    [Senate Hearing 107-1081]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 107-1081

        GENERIC PHARMACEUTICALS: MARKETPLACE ACCESS AND CONSUMER ISSUES

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

                                    HEARING

                                   before the

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 23, 2002

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

                        U.S. GOVERNMENT PRINTING OFFICE
    90-155                      WASHINGTON : DC
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                  ERNEST F. HOLLINGS, South Carolina, Chairman
    DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
    JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
        Virginia                         CONRAD BURNS, Montana
    JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
    JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
    BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
    RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
    MAX CLELAND, Georgia                 GORDON SMITH, Oregon
    BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
    JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
    JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
    BILL NELSON, Florida
                   Kevin D. Kayes, Democratic Staff Director
                      Moses Boyd, Democratic Chief Counsel
          Jeanne Bumpus, Republican Staff Director and General Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on April 23, 2002...................................     1
    Statement of Senator Breaux......................................    38
    Statement of Senator Carnahan....................................     7
    Statement of Senator Dorgan......................................     1
        Article dated April 19, 2002, from The New York Times........     5
    Statement of Senator Edwards.....................................    40
    Statement of Senator McCain......................................     2
        Prepared statement...........................................     3
    Statement of Senator Rockefeller.................................    43
    Statement of Senator Wyden.......................................     4

                                   Witnesses

    Glover, Dr. Greg, M.D., J.D., Pharmaceutical Research and
      Manufacturers of America.......................................    47
        Prepared statement...........................................    49
    Jaeger, Kathleen, R.Ph., J.D., President and Chief Executive
      Officer, Generic Pharmaceutical Association; Karen Walker,
      Counsel, Generic Pharmaceutical Association....................    54
        Prepared statement...........................................    56
    Martin, Steven, President and Chief Executive Officer, Blue Cross
      and Blue Shield of Nebraska....................................    62
        Prepared statement...........................................    63
    Muris, Hon. Timothy, Chairman, Federal Trade Commission..........    19
        Prepared statement...........................................    21
    Oppenheimer, Shelbie, ALS Association............................    68
        Prepared statement...........................................    69
    Shaheen, Hon. Jeanne, Governor, State of New Hampshire...........    12
        Prepared statement...........................................    14
    Schumer, Hon. Charles, U.S. Senator from New York................     9
    Wolff, Marian, Member, Gray Panthers; Accompanied by Tim Fuller,
      Executive Director, Gray Panthers..............................    45

                                    Appendix

    Brown, Hon. Sherrod, U.S. Representative, Ranking Member, House
      Energy and Commerce Health Subcommittee, prepared statement....    91
    Gray Panthers, prepared statement................................    92
    Hunter, Jody, Georgia-Pacific Corporation, Co-Chairman, Business
      for Affordable Medicine, prepared statement....................    95

        GENERIC PHARMACEUTICALS: MARKETPLACE ACCESS AND CONSUMER ISSUES

                                  ----------

                            TUESDAY, APRIL 23, 2002

                                           U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 9:30 a.m. in room

    SR-253, Russell Senate Office Building, Hon. Byron L. Dorgan,
    presiding.

              OPENING STATEMENT OF HON. BYRON L. DORGAN,
                     U.S. SENATOR FROM NORTH DAKOTA

        Senator Dorgan. This is a Senate Commerce Committee hearing
    that we are holding today on the subject of prescription drugs.
    This will the first in a series of three hearings on the
    subject of prescription drug prices, costs, and other related
    issues.
        The hearing this morning will take a look at the issue of
    generic drugs. Let me put a chart up, if I might, as I begin to
    tell you that most of us now have seen the information that
    prescription drug costs--in this case, spending--but costs have
    risen by 17 percent in the last year. There are estimates by
    some reliable concerns that costs will continue to increase by
    more than 12 percent per year over the next 10 years. A
    substantial portion of this increase is due to the
    utilization--an increased utilization and also price inflation.
    We're going to have a series of hearings exploring why
    prescription drug spending is rising as fast as it is and what
    Congress might do to address that issue.
        Why generics? Well, today's hearing will look at how a more
    competitive generic drug industry might help save consumers
    money. Generic drugs are safe, effective and a lower-cost
    alternative to brand-name prescription drugs. It has been
    estimated that a greater use of generics, when they are
    available, could save consumers 8 to 10 billion dollars a year.
    A recent study has suggested that a Medicare prescription drug
    benefit could cost 50 billion to 100 billion dollars less over
    10 years if the use of generic drugs is encouraged.
        The next chart shows the examples of the dramatic savings
    that can be realized by generic drugs. If you were to walk into
    your corner drugstore with a prescription for the blood-
    pressure drug Cardizem, you would pay $1.45 per pill compared
    with $.22 for the equally safe and equally effective generic
    version, a savings of 85 percent. The chart also shows the
    generic version of Hytrin, which is a blood pressure medicine,
    is $1.82; Vasotec, $1.08, the generic is $.45; and Prozac,
    $2.61, the generic is $1.41.
        Some states, businesses, consumers, and insurance companies
    have raised concerns that there are loopholes in the Hatch-
    Waxman law, which was created to spur generic drug competition,
    and that these loopholes are being used to keep generic drugs
    off the market for a longer period than Congress intended. One
    of the purposes of this hearing is to examine some of the
    alleged abuses. We want to know if there is anything Congress
    can do to bring generic drugs to the market sooner, while at
    the same time not harming the innovators and those who are
    creating new drugs.
        For instance, proponents of the Hatch-Waxman reform argue
    that brand-name pharmaceutical companies file frivolous patent
    infringement lawsuits simply to trigger the 30-month hold
    required in the Hatch-Waxman law before final approval can be
    granted for the marketing of generic drugs. That has the effect
    of keeping generic drugs off the market for a much longer
    period of time.
        In addition, there have been examples of brand-name
    manufacturers entering into agreements with generic
    manufacturers in which the generic drug manufacturer withholds
    its product from the market in return for a payment from the
    brand-name manufacturer. Getting to the bottom of these
    allegations is timely and important. Within the next few years,
    patent protection will expire on 21 of the best-selling brand-
    name drugs with combined sales in the U.S. of about $20
    billion.
        I support the right of pharmaceutical manufacturers to have
    their legitimate patents protected and to make a profit with
    them. But these allegations that some drug companies file
    frivolous patents and/or infringement suits with the intent to
    delay generic competition and extend brand-name monopolies are
    serious. And, if true, we need to level the playing field for
    the American consumer.
        I look forward to hearing from today's witnesses about
    these important issues. Senator Schumer, our first witness, has
    introduced legislation with Senator McCain. Let me call on
    Senator McCain, the ranking member.

                    STATEMENT OF HON. JOHN McCAIN,
                       U.S. SENATOR FROM ARIZONA

        Senator McCain. Thank you, Mr. Chairman. I thank you for
    holding this hearing and providing the Committee an opportunity
    to examine the role of pharmaceutical companies, including
    generic companies, in anti-competitive activities that are
    unfairly restraining trade and impeding access to affordable
    medications for many consumers, especially senior citizens and
    working Americans who don't have health insurance and cannot
    afford to get their prescriptions filled.
        Mr. Chairman, I don't want to duplicate what you just said
    but there are allegations of anti-competitive behavior in the
    marketplace, and they're always disturbing. But it's
    particularly galling today, given what ails our nation's
    healthcare system.
        Just last week, the nation's largest public provider of
    healthcare CalPERS, California Public Employees Retirement
    System, announced that they would have to increase their
    members' premium by 25 percent next year. According to
    CalPERS's assistant executive officer for health benefits,
    quote, ``In the past 2 or 3 years, pharmaceutical costs have
    increased more than any other component in our CalPERS health
    rates, and our Medicare Choice/Supplemental Plan pharmacy trend
    can account for over 50 percent of the increase in premium
    rates that we see in our retiree plans from 1 year to the
    next.''
        I hope that our witnesses, including the chairman of the
    FTC, recognize the dramatic and drastic impact that the
    increase of costs of prescription drugs is having on the
    skyrocketing costs of healthcare in America. If our witnesses
    ignore that and don't agree that it's a problem and believe
    that this should go unfettered, then I don't believe that they
    are doing their job.
        There are many factors that contribute to the rapid growth
    in our nation's healthcare costs, and drug costs are among
    them. I hope that each of our witnesses will help my colleagues
    and me understand how the current structure for prescription
    drug patents works and what in that structure should be
    strengthened, eliminated, or replaced so that consumers are not
    penalized by anti-competitive actions of name-brand and generic
    drug companies.
        I'm very pleased to join with my friend, Senator Schumer,
    in trying to get enacted a piece of legislation that would have
    a modest but beneficial effect by allowing generic drugs to
    become available as rapidly as possible, as the chairman's
    chart points out.
        Also, Mr. Chairman, it's interesting to me that in the
    March 14, 2002, Bloomberg News Report, Pfizer's chairman and
    chief executive officer Harry McKinill's bonus doubled to $2.8
    million in 2001, his first year as head of the world's biggest
    drug maker. His compensation increased as Pfizer's net income
    increased. Shares of New-York-based Pfizer fell 13 percent last
    year. McKinill, CEO since January of last year and chairman
    since May, was awarded options valued at as much as $57.8
    million if the shares rise 10 percent over the life of 10-year
    grant. The CEO, Mr. McKinill, exercised options valued at $11.4
    million last year.
        Is this really what drug company CEOs should be doing at a
    time when costs of drugs are dramatically increasing for
    average Americans? And today, as we speak, seniors are being
    faced with a choice between their health and their income
    because they can't afford prescription drugs. And the CEO of
    Pfizer gets stock options that can be valued as much as $57.8
    million, last year exercising options at $11.4 million?
    Something's wrong here, Mr. Chairman, something is really
    wrong.
        I thank you, Mr. Chairman.
        [The prepared statement of Senator McCain follows:]

       Prepared Statement of Hon. John McCain, U.S. Senator from Arizona

        Mr. Chairman, thank you for holding this hearing and providing the
    Committee an opportunity to examine the role of pharmaceutical
    companies, including generic companies, in anti-competitive activities
    that are unfairly restraining trade and impeding access to affordable
    medications for many consumers--especially senior citizens and working
    Americans who don't have health insurance and cannot afford to get
    their prescriptions filled.
        I look forward to hearing from each of the witnesses and learning
    more about what is actually happening in the marketplace, as well as
    what can be done to help improve the current system and counter efforts
    by drug manufacturers to unfairly prolong their patents, eliminate fair
    competition and delay access to lower-priced generic versions of
    prescription drugs.
        In 1984, Congress enacted the Hatch-Waxman Act to spur generic
    competition while providing incentives for brand name drug companies to
    continue research and development into new and more advanced drugs.
    Hatch-Waxman has succeeded in helping bring new lower-cost alternatives
    to consumers and investment in U.S. pharmaceutical research and
    development has increased from $3 billion to $21 billion over the last
    15 years. But the full potential of Hatch-Waxman appears to be stymied,
    and today, abuses of the current system appear to be delaying generic
    products from coming to market in a timely manner.
        Allegations of anti-competitive behavior in the marketplace are
    always disturbing, but it is particularly galling today given what ails
    our nation's health care system. Health care costs are skyrocketing,
    insurance premiums are rising and the number of uninsured in our
    country is probably going to continue growing as many businesses no
    longer can afford providing coverage for their employees and their
    families.
        Without question, the high cost of prescription drugs plays a
    significant part in the financial problems plaguing our health care
    system.
        Just last week the nation's largest public provider of health care,
    CalPERS (California Public Employee's Retirement System) announced that
    they would have to increase their members' premiums by 25 percent next
    year. According to CalPERS' Assistant Executive Officer for Health
    Benefits Allen Feezor, ``In two of the past three years, pharmaceutical
    costs have increased more than any other component in our CalPERS
    health rates. In our Medicare Choice/Supplemental plans, pharmacy trend
    can account for over 50 percent of the increase in premium rates that
    we see in our retiree plans one year to the next. It should be noted
    that in both our hospital and Rx trends, a measurable portion of the
    trend is due to increased utilization by our enrollees but this can not
    take away from the extraordinarily high trends in both pharmacy and
    hospital pricing.''
        Prescription drug costs also play a significant role in the rising
    financial cost providing health care coverage to employees in the
    private sector, as demonstrated by General Motors coverage program,
    According to General Motors, ``GM is the largest private provider of
    health care coverage, spending over $4 billion a year insuring over 1.2
    million active workers, retirees and their families. Of that, GM spends
    $1.3 billion for prescription drugs. The cost of prescription drugs is
    rising between 15-20 percent a year in GM's plan even though the
    company employs state of the art management techniques to assure
    appropriate and most cost effective use.''
        There are many factors that contribute to the rapid growth in our
    nation's health care costs. Drug costs is clearly among them, and I
    believe that we must work to make prescription drugs more affordable,
    by among other things, ensuring consumer access to generics after
    patents have expired, and before clever attorneys have manipulated the
    current system.
        And so it is my sincere hope that each of our witnesses will be
    able to help my colleagues and me understand how the current structure
    for prescription drug patents works, and what in that structure does
    not work and should be strengthened, eliminated, or replaced so that
    consumers are not penalized by anti-competitive actions of name brand
    and generic drug companies. I hope that we can be educated on what we
    can do to help increase access to affordable, quality, medications
    without impeding science, research, or new technology.
        I also believe that we must start looking at the bigger picture--
    and begin developing a bipartisan solution for ensuring access to
    affordable and quality health care for all Americans. And this can't be
    done by imposing price controls or creating a universal, government-run
    health care system. To fix what ails our health care system, we must
    build upon as many strengths it offers the highest quality care in the
    world--while addressing its weaknesses.
        A balance must be found and I'm hopeful that today's hearing will
    be a step in that direction and will also help provide us the
    information necessary to protect intellectual property without allowing
    those protections to be manipulated for excessive profits at the
    expense of America's consumers.

        Senator Dorgan. Senator McCain, thank you. Senator Wyden?

                     STATEMENT OF HON. RON WYDEN,
                        U.S. SENATOR FROM OREGON

        Senator Wyden. Thank you, Mr. Chairman. I appreciate your
    holding this hearing, because ever since my days as co-director
    of the Oregon Gray Panthers, this issue has triggered a bare-
    knuckles fight between the brand-name drug companies and
    generic drug companies. For just a minute or two, before the
    brawl starts, I'd like to talk about what this really means for
    seniors, patients and families.
        First, both seniors and patients want to get the new cures
    for the serious illnesses that they face. They're
    understandably up in arms because they can't even afford the
    costs of the old medicines, let alone the new cures. Congress
    wrote the Hatch-Waxman law to help on both counts. Patent
    protection would provide an incentive for companies to be
    productive and more innovative, and then medicine would be more
    affordable as generics were sped to the market.
        But since the passage of Hatch-Waxman, there have been
    problems on both ends. The drug companies were quoted in the
    New York Times last week as saying that they have experienced a
    clear fall in productivity, and I would ask unanimous consent
    that article be put into the record, Mr. Chairman.
        Senator Dorgan. Without objection.
        [The information referred to follows:]

           Article from The New York Times, Submitted for the Record
                               The New York Times
      Despite Billions for Discoveries, Pipeline of Drugs Is Far From Full
                               By Andrew Pollack
                                 April 19, 2002

        This should be the golden age for pharmaceutical scientists. The
    deciphering of the human genome is laying bare the blueprint of human
    life. Medical research has increased understanding of disease. Robots
    and computers are turning drug discovery from a mixing of chemicals in
    a test tube to an industrialized, automated process.
        Yet if industrialization normally means higher speed and lower
    costs, the pharmaceutical industry has been experiencing the opposite--
    a ``clear fall in productivity,'' according to Dr. Frank L. Douglas,
    the chief scientific officer of Aventis. Instead of narrowing the list
    of compounds that might be useful in drugs, automation has broadened
    it--greatly increasing the number of formulas tested without yet
    delivering commensurate growth in safe and effective drugs. The
    industry's output of new drugs has risen only modestly in the last two
    decades despite a more than sixfold increase, after adjusting for
    inflation, in research and development spending, to more than $30
    billion annually. In the last few years, the output has actually
    declined.
        ``It makes you wonder: what are they doing?'' said John Borzilleri,
    a health sciences portfolio manager at State Street Research and
    Management in Boston. ``Are they spinning their wheels or is it just a
    matter of time?''
        The perceived paucity of new drugs in company pipelines has become
    a preoccupation of the industry and of Wall Street. Bristol-Myers
    Squibb, Merck and other drug makers have said earnings will be lower
    than expected this year, in part because there are not enough new
    products to offset declining sales of old ones that lose patent
    protection and face competition from generic versions.
        The industry mantra is now ``it's the pipeline, stupid,'' said Dr.
    Steven M. Paul, group vice president for discovery research at Eli
    Lilly in Indianapolis. But no one has yet found a reliable way to fill
    the pipeline.
        With drugs not coming fast enough to sustain the double-digit
    growth in earnings and revenue that Wall Street has come to expect,
    more companies might merge, to bolster earnings through reduced costs,
    analysts say. Companies are also trying to increase revenue from the
    drugs they do have by raising prices, advertising heavily to consumers
    and scrambling to extend their patents, actions that have embroiled the
    companies in controversy.
        Over the last 25 years, a parade of technologies has promised to
    transform drug development: genetic engineering, rational drug design,
    combinatorial chemistry, improved screening--and now, genomics.
        Yet the time spent to develop a drug, not counting the months
    consumed by government review, has lengthened to more than 11 years
    from about 9 years in the 1980's, according to the Tufts Center for the
    Study of Drug Development, and the cost has more than doubled, after
    adjusting for inflation, to $800 million. Critics, who note that the
    Tufts Center gets money from drug companies, say those figures are
    inflated to justify high drug costs.
        Still, the industry's failure rate, a big part of its costs, has
    not declined. Only one in about 5,000 early drug candidates and only
    one in five drugs that enter clinical trials ever make it to market,
    experts say. The remainder drop out because they do not work or are
    toxic.
        ``The odds are just dreadful, and they seem to be getting worse,''
    Julie A. Olson, a vice president for licensing at Pfizer, told a recent
    biotechnology conference.
        Some executives say that given the long development period,
    genomics and some other technologies are too new to have made a
    difference. Recent increases in research spending should lead to more
    drugs 10 years from now, they say.
        ``We're beginning to tackle all sorts of diseases we couldn't
    before,'' said Dr. Goran Ando, head of research and development at
    Pharmacia in Peapack, N.J. But, he added, ``it won't happen
    overnight.''
        To be sure, looking at just the number of drugs getting to market
    can be misleading because the companies are producing better-selling
    drugs. C. Anthony Butler, an analyst at Lehman Brothers, said the
    industry's pipeline in 1995 contained 450 drugs, of which he projected
    that only 15 would have peak annual sales exceeding $800 million. In
    2001, he said, the pipeline had about the same number of drugs but 92
    of them were potential $800 million products.
        Maintaining that pace, however, will not be easy. ``In some ways
    the easy drugs have been done,'' said Dr. Robert H. Rubin, a professor
    of health sciences and technology and of medicine at Harvard.
        Drug development is a cumbersome process. Companies usually start
    by identifying a target, often a protein in the body that is thought to
    play a role in some disease. Then they try to either design or find a
    compound that can attach itself to the target protein, thereby changing
    the course of the disease. They must make sure the compound is
    otherwise suitable--that it can be made into a pill, for example. It is
    then tested in animals for toxicity. Only then can it be tested on
    humans.
        Technology has helped with the early part of the process, the
    discovery of compounds, but not as much with the costliest and most
    time-consuming portion of drug development--clinical trials. Scientists
    still cannot tell whether a drug will work or be toxic until they test
    it. ``The slowest parts of drug discovery and development are pretty
    much the same,'' said Peter S. Kim, the executive vice president for
    research and development at Merck.
        But even in the early part of drug development there has been
    disappointment. In the 1990's, a new technology called combinatorial
    chemistry allowed companies to create hundreds of thousands of
    compounds by mixing chemical building blocks in different combinations.
    Drug makers then developed robots to screen this wealth of compounds.
        But many of the compounds created this way lacked characteristics
    that would make them suitable for use as drugs.
        Still, there has been progress. Bristol-Myers, for example,
    increased the number of compounds coming out of its early discovery
    stage to 14 a year late in the 1990's from 6 a year early in the decade
    after spending $50 million to install an advanced ``screen machine.''
        The newest technology, genomics, could increase the number of
    targets in much the way combinatorial chemistry increased the number of
    chemicals. Until now, virtually all drugs have been directed at an
    estimated 500 proteins in the body. But by sifting through the human
    genome, companies are finding thousands of genes that produce
    previously unknown proteins that might be involved in the disease.
        In the long run, that is expected to open vast horizons, and
    perhaps even let companies reduce failure rates in animal testing and
    in clinical trials by enabling them to predict toxicity and
    effectiveness by studying how a drug affects genes. But in the short
    run, it has left the industry inundated with targets and data that may
    increase the failure rate by leading companies to start trials before
    they fully understand what the new data are telling them.
        As Jerry Karabelas, a former head of pharmaceuticals at Novartis,
    once put it: ``Data, data everywhere, and not a drug, I think.''
        To bolster their output in the meantime, big drug companies are
    turning to biotechnology companies for products and technology,
    typically spending about 30 percent of their research budgets on
    outside collaborations. There can be fierce bidding and rising prices
    for drugs that are close to reaching market, raising the risks for drug
    companies. Last fall, Bristol-Myers agreed to pay $2 billion to ImClone
    Systems for an ownership stake and the rights to market a cancer drug.
    But approval of the drug has since been delayed.
        By contrast, some analysts and executives say, the drug companies
    are becoming more cautious about paying for basic technology because
    they are disappointed that what they have acquired so far has not led
    to more drugs.
        Some analysts say the drug industry is undergoing a transition
    similar to the computer industry's move from vertical integration,
    exemplified by I.B.M., to a horizontal structure--with Intel making
    chips, Microsoft making software and others specializing in
    manufacturing or sales. Drug companies, these analysts say, will
    increasingly become the marketers and coordinators of work done by
    others.
        ``We think the old model of having everything under your own roof,
    a completely integrated monolithic organization, is not feasible,''
    said Pradip K. Banerjee, a partner at Accenture, the consulting
    company.
        Because biotechnology companies are smaller and more focused, they
    can often move faster than the big drug companies. Vertex
    Pharmaceuticals, based in Cambridge, Mass., said it spent about $50
    million on each of seven drugs to get them into the second phase of
    clinical trials, a fraction of the usual costs. Joshua S. Boger, the
    chief executive of Vertex, said his biotechnology company was organized
    from scratch to take advantage of new technologies. If new technology
    is just put into the existing process, ``you're just going to move the
    bottleneck to another place,'' he said.
        But as biotechnology companies have moved from making well-known
    compounds like insulin to more complex challenges, many of them are
    experiencing failures in clinical trials or at the Food and Drug
    Administration. Amgen, the largest biotechology company, went 10 years
    without a new drug until last year. It is now growing by using the
    tactics of bigger drug companies--introducing improved versions of its
    drugs and buying another company, in its case Immunex.
        In any case, executives say they had little choice but to try new
    technology. ``Had we not had these technologies,'' said Dr. Douglas of
    Aventis, ``I think the situation would have been much worse.''

        Senator Wyden. And in addition to that drug company
    statement, of course, the seniors are having increasing
    problems with paying for other medicine.
        Now, in my view, a drug company that produces a miracle
    cure is like a goose who lays a golden egg, and obviously the
    companies are saying that they're not laying as many golden
    eggs these days. With fewer of these golden eggs and consumers
    unable to afford many of their medicines now, these are
    important hearings, because Congress should look, in effect, at
    whether the goose is the problem or the problem is the law that
    is supposed to provide the nourishment. We're going to have to
    find a way to strike a balance here, protect consumer rights,
    and speed these new cures to market. That's why these hearings
    are important. Mr. Chairman, I'm glad you're holding them.
        Senator Dorgan. Senator Wyden, thank you. Senator Carnahan?

                   STATEMENT OF HON. JEAN CARNAHAN,
                       U.S. SENATOR FROM MISSOURI

        Senator Carnahan. Thank you, Mr. Chairman.
        It will come as no surprise to anyone here that the number
    one issue that I hear about from Missouri seniors is the high
    cost of prescription drugs. Missouri seniors are struggling
    daily to afford their prescriptions and medications while
    making ends meet on a fixed income. I had one man come up to me
    just this weekend right after I spoke. He said, ``I am HIV
    positive. It costs me $3,000 a month for my medication.''
        This picture is--something is wrong in this picture when
    people like this and people who are seniors all over this
    country have to make tough choices about how to pay for life-
    saving medications and also meet the other expenses in their
    lives. These are choices that no one should have to make.
        Let me contrast that image with another one. Earlier this
    month, Fortune Magazine did a comparison of U.S. industries to
    see how profitable they were in the past year. Do you know
    which ranked first in all three of Fortune's profitability
    measures? That's right, it was the pharmaceutical companies. I
    agree that federal policy should not hamper investments in
    research and development of new pharmaceuticals; however, when
    seniors cannot afford food because of the price of prescription
    drugs, and when Missouri's Medicaid program is seeing increases
    of 14 percent for prescription drug spending, and when the
    average price for the 50 most prescribed drugs for seniors rose
    at over the twice the rate of inflation last year, and when the
    rate for private health-insurance plans rose over 20 percent
    last year, something needs to be changed. Something needs to be
    changed soon.
        Congress needs to pass a comprehensive Medicare
    prescription drug benefit. I supported setting aside sufficient
    funding in the budget to create a meaningful, affordable, and
    voluntary senior prescription drug benefit for all seniors, and
    I will continue to push the Senate to enact that benefit this
    year.
        While supporting a Medicare drug benefit will continue to
    be one of my top priorities, I believe there are complementary
    steps that can be taken to address the prescription drug
    crisis. Reforms should include two other essential pieces:
    lowering the price of drugs and preventing the need for
    medications in the first place. These additional measures will
    help to improve seniors' health, lower the overall cost of
    prescription drugs, and decrease the need for drug usage.
        To accomplish these goals, I want to announce my support
    for two important pieces of legislation. The first bill
    addresses the topic of today's hearing, reforming the 1984 law
    referred to as the Hatch-Waxman Act. I plan to cosponsor the
    Greater Access to Pharmaceuticals Act, because it will help us
    improve competition in the marketplace between generics and
    brand-name drugs. There are loopholes in the current law
    preventing generics from entering the market. This bill will
    make a significant difference in lowering the cost of
    prescription drugs for consumers.
        The average price for a brand-name drug is approximately
    three times the price of a generic. Missourians are outraged,
    and rightly so, when they hear of the maneuvers used to prevent
    generics from coming on the market. They are even further
    outraged when a drug company cuts a deal with a generic
    manufacturer to keep a generic off the market. These tactics
    are not only abusive, they erode the faith of our citizens in
    our legal and healthcare system.
        The second bill is the Medicare Medical Nutrition Therapy
    Amendment Act, which would extend Medicare coverage of
    nutrition therapy services to individuals with cardiovascular
    diseases.
        Mr. Chairman, I want to thank you for calling this hearing
    today. It focuses on a timely matter that has the potential to
    make a real difference in millions of lives of Americans, and I
    encourage the Senate to move forward on a Medicare prescription
    drug benefit, the Greater Access to Pharmaceuticals Act, and
    the Medicare Medical Nutrition Therapy Amendment Act this year.
    Thank you very much.
        Senator Dorgan. Senator Carnahan, thank you very much.
        I mentioned when we started that I'm going to be holding a
    series of three hearings on the subject of prescription drug
    prices. I recognize there's been a great deal of interest by
    virtually all of us in the Congress to attach some kind of
    prescription drug benefit to the Medicare program. I also
    believe if we don't put some downward pressure on prescription
    drug prices, and just attach a prescription drug benefit to
    Medicare, doing so will just break the bank. So we have to
    evaluate what can we do about prices. You can't have double-
    digit--in last year's case, 17 percent--increases in costs
    every year.
        And the next hearing will be about reimportation. A group
    of us will announce tomorrow a new piece of legislation we
    shall introduce with respect to reimportation of prescription
    drugs. And then we'll have a third hearing, as well, on
    pricing.
        Let me ask, if I can--I'm going to ask Senator Schumer to
    testify, but I want, at the same time, to call to the table the
    Honorable Timothy Muris, the Chairman of the Federal Trade
    Commission, and the Honorable Jeanne Shaheen, Governor of the
    State of New Hampshire. If you would come to the table, then
    I'm going to ask Senator Schumer to present his testimony. I
    will ask Governor Shaheen to present her testimony and the
    Chairman of the Federal Trade Commission to present his
    testimony.
        That will represent the first panel. Then we will go to
    Panel II. We have a cloture vote today, I believe at 11:30, on
    the floor of the Senate, and I expect this hearing will take
    some time.
        So let me ask Senator Schumer, why don't you continue with
    your testimony? Your entire statement will be made a part of
    the permanent record, and you may summarize.

