureau of Competition and Policy Planning Staff of the
Federal Trade Commission's Citizen Petition to the Commissioner of Food
and Drugs pursuant to 21 C.F.R. Sec. Sec. 10.25(a) and 10.30 concerning
certain issues relating to patent listings in the FDA's Approved Drug
Products with Therapeutic Equivalence Evaluations (the ``Orange Book'')
and requesting that the FDA clarify these issues via industry guidance
or other means that the FDA considers appropriate (May 16, 2001).
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The Commission's recent activity includes three challenges to
alleged anticompetitive agreements between pioneer pharmaceutical
manufacturers and generic manufacturers. These actions address
agreements reached in the context of the 1984 Hatch-Waxman Act. The Act
was crafted to balance the legitimate but different interests of the
pioneer and generic manufacturers. Recently, however, the Commission
has observed conduct suggesting that some firms may be exploiting the
statutory and regulatory scheme by reaching agreements to delay the
introduction of generic drugs to the market. Pioneer firms have strong
incentives to delay generic entry.
Delaying or preventing the generic entry that Hatch-Waxman seeks to
promote could preserve millions of dollars of ongoing profits for
pioneer drug companies. The typical steep price decline upon generic
entry results in an enormous drop in market share and profits for the
pioneer firm. The Commission has reason to believe the agreements it
has challenged were designed to forestall that result.
The complexity of the strategies prompted by the operation of the
Hatch-Waxman Act and the regulatory framework for introducing new drugs
to the market cannot be fully comprehended through any particular
enforcement action. Accordingly, the Commission is undertaking a study,
pursuant to its authority under Section 6(b) of the FTC Act, of
pharmaceutical industry practices relating to the Hatch-Waxman Act. The
study will examine:
the extent to which agreements between brand-name
pharmaceutical manufacturers and generic drug firms may have
delayed generic competition;
the operation of provisions in the Hatch-Waxman Act
that award a 180-day period of market exclusivity to a generic
firm;
the impact of provisions in the Act on the listing of
patents by brand-name pharmaceutical companies in the FDA
``Orange Book,'' and of provisions that trigger a stay on FDA
approval of a proposed generic drug; and
the use of the FDA's Citizen Petition process by
brand-name drug companies to oppose potential generic entrants.
The Commission hopes that this study will provide valuable
information to Congress as it considers possible reform of the Hatch-
Waxman Act.
This testimony provides an overview of the significance of generic
drugs in the pharmaceutical industry and a brief description of the
statutory and regulatory schemes governing generic drugs, and then
turns to a discussion of recent FTC enforcement actions challenging
settlement agreements between certain branded pharmaceutical
manufacturers and their generic competitors. The testimony also briefly
describes the generic drug study currently underway at the agency.
I. BACKGROUND
a. significance of generic drugs
Generic drugs contain active ingredients that are the same as their
branded counterparts, but typically are sold at substantial discounts
from the branded price. Generic drugs account for approximately 40% of
all prescriptions, but for only about 9% of total prescription drug
expenditures.\10\ The first generic manufacturer to enter a market
typically charges 70% to 80% of the brand manufacturer's price. As
additional generic versions of the same drug enter the market, the
price continues to drop, sometimes decreasing to a level of 50% or less
of the brand price.\11\
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\10\See National Institute for Health Care Management Research and
Educational Foundation, ``Prescription Drug Expenditures in 2000: The
Upward Trend Continues'' at 2 (May 2001).
\11\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry (July 1998), .
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Within the next 5 years, patents on brand-name drugs with combined
U.S. sales approaching $20 billion will expire.\12\ This provides an
enormous opportunity for the generic drug industry. Presumably the
brand-name industry views the situation in quite the opposite way. The
successful entry of generic versions of these drugs should affect
dramatically the amount consumers pay for the drugs they need.
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\12\ 12 Id at 3. See also Amy Barrett, ``Crunch Time in Pill
Land,'' Business Week 52 (Nov. 22, 1999).
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b. statutory and regulatory scheme
In 1984, Congress passed the Drug Price Competition and Patent Term
Restoration Act, known as the HatchWaxman Act,\13\ to accomplish a
delicate balancing of two policy goals:\14\ (1) to facilitate and
encourage the introduction of generic drugs, and (2) to protect the
incentives of brand-name drug companies to invest in new drug
development.\15\
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\13\ Pub. L. No. 98-417, 98 Stat. 1585 (1984), codified at 21
U.S.C. 355, 360cc, and 35 U.S.C. 156, 271, 282.
\14\ See Tri-Bio Labs, Inc. v. United States, 836 F.2d 135, 139 (3d
Cir. 1987), cert. denied, 488 U.S. 818 (1988). See also Eli Lilly and
Co. v. Medtronic, Inc., 496 U.S. 661, 15 USPQ2d 1121 (1990); and
Bristol-Myers Squibb Company v. Royce Laboratories, Inc., 69 F.3d 1130,
1132, 1133-34, 36 USPQ2d 1641 (Fed. Cir. 1995).
\15\ See H.R. Rep. No. 98-857(1), at 14-15 (1984), reprinted in
1984 U.S.C.C.A.N. 2647-48 (stating that the purposes of the Hatch-
Waxman Act are ``to make available more low cost generic drugs [and] to
create a new incentive for increased expenditures for research and
development of certain products which are subject to premarket
approval'').
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The Hatch-Waxman Act permits pharmaceutical manufacturers to seek
FDA approval of generic versions of previously approved drug products
\16\ by submitting an ``abbreviated new drug application''
(``ANDA'').\17\ Under the abbreviated procedure, an ANDA applicant that
demonstrates bioequivalency with a pioneer drug may rely upon FDA
findings of safety and efficacy for the relevant drug.\18\ The Food,
Drug and Cosmetics Act (``FDCA'') \19\ requires the ANDA applicant to
provide a certification showing one of the following for each patent
that ``claims the listed drug'' or the method of the drug's use for
which patent information is required to be filed: \20\
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\16\ 21 U.S.C. 3550).
\17\ The relevant statutory and regulatory framework for the ANDA
approval process has been described in Eli Lilly and Co. v. Medtronic,
Inc., 496 U. S. at 676-78; Mova Pharmaceutical Corp. v. Shalala, 140
F.3d 1060, 1063-65, 46 USPQ2d 1385 (D.C. Cir. 1998); and Bristol-Myers
Squibb Company v. Royce Laboratories, Inc., 69 F.3d at 1131-32, 1135.
\18\ 21 U.S.C. 3550)(2).
\19\ 21 U.S.C. 355(a), (b).
\20\ 21 U.S.C. 3550)(2)(A)(vii). By regulation, the FDA has defined
the ``listed drug'' to mean the approved new ``drug product.'' 21 C. F.
R. 314.3(b).
(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.
The Commission's recent enforcement actions involve agreements
between pioneer manufacturers and ANDA applicants that filed a
certification under paragraph IV of these provisions.\21\ A
certification under paragraph IV requires the ANDA applicant to give
notice of the ANDA filing to the patent owner and the firm that
obtained the new drug approval for the listed drug (typically the
pioneer manufacturer). This notice must include a detailed statement of
the factual and legal basis for the ANDA applicant's opinion that the
patent is not valid, is unenforceable, or will not be infringed.\22\ An
applicant whose ANDA is pending when additional patents are listed must
certify to the new patents, unless the patent owner or NDA holder fails
to submit the additional patents within 30 days after their issuance by
the Patent and Trademark Office.\23\ In addition, if the ANDA applicant
does not seek approval for a use of the drug claimed in a listed
patent, the FDCA allows the ANDA to include a statement (commonly
referred to as a ``Section viii Statement'') that the ANDA does not
seek approval for such a use.\24\
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\21\ If a certification is made by the generic manufacturer under
paragraph I or II indicating that patent information pertaining to the
drug or its use has not been filed with FDA or the patent has expired--
the ANDA may be approved immediately, and the generic drug may be
marketed. 21 U.S.C. 355(j)(5)(B)(i). A certification under paragraph
III indicates that the ANDA applicant does not intend to market the
drug until after the applicable patent expires, and approval of the
ANDA may be made effective on the expiration date. 21 U.S.C.
355(j)(5)(B)(ii).
\22\ 21 U.S.C. 355(j)(2)(B); 21 C.F.R. 314.95(c)(6).
\23\ 21 C.F.R. 314.94(a)(12)(vi).
\24\ 21 U.S.C. 355(j)(2)(A)(viii); 21 CYR 314.94(a)(12)(iii). In
the event of a dispute as to the accuracy or relevance of patent
information submitted to the FDA and subsequently listed in the Orange
Book, the FDA may request 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, however, the FDA will not
change the patent information listed in the Orange Book. Id.
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The filing of a paragraph IV certification triggers an important
process that reflects the Hatch-Waxman Act's core purpose of
encouraging generic competition while protecting pioneer companies'
incentives to innovate. If an action for patent infringement is brought
against the ANDA applicant within 45 days of the date the patent owner
receives notice of the paragraph IV certification,\25\ final approval
of the ANDA cannot become effective until 30 months from the receipt of
notice. That timing cannot be changed unless a final court decision is
reached earlier in the patent case or the patent court otherwise orders
a longer or shorter period.\26\
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\25\ 21 U.S.C. 355(j)(5)(B)(iii); 21 C.F.R. 314.107(f)(2). The
statute also states that ``[u]ntil the expiration of forty-five days
from the date the notice made under paragraph (2)(B)(i) is received, no
action may be brought under section 2201 of Title 28, for a declaratory
judgment with respect to the patent.'' Id
\26\ 21 U.S.C. 355(j)(5)(B)(iii). A court may shorten or lengthen
the period if either party to the action fails to reasonably cooperate
in expediting the case. Id
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The Hatch-Waxman Act also provides an incentive for generic drug
companies to bear the cost of patent litigation that may arise when
they challenge allegedly invalid patents or design products they
contend are non-infringing. The Act grants to the first ANDA filer a
180-day period during which it has the exclusive right to market a
generic version of the brand name drug. The 180-day exclusivity period
begins running on the earlier of (1) the date the first ANDA filer
begins commercial marketing of its generic drug, or (2) the date a
court decides that the patent addressed by the paragraph IV
certification is invalid or not infringed. No other generic
manufacturer may obtain final FDA approval to market its version of the
relevant product until the first filer's 180.-day exclusivity period
has expired.\27\
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\27\ 21 U.S.C. 355(j)(5)(B)(iv).
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II. FTC CASES CHALLENGING SETTLEMENTS
The FTC has taken a lead role in promoting competition in the
pharmaceutical industry and has been significantly involved in
antitrust cases arising in the context of the Hatch-Waxman regulatory
framework. In three recent cases, the Commission challenged agreements
between brand-name and generic drug companies that allegedly delayed or
were intended to delay generic drug competition in order to maintain
higher prices.\28\ In each case the Commission alleged that as part of
a settlement agreement, the branded firm made payments to the generic
firm in exchange for delayed entry. The Commission further alleged in
each case that the agreements in question also delayed or were intended
to delay entry of generic manufacturers other than those to which
payments were made.
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\28\ It is important to note that the first two cases discussed
below, Abbott-Geneva and Hoechst-Andrx, were resolved by settlement,
while the third, Schering-Upsher-ESI Lederle, is pending administrative
trial. Thus, although the Commission found reason to believe that there
was a violation of the antitrust laws in each case, there has been no
admission or final determination of unlawfulness in any of these
matters.
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A. AbbottlGeneva
In May 2000, the Commission issued a complaint and consent order
against Abbott Laboratories and Geneva Pharmaceuticals, Inc.\29\ The
complaint charged that Abbott paid Geneva approximately $4.5 million
per month to keep Geneva's generic version of Abbott's proprietary drug
(Hytrin) off the U.S. market, potentially costing consumers hundreds of
millions of dollars a year. Hytrin is used to treat hypertension and
benign prostatic hyperplasia (BPH or enlarged prostate)--chronic
conditions that affect millions of Americans each year. BPH alone
afflicts at least 50% of men over 60. In 1998, Abbott's sales of Hytrin
amounted to $542 million (over 8 million prescriptions) in the United
States. Abbott projected that Geneva's entry with a generic version of
Hytrin would eliminate over $185 million in Hytrin sales in just six
months.\30\
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\29\ Abbott Laboratories, C-3945 (May 26, 2000) (Analysis to Aid
Public Comment), .
\30\ Id (complaint).
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According to the complaint, Geneva agreed not to enter the market
with any generic version of Hytrin, even if it were non-infringing,
until the earlier of (1) the final resolution of the patent
infringement litigation involving Geneva's generic version of Hytrin
tablets, including review through the U. S. Supreme Court; or (2) entry
of another generic Hytrin product. Geneva also agreed not to transfer,
assign, or relinquish its 180-day exclusivity right. These provisions
ensured that no other company's generic version of Hytrin could obtain
FDA approval and enter the market during the term of the agreement,
because Geneva's agreement not to launch its product meant the 180-day
exclusivity period would not begin to run.\31\
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\31\ Abbott Laboratories, C-3945 (May 26, 2000) (complaint).
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Under the terms of the Commission's consent order, Abbott and
Geneva are barred from entering into agreements pursuant to which a
first-filing generic company agrees with a manufacturer of a branded
drug that the generic company will not (1) give up or transfer its
exclusivity or (2) bring a non-infringing drug to market. In addition,
agreements to which Abbott or Geneva is a party that involve payments
to a generic company to stay off the market must be approved by the
court when undertaken during the pendency of patent litigation (with
prior notice to the Commission), and the companies are required to give
the Commission 30 days' notice before entering into such agreements in
other settings. In addition, Geneva was required to waive its right to
a 180-day exclusivity period for its generic version of Hytrin tablets,
so other generic tablets could immediately enter the market.