                  STATEMENT OF HON. CHARLES SCHUMER,
                       U.S. SENATOR FROM NEW YORK

        Senator Schumer. Well, thank you. And, first, let me thank
    you, Mr. Chairman, for holding this hearing. I want to thank
    Chairman Hollings, as well, who has shown great interest, and,
    of course, my colleague and cosponsor of our legislation,
    Senator McCain, who has had such success in taking on special
    interests that get in the way of what people want. And let's
    hope we can repeat that success here. And I want to thank you,
    Mr. Chairman. Your leadership on this issue has been enormous.
    And the fact that you are really the first to hold a hearing on
    this issue shows your commitment.
        I agree with you, we have to very much--I'm all for getting
    prescription drugs added to Medicare and other plans. That's
    our first priority. But you're right, if we don't bring the
    price down, it is going to break the bank. And, therefore,
    doing generic drugs, which helps people of all ages but will
    reduce government costs now and even more in the future, is an
    important part of that.
        I also want to thank my colleague, Senator Wyden. He's been
    talking about this issue since when we came to the Congress
    together in 1980, and thank him for his leadership here, as
    well as Senator Carnahan, who has really emerged in a short
    time as one of the true leaders in our entire Senate on
    bringing the costs of drugs down, and prescription drugs to
    senior citizens as part of Medicare, and I thank you for your
    cosponsorship of our measure today.
        Now, let me just say that I hope that this hearing is a
    first step in bringing this legislation to fruition and to law.
    And, as I say, it goes side by side with other pieces of
    legislation to bring prices down and would make it easier for
    us to enact a prescription drug plan as part of Medicare.
        An ad in the Washington Post yesterday, paid for by the
    pharmaceutical industry, reported that 75 percent of all
    physicians agree that patent laws are very important to the
    future of America's medicines. Well, I'm not a doctor, much to
    the chagrin of my mother----
        [Laughter.]
        Senator Schumer.--but I couldn't agree more. Continued
    innovation in pharmaceutical development is key to ensuring
    that patients have access to life-saving drugs when we need
    them, and everyone of us knows somebody whose life is much
    better because they have access and they have been given these
    drugs.
        But the PhRMA ad only tells part of the story. It implies
    that patent laws were put in place to benefit consumers solely
    by protecting innovation. That's one important part, but
    there's a flip side. Our patent laws aren't just meant to
    stimulate innovation. They're also intended to bring scientific
    knowledge into the public domain, to eventually spur
    competition and keep the drug companies from holding a never-
    ending monopoly over the heads of consumers. There are two
    sides to it. And there's always been a balance. I believe that
    balance has been shifted out of whack.
        In the world of the drug industry right now, brand
    companies are extending their monopolies long beyond what was
    ever envisioned, much to the detriment of consumers. These
    companies--we know what's happening. They've had record
    profitability, as both Senator Carnahan and Senator Dorgan have
    mentioned. And all of a sudden, lots of their prized drugs are
    coming off patent, and yet they don't have new ones that they
    think are going to be just as profitable. And so they're
    desperate, and they've been finding ways around the 1984 Hatch-
    Waxman law. Not having new blockbuster drugs, they want to
    extend the patents of the old ones, which does nothing to
    benefit consumers. Absolute nothing.
        They're trying other things, as well--the advertising: we
    never saw a prescription drug advertised on an NFL football
    game 5 years ago. We do now. It's still, for the love of me--
    that may be another topic of another hearing, but, for the love
    of me, if we have prescriptions, why are we advertising to
    consumers? Want to get rid of prescriptions? Advertise to
    consumers. But if you have prescriptions--it's sort of a
    contradiction.
        But the pharmaceutical industries are doing a number of
    things to try and keep that profitability high, when the best
    way they can do that is develop new drugs. And if they can't,
    well, we have to--they've got to try a little harder.
        Now, there are a number of loopholes in the patent law, Mr.
    Chairman, which drug companies exploit every day to block their
    low-cost competitors from breaking into the marketplace. Take,
    for example, Paxil, a drug with $2.1 billion in sales used to
    treat obsessive-compulsive disorder. Glaxo-Smith-Kline sued the
    first generic applicant, Apotex, in 1998 over a patent intended
    to expire in 2006. This move automatically delayed competition
    for 30 months and has continued to prevent competition while
    the litigation is ongoing. Even if companies come to resolution
    on this patent, Glaxo has listed nine additional patents on
    this same drug, which already has a patent, during the
    intervening years since the first lawsuit began--patents on
    slightly different chemical substances, which have never been
    approved for marketing by the FDA, but which the company claims
    are relevant to Paxil, as well as patents on different
    formulations on these drugs. The last of the patents expires in
    2021.
        It's getting to the point where they're going to file for a
    30-month automatic extension by changing the color of the pill
    from blue to red or changing it from a capsule to a tablet. The
    law is being perverted.
        And most of these new patents, of course, will, and already
    have, invoked additional multiple 30-month stays which, as you
    all know, is automatic, against generic competition for Paxil.
    Each year generic competition is delayed costs consumers, on
    this one drug, $500 million.
        What happened here is simple. The drug company saw its
    original patents about to expire and then created new ones to
    maintain its control over the market. They didn't create a new
    drug which would have brought new benefits. Instead, they just
    tried to create a new patent.
        These kinds of practices have unfortunately now become the
    norm for the drug industry. These companies figure out a new
    way to keep dollars rolling in, and they're stooping to new
    lows every day to maintain exclusivity rights.
        I've just learned the latest low blow that big
    pharmaceutical companies are stooping to do to block the entry
    of low-cost generic drugs. They have now begun to seek patents
    on information related to safety. The FDA has long determined
    that safety information should be part of the public record,
    and it shouldn't prevent generic versions of approved drugs
    from coming to the market. But now, in the case of the pain
    medication, Ultram, five generic versions of it were about to
    be approved in January of this year. But in February, Ortho-
    McNeil filed a patent on a slightly altered dosing schedule, a
    schedule which is obvious to most pharmacists, but one which
    they claim is essential to the safety of the drug. Under Hatch-
    Waxman, patenting this information would, at the very least,
    automatically keep the generic drug off the market for 30
    months. If the patent's upheld in the courts, it prevents
    competition until 2019. With sales of $690 million a year,
    these delays cost consumers $3 million a week.
        Prescription drug expenditures are throwing insurers,
    corporations, and State Medicaid agencies into a tailspin as
    they attempt to craft high-quality healthcare benefits that are
    within the realm of affordability. The bill that Senator McCain
    and I have introduced has the support of the UAW and General
    Motors as well as a long list of other groups; the problem is
    getting as great as it is. What's happening is, the
    pharmaceutical industry, when they do this, are crippling
    consumers and seniors who can't afford to purchase their drugs
    or take them every day as prescribed.
        I agree that patent protection is key to saving lives. But
    I'm sure the doctors surveyed by PhRMA would also agree that a
    drug can do no good if it's financially out of the reach of
    patients who depend on it. So with this in mind, I want to be
    clear about what Senator McCain's legislation and mine is not
    about. It's not about robbing pharmaceutical companies of
    legitimate patent protection. It's not about theft of
    innovation, and it's not about taking steps to enact laws that
    are not in the best interests of consumers. In fact, it's just
    the opposite. It's about examining competition in today's
    marketplace and revisiting a compromise which was struck nearly
    18 years ago, but is now out of balance.
        In 1984, Hatch-Waxman was one of the least appreciated and
    most pro-consumer laws passed in the Congress in the last two
    decades. Hatch-Waxman saved billions of dollars on
    pharmaceuticals while helping brand-name companies to stay
    profitable and innovative. And as a result, generic drugs have
    captured over 44 percent of the market in terms of
    prescriptions written. Pharmaceutical research and development
    since Hatch-Waxman has increased sevenfold, from $4.1 billion
    to $26.4 billion. Pharmaceutical industry has once again topped
    the Fortune 500 list of most profitable industries.
        But in recent years, Mr. Chairman, as the profits and
    stakes have become higher, drug industry lawyers have picked
    the Hatch-Waxman law clean. Companies are pursuing these
    aggressive extended monopolies through filing weaker, invalid
    patents and engaging in deals which the FTC is increasingly
    scrutinizing for anti-competitive practices. We have to put an
    end to these abuses.
        Just one other drug I want to mention. Prozac went off
    patent. One year, it's saving--the generic is out--$1.8 billion
    is being saved by consumers this year--same amount of Prozac,
    probably a little more, but at a much lower cost.
        So I would urge you to look, Mr. Chairman, at the Greater
    Access to Pharmaceuticals, or GAP, Act that seeks to breathe
    new life into Hatch-Waxman, not by redrawing ideological battle
    lines but by restoring the intent of our patent law. Our
    intention is not to cutoff innovators at the knees, it isn't a
    freebie for the generic drug industry. We come down on the
    generic companies that make these deals to prevent the generic
    from coming to market. It's pro-consumer. That's what we're
    trying to do here.
        And I have other cases here, which I'd like to put in the
    record. I know you're trying to hurry things along. But I just
    hope, Mr. Chairman, that we can consider this legislation or
    generic drug legislation of some type, because we desperately
    need it as drugs become more expensive but more necessary to so
    many American families.
        Thank you.
        Senator Dorgan. Senator Schumer, thank you very much for
    your testimony.
        Next we will hear from Governor Shaheen. Governor, your
    entire statement will made a part of the record and you may
    summarize. Thank you for being here.

                   STATEMENT OF HON. JEANNE SHAHEEN,
                    GOVERNOR, STATE OF NEW HAMPSHIRE

        Governor Shaheen. Thank you, Mr. Chairman and Members of
    the Committee. I appreciate the opportunity to appear before
    you this morning and certainly appreciate the efforts of
    Senator Schumer and Senator McCain to move us in a direction
    that closes the loopholes in the Hatch-Waxman Act.
        As Senator Carnahan pointed out, the high cost of
    prescription drugs is a huge issue for seniors in New
    Hampshire, as well. I was at a forum in our state's largest
    city recently where a man stood up and said that he was over 80
    and that he had to take a job as a janitor cleaning toilets in
    order to afford medication for himself and his wife. That
    should not happen.
        But more importantly, it is also an issue for business in
    this country. And as I go around the state, the issue that I
    hear more than any other from businesses in New Hampshire is
    that they can't afford the increasing costs of premiums to
    cover healthcare for their employees.
        It's also an issue, as you all know, for states as we try
    and provide Medicaid coverage for our citizens. In 1996, the
    year that I was elected Governor in New Hampshire, the state
    spent $41.7 million on prescription drugs. In 2001, the state
    spent $88 million on prescription drugs for our Medicaid
    program.
        We've been working to contain those costs. We have a very
    comprehensive pharmacy benefits management program in New
    Hampshire, one that we entered into with Vermont and Maine, but
    we need your help. We need your help in closing those loopholes
    that force businesses, families, and seniors to spend millions
    more than they should on brand-name drugs.
        There are 17 drugs that are used in Medicaid programs
    throughout the country whose patents are due to expire in the
    next 3 years. Those 17 drugs cost 46 states' Medicaid programs
    $1.2 billion in 2001. If we could see competition from lower-
    cost generic drugs, we could see an average savings of 50
    percent on those drugs. In New Hampshire alone last year, we
    spent $4.9 million on 15 of those 17 drugs in our Medicaid
    program. If those patents expire on time, we could save $2.4
    million a year.
        Now, that doesn't sound like a lot for those of you from
    big states. But let me tell you what that $2.4 million could
    buy us in coverage to improve the health of the citizens of New
    Hampshire. We could provide prenatal and post-birth visits for
    3,437 new babies and their mothers. We could provide dental
    coverage, something that is very difficult to cover through the
    Medicaid program, for 8,723 children. We could provide well
    child checkups for 44,642 children. And we could give Meals on
    Wheels to seniors 5 days a week to 59,524 seniors. It would
    make a huge difference in our ability to provide healthcare for
    the people of New Hampshire.
        Now, in an effort to address concerns about the loopholes
    in the Hatch-Waxman Act, I have joined a coalition of
    Governors, of businesses and labor called Business for
    Affordable Medicine. The 17 drugs that I mentioned earlier are
    costing the ten businesses that are part of BAM $132 million a
    year.
        I certainly, as I heard Senator Schumer say, support the
    original intent of the Hatch-Waxman Act. I do believe it's
    important for us to encourage companies to continue their
    research and development efforts. I do think it has helped to
    bring generic drugs into competition. But I think it's
    currently being undermined by the loopholes that exist.
        Prilosec is one of the most popular drugs in our Medicaid
    program. It costs, at a pharmacy in a small town in New
    Hampshire--Henniker, New Hampshire--you pay $152 a month for
    Prilosec. Senator Dorgan and I know that, in our states which
    border Canada, our citizens could go across the border and buy
    that drug for over 50 percent less.
        The patent on Prilosec was supposed to expire in October of
    last year, but they sued their generic competitor and triggered
    that automatic 30-month extension. In the 6-months since
    Prilosec was supposed to expire, New Hampshire has spent over
    $600,000 on just that one drug through our Medicaid program.
        There has been some concern raised by the pharmaceutical
    industry that if changes were made in Hatch-Waxman, that we
    would see less research. In fact, a report by the Kaiser Family
    Foundation indicated that between 1990 and 2000, the
    pharmaceutical industry spent twice as much on marketing and
    administration as they did on research and development. I don't
    believe we would see a decrease in research and development. I
    would see that the original intent of the act, which was to
    encourage research and development, is what would happen if, in
    fact, they were required to focus on research and bringing
    forward new drugs rather than being allowed to extend their
    patents in ways that weren't imagined by the original act.
        It's very clear that the drug companies have been
    benefiting from the loopholes in the Hatch-Waxman Act.
    Unfortunately, the taxpayers, the families, the seniors, the
    businesses who need healthcare coverage have not. I urge this
    Committee to carefully consider ways to address these loopholes
    and provide better access to prescription drugs at an
    affordable cost for the people of my state, New Hampshire, and
    the country.
        Thank you.
        [The prepared statement of Governor Shaheen follows:]

                     Prepared Statement of Jeanne Shaheen,
                        Governor, State of New Hampshire

        Thank you, Mr. Chairman. I am Jeanne Shaheen, Governor of the State
    of New Hampshire. I appreciate this opportunity to appear before you,
    and I am honored to be on this panel with Federal Trade Commission
    Chairman Timothy Muris. I want to thank you for devoting so much time
    to the issue before us today. Few other issues can rival the
    skyrocketing cost of prescription drugs in terms of its impact on the
    health of our families, the bottom line of our businesses, and the
    solvency of state budgets.
        Today I am here to testify about how the skyrocketing cost of
    prescription drugs is making it increasingly difficult for governors to
    provide high quality Medicaid coverage to children, seniors and people
    with disabilities without breaking the backs of taxpayers.
        In 1996, New Hampshire spent $41.7 million on prescription drugs as
    part of our Medicaid program. In fiscal year 2001, New Hampshire spent
    $88 million. We cannot afford that type of continued growth in our
    Medicaid prescription drug costs. Like other governors across the
    country, I am working to address the high cost of prescription drugs in
    a number of ways, including a comprehensive pharmacy benefits
    management program, which, as you might expect, is opposed by the
    PhRMA.
        Governors need your help in this effort. The loopholes in the
    Hatch-Waxman Act are forcing state governments, seniors, and businesses
    to spend hundreds of millions of dollars unnecessarily on brand name
    prescription drugs.
        There are 17 drugs that are supposed to go off patent in the next
    two and a half years. State Medicaid agencies across the country spent
    more than $1.2 billion last year on those 17 drugs alone.\1\ Under the
    original intent of the Hatch-Waxman Act, states should expect to save
    an average of 50 percent on these 17 drugs as lower-cost alternatives
    become available after patents expire.\2\
    ---------------------------------------------------------------------------
        \1\ State Medicaid Survey, Business for Affordable Medicine,
    January 2002. Every state except for four, Arizona, Kentucky, Michigan,
    and Rhode Island, participated.
        \2\ Generic drugs save consumers an estimated 30 to 70 percent. The
    U.S. Food and Drug Administration, Center for Drug Evaluation and
    Research, February 21, 1997.
    ---------------------------------------------------------------------------
        Last year, New Hampshire's Medicaid program spent over $4.9 million
    on 15 brand name drugs that face patent expiration between April 2002
    and December 2004. If we see timely market competition on those 15
    medications, a small state like mine, New Hampshire, could save an
    estimated $2.5 million annually in Medicaid prescription drug costs by
    2005.
        I know that $2.5 million might not seem like a lot of money to
    those of you who represent big states. But in New Hampshire $2.5
    million would make a big difference for our taxpayers and the children,
    seniors and other vulnerable citizens who depend on state services. For
    example, with $2.5 million, the state of New Hampshire could provide
    pre-natal and post birth home visits for 3,437 new babies and their
    mothers, dental coverage to 8,723 kids, check-ups for 44,642 children,
    or 59,524 seniors with meals 5 days a week through Meals on Wheels.
        That's why I am part of the Business for Affordable Medicine
    Coalition. This is a coalition of businesses, labor unions, and
    governors, both Democrats and Republicans \3\ that has come together
    over the last several months. BAM's principle focus is to prevail upon
    Congress to close the loopholes in the Hatch-Waxman Act.
    ---------------------------------------------------------------------------
        \3\ Alabama Governor Don Siegelman, Alaska Governor Tony Knowles,
    Hawaii Governor Benjamin Cayetano, Louisiana Governor Mike Foster,
    Missouri Governor Bob Holden, New Hampshire Governor Jeanne Shaheen,
    South Dakota Governor William Janklow, Vermont Governor Howard Dean,
    M.D., Washington Governor Gary Locke, West Virginia Governor Bob Wise.
    ---------------------------------------------------------------------------
        Like governors who are trying to identify healthcare cost savings
    at a time when budgets are extremely tight, businesses that provide
    health coverage to their workers are anxious to have full access to
    lower-cost generic alternatives as soon as brand patents expire. Last
    year the corporate members of BAM alone spent more than $132 million on
    the 17 brand name drugs that face patent expiration before 2004.
        I am very supportive of intellectual property rights. I support the
    original purpose of the 1984 Hatch-Waxman Act, which was designed both
    to promote the growth of a generic drug industry and provide additional
    patent protection for research-based brand-name drugs. However, the Act
    has been seriously undermined by loopholes that have allowed brand-name
    drug makers to delay competition from lower-cost alternatives for
    years.
        For example, the patent for Prilosec, which is one of the most
    popular drugs in America, expired last October. A 1-month supply of
    Prilosec costs a senior $152 at a drugstore in Henniker, New Hampshire.
    It's now been seven months since the patent on Prilosec expired, but
    there's still no generic on the market because, AstraZeneca, the
    company that makes Prilosec, followed the now all too common strategy
    of brand-name manufacturers--it sued its generic competitor, triggering
    an automatic 30-month stay on the FDA's approval of the generic.
    Meanwhile, AstraZeneca is using its marketing prowess to quickly get
    Prilosec users to switch over to another drug it makes, Nexium. And my
    state Medicaid program has spent over $600,000 on Prilosec since its
    patent expired.
        I know you will hear from PhRMA and the big drug companies that if
    Hatch-Waxman is reformed, there will be less innovation, less research
    and development of new drugs. However, according to the Kaiser Family
    Foundation, brand-name drug companies spent more than twice as much on
    advertising, marketing and administration as they did on research and
    development in every year from 1990 through 2000.\4\
    ---------------------------------------------------------------------------
        \4\ Prescription Drug Trends, The Henry J. Kaiser Family
    Foundation, November 2001.
    ---------------------------------------------------------------------------
        Let me be clear that I am not here today as a cheerleader for the
    generic drug industry. Unfortunately, there is increasing evidence that
    some generic companies engage in collusion with brand name companies to
    take advantage of Hatch-Waxman loopholes for their mutual benefit and
    successfully delay entry of lower-priced generic products.
        Brand name drug companies and many generic companies are doing
    quite well under the current Hatch-Waxman Act. State taxpayers, seniors
    and businesses are not.
        I encourage this Committee and all of Congress to act this year to
    stop the anti-competitive practices that result from loopholes in the
    Hatch-Waxman Act.
                                     ______

        Senator Dorgan. Governor Shaheen, thank you very much for
    your testimony. Next we will hear from the Chairman of the
    Federal Trade Commission, Mr. Muris. Mr. Chairman?

                   STATEMENT OF HON. TIMOTHY MURIS,
                   CHAIRMAN, FEDERAL TRADE COMMISSION

        Mr. Muris. Thank you very much, Senator. This is an
    important subject, and I am pleased to be here to testify today
    on behalf of the Commission regarding competition in
    pharmaceuticals. As others have stated, it's clear that the
    innovations in pharmaceuticals are providing more and more
    benefits to consumers, but it's also clear that the costs are
    exploding.
        The Hatch-Waxman Act represented a compromise. To a large
    degree, the law has succeeded. By purchasing generics,
    consumers have saved billions. Many branded drugs are set to
    have their patents expire in the next 4 years. There should be
    an increase in the substantial savings.
        Because of the significance of pharmaceutical expenditures,
    the Commission has been very active in this area. We have
    investigated abuses of the Hatch-Waxman amendments to delay
    generic entry. We also identify and analyze and report on a
    wide range of competition issues, including in the
    pharmaceutical area.
        In terms of law enforcement, we have what I refer to as two
    categories of cases. The first generation of cases involves
    agreements between makers of brand-name drugs and generic
    drugs. In essence, the branded company pays the generic company
    not to compete. The Commission has brought three such cases.
    Part of one is currently in litigation. We settled part of that
    litigation very recently with American Home Products. Under the
    Commission's order, American Home Products cannot enter
    agreements in which the branded manufacturer pays the generic
    for delayed entry, or in which the generic agrees not to enter
    with a non-infringing product. This settlement is very similar
    to one that we achieved involving Abbott and Geneva in 2000 and
    a settlement with Hoechst and Andrx in 2001.
        The second generation involves unilateral action by branded
    manufacturers to delay generic competition. For example, as has
    been described here this morning, some branded firms list
    additional patents with the FDA in Orange Book, often shortly
    before the original patents expire. These branded manufacturers
    then launch patent infringement suits against firms that are
    poised to enter the market. Under Hatch-Waxman, such litigation
    triggers an automatic 30-month stay.
        I'm pleased to announce today the Commission's first
    enforcement action in this area, a settlement with Biovail
    Corporation. The complaint alleges that Biovail unlawfully
    acquired an exclusive patent license to protect its monopoly in
    the market for Tiazac and generic versions of Tiazac. This is a
    drug that's used to treat high blood pressure and chronic chest
    pain. The acquired license was for a patent on a unique
    formulation of the active ingredient in the drug. We also
    allege that Biovail maintained its monopoly by wrongfully
    listing the acquired patent in the Orange Book and making
    misleading statements to the FDA.
        To resolve these charges, Biovail must divest part of its
    exclusive patent rights. The order also prohibits Biovail from
    wrongfully listing any patents in the Orange Book. It prevents
    any action by Biovail that would trigger a statutory stay on
    generic entry, and it also requires Biovail to notify us prior
    to acquiring patents that will be listed in the Orange Book.
        Through an amicus brief, we also helped achieve an
    important result in another Orange Book listing case, this one
    involving Bristol-Meyers. In February, a federal district court
    judge ruled that listings in the Orange Book were not petitions
    to the government. This is an extremely important ruling,
    because if Orange Book listings are petitions, they could be
    exempt from antitrust under the Noerr-Pennington Doctrine,
    which is an issue of longstanding interest to me.
        Finally, to complement our law enforcement, we are studying
    competition in the sale of prescription drugs and the impact of
    generic competition under the Hatch-Waxman Act. We're examining
    the business relationships between brand name and generic drug
    manufacturers. Last April, 6 months after our request to OMB,
    we received clearance to conduct the study. Pursuant to Section
    6(b) of the Federal Trade Commission Act, the Commission has
    since issued nearly 90 special orders to branded and generic
    manufacturers. We did not have the bulk of this compliance
    until the end of last year. We're compiling the information. We
    expect that the study will soon be completed with a report
    detailing its findings.
        There are, however, a few tentative observations that are
    possible based on our initial review of the data. First, some
    pharmaceutical companies, including both brands and generics,
    employ potentially anti-competitive strategies involving
    Paragraph IV certifications. These strategies have evolved
    following the FTC's announcement of consent orders in the
    first-generation cases that I mentioned.
        Second, the FDA's grant of the 180-day marketing
    exclusivity provision has increased substantially since the
    courts eased the rules governing how the FDA grants such
    exclusivity. Third, interim payment agreements that were used
    in our two initial first-generation cases appear to be
    uncommon. Finally, the majority of patents subject to Paragraph
    IV certifications that result in patent infringement litigation
    involve formulation and method of use. These are not the
    patents on the active ingredient contained in the drug product.
        We will continue to be very active in protecting consumers
    from anti-competitive practices that inflate drug prices.
    Indeed, since my arrival, we've dramatically increased our
    resources on non-merger healthcare and pharmaceuticals, in
    particular, but also in other healthcare areas. We look forward
    to working closely with the Committee, as we have in the past.
    I want to thank you, on behalf of the Commission, for your
    support of our work.
        [The prepared statement of Mr. Muris follows:]

                     Prepared Statement of Timothy Muris,
                       Chairman, Federal Trade Commission

    I. Introduction
        Mr. Chairman, I am Timothy J. Muris, Chairman of the Federal Trade
    Commission. I am pleased to appear before the Committee today to
    testify on behalf of the Commission regarding competition in the
    pharmaceutical industry.\1\
        Advances in the pharmaceutical industry continue to bring enormous
    benefits to Americans. Because of pharmaceutical innovations, a growing
    number of medical conditions often can be treated more effectively with
    drugs and drug therapy than with alternative means (e.g., surgery). The
    development of new drugs is risky and costly, however, which has an
    impact on the prices of prescription drugs. Likewise, the development
    of generic drugs also can be risky and costly. Expenditures on
    pharmaceutical products continue to grow. According to the Employee
    Benefit Research Institute, such expenditures increased 92 percent over
    the past five years, to $116.9 billion.\2\ Pharmaceutical expenditures
    are thus a concern not only to individual consumers, but to government
    payers, private health plans, and employers as well.
        To address the issue of escalating drug expenditures, and to ensure
    that the benefits of pharmaceutical innovation would be available to
    the broadest group of healthcare consumers possible, Congress passed
    the Hatch-Waxman Amendments \3\ to the Food, Drug and Cosmetic Act
    (``FDC Act'').\4\ The Hatch-Waxman Amendments were intended to promote
    robust competition in the pharmaceutical industry and, to a large
    degree, have succeeded.\5\ The Congressional Budget Office estimates
    that, by purchasing generic equivalents of brand name drugs, consumers
    saved $8-10 billion on retail purchases of prescription drugs in 1994
    alone.\6\ With patents on branded drugs having combined U.S. sales of
    almost $20 billion set to expire within the next four years,\7\ these
    already substantial savings are likely to increase dramatically.
        Yet, in spite of this remarkable record of success, the Hatch-
    Waxman Amendments have also been subject to abuse. Although many drug
    manufacturers--including both branded companies and generics--have
    acted in good faith, some have attempted to ``game'' the system,
    securing greater profits for themselves without providing a
    corresponding benefit to consumers. It is these anticompetitive efforts
    that the Federal Trade Commission has addressed. The nature of that
    response, both past and present, is the principal subject of this
    testimony.
        Over time, the Commission has developed significant expertise
    regarding competition in the pharmaceutical industry. The Commission
    has, for example, brought antitrust enforcement actions affecting both
    branded and generic drug manufacturers.\8\ The Commission has also
    conducted empirical analyses of competition in the pharmaceutical
    industry, including in-depth studies by the staff of the Bureau of
    Economics.\9\ The Commission's efforts have included filing comments
    with the Food and Drug Administration (``FDA'') regarding the
    competitive aspects of Hatch-Waxman implementation,\10\ as well as
    previous testimony before Congress.\11\ Furthermore, individual
    Commissioners have addressed the subject of pharmaceutical competition
    before a variety of audiences, both to solicit input from affected
    parties and to promote dialogue regarding practical solutions.\12\
        The subject of this testimony, however, is more limited. This
    testimony addresses the Commission's efforts to ensure efficient
    operation of the Hatch-Waxman process directly through vigorous
    enforcement of the antitrust laws. To date, these efforts principally
    have entailed litigation relating to settlements between brands and
    generics alleged to be anticompetitive; this testimony refers to those
    as ``first generation litigation.'' More recently, the Commission has
    progressed to ``second generation litigation,'' involving issues such
    as allegedly improper Orange Book listings. We are also examining
    potentially anticompetitive settlements between generics themselves.
    This testimony will also briefly address the Commission's non-
    litigation efforts, which include an ongoing industry-wide study of
    pharmaceutical competition, as well as continuing inter-agency
    discussions with the FDA.

    II. Regulatory Background: The Hatch-Waxman Drug Approval Process

    A.The Hatch-Waxman Balance
        The stated purpose of the Hatch-Waxman Amendments is to ``make
    available more low cost generic drugs.'' \13\ The concern that the
    FDA's lengthy drug approval process was unduly delaying market entry by
    low-cost generic versions of brand-name prescription drugs motivated
    Congress's passage of the Amendments. Because a generic drug
    manufacturer was required to obtain FDA approval before selling its
    product, and could not begin the approval process until any conflicting
    patents on the relevant branded product expired, the FDA approval
    process essentially functioned to extend the term of the branded
    manufacturer's patent monopoly. To correct this problem, Congress
    provided in the Amendments that certain conduct related to obtaining
    FDA approval, which would otherwise constitute patent infringement,
    would be exempted from the patent laws.
        This limited objective, however, was in no way intended to
    undermine fundamental intellectual property rights. Congress continued
    to regard patent protection as critical to pharmaceutical innovation,
    and as an important priority in its own right. The Hatch-Waxman
    Amendments thus represented a compromise: an expedited FDA approval
    process to speed generic entry balanced by additional intellectual
    property protections to ensure continuing innovation. As one federal
    appellate judge explained, the Amendments ``emerged from Congress's
    efforts to balance two conflicting policy objectives: to induce brand-
    name pharmaceutical firms to make the investments necessary to research
    and develop new drug products, while simultaneously enabling
    competitors to bring cheaper, generic copies of those drugs to
    market.'' \14\
        Pursuant to the FDC Act, a branded drug manufacturer seeking to
    market a new drug product must first obtain FDA approval by filing a
    New Drug Application (``NDA''). At the time the NDA is filed, the NDA
    filer must also provide the FDA with certain categories of information
    regarding patents that cover the drug that is the subject of its
    NDA.\15\ Upon receipt of the patent information, the FDA is required to
    list it in an agency publication entitled ``Approved Drug Products with
    Therapeutic Equivalence,'' commonly known as the ``Orange Book.'' \16\
        Rather than requiring a generic manufacturer to repeat the costly
    and time-consuming NDA process, the Amendments permit the company to
    file an Abbreviated New Drug Application (``ANDA''), which incorporates
    data that the ``pioneer'' manufacturer has already submitted to the FDA
    regarding the branded drug's safety and efficacy. The object of the
    ANDA process is to demonstrate that the generic drug is
    ``bioequivalent'' to the relevant branded product.\17\ The ANDA must
    contain, among other things, a certification regarding each patent
    listed in the Orange Book in conjunction with the relevant NDA.\18\ One
    way to satisfy this requirement is to provide a ``Paragraph IV
    certification,'' asserting that the patent in question is invalid or
    not infringed.\19\
        Filing a Paragraph IV certification potentially has significant
    regulatory implications, as it is a prerequisite to operation of two
    significant provisions of the statute. The first of these is the
    automatic ``30-month stay'' protection afforded patents. An ANDA filer
    that makes a Paragraph IV certification must provide notice, including
    a detailed statement of the factual and legal basis for the ANDA
    filer's assertion that the patent is invalid or not infringed, to both
    the patent holder and the NDA filer.\20\ Once the ANDA filer has
    provided such notice, a patent holder wishing to take advantage of the
    statutory stay provision must bring an infringement suit within 45
    days.\21\ If the patent holder does not bring suit within 45 days, the
    FDA must approve the ANDA immediately, if other regulatory conditions
    are fulfilled.\22\ If the patent holder does bring suit, however, the
    filing of that suit triggers an automatic 30-month stay of FDA approval
    of the ANDA.\23\ During this period, unless the patent litigation is
    resolved in the generic's favor, the generic cannot enter the market.
        The second significant component of the Hatch-Waxman Amendments is
    the ``180-day period of exclusivity.'' The Amendments provide that the
    first generic manufacturer to file an ANDA containing a Paragraph IV
    certification is awarded 180 days of marketing exclusivity, during
    which the FDA may not approve a potential competitor's ANDA.\24\
    Through this 180-day provision, the Amendments provide an incentive for
    companies to challenge patents and develop alternative forms of
    patented drugs.\25\ The 180-day period is calculated from the date of
    the first commercial marketing of the generic drug product or the date
    of a court decision declaring the patent invalid or not infringed,
    whichever is sooner.\26\ The 180-day exclusivity period increases the
    economic incentives for a generic company to be the first to file an
    ANDA and get to market.\27\ Of course, during the 180 days, the generic
    would compete with the branded product. After the 180 days, subject to
    regulatory approvals and determination of the outcomes of any patent
    suits, other generics can enter the market.

    B. Competitive Implications
        The ``30-month stay'' and the ``180-day period of exclusivity''
    were both a part of the Hatch-Waxman balance. The imposition of a stay
    in some cases could forestall generic competition for a substantial
    period of time. The 180-day period of exclusivity can, in some
    circumstances, limit the number of generic competitors during this
    period.\28\ Over the past few years we have learned that some branded
    and generic drug manufacturers have ``gamed'' the system, attempting to
    restrict competition beyond what the Hatch-Waxman Amendments intended.
    This testimony will now discuss our efforts to investigate vigorously
    and to prosecute such abuses.

    III. Promoting Competition through Antitrust Enforcement

    A. First Generation FTC Litigation: Settlements Between Brands and
            Generics
        Studies of the pharmaceutical industry indicate that the first
    generic competitor typically enters the market at a significantly lower
    price than its branded counterpart, and gains substantial share from
    the branded product.\29\ Subsequent generic entrants typically bring
    prices down even further.\30\ The policies of many health plans, both
    public and private, which require generic substitution whenever
    possible, accelerate this trend. These are the consumer benefits of the
    competition that the Hatch-Waxman Amendments were meant to facilitate.
    This competition substantially erodes the profits of branded
    pharmaceutical products. Although successful generics are profitable,
    their gain is substantially less than the loss of profits by the
    branded product, because of the difference in prices between branded
    and generic products. As a result, both parties can have economic
    incentives to collude to delay generic entry. By blocking entry, the
    branded manufacturer can preserve its monopoly profits. A portion of
    these profits, in turn, can be used to fund payments to the generic
    manufacturer to induce it to forgo the profits it could have realized
    by selling its product. Furthermore, by delaying the first generic's
    entry--and with it, the triggering of the 180 days of exclusivity--the
    branded and first-filing generic firms can sometimes forestall the
    entry of other generics. Patent infringement litigation settlement
    agreements between the branded manufacturer and the first-filing
    generic could be one method to effect such a collusive scheme.
        The Commission's first generation litigation focused on patent
    settlement agreements between brands and generics that the Commission
    alleged had delayed the entry of one or more generics. Resolving patent
    infringement litigation through settlement can be efficient and
    procompetitive. Certain patent settlements between brands and generics,
    however, drew the Commission's attention when it appeared that their
    terms may have maintained monopolies through abuses of the Hatch-Waxman
    regime.
        Two leading cases illustrate the Commission's efforts in the area:
    Abbott/Geneva and Hoechst/Andrx. The first of these cases involved an
    agreement between Abbott Laboratories and Geneva Pharmaceuticals, Inc.
    relating to Abbott's branded drug Hytrin. The Commission's complaint
    alleged that Abbott paid Geneva approximately $4.5 million per month to
    delay the entry of its generic Hytrin product, potentially costing
    consumers hundreds of millions of dollars a year.\31\ The complaint
    further alleged that Geneva agreed not to enter the market with any
    generic Hytrin product--including a non-infringing product--until: (1)
    final resolution of the patent infringement litigation involving
    Geneva's generic Hytrin tablets, or (2) market entry by another generic
    Hytrin manufacturer. Geneva also allegedly agreed not to transfer its
    180-day marketing exclusivity rights.
        The second case involved an agreement between Hoechst Marion
    Roussel and Andrx Corp. relating to Hoechst's branded drug Cardizem CD.
    The Commission's complaint alleged that Hoechst paid Andrx over $80
    million, during the pendency of patent litigation, to refrain from
    entering the market with its generic Cardizem CD product.\32\ As in the
    Abbott/Geneva case, the Commission also asserted that the agreement
    called for Andrx, as the first ANDA filer, to use its 180-day
    exclusivity rights to impede entry by other generic competitors.
        Both cases were resolved by consent order.\33\ The orders
    prohibited the respondent companies from entering into brand/generic
    agreements pursuant to which a generic company that is the first ANDA
    filer with respect to a particular drug agrees not to: (1) enter the
    market with a non-infringing product, or (2) transfer its 180-day
    marketing exclusivity rights. In addition, the companies were required
    to obtain court approval for any agreements made in the context of an
    interim settlement of a patent infringement action, that provided for
    payments to the generic to stay off the market, with advance notice to
    the Commission to allow it time to present its views to the court.
    Advance notice to the Commission was also required before the
    respondents could enter into such agreements in non-litigation
    contexts.
        Although the specific terms of the brand/generic settlement
    agreements challenged by the Commission in these two cases were
    particular to these cases, the cases highlight the Commission's concern
    about settlements whose primary effect appears to be to delay generic
    entry, leading to less vigorous competition and higher prices for
    consumers. Of course, not all settlements are problematic. While the
    Commission has not attempted to set forth a comprehensive list of
    potentially objectionable settlement provisions, it is possible to
    identify from the Commission's reported cases a few types of provisions
    that, within the Hatch-Waxman context, have drawn antitrust scrutiny.
    These include:

       Provisions that provide for ``reverse'' payments.
            ``Reverse'' payments (i.e., payments from the patent holder to
            the alleged infringer) may merit antitrust scrutiny, since they
            may represent an anticompetitive division of monopoly profits.

       Provisions that restrict the generic's ability to enter with
            non-infringing products. Such provisions can extend the
            boundaries of the patent monopoly without providing any
            additional public disclosure or incentive to innovate, and
            therefore have the potential to run afoul of the principles of
            antitrust law.\34\

       Provisions that restrict the generic's ability to assign or
            waive its 180-day marketing exclusivity rights. Because a
            second ANDA filer may not enter the market until the first
            filer's 180-day period of marketing exclusivity has expired,
            restrictions on assignment or waiver of the exclusivity period
            can function as a bottleneck, potentially delaying subsequent
            generic entry for an extended period.\35\

    B. Second Generation FTC Litigation: Improper Orange Book Listings

    1. In re Buspirone
        One of the principal focuses of the Commission's second generation
    litigation has been improper Orange Book listings.\36\ Unlike the
    settlement cases discussed above, which typically involve collusion
    between private parties, an improper Orange Book listing strategy
    involves abuse of the Hatch-Waxman process itself to restrain trade.
    Such conduct has raised Noerr-Pennington issues--an area of
    longstanding Commission interest.
        The Noerr doctrine--first articulated as an interpretation of the
    Sherman Act in Eastern R.R. Presidents Conf. v. Noerr Motor Freight,
    Inc.\37\ and United Mine Workers of America v. Pennington \38\--
    provides antitrust immunity for individuals ``petitioning'' government.
    While the Noerr doctrine is an important limitation on the antitrust
    laws that protects the right of individuals to communicate with
    government entities, some courts have interpreted the doctrine too
    broadly in ways that are inconsistent with Supreme Court precedent. The
    Noerr doctrine was never intended to protect what Robert Bork has
    characterized as ``[p]redation through the misuse of government
    processes.'' \39\
        One matter that arose from such a ``misuse of government
    processes'' was the Commission's U-Haul case.\40\ That case involved a
    bankruptcy situation in which U-Haul, as a creditor, was presented with
    an opportunity to participate in the reorganization of its largest
    competitor. Rather than acting in good faith, the Commission alleged,
    U-Haul used the bankruptcy proceeding to undermine its rival and sought
    to delay the reorganization in a plainly anticompetitive manner.
        To address the concern that Noerr doctrine was being interpreted
    too expansively, potentially resulting in the extension of immunity to
    misuses of government processes, we convened a Noerr-Pennington Task
    Force of Commission staff in June 2001. One of the objectives of the
    Task Force was to clarify existing aspects of the Noerr doctrine, such
    as the scope of ``petitioning'' conduct and the continuing existence of
    a misrepresentation exception to Noerr immunity. Another was to
    identify ongoing misuses of governmental processes that would
    potentially subject the participants to antitrust liability.
        One of the first potential abuses the Task Force considered was the
    improper listing of patents in the FDA's Orange Book. Pursuant to
    current policy, the FDA does not review patents presented for listing
    in the Orange Book to determine whether they do, in fact, claim the
    drug product described in the relevant NDA.\41\ Instead, the FDA takes
    at face value the declaration of the NDA filer that listing is
    appropriate. As a result, an NDA filer acting in bad faith can
    successfully list patents that do not satisfy the statutory listing
    criteria. Once listed in the Orange Book, these patents have the same
    power to trigger a 30-month stay of ANDA approval as any validly listed
    patent, thereby delaying generic entry and potentially costing
    consumers millions, or even billions, of dollars without valid cause.
        In January of this year, lawsuits relating to Bristol-Myers's
    alleged monopolization through improper listing of a patent on its
    branded drug BuSpar--consolidated in the Southern District of New York
    as In re Buspirone \42\--presented the Commission with an opportunity
    to clarify the Noerr doctrine and to have a significant impact on the
    Commission's ongoing pharmaceutical cases. Specifically, plaintiffs
    alleged that, through fraudulent patent filings with the FDA, Bristol-
    Myers caused the agency to list the patent in question in the Orange
    Book, thereby blocking generic competition with its BuSpar product, in
    violation of Section 2 of the Sherman Act.\43\
        As anticipated, Bristol-Myers responded to these allegations by
    filing a motion to dismiss that raised, principally, a claim of Noerr-
    Pennington immunity. Given the importance of the issue to competition
    in the pharmaceutical industry, as well as to the Commission's ongoing
    investigations, the Commission filed an amicus brief, opposing the
    motion to dismiss.\44\ On February 14, 2002, the court issued an
    opinion denying Bristol-Myers's immunity claim and accepting most of
    the Commission's reasoning on the Noerr-Pennington issue.\45\
        The court's order was broad, rejecting Bristol-Myers's claim of
    Noerr-Pennington immunity on three independent and alternative grounds.
    The first, and perhaps most important, of these grounds was that Orange
    Book filings simply do not constitute protected ``petitioning.'' The
    court agreed with the Commission's argument that an Orange Book filing
    is analogous to a tariff filing. In both cases, ``the government does
    not perform an independent review of the validity of the statements,
    does not make or issue an intervening judgment, and instead acts in
    direct reliance on the private party's representations.'' \46\ The
    court also agreed that an Orange Book filing is not incidental to
    petitioning, holding that Bristol-Myers could have listed its patent in
    the Orange Book ``without subsequently bringing infringement suits . .
    . [and] could have brought these suits without relying on its Orange
    Book listing.'' \47\
        The court further concluded that, even if Orange Book filings were
    to constitute ``petitioning,'' application of two specific exceptions
    to the Noerr doctrine--the Walker Process and ``sham'' exceptions--
    would preclude a finding of antitrust immunity. Under Walker
    Process,,\48\ a patent holder may be subject to antitrust liability for
    attempting to enforce a patent procured through fraudulent
    misrepresentations to the Patent and Trademark Office (``PTO''). The
    Buspirone court concluded that the Orange Book listing and patent
    prosecution processes were sufficiently analogous to warrant extension
    of the Noerr exception beyond the PTO context, and that plaintiffs'
    allegations satisfied Walker Process.\49\
        Under the ``sham'' exception, the opponent of Noerr immunity must
    demonstrate that defendant's petitioning conduct--in this case, Bristol
    Myers's patent filing with the FDA--was ``objectively baseless.'' \50\
    After an examination of the prosecution history of Bristol-Myers's
    patent, as well as the specification and claims, the Buspirone court
    concluded that the filing was, indeed, ``objectively baseless.'' The
    court further observed that Bristol-Myers's argument to the contrary
    ``ignores the law and tries to justify taking property that belongs to
    the public.'' \51\
        In light of the Buspirone decision, and the underlying force of the
    court's reasoning, the Noerr-Pennington doctrine may not prove as large
    an obstacle to using the antitrust laws to remedy improper Orange Book
    filings as some may have anticipated. It is worth noting, and indeed
    emphasizing, that Buspirone does not mean that all improper Orange Book
    filings will give rise to antitrust liability. Any antitrust liability
    must necessarily be predicated on a clear showing of a violation of
    substantive antitrust law. But, under Buspirone, Orange Book filings
    are not immune from those laws or exempt from their scrutiny.

    2. Biovail (Tiazac)
        Today, the Commission is announcing that it has accepted for public
    comment an agreement and proposed consent order with Biovail
    Corporation,\52\ settling charges that Biovail illegally acquired an
    exclusive patent license and wrongfully listed that patent in the
    Orange Book for the purpose of blocking generic competition to its
    branded drug Tiazac. This is the Commission's first enforcement action
    to remedy the effects of an allegedly anticompetitive Orange Book
    listing.
        Prior to the events giving rise to the Commission's complaint,
    Biovail had already triggered a 30-month stay of FDA final approval of
    Andrx's generic Tiazac product, by commencing an infringement lawsuit
    against Andrx. Andrx prevailed in the courts, however, so that by
    February 2001, the stay would have been lifted. According to the
    Commission's complaint,\53\ Biovail, in anticipation of pending
    competition from Andrx, undertook a series of anticompetitive actions
    to trigger a new stay and maintain its Tiazac monopoly. Just before the
    stay was to terminate, Biovail acquired a newly issued patent from a
    third party and listed it in the Orange Book as claiming Tiazac--
    thereby requiring Andrx to re-certify to the FDA under Paragraph IV,
    and opening the door to Biovail's suit against Andrx for infringement
    of the new patent and commencement of a second 30-month stay.
        According to the Commission's complaint, Biovail knew that the new
    patent did not claim the form of Tiazac that it had been marketing, and
    Biovail did not need this new patent to continue marketing Tiazac
    without infringement risk. In fact, the FDA later learned that
    Biovail's position was that the newly listed patent covered a new
    formulation of Tiazac that Biovail had developed only after it acquired
    and listed the patent. The newly listed patent did not cover the
    version of Tiazac that the FDA had approved and that Biovail had been
    marketing. FDA told Biovail that the new Tiazac formulation therefore
    lacked FDA approval and that it would de-list the patent from the
    Orange Book unless Biovail certified that the patent claimed the
    approved version of Tiazac.
        The Commission alleges that Biovail misleadingly represented to the
    FDA that the new patent claimed existing-and-approved, rather than
    revised-and-unapproved, Tiazac, to avoid de-listing from the Orange
    Book and termination of the stay against Andrx.\54\ The Commission
    alleges that Biovail's patent acquisition, wrongful Orange Book
    listing, and misleading conduct before the FDA were acts in unlawful
    maintenance of its Tiazac monopoly, in violation of Section 5 of the
    FTC Act,\55\ and that the acquisition also violated Section 7 of the
    Clayton Act \56\ and Section 5 of the FTC Act.
        The proposed consent order would require Biovail to divest the
    illegally acquired patent to its original owner, except as to new
    product developments outside the Tiazac market; to dismiss its
    infringement case against Andrx, which would end the stay, thereby
    allowing entry of generic Tiazac to the benefit of consumers; and to
    refrain from any action that would trigger another 30-month stay on
    generic Tiazac entry. Further, the order prohibits Biovail from
    unlawfully listing patents in the Orange Book and requires Biovail to
    give the Commission prior notice of acquisitions of patents that it
    will list in the Orange Book for Biovail's FDA-approved products. These
    measures should not only remedy Biovail's allegedly unlawful conduct,
    but also send a strong message that the Commission will act decisively
    to eliminate anticompetitive practices in the pharmaceutical industry.

    C. Settlements Between Generics
        Although agreements between first and second generic entrants have
    attracted significantly less attention to date, they too can raise
    competitive concerns and may draw antitrust scrutiny in the future. As
    in the case of agreements between brands and generics, the economic
    incentives to collude can be strong. Studies indicate that the first
    generic typically enters the market at 70-80 percent of the price of
    the corresponding brand,\57\ and rapidly secures as much as a two-
    thirds market share. The second generic typically enters at an even
    lower price and, like the first, rapidly secures market share.
    Collusion between the generics can thus be a means of preventing price
    erosion in the short term, though it may become substantially less
    feasible if subsequent ANDAs are approved and additional competitors
    enter the market.
        Two potentially competition-reducing categories of agreements are
    worth noting. The first involves exclusive distributorship
    arrangements. A second generic entrant, rather than bringing a
    competing product to market, might agree to become the exclusive
    distributor of the first entrant. Such an arrangement would essentially
    grant the second entrant an agreed-upon share of the market, rather
    than requiring it to secure that share at the expense of the first
    entrant through aggressive price competition.
        The second involves potential division of market segments. The
    first entrant might agree to market its product exclusively in one
    strength, while the second entrant agrees to market its product
    exclusively in another. Like the exclusive distributorship arrangement,
    the objective of such an agreement would appear to be less vigorous
    competition, as the agreement would simply grant each company a
    reciprocal market segment that would otherwise need to be secured
    through competition on price and other terms.
        As with any antitrust case, the analysis would depend on the actual
    facts, but, at a minimum, such arrangements would arouse significant
    interest at the Commission.