B. Hoechst Marion Roussel'Andrx
In a second matter, the Commission charged that Hoechst Marion
Roussel (now Aventis), the maker of Cardizem CD, a widely prescribed
drug for treatment of hypertension and angina, paid Andrx Corporation
over $80 million to refrain, during the pendency of patent litigation,
from bringing to market any competing generic drug, without regard to
whether it was allegedly infringing.\32\ Hoechst's Cardizem sales in
1998 exceeded $700 million, and over 12 million prescriptions were
sold. Hoechst forecasted internally that a generic version of Cardizem
CD, sold at 70% of the brand price, would capture approximately 40% of
Cardizem CD sales within the first year.
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\32\ Hoechst Marion Roussel, Inc., Docket 9293 (March 16, 2000)
(complaint), .
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The complaint further alleged that Andrx's agreement not to market
its product was intended to delay the entry of other generic drug
competitors, thereby denying consumers access to lower priced generic
drugs.\33\ As in Abbott, the ability to preclude other generic
competitors flows from the exclusive 180-day marketing right granted to
the first generic to file an ANDA.\34\ This case was settled before
trial, and the Commission issued final consent orders on May 11, 2001.
The orders entered against Hoechst and Andrx contain relief similar to
that in the Abbott and Geneva orders.
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\33\ 33 Id
\34\ In each of the cases brought by the Commission--Abbott,
Hoechst, and Schering--it is not the general principle of the 180-day
exclusivity that is at issue; rather, the complaints alleged that the
parties entered into agreements that delayed or prevented the
triggering of the first ANDA filer's exclusivity period, thereby also
blocking other generic firms from entering.
The Commission's cases challenging settlement agreements also do
not mean that parties to patent litigation cannot settle their
disputes. Indeed settlement of litigation can serve important public
purposes. But the antitrust laws have long condemned settlements that
unreasonably limit competition. See, e.g., United States v. Singer Mfg.
Co., 374 U. S. 174 (1963).
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C. Schering-Plough/Upsher-Smith/ESI Lederle
In its most recent case, the Commission issued an administrative
complaint on March 30, 2001, against Schering-Plough Corporation and
two generic pharmaceutical manufacturers Upsher-Smith Laboratories, the
first ANDA filer, and ESI Lederle, Inc. (a division of American Home
Products Corp.). The complaint charges the three companies with
entering into agreements aimed at delaying the entry of generic
versions of Schering's product--KDur 20, a widely prescribed potassium
chloride supplement used to treat patients with insufficient levels of
potassium, a condition that can lead to serious cardiac problems.\35\
Schering's K-Dur products (in two different strengths) had 1998 sales
of over $220 million. In 1997, Schering allegedly projected that the
first year of low priced generic competition would reduce branded K-Dur
20's sales by over $30 million.\36\
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\35\ In the Matter of Schering-Plough Corporation, et al., Docket
No. 9297 (Mar. 30, 2001).
\36\ K-Dur 20 is the 20 mg version of the product and is the
product version at issue in this matter. Schering also makes a 10 mg
version.
---------------------------------------------------------------------------
The Commission alleged in its complaint that Schering and Upsher-
Smith settled a patent infringement lawsuit by agreeing that Schering
would pay Upsher-Smith not to enter the market. Upsher-Smith allegedly
agreed not to sell either the product for which it had filed an ANDA,
or any other generic version of Schering's K-Dur 20 (regardless of
whether Schering had any basis to claim infringement), until September
2001.\37\ In exchange, Schering paid Upsher-Smith $60 million. Upsher-
Smith also licensed five of its products to Schering but, according to
the complaint, the $60 million had little relation to the value of
those products. It is alleged that Schering's agreement with Upsher-
Smith created a bottleneck by preventing other potential generic
competitors from entering the market because of the 180-day exclusivity
granted to Upsher-Smith as the first generic company to file an ANDA.
---------------------------------------------------------------------------
\37\ Upshur-Smith received final FDA approval in November 1998 to
market a generic version of K-Dur 20.
---------------------------------------------------------------------------
The Commission complaint alleges that Schering entered into a
second agreement with ESI Lederle to delay further the marketing of a
generic version of K-Dur-20. Schering and ESI Lederle allegedly settled
a patent infringement case with an agreement by which ESI Lederle, in
exchange for payments from Schering, promised not to market any generic
version of K-Dur 20 until January 2004, and thereafter to market only
one generic version until September 2006 (when Schering's patent
expires). In addition, ESI Lederle allegedly agreed that it would not
help any other firm with studies in preparation for an ANDA for a
generic version of K-Dur 20 until September 2006. The Commission
complaint alleges that Schering agreed to pay $30 million in exchange
for these agreements and for licenses to two ESI Lederle products that
the complaint alleges were not as valuable as the $15 million
designated for them.
The Commission complaint alleges that the Schering/Upsher and the
Schering/ESI Lederle agreements are unreasonable restraints of trade
and that the companies conspired to monopolize the market for potassium
chloride supplements, in violation of Section 5 of the FTC Act. In
addition, the complaint charges Schering with unlawful acts of
monopolization. The case is now in a pretrial stage before an
Administrative Law Judge.
III. OTHER COMMISSION ACTIONS
A. FTC v. Mylan
Although competition between manufacturers of branded and generic
drugs is critical and a continuing focus of Commission resources, the
Commission also is concerned about maintaining competition among
generic firms. In FTC v. Mylan Laboratories, Inc., the Commission,
along with several states, sued Mylan Laboratories, one of the nation's
largest generic pharmaceutical manufacturers, charging Mylan and other
companies with monopolization, attempted monopolization, and conspiracy
in connection with agreements to eliminate much of Mylan's competition
by tying up supplies of the key active ingredients for two widely-
prescribed drugs--lorazepam and clorazepate--used by millions of
patients to treat anxiety.\38\
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\38\ CV-98-3115 (D.D.C., filed Dec. 22, 1998; amended complaint
filed Feb. 8, 1999). Over 20 million prescriptions are written for
these drugs each year.
---------------------------------------------------------------------------
The FTC's complaint charged that Mylan's agreements allowed it to
impose enormous price increases--over 25 times the initial price level
for one drug, and more than 30 times for the other. For example, in
January 1998, Mylan raised the wholesale price of clorazepate from
$11.36 to approximately $377.00 per bottle of 500 tablets, and in March
1998, the wholesale price of lorazepam went from $7.30 for a bottle of
500 tablets to approximately $190.00. The price increases resulting
from Mylan's agreements allegedly cost American consumers more than
$120 million in excess charges.
The Commission filed this case in federal court under Section 13(b)
of the FTC Act seeking injunctive and other equitable relief, including
disgorgement of ill-gotten profits. In July 1999, the U. S. District
Court for the District of Columbia upheld the FTC's authority to seek
disgorgement and restitution for antitrust violations. In settlement of
the Commission's case Mylan agreed to pay $100 million for disbursement
to qualified purchasers of lorazepam and clorazepate.\39\ On April 27,
2001, the federal court granted preliminary approval to a distribution
plan for these funds.\40\
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\39\ The Commission approved the settlement on November 29, 2000.
FTC v. Mylan Laboratories, Inc., FTC File No. X990015 (Nov. 29, 2000).
The Commission vote to accept the proposed agreement was 4-1, with
Commissioner Thomas Leary dissenting in part and concurring in part.
\40\ FTC v. Mylan, et al., CV 1:98CV03114(TFH), Order Preliminarily
Approving Proposed Settlements (Apr. 27, 2001).
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B. FTC Pharmaceutical Industry Study
In light of the serious questions raised by its various generic
drug investigations, in October 2000 the Commission proposed a focused
industry-wide study of generic drug competition. This study is designed
to examine more closely the business relationships between brand-name
and generic drug manufacturers in order to better understand the extent
to which the process of bringing new low-cost generic alternatives to
the marketplace--and into the hands of consumers--is being impeded in
ways that are anticompetitive. The study will provide a more complete
picture of how generic drug competition has developed under the Hatch-
Waxman Act, including whether agreements between brand-name
pharmaceutical manufacturers and generic drug firms of the type
challenged by the FTC are isolated instances or are more typical of
industry practices. In addition, the Commission will examine whether
particular provisions of the Hatch-Waxman Act have operated as
intended--to balance the legitimate interests of pharmaceutical
companies in protecting their intellectual property and the legitimate
interests of generic companies in providing competition--or whether
some provisions unintentionally have enabled anticompetitive strategies
that delay or deter the entry of generic drugs into the market.
In April, the Commission received clearance from the Office of
Management and Budget to conduct the study.\41\ The Commission has
since issued 75 special orders to brand-name pharmaceutical
manufacturers and generic drug companies to provide the Commission with
information about certain practices that were outlined in the Federal
Register notices that preceded OMB clearance to pursue the study.\42\
The Commission staff focused each special order on specific name-brand
drug products that were the subject of paragraph IV certifications
filed by potential generic competitors, and, for generic companies, on
specific drug products for which they had filed an ANDA containing a
paragraph IV certification. Responses from the companies are expected
by June 25, 2001.
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\41\ The Commission obtained OMB clearance because the number of
Special Orders being sent triggered the requirements of the Paperwork
Reduction Act of 1995, 44 U.S. C. Ch. 35, as amended.
\42\ See 65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512
(Feb. 27, 2001).
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The Commission plans to compile the information received to provide
a factual description of how the 180-day marketing exclusivity and 30-
month stay provisions of the Hatch-Waxman Act have influenced the
development of generic drug competition. For example, the Commission
staff anticipates analyzing how often the 180-day marketing exclusivity
provision has been used, how it has been triggered (by commercial
marketing or court orders), the frequency with which innovator
companies initiate patent litigation, and the frequency with which
patent litigation has been settled or litigated to a final court
decision. The Commission will use the agreements provided, along with
underlying documents related to the reasons for executing the
agreement, to examine whether it appears that agreements between
innovator and generic companies (or between generic companies) may have
operated to delay generic drug competition.\43\
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\43\ Commission staff commented to the FDA on the 180-exclusivity
issue in connection with a proposed rulemaking. See Comment of the
Federal Trade Commission Staff, In the Matter of 180 Day Generic Drug
Exclusivity for Abbreviated New Drug Applications, Docket No. 85N-0214
(Nov. 4, 1999), .
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In addition, the study will provide evidence about innovator
companies' patent listings in the Orange Book, the timeliness of the
listings, and how frequently challenges are made to those listings by
generic companies. Some have raised concerns that manufacturers of
pioneer drugs are listing additional patents shortly before the
expiration of previously listed patents, thereby starting procedures
through which branded manufacturers can sue ANDA applicants who have
filed a paragraph IV certification and can thus invoke the automatic
30-month stay for generic approval under the Hatch-Waxman Act.\44\
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\44\ See, e.g., Mylan v. Bristol-Myers Squibb, Civ. Action OOCV2876
(D.D.C. Mar. 13, 2001) (case alleging last-minute Orange Book listing
by Bristol-Myers Squibb (``BMS'') of another patent in connection with
BuSpar, a leading anti-anxiety drug produced by BMS, just as BMS's
patent exclusivity for BuSpar was about to expire; the propriety of
that listing and the issue of whether the potential generic competitor
can challenge the listing are currently the subject of this
litigation).
---------------------------------------------------------------------------
The study also will provide information about innovator companies'
use of Citizen Petitions in connection with generic versions of their
brand-name drug products. In March 2000, FTC staff provided some
preliminary input to FDA in connection with its proposed rule
concerning Citizen Petitions. The proposed rules are aimed at improving
the efficiency of FDA's Citizen Petition process and narrowing the
types of actions that can be requested of FDA through the Citizen
Petition process.\45\ Concerns have been raised about the potential for
abuse, for example, by companies filing petitions to keep a rival drug
product or medical device off the market for as long as possible. The
FTC is concerned about the potential for abusing the regulatory
process, but recognizes that some of this activity may implicate First
Amendment rights that may present a barrier to antitrust
enforcement.\46\ Thus, the staff supported the FDA's attempt to
maintain the Citizen Petition process for legitimate purposes, while
limiting the ability of firms to use the process solely to hinder
competitors.\47\
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\45\ In the Matter of Citizen Petitions; Actions That Can be
Requested by Petition; Denials, Withdrawals, and Referrals for Other
Administrative Action, Docket No. 99N-2497, 64 Fed. Reg. 66822 (Nov.
30, 1999).
\46\ Eastern Railroad Presidents Conference v. Noerr Motor Freight,
Inc., 365 U. S. 127 (1961); United Mine Workers v. Pennington, 381 U.
S. 657 (1965). The Noerr-Pennington doctrine shields private parties
from antitrust liability when they engage in certain concerted and
genuine efforts to influence governmental action, even though the
conduct is undertaken with an anticompetitive intent and purpose. For a
further discussion of the Noerr-Pennington doctrine, see James D.
Hurwitz, ``Abuse of Governmental Processes, the First Amendment, and
the Boundaries of Noerr,'' 74 Geo. L.J. 601 (1985). There are some
exceptions to the application of the Noerr-Pennington doctrine. The
Supreme Court has made clear that where one uses ``the governmental
process--as opposed to the outcome of that process as an
anticompetitive weapon,'' the protection of the Noerr doctrine may not
apply. Indeed if litigation or regulatory intervention is ``objectively
baseless in the sense that no reasonable litigant could realistically
expect success on the merits,'' a party's behavior may not be immune
from antitrust challenge. As an example, the Supreme Court identified
as unprotected conduct ``the filing of frivolous objections to the
license application of a competitor,'' with no real expectation of
achieving denial of the license, ``in order to impose expense and
delay.'' See Professional Real Estate Investors, Inc. v. Columbia
Pictures Indus. Inc., 508 U.S. 49, 61 (1993); Columbia v. Omni Outdoor
Advertising, Inc., 499 U. S. 365, 380 (1991) (quoting California Motor
Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972)).
\47\ See Comment of the Federal Trade Commission Staff, In the
Matter of Citizen Petitions; Actions That Can be Requested by Petition;
Denials, Withdrawals, and Referrals for Other Administrative Action,
Docket No. 99N-2497 (Mar. 2, 2000), .
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Finally, the study will examine whether the size of a drug
product's sales influences the use of strategies to delay generic
competition. The Commission expects to complete the study by the end of
2001.
IV. CONCLUSION
The Commission appreciates the opportunity to share with the
Committee its observations about the pharmaceutical industry. The
Commission looks forward to working with the Committee to address
problems that may arise in this important sector of the U.S. economy.
Thank you.
Chairman Hatch. Mr. Griffin, we will go to you.
STATEMENT OF JAMES M. GRIFFIN, DEPUTY ASSISTANT ATTORNEY
GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON,
D.C.
Mr. Griffin. Thank you, Mr. Chairman. It is a pleasure to
be here and I appreciate the opportunity to speak to you and
the Committee today.
As a starting point, I thought it would be helpful if
perhaps I simply describe in general terms the division of
labor between the Antitrust Division and the Federal Trade
Commission in the enforcement of the antitrust laws.
The Department of Justice and FTC, of course, share Federal
responsibility for antitrust enforcement, but that shared
enforcement is limited to civil enforcement, including merger
cases. Section 1 of the Sherman Act prohibits contracts,
combinations, and conspiracies in restraint of trade. Criminal
prosecution under that section is vested exclusively in the
Department of Justice and those criminal prosecutions under
that section are generally confined to that class of agreements
that have been found to be unambiguously harmful to consumers
and are considered per se unlawful. Examples of those kinds of
agreements are agreements among competitors to fix prices, rig
bids, allocate markets, and such agreements are generally
secret. Businesses and consumers are defrauded and misled
because the conspirators continue to hold themselves out as
competitors.
The Division places a very high priority on criminal
enforcement of the antitrust laws, and in recent years, we have
aggressively pursued price fixing, bid rigging, market
allocation, and customer allocation conspiracies in both
international and in domestic markets.
Let me just summarize briefly some of the things that we
have done on the international side. The division has
prosecuted international cartels operating in a broad spectrum
of commerce, including products found in household goods, such
as vitamins and food preservatives; also in products used in
manufacturing, such as graphite electrodes, which are used in
the manufacture of steel; products used in the agricultural
sector, such as animal and livestock feed additives; as well as
a variety of services ranging from auctioning fine art to
marine transportation and construction. We estimate that these
international cartels, those that we have prosecuted over the
last few years, have affected over $10 billion in U.S.
commerce, and perhaps more disturbingly, this cartel activity
in these cases has cheated U.S. businesses and consumers of
many hundreds of millions of dollars annually.
On the domestic side of our docket, the Division recently
has prosecuted bid rigging cases, cartels affecting hundreds of
millions of dollars in contracts to supply food to such
institutions as schools, hospitals, and other public
institutions, rigging of contracts to provide relief
construction projects in disaster areas, real estate
foreclosure auctions, and contracts for the construction of
water treatment plants, as well as price fixing conspiracies
involving metal, building insulation, and numerous anti-
competitive schemes in the graphics display markets.
Now, not all Section 1 violations, of course, rise to the
level of criminal conduct, but may be subject to civil
antitrust enforcement. Because we share Federal antitrust
enforcement responsibility with the FTC, we have developed a
clearance protocol with the Commission to determine which
agency will investigate a particular matter or a particular
civil matter. That determination is based primarily on which
agency has the greater expertise in the area, in the product
market as a result of recent antitrust investigations.
The clearance protocol enables the two agencies to most
effectively use our resources as well as to avoid duplicative
investigatory requests on private parties. Under this clearance
protocol, the FTC has handled the recent civil investigations
involving patent disputes and the delay of generic competition
in the pharmaceutical industry, and as Ms. Boast just
mentioned, the FTC is currently undertaking a broad
investigation into this activity and we are all looking forward
to the results of that study.
However, because the Division has sole responsibility for
criminal antitrust enforcement, if the FTC were to uncover
evidence of potential criminal violations relating to the
pharmaceutical industry, under our clearance procedure, the FTC
would refer that matter to us for prosecution. Likewise, if at
the very outset of an investigation it appeared that the
violation likely would turn out to be criminal, the Division
would investigate the matter regardless of which agency had the
greater expertise.
In fact, in this very market, the pharmaceutical market,
the Division recently prosecuted the largest criminal antitrust
conspiracy ever uncovered, the international vitamin cartel. To
date, we have prosecuted 11 companies, 13 individuals for
cartel activity in ten separate vitamin markets. The companies
prosecuted were headquartered in Switzerland, Germany, Canada,
Japan, and the United States, and to date, we have obtained
almost $1 billion in fines in this investigation, including the
largest fine ever imposed in a Federal criminal prosecution in
the United States, the $500 million fine against the Swiss
company Hoffman-LaRoche. In addition, we have obtained the
first jail sentences ever imposed against European business
executives for violating U.S. antitrust laws, and that
investigation, Mr. Chairman, is continuing.
I hope this information will be helpful to the Committee
and I look forward to answering any questions you may have.
Chairman Hatch. Thank you so much, Mr. Griffin.
[The prepared statement of Mr. Griffin follows:]
Statement of James M. Griffin, Deputy Assistant Attorney General,
Antitrust Division, Department of Justice
Good afternoon, Mr. Chairman and members of the Committee. I
appreciate being invited here to testify.
The issues raised by today's hearing on the antitrust implications
of patent settlements in the pharmaceutical marketplace are currently
the subject of investigations being conducted by the Federal Trade
Commission (``FTC''). As a starting point I thought it would be helpful
to the Committee if I were to describe in general the division of labor
between the Antitrust Division and the FTC in the enforcement of the
antitrust laws.
The Department of Justice and the FTC share federal responsibility
for antitrust enforcement, but that shared responsibility is limited to
civil antitrust enforcement, including merger enforcement. The
Department of Justice has exclusive responsibility for criminal
antitrust enforcement.
Because criminal investigations are highly sensitive, I cannot
comment on any specific investigation. However, I can describe
generally what distinguishes conduct subject to criminal prosecution
from conduct subject to a civil enforcement action.
Section 1 of the Sherman Act prohibits contracts, combinations, and
conspiracies in restraint of trade. Criminal prosecution is generally
confined to a class of agreements that have been found to be
unambiguously harmful and are considered per se unlawful. Examples of
such conduct include naked agreements among competitors to fix prices,
rig bids, or allocate customers, territories, or sales. Such agreements
are generally secret, and businesses and consumers are defrauded and
misled because the conspirators continue to hold themselves out as
competitors.
I should note, however, that there are some situations in which
criminal investigation or prosecution may not be considered
appropriate, even though the conduct may appear to be a per se
violation of law. Such situations may include cases in which (1) there
is confusion in the law; (2) there are truly novel issues of law or
fact presented; (3) confusion reasonably may have been caused by past
prosecutorial decisions; or (4) there is clear evidence that the
subjects of the investigation were not aware of, or did not appreciate,
the consequences of their action. In these instances, as well as in
other cases where the conduct does not rise to the level of a criminal
violation of Section 1, the conduct may be subject to civil antitrust
enforcement.
Individuals criminally convicted of violating the Sherman Act are
subject to fines up to $350,000 and prison sentences up to three years,
and corporations are subject to fines up to $10 million. Under the
alternative sentencing provision found in 18 U.S.C. Sec. 3571, a
convicted defendant is subject to higher fines equaling twice the gain
resulting from the violation, or twice the loss caused to the victims,
whichever is higher.
The Antitrust Division places a high priority on criminal antitrust
enforcement. In recent years, the Division has aggressively pursued
price-fixing, bid-rigging, and market- and customer-allocation
conspiracies in both international and domestic markets.
On the international side, the Division has prosecuted
international cartels operating in a broad spectrum of commerce,
including: products found in household goods, such as vitamins and food
preservatives; products used in the manufacturing sector, such as
graphite electrodes used in steel making; products used in the
agricultural sector, such as animal and livestock feed additives; and a
variety of services, ranging from auctioning fine art to marine
transportation and construction. The Division estimates that the
international cartels it has prosecuted over the last few years
affected well over $10 billion in U.S. commerce. More importantly, the
cartel activity in these cases cheated U.S. businesses and consumers of
many hundreds of millions of dollars annually.
On the domestic side, the Division recently has prosecuted bid-
rigging cartels affecting hundreds of millions of dollars in contracts
to supply food to schools, hospitals, and other public institutions;
typhoon relief projects; real estate foreclosure auctions; and
contracts for the construction of water treatment plants, as well as
price-fixing conspiracies involving metal building insulation and
numerous anticompetitive schemes in the graphics display industry.
Because we share federal antitrust enforcement responsibility for
civil violations with the FTC, we have a clearance protocol with the
FTC to determine which agency will investigate a particular civil
matter. That determination is based primarily on which agency has the
greater expertise in the product market as a result of recent antitrust
investigations conducted by that agency. The clearance protocol enables
the two agencies to make the most effective use of enforcement
resources, as well as to avoid duplicative investigatory requests on
private parties. Under this clearance protocol, the FTC has handled
recent civil investigations involving patent disputes and the delay of
generic competition in the pharmaceutical industry.
However, because the Division has sole responsibility for criminal
antitrust enforcement, if the FTC were to uncover evidence of a
potential criminal violation relating to the pharmaceutical industry,
under our clearance protocol the FTC would be required to refer that
evidence to us for criminal investigation. Likewise, if at the outset
of an investigation, the evidence suggested a potential criminal
violation, the Division would investigate the matter, regardless of
which agency had greater expertise in the product market.
In fact, in the pharmaceutical market, the Division recently
prosecuted the largest criminal antitrust conspiracy ever uncovered--
the international vitamin cartel. To date, we have prosecuted eleven
companies, headquartered in the United States, Switzerland, Germany,
Canada, and Japan, and thirteen individuals for cartel activity in ten
vitamin markets. We have obtained nearly $1 billion in fines, including
the $500 million fine imposed against F. HoffmannLa Roche, the largest
fine ever imposed in a U.S. criminal prosecution of any kind. In
addition, we obtained the first jail sentences ever imposed against
European business executives for violating U.S. antitrust laws. The
investigation is continuing.
Mr. Chairman, I hope this information is helpful to the Committee.
I would be happy to answer questions if I can.
Chairman Hatch. General Shurtleff, let us hear from you
now.
STATEMENT OF MARK SHURTLEFF, ATTORNEY GENERAL, STATE OF UTAH,
SALT LAKE CITY, UTAH
Mr. Shurtleff. Thank you very much, Mr. Chairman. It is
truly an honor and a privilege to be here to testify today
regarding competition in the pharmaceutical marketplace, and
more specifically on the antitrust implications of settlements
in patent litigation between brand name and generic drug
manufacturers.
As you know, on May 14, 15 State Attorneys General filed a
Federal antitrust lawsuit alleging that drug companies
conspired to keep cheaper generic alternative to the high blood
pressure drug Cardizem CD off the market. That case was filed
in Federal district court in Michigan. Now, as the chief legal
officers of our States, attorneys general have a sworn mandate
to enforce the laws passed both by Congress and those of our
respective State legislatures. The decision to pursue legal
action against alleged unlawful conduct is made more difficult
when different laws intended to protect and benefit the public
apparently conflict.
There are those who believe that litigation is the
desirable method of resolving those conflicts, and, in effect,
using the courts to legislate. I do not share that belief. To
the contrary, it is the most expensive and the least effective
method of resolving apparent conflicts in the law and closing
loopholes. But until the law is changed by the legislative
branch and we, as representatives of the executive branch, have
substantial evidence that existing laws have been violated to
the injury of our States and our citizens, we must move to hold
the offenders accountable.
Today, I am wearing a pin that the Attorney General of
Delaware gave me. It represents the scales of justice. You know
that signifies balance and equity and fairness in both creating
and administering the laws of the land. Today, I am here to
address, and I apologize that some of it is repetitive, the
balance between the two canons of law, which are intended in
different ways to benefit and protect consumers, and I speak of
patent laws on the one side of the scale and antitrust laws on
the other side.
The purpose, of course, of the former, the patent law, is
to benefit the consumer by encouraging innovators and risk
takers to invest, to invent, develop, and create products that
better our lives by granting these industrial, commercial, and
medical pioneers temporary monopolies. The latter, the
antitrust law, was passed on the other side to protect the
consumer from those who unfairly act in restraint of trade or
to monopolize the marketplace to their financial benefit at the
expense of the consuming public.