    IV. Other Commission Efforts to Promote Competition

    A. The Commission's 6(b) 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 understand better the nature
    and extent of any anticompetitive impediments to the process of
    bringing new, low-cost generic alternatives to the marketplace and into
    the hands of consumers. The study will provide a more complete picture
    of how generic drug competition has developed under the Hatch-Waxman
    Amendments, including whether agreements between branded and generic
    drug manufacturers of the types challenged by the Commission are
    isolated instances or are more typical of industry practices. In
    addition, the Commission will examine whether particular provisions of
    the Hatch-Waxman Amendments have operated as intended or have
    unintentionally enabled anticompetitive strategies that delay or deter
    the entry of generic drugs into the market.
        Last April, the Commission received clearance from the Office of
    Management and Budget (``OMB'') to conduct the study.\58\ The
    Commission has since issued nearly 90 special orders--pursuant to
    Section 6(b) of the Federal Trade Commission Act \59\--to branded and
    generic drug manufacturers, seeking information about certain practices
    that were outlined in the Federal Register notices that preceded OMB
    clearance to pursue the study.\60\ The Commission staff focused each
    special order on a specific branded pharmaceutical that was the subject
    of Paragraph IV certifications filed by a potential generic competitor,
    and, for generic manufacturers, on a specific drug product for which
    the company had filed an ANDA containing a Paragraph IV certification.
    Responses from the companies were generally completed by the end of
    2001. The Commission staff is currently compiling the information
    received to provide a factual description of how the 180-day marketing
    exclusivity and 30-month stay provisions have influenced the
    development of generic drug competition. We expect that the 6(b) study
    will be completed, and a report detailing its findings released,
    sometime this summer.
        Among other areas of interest, the Commission staff is also
    analyzing how often the 180-day marketing exclusivity provision has
    been used,\61\ how it has been triggered (i.e., by commercial marketing
    or court orders),\62\ the frequency with which branded manufacturers
    have initiated 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
    documentation of the reasons for executing the agreement, to examine
    whether agreements between branded and generic drug manufacturers--or
    between generics--may have operated to delay generic drug competition.
    In addition, the study will provide evidence about branded
    manufacturers' patent listings in the Orange Book, the timeliness of
    the listings, and how frequently generics challenge those listings.
    Finally, the study will examine whether the size of a drug product's
    sales affects the likelihood that a particular strategy will be used to
    delay generic competition.
        A few tentative observations can be made based on the ongoing
    review of the data received by the Commission, including:

       The types of potentially anticompetitive practices employed
            by pharmaceutical companies have changed direction following
            recent FTC enforcement actions. The results of the Commission's
            study, to date, suggest that some pharmaceutical companies--
            including both brands and generics--have employed a variety of
            potentially anticompetitive strategies involving Paragraph IV
            certifications, and that these strategies have changed
            direction after the FTC's announcement of consent orders in
            Abbott/Geneva and Hoechst/Andrx.

       Grants of marketing exclusivity have increased since the
            D.C. Circuit's decision in Mova Pharmaceutical Corp. v.
            Shalala. The FDA's grant of the 180-day marketing exclusivity
            has increased substantially since Mova, which eased the rules
            governing how the FDA grants the exclusivity to generic
            companies.\63\ From 1998 to 2001, the FDA has granted the 180-
            day marketing exclusivity substantially more often than it did
            from 1984 to 1998.

       Interim patent agreements \64\ appear to be uncommon. The
            two patent infringement settlement agreements discussed above--
            the Abbott/Geneva and Hoechst/Andrx agreements--were interim
            agreements. The data reviewed by the Commission to date suggest
            that this is not the norm. Most agreements have been final
            agreements that resolve patent litigation.

       Formulation and method of use patents are the most
            frequently challenged. The majority of patents subject to
            Paragraph IV certifications that result in patent infringement
            litigation involve formulation and method of use. These are not
            the patents on the active ingredient contained in the drug
            product, but the patents on how the product is formulated--for
            example, into tablets--or how the product will be used to treat
            certain health problems.

    B. Continuing Discussions with FDA
        In addition to its independent efforts, the Commission continues to
    work with FDA to ensure robust competition from generic drugs. Most
    recently, these efforts have included a Citizen Petition filed by
    Commission staff to clarify the proper content of Orange Book listings.
    The Commission staff also participated in the FDA's January 30, 2002,
    ``symposium'' on Hatch-Waxman. This event provided a forum for
    representatives from the leading trade associations of branded and
    generic drug manufacturers--the Pharmaceutical Researchers and
    Manufacturers of America (``PhRMA'') and the Generic Pharmaceuticals
    Association (``GPhA'')--to present their concerns to FDA and advocate
    specific regulatory reforms. The Commission staff participated in the
    questioning of the PhRMA and GPhA representatives and discussed with
    FDA the potential competitive impact of various regulatory approaches.
    Finally, the Commission staff continues to bring concerns to the
    attention of the FDA informally in order to encourage the
    implementation of the Hatch-Waxman drug approval process with an eye
    toward competition and consumer welfare (in addition to the traditional
    goals of safety and efficacy).

    V. Conclusion
        Thank you for this opportunity to share the Commission's views on
    competition in the pharmaceutical industry. As you can see from this
    testimony, the Commission has been and will continue to be very active
    in protecting consumers from anticompetitive practices that inflate
    drug prices. The Commission looks forward to working closely with the
    Committee, as it has in the past, to ensure that competition in this
    critical sector of the economy remains vigorous. In keeping with this
    objective, the Commission will likewise endeavor to ensure that the
    careful Hatch-Waxman balance--between promoting innovation and speeding
    generic entry--is scrupulously maintained.
    ENDNOTES
        1 The written statement represents the views of the
    Federal Trade Commission. My oral presentation and responses are my own
    and do not necessarily reflect the views of the Commission or of any
    other Commissioner.
        2 Milt Freudenheim and Melody Peterson, The Drug Price
    Express Runs into a Wall, N.Y. Times, Dec. 23, 2001.
        3 Drug Price Competition and Patent Restoration Act of
    1984, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended 21
    U.S.C. Sec. 355 (1994)).
        4 21 U.S.C. Sec. 301 et seq.
        5 The Hatch-Waxman Amendments also were intended to
    encourage pharmaceutical innovation through patent term extensions. See
    infra note 14 and accompanying text.
        6 Congressional Budget Office, How Increased Competition
    from Generic Drugs Has Affected Prices and Returns in the
    Pharmaceutical Industry (July 1998) (``CBO Study''), available at
    .
        7 Id. at 3. See also Amy Barrett, Crunch Time in Pill
    Land, Business Week 52 (Nov. 22, 1999).
        8 See, e.g., FTC v. Mylan Laboratories, Inc. et al,. 62
    F. Supp. 2d 25 (D.D.C. 1999); Roche Holding Ltd., 125 F.T.C. 919 (1998)
    (consent order); Ciba-Geigy Ltd., 123 F.T.C. 842 (1997) (consent
    order).
        9 Bureau of Economics Staff Report, Federal Trade
    Commission, The Pharmaceutical Industry: A Discussion of Competitive
    and Antitrust Issues in an Environment of Change (Mar. 1999) available
    at ; David
    Reiffen and Michael R. Ward, Generic Drug Industry Dynamics, Bureau of
    Economics Working Paper No. 248 (Feb. 2002) (``Reiffen and Ward''),
    available at .
        10 FDA: Citizen Petition, Comment of the Staff of the
    Bureau of Competition and of Policy Planning of the Federal Trade
    Commission Before the Food and Drug Administration (Mar. 2, 2000)
    available at  (recommending
    modifications to the FDA's Proposed Rule on citizen petitions intended
    to discourage anticompetitive abuses of the FDA's regulatory
    processes); FDA: 180-Day Marketing Exclusivity for Generic Drugs,
    Comment of the Staff of the Bureau of Competition and of Policy
    Planning of the Federal Trade Commission Before the Food and Drug
    Administration (Nov. 4, 1999) (``Marketing Exclusivity Comment'')
    available at  (recommending that the
    FDA's Proposed Rule on 180-day marketing exclusivity be modified to
    limit exclusivity to the first ANDA filer and to require filing of
    patent litigation settlement agreements).
        11 Testimony of Federal Trade Commission before the
    Committee on the Judiciary, United States Senate, Competition in the
    Pharmaceutical Marketplace: Antitrust Implications of Patent
    Settlements (May 24, 2001) available at .
        12 See, e.g., Sheila F. Anthony, Riddles and Lessons
    from the Prescription Drug Wars: Antitrust Implications of Certain
    Types of Agreements Involving Intellectual Property (June 1, 2000)
    available at ;
    Thomas B. Leary, Antitrust Issues in Settlement of Pharmaceutical
    Patent Disputes (Nov. 3, 2000) available at ; Thomas B. Leary, Antitrust Issues in
    the Settlement of Pharmaceutical Patent Disputes, Part II (May 17,
    2001) available at ; Timothy J. Muris, Competition and
    Intellectual Property Policy: The Way Ahead, at 5-6 (Nov. 15, 2001)
    available at .
        13 H.R. Rep. No. 98-857, pt. 1, at 14 (1984), reprinted
    in 1984 U.S.C.C.A.N. 2647, 2647.
        14 Abbott Labs. v. Young, 920 F.2d 984, 991 (D.C. Cir.
    1990) (Edwards, J., dissenting) (citations omitted).
        15 21 U.S.C. Sec. 355(b)(1).
        16 Id. at Sec. 355(j)(7)(A).
        17 Id. at Sec. 355(j)(2)(A)(iv).
        18 Id. at Sec. 355(j)(2)(A)(vii).
        19 Id. at Sec. 355(j)(2)(A)(vii)(IV).
        20 Id. at Sec. 355(j)(2)(B). Although the patent holder
    and the NDA filer are often the same person, this is not always the
    case. The Hatch-Waxman Amendments require that all patents that claim
    the drug described in an NDA must be listed in the Orange Book.
    Occasionally, this requires an NDA filer to list a patent that it does
    not own.
        21 Id. at Sec. 355(j)(5)(B)(iii).
        22 Id. For example, the statute requires the ANDA
    applicant to establish bioequivalence. See supra note 17.
        23 21 U.S.C. at Sec. 355(j)(5)(B)(iii).
        24 Id. at Sec. 355(j)(5)(B)(iv).
        25 See Granutec, Inc. v. Shalala, 139 F.3d 889, 891 (4th
    Cir. 1998).
        26 21 U.S.C. Sec. 355(j)(5)(B)(iv).
        27 There has been litigation over what acts trigger the
    180-day period of exclusivity. See infra note 63.
        28 These circumstances occur when other generic firms
    had products ready to market, were tentatively approved by the FDA, and
    were not impeded by patent litigation.
        29  See CBO Study, supra note 6; see generally Reiffen
    and Ward, supra note 9.
        30 See CBO Study, supra note 6; Reiffen and Ward, supra
    note 9, at 4.
        31 Abbott Laboratories, No. C-3945 (May 22, 2000)
    (consent order), complaint available at , and Geneva Pharmaceuticals, Inc., No. C-3946 (May
    22, 2000) (consent order), complaint available at .
        32 See Hoechst Marion Roussel, Inc., No. 9293 (May 8,
    2001) (consent order), complaint available at .
        33 The consent order in Abbott Laboratories is available
    at . The consent order in
    Geneva Pharmaceuticals is available at . The consent order in Hoechst/Andrx is available at
    . Similar issues are
    raised by another case--Schering-Plough--that is still in litigation.
    See Schering-Plough Corp., No. 9297 (complaint issued Mar. 30, 2001),
    available at . On
    April 2, 2002, the Commission resolved all claims against one of the
    three respondents, American Home Products (``AHP''), by issuing a final
    consent order. Pursuant to that order, AHP is prohibited from entering
    into two categories of agreements: (1) those in which the brand makes a
    payment to the generic in return for delayed entry, and (2) those in
    which the generic agrees not to enter the market with a non-infringing
    product. See Schering-Plough Corp., No. 9297 (consent order as to AHP
    issued Apr. 2, 2002), available at .
        34 Cf. Brulotte v. Thys Co., 379 U.S. 29, 33 (1964)
    (holding that ``enlarg[ing] the monopoly of the patent'' by collecting
    post-expiration royalties constitutes patent misuse).
        35 But see Leary, Part II, supra note 12, at 7 (arguing
    that agreements regarding waiver of 180-day exclusivity period may have
    no anticompetitive effect absent reverse payment).
        36 The Commission first raised concerns about the
    potential anticompetitive impact of improper Orange Book listings in
    American Bioscience, Inc. v. Bristol-Myers Squibb Co., et al., Dkt. No.
    CV-00-08577 (C.D. Cal. Sept. 7, 2000). See Federal Trade Commission
    Brief as amicus curiae available at . In that case, the parties sought court approval of a
    settlement containing a specific factual finding that Bristol-Myers was
    required to list American Bioscience's patent of Bristol-Myers's
    branded drug Taxol in the Orange Book. The Commission was concerned
    that the court's approval of the settlement would amount to a judicial
    finding that the patent met the statutory requirements for listing in
    the Orange Book and would prejudice parties who may later challenge the
    listing.
        37 365 U.S. 127 (1961).
        38 381 U.S. 657 (1965).
        39 Robert H. Bork, The Antitrust Paradox: A Policy at
    War with Itself 364 (Free Press 1993) (1978).
        40 AMERCO, et al., 109 F.T.C. 135 (1987).
        41 See 21 C.F.R. Sec. 314.53(f). See also Abbreviated
    New Drug Application Regulations--Patent and Exclusivity Provisions, 59
    Fed. Reg. 50338, 50343 (1994) (``FDA does not have the expertise to
    review patent information. The agency believes that its resources would
    be better utilized in reviewing applications rather than reviewing
    patent claims.''); Abbreviated New Drug Application Regulations, 54
    Fed. Reg. 28872, 28910 (1989) (``In deciding whether a claim of patent
    infringement could reasonably be asserted . . . the agency will defer
    to the information submitted by the NDA applicant.'').
        42 In re Buspirone Patent Litigation/In re Buspirone
    Antitrust Litigation, 185 F. Supp. 2d 363 (S.D.N.Y. 2002) (``In re
    Buspirone''). Some of the same plaintiffs had previously brought suit
    under the FDC Act, requesting that the court issue an order compelling
    Bristol-Myers to de-list the objectionable patent. Although plaintiffs
    prevailed at the district court level, the Federal Circuit reversed
    that decision, holding that the FDC Act did not provide a private right
    of action to compel de-listing of a patent from the Orange Book. See
    Mylan Pharmaceuticals, Inc. v. Thompson, 268 F.3d 1323, 1331-32 (Fed.
    Cir. 2001).
        43 15 U.S.C. Sec. 2.
        44 Memorandum of Law of Amicus Curiae the Federal Trade
    Commission in Opposition to Defendant's Motion to Dismiss available at
    .
        45 In re Buspirone, supra note 42.
        46 185 F. Supp. 2d at 370.
        47 Id. at 372.
        48 Walker Process Equipment, Inc. v. Food Machinery &
    Chemical Corp., 382 U.S. 172 (1965).
        49 In re Buspirone, supra note 42, at 372-75. Notably,
    the Buspirone court's decision is one of the first to apply the Walker
    Process exception outside the narrow PTO context
        50 Professional Real Estate Investors, Inc. v. Columbia
    Pictures Industries, Inc., 508 U.S. 49, 60 (1993).
        51 In re Buspirone, supra note 42, at 376.
        52 Biovail Corp. (consent order accepted for public
    comment, Apr. 19, 2002).
        53 The Commission's complaint against Biovail is
    available on the FTC's Web site, .
        54 After learning that Biovail had taken the position
    that its newly acquired patent covered a formulation of Tiazac
    developed after acquisition of the patent, the FDA contacted Biovail to
    determine whether this formulation was the same as the formulation
    approved under the Tiazac NDA. In response, Biovail submitted a
    declaration stating simply that its newly acquired patent claimed
    Tiazac and, therefore, was eligible for listing in the Orange Book. The
    Commission asserts that this declaration was misleading, because it did
    not clarify whether the term ``Tiazac'' as used by Biovail meant FDA-
    approved Tiazac (as the FDA required) or Biovail's revised form of the
    product.
        55 15 U.S.C. Sec. 45.
        56 Id. at Sec. 18.
        57 See CBO Study, supra note 6; Reiffen and Ward, supra
    note 9, at 22.
        58 The Commission was required to obtain OMB clearance
    before it could begin the study, because the number of special orders
    to be sent triggered the requirements of the Paperwork Reduction Act of
    1995, 44 U.S.C. Ch. 35, as amended.
        59 15 U.S.C. Sec. 46(b).
        60 See 65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg.
    12512 (Feb. 27, 2001).
        61 Commission staff commented to the FDA on the 180-
    exclusivity issue in connection with a proposed rulemaking. See
    Marketing Exclusivity Comment, supra note 10.
        62 21 U.S.C. Sec. 355(j)(5)(B)(iv).
        63 Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060
    (D.C. Cir. 1998); see Granutec, Inc. v. Shalala, 139 F.3d 889 (4th Cir.
    1998). In implementing the 180-day marketing exclusivity provision in
    the past, the FDA added a requirement that the first ANDA applicant
    have ``successfully defended against a suit for patent infringement''
    before the applicant is eligible for the 180-day marketing exclusivity
    period. Mova and Granutec, however, held that the FDA had exceeded its
    statutory authority in imposing the ``successful-defense requirement''
    as a prerequisite to obtaining the 180-day marketing exclusivity.
        64 An interim agreement is an agreement in effect until
    the final determination of the patent litigation.

        Senator Dorgan. Chairman Muris, thank you very much.
    Senator Schumer, thank you for being willing to stay.
        Let me just ask a brief question on the subject that Mr.
    Muris just covered. Senator Schumer, you indicated in your
    testimony that you felt that the ability to slide through the
    cracks here of Hatch-Waxman was substantial. And Mr. Muris just
    described a number of circumstances where the FTC is taking
    enforcement actions because of that. In fact, in his testimony,
    he's talking about the branded drug, Hytrin. One company paid
    another $4.5 million per month to delay the entry of the
    generic product, costing consumers hundred of millions of
    dollars a year.
        I'd ask each of you: we have some examples of specifics.
    How substantial is this? How often is it happening? Is it an
    epidemic out there, in terms of this kind of behavior and
    action to keep generics off the market?
        Senator Schumer. Well, I think that's well put. It is an
    epidemic. It started very recently, as the pharmaceutical
    industry was looking for ways, with so many blockbuster drugs'
    patents expiring, they were looking for ways to extend them.
    And many of the parts of Hatch-Waxman have been twisted and
    used far beyond what the sponsors thought. The 30-month
    automatic extension, no one thought that would be used, when it
    was passed, routinely on even frivolous filings to just get an
    extra two and a half years of the drug.
        No one even imagined when Hatch-Waxman passed that the drug
    company and the generic company--the pharmaceutical, the brand
    name, and the generic would make a deal and use the 180-day
    exclusivity to prevent other generic drug companies from
    coming.
        So, yes, this has reached an epidemic, I would say, Mr.
    Chairman. It is prevalent everywhere. I salute the FTC for
    taking some enforcement actions, but there's--first, the law
    prevents them from doing certain things, like the 30-month
    automatic stay, and, second, they'll always be playing catch-up
    ball. I think that's why we need to change the law.
        Senator Dorgan. And, Mr. Muris, is this becoming a
    customary business practice, to try to keep your competition
    out of the market? And do you have the resources to deal with
    it if it is becoming a customary business practice?
        Mr. Muris. Mr. Chairman, there are certainly many practices
    that we have seen to attempt to restrict competition. The
    practices are evolving. We have identified some agreements
    between the branded and generics, and, at least in the
    circumstances of the settlements that we've reached, I believe
    they're clearly illegal. We've recently found a decrease in
    those practices, but an increase in other practices.
        I believe we have the resources we need to investigate
    these practices. We have dramatically increased, as I
    mentioned, our resources in non-merger healthcare. Assuming
    that the Congress grants our budget request for fiscal 2003, I
    believe we will have adequate resources.
        Senator Dorgan. Mr. Muris, the pharmaceutical manufacturers
    will testify later today. They essentially say you and Mr.
    Schumer are all wet. I mean, they say, ``What are you talking
    about here? What we have is Hatch-Waxman, which is working just
    fine. It promotes competition while still protecting those that
    have legitimate patent rights. You're all wet,'' they say.
    Respond to that, please.
        Mr. Muris. Hatch-Waxman was a compromise. It had important
    benefits for both branded and generic companies. But at the
    margin, as economists like to say, there's activity that
    violates the antitrust laws and harms consumers. We've been
    aggressive in attacking that activity, and, as I said, we're
    increasing our scrutiny.
        Senator Dorgan. How substantially are you increasing your
    scrutiny? And as I asked previously, do you have the resources
    to do that in a way that gives us the assurance that people are
    protected?
        Mr. Muris. We have increased our security--for this fiscal
    year, we will spend about 50 percent more resources in non-
    merger healthcare. The vast bulk of that will be in the
    pharmaceutical area, although we're also finding problems in
    other areas in healthcare and have recently announced cases.
    This is an area where there are problems, as I've mentioned. At
    the moment, I believe we have adequate resources.
        Senator Dorgan. One final quick question. Governor Shaheen,
    you come from a state that's close to Canada, and I do, as
    well. We both know that for personal use, many of our
    constituents go across the border and access the same pill put
    in the same bottle by the same company. The only difference is
    price, and they pay a much lower price in Canada. It is also
    true, however, that your pharmacist in your state is not able
    to go across the border to access the lower-priced drug, FDA-
    approved drug, and pass those savings along to the consumer. Is
    that not correct?
        Governor Shaheen. That's absolutely correct. And I heard
    you say earlier that reimportation is one of the other issues
    that you'll be looking at, and I would urge you to do that,
    because it's not just a question of, you know, people not
    having access to those drugs. But they look at what's going on
    and the fact that if they went into Canada, they could get them
    so much cheaper, and they see it as an issue of fairness, that
    why can't we, in the United States, get those drugs at the same
    prices that they can get them in Canada.
        Senator Dorgan. I might say, it's not my intention to have
    American consumers buying prescription drugs in Canada. It is
    my intention to try to find a way to break the back of the
    price controls that exist here that are unfair to consumers,
    and one way to do that would be to allow reimportation of FDA-
    approved drugs that have a chain of custody and allow
    pharmacists and licensed distributors to access those drugs
    from Canada. And we'll be introducing some legislation, or
    announcing some legislation, on that tomorrow.
        Senator McCain.
        Senator McCain. Thank you, Mr. Chairman. Just to followup,
    Governor Shaheen, have you ever received an explanation from
    anyone as to why your citizens can drive to Canada, and mine to
    Mexico, as they do by the busload, and purchase the exact same
    drugs for half the price?
        Governor Shaheen. I've never had an explanation that I
    thought was acceptable.
        Senator McCain. Mr. Muris?
        Mr. Muris. We've not studied that issue at the Commission,
    and, quite frankly, I've seen empirical literature on both
    sides of the issue. Until I, saw----
        Senator McCain. If you need any evidence, just visit New
    Hampshire, my state, any state that has a border on Mexico or
    Canada. I don't think it'll be very hard to garner. And,
    frankly, my constituents do not understand that. They simply do
    not, nor do I. And I think it's a gross inequity, and I hope
    that the FTC will look at it.
        I want to thank Senator Schumer for his passionate,
    eloquent and informed presentation. Thank you, Senator Schumer.
    I guess citizens of New York have the same cross-border
    experiences as others.
        Mr. Muris, of the cases the FTC has looked at, in how many
    have you concluded that the pharmaceutical industry was
    attempting to either prohibit or delay the entry of generic
    drugs into the marketplace?
        Mr. Muris. We've been involved in five cases publicly where
    the Commission alleged or filed an amicus brief where we
    thought generic entry was being delayed. Sometimes it was with
    agreements with the generics, sometimes it was a unilateral
    action by the brand, and we have many other non-public
    investigations underway where we're looking at those sorts of
    charges.
        Senator McCain. Well, in the five, then, how many of those
    have you concluded that the pharmaceutical industry was
    attempting to either prohibit or delay the entry of generic
    drugs into the marketplace?
        Mr. Muris. One of those is still under litigation, but, in
    the other four, that was the conclusion of the Commission.
        Senator Dorgan. Would you yield on that point? Mr. Muris,
    you said five that you were involved in publicly. That implies
    that there are many more that you're involved in that have not
    become public. Can you describe that?
        Mr. Muris. Yes, Senator. We have numerous investigations--
    non-public investigations; under our rules until we take an
    enforcement action, the facts remain non-public--where we are
    investigating serious charges, and we anticipate we will take
    additional enforcement actions, when there have been efforts to
    delay generic competition that we believe violate the antitrust
    laws.
        Senator McCain. Have you found evidence of continuing anti-
    competitive practices or strategies?
        Mr. Muris. Yes, we have. It is very hard under the
    antitrust laws to bring a pattern case, but we are looking at
    some of those situations. I've had a longstanding interest in
    stopping the use of government processes to restrict your
    competitors in ways that were illegal under the antitrust laws.
    When I arrived at the FTC in June, we started a task force to
    look at that issue, the Noerr-Pennington defense, and we've put
    many more resources in analyzing Noerr-Pennington issues than
    had been used before I arrived.
        Senator McCain. And you mention in your testimony the so-
    called Orange Book issue that you're just getting into. How
    serious do you think that problem is?
        Mr. Muris. The Orange Book problem appears to be serious.
    The problem of subsequent or consecutive 30-month stays, I
    think, was unintended by the Hatch-Waxman Act. I think that's a
    very serious problem. There have been several allusions to
    cases that involve that this morning. That, indeed, I believe,
    is a very serious problem.
        Senator Schumer?
        Senator Schumer. Yeah, I was just going to say, I don't
    think anyone who wrote Hatch-Waxman, as in the case I mentioned
    today, would think that if you change the dosage slightly, that
    you should get another 20 years. And that's been--that was one
    of the things that was just filed. I mean, they're way out of
    line. No one would ever have imagined that this would happen.
        Senator McCain. Mr. Muris, I think that Governor Shaheen
    speaks for my Governor and the other 48 Governors when she says
    that this issue of prescription drug costs is of dramatic
    importance, and I hope that the FTC understands the priority
    that this issue needs to be given. As I mentioned in my opening
    statement, we do have seniors all over America today who are
    making a choice between their health and their income, and I
    don't think Americans should be forced to make that decision.
        Where would you rank this issue, Governor Shaheen, as to
    its importance to your citizens, particularly senior citizens,
    today?
        Governor Shaheen. It's the number one issue. It's the issue
    that I hear more as I go around the state. It is the cost of
    healthcare. And if you look at what's driving the cost of
    healthcare, as Senator Dorgan pointed out in his initial
    remarks, it's the cost of prescription drugs.
        Senator McCain. It certainly was the case made by the
    CalPERS people who, as I mentioned in my statement, have had to
    enact the greatest increase in healthcare premiums in their
    history.
        I want to thank the witnesses. Mr. Muris, I want to thank
    you for your efforts, and I hope you'll redouble those. We will
    redouble ours to try to get some legislation through, at least
    in the short term, to help the generic situation. Then,
    Congress and the American people are going to have to move on
    to the larger issue. I thank you. I thank the witnesses.
        Thank you, Mr. Chairman.
        Senator Dorgan. Senator Schumer, I understand you have to
    leave. We'll excuse you. Thank you for your presence today.
    Senator Wyden?
        Senator Wyden. Thank you, Mr. Chairman, and I want to thank
    Senator Schumer and Governor Shaheen and start with you, Mr.
    Muris.
        It's clear that through your office now, the Federal
    Government is putting substantial resources and bringing a
    significant number of settlement actions in this area. It seems
    to me that you're trying to send a powerful message to industry
    to stop gaming the system. Is that a fair characterization?
        Mr. Muris. Yes, Senator. I have two substantial priorities
    where we have announced a dramatic increase in resources. One
    is the healthcare area, particularly pharmaceuticals. The other
    is protecting consumers' privacy.
        Senator Wyden. Tell me, if you would, what you see as the
    biggest problems now with the 180-day marketing exclusivity
    section and the 30-month stay provisions? I know you've got
    your study coming out this summer, but that goes right to the
    heart, it seems to me, of how we look at reforms. I've said
    that I think this is a bare-knuckles brawl, and it's always
    been between the brand-name companies and the generic
    companies. But right now, things don't seem to be working on
    either end. The seniors can't afford the old medicines, let
    alone the new cures. And, of course, the companies are talking
    publicly about a decline in productivity. So I think it would
    be helpful if you'd tell us what you think are the biggest
    problems today, recognizing your study is still to come out,
    with those two key provisions, 180-day marketing exclusivity
    and the 30-month stay.
        Mr. Muris. As you're implying, the Commission has yet to
    take a position, so let me speak somewhat tentatively. It's
    clear, as I just mentioned, however, that the consecutive 30-
    month stay provision is a serious problem. I think there is no
    doubt about that. We have seen very late-listed patents in the
    Orange Book, and in some cases we thought that was very
    suspicious.
        On the 180-day provision, we are still evaluating to see
    the extent to which a generic sitting on the 180-days is really
    preventing other generics from entering. We're reviewing our
    data to see how prevalent that situation is. Under the old FDA
    interpretation, in essence, the FDA rewarded the 180 days as a
    prize if the generic successfully defended a lawsuit. When the
    courts struck that interpretation down, we've now had many more
    180 days handed out by the FDA, and we are studying the data to
    see just what sort of problems that's caused, if any. We hope
    to have that analysis done soon.
        Senator Wyden. As far as the consumer is concerned, we're
    facing the end of patent protection for a long stream of
    medicines. The companies have been noting that there aren't a
    whole lot of drugs in the pipeline. Are you convinced that
    we'll see more efforts to game the system, more maneuvers, if
    nothing's done?
        Mr. Muris. We are certainly seeing a large number of
    efforts to game the system. The efforts are evolving. I believe
    that the FTC's agressive enforcement of the antitrust laws has
    appeared to have put a stop to these agreements between branded
    and generics to delay entry of the generics. There are new
    tactics being used. I am hoping that court decisions, like in
    the Buspar case that said that Orange Book listing is not
    petitioning, will open the way to use antitrust to prevent the
    games that are anti-competitive.
        Senator Wyden. Tell me, if you will, about the new tactics,
    because I think that's one of the reasons why a lot of us think
    we ought to look at making some changes in the law, and at both
    ends, with respect to patents and generics. What do you think
    the new tactics are likely to be in terms of trying to get
    around the system?
        Mr. Muris. The issue that we've seen more prevalent
    recently relates to late listing of patents and in triggering
    another 30-month stay, and we think there are cases in which
    those patents are not properly listed in the Orange Book.
    Something else I mentioned in my testimony is possible
    collusion between generics. The evidence shows that one generic
    will lower prices; the addition of an additional generic will
    lower prices even more. And another possibility, what we call a
    second-generation case, would involve collusion between
    generics.
        Senator Wyden. How many of those generic collusion cases
    are you looking at now?
        Mr. Muris. Well, we are looking at some--I'm very reluctant
    to talk about non-public investigations.
        Senator Wyden. So just numbers. Just numbers.
        Mr. Muris. We are looking at some such cases.
        Senator Wyden. A significant number of cases?
        Mr. Muris. I wouldn't say a significant number, but we are
    looking at some.
        Senator Wyden. Mr. Chairman, I don't have any further
    questions at this point. But, Mr. Muris, I think it is very
    important that you all continue to work. I gather you feel
    you've got significant resources and you don't need additional
    resources for the healthcare inquiries now?
        Mr. Muris. We have dramatically improved our resources. The
    merger wave has receded, and Congress increased our budget last
    year, and we've asked for an increase for fiscal 2003. I
    believe that if that increase is granted, we will have enough.
        Senator Wyden. Thank you, Mr. Chairman.
        Senator Dorgan. Senator Wyden, thank you very much.
    Governor Shaheen, are you able to stay?
        Governor Shaheen. Yes.
        Senator Dorgan. Okay. Let me call on Senator Carnahan for
    inquiry.
        Senator Carnahan. Thank you, Mr. Chairman.
        Mr. Muris, I receive a great number of letters from
    constituents who tell me that they have family members who are
    dying of diseases which they feel could be helped if they were
    able to access generics. They have a common theme in these
    letters, that medicine should be available by generics, but had
    been held up because of what are referred to as ``sweetheart
    deals.'' This is when a drug company pays a generic
    manufacturer to hold off putting a generic on the market. A
    deal has been reached that makes it more profitable for the
    generic company simply to hold off on bringing the drug to
    market.
        What authority does the FTC have to prevent sweetheart
    deals, and what efforts are you taking to prevent those?
        Mr. Muris. Under certain circumstances, such deals can
    violate the antitrust laws. The Commission has brought three
    such cases. In two of them, we accepted consent agreements. In
    the third, we accepted a consent agreement very recently
    against one of the parties, and the rest of that case is in
    litigation.
        Senator Carnahan. Could you possibly provide me with a
    specific list of all the sweetheart deals that you have
    investigated within the last 2 years? Would that be possible?
        Mr. Muris. Yes. Yes, Senator.
        Senator Carnahan. Thank you.
        Governor Shaheen, I recently received a letter from
    Governor Holden of Missouri, who asked me to be here today
    because he felt this issue was so very important to the people
    of our state. I know that the Governors across the nation are
    struggling to keep up with the rapidly rising cost of
    prescription drugs in Medicaid. Could you discuss what impact
    enacting a Medicare senior prescription drug benefit would have
    on the Medicaid program?
        Governor Shaheen. Obviously, it would relieve much of the
    cost pressure on the program in a way that would be very
    helpful to states. As I indicated in my testimony, last year,
    46 states were surveyed as to the cost of medications that had
    their patents due to expire in the next 3 years. And the cost
    of those 17 medications for 46 states was $1.2 billion. So it's
    a significant cost that states are paying for Medicaid. It's
    the fastest-growing part of New Hampshire's State budget. I
    think that's true for almost all of the states.
        This is an issue that is of such concern, with respect just
    to the loopholes in Hatch-Waxman, that the Governors, when we
    met in February, passed a resolution calling on Congress to
    hold hearings into those loopholes and to take some action if
    it were deemed appropriate. So it's a very big issues, and we
    frankly need help from you in Congress with how we're going to
    continue to pick up the costs of Medicaid.
        Senator Carnahan. Well, if the Schumer-McCain bill does not
    pass, what options do you have to meet the high costs of
    prescription drugs?
        Governor Shaheen. Well, we will continue to struggle. One
    of the things that states are doing, as we are in New
    Hampshire, is trying to address the issue in a variety of ways.
    In New Hampshire, we've had a waiver pending before the Centers
    for Medicaid and Medicare since the fall of 2000 which would
    allow us to pass along the cost of--our costs for drugs
    purchased through Medicaid to those people in need. In New
    Hampshire, we have a very comprehensive pharmacy benefits
    management program, one that I would say was lobbied and has
    been lobbied very heavily against by PhRMA and the drug
    industry to keep us from putting that program in place.
        Senator Carnahan. Thank you very much. Thank you, Mr.
    Chairman.
        Senator Dorgan. Senator Breaux?