I read the 1984 Hatch-Waxman amendments to the Federal Food
and Drug and Cosmetic Act as an example of this balancing task
between these two very important laws. On the one side of the
scale, on the patent, Hatch-Waxman encourages innovation by
confirming or extending that patent right, exclusive right to
market protection to those pioneering name brand and generic
drug companies. Millions of Americans have been blessed in the
last 17 years by the tremendous advances in pharmaceuticals
available to us. Lives have been saved. Lives have been
enriched. So these innovators and pioneers, which also have
been enriched substantially. The past decade has seen a huge
increase, also, as you are very aware, in the cost of
prescription drugs, which has a major impact primarily on our
senior citizens, who most often need and are most benefited by
those advances, but who again most often are on fixed incomes
and can least afford these important medicines.
On the antitrust or consumer protection side of the scales
of justice, Hatch-Waxman was intended to and has succeeded in
getting more low-cost generic or bioequivalent drugs to
consumers faster. Pioneer innovators have been protected and
encouraged to develop and market better medicines by the 30-day
prohibition on generics going to market after a patent
infringement suit is filed. Cost saving generic innovators are
protected and encouraged to get cheaper bioequivalence to the
public by the 180-day exclusive marketing grant should a court
rule against the brand name company in the patent infringement
action.
So, in theory and for the most part in practice, Hatch-
Waxman has balanced that scale. Consumers and producers are in
harmony, and again, millions are the better for it.
However, as sometimes occurs with the best laid plans,
something happens to upset that balance and tip the scales.
Throughout history, unscrupulous businessmen or shopkeepers
have at times been found to have put a thumb on one side of the
scale or to otherwise manipulate the weights and measures with
the intent to cheat their customers and make a few extra bucks.
When accused, those shopkeepers often would--their first
defense was to say, well, I did not have my thumb on there. The
problem is in the scale. The scale must be malfunctioning. This
is not a problem of their making, so they say, why should we be
punished for taking advantage of that problem, that loophole,
perhaps, without notifying the buyer? We are not talking about
a few bucks here. We are talking about millions and millions of
dollars today in this pharmaceutical industry.
Hatch-Waxman is silent on the question of what happens in a
patent infringement action if it is resolved by settlement as
opposed to going to the judge. Some have called this a loophole
in the law. They have rushed to take advantage of it, thereby
tipping the scale against the consuming public.
FTC Chairman Robert Pitofsky has reportedly called this
burgeoning ``sue, then settle'' practice ``private treaties
that rob consumers.'' The president of one drug company
admitted in a press release that, ``There are clear abuses that
are occurring in the industry that are actually delaying
generic products from reaching consumers.'' He also said that
settlement agreements do not per se so delay and may, in fact,
``get lower price product to them faster.'' However, if brand
name and generic companies are, again in the words of Chairman
Pitofsky, ``gaming the rules to their financial benefit by
delaying the availability of cheaper alternatives to the
consuming public, then it is my responsibility to protect the
public, right the scales, and hold the cheaters liable.''
As stated before, some would argue that ``sue, then
settle'' arrangements are unlawful per se. I do not believe so.
I think the jury is out on that.
At this point in time, with the evidence currently
available on a number of these deals, it appears as if some
companies have acted unreasonably in the restraint of trade
under a rule of reason approach. Unless and until Congress acts
to close the loophole, State attorneys general will be required
to continue to scrutinize and bring enforcement actions.
As I stated at the beginning, I would prefer that you, the
Congress, act to balance the scale. I appreciate you have asked
me here today as an executor of the law. I disagree with some
of those who would suggest that the answer is tipping the scale
over altogether and doing away with the protections that have
been in place for so many years. I think a more reasoned
approach is that the Department of Justice or if the FTC have
noticed an approval of settlement agreements, and again, I
thank you for the opportunity to address you, Senator Hatch,
and your committee. I look forward to answering any questions
you might have.
Chairman Hatch. Thank you, General. We appreciate it.
[The prepared statement of Mr. Shurtleff follows:]
Statement of Mark L. Shurtleff, Utah Attorney General
Mr. Chairman, Members of the Committee:
It is an honor and a privilege to testify to you today regarding
competition in the pharmaceutical marketplace; and more specifically on
the antitrust implications of settlements in patent litigation between
brand name and generic drug manufacturers. As you know, on May 14th,
fifteen state attorneys general filed a federal antitrust lawsuit
alleging that drug companies conspired to keep a cheaper generic
alternative to the blood-pressure drug Cardizem CD off the market.
As the chief legal officers of our states, attorneys general have a
sworn mandate to enforce the laws passed by Congress and those of our
respective state legislatures. The decision to pursue legal action
against alleged unlawful conduct is made more difficult when different
laws, intended to protect and benefit the public, apparently conflict.
There are those who believe that litigation is the desirable method of
resolving those conflicts and, in effect, using the courts to
legislate. I do not share that belief. To the contrary, it is the most
expensive and least effective method of resolving apparent conflicts in
the law and closing loopholes. But until the law is changed by the
legislative branch, and we, as representatives of the executive branch
have substantial evidence that existing laws have been violated to the
injury of our states, and individual citizens thereof, we must move to
hold the offenders accountable. Today I am wearing a lapel pin
representing the ``scales of justice,'' which as you know signifies
balance, equity and fairness in both creating and administering the
laws of the land. I am here today to address the balance between two
cannons of law which are intended in different ways to benefit and
protect consumers. I speak of Patent Law and Antitrust Law. The purpose
of the former is to benefit the consumer by encouraging innovators and
risk-takers to invent, develop and create products that better our
lives, by granting these industrial, commercial and medical pioneers
temporary monopolies. The latter was passed to protect the consumer
from those who unfairly act in restraint of trade or to monopolize the
marketplace to their financial benefit at the expense of the consuming
public.
I read the 1984 Hatch-Waxman amendments to the Federal Food, Drug
and Cosmetic Act as a classic example of the aforementioned balancing
task. On one side of the scales, Hatch-Waxman encourages innovation by
confirming or extending the patent law's ``exclusive right to market
protection'' to pioneering name brand and generic drug companies.
Millions of Americans have been blessed in the last 17 years by the
tremendous advances in pharmaceuticals available to us. Lives have been
saved. Lives have been enriched. The innovators and pioneers have also
been enriched. The past decade has seen a huge increase in the cost of
prescription drugs which has had a major impact primarily on our senior
citizens who most often need and are benefitted by the advances, but
who again most often are on fixed incomes and can least afford these
medicines.
On the antitrust or consumer protection side of the scales of
justice, Hatch-Waxman was intended to, and has succeeded in, getting
more low-cost generic or bioequivelent drugs to consumers faster.
Pioneer innovators have been protected and encouraged to develop and
market better medicines by the thirty month FDA prohibition on generics
going to market after a patent infringement suit is filed. Cost-saving
generic innovators are protected and encouraged to get cheaper
bioequivelents to the public by the 180 day exclusive marketing grant
should a court rule against the brand name company in the patent
infringement action.
In theory, and in most part in practice, Hatch-Waxman balanced the
scale. Consumer and producer are in harmony and, again, millions are
better for it. However, as sometimes occurs with the ``best laid
plans,'' something happens to upset the balance and tip the scales.
Unscrupulous businessmen or ``shopkeepers'' have, throughout time,
been found to have rested a thumb on one side of the scale, or
otherwise to have manipulated the weights and measures with the intent
to cheat their customers and make a few extra bucks. When accused,
often their first defense was to claim there must be a malfunction in
the scale itself. A problem not of their making, so why should they be
punished for taking advantage of it without notifying the buyer?
Hatch-Waxman is silent on the question of what happens when a
patent infringement action is resolved by settlement rather than
judicial ruling. Some have called this a ``loophole'' in the law and
have rushed to take advantage of it, thereby tipping the scale against
the consuming public. FTC Chairman Robert Pitofsky has called this
burgeoning sue-then-settle practice: ``private treaties that rob
consumers.'' The president of one drug company admitted that ``there
are clear abuses that are occuring in the industry that are actually
delaying generic products from reaching consumers.'' He also said that
settlement agreements do not per se so delay, and may in fact ``get
lower priced product to them faster.'' However, if brand name and
generic companies are, again in the words of Chairman Pitofsky,
``gaming the rules,'' to their financial benefit by delaying the
availability of cheaper alternatives to the consuming public, then it
is my responsibility to protect the public, right the scales and hold
the cheaters liable.
As stated, some would argue that sue-then-settle arrangements are
unlawful per se. I believe the jury is, literally, still out on that
argument. At this point in time, with evidence currently available on a
number of these deals, it appears as if some companies have acted
unreasonably in restraint of trade under a Rule of Reason approach.
Unless and until Congress acts to resolve or close this ``loophole,''
state attorneys general will be required to continue to scrutinize and
bring enforcement actions. As I stated at the beginning of my remarks,
I would prefer that you act to balance the scale. I appreciate that you
have asked me here today as part of an analysis of that possibility. As
an ``executor'' of the law, I disagree with those who would suggest the
answer lies in tipping the scale over completely. That will benefit no
one. I think a much more reasoned approach of requiring notice and/or
DOJ or FTC approval of settlement agreements, along the lines proposed
in S. 754, is worthy of close consideration.
Thank you again for the opportunity to address you on this issue of
extreme importance to the states and our good citizens. I would be
happy to respond to any questions.
Chairman Hatch. Let me just go right to the belly of the
beast of the 1984 law. Section 505(j)(2)(v), paragraph four, on
this chart. As we've heard, applications for equivalent
products who certify that a pioneer patent is invalid or
infringed may, if successful, trigger a 180-day period of
marketing exclusivity. Now, my first question is fact oriented
and will, for a moment, leave aside the important question of
which generic applicant, the first filer or the first to
successfully defend the pioneer's lawsuit, should obtain such a
potentially valuable exclusivity. The question is this, and any
of you can answer if it you would like. Do any of your agencies
have the precise fix on the number of times Paragraph IV
certifications have been made, how many times the pioneer firms
have elected to bring or not to bring suit, and the ultimate
disposition of such suits and applications? I am particularly
interested in the breakdown between the number of times patents
have been held valid or invalid versus the number of times the
contest has centered on non-infringement. If you do not have
this information today, I would like to know in particular if
the FTC would yield such data, and if it cannot, if it will
not, can you help us get these facts so that we know where we
are going and what we are talking about?
Mr. Buehler. I do not have that information right now, Mr.
Chairman. I believe we have provided some similar information
to FTC, though.
Ms. Boast. Mr. Chairman, this is precisely the kind of
information that the Commission's study pursuant to Section
6(b) of the FTC Act is designed to procure. You are exactly on
point with the kinds of information that would be relevant to
figuring out how severe a problem we have here and what are the
points at which the severity is most obvious and, therefore,
where we should direct our energy. We do not have that
information in a systematic form today, to my knowledge, and as
I said, subject to legal constraints that might exist on the
confidentiality of the collection process, I do not see any
reason why a consultation with members who are interested in
this area would not be appropriate, but there may be legal
constraints.
Chairman Hatch. My second question is more policy oriented.
Let us deconstruct Paragraph IV. If we look at the language of
Paragraph IV, we see two very different concepts lumped
together, patent invalidity and non-infringement. The former
suggests a frontal assault on the patent while the latter
suggests a careful navigation around protected intellectual
property. The 1984 law wishes to encourage generic drug
manufacturers to challenge weak patent claims and to invent
around valid patents so that consumers can reap the benefits of
generic competition as quickly as possible. But should these
very different routes be treated to the identical 180-day
marketing exclusivity benefit?
That is a question I have. I am very concerned about that.
Presumably, there may be cases where a non-infringer has some
sort of trade secret or even patent technology not available to
subsequent applicants so that the exclusivity can operationally
extend beyond the 180 days. Conversely, if a second or third
ANDA applicant comes up with a different non-infringing
technology from the first applicant, why should these
applicants and consumers be denied the benefits of more
competition in the marketplace for the balance of the 180 days?
Let me just say further, this invalidity, non-infringement
distinction seems to be a proper topic for debate. One of the
most brilliant lawyers I have ever come across is Al Engelberg,
who played a key role in the compromises of 1984 and who has
made out very well challenging patents. Here is what Al said on
this issue, and I quote, ``In cases involving an assertion of
non-infringement, an adjudication in favor of one challenger is
of no immediate benefit to any other challenger and does not
lead to multi-source competition. Each case involving non-
infringement is decided on the specific facts related to that
challenger's product and provides no direct benefit to any
other challenger. In contrast, a judgment of patent invalidity
or enforceability creates an estoppel against any subsequent
attempt to force the patent against any party. The drafters of
the 180-day exclusivity provision failed to consider this
important distinction,'' very critical of me but very accurate.
So here is your----
Senator Leahy. How dare he be critical.
Chairman Hatch. I have wondered that myself, so here is
your chance to take a shot at one of the drafters of the law, I
think. I want to ask the witnesses from DOJ and FTC or from the
FDA, if you want to join in, to comment upon the effects of
equating invalidity and non-infringement in Paragraph IV. Now,
this is a tough question. I realize you are in no position to
render a final administration view today, but I ask you to help
me reanalyze the impact of this law. So please help us think
through the question of whether consumers might be better off
and the marketplace more competitive if non-infringement was
treated differently than claims of invalidity.
I turn it over to you. That was a long question, but it is
pretty hard to put out there without giving you that much
information. Do you want to start, Mr. Buehler?
Mr. Buehler. Mr. Chairman, you are correct. There is
presently no distinction between the two, and obviously that is
the way we regulate the statute, is there is no distinction
between the two. Whether there should be or that should be
changed, I am afraid that the Administration does not have a
position on that particular issue at the present time, as you
stated.