                   STATEMENT OF HON. JOHN B. BREAUX,
                      U.S. SENATOR FROM LOUISIANA

        Senator Breaux. Thank you very much, Mr. Chairman, and I
    thank Governor Shaheen for being with us, and, Chairman Muris,
    thank you for being with us, as well.
        I think that history is always a very eloquent teacher and
    somewhat a predictor of the future. And I think if you look at
    the history of Hatch-Waxman, Mr. Chairman, it was intended,
    obviously, to try and bring a greater degree of balance to the
    question of how drugs are bought in this country, whether it
    was going to be brand-name drugs or whether it was going to be
    generics. And it was sort of the purpose to try and reach a
    balance. It was a very difficult debate. Many of us in this
    Committee were involved in it in other capacities.
        I remember, in 1984, when Hatch-Waxman was first adopted,
    generics constituted about 19 percent of the total market for
    prescription drugs. I understand that last year, the year 2001,
    it's up to about 49 percent.
        It would seem to me that, by any measure of whether Hatch-
    Waxman did the job of getting a greater utilization of
    generics, those statistics tell a very clear story. Generics
    are now about 49 percent of all the drugs that are bought in
    this country. It used to be 19. So I think if we look at Hatch-
    Waxman and ask the question, did it move the utilization of
    generics to the American public, the answer is clearly yes, it
    has done so.
        I'd like to ask you, Mr. Chairman, about the role that you
    have in your agency with regard to regulating this area. My
    information is that, since Hatch-Waxman, there have been about
    8,000 new generic drugs that brought onto the market. And of
    the 8,000 that have been brought on the market, probably around
    500 have had some patent disputes with regard to them. And
    you're telling this Committee this morning that of the 8,000
    new drugs, there's been approximately three cases that have
    actually been brought to this point of being litigated or are
    disputed in a court settlement. Is that about right?
        Mr. Muris. The Commission itself has been involved in five
    cases. There are other cases in the private sector. Under the
    antitrust laws, Senator, as you're aware, private individuals
    can sue as well. As I stated in my oral statement and in my
    written testimony, I do believe the Hatch-Waxman Act has had
    significant success in increasing competition from generics.
        Senator Breaux. That's the point, to put this in
    perspective. We had 19 percent of the market was generics. Now
    we've got 49 percent of the market is generics. Eight thousand
    new generics have been brought onto the marketplace since
    Hatch-Waxman was passed, and 3--or 5, I'm sorry--5 have been
    pursued aggressively by the FTC. I think, by any standard of
    patent disputes and other products that are always being
    litigated, that is a pretty astounding record, I think, for
    having a system that seems to be working, I think, quite well.
        It's not easy to bring a balance here. I mean, you can look
    at the 30-day extension as being a system that the brand names
    try to game to keep their patents extended for a little bit
    longer, although my understanding is that the 30-day extension
    does not in any way involve a patent extension. Can it not only
    be brought during the life of a patent?
        Mr. Muris. Well, the problem----
        Senator Breaux. It's still in place when the 30-day
    extension is applied. Is that correct?
        Mr. Muris. Yes. There are really two issues that are raised
    on the 30-month extension issue. One is----
        Senator Breaux. 30-month, I'm sorry. Excuse me.
        Mr. Muris. One is whether it was intended at the time
    Hatch-Waxman passed that there could be successive 30-month
    stays. The other issue, the issue that we deal with more
    directly, are these efforts that Senator Wyden talked about to
    game the system in ways that violate the antitrust laws by the
    very late listing of additional patents or new patents when a
    generic is poised to enter. The Biovail settlement that we're
    announcing today involved just such a case. We allege two
    violations of the antitrust laws in attempting to deter
    competition from generics.
        Senator Breaux. What about the 180-day? That allows a
    generic, what, to come into the market if that is granted,
    without any other generic competing?
        Mr. Muris. Yes, Senator, as part of the compromise, it's
    meant to be a sweetener or an inducement for generics.
        Senator Breaux. Well, I think that you all are probably
    doing a very good job. I mean, this is a very complicated, very
    detailed, lawyers all over the place trying to engage in these
    multibillion-dollar battles, and I just happen to think that
    Hatch-Waxman was an incredible effort, and a lot of people said
    it would never work. I think the evidence clearly indicates
    that it, in fact, has worked very well. When you increase the
    market share from 19 percent to almost 50 percent of every drug
    sold in this country, I think, by any standard, that is a
    remarkable achievement.
        And I know that the answer to the prescription drug costs
    in this country is to make, for seniors, a portion of Medicare
    cover prescription drugs and try to reform an outdated program,
    like Medicare, at the same time. I think that truly is the
    answer.
        The fact that prescription drugs now make up 16 percent of
    all the healthcare costs in this country is not that alarming
    if prescription drugs are used to keep people out of hospitals
    in the first place or keep them in hospitals for a shorter
    period of time. That is a wise utilization of the health
    dollars in this country.
        And so, anyway, I just think Hatch-Waxman has been pretty
    effective, and I yield back my time.
        Senator Dorgan. Senator Edwards?

                    STATEMENT OF HON. JOHN EDWARDS,
                    U.S. SENATOR FROM NORTH CAROLINA

        Senator Edwards. Thank you, Mr. Chairman.
        Let me say, first of all, that I think that our drug
    industry is the most creative in the world. I think they're
    entitled to profit from that creativity. I think all of us
    have, in fact, profited from that creativity. We have, in my
    State of North Carolina, in the Research Triangle, Glaxo, who
    has done groundbreaking work in a lot of different areas.
        But I think it's also clear, at the same time, that legal
    maneuvers and loopholes have been used in an abusive way. And
    unfortunately, it's the American consumer, and particularly the
    seniors citizens, that are paying the price for that. I think
    that Senator McCain and Senator Schumer have a terrific bill
    that has some very good ideas in it.
        I do think there are three areas, two of which they
    address, one that they don't, that could stand some additional
    work. First, deterring meritless patent filings, FDA listings,
    and patent lawsuits. Second, making sure drug companies don't
    abuse the exclusivity period they get when they develop new
    uses for drugs. And third, streamlining the patent adjudication
    process. And in addition to the work this Committee's doing,
    which is so important, as a member of the Health Committee, my
    intention is to make sure that these loopholes are closed, if
    at all possible, by the end of this year because of the effect
    it's having on people.
        Mr. Muris, I want to ask you about this Orange Book
    problem, because at least in my legal experience, there seems
    to be a serious problem. As I understand it, the way this
    process works, if a brand claims that a patent applies to a
    particular drug, the FDA basically takes their word for it and
    they list it. And they can say, you know, this is a new patent
    for Drug X even though the patent is actually for Drug X. And
    the FDA just sticks it in the book if they say that. Is that
    basically the way the process works?
        Mr. Muris. Yes, Senator. The FDA does not, for the most
    part, do an independent evaluation of the patents, and that's
    given rise to some of the problems.
        Senator Breaux. And then, once it's listed in the book
    through that process, from the brand just saying it should be
    listed, then what happens is, in order for the generic to come
    to the market, in order for there to be competition in the
    market, they have to challenge the patent. And once a challenge
    to the patent is brought, through litigation, then there's an
    automatic 30-month stay. Is that right?
        Mr. Muris. Yes. It's the shorter of 30 months or until the
    district court decision, and sometimes the district courts take
    longer than that.
        Senator Edwards. It's at least 30 months, though.
        Mr. Muris. Well, it could be shorter if the district court
    decides----
        Senator Edwards. In less than 30 months.
        Mr. Muris.--in less than 30 months, right.
        Senator Edwards. All right. Well, just in my experience, I
    can't think of another example where, by filing a lawsuit,
    somebody gets two and a half years of relief, no matter how
    much merited or meritless the lawsuit is.
        And here's my concern. Is there not a way to set up a
    process whereby the FDA exercises at least more information-
    gathering authority over this listing process? I understand
    there can be a debate about whether they ought to have the
    discretionary authority, and I know that, I guess, abuts
    against the Noerr-Pennington problem that you talked about
    earlier. But my concern is, there not a way for them to ask for
    more specific information so that they can, in fact, -provide
    and make better information available about whether this
    particular drug ought to be listed in the way that the brand
    claims it should be listed in the Orange Book?
        Mr. Muris. I certainly don't want to pretend to speak for
    the FDA, but let me address a couple of developments that are
    occurring. The FDA did recently hold a session, in which we
    participated, with representatives from generics and from
    branded drug companies, where they talked about some of the
    issues under Hatch-Waxman. I personally believe that there are
    at least a few issues where the FDA could provide clearer
    guidance without having to second-guess the validity of patents
    and becoming patent lawyers.
        Senator Edwards. Well, my concern with this is it seems to
    me that the way we're doing it now is, we're leaving it to
    litigation in the courts, which is a very expensive, time-
    consuming process. I think it would be a better process if the
    FDA had more oversight and we left less of it to the litigation
    process. That's basically my notion. Can you comment about
    that?
        Mr. Muris. Well, I do believe that there are some areas
    where that is, indeed, the case, and I think that the fact that
    the FDA held the session to talk about the issues indicates
    some willingness on their part to move in the direction that
    you're talking about.
        Senator Edwards. Thank you. Governor, thank you for being
    here. Thank you for the leadership you've shown on this
    particular issue. We have the same problems in North Carolina
    that you have in New Hampshire, and I wonder, you mentioned
    this briefly in your testimony and in answer to a previous
    question, but I wonder if you could talk a little more
    expansively about your waiver request, what your plan is, what
    it is you hope to accomplish, because I think all of us are
    looking for creative solutions to the dilemma we find ourselves
    in.
        Governor Shaheen. I'd be happy to do that, Senator. If I
    might, though, go back to the issue that was raised earlier,
    first, about the share of the generic market that is now out
    there since Hatch-Waxman, because I would certainly agree with
    Senator Breaux and others who have talked about the success of
    the Hatch-Waxman Act in bringing new generics onto the market.
    And it has been very successful. The number that was cited to
    me by PhRMA was that the rate has increased from 18 percent to
    45 percent of the market. But the fact it's been that 45
    percent of the market for the last 8 years, and the brand-name
    industry makes up fully 92 percent of expenditures, of all
    expenditures, on pharmaceuticals. So while we've seen a
    dramatic increase, I think we still have a long way to go in
    terms of providing real competition to the brand-name drugs.
        To go back to your question about what are we doing with
    the waiver, we followed the very positive lead of Maine and
    Vermont, who put in programs that allowed them to pass along
    the savings that they were able to make from the states
    purchase of Medicaid drugs, because we can get those drugs at a
    lower cost than people can get them on the market. And what we
    wanted to do was to pass along those savings to people who were
    income-eligible in our state, up to about 200 percent of the
    poverty level.
        We put in a waiver that was modeled on the successful
    programs in Maine and Vermont that had been approved. About the
    time we did that, the Vermont program was sued by the
    pharmaceutical industry. The Vermont program lost in court to
    the industry, and our waiver has been on hold since then.
        What we would have been able to do, had that been approved,
    would be to provide up to about a 35-percent discount on the
    cost of prescription drugs for the senior citizens of New
    Hampshire who were income-eligible.
        Senator Edwards. In the Maine program, they were taken to
    court and they won their case in court, as I understand it. Is
    that correct?
        Governor Shaheen. That's correct. The Maine program had a
    different component that they were successfully able to argue
    in court.
        Senator Edwards. And just one last question, Mr. Chairman.
    Mr. Muris, when you all bring these cases, based on these
    companies engaging an anti-competitive behavior, and assuming
    they've made millions and millions of dollars in profits as a
    result, are you able to make them disgorge those millions of
    dollars in profits in your action?
        Mr. Muris. The Commission has the authority to bring
    disgorgement actions. Thus far, there have been follow-on
    private actions, which are still underway. We've just received
    comments on the situations in which the Commission should use
    disgorgement, and I hope we can announce the----
        Senator Edwards. But you haven't been doing that in the
    past. Is that correct?
        Mr. Muris. Not in the drug cases, no.
        Senator Edwards. Okay. Thank you, Mr. Chairman.
        Senator Dorgan. Senator Rockefeller?

               STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
                    U.S. SENATOR FROM WEST VIRGINIA

        Senator Rockefeller. Thank you, Mr. Chairman.
        I just wanted to clarify further, because I think this
    needs to be stated and understood, what Governor Shaheen said,
    and that is that of the 50 leading brand drugs last year, I
    think five made it into the generic in 2001 category, into the
    generic category. And it is true that generic drugs make up 42,
    45, 49 percent, whatever it is. But of the $141 billion that
    was spent at the retail level to get those, only about $8
    billion or 8 percent came from generic drugs. And if you put
    that another way, 58 percent of all prescriptions accounted
    for--of the brand-drug names, 92 percent of the total retail
    costs came from prescription drugs, brand drug. So there's two
    sides to this. One is the percentage, and second is the cost.
    And what you have been talking about primarily is the
    difficulties that you have in dealing with cost.
        And that leads me to ask you: you have, in your statement,
    indicated that your Medicaid program spent almost $5 million,
    on 15 brand-name drugs that faced patent expiration between
    2002 and December 2004. Now, if there were timely market
    competition on those 15 drugs, you could save approximately
    $2.5 million annually in Medicare drug costs.
        John asked this question--Senator Edwards asked this
    question, but it bears hearing by all. You know, that's called
    a big repercussion. When we passed the $100 billion tax cut,
    our most recent one, that cost my state, which, like yours, is
    small and rural, $86 million in Medicaid, in essence. It means
    it gives the Governor the choice, but it's very hard to go to a
    lot of different places. So that's $86 million over 3 years,
    and we're not facing up to FMAP, which would put back, if we
    did that, under, frankly, a bill I had, put back more money
    into West Virginia and your state. Not everybody is burdened
    with this problem--California and some others. But we are. And
    so that whole question of Medicaid money and the cost of it and
    how you do your budgeting in small states like ours is huge.
        And I don't think you need to make additional comments, but
    I wanted to make that clear.
        Governor Shaheen. Thank you.
        Senator Rockefeller. Mr. Muris, on the Orange Book
    question, again, Senator Edwards asked this question. And there
    are ways of dealing with this. But they don't exist now. And
    there really isn't any authority or power that either the FDA
    or the FTC has to deal with the Orange Book question at the
    present moment. So if you are to, for example, look to that
    Orange Book wherein any patent can be entered without scrutiny,
    you're going to need a change in legislation or a change in
    your authority unless the FDA can do it on its own. And I don't
    think that's the case.
        So is there any power at this point, either through rules
    and regulations or through legislation, for anybody to do
    anything about frivolous lawsuits, which Senator Edwards
    referred to, in terms of the Orange Book, which is all-powerful
    and totally unknown to the American people?
        Mr. Muris. In some circumstances, I believe there is.
        Let me just amend the record in a response to Senator
    Edwards' question. We did have one disgorgement case that
    didn't involved Hatch-Waxman but did involve drugs. In the
    Mylan case, the Commission obtained $121 million, but it was
    not a Hatch-Waxman case.
        Frivolous lawsuits, under certain circumstances, can
    violate the antitrust laws. The amicus brief that I mentioned
    and the case that we're announcing today are both cases where
    we believe there were wrongful listings, in violation of the
    antitrust laws, in the Orange Book. Also, I believe that, under
    its current authority, there are some steps that the FDA could
    take.
        But your general point, Senator, in terms of, for example,
    the consecutive 30-month stay issue, you would need new
    legislation to address that issue.
        Senator Rockefeller. The FDA could scrub the Orange Book if
    it had legislation. There could be the inability to repeat 30-
    day stays. There could be the eventual elimination of 30-day
    stays. Would those require legislation?
        Mr. Muris. Yes, Senator. As I said, there are some steps
    that could be taken without new legislation, but the steps that
    you suggest would require legislation.
        Senator Rockefeller. One of the things that I'm pleased to
    say, Mr. Chairman, is that Senator McCain and Senator Schumer
    have introduced a bill, as have I, and they work together quite
    well in being able to handle a number of these problems. And I
    think it's incredibly important, in anybody's analysis of the
    scheme of things, that generic drugs make a dent in the retail
    cost to users. Because the percentage of what they represent,
    as opposed to brand names, is only important as we have
    hearings of this sort. What's important to consumers is what it
    costs and, therefore, what they're going to buy. And I think,
    under the present situation, you have--under the Orange Book
    situation, you--I mean, they can literally break, brand-name
    manufacturers can break these down into what's called
    metabolite items: the color of the pill, the splitting of the
    pill, all kinds of things can become subjects for suits and,
    hence, the 30-month stay.
        I don't think it takes a wizard to figure that this is a
    loophole and one which should be closed. And I think doing it
    intelligently and, as Senator Edwards indicated, not in a
    manner to be punitive to pharmaceutical companies, who do, in
    fact, have to make profits in order to keep the 30,000 or so
    researchers which they have hard at work, but which also gives
    people the opportunity to afford the prescription drugs which
    they need in order to live. And particularly where you're
    dealing with seniors who may have a total of $10,000 gross
    income, and they're spending $6,000 or $7,000 of that on
    prescription drugs. I mean, the whole concept of a generic,
    then, doesn't become academic, but becomes profoundly real.
        Do you any comments, Governor?
        Governor Shaheen. You stated it very well.
        Senator Rockefeller. Thank you, Mr. Chairman.
        Senator Dorgan. Senator Rockefeller, thank you very much.
    Let me thank Chairman Muris and Governor Shaheen for your
    testimony today. It's very helpful. And your entire statement
    will be a part of the permanent record. We will excuse you and
    we will ask the second panel to come forward.
        The second panel consists of Ms. Marian Wolff; Dr. Greg
    Glover who represents the Pharmaceutical Research and
    Manufacturers of America organization; Ms. Kathleen Jaeger,
    president and chief executive officer of the Generic
    Pharmaceutical Association; Mr. Steven Martin, president and
    chief executive officer of Nebraska BlueCross and BlueShield;
    and Ms. Shelbie Oppenheimer, ALS Association. I did not mention
    Ms. Marian Wolff is accompanied by Mr. Tim Fuller, executive
    director of the Gray Panthers. If you would all come to the
    witness table and take seats.
        Let me ask--thank you for closing the door. Why don't we
    begin?
        I indicated to you that we have a vote that starts at 11:30
    today. I do want to remind the witnesses that we provide 5
    minutes for oral testimony. Your entire testimony will be made
    a part of the permanent record. If you would summarize, we
    would appreciate it, to be helpful to our schedule, as well.
        We thank all of you for being here today. And let me begin
    in the order that I called you to the table. Ms. Marian Wolff
    is accompanied by Mr. Tim Fuller, the executive director of the
    Gray Panthers. Ms. Wolff, why don't you proceed? And if you'll
    pull the microphone very close to you, I would appreciate that.