Chairman Hatch. OK.
Ms. Boast. Mr. Chairman, it was not only a long question
but a very good question and a very difficult question. I
certainly cannot speak for the Commission on this. I will say
that I think the Commission in its enforcement actions has not
focused on that distinction. Rather, the concern has been that
once an agreement has been reached to delay entry by the first
filer, that exclusivity provision time is not running and,
therefore, no one else can enter. And, indeed, it is one of the
reasons that I focused in my structural description of what
links these three cases on the provisions of the settlement
agreements that preclude entry with non-infringing products.
That is fairly offensive, I think.
I think you raise a very, very legitimate issue and it is
something that, again, without the Commission having a position
or having studied it directly, we clearly ought to be
considering as we move forward in this area.
Chairman Hatch. Will you make that recommendation and get
that done for us?
Ms. Boast. I certainly will.
Chairman Hatch. I think it is pretty important.
Ms. Boast. I certainly will, Mr. Chairman.
Chairman Hatch. Let me just ask a final question. At last
December's Food and Drug Law Institute conference on Hatch-
Waxman, Liz Dickinson, and I am told by my staff that she is
one of the most able, dedicated, and respected members of the
FDA General Counsel's Office, raised a fundamental question to
us. Let me emphasize that Liz was participating in the FDLI
Educational Conference and made clear she was not speaking in a
way that would bind the agency or the Administration.
As a good attorney and expert policy analyst, she should be
applauded for raising some tough questions that bear further
consideration by all of us in this matter. In fact, I encourage
everyone interested in Hatch-Waxman reform to get a copy of and
study Liz's remarks, along with the complete record of the
December conference. I think it is important.
As Liz said in December, ``I suggest we look at whether
180-day exclusivity is even necessary, and I know that there is
this idea that it is an incentive to take the risk. I say the
facts speak otherwise. If you have a second, third, fourth,
fifth generic in line for the same blockbuster drug filing at
Paragraph IV certification, undertaking the risk of litigation
without the hope of exclusivity, is that exclusivity even
necessary?''
Then she goes on. She said, ``We have got a provision that
is supposed to encourage competition by delaying competition.
It has got a built-in contradiction, and that contradiction, I
think, is bringing down part of this statute.''
So my question for the panel is the one raised by Liz,
among others. Is it necessary or advisable to retain the 180-
day exclusivity period given the enormous financial incentives
to challenge patents on blockbuster drugs?
Ms. Boast. Mr. Chairman, again, speaking only for myself, I
believe that the balance that was struck by Congress in the
original Hatch-Waxman Act contemplated encouraging generic
entry by giving them this 100-day [sic] exclusivity provision.
What the Commission staff has said is in support of an FDA
proposal to create a sort of use or lose regime, in which if
the first filer did not take advantage of exclusivity within a
certain amount of time, other firms would be able to enter, and
that is one way of addressing the concern about exclusivity
being misused by this, to say you have got to take advantage of
it or you cannot have it.
Chairman Hatch. OK. Anybody else?
Mr. Buehler. Mr. Chairman, as Liz stated at the meeting, we
often have the second, third, fourth, fifth challengers to the
same patent, oftentimes when the challengers actually realize
that they are not first and there is no hope for them to get
the 180-day exclusivity. So with that in mind, I would agree
with Liz's statement that generic firms will continue to
challenge patents. Whether the 180-day exclusivity is a
necessary reward for that challenge is unknown, but it does not
appear that it is.
Chairman Hatch. I would like answers to this. Right now, I
personally favor the 180-day provision, but I would like to
have the best expertise I can possibly get on this and you both
have been very helpful here. In fact, all four of you have, but
I seem to have had the two of you on the hot spot for most of
these questions today. Mr. Griffin, I am not trying to ignore
you.
Let me just ask one more question and then I will turn to
our Democratic leader on the committee. Please explain what, in
your view, are the pros and cons of Congress adopting any of
the following 180-day exclusivity regimes. First, a legislative
override of Mova and a statutory reversion back to the old rule
of first to file, first to be sued and win. Second, the type of
ruling exclusivity embraced in the Schumer-McCain legislation.
And third, the 180-day triggering period provision contained in
the 1999 FDA proposed rule whereby if the first filer did not
or could not start the use of the exclusivity within 180 days,
all other filers could march in.
Mr. Buehler. Mr. Chairman, all of these are somewhat
related to pending legislation, and at this point----
Chairman Hatch. I do not want any weasel excuses here. I do
not want you weaseling out----
[Laughter.]
Mr. Buehler. OK. Let me just try to address the first part,
the Mova part. Prior to Mova, prior to the Mova decision, from
1984 through 1997, three generic firms were granted 180-day
exclusivity. Post-Mova, 31 generic firms were granted 180-day
exclusivity. Post-Mova, we have been barraged by lawsuits and
various litigation.
Chairman Hatch. You mean legislation that I write leads to
lawsuits and litigation?
[Laughter.]
Chairman Hatch. Go ahead. I am sorry. The second one was
the type of rolling exclusivity embraced in the Schumer-McCain
legislation.
Mr. Buehler. Well, again, pending legislation, the
Administration does not have a position on that particular
pending legislation.
Chairman Hatch. How about you? What is your opinion?
Mr. Buehler. I am the agency today.
Chairman Hatch. Well, you can speak for yourself here. We
will not hold the agency responsible.
Senator Leahy. They will never notice what you say.
[Laughter.]
Mr. Buehler. I am also Acting Director, Mr. Chairman.
Chairman Hatch. I have to say, a lot of them will not
understand what you say, either.
[Laughter.]
Chairman Hatch. Go ahead. Just give us to the best of your
ability. If it is too uncomfortable, that is OK with me.
Mr. Buehler. Our preamble to our proposed rule for the 180-
day revision notes the number of lawsuits that we have had to
defend and had to become involved in post-Mova in trying to
sort out the, I guess, legislative difficulties right now with
the Hatch-Waxman amendments.
Chairman Hatch. So your concern is that the Schumer-McCain
legislation might even lead to more litigation?
Mr. Buehler. I did not say that.
[Laughter.]
Chairman Hatch. ``Might'' may be too small a word, is that
right?
Mr. Buehler. Can I go to rolling exclusivity?
Chairman Hatch. Yes, go ahead.
Mr. Buehler. Our present system does not provide for
rolling exclusivity. We believe that rolling exclusivity would
actually be an impediment to generic competition in that the
exclusivity would continue to bounce from the first to the
second to the third if, somehow or other, the first was
disqualified. Right now, when the first is disqualified, there
is no exclusivity. Everyone can come on the market and let the
competition begin.
Chairman Hatch. OK. Does anybody else care to comment?
Ms. Boast. Mr. Chairman, I would simply reiterate what I
had said before, and that is that at the staff level, at least,
we have supported the use or lose approach to this. I would
observe that, again, the Commission's study is the vehicle it
proposes to use to try to help sort out some of these issues
and to provide better advice to Congress on this. My other
observation is that there seems to be in these three different
approaches clear recognition that something needs to be done
with exclusivity.
Chairman Hatch. I have other questions I will submit in
writing. I have one in particular for you, General Shurtleff,
but I will submit it in writing. We would like the best
analysis that you can give us.
This has been very, very interesting to me, as you can
imagine, and you have been particularly interesting witnesses.
I want to commend you and compliment, all four of you, for what
you have been able to say. This is a very important subject and
it is very important that we refine this bill to make it even
more effective than it has been, and everybody admits it has
been pretty effective--almost everybody, I should say. I guess
I had better not be universal in any statement.
But to make a long story short, we would like all the help
we could get on it because I would like it to work better. I
would like more competition. I would like more innovation. I
would like to see the two sides balanced and we need your help
in order to know what is best to do in this particular area.
I am going to head back over to the floor, so I am going to
turn this hearing over to our soon-to-be Chairman who has a
complementary bill and who, of course, is very interested in
this issue, as well. If you could finish this hearing, I sure
would appreciate it, and if you will forgive me for running
off. I have about four conflicts right now and I apologize to
you. He says he is going to praise me, so I had better stay for
just a few minutes. This is such a rare occasion.
[Laughter.]
Senator Leahy. Now, now, now.
Chairman Hatch. No, he has been pretty good for a
Vermonter, is all I can say.
[Laughter.]
Chairman Hatch. I am just kidding. I am just kidding. Jim
is a great----
Senator Leahy. We Vermonters are the best thing that ever
happened to the U.S. Senate.
Chairman Hatch. There might be some dispute there, but I am
willing to accept that.
Senator Leahy. This could go on too far and get us both in
trouble. But Mr. Chairman, you and I have always worked well
together on patent, copyright, broadcast, and the other high-
technology issues, and I appreciate that. It is a mark of our
legislative friendship on these issues, but also, I think,
reflects our personal friendship, which goes back a quarter of
a century.
It was not long ago, Mr. Chairman, when you and I and the
Committee hit a high-tech home run. We had passage of three
major bills of enormous importance to consumers. In one fell
swoop, we provided consumers with local-into-local satellite
television, protected important patent rights and terms, and
enhanced electronic commerce and trademark protection.
Chairman Hatch. How does that equal a home run? There are
only three hits there? A couple of them were doubles?
Senator Leahy. The bases were loaded.
Chairman Hatch. OK.
[Laughter.]
Senator Leahy. On the first one. They were all three home
runs.
Chairman Hatch. That is right. OK.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. [Presiding.] In light of the testimony we
are going to hear today, I hope we can work together and
quickly report out a bill which I introduced last Congress and
reintroduced this year, S. 754, the Drug Competition Act. This
bill, which has Senators Kohl, Schumer, Durbin, and Feingold on
it, would put a stop to secret agreements made between drug
companies which hurt our senior citizens and American families,
that cheat health care providers and inflate Medicaid and
Medicare reports.
I am pleased that Attorney General Shurtleff is here to
talk about this harm to families in his and other States. I
appreciate the legal action you took with 14 other States,
including Vermont. I know the high regard that Attorney General
Sorrell has for you. It is just another example that Vermont
and Utah work closely together and so on.
But in General Shurtleff's prepared testimony, he says
that, ``I think a much more reasoned approach requiring notice
along the line proposed in S. 754 is worthy of close
consideration.'' I want to thank you, General, and I also want
to thank the Federal Trade Commission. They deserve a lot of
credit for exposing this problem.
What I want to do, and the reason for my bill is to say
there will be no more secret deals to keep generic drugs off
the market. If you want to boil it down to the basics, no more
secret deals keeping generic drugs off the market. Any
agreements have to be immediately provided to the law
enforcers, in that case, the FTC and the Justice Department. So
if you are going to notify the deals immediately, I think it is
going to be a heck of a deterrent to making these kinds of
illegal deals in the first place, and any such deal would be
subject to immediate investigation and action by the Federal
Trade Commission or the Justice Department. If you have
something like that, people are going to think twice before
they do a secret deal, an illegal deal, and it would solve the
most difficult problem, that is, just finding out about the
improper deals in the first place.
It does not change the Hatch-Waxman Act. It does not amend
FDA law. It does not slow down the drug approval process. It
allows existing antitrust laws to be enforced because the
enforcement agencies have the information they need.
A New York Times editorial published last July, ``Driving
Up Drug Prices,'' mentioned that the FTC is taking aggressive
action to curb the practice. It needs help from Congress to
close loopholes in Federal law. Well, my bill provides that
help. It would slam the door shut on would-be violators. How?
By exposing the deals to our enforcement agencies. So I think
Congress should make sure the FTC and Justice look at every
single deal that could lead to abuse, and only the deals that
are consistent with the intent of the law will be allowed to
stand. I will insert the rest of this for the record before I
have to go to one of the same things that Senator Hatch had to.
Ms. Boast, let me ask you, first, I want to thank the FTC
for the outstanding job you do in helping protect both
consumers and also to promote competition, which helps us all.
I think the legal actions you have filed show a lot of very,
very careful work. I can only imagine the amount of effort that
went into crafting them. As a lawyer, I am in awe. But I am
going to be very direct and ask you a few questions about the
Drug Competition Act, my bill.
The bill simply requires that agreements between branded
drug manufacturers and potential generic competitors be
provided to the FTC and the DOJ within 10 days after the
agreements are signed. You would then confidentially--they
would not be filed publicly, but you would confidentially
review these documents and you would take any actions you deem
necessary. So my first question is this. If the Drug
Competition Act were enacted, would the FTC obtain additional
documents, obtain them more quickly than under the current
system, and if that is so, would that help you enforce the law?
Ms. Boast. Senator Leahy--I hope I have the title right as
of the moment----
Senator Leahy. We are all struggling with titles, so
Senator Leahy is great. Being a Senator from Vermont is
something that gives me pride.
Ms. Boast. First of all, let me thank you for your
compliments for our work. These are, you are quite correct,
very resource-intensive cases. They involve very difficult
legal issues and intellectual property issues, and anything
that could be done to help us be more effective in enforcing
the law in this area would be helpful.
I believe that a legal regime that gave us notice of
agreement so that we did not have to find out about them by
accident could be quite helpful in the enforcement mission,
with due regard to the burdens on business that it might
impose, which I am sure you have taken account of in your
drafting.
Senator Leahy. Do you think it is safe to say that it would
deter branded name pharmaceutical companies from entering into
written agreement with potential generic competitors that might
violate our antitrust laws?
Ms. Boast. Senator, I think it would be very likely to have
that kind of effect. It might deter the agreements outright,
but it also certainly would force the firms who were
contemplating those agreements to give them much more careful
scrutiny for potentially offensive provisions.
Senator Leahy. You are doing a study, I understand, a very
important study of the pharmaceutical practices relating to the
Hatch-Waxman Act. If my bill became law, would the FTC have
access to otherwise secret agreements between branded name
companies and potential generic competitors? And if you had
access to that, would that help you carry out the study you are
doing regarding Hatch-Waxman?
Ms. Boast. Senator, it certainly could enhance our work on
the study that the Commission has underway, but I would like to
note that the virtue of your approach is that it goes beyond
the relatively time-bound request that is present in the study
that is underway. Your proposal would create an ongoing
obligation that would far exceed the scope of the study.
Senator Leahy. Am I right in assuming these agreements are
not routinely provided to the FTC now?
Ms. Boast. You are quite right that they are not routinely
provided.
Senator Leahy. So how would you get access to these
agreements?
Ms. Boast. Senator, it is not that easy. I mean, detecting
illegal conduct is part of what we are about. We sometimes hear
about it from people in the industry. We have had a very, very
close and cordial working relationship at the staff level with
FDA, who I think has been interested in, let us say, our
efforts in this area. But we have not had, short answer, a
systematic tool such as you propose.
Senator Leahy. You do not get them 10 days after the
agreement is signed, I take it.
Ms. Boast. That is exactly right, Senator.
Senator Leahy. I am going to submit the other questions for
the record so I can go back to this other matter. I will leave
the record open until the close of business tomorrow--for a
week, I have just been told. You see, Senators are merely
constitutional impediments to the staff. The staff really knows
what is going on around here.
[Laughter.]
Senator Leahy. We will leave it open for a week if anybody
wants to submit questions, and I will include a statement from
Senator Brownback in the record at this point.
[The prepared statement of Senator Brownback follows:]
Statement of Hon. Sam Brownback, a U.S. Senator from the State of
Kansas
Recently, there has been a great deal of publicity concerning
possible antitrust violations in settlements of patent disputes between
innovator and generic pharmaceutical companies. It's been alleged that
these settlements have resulted in higher prescription drug prices to
consumers. Companies have defended these agreements as procompetitive,
arguing in part that they enable generic manufacturers to challenge
patents of branded companies without incurring the risks of draconian
liabilities or loss of the incentive to promote the development of
generic drugs for which the Hatch-Waxman Act was intended. Be that as
it may, there are efforts this year here in Congress to re-open the
Hatch-Waxman Act, which was passed in 1984, and controls the entry of
generic drugs into the market.
During the past 17 years, the Hatch-Waxman Act has been
extraordinarily successful in achieving its dual objectives--
encouraging research by innovator companies, and facilitating the entry
of lower cost generic drugs into the market. I want to insure its
continued success.
The Act has created a strong generic drug industry whose share
of the prescription drug market has risen from 19% in 1983 to
nearly 50% today. Likewise, spending on research by innovator
companies is many times higher now than it was prior to Hatch-
Waxman, and important new therapies continue to be introduced.
Much of the concern over alleged abuses relates to a provision
of the law that provides 180 days of exclusivity to certain
generic applicants who challenge innovator patents. That
provision was added to the Act in 1984 to provide a reward for
generic manufacturers who challenge a patent on the innovator
drug it wishes to copy. It has been alleged, however, that in
some cases a generic manufacturer and the patent holder have
settled cases in a way that uses the 180-day exclusivity
provision to delay the approval of generic products of
manufacturers that were not party to the settlement . Those
allegations are being disputed.
The purpose of our hearing is to review the situation and
elicit the facts. After 17 years, any statute, no matter how
successful, should be reviewed to see how it is working and
whether flaws have developed that need to be corrected.
Therefore, I look forward to today's witnesses and testimony.
However, I must say that this statute should not be changed
lightly, even if we decide that there have been occasional
abuses. The statute has generally worked exceedingly well, and
it is highly complex. If we do change it, we seriously risk
triggering the law of unintended consequences, which could,
unless we are very careful, result in less research or fewer
generic drugs.
It may be that after our hearings we will decided that changes
are essential. But at this point, it seems to me quite possible
that adequate remedies already exist in the law to deal with
any abuses which may exist. I note that the Federal Trade
Commission has brought actions involving some of the
settlements, which have resulted in consent decrees. There is
also private litigation involving some settlements. Further, I
understand that the FTC is undertaking an extensive
investigation stemming from patent dispute settlements and
related issues, and plans to issue a report later this year.
In the case of the 180-day provision and its possible abuse,
the FDA issued a proposed rule in August 1999 to address the
issue. It would require the applicant with the 180 days of
exclusivity to begin marketing within 180 days after approval
of a second generic application. FDA's proposal is intended to
limit delays resulting from patent dispute settlements.
Before Congress acts to change this important and complex law
by amending the 180-day provision, we should see whether the
FDA can resolve any problems through a revision of its rules
after due consideration of public comments on its proposal. In
addition, we should not pre-empt the FTC's investigation by
hurried Congressional action and should wait for the results of
that investigation.
After the FTC has issued its report and FDA has issued its
regulations, I think it will be completely appropriate to hold
further hearings on this matter to see if legislative change is
necessary.
Senator Leahy. General Shurtleff, you came the furthest
here today and I appreciate you doing that. As I said, Bill
Sorrell says very nice things about you.
Mr. Shurtleff. Thank you. I look to returning to your State
in a couple of weeks. The National Association of Attorneys
General is meeting in Vermont next month, so I look forward to
that.
Senator Leahy. I understand that Bill passed out pictures
of people in snowshoes for that time of year, but trust me, it
has been gorgeous. We have had probably the warmest spring we
have had since I was a child, and I hope you have a good time.
I know where you are going. I know the area you are going to be
in. I just hope the weather cooperates. I think you will enjoy
it, just as I have always enjoyed the hospitality any time I
have been in your State.
Mr. Shurtleff. Thank you, Senator.
Senator Leahy. Mr. Griffin, Ms. Boast, Mr. Buehler, thank
you very much for being here.
Mr. Buehler. Thank you, Senator.
Ms. Boast. Thank you, Senator.
Mr. Griffin. Thank you.
Senator Leahy. The Committee is adjourned.
[Whereupon, at 3:18 p.m., the Committee was adjourned.]
[Submissions for the record follow:]
SUBMISSIONS FOR THE RECORD
Statement of Aventis Pharmaceuticals Inc., Bridgewater, New Jersey
These comments are submitted by Aventis Pharmaceuticals Inc. to be
included in the formal record of the hearing of the Committee on the
Judiciary of the United States Senate concerning ``Competition in the
Pharmaceutical Marketplace: Antitrust Implications of Patent
Settlements'' which was conducted on May 24, 2001. Aventis
Pharmaceuticals Inc. conducts the U.S. business of Aventis Pharma AG,
the pharmaceutical company of Aventis S.A. With headquarters in
Bridgewater, N.J., Aventis Pharmaceuticals focuses its activities on
important therapeutic areas such as cardiology, oncology, anti-
infectives, arthritis, allergy and respiratory, diabetes, and the
central nervous system. Last year, Aventis Pharma spent approximately
$2 billion dollars in research to develop new and innovative
pharmaceutical products to help Americans live better, live longer and
have happier and more productive lives.
The Importance of Pharmaceutical Patent Settlements
pharmaceutical patents benefit consumers
At the outset, we endorse the views expressed by Senator Hatch and
others acknowledging the critical role that pharmaceutical patents play
in bringing new and innovative health care solutions to the market.
Often lost in this debate is the fact pharmaceutical patents benefit
consumers because they provide a necessary and irreplaceable incentive
for research companies to develop new and innovative drug therapies to
prolong and improve the quality of life. To bring a new pharmaceutical
product to the market requires an investment of hundreds ofmillions of
dollars \1\ and hundreds of person-years in testing, research, and
product evaluation. A pharmaceutical patent provides the research
company and its shareholders with a fair opportunity to recoup that
investment. Without the patent system, innovation in the pharmaceutical
industry and all other areas of science would suffer.
---------------------------------------------------------------------------
\1\ In 2000, the aggregate investment in new pharmaceutical product
by the nation's research pharmaceutical companies totaled more than $36
billion.
---------------------------------------------------------------------------
The importance of pharmaceutical patents for promoting innovation
and rewarding innovators also requires that the rights of
pharmaceutical patent holders to enforce their patents and exclude
infringing products be protected and sustained. Yet too often, the
legitimate efforts of pharmaceutical patent holders to enforce their
patents against infringing goods are characterized as anticompetitive
or illegal. When a patent holder files and prosecutes a patent
infringement action, the presumption should not be that the company is
engaged in some sort of suspect activity. Rather, absent clear and
convincing evidence to the contrary, a patent holder's efforts to
exclude an alleged infringer from the market should receive the same
presumption of validity and regularity that the law extends to all
patents. Pharmaceutical patents should not be treated differently.
public policy favors patent settlements
We also note that public policy favors the settlement of disputes
without litigation. There is no special contrary rule for patent
litigation. When a generic manufacturer decides to settle a case for
less than an immediate right to market the allegedly infringing
product, that decision reflects the generic company's subjective
assessment of the value of its case and its likelihood of prevailing on
the merits. Similarly, a decision by the patent holder to license its
technology to the generic company at some future point within the
patent term reflects the patent holder's uncertainty as to its ability
to achieve a positive outcome from litigating the patent action. Thus,
in reaching settlements, the parties make these internal risk
assessments and then reach a compromise that maximizes the benefit and
minimizes the risk that each otherwise would have to accept. In this
regard, settlements of patent litigation also are generally ``win/win''
outcomes from the consumer's point of view.
patent settlements often contain exclusionary terms
Because patents exist to protect the patent holder from infringing
products in the market, settlements of many patent cases, particularly
those in which the patent holder is perceived to have a strong case,
necessarily will include some limitation on the alleged infringer's
post-settlement right to enter the market with its product. The right
to settle a patent dispute by providing for a limited exclusion of an
allegedly infringing good is a subset of the patent holder's statutory
right to completely exclude infringing goods. Therefore, limitations on
market entry are legitimate points of compromise in a patent
infringement case. The federal and state antitrust agencies
nevertheless seem too ready to presume that any post-settlement
limitation on the right of the alleged infringer to enter the market is
the product of anticompetitive motivation rather than a good faith
compromise between both parties' assessments of the strength of the
patent infringement claim.
For similar reasons, we believe that interim settlements can be as
procompetitive as final settlements. The prosecution of a motion for a
preliminary injunction is not inconsequential; it can significantly
delay the ultimate resolution of the merits of the patent case and
dramatically increase the costs and burden of litigation for the
parties and the courts alike.
Interim settlements that manage the short-term risks posed to the
parties by the unresolved patent litigation generally should be
favored, as long as they do not discourage the parties from diligently
prosecuting the case and seeking its ultimate resolution. Of course,
where an interim settlement has the effect of significantly reducing
the significance of the Court's ultimate ruling, that settlement is
more akin to a final settlement and should be analyzed as such.
the hmr/andrx stipulation and the ftc
As the Committee is aware, Aventis Pharmaceuticals Inc. recently
resolved its dispute with the Federal Trade Commission which related to
an interim Stipulation and Agreement that an Aventis predecessor,
Hoechst Marion Roussel Inc. (``HMR'') had entered into with Andrx
Pharmaceuticals Inc. as part of their patent litigation over Andrx's
generic version of HMR's Cardizem ' CD product. Without
admitting any wrongdoing, Aventis agreed, as part of this settlement,
to notify the Commission in advance before entering into certain
agreements in the future. Because the Committee may have drawn certain
incorrect assumptions from the Prepared Statement that was submitted by
the Commission and the oral comments of Ms. Boast, Aventis would like
to take this opportunity to amend the record.
the hmr/andrx stipulation and agreement caused no consumer harm
The Commission's prepared statement accurately recounts that the
Commission's Administrative Complaint, filed on March 16, 2000, alleged
that HMR paid Andrx to refrain from bringing to market any generic
version of Cardizem ' CD, ``without regard'' to whether such
product infringed HMR's patents. Prepared Statement of the Federal
Trade Commission, Competition in the Pharmaceutical Marketplace:
Antitrust Implications of Patent Settlements: Before the Comm. on the
Judiciary United States Senate, at 12 (May 24, 2001) (``FTC
Statement''), In the Matter of Hoechst Marion Roussel, Inc., et al, FTC
Docket No. 9293 (March 16, 2000) (``FTC Complaint'') at
para. 32. The Administrative Complaint also alleged that the
purpose and intended effect of the Stipulation and Agreement was to
``delay the entry of other generic drug competitors'' and ``den[y]
consumers access to lower priced generic drugs.'' FTC Statement at 12;
FTC Complaint at para. 33.
Regrettably, the Prepared Statement presented only half the story.
Following the filing of the administrative complaint, the Commission's
staff engaged in substantial discovery and conducted depositions that
significantly enhanced the Commission's understanding of the case. As
the completion of discovery neared, the Commission and respondents
reached agreement on the Draft Consent Order that ultimately resolved
the case. As to the potential for consumer harm, the Commission stated,
in the Analysis in Aid of Public Comment that was released along with
the Draft Consent Order on April 4, 2001, that:
Based on the FTC's investigation, it does not appear that there
was any delay in the entry into the market of a generic version
of Cardizem CD by Andrx or any other potential manufacturer, or
that the conduct or agreement at issued delayed consumer access
to a generic version of Cardizem CD.