     STATEMENT OF MARIAN WOLFF, MEMBER, GRAY PANTHERS; ACCOMPANIED
            BY TIM FULLER, EXECUTIVE DIRECTOR, GRAY PANTHERS

        Ms. Wolff. My name is Marion Wolff, I am a----
        Senator Dorgan. Excuse me. Can we have the door closed,
    please? Thank you very much.
        Ms. Wolff. I am a retired mathematics teacher, and I'm also
    a member of the Gray Panthers. In the early 1980's, I was
    diagnosed with gastritis and Barrett's disease of the
    esophagus. Barrett's is a lesion caused by reflux acid and, if
    left untreated, will lead to cancer of the esophagus. At that
    time, Prilosec was not yet available in the United States, and
    my doctor prescribed Zantac. For awhile my pain subsided, but
    then it returned. Prilosec had become available, and I was
    switched to 20 milligrams of Prilosec daily. In those days, my
    insurance covered the cost with a $20 copayment. Periodic
    endoscopies showed that the lesions in the esophagus were
    healing, although the gastritis persisted.
        In September of 2001, I was informed by my insurance that
    it would cover the cost of only 90 capsules of Prilosec per
    year as the limit, with a $35 copayment. The rest that I
    needed--I take about 400 a year--had to be paid out of pocket
    by me. After some comparison shopping, I found that the AARP
    pharmacy charged $3.96 per capsule, while the local Giant
    pharmacy charged $4.27 per capsule, including a 10-percent
    senior discount. The yearly out-of-pocket cost for the required
    medication comes to about $1,174, or, in my case, close to
    $1,200.
        I am fortunate that we have always lived frugally and have
    savings to buy the many medications that I must have to prevent
    cancer. I know of a number of friends who have to choose
    between buying medications which permit them to live active,
    productive lives or living in constant pain. Generic drugs, of
    course, are the answer for patients who depend on drugs like
    Prilosec.
        AstraZeneca is now promoting Nexium. It no longer provides
    free samples of Prilosec to physicians. Millions of dollars are
    spent on advertising to persuade patients to ask their doctors
    to prescribe Nexium. I find it unethical to have a TV
    commercial influence my medical treatment. It makes me angry
    when I see ads in the magazines telling me that I should buy
    name brands to finance research. Isn't that what NIH is doing?
        It infuriates me to know that dozens of lawyers are busy
    exploiting legal loopholes in the patent laws to postpone the
    marketing of generic drugs at the expense of people like me.
        I have brought some documentation of my case, and you are
    very welcome to take a look at the color photographs of my
    insides.
        [Laughter.]
        Ms. Wolff. This was the latest endoscopy in July of last
    year, and it shows that I still have some Barrett's, and it
    shows the gastritis. So you see, I'm totally dependent on
    Prilosec.
        What really give me heartburn is finding out that
    AstraZeneca is using every trick in the book to keep more
    affordable versions of Prilosec off the market. First, they
    sued 13 generic companies for alleged patent infringement, and
    that stopped generic approval for the next two and a half
    years. I hope I will still be around when there is a generic
    drug available. I'm not so sure.
        When the FDA did finally grant approval for the generic
    alternative, it was months after it should have happened and
    only after pressure from consumers. Despite the approval,
    AstaZeneca is dragging out the court case that continues to
    prevent generics from getting on the market. My insurance
    company probably would not have cut my annual limit to 90
    capsules last year if they were able to pay true competitive
    prices.
        Did you know AstraZeneca makes $11 million from Prilosec
    sales for every day it can delay competition? Did you know that
    U.S. consumers have paid more than $1.2 billion extra for
    Prilosec since the patent expired last October? Did you know
    that AstraZeneca has switched 35 percent of all Prilosec
    patients to its next generation, Nexium, a product that, the
    FDA has found the drug to be no better for the vast majority of
    patients than either Prilosec or more affordable generic
    alternatives.
        As you can see, I'm a Gray Panther, and the Gray Panthers
    have organized the 125-member Stop Patient Abuse Now, or SPAN,
    coalition which is filing class-action lawsuits against
    companies that exploit consumers and manipulate patent law. We
    are educating the public and the media about what's at stake
    with Prilosec and many other drugs, and we are asking Congress
    to do its part to close the loopholes in the Hatch-Waxman Act.
    Please return the law to its original intent of providing
    legitimate prices for the drugs that are so desperately needed
    by consumers like me.
        We want to thank the chairman for holding this hearing and
    inviting the Gray Panthers to testify. We especially want to
    thank Senators Schumer and McCain for introducing their
    legislation. Whether we use the soap box or the ballot box, we
    must win affordable prescription drugs for all.
        I want you all to know that I am really a very private
    person. But I feel so strongly about this issue that I
    consented to appear here today. Thank you.
        Senator Dorgan. Ms. Wolff, thank you very much. I noted
    that no one on the panel sought a closer look at the esophagus
    pictures that you brought.
        [Laughter.]
        Senator Dorgan. But we wish you well, and we appreciate
    very much your testimony this morning.
        Next we'll hear from Dr. Greg Glover, representing the
    Pharmaceutical Research and Manufacturers of America. Dr.
    Glover, you may proceed.

               STATEMENT OF DR. GREG GLOVER, M.D., J.D.,
          PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA

        Dr. Glover. Thank you. Mr. Chairman and Members of the
    Committee, on behalf of the Pharmaceutical Research and
    Manufacturers of America, I am pleased to appear at this
    hearing on the Hatch-Waxman Act. I am a physician and an
    attorney with the law firm of Ropes & Gray specializing in
    intellectual property and FDA regulatory issues. My testimony
    will demonstrate that the Hatch-Waxman Act has promoted
    pharmaceutical innovation and competition, and that S. 812
    would undermine this carefully crafted, delicately balanced
    regime.
        The U.S. pharmaceutical market is robust, competitive and
    working to the benefit of consumers and patients. In fact, it
    is working as Congress intended when it passed the Drug Price
    Competition and Patent Term Restoration Act of 1984. Advocates
    of change have a heavy burden to show that the revisions are
    needed and that the proposed revisions would not upset the
    equilibrium of the existing statute.
        The generic industry has flourished since Hatch-Waxman
    eliminated major barriers to market entry. It is today much
    easier, far less costly, and quicker for low-cost generic drug
    manufacturers to get their copies of innovator medicines to
    market following patent expiration. By contrast, the Hatch-
    Waxman Act provided the research-based pharmaceutical industry,
    the source of virtually all new drugs in the United States,
    with only limited incentives to innovate. The act provides,
    first, a limited period of protection for proprietary data,
    second, partial restoration of patent life lost during clinical
    trials and FDA review, and, third, diminished procedures for
    protecting patents which are presumed to be valid under U.S.
    law.
        As a result of the Hatch-Waxman Act, consumers are
    receiving the benefits of access to low-cost generic copies as
    well as an expanding stream of more effective, precise, and
    sophisticated medicines.
        One of the fundamental principles of the Hatch-Waxman Act
    is that a generic drug should not be able to enter the market
    if it infringes a valid patent. Moreover, under the Hatch-
    Waxman Act, the generic applicant is proposing to market a drug
    that is the same as the pioneers. Indeed, the sameness if the
    basis for the generic applicant to the use the pioneer's data
    to demonstrate safety and effectiveness. If there is a patent-
    infringement suit, it is based on an effort to market a generic
    copy of a pioneer product that is covered by a presumptively
    valid patent.
        Congress recognized that it would be preferable to resolve
    patent infringement disputes prior to FDA product approval for
    the generic. Accordingly, the act establishes patent litigation
    provisions that benefit both pioneer and generic manufacturers.
    These provisions provide for, first, patent listing to notify
    generics of patents that claim the pioneer's product; second,
    patent certification to inform pioneers of proposed generic
    products that may infringe their patents; third, up to a 30-
    month stay of product approval to allow for resolution of
    patent infringement claims; and, fourth, a grant of a 180-day
    period of market exclusivity to the first generic that
    challenges a listed patent.
        We believe that S. 812 reflects unfounded arguments in
    support of proposals to amend the Hatch-Waxman Act. While these
    proposals are ostensibly intended to speed approval of generic
    drugs and enhance pharmaceutical competition, the bill is
    unlikely to promote either of these objectives. If adopted, S.
    812 would substantially undermine the Hatch-Waxman compromise.
        Data compiled by the FDA conclusively show that, in the
    overwhelming majority of cases, generic applications have not
    raised or encountered any patent issues that have delayed their
    approval. Out of more than 8,000 generic applications that have
    been filed with the FDA, fewer than 500 raised any patent
    issues. Of these, only three of the patent disputes settled
    between innovator and generic companies have reportedly been
    challenged by the Federal Trade Commission, an infinitesimally
    small percentage of all generic applications.
        As to our specific concerns regarding S. 812, they are as
    follows. First, by eliminating the 30-month stay, the bill
    would severely impair, if not destroy, effective remedies for
    intellectual property protection by abolishing innovators'
    rights to litigate patent disputes prior to FDA approval of a
    generic product.
        Second, the bill would also permit the approval of generics
    that do not duplicate their reference drugs, thereby violating
    the fundamental premise of the Hatch-Waxman Act that the
    generic drug must be the same as the innovator drug. And,
    third, the bill would inhibit submission of citizen petitions
    offered in good faith to inform the agency of legitimate
    concerns regarding a proposed generic drug product.
        In summary, the Hatch-Waxman Act is one of the most
    successful pieces of consumer legislation in history. The law
    works. Contrary to assertions of proponents of S. 812, the bill
    would not close any purported loopholes. It would undermine the
    act's few critical protections for innovator intellectual
    property rights. Without these protections, there will be less
    innovation, fewer new drugs for generics to copy, and, more
    importantly, fewer new drugs to enhance treatment for patients.
        I'll be pleased to answer any questions the Committee may
    have.
        [The prepared statement of Dr. Glover follows:]

       Prepared Statement of Dr. Greg Glover, M.D., J.D., Pharmaceutical
                     Research and Manufacturers of America

        Mr. Chairman and Members of the Committee:
        On behalf of the Pharmaceutical Research and Manufacturers of
    America (PhRMA), I am pleased to appear at this hearing today on the
    Hatch-Waxman Act. I am a physician and an attorney with the law firm of
    Ropes & Gray, specializing in intellectual-property and food and drug
    regulatory issues. PhRMA represents the country's major research-based
    pharmaceutical and biotechnology companies, which are leading the way
    in the search for new cures and treatments that will enable patients to
    live longer, healthier, and more productive lives.
        Today, I would like to offer testimony on the importance and
    success of the Hatch-Waxman Act for promotion of both pharmaceutical
    innovation and competition, and on why S.812 as currently drafted would
    undermine this carefully crafted, delicately balanced regime.
        PhRMA strongly believes that the U.S. pharmaceutical market is
    robust, competitive, and working to the benefit of consumers and
    patients--is working, in fact, as Congress intended when it passed the
    Drug Price Competition and Patent Term Restoration Act of 1984
    (commonly known as the Hatch-Waxman Act after its principal sponsors).
    We believe that advocates of change have a heavy burden to clearly show
    that change is needed and would not upset the careful balance achieved
    by Congress. They have not met that burden.
        The U.S. pharmaceutical industry continues to lead the world in
    pharmaceutical innovation and makes a significant contribution to the
    country's economy. It is a substantial contributor to the $1.3 trillion
    health-care sector, which, overall, accounts for about 13 percent of
    the nation's economic output, is expected to reach 16 percent of output
    by 2010, and could exceed 20 percent by 2040.
        Over the past 100 years, pharmaceutical research has helped
    transform health care, contributing substantially to an increase of
    nearly 30 years in life expectancy (from 47 years in 1900 to 76.5 years
    today). The death rate from disease has fallen by a third from 1.2 per
    1,000 in 1920 to 0.8 in 1,000 per 1993, even as people live longer
    (sometimes succumbing to disease in later life, having benefited from
    control or elimination of diseases that previously struck earlier in
    life).
        Pharmaceuticals have also brought better lives, conquering
    infection, making mental illness highly treatable, enhancing
    independence in old age, and making impressive inroads against cancer,
    heart disease, stroke and many other diseases. Pioneer pharmaceutical
    companies continue to play a critical role in addressing old and new
    challenges, including AIDS and Alzheimer's disease.
        Not only are pharmaceuticals worth the cost, they are also cost-
    effective, adding little to the cost of health care and replacing less
    effective, more expensive treatments. Over nearly 30 years, total GDP
    spent on drugs rose little from only 0.84 percent in 1965 to 0.86
    percent in 1992. As stated in the President's 2002 Economic Report,
    there is ``a growing body of evidence that, for a wide range of
    diseases, the additional money spent on treatment is more than offset
    by savings in direct and indirect costs of the illnesses themselves.
    Indirect costs include lost productivity and, especially, poor health,
    which people are clearly willing to pay to avoid.''
        In a survey concluded this month, funded by PhRMA, of 400
    physicians from throughout the country, over 90 percent considered the
    continuing development of new prescription drugs vital to patient care.
    In addition, 84 percent believed that prescription drugs have reduced
    the need for surgery, and 95 percent of these physicians thought that
    prescription drugs have shortened hospital stays. In addition, eight
    out of ten of those surveyed acknowledged brand name pharmaceutical
    companies as deserving the most credit for developing new prescription
    drugs and breakthrough cures.
        The research-based pharmaceutical sector in the United States is,
    in fact, the single largest global player in the research and
    development of new drugs, both in terms of new drugs brought to market,
    and R&D expenditures. The research-based pharmaceutical industry in the
    United States is responsible for the discovery and development of over
    90 percent of new drugs worldwide.
        PhRMA companies spend an estimated 17.7 percent of sales on R & D,
    the highest percentage of any major U.S. industry. The pharmaceutical
    industry is more research intensive than the electronics,
    communications and aerospace industries. The typical PhRMA company
    spends more on research each year than such companies as Microsoft,
    Boeing, and IBM, as evidenced by a comparison of average research
    outlays reported publicly by PhRMA member companies and by Microsoft,
    Boeing, and IBM as stated in their annual reports. National Science
    Foundation studies have shown that while the pharmaceutical industry
    recorded only 2.5 percent of the domestic sales of companies that
    conducted R&D in 1998, it accounted for 8.7 percent of all company-
    funded R&D, 18.7 percent of all company-funded basic research, and 4.8
    percent of all research scientists and engineers.
        Research-based pharmaceutical companies allocate nearly 78.5
    percent of their R&D expenditures to the research and evaluation of new
    drug products. The remaining 21.5 percent is devoted to research into
    significant improvements and/or modifications to existing products.
    Such significant adjustments can include enhanced efficacy, improved
    dosage and delivery forms and patient-tailored therapies.
        The Hatch-Waxman Act has played a critical role. On the one hand,
    the generic industry has flourished since the passage of the 1984
    compromise law eliminated major barriers to market entry and made it
    much easier, far less costly, and quicker for low-cost generic drug
    manufacturers to get their copies of innovator medicines to market
    following patent expiration.

       Since 1984, the generic industry's share of the
            prescription-drug market has jumped from less than 20 percent
            to almost 50 percent.

       Before 1984, it took 3 to 5 years for a generic copy to
            enter the market after the expiration of an innovator's patent.
            Today, generic copies often come to market as soon as the
            patent on an innovator product expires, And sales of pioneer
            medicines typically drop by 40 percent or more within weeks
            after generic copies enter the market.

       Prior to 1984, only 35 percent of top-selling innovator
            medicines had generic competition after their patents expired.
            Today, almost all innovator medicines face such competition.

        On the other hand, the Hatch-Waxman Act provided the research-based
    pharmaceutical industry--the source of virtually all new drugs in the
    U.S.--limited incentives to innovate, through restoration of part of
    the patent life lost by pioneer medicines as a result of regulatory
    review by the Food and Drug Administration (FDA) and litigation
    procedures to decrease the likelihood of patent infringing market entry
    of generic drug products. The research-based industry, spurred by
    accelerating scientific and technological advances, continues to
    increase its investment in R&D and to develop new, more advanced, and
    more effective medicines.

       The research-based industry's investment in pharmaceutical
            R&D has jumped from $3.6 billion in 1984 to more than $30
            billion this year.

       During the 1990s, the research-based industry developed 370
            new life-saving, cost-effective medicines--up from 239 in the
            previous decade.

       The research-based pharmaceutical industry now has more than
            1,000 new medicines in development, either in human clinical
            trials or at FDA awaiting approval. These include more than 400
            for cancer; more than 200 to meet the special needs of
            children; more than 100 each for heart disease and stroke,
            AIDS, and mental Illness; 26 for Alzheimer's disease; 25 for
            diabetes; 19 for arthritis; 16 for Parkinson's disease, and 14
            for osteoporosis.

        These data on generic market entry and pharmaceutical innovation
    demonstrate that the Hatch-Waxman compromise is both promoting
    competition and encouraging innovation. As a result, consumers are
    receiving the benefits of early access to low-cost generic copies and
    of an expanding stream of ever more effective and precise,
    sophisticated medicines.
        How has the Hatch Waxman compromise both promoted competition and
    preserved incentives for innovation? A little history helps to explain.
        Following amendments made to the Federal Food, Drug, and Cosmetic
    Act (``FCDA'') in 1962, all new drugs had to satisfy strict pre-market
    approval requirements for both safety and efficacy, and, as a
    consequence, submit to lengthy FDA approval processes. The substantial
    safety and efficacy data needed to support the approval of a drug were
    considered to be trade-secret information that could not be used to
    approve competing, generic copies. Apart from repeating the long,
    costly clinical studies performed by an innovator company, a generic
    applicant could obtain approval only by using a literature-based (so-
    called ``paper'') New Drug Application (NDA), which was possible only
    when published scientific literature demonstrated a drug's safety and
    effectiveness. As a consequence, prior to 1984, there were few generic
    copies of pioneer drugs.
        To permit the approval of generic copies of all post-1962 drugs,
    the Hatch-Waxman Act compromise in effect revoked the trade-secret
    status of innovators' safety and effectiveness information. Instead of
    proving safety and effectiveness, a generic manufacturer was allowed to
    show only that its copy is bioequivalent to a pioneer product and that
    FDA could, therefore, rely on the pioneer's safety and efficacy data to
    approve the copy. Bioequivalence means that a copy's active ingredient
    is absorbed at the same rate and to the same extent as that of the
    pioneer medicine.
        As a result of the Hatch-Waxman Act, generic manufacturers are able
    to avoid the huge cost (estimated at over $800 million on average) of
    discovering and developing a new drug. It costs only a very small
    fraction of that amount for generic manufacturers to demonstrate
    bioequivalence--which is why they can market their copies at reduced
    prices. The Act retains only a very limited vestige of the pioneer
    companies' former, complete proprietary rights in these extremely
    valuable data. Under the Act, FDA is prohibited from approving generic
    copies of a pioneer drug for 5 years after approval of an innovator
    product using a new chemical entities and for 3 years after approval of
    other pioneer drugs and innovations in existing drugs.
        The Hatch-Waxman Act compromise also helped generic manufacturers
    by overruling the patent infringement standard articulated in a 1984
    Court of Appeals decision in Roche Products, Inc. v. Bolar
    Pharmaceutical Co., the Bolar case. In line with prior judicial patent
    law decisions, the Court had held that it constituted patent
    infringement for a generic company to manufacture and test a medicine
    before its patent expired, including for the purpose of preparing a
    marketing application to submit to FDA. In a unique exception to patent
    law, the Hatch-Waxman Act compromise allows generic manufacturers to
    use innovator medicines still under patent to obtain bioequivalency
    data for their FDA applications so they can be ready to market their
    copies as soon as the pioneer patents expire.
        The Hatch-Waxman Act also sought to increase the number of generic
    copies by providing an incentive for generic manufacturers to challenge
    pioneer patents. The first generic manufacturer to certify to FDA that
    a patent on an innovator medicine is invalid or is not infringed by its
    product obtains 180 days of exclusive marketing rights if the copy is
    approved before the patent expires. During that 180-day period, the FDA
    cannot approve any other copies.
        To attempt to balance the generic provisions, the Hatch-Waxman Act
    compromise provided limited incentives to pioneer companies to help
    spur innovation. The law restores part of the patent life--but not
    all--lost by innovator products as a result of FDA review:

       A pioneer drug receives a half-day in restored patent life
            for every day the product is in clinical trials prior to review
            by FDA.

       A pioneer drug receives day-for-day restoration of patent
            life for the time it is under FDA review.

       However, the effective patent life of a drug cannot exceed
            14 years, regardless of how much time is lost in clinical
            testing and review. And the total time restored is limited to
            no more than 5 years (even if more than 5 years is lost during
            drug development and review).

        As a consequence, innovator drugs introduced in the 1990s, even
    with patent restoration, enjoyed an average effective patent life of
    less than 11.5 years--substantially less than the 18.5 years enjoyed by
    inventors of other products. (The full patent term in the U.S., as with
    all member nations of the World Trade Organization, is now 20 years
    from the date a patent application is filed with the Patent and
    Trademark Office).
        In addition to partial patent restoration, the law also creates
    procedures to facilitate the efficient resolution of patent disputes
    before FDA approves an allegedly infringing generic copy.
        One of the fundamental principles of the Hatch-Waxman Act is that a
    generic drug should not be able to enter the market if it infringes a
    valid patent. Under U.S. law, patents are presumed to be valid, and
    this presumption can be overcome only by clear and convincing evidence
    to the contrary. Moreover, under the Hatch-Waxman Act, the generic
    applicant is proposing to market a drug that is the same as the
    pioneer's. Indeed, that ``sameness'' is the basis for the generic
    applicant to use the pioneer's data to demonstrate safety and
    effectiveness. If there is a patent infringement suit, it is based on
    an effort to market a generic copy of a pioneer product that is covered
    by a presumptively valid patent.
        Failure to resolve patent issues prior to generic product approval
    presents problems for pioneer and generic manufacturers alike. The
    marketing of a product that is later determined to be infringing will
    severely and irreparably injure the pioneer's market at a magnitude
    that generally cannot be compensated by the infringing generic
    manufacturer. At the same time, the generic manufacturer is faced with
    the risk of having to pay crippling actual and enhanced damages for
    intentional infringement if it decides to market the approved product
    before the resolution of the patent infringement claim. In short, (in
    addition to being in the interest of physicians and patients who might
    otherwise have to address the difficulties associated with switching
    from the pioneer to the generic product and back again) it is in the
    interest of both the pioneer and the generic company to resolve all
    patent issues before the generic product goes to market.
        Congress recognized that it would be preferable to resolve patent
    infringement disputes prior to FDA product approval. Accordingly, the
    Act establishes patent litigation provisions to benefit both pioneer
    and generic manufacturers. These provisions provide for: (1) patent
    listing to notify generics of patents that claim the pioneer's product;
    (2) patent certification to inform pioneers of proposed generic
    products that may infringe their patents; (3) up to a 30-month stay of
    product approval to allow for resolution of patent infringement claims;
    and (4) the grant of a 180-day period of market exclusivity to the
    first generic that successfully challenges a listed patent.
        An applicant who submits a New Drug Application (``NDA'') must
    submit information on each patent that ``claims the drug or a method of
    using the drug . . . and with respect to which a claim of patent
    infringement could reasonably be asserted if a person not licensed by
    the owner of the patent engaged in the manufacture, use, or sale'' of
    the drug.
        FDA publishes the submitted patent information in its official
    publication, Approved Drug Products with Therapeutic Equivalence
    Evaluations (the ``Orange Book''). The purpose of the Orange Book
    listings is to provide clear notice to potential generic developers of
    the patents (other than process patents) that cover the product and may
    reasonably be asserted by the innovator against the generic drug
    manufacturer. In doing so, it serves to protect the interests of both
    pioneer and generic manufacturers.
        Correspondingly, the need for patent certifications arises from the
    legislative intent: (1) to permit the marketing of generic copies of
    pioneer products immediately upon the expiration of any relevant
    patents; (2) to encourage generic challenges of innovator patents; (3)
    to provide a timely, effective mechanism for patent holders to protect
    rights in patents alleged to be invalid or not infringed by the generic
    product; and (4) to prohibit FDA's approval of any abbreviated
    application whose marketing would infringe a valid patent covering the
    pioneer product, until the parties have had a meaningful opportunity to
    attempt to resolve the issue.
        The certification requirements determine the date on which approval
    of an ANDA can be made effective and, therefore, the date on which
    commercial marketing may begin. If the applicant makes either the first
    certification option (no patent information has been filed) or the
    second (the patent has expired), approval can be made effective
    immediately. Under the third certification option, (generic applicant
    does not intend to market the generic drug until the patent expires)
    approval of the application can be made effective on the date the
    patent expires. If, however, the applicant challenges the innovator's
    patent and makes the fourth certification (a ``Paragraph IV''
    certification), the applicant is required to give notice to the holder
    of the patent alleged to be invalid or not infringed.
        Approval of an ANDA containing the fourth certification may become
    effective immediately only if the patent owner has not initiated a
    patent infringement suit within 45 days of receiving notice of the
    certification. If the patent holder initiates a patent infringement
    action in response to a Paragraph IV Certification within 45 days of
    receiving notice of the certification, FDA cannot approve the ANDA for
    30 months, unless either the action is resolved in favor of the generic
    applicant or the patent expires before that time.
        The first follow-on (generic) product approved through an ANDA
    containing a Paragraph IV Certification receives 180 days of market
    exclusivity during which no subsequent ANDA for the same product can be
    approved. The purpose of the 180-Day ANDA exclusivity is to reward a
    generic drug manufacturer for the expense and effort involved in
    challenging a listed patent of the pioneer company. Despite these
    intentions, however, the 180-day provision has been at the heart of
    most controversies under the Hatch-Waxman Act.
        Although the Hatch-Waxman compromise stimulates competition and
    provides only limited incentives for the innovation upon which pioneer
    and generic pharmaceutical companies alike depend for new products to
    offer to consumers, generic manufacturers are advocating major changes
    in the legislation. We believe that, in view of the balanced nature of
    the law, any proponent of change has a heavy burden to clearly
    demonstrate that change is necessary and would not upset the delicate
    compromise achieved in 1984. We do not believe this burden has been met
    with regard to any of the changes that have been proposed. Therefore,
    we strongly oppose such changes that would unfairly skew the law in
    favor of generic manufacturers and impede the ability of the research-
    based industry to realize in a timely way the promises that
    accelerating biomedical advances hold for patients in all parts of the
    world.
        We believe that S. 812 as it stands, reflects the unfounded
    arguments in support of proposals to amend the Hatch-Waxman Act. While
    these proposals are, ostensibly intended to speed approval of generic
    drugs and enhance pharmaceutical competition, the bill is unlikely to
    promote either of these objectives, and, if adopted, would
    substantially undermine the Hatch-Waxman compromise that has proven so
    successful.
        Specifically, as elaborated more fully below, S.812 would: (1) deny
    effective remedies to holders of patents infringed by generic drugs;
    (2) change the standards to allow FDA to approve generic drugs that
    could not be approved under current law because they are not, in fact,
    the same as the innovator drugs for which FDA has the data necessary to
    assess safety and efficacy; and (3) create new requirements designed to
    deter outside parties from submitting scientific information to FDA
    that could be adverse to generic drugs. In addition, the bill would
    revise the current system for rewarding generic companies that
    challenge patents on innovator drugs in a way that would result in
    unnecessary litigation and keep many generic drugs off the market for a
    6-month period.
        As an initial point, it is critical to understand that, despite
    arguments to the contrary, data compiled by FDA conclusively show that,
    in the overwhelming majority of cases, generic applications have not
    raised or encountered any patent issues that have delayed their
    approval. The facts speak far themselves:

       From 1984 through January 2001, 8,259 generic applications
            were filed with FDA.