Analysis in Aid of Public Comment, FTC Docket No. 9293 at 4 (April
2, 2001) (``FTC Analysis'').
While prepared remarks must necessarily distill a great deal of
information into a brief and succinct statement, we respectfully submit
that the Commission's assessment of the Stipulation and Agreement at
the close of the Commission's investigation is at least as important as
the allegations that were charged when the case was originally brought.
By separate letter, we have provided the Committee with a copy of the
Commission's Analysis in Aid of Public Comment and have asked that it
be placed in the formal record of this Committee as well.
the hmr/andrx stipulation and agreement did not block the sale of any
non-infringing generic version of cardizem ' cd
The Commission's prepared statement also noted that the original
Administrative Complaint charged that the HMR/Andrx Stipulation and
Agreement had the effect of preventing Andrx from bringing to market
``any competing generic drug, without regard to whether it was
allegedly infringing.'' FTC Statement at 12. Again, we respectfully
observe that the Analysis in Aid of Public Comment reveals a quite
different result:
The agreement terminated in June 1999. It was at that time that
Andrx received FDA approval to market, and commenced marketing,
a reformulated generic version of Cardizem CD that HMR
stipulated did not infringe any HMR patent.
FTC Analysis at 4.
Thus, the Commission's own statement acknowledges that the
Stipulation and Agreement did not prevent Andrx from bringing a
``competing generic drug'' to market. Instead, it recognizes that when
Andrx perfected a reformulated product that HMR determined not to sue
for patent infringement, and secured prompt FDA approval, Andrx entered
the market with its reformulated product without interference from HMR
or the Stipulation and Agreement. By recognizing Andrx's substantial
efforts to ``work around'' HMR's patents, the statement in the
Commission's analysis also tacitly acknowledges the reasonableness of
HMR's initial patent infringement claims. Companies like Andrx do not
spend millions of dollars and years of effort in the laboratories
working around patent claims that are either clearly invalid or not
potentially infringed.
The fact that Andrx expended millions of dollars and years of
research in an effort to invent around HMR's patent claims while the
patent litigation was underway underscores the fact that no intelligent
analysis of the potential competitive impact of these settlements can
be undertaken without due consideration of the strength of the
underlying patent claims. By definition, a patent confers upon the
patent holder the power to completely exclude infringing goods from the
market. It follows therefore that some patent settlements will
necessarily include some limitations on the right of the alleged
infringer to enter the market. We respectfully submit that if HMR had
the right to permanently exclude Andrx's originally infringing
formulation from the market, it should also have the right to try to
prevent the sale of that same product until its patent rights are
vindicated without running afoul of the antitrust laws.
the hmr/andrx stipulation and agreement was not intended to delay the
entry of other generic drug competitors.
The Commission's prepared statement recounts that the Commission's
original complaint alleged that the intent of the Stipulation and
Agreement was ``to delay the entry of other generic drug competitors,
thereby denying consumers to lower priced generic drugs.'' The
Commission's original allegation was premised on the assumption that by
delaying market entry by Andrx, the ANDA first-filer, Aventis could
take advantage of the first filer's 180-day market exclusivity rights
under Hatch-Waxman to block the entry of second and third generic
applicants.
The problem with the Commission's theory is that it depends upon a
judicial interpretation of the 180-day market exclusivity rights that
had not been decided at the time that the HMR/Andrx Stipulation and
Agreement was executed.
As Senator Hatch noted in his opening remarks, until the D.C.
Circuit decided the matter in Mova Pharmaceuticals Corp. v. Shalala,
140 F.3d 1060 (D.C. Cir. 1998), the generally accepted FDA position was
that the first generic filer was entitled to the 180-day exclusivity
period only if it had successfully defended its position in the patent
litigation before the second or third generics received final FDA
approval. Under this pre-Mova interpretation of the statute, no
agreement between the pioneer company and first-filer generic company
prior to the conclusion of the patent litigation between them could
have precluded the second or third generic filers from entering the
market upon receiving final FDA approval for their products. (There are
other reasons why such foreclosure could not have taken place in this
case which are case- specific and therefore not pertinent to this
Committee's concern).
In charging that an intended effect of the HMR/Andrx Stipulation
and Agreement was to block the second and third generic applicants, the
Commission overlooked the fact that the Stipulation and Agreement was
executed more than six months prior to the D.C. Circuit's decision in
Mova and eight months before the FDA acquiesced in the Mova decision
and agreed to apply it to companies like Andrx. As a result, the
Commission's case essentially sought to charge the parties with
anticompetitive intent premised upon the holding of a court decision
that was rendered six months later and which overturned the FDA's long-
standing interpretation of its own statute. We respectfully submit that
this charge is and was unfair and, in fact, the Commission itself
acknowledged this change of law had occurred in its final Analysis.\2\
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\2\ ``Under current FDA regulations, the Act grants the first
company to file an ANDA with a paragraph IV certification a 180-day
period during which it has the exclusive right to market a generic
version of the brand name drug. No other generic manufacturer may
obtain FDA approval to market its product until the first filer's 180-
day exclusivity period has expired. At the time the Respondents entered
into the challenged agreement in 1997, the governing FDA regulations
required that an ANDA applicant successfully defend the patent holder's
patent suit in order to be entitled to this exclusivity.'' FTC Analysis
at 2 (Emphasis added).
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We also believe that the Commission's attempt to employ ex post
facto legal precedent to charge the respondents with anticompetitive
intent underscores the need for absolute clarity should this Committee
consider making any significant revisions of existing law. It took
fourteen years for Mova to arise from the seemingly clear and
uncomplicated language of HatchWaxman. It would be a shame if, in
attempting to clarify and simply Hatch-Waxman at this date, this
Congress were to include language that might serve as a trap from the
unwary in the future.
aventis provided timely notice of the hmr/andrx stipulation and
agreement to the public and to the federal trade commission.
During her oral remarks, Molly Boast, Director of the FTC's Bureau
of Competition suggested in several different ways that it was
difficult for the Commission to learn of settlements arising in
pharmaceutical patent cases and that legislation was needed to address
this problem. While Ms. Boast did not specifically suggest that Aventis
or Andrx had been remiss in terms of providing timely public notice or
not cooperating with the Commission, we feel it appropriate to note for
the record Aventis' predecessor provided both the public and the
Commission with timely notice of the HMR/Andrx Stipulation and
Agreement.
Regarding public disclosure, HMR issued a press release within
hours of the execution of the Stipulation and Agreement on September
24, 1997, generally describing the agreement. While the press release
did not contain the competitively sensitive details of the agreement,
it did recite the fact that Andrx had agreed to refrain from marketing
its generic product during the pendency of litigation, that HMR had
agreed to make substantial ``lost profits'' payments to Andrx in the
event that it lost the patent case, and that non-refundable interim
payments were also part of the transaction.
Within days of the document's execution, the Commission received a
copy of the Stipulation and Agreement. It is worth noting that the
Commission had the Stipulation and Agreement in its possession for
nearly ten months before the agreement became effective on July 9,
1998. Neither the Commission nor its staff registered and indeed, it
was not until after the parties to the stipulation had resolved their
litigation, some nineteen months later, that the Commission staff first
shared its preliminary concerns about the transaction with the parties.
As a matter of corporate policy, Aventis adheres to the view that
information concerning potentially significant events affecting the
company should be promptly shared with its stockholders and the public
and that reasonable requests for documents from federal regulatory
agencies should receive an affirmative and timely response, providing,
of course that appropriate safeguards are in place to protect the
confidential and competitively sensitive terms of such transactions. To
the extent that the Congress believes that some generally applicable
codification of this policy might be in order, Aventis would not
object, provided that such a notification system would not impose
additional burdens on parties seeking to resolve patent litigation and
that it contained a workable system to protect competitively sensitive
materials from disclosure under F01A or other federal disclosure
statutes.
pharmaceutical patent settlements--looking towards the future
Looking forward, we believe it unlikely that Congress or the
federal agencies will see transactions in the future like those that
have captured so many headlines over the past several years.
Responsible pharmaceutical companies focus their attention on what is
transpiring in the laboratory and in the marketplace. Right or wrong,
pharmaceutical companies would prefer to avoid the time, expense, and
distractions occasioned by a Commission investigation. For that reason,
the Commission's docket remains focused on a group of transactions that
arose before the preclusive effect of the first-filer's 180-day
exclusivity rights were established by the D.C. Circuit in Mova in the
spring of 1998.
On a going forward basis, we believe that companies will
consciously steer clear of the kinds of transactions that might provoke
the Commission's interest. Doubtlessly, this caution likely will mean
that some cases that should have been settled will not be settled and
that consumer access to certain generic pharmaceuticals will be delayed
as patent litigation grinds on. These are the unavoidable consequences
of the enforcement decisions that have been made by federal and state
agencies.
We believe that the Commission's Pharmaceutical Industry Study
likely will produce some information useful to Congress, the federal
agencies, and the regulated community in understanding how changes in
the legal and regulatory environment have affected the manner in which
research pharmaceutical companies secure and defend their intellectual
property rights. But while gathering this information is worthwhile, it
is not enough. We believe that it is also important to review and
reconsider some of the legal and economic assumptions that have
heretofore driven much of this debate.
For example, in the current version of the ``Antitrust Guidelines
for the Licensing of Intellectual Property Rights,'' U.S. Department of
Justice/Federal Trade Commission (April 6, 1995)(``IP Guidelines''),
the relationship between a patent holder and a party not possessing
patent rights is deemed to be vertical with respect to the patented
technology, even though the patent holder and the party seeking to
acquire rights to that patent are horizontal competitors in the market
for their finished goods. See EP Guidelines, Section 3.3, especially
Example 5. By correctly describing this relationship as vertical, the
EP Guidelines expressly permit the patent holder to license his
patented technology to his erstwhile competitor without running the
risk of being accused of engaging in prohibited conduct with a
horizontal competitor.
Most often, a competitor will recognize his need to obtain a
license from the patent holder only after patent infringement
litigation has been threatened or initiated. In our view, the logic set
forth in the IP Guidelines is as applicable to defining the
relationship between a patent holder and a potentially infringing party
when those parties are engaged in litigation as it is when they are
not. By regarding litigants in a good-faith patent dispute as being
vertically related, the IP Guidelines permit the parties to settle
their dispute without being charged with engaging in illegal horizontal
activity.
However, at least one FTC staffer has publicly voiced his view that
good-faith disputants in pharmaceutical patent cases must necessarily
be viewed as horizontal competitors or at least potential horizontal
competitors in assessing patent settlements. While we doubt very
seriously whether this view is shared at the Commission level, this
sort of statement leaves companies vulnerable to charges in private
litigation that their good faith patent settlement represents nothing
more than a market allocation agreement between horizontal
competitors--a per se violation of the antitrust laws. Intended or not,
this sort of half-baked policy statement creates a minefield for those
who might otherwise be disposed to settle a pharmaceutical patent case.
By increasing the potential costs and risks of settlement, policy
statements like these make it more likely that marginal cases will
remain in litigation--a result that serves no one's interests.
Comparable challenges are presented on the economic front. For
example, one widely-quoted former FTC staffer recently suggested in a
paper on pharmaceutical patent settlements that:
A payment flowing from the innovator to the challenging generic
. . . may indicate whether the generic firm has the incentive
or ability to enter the market or to pursue fully the
litigation. In essence, the generic firm may have chosen the
``quiet life,'' at least temporarily, of an amicable
settlement, rather than the hard life of competition. This
situation would be troublesome particularly, where, as FDA
observed, ``the economic gains to the innovator from delaying
generic competition exceed the potential economic gains to the
generic applicant from 180 days of market exclusivity.''
David A. Balto, Pharmaceutical Patent Settlements: The Antitrust
Risks, 55 Food & Drug L.J. 321, 355 (2000) (quoting FDA Proposed Rule
Regarding 180-Day Generic Drug Exclusivity for Abbreviated New Drug
Applications, 64 Fed. Reg. 42,873, 42,882-3) .
The problem with this statement is that in the real world, the
economic value of a patent to the innovator will always exceed the
potential economic gains that a generic company might enjoy were it
able to enter the market with a non-infringing product. Where a generic
sells at a price point 60% and 70% of the price of the branded product,
the loss of revenue to the innovator is always much greater than the
revenue gained by the generic company, regardless of whether the
generic enjoys 180 days of market exclusivity or not. So the
``particularly troublesome'' economic factor that causes this
commentator particular concern is present in every patent infringement
dispute involving a patent holder and a first-filer generic.\3\
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\3\ To address the problem of generic companies preferring the
``quiet life'' of settlement to the ``hard life of competition,'' we
believe that a proper focus for the antitrust agencies would include an
examination of whether the generic company's receipts in settlement
exceed what it could enjoy were it to enter the market with a non-
infringing good. If the generic company's settlement receipts approach
what it might expect to receive in the market place, then some
additional scrutiny may be warranted. On the other hand, if the
receipts in settlement are but a fraction of what it would likely earn
in the market, then the opposite presumption--that the generic company
is concerned about the merits of the underlying patent case and that
the settlement is not objectionable--should be drawn.