       Of these applications, 7,781--94 percent--raised no patent
            issues.

       Only 478 generic applications--5.8 percent--asserted a
            patent issue, either challenging a patent's validity or
            claiming non-infringement of a patent.

        Further research shows that:

       Only 58 court decisions involving just 47 patents have been
            rendered resolving generic challenges to innovator patent's--a
            tiny fraction of the number of generic applications.

       Only 3 of the patent disputes settled between innovator and
            generic companies have reportedly been challenged by the FTC--
            an infinitesimal percentage of the applications.

        As to our specific concerns regarding the proposals made in S. 812,
    they are as follows:
        First, the bill would severely impair, if not eliminate, effective
    remedies for patent infringement.
        As explained above, under current law, FDA is barred for up to 30
    months from approving a generic drug that is involved in timely
    initiated patent litigation. The Hatch-Waxman Act made it no longer an
    act of patent infringement for a generic company to use a pioneer
    company's patented product in preparing the marketing application for
    its generic copy of that product. (Such otherwise-infringing testing is
    not, in fact, permitted in any other U.S. industry.) Patent holders are
    not permitted to assert their rights against generic applicants during
    this period. Now, a claim for patent infringement cannot be brought
    until the generic company actually files its application. The 30-month
    stay increases the likelihood that a pioneer company will still be able
    to defend its patent rights before FDA approval enables an allegedly
    infringing generic product to come onto the market.
        S. 812 would simply abolish the innovator's right to litigate
    patent disputes prior to FDA approval. Although an innovator could
    still theoretically seek a preliminary injunction from the court
    against the generic product, courts rarely grant preliminary
    injunctions in patent litigation, and such injunctions are especially
    difficult to obtain in the pharmaceutical patent context due to the
    highly complex and technical, fact-intensive claim analysis required.
    As a result, even though generic companies would continue to enjoy the
    benefits of the Hatch-Waxman Act that were created at the expense of
    innovator companies, the innovator industry would be denied the
    corresponding, necessary means provided in the Act to protect against
    patent infringement because of this unique privilege granted to generic
    companies.
        The bill would also permit the approval of generic drugs that do
    not, in fact, duplicate their reference drugs. Present law prohibits
    the use of studies, other than bioequivalence data, to support an
    abbreviated new drug application for a generic drug. The premise of the
    law is that the generic drug must be the same as the innovator drug in
    all material respects, and therefore the only issue is showing that it
    is absorbed by the body at the same rate and to the same extent as the
    innovator drug. S. 812 would loosen the standards and allow FDA to
    approve generic drugs that are not the same as the reference innovator
    drugs, substituting FDA judgment that some unspecified differences
    don't matter for the current objective requirement that generic drugs
    must be the same as the reference innovator drugs.
        In light of problems that have arisen even with application of the
    existing bioequivalence standard, we are quite concerned by this
    proposal. In this regard, we would note that two-thirds of physicians
    surveyed, as discussed above, considered changing bioequivalence
    standards to be a bad idea, primarily because of the importance of
    maintaining the quality of the drugs and protecting the safety of their
    patients.
        In addition, the bill would inhibit the submission of citizen
    petitions offered in good faith to inform the Agency of legitimate
    concerns regarding a proposed drug product.
        S. 812 would impose new burdens on use of the citizen petition,
    which is the mechanism by which an outside party can request an
    official FDA decision on a scientific or other issue. Under the bill,
    it appears that the Federal Trade Commission (FTC) may be required to
    open an investigation of any person submitting a citizen petition to
    FDA if anyone alleges that the citizen petition has been submitted for
    an improper purpose.
        Such mechanisms would deter persons from submitting citizen
    petitions to the FDA containing scientific or other relevant
    information regarding a competing product, since an FTC investigation,
    accompanied by a subpoena for documents, would seem to be the
    inevitable and immediate result. Congress and FDA should welcome a
    process for airing scientific issues, rather than trying to inhibit
    discussion. If a party were to submit a baseless citizen petition to
    achieve an anti-competitive effect, the existing anti-trust laws would
    provide ample bases for the FTC, or a private party, to bring an
    enforcement action. S. 812 would serve only to chill legitimate
    petitioning, to the detriment of the FDA approval process, undermining
    the legitimate economic interests of competitors and, potentially,
    putting consumers at risk.
        The bill would as well revise the requirements for obtaining
    generic drug exclusivity in a manner that would keep more rival generic
    products off the market longer and promote unnecessary litigation. In
    an apparent inconsistency with its stated objective of speeding generic
    drug approvals, S. 812 would enhance the ability of the first generic
    drug company that challenges an innovator patent to keep all other
    generic products off the market for six months. A provision for six
    months of exclusivity exists in current law but has been made less
    capable of keeping other generics off the market. S. 812 would overrule
    those decisions.
        In summary, the Hatch-Waxman Act is one of the most successful
    pieces of consumer legislation in history. The law works. Contrary to
    the assertions of others, S. 812 would not close loopholes, it would
    undermine the Act's few, critical protections for innovator
    intellectual property rights. Without these protections, there will be
    less innovation, fewer new drugs for generics to copy and, more
    importantly, fewer new drugs to enhance treatment for patients.
        This concludes my written testimony. I would be pleased to answer
    any questions or to supply any additional materials requested by
    Members or Committee staff on these or any other Issues.

        Senator Dorgan. Dr. Glover, thank you very much.
        Next we will hear from Ms. Kathleen Jaeger--I hope I'm
    pronouncing that correctly--president and chief executive
    officer of Generic Pharmaceutical Association. Ms. Jaeger, why
    don't you proceed?

    STATEMENT OF KATHLEEN JAEGER, R.Ph., J.D., PRESIDENT AND CHIEF
                      EXECUTIVE OFFICER, GENERIC
               PHARMACEUTICAL ASSOCIATION; KAREN WALKER,
              COUNSEL, GENERIC PHARMACEUTICAL ASSOCIATION

        Ms. Jaeger. Thank you. Mr. Chairman, distinguished Members
    of the Committee, thank you for your leadership in calling for
    this hearing and for the opportunity to testify. My name is
    Kathleen Jaeger, and I'm the president and CEO of the Generic
    Pharmaceutical Association. Also with me today is Karen Walker,
    counsel to the organization. She will be available to answer
    any FTC-related questions the Committee member may have.
        While I represent the interests of the industry, I'm also
    speaking to you as a mother of three young children, as a
    pharmacist who grew up in a family owned pharmacy, and as an
    attorney. We are here today, not to debate the brand-versus-
    generic issue, but rather the issue of how we can better
    restore the balance between fostering innovation and increasing
    competition. There is an extraordinary and growing momentum for
    change. A coalition of leading consumers and aging advocacy
    groups, businesses, unions, insurers, pharmacists, and
    Governors are all raising concerns about the lack of
    accessible, affordable medicine. The time for action is now.
        One solution is clear: the use of affordable generic
    alternatives. Generics already save this nation billions of
    dollars a year. As Senator Rockefeller noted previously, nearly
    one in every two prescriptions was filled with generic, but
    only about 8 percent of all dollars spent on drugs was spent on
    generics. Conversely, brand-name drugs represent 55 percent of
    all prescriptions dispensed, but consume approximately 92
    percent of all prescription costs. Generics could save more.
    One percent increase in the usage of generic drugs would yield
    an additional billion dollars in prescription drug savings.
        Congress can encourage this by supporting education and by
    creating insurance benefits for public programs. But Congress
    and should do more. Congress can guarantee countless billions
    of dollars of additional savings by restoring the balance and
    intent of the Hatch-Waxman Act. Signed into law in 1984, Hatch-
    Waxman may be one of the most important pro-consumer, pro-
    competitive legislation ever passed. But most recently, brand
    companies have exploited loopholes that delay or block generic
    competition.
        Under the bipartisan leadership of Senator Schumer and
    Senator McCain in the Senate, and Representatives Brown and
    Emerson in the House, thoughtful legislation has been drafted
    that would, one, eliminate the enormous financial windfall that
    flows from the automatic stay of the 30-months provision; two,
    preserve the incentives to challenge questionable patents; and,
    three, provide other measures that enhance competition.
        We believe reforming Hatch-Waxman could encourage the brand
    industry to refocus its efforts on true product innovation
    while also increasing access to affordable medicines. Those who
    argue against restoring the balance under Hatch-Waxman are,
    unlike most purchasers of prescription drugs, quite comfortable
    with the status quo. The brand industry certainly will not
    acknowledge that long overdue reform of Hatch-Waxman will
    actually refocus the brand industry on true R&D innovation and
    away from legal loophole innovation.
        At most legislation could stop abuses and restore the
    balance between innovation, competition, and access that Hatch-
    Waxman was designed to address. Strengthening the Hatch-Waxman
    in ways that restore the intended balance and closing
    unintended loopholes is one way. Increasing utilization of
    affordable generic medicines is another.
        I would like to thank you for the opportunity to speak for
    the generic industry and the consumers we serve. Again, we
    thank Chairman Hollings and Senator Dorgan, for holding this
    hearing, as well as Senator McCain and Senator Schumer for
    their leadership on this issue. I'd be remiss if I didn't
    mention the work of Senator Rockefeller, Senator Edwards, and
    Senator Carnahan and others to address the lack of affordable
    medicines, one of the greatest social problems of our time.
        I'd be happy to take any questions.
        [The prepared statement of Ms. Jaeger follows:]

    Prepared Statement of Kathleen Jaeger, R.Ph., J.D., President and Chief
     Executive Officer, Generic Pharmaceutical Association; Karen Walker,
                  Counsel, Generic Pharmaceutical Association

        Mr. Chairman. Members of the Committee. My name is Kathleen Jaeger,
    and I recently became President and CEO of the Generic Pharmaceutical
    Association. I am a pharmacist; an attorney, who specializes in FDA-
    regulatory law; and a long-time consumer and industry advocate. As a
    pharmacist and coming from a family-owned pharmacy background, I
    understand the need consumers have for choice, and the challenge of
    placing affordable medicine in their hands.
        On behalf of GPHA and its members, I want to thank you for
    convening this hearing to discuss pharmaceutical cost and consumer
    access. The GPHA represents manufacturers and distributors of finished
    generic pharmaceutical products, manufacturers and distributors of bulk
    active pharmaceutical chemicals, and suppliers of other goods and
    services to the generic pharmaceutical industry. The GPHA membership
    supplies more than 90 percent of all generic prescriptions,
    representing over one billion written and filled prescriptions in the
    United States. We are a significant segment of America's pharmaceutical
    manufacturers. No other industry has made, nor continues to make, a
    greater contribution to affordable health care than the generic
    pharmaceutical industry.
        The various interests represented at this hearing share a common
    concern: the need to make prescription medicines affordable to all
    Americans. Indeed, the lack of affordable medicines is one of the great
    social issues of our time. The generic pharmaceutical industry is
    uniquely positioned to address this common concern by virtue of its
    ability to deliver safe, effective prescriptions to the American
    public. Unfortunately, the generic industry's ability to deliver
    affordable medicines is being hampered by legal loopholes in the
    current law. I'm speaking, of course, of the Drug Price Competition and
    Patent Term restoration Act of 1984, also known as Hatch-Waxman.
        Since its enactment in 1984, Hatch-Waxman has served as the means
    by which prescription medicines are developed and delivered to the
    American public. During its legislative life, it has enabled American
    consumers, taxpayers, employers and insurers to save tens of billions
    of dollars each year. But as often happens with legislation, the
    environment in which Hatch-Waxman was crafted has significantly
    changed, and unintended loopholes are being manipulated in ways never
    envisioned by virtually all who were involved with the development and
    passage of the Act. The pharmaceutical industry that Hatch-Waxman was
    designed to address is a vastly different one today than it was in
    1984. Because of this, Hatch-Waxman (one of the single most important
    consumer savings choice and legislation ever passed by Congress) needs
    to be modestly updated to assure the statute's stated intent of
    enhancing competition and preserving true innovation is preserved and
    enhanced.
        The Generic Pharmaceutical Association believes that this Congress
    has a unique opportunity--given the American public's call for
    immediate and significant action on drug pricing--to modernize and
    strengthen Hatch-Waxman, close loopholes that have reduced its
    effectiveness, and pass legislation that will achieve significant
    savings that can make medicines more affordable for all Americans and
    achieve offsets to finance a meaningful Medicare prescription drug
    benefit or other Congressional priorities.
        To understand the need and value of updating Hatch-Waxman, one must
    take a close look at the pharmaceutical environment that exists today.
    According to the latest available data, total health care costs reached
    $1.3 trillion in 2000. This represents a per capita health care
    expenditure of $4,637. The total prescription drug expenditure in 2000
    was $121.8 billion, or approximately $430 per person. Of that total,
    approximately $11 billion, or $38 per person, was spent on generic
    pharmaceuticals.
        Last year, 45 percent of all prescriptions were filled with generic
    drugs. So while nearly one in every two prescriptions was filled with a
    generic drug, only approximately 8 percent of all dollars spent on
    drugs were spent on generic medicines. Brand name prescription drugs,
    conversely, represented 55 percent of all prescriptions but consumed
    approximately 92 percent of all drug therapy dollars spent. These
    numbers reveal a stark reality: brand name prescription drugs exceed
    the cost of generics by almost ten fold.
        Let's look at these same statistics from another perspective;
    namely, that of the patient or payer. The average price of a
    prescription dispensed with a generic drug in 2000 was $19.33. The
    average price of a prescription dispensed with a brand name drug in
    2000 was $65.29. The difference was $45.96 per prescription, or 238
    percent.
        Expressed another way, brand name prescription drugs represent
    about 22 percent more prescriptions than generic drugs yet consume
    almost 500 percent more retail sales dollars. No single generic drug
    achieved sales revenue of $1.0 billion in 2000. This compares with 19
    brand-name patent-protected drugs that had annual retail sales in
    excess of $1.0 billion each.
        Based on these data, it is impossible to dispute that generic
    pharmaceuticals provide consumers with substantial savings. It is
    equally impossible to dispute that the use of generic prescriptions,
    and the introduction of generic medicines will result in even greater
    savings to consumers, employers, insurers and our state and federal
    government.
        Despite the indisputable savings to be gleaned from generics, brand
    name medicines continue to control the market. As a result, the
    nation's prescription drug bill continues to show double-digit annual
    increases. And consumers, employers, insurers and government agencies
    are feeling the effects.
        Although a majority of Americans have some form of insurance that
    helps defray the direct costs of prescription medicines, for an
    increasing number of consumers, the burden of rising prescription costs
    lands directly on their pocketbooks. The uninsured population, which
    currently exceeds 40 million people and could reach 30 percent of the
    labor force by 2009 (up from 23 percent in 1999), is hit the hardest.
        It is well documented that the high cost of prescription medicines
    has a direct effect on patient usage. Look at the statistics. A recent
    survey of 1,010 adults by Harris Interactive revealed some very
    disturbing drug trends. Of surveyed patients, 22 percent did not
    purchase at least one prescription issued by their doctor in the
    previous year because of cost. Additionally, 14 percent of patients
    reported taking a drug in smaller doses than prescribed and 16 percent
    reported taking their prescribed medication less frequently than
    prescribed to save money. Such statistics can hardly be said to be
    consistent with our society's goal of adequate health care. Clearly,
    cost is central to the issue of compliance.
        Major employers, such as GM, are feeling the profound effect of
    escalating pharmaceutical costs, and are actively encouraging generic
    drug utilization. Physicians are increasingly aware of the impact that
    rising drug prices are having on their patients. The AMA has a policy
    statement that ``supports programs whose purpose is to contain the
    rising cost of prescription drugs.'' The policy specifically encourages
    physicians to be aware of prescription drug prices and the availability
    of generic versions of brand name drugs. Health plans such as Blue
    Cross/Blue Shield, CIGNA, Well Point, Aetna, and others are engaging in
    more and more programs to foster generic drug utilization.
        It is time for this Congress to join these companies and
    organizations in the fight against escalating prescription costs by
    restoring the original balance of Hatch-Waxman. Modernization of Hatch-
    Waxman is not simply the desire of the GPHA. Indeed, a coalition of
    leading governors, businesses, and labor leaders has asked the Congress
    to revisit Hatch-Waxman. The coalition, Business for Affordable
    Medicine, believes that loopholes in the current legislative scheme are
    undermining the intent of the law, and are being exploited to extend
    patents through convoluted legal machinations at considerable expense
    to employers and consumers/taxpayers.
        Modernizing Hatch-Waxman could address the central issues of cost
    and patient access to prescription medicines. Modernization also would
    encourage the brand industry to refocus its resources on true product
    innovation, rather than devoting those resources to legal maneuverings
    designed solely to extend monopoly protection on existing products.
        To understand our ideas for modernizing and strengthening Hatch-
    Waxman, let's look at the issue central to the current legislative
    proposal, the Schumer/McCain (Brown/Emerson) bill: the automatic thirty
    month stay of ANDA approvals.
        Let me start by emphatically stating that the generic
    pharmaceutical industry supports patent rights, intellectual property
    protection, and the right of any pharmaceutical company--brand or
    generic--to recoup its investment and make a reasonable profit for its
    shareholders. In fact, all publicly owned pharmaceutical companies,
    without exception, have responsibilities to seek to produce a
    reasonable return on the shareholders' investment. However, the key
    word is 5 ``reasonable.'' We should not be drawn into the false
    argument that it is necessary for the pharmaceutical industry to
    consistently and significantly top every other industry in the nation
    in every measure of profits, in order to be able to afford necessary
    and desirable investment to discover and develop new pharmaceuticals.
    To the contrary, unreasonable market exclusivity stifles competition,
    thereby removing the incentive for true innovation. Extending monopoly
    protection beyond its intended bounds only removes the incentive to
    develop new products. We recognize the dangers of monopolies in
    virtually every other area of our economy. It is time to recognize
    untoward effects that brand name ``life cycle management: market
    exclusivity'' practices are having on this nation's health care system.
        When Hatch-Waxman was created, it recognized the delicate balance
    between intellectual property protection and competition; between brand
    and generic business interests; and between consumer savings and return
    on brand investment. The intent of Hatch-Waxman was to protect the
    legitimate patent interests of the brand pharmaceutical company, but
    allow for generic competition within a finite period, thereby providing
    consumers with cost-efficient alternatives, driving drug developers
    back to the labs to create the next new wonder drug.
        The drafters of Hatch-Waxman also recognized that not all patents
    are created equal. Patents are sometimes found to be invalid, or not
    infringed upon by competing products. For this reason, Hatch-Waxman
    established a mechanism by which generic manufacturers can challenge
    patents which may improperly block competition. Under the Hatch-Waxman
    system, brand companies ``list'' the patents with FDA that claim their
    drug. When a generic manufacturer files an application with FDA, it
    must tell the agency whether it is challenging any of the patents
    listed by the brand. If so, the brand company is given 45 days to sue
    the generic for patent infringement. Once a suit is filed, FDA is
    barred from approving the generic drug for 30 months, or until the
    litigation is resolved. The merits of the patent infringement suit have
    no effect upon the affect of the stay. A completely meritless suit
    enjoys the same 30-month stay as a meritorious one.
        Most of the abuses that I will discuss today stem directly, or
    indirectly, from the ``30-month stay.'' Over the past several years,
    the brand industry has discovered the enormous financial windfall that
    flows from the 30-month stay. Of all the industries in the U.S., only
    the brand pharmaceutical industry is given a special, unqualified
    ability to fend off competition. From a brand company's perspective,
    the 30-month stay, and its consequent windfall is almost too good to be
    true. As noted, the merits of the patent infringement claim are totally
    irrelevant--the 30 month injunction is free--all that is required is a
    lawsuit. Furthermore, if a brand company strategically manages the
    timing of its patent applications, it can stack multiple 30-month stays
    on top of each other and keep competition out of market indefinitely,
    regardless of the merits of the patent case.
        The potential for a free 30-month stay, creates an irresistible
    incentive for brand companies to list more and more patents with FDA.
    Many times these patents do not even claim the approved drug or its
    uses. The patents are listed solely for the purpose of getting a free
    30-month stay and extending the brand company's monopoly.
        It is hard to imagine that the founders and negotiators of Hatch-
    Waxman would have fully anticipated the creative ways in which the
    patent challenge process could be manipulated to prevent competition.
    Patent protection was intended to give the brand pharmaceutical
    industry 20 years of exclusivity. At the end of that date-certain
    period, the patent should expire and competition should be allowed to
    begin. Today, there is no such thing as date certain patent expiration,
    and no limit to what can be patented to prevent generic competition.
    Patents are stacked one upon the other, timed purposely to create a
    minefield of patent uncertainty. In fact, since the enactment of Hatch-
    Waxman in 1984, the average number of patents filed per blockbuster has
    increased five-fold--from 2 to an astounding 10 patents per drug.
        Because my time is limited, I will provide but a few examples. The
    anticonvulsant drug, Neurontin ', represents one good
    example. By listing patents with FDA that do not claim the marketed
    form of the drug or an approved medical use, the brand manufacturer of
    this $1.1 billion per year drug has been able to delay generic
    competition for 18 months past the expiration of the drug's basic
    patent. The potential lost savings to Americans by this delay has
    already amounted to approximately $825 million. With each new day, the
    public loses an additional $ 1.5 million. Furthermore, by strategically
    timing the submission of an additional patent to FDA, the brand company
    effectively converted the automatic 30-month stay of generic approvals
    into 54 months of additional market exclusivity.
        Another example of similar abuse occurred with the antidepressant
    drug, Wellbutrin ' . Affordable generic versions of the $113
    million per year drug were effectively stalled for 5 years by the brand
    company's listing of 6 unapproved medical uses of Wellbutrin
    '. As a result, consumers lost potential savings of
    approximately $275 million. These patents, as well as the Neurontin
    ' patents mentioned above, were unrelated to the FDA-
    approved form and use of the brand-name drug. Rather, they were listed
    simply to preserve exclusivity, and to reap the windfall of hundreds of
    millions of dollars.
        These are just a two of the many examples that demonstrate that in
    the brand industry's eyes, anything can, and will be, considered
    suitable for patent protection and monopoly extension.
        We seek to modernize Hatch-Waxman, to restore the original balance
    between protecting innovation and promoting competition, which will
    provide affordable medicines to Americans. We support the decision by
    this Committee to hear this issue, and to explore ways to increase
    consumer prescription drug savings. We support the efforts of Senators
    McCain and Schumer, and others, for proposing ideas that would close
    the loopholes in the Hatch-Waxman Act and accelerate generic
    competition, brand innovation, and consumer savings.
        Repeated abuses of the provisions of Hatch-Waxman have prevented,
    and will continue to prevent or delay, drug competition, crippling
    private and public insurance budgets and needlessly burdening
    consumers. Specific abuses and problems include:

       Patent Orange Book Listings. For virtually every blockbuster
            drug, brand name companies continuously and strategically add
            new ``Orange Book'' patent listings. Each new patent listing
            triggers a new 30-month stay, preventing generic drugs from
            receiving FDA approval and from going to market. As I mentioned
            earlier, if the brand name chooses to file a lawsuit, a 30-
            month stay is automatic, regardless of the merits of the new
            patent, and results in an automatic delay in generic approvals
            until the stay expires or a court resolves the dispute. By
            staggering their Orange Book listings, the brand name companies
            indefinitely extend their market exclusivity. In the past 18
            years, the average number of patents listed for each
            blockbuster has increased from 2 to about 10. The time and cost
            associated with challenging and litigating these patents in
            order to bring affordable products to consumers is
            extraordinary.

       Blockage of generic competition by inappropriate
            manipulation of Hatch-Waxman exclusivity protections. Brand
            name manufacturers delay generic entry by distorting the
            intended purpose of the Hatch-Waxman 3-year exclusivity
            provision. FDA has granted exclusivity to brand manufacturers
            for minor product and labeling changes that present no
            therapeutic benefit over the predecessor product. These changes
            are hardly the type of ``innovation'' that Congress intended to
            reward when it enacted Hatch-Waxman, and are clearly not worth
            the price that the public is paying for them.

            A recent example involves labeling changes that resulted after
            Bristol Myers Squibb conducted pediatric clinical trials on
            Buspar (for anxiety) and Glucophage (for adult onset diabetes).
            Information derived from these limited studies yielded minor
            labeling changes. Bristol used the outcome of minor pediatric
            studies to delay generic versions of each product. Bristol
            argued that FDA's pediatric labeling regulation requires the
            ``pediatric information'' to be disclosed in drug product
            labeling; yet, this data is protected by three years of
            exclusivity which precludes generic firms from having that
            information on their product label.

            The modest Buspar pediatric studies determined that ``safety
            and effectiveness were not established in patients 6 to 17
            years of age . . . at doses recommended for use in adults.''
            Bristol sought: (1) 6 months of pediatric exclusivity for the
            study, and (2) 3 years of exclusivity for qualifying its
            negative pediatric labeling statement.

            The limited Glucophage pediatric studies (72 subjects) resulted
            in the development of certain pediatric information. Bristol
            had received six months of exclusivity for conducting the
            study. Bristol also received three years of exclusivity for
            changing its labeling to include this ``new'' pediatric
            information, which in turn yielded a second six month pediatric
            extension for the labeling change. By preventing generic
            products from coming to the market consumers were denied
            significant savings offered by affordable generic products.
            Bristol ultimately lost its fight, but it's tactics delayed
            generic competition for six months, creating a windfall for
            them on a drug with annual sales in excess of $1 billion a
            year. The cost of this 7 month delay at $2 million a day,
            conservatively cost the system including the consumers at least
            $420 million.