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In our view, these examples are good illustrations of the fact that
many of the legal and economic assumptions informing the public debate
and employed in reviewing these cases are inadequate and incomplete. We
respectfully submit that working through these legal and economic
issues in a reasoned and objective manner is as important to this
process as the information gathering of the Commission's Pharmaceutical
Industry Study. We hope that the Commission's study will be only the
beginning of a more substantial effort on the part of the federal
regulatory and law enforcement authorities to develop better tools to
enforce the law, provide guidance to industry, and inform this
important debate before the Congress.
Statement of Hon. Maria Cantwell, a U.S. Senator from the State of
Washington
Thank you, Mr. Chairman. Today's hearing is one of the most
important--and most fascinating--consumer interest hearings before the
Committee this year.
Americans are becoming ever more reliant on more effective--and
more complicated--drug therapies. Total health care spending in the
United States totaled more than $1.2 trillion in 1999, an increase of
5.6 percent from the previous year, according to a March report
released by the Health Care Financing Administration. And prescription
drug expenditures are the fastest growing segment of the health care
market--with spending for drug therapies rising nearly 17 percent that
year alone. Drug expenditures in the United States rose from about $5.5
billion in 1970 to $100 billion in 1999, and the report predicts that
prescription drug expenditures will continue to increase faster than
any other category of health care spending throughout the next ten
years. Those two factors--great dependency on drug therapies and
skyrocketing drug prices--put us on a collision course in our efforts
to provide affordable health care.
There is no doubt in my mind that the patent rights and privileges
enjoyed by the pharmaceutical companies fuel the drive for research and
development in this area. And one day soon I hope to see a cure for
Alzheimer's, cancer, or cystic fibrosis. Furthermore, this debate is
not about pitting research and development against consumer protections
because these issues should go hand-in-hand.
This is why, almost 20 years ago, Chairman Hatch worked to create a
balanced law to encourage innovation in the pharmaceutical industry
while facilitating the speedy introduction of lower-cost generic drugs.
But frankly, the reports that name-brand companies have exploited the
law and allegedly paid-off their generic opponents, distress me.
Congress is trying to take a reasoned and rational approach to drug
price competition, and I am very concerned that companies may be taking
the law Congress wrote for the benefit of both business and consumers
for their advantage alone. It is outrageous that buying off generic
settlements could be a calculated business expense in the
pharmaceutical marketplace.
Generic medicines account for 42 percent of all prescriptions
dispensed in America and on average are put on the market at 75 percent
of the cost of their name-brand rivals. Two hundred drug patents are
set to expire over the next five years--representing a loss of
approximately $28 billion to name-brand pharmaceutical companies. This
is a key time for this Committee to examine actions by the
pharmaceutical industry intended to prevent generics from becoming
available at lower costs to consumers. We are beginning to see
indications that the practice of using secret, and possibly illegal,
deals is much more common within the industry than previously known.
Despite the fact that ``Hatch-Waxman'' is truly landmark
legislation, as with a lot of legislation, industry officials have
learned over time how to get around the letter, if not the spirit, of
the law. By extending FDA and FTC authority to investigate how wide-
spread this practice is, Senator Leahy's bill is certainly a step
toward ending these collusive practices.
Interject these facts into the political debate surrounding the
need to provide Medicare coverage of prescription drugs for our elderly
and disabled, and we have a debate to be rivaled by few others. Only
thirty percent of Medicare beneficiaries have prescription drug
coverage and the average senior spends $1,100 a month on prescriptions.
Thank you, Mr. Chairman for convening this hearing so that we may
learn more about this problem. I am hopeful we can work together to
find a solution.
Statement of Hon. Russell D. Feingold, a U.S. Senator from the State of
Wisconsin
Mr. Chairman, thank you very much for holding this hearing. This is
a very important issue for consumers of prescription drugs in this
country. It goes to the integrity of our antitrust laws and the Hatch-
Waxman Act, which I know you feel very strongly about.
There is mounting evidence that drug companies are attempting to
deprive consumers of the option of less expensive generic drugs by
paying those companies to delay development or sales of competing
drugs. The beauty of Sen. Leahy's bill, which I am proud to cosponsor,
is that it doesn't change the substantive law in any way. It doesn't
modify the Hatch-Waxman Act, or the antitrust laws, or reach any
judgment about whether a particular agreement violates those statutes.
It simply requires that agreements between brand name manufacturers and
potential generic competitors that could limit the research,
development, manufacture or marketing of a competing generic drug be
provided to the Federal Trade Commission or the Department of Justice
within 10 days of signing. It is my understanding that the agreements
will remain confidential so there is no argument that companies will be
forced to release trade secrets.
I believe this simple step of throwing some sunshine on these
agreements will be a significant deterrent to anti-competitive
agreements. It will allow the FTC and DOJ to determine whether the
agreements violate the antitrust laws or the Hatch-Waxman Act. And it
will ultimately lead to lower prices for consumers.
I hope today's testimony will shed some light on the kinds of
agreements that might be exposed by this bill, and how this bill will
assist the antitrust enforcement agencies to protect the public. And I
hope that after the hearing, the Committee will move expeditiously to
mark the bill up and send it to the Senate floor. This is a rare
instance where the Congress can save consumers potentially hundreds of
millions of dollars through simple, commonsense, legislation that poses
no possibility of financial harm to law abiding drug companies.
Again, I thank you, Mr. Chairman, for holding this hearing and
beginning the process of enacting this legislation. And I congratulate
Sen. Leahy and Sen. Kohl for this bill. I am proud to support it.
Statement of the Pharmaceutical Research and Manufacturers of America
The Pharmaceutical Research and Manufacturers Of America (PhRMA) is
pleased to provide a statement of its views in connection with the
Committee's hearing on the antitrust implications of patent
settlements. PhRMA represents the country's leading research-based
pharmaceutical and biotechnology companies, which are devoted to
inventing medicines that allow patients to lead longer, healthier and
more productive lives. Investing over $30 billion this year in
discovering and developing new medicines, PhRMA companies are literally
leading the way in the search for cures, just as hoped for by Congress
when Hatch-Waxman was passed in 1984.
The Hatch-Waxman Act
The Hatch-Waxman Act had the dual objectives of encouraging
pharmaceutical innovation and easing the entry of generic drugs into
the market. In PhRMA's view, HatchWaxman has been successful in
achieving its objectives. Spending on research by PhRMA members is now
many times higher than it was before passage of the Act, and important
new therapies continue to be introduced. At the same time, a generic
drug industry has been created and is now thriving. The generics' share
of the prescription drug market (by countable units) has grown from 18
percent in 1984 to over 47 percent by 1999. Moreover, it must be
underscored that the ``$71 billion'' in savings for consumers that some
advocates of legislative change to Hatch-Waxman have touted (see press
release of May 1, 2001 from the offices of Senators Schumer and McCain)
were calculated based on coming patent expirations and generic
applications provided for under the current provisions of Hatch-
WaxTnan.
In his opening statement for this hearing, Chairman Hatch
acknowledged that tine twin goals of the HatchWaxman Act have been
achieved. Although the Chairman listed a number of issues that have
been raised about the Act, and suggested that they need attention, he
cautioned that the legislation was carefully balanced and that changes
that tilt the balance should not be made. PhRMA concurs with that
assessment.
Of course, after 17 years, any statute, no matter how successful,
should be reviewed to see how it is working and whether--flaws have
developed that need correction. But many of the asserted flaws in the
Hatch-Waxman Act can be addressed under existing law without amending
Hatch-Waxmmi in ways that may lead to unintended and undesirable
consequences. A prime example of an alleged defect that can be remedied
without new legislation is the specific topic of this hearing--patent
dispute settlements.
Patent Dispute Settlements
Recently, there has been publicity concerning possible antitrust
violations in settlements of patent disputes between generic and
innovator pharmaceutical companies. It has been alleged that these
settlements have resulted in higher prescription drug prices to
consumers. As a result, there are efforts this yeas in Congress to
reopen Hatch-Waxman.
Much of the concern over alleged abuses centers on a provision in
Hatch-Waxman related to generic drug exclusivity. That provision
provides 180 days of exclusivity to certain generic applicants who
challenge innovator patents. It has been alleged that, in some cases, a
generic manufacturer and the patent holder have settled cases by using
the 180-day provision in a way that delays the approval of generic
products of manufacturers who are not parties to the settlement.
PhRMA has no view on whether the particular cases that have been
cited do or do not violate antitrust laws. That is a question best left
to the agencies and the courts. But fhRMA does believe that the highly
successful and highly complex Hatch-Waxman Act should not be changed
lightly on the basis of a very small number of allegedly problematic
cases. If Congress changes the statute because of the current clamor,
it seriously risks triggering the law of unintended consequences, which
could, unless great care is taken, result in less research or fewer
generic drugs.
Since 1984, there have been 8,259 generic applications submitted to
the Food and Drug Administration (FDA). According to FDA, more than 94
percent of these (some 7,781) involved no patent issues; less than 6
percent involved a `paragraph IV'' certification. To place the subject
of the May 24 hearing in perspective, only 3 innovator-generic
agreements (involving less than 0.1 percent of generic applications)
are reportedly alleged by the Federal Trade Commission (FTC) to be
involved iii inappropriate patent dispute settlements--matters which
the FTC has itself settled with consent decrees. There is also private
litigation involving some settlements. Further, the FTC is undertaking
an extensive investigation in this area, with a report due later this
year. If there is a problem, there is reason to believe it is small and
the iudicial and regulatory systems are dealine with it.
Also, in August 1999, the FDA issued a proposed rule to address
problems it perceived in the 180-day exclusivity rule. The proposal
would require an applicant with the right to 180 days of exclusivity to
begin marketing within 180 days of approval of a second generic or lose
its exclusivity. FDA's proposal is designed to limit delays resulting
from patent dispute settlements, among other purposes. To help resolve
the issue of patent dispute settlements, FDA should finalize that rule
in the near future after any appropriate changes based on the public
comments.
PhRMA urges the Committee to take great care when dealing with the
Hatch-Waxman Act. Congress should not hurriedly act to change this
important and complex law by amending the 180-day exclusivity rule or
other provisions. The number of alleged abuses is very small, and the
system seems to be dealing with the alleged abuses adequately. PhRMA
encourages the Committee, and the Congress as a whole, to let the FDA
and FTC actions take their course, and not rush to judgment.
The FTC Study
Although PhRMA believes that Congress should await the FTC study
before reaching mzy conclusions about the need for new legislation, we
are concerned whether the design of the study, as outlined in the
testimony in this hearing, will provide the kind of objective analysis
that would assist Congress. Although Hatch-Waxman was designed to
balance the public interest in both innovative research and lower drug
prices--and the FTC testimony pays lip service to those objectives--the
study seems slanted toward finding obstacles to the introduction of
generic drugs.
Thus, in examining the 30-month stay provision in Hatch-Waxman,
which is the provision allowing innovator companies to protect their
patent rights, the only stated objective of the FTC study is to
determine whether the stprovision has influenced the development of
generic drums competition. Obviously it has, since a statutory
provision delayiiiFDA approval of generic drugs nendina patent
litigation has that effect as its intended result. The value ofthe
30month stav and its related procedure for patent litigation riot to
FDA approval ofalle fnfringiL7g products cannot properly be analyzed
solely by reference to their effect on generic drug competition; they
must also be analvred by reference to the need to protect, patent
holders until the courts have spoken. The procedure for patent
litigation, including the 30-month stay, was included to prevent
judgment-proof generic drug companies from incurring huge damages and
destroying the innovator's market through sale of an infringing
product.
Similarly, the FTC testimony questions the filing of citizen
petitions at the FDA related to generic drugs. Although the FTC
acknowledges that First Amendment rights are implicated, it endorses
FDA's pending proposed regulation to restrict the use of citizen
petitions. Under the proposal, citizen petitions could be filed only if
they proposed general policies and not if they raised scientific or
other pertinent issues regarding specific products, such as proposed
generic drugs. The FTC testimony characterizes FDA's inappropriately
restrictive proposal as limiting the citizen petition process to
``legitimate purposes'' and as ``limiting the ability of firms to use
the process solely to hinder competitors.'' The FTC's conclusion, prior
to completing its study, that the filing of a citizen petition
addressing scientific issues raised by a particular product necessarily
and invariably represents an illegitimate attempt to hinder competitors
does not inspire confidence that the study will be an objective
analysis. In our view, FDA should welcome, rather than reject, valid
scientific data submitted via the petition process.
The FTC testimony also announced that it had itself filed a citizen
petition with FDA in connection with its study. The petition, in the
form of a May 16 letter, seeks FDA's detailed interpretations of the
regulations governing which patents are eligible for listing in FDA's
Orange Book. This petition is also of concern. The FTC petition does
not seek pre-existing interpretations from FDA--since there are few if
any such interpretations in existence--but asks FDA to issue new
interpretations consistent with the FTC's reading of the rules. If
there are ambiguities in the regulations that have not been clarified
by FDA, one would think that an objective FTC study would point to
those ambiguities and suggest clarification if they have created
problems. Instead, it appears that the study's authors want to develop
a case, based on after-the-fact pronouncements from FDA, that certain
patents were improperly submitted to FDA for publication in the Orange
Book. This approach would not seem to be consistent with an objective
review of the HatchWaxman procedures.
Conclusion
PhRMA welcomes analysis of the Hatch-Waxmnan Act and its
implementation. The possible problems that have been identified should
be carefully anal objectively studied before any legislative solution
is undertaken. Many of the problems can and are being addressed through
existing mechanisms without the need for amending Hatch-Waxman. It is
extremely important that the balance in this important legislation not
be upset by ill-considered amendments.
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