       Brand migration to extend product life cycles. Brand
            companies exploit patent and exclusivity strategies to delay
            competition. These tactics provide the brand companies with the
            time needed to focus on marketing efforts such as converting
            patients to patent protected products that often provide little
            or no therapeutic advantage to consumers.

       Questionable timing and use of FDA citizen petition process.
            A Citizen Petition ``stops the clock'' on the approval of a
            generic product, often for a minimum of several months. Brand
            Citizen Petitions are typically filed late in the review
            process and frequently raise highly questionable scientific
            issues and, as a consequence, these petitions can delay market
            entry of legitimate high quality generic competitors.

        The Generic Pharmaceutical Association believes that modest
    legislative fixes could stop abuses and restore the balance between
    innovation, competition and access originally sought in the Hatch-
    Waxman. Enactment of legislation could help restore the type of fair
    competition that the authors of Hatch-Waxman originally intended while
    ensuring that the brand pharmaceutical companies have every ability to
    enforce and protect their innovations prior to the launch of competing
    products. Legislation could achieve this balance through elimination of
    the loopholes and the clarification of current law. Specifically any
    legislation solution should consider the following:

            1.  Eliminate the 30-month automatic stay. The 30-month
            automatic stay that frequently prevents generic entry must be
            eliminated in order to prevent gaming of the system. If this
            financial windfall to brand industry were eliminated, patent
            holders would still be entitled to sue generic companies but--
            like all other industries--they would have to obtain a
            preliminary injunction from the court to stay generic drug
            approvals. Indeed, eliminating the 30-month stay provision
            would infuse legal discipline and accountability into the
            system.

               Many examples demonstrate the need to eliminate the 30-month
            stay. For example, the application of multiple, successive 30-
            month stays of generic approval during patent litigation. As
            noted, this practice is costing America consumers billions of
            dollars.

               The original 30-month stay for the blockbuster
            antidepressant drug Paxil ', with annual sales of
            $1.9 billion, (paroxetine HCl) expired in November of 2000.
            Yet, the application of multiple 30-month stays has delayed the
            availability of generic Paxil ' availability until
            at least 2003. Abuses such as these are repeated continuously
            and lead to tens of millions of dollars in excessive
            expenditures.

            2.  Remove legal barriers that undermine the value of
            incentives for generic patent challengers. We support efforts
            to preserve and strengthen incentives for firms that undertake
            extremely costly challenges to complicated patents by ensuring
            that the reward, 180-day exclusivity, is just that--a reward
            that could commence with a successful non-appealable court
            decision.
            3.  Prevent brand firms from hiding behind questionable
            patents. One way to achieve this is to allow generic firms to
            challenge patents during the review process. If successful,
            such challenges would expedite consumer access to affordable
            medicines.

            4.  Limiting 3-year exclusivity to only meaningful product
            innovations that are supported by substantial clinical studies.
            Minor labeling changes, rather than true innovations, should
            not be allowed to block the access by consumers, employers,
            insurers and taxpayers to the substantial savings offered by
            generic products.

               The watering down of the qualifying criteria for the 3-year
            market exclusivity provision is costing American consumers
            billions of dollars. The painkiller Ultram '
            (tramadol HCl) is protected by two 3-year exclusivity periods
            covering minor details of the drug's dosing regimen (i.e., one
            exclusivity for increasing the dose in 25mg increments, and
            another for increasing at 50mg increments). Congress never
            intended for such minor labeling changes to block access to
            generic drugs. Yet, the Ultram ' exclusivity periods
            could cost consumers, their employers, as well as public and
            private insurers at least $727 million dollars. Abuses such as
            these are repeated continuously and lead to tens of millions of
            dollars in excessive expenditures.

            5.  Create a rolling generic drug exclusivity that will
            increase incentives for more timely generic entry. The 180-day
            exclusivity provision now available to the first generic
            challenger should become available to any other subsequent
            challenger if--for whatever reason--the initial challenger does
            not go to market. In addition, reform should ensure the
            forfeiture of the exclusivity period for a range of other
            actions by the first challenger that effectively delays market
            access to generics.

        Some opponents of reforming Hatch-Waxman have focused on the 180-
    day generic exclusivity provision related to patent challenges, arguing
    that this incentive is unnecessary. We believe that there are several
    reasons why this incentive should be protected, and why some in the
    brand industry might want this incentive to be abolished.
        There are many examples of how the 180-day exclusivity provision
    has benefited consumers. Perhaps the most visible, and recent example,
    involves Eli Lilly's Prozac '. In August 2001, a generic
    firm successfully concluded a patent challenge as prescribed under
    Hatch-Waxman, and introduced a generic version of this blockbuster
    drug. The company enjoyed six months of exclusivity. On January 29,
    2002, the firm's period of exclusivity ended, and multiple generic
    versions of Prozac entered the marketplace. Rapidly and predictably,
    the price of Prozac dropped from approximately $2.70 per dose for the
    brand to less than 10 cents per dose for generic versions at the
    wholesale level.
        That challenge ultimately opened the market to generic competition
    2\1/2\ years early, at a savings to U.S. consumers of over $2.5
    billion. Those cost savings from generic Prozac competition have
    benefited all Americans, and reduced costs to insurers, employers, and
    government health care programs.
        There are a number of other examples where the 180-day generic
    exclusivity provision has generated significant savings for consumers.
    These include:

       Generic Zantac ' entered the market over 4 years
            early at a conservative savings to consumers of $ 2.45 billion
            dollars.

       Generic Taxol ' entered the market over 11 years
            early at a savings to consumers of $3.5 billion dollars.
            Generic Relafen ' entered the market 3 years early
            at a savings to consumers of $109 million dollars.

       Generic Plantinol ' entered the market over 11
            years early at a savings to consumers of $1 billion dollars.

        The 180-day generic exclusivity provision works for consumers.
    Clearly it provides the incentive that Congress intended for the
    generic company. The only party who may be deemed a non-beneficiary is
    the brand company.
        Removing the 180-day exclusivity provision will hurt consumers by
    removing the incentive for generic companies to provide the adversarial
    check and balance that the U.S. Patents and Trademark Office does not
    provide.
        GPHA believes that these reforms will help achieve the objective of
    restoring the balance to Hatch-Waxman, and revitalizing it for the 21st
    century.
        Why is reform critical now? Twenty blockbuster drugs, with sales
    greater than $500 million, are scheduled to lose patent or market
    exclusivity in the next 10 years. A total of 45 of the 100 most
    prescribed drugs should face first-time generic competition within the
    next 5 years. Financial analysts project that brand products accounting
    for more than $40 billion in annual sales should lose patent protection
    and should be available for generic competition. This should generate
    consumer and system savings in excess of 30 billion dollars. Of course,
    the brand industry would like to forestall this event as long as
    possible. Without refining the system, there is no guarantee that the
    nation's health care system and consumers can realize these benefits.
        The battle over modernization of Hatch-Waxman must be understood in
    the context of the enormous savings available to the American public
    through generic utilization. The brand pharmaceutical industry would
    have Congress believe that the system isn't broken, so it doesn't need
    fixing. The brand industry would have Congress and the American public
    believes that the patent challenge provisions of Hatch-Waxman, with
    their180-day generic exclusivity incentive, result in increased
    litigation and deserve to be discarded. The brand pharmaceutical
    industry would have Congress and the public believe that generic
    competition is a threat to the next cure or blockbuster treatment.
        We must consider the source of these arguments. They are made by
    international and domestic corporations that recognize that billions of
    dollars in sales and windfall profits are at stake because generic
    competition works at lowering drug costs. We would argue that
    competition spurs true innovation.
        GPHA encourages Congress to embrace reforms of Hatch-Waxman that
    close loopholes, encourage competition, reward true product innovation,
    and provide consumers with date-certain savings on their drug costs.
    Our industry is prepared to work with Congress on meaningful reform
    that expands the savings offered by generic medicines. Thank you. I
    would be happy to respond to any questions you may have.

        Senator Dorgan. Ms. Jaeger, thank you very much.
        Next we will hear from Mr. Steven Martin, who is the
    president and chief executive officer of Nebraska BlueCross
    BlueShield. Mr. Martin, you may proceed.

            STATEMENT OF STEVEN MARTIN, PRESIDENT AND CHIEF
       EXECUTIVE OFFICER, BLUE CROSS AND BLUE SHIELD OF NEBRASKA

        Mr. Martin. Thank you, Mr. Chairman and Members of the
    Committee.
        I currently serve as president and chief executive officer
    of Blue Cross and Blue Shield of Nebraska. Previously I was
    president and chief executive officer of Prime Therapeutics,
    Inc., administrator of pharmacy benefits in the States of
    Minnesota, North Dakota, Nebraska, Kansas, and Wyoming, which
    is the largest administrator of benefits in those states and a
    national administrator of benefits. It was also founded by
    those respective BlueCross plans to begin to understand the
    problems of pharmacy cost escalation and some of the potential
    solutions.
        I thank you for the opportunity to testify on behalf of the
    Blue Cross and Blue Shield Association on this important issue
    of consumer access to generic drugs. Blue Cross/ Blue Shield
    Association represents 43 independent Blue Cross/ Blue Shield
    plans through the nation that together provide health coverage
    for 83 million, one in four, Americans.
        Because pharmaceuticals are a key component in preventing
    and treating disease, Blue Cross/Blue Shield plans offer drug
    benefits to their members. Americans want a robust
    pharmaceutical industry with strong research and development,
    but they also want affordable prescription drugs. Our constant
    challenge is to provide a meaningful level of coverage for
    prescription drugs while keeping premiums as affordable as
    possible.
        However, the cost of drug benefits is high and is
    accelerating at up to 20 percent per annum in our respective
    plans. As a result, drugs today account for a growing share of
    BlueCross/BlueShield plans total medical costs and our members
    premiums. BlueCross BlueShield plans employ a range of
    techniques to keep drug coverage affordable. Several of these
    methods are outlined in my written testimony.
        In spite of our efforts, however, employers are telling us
    it's not enough. In fact, I just returned from touring the
    State of Nebraska, where I met with most of our employers, our
    large groups and associations. And without exception, every
    major employer, group, and association I met with is working on
    reexamining their prescription drug coverage.
        Unfortunately, those employers, groups, and associations
    are looking to increase the copayments and cost contributions
    of our members as a way to control the ever-rising costs of
    coverage so that they can continue to offer a broad-based
    coverage to the members in their respective groups. This
    reality and its impact on healthcare coverage availability and
    affordability is exactly why today's hearing is so important.
        We want to assure that health plans and employers have
    enough resources to pay for future breakthroughs in drugs and
    medical technology, so we are looking beyond benefit design to
    other ways to address these skyrocketing drug costs. We believe
    the most obvious way is to ensure that lower cost, safe and
    equally effective generic drugs get to market when they should.
        A generic drug typically enters the market priced about 30
    percent below its brand counterpart. Within 2 years, the
    average price of the generic drops, until it's about 75 percent
    less than the brand competitors. According to the Congressional
    Budget Office, the use of generics in place of brand names
    could save consumers between $8 billion and $10 billion each
    year. BlueCross BlueShield plans believe the best way to lower
    prescription drug costs is to encourage appropriate and
    vigorous competition in the marketplace by improving access to
    generics.
        We urge Congress to pass the Greater Access to Affordable
    Pharmaceuticals Act. This legislation, sponsored by Senators
    John McCain and Charles Schumer, and in the House, by
    Representatives Sherrod Brown and Jo Ann Emerson, would improve
    access to generic drugs in several ways. Most significantly, it
    would eliminate barriers to market entry, including the
    automatic 30-month stay of FDA review where generic application
    which is triggered as soon as the brand manufacturer files
    suit. By passing legislation that promotes vigorous competition
    in the prescription drug market by improving access to generic
    drugs, Congress will ensure that healthcare coverage remains
    available and affordable to consumers.
        Thank you again for the opportunity to testify today. I'll
    be happy to address any questions.
        [The prepared statement of Mr. Martin follows:]

      Prepared Statement of Steven Martin, President and Chief Executive
                Officer, Blue Cross and Blue Shield of Nebraska

        Mr. Chairman and Members of the Committee, I am Steve Martin,
    President and Chief Executive Officer of Blue Cross and Blue Shield of
    Nebraska. BCBS Nebraska provides health care coverage to more than
    640,000 (one in three) Nebraskans.
        Prior to joining Blue Cross and Blue Shield of Nebraska last month,
    I was President, and CEO for Prime Therapeutics, Inc. of Eagan,
    Minnesota. Prime Therapeutics, Inc. is a pharmacy benefits management
    company (PBM) owned by five Midwestern Blue Cross Blue Shield plans.
        Today, I am testifying on behalf of the Blue Cross and Blue Shield
    Association (BCBSA). CBSA represents the 43 independent Blue Cross and
    Blue Shield Plans throughout the nation that together provide health
    coverage to 83 million--one in four--Americans. I appreciate the
    opportunity to testify on the important issue of consumer access to
    generic drugs.
        Blue Cross and Blue Shield Plans have extensive experience in
    providing prescription drug coverage to both working and retired
    Americans.

       BCBS Plans offer health coverage to working and retired
            Americans through a variety of managed care and indemnity
            products, including health maintenance organizations (HMOs),
            preferred provider organizations (PPOs) and point of service
            (POS) plans. Nearly all of these plans provide prescription
            drug benefits to their members.

       Collectively, BCBS Plans provide Medicare HMO options to
            more than one million Medicare beneficiaries, making them
            collectively the largest Medicare+Choice (M+C) contractor in
            the country. Most of BCBS M+C plans provide some coverage for
            outpatient prescription drug to their M+C members, although
            continuation of this coverage is a challenge given overall
            problems with continued funding of this program.

       Blue Cross and Blue Shield Plans underwrite and deliver the
            government-wide Service Benefit Plan under the Federal Employee
            Health Benefits Program (FEHBP). It covers over two million
            contracts and more than four million lives. The Service Benefit
            Plan provides outpatient prescription drug benefits to its
            members, many of whom are retired.

        Our constant challenge is to provide a meaningful level of coverage
    for prescription drugs while keeping premiums as affordable as
    possible.
        In my testimony today, I will address three areas:

       Background on the skyrocketing costs of prescription drugs;

       The critical role of generic drugs in keeping health care
            coverage available and affordable and how BCBS Plans promote
            appropriate generic drug usage; and

       Legislative changes needed to promote vigorous competition
            in the prescription drug market.

    I. Background on Prescription Drug Cost Trends
        Prescription drugs have significantly increased Americans' life
    span and contributed to their improved health status in the 20th
    century. Because pharmaceuticals are a key component in preventing and
    treating disease, BCBS Plans offer pharmacy benefits to their members.
    However, the cost of drug benefits is high and accounts for a growing
    share of BCBS Plans' total medical costs and our members' premium
    dollars. Our Plans are experiencing up to 20 percent increases in
    prescription drug costs each year. BCBSA expects these costs to
    continue to grow rapidly.

    Factors Contributing to Increased Prescription Drug Spending
        While BCBS Plans use a range of strategies to manage growing
    prescription drug costs on behalf of their subscribers, spending is
    being propelled by a number of market and structural forces over which
    private insurers have little control. Some of the most significant
    forces are the following:

    Demographic Trends
        As the U.S. population ages, the number of people at risk for
    chronic and disabling diseases is rising dramatically. The single
    largest market for prescription drugs is the aging baby boom
    generation. According to U.S. Census data, the 54-to-64 age group will
    expand by 59 percent between 1998 and 2010. The drugs used by the
    middle aged and elderly tend to be expensive and often treat chronic
    conditions, such as hypertension, high cholesterol, diabetes and
    arthritis, which require a steady regimen throughout the patient's
    remaining life.

    Rapid Flow of New Drugs to Market
        Over the past decade, many new prescription drugs have come to
    market. One of the most robust measures of the flow of pharmaceutical
    technology is the annual number of new molecular entities (NMEs)
    approved by the FDA. NMEs are compounds that have never before been
    marketed in this country. Over the course of a generation--from the
    early 1960s to the mid 1990s--the annual number of new molecular
    entities (NMEs) receiving FDA approval nearly doubled. From an average
    of 13.7 in the 1960s, annual NME approvals rose to 25.6 in the first
    half of the 1990s and to 36.8 by the end of the decade.
        Some of these new drugs are ``breakthrough'' products, which treat
    diseases and conditions that previously lacked effective therapies.
    Others are differentiated from older drugs only by having slightly less
    prevalent side effects, or different dosing forms. Physicians tend to
    adopt such new drugs rapidly, and direct-to-consumer advertising also
    increases their rate of market penetration. While these new products
    often provide important clinical benefits, they also increase health
    insurance premiums. Blues Plans have a longstanding commitment to
    provide coverage for clinically sound, effective services while finding
    ways to keep premiums affordable.
        The National Institute for Health Care Management (NIHCM) recently
    released a report on trends in pharmacy spending for 2001. This
    report--subtitled ``Another Year of Escalating Costs''--examines the
    growth of retail prescription drug sales. The report found that:

       Spending on outpatient prescription drugs dispensed through
            U.S. retail stores and pharmacies grew 17.1 percent from 2000
            to 2001, from $131.9 billion to $154.5 billion. This represents
            the fourth straight year that spending on prescription
            medicines escalated 17 percent or more.

       Price increases were a more substantial component of the
            rise in drug spending in 2001 than in the previous year,
            accounting for 37 percent of the spending. The average price of
            a prescription bought at a retail pharmacy rose 10 percent from
            2000 to 2001, to $49.84 from $45.27.

       A shift to prescribing more expensive medicines was
            responsible for 24 percent of the rise in drug spending in
            2001.

        We expect the flow of new drug technology to continue. Over the
    past two decades, the pharmaceutical industry and the federal
    government, through the National Institutes of Health, have made
    massive investments in research and development. For example, the
    Pharmaceutical Research and Manufacturers of America (PhRMA) has
    estimated that the pharmaceutical industry spent $30.3 billion in R&D
    in 2001. This represents more than three times the amount, $8.4
    billion, that private industry invested in pharmaceutical R&D in 1990,
    and is a 16.6 percent increase over the 2000 level.
        Therefore, we want to assure that health plans and employers have
    enough resources to pay for all of the new breakthroughs in drugs and
    medical technology expected over the next several years.

    Direct-to-Consumer Advertising of Prescription Drugs
        Over the past decade, direct-to-consumer (DTC) advertising has
    revolutionized the marketing of prescription drugs. Traditionally, such
    advertising was limited to medical journals and trade publications
    aimed at physicians. Since 1985, when the FDA lifted its moratorium on
    promotion directed to consumers, this form of advertising has exploded,
    and since the agency relaxed its regulation of broadcast advertising in
    1997, TV ads for prescription drugs have proliferated. In 1991,
    pharmaceutical companies spent $55.3 million to promote prescription
    products directly to consumers. According to NIHCM, outlays on DTC
    advertising in 2000 were $2.5 billion, more than double what was spent
    in 1997.
        DTC advertising can promote the public health by encouraging
    patients with undiagnosed and untreated conditions to see their doctor.
    However, this consumer demand also contributes to health benefits
    costs. Surveys of both consumers and physicians show that DTC ads for
    prescription drugs are effective in stimulating demand for branded
    products.
        For example, preliminary results of a new survey by the FDA
    indicate that patients who ask their physicians for a specific brand-
    name drug usually get a prescription for that medication. The survey
    found that nearly 25 percent of survey respondents asked their doctor
    for a specific brand-name drug, and 69 percent of those patients
    ultimately received a prescription for that drug. By comparison, 41
    percent of respondents who asked their doctors about any drug were
    given medication by their doctor. The full FDA survey is expected to be
    released later this month.

    II. Generic Drugs Play a Critical Role in Keeping Health Care Coverage
            Available and Affordable
        Generic drugs are subject to rigorous review by the FDA to ensure
    that they are as safe and effective as their brand-name counterparts.
    Once approved for marketing, generic drugs offer consumers, employers
    and insurers significant savings compared to brand drugs. Generic drugs
    play a critical role in keeping health care coverage available and
    affordable.

    Generic Drug Safety
        The first phase of new drug development--preclinical research--
    involves laboratory and animal testing of the compound and is primarily
    aimed at establishing safety. If successful, the brand manufacturer can
    then file an Investigational New Drug Application with the FDA. At the
    successful completion of lengthy human clinical trials, the brand
    manufacturer files a New Drug Application submission with the FDA
    seeking to bring the new compound to market. This rigorous process also
    is the basis for the generic drug application.
        The generic manufacturer relies on the underlying safety and
    efficacy data supplied by the brand manufacturer when it submits its
    application to the FDA for approval. The generic manufacturer must
    demonstrate in its application that the generic drug is equivalent to
    the branded product based on bioavailability and/or bioequivalence
    studies. When compared to brand-name drugs, FDA-approved generic drugs
    must have the:

       same active ingredients,

       same dosage form,

       same standards for purity and quality,

       same standards for manufacturing,

       same amount of drug absorbed over the same time, and

       same clinical effect.

        The only significant difference between generic drugs and their
    brand name counterparts is price.

    Generic Drugs Create Billions of Dollars in Savings
        Every day, the choice of generic products creates substantial
    savings for consumers. Typically, a generic drug enters the market
    priced 30 percent less than its brand counterpart. Within two years, as
    more generics enter the market, the average price of the generic
    version of a drug drops until it is 75 percent less than the brand.
    According to the Congressional Budget Office estimates, the use of
    generics in place of brand names could save consumers between $8
    billion and $10 billion each year.
        As the Administration and Congress continues to work to develop a
    new Medicare prescription drug benefit, a new study finds that if such
    a program is enacted, it potentially would save $14 billion in 2003 and
    $250 billion during the next 10 years by increasing the rate of generic
    drug usage. The study, ``Greater Use of Generics: A Prescription for
    Drug Cost Savings,'' was sponsored by the Generic Pharmaceutical
    Association and conducted by researchers from Brandeis University. It
    concludes that Medicare could achieve these savings by using generic
    pharmaceutical incentive techniques currently used in the private
    sector.

    Generic Drug Market Penetration
        Although generic drugs have the same safety and effectiveness
    profile as their brand counterparts and can produce significant cost
    savings for consumers, they have a low rate of market penetration.
        According to NIHCM, only five generic drugs were among the 50 best-
    selling drugs in 2001. Data from the Generic Pharmaceuticals
    Association indicate that generic drugs made up approximately 42
    percent of all prescriptions dispensed at the retail level but
    accounted for only approximately 8 percent of the $141 billion spent on
    prescription drugs in 2000. Stated another way, brand name drugs,
    representing 58 percent of all prescriptions, accounted for 92 percent
    of the total retail cost of prescription drugs in 2000.

    Using Benefit Design to Encourage Appropriate Use of Generic Drugs
        BCBS Plans have experienced a rapid acceleration in prescription
    drug costs over the past few years. BCBSA expects pharmacy costs to
    continue to rise, propelled by the medical needs of an aging
    population, the flow of new technology, and strong consumer demand. As
    this occurs, health insurers will need to manage prescription drug
    benefits as effectively as possible in order to keep premiums
    affordable. Some of pharmaceutical benefit management tools our Plans
    use to promote the use of generics and control costs include:

    Tiered Copayment Plans
        Blue Cross and Blue Shield Plans design their pharmacy benefits to
    ensure consumers have access to appropriate medications. One approach
    to achieving this objective is the tiered copayment plan. Now popular
    among nearly all health plans, tiered benefit designs provide financial
    incentives to encourage members to make cost effective drug purchases.
    Under these programs, plan members have more choices available to them
    than they would under more traditional benefit designs, but they pay a
    higher share of the cost of expensive drugs that have safe and
    effective, but less costly, alternatives. The intent is to encourage
    members to use drugs that are both clinically efficacious and cost
    effective.
        Three-tiered structures, which classify drugs into three categories
    with differing levels of copayment (or coinsurance), are often
    structured as follows: Tier 1 consists of generic drugs, and has the
    lowest copayment/coinsurance. Tier 2 contains branded drugs that are
    clinically effective, cost effective, and meet the needs of most
    patients; these drugs require a moderate copayment/coinsurance. Tier 3
    drugs, with the highest copayment/coinsurance, generally include
    branded drugs with a generic equivalent or branded therapeutic
    equivalent in Tier 2.

    Step Therapy Programs
        Another approach to ensuring cost-effective appropriate drug
    coverage is the use of step therapy programs. Thanks to continued
    innovation on the part of the pharmaceutical industry, multiple drug
    therapies now exist to treat many health conditions. Step therapy is a
    type of protocol that specifies a sequence of different therapies,
    including prescription drugs, for a given medical condition.
    Hypertension, for example, can be treated with dozens of different
    drugs, some of which have generic counterparts, some of which do not.
    Under step therapy, a patient with hypertension would be treated first
    with medications (generics, where available) known to be safe and
    effective for this condition. The patient would remain on those
    medications if they prove effective in managing the hypertension. If
    not, more innovative treatments would be tried.

    Physician Education
        Health plans must work hand-in-hand with physicians to make these
    programs a success. For example, to support step therapy programs, a
    number of health plans share data with their participating physicians
    that compare their prescribing patterns to those of their peers. In
    regular meetings with network physicians, health plans can review these
    data and encourage physicians to adopt a step therapy approach where
    appropriate.
        BCBS Plans' experiences confirm the savings derived from improved
    generic access. One Plan reported that just a one percent increase in
    generic drug utilization for the 760,000 people covered results in a $3
    million savings in drug costs per year.
        As such, BCBS Plans strive to promote appropriate generic
    utilization through innovative programs. For example, Blue Cross Blue
    Shield of Michigan is launching a $1 million public awareness marketing
    campaign using the slogan ``generic drugs: the unadvertised brand, `'
    to increase consumer awareness of the quality and value of generic
    drugs.
        As a result of this campaign and other initiatives to support
    appropriate use of generic drugs, Michigan Plan members saved about $13
    million on an annualized basis. In addition, the initiative is believed
    to have generated annualized savings of as much as $25 million
    statewide.
        Despite the implementation of a range of benefit management tools
    and innovative consumer education campaigns about the safety and value
    of generic drugs, BCBS Plans continue to experience unsustainable
    prescription drug costs. In fact, I just returned from touring the
    state of Nebraska and every major employer, group and association has
    been re-examining their coverage. Employers are having to increase out-
    of-pocket costs for drugs and employees will be expected to pay more.
    This reality, and its impact on health care coverage availability and
    affordability, is exactly why today's hearing is so important.

    III. Legislative Changes Are Needed to Promote Vigorous Competition in
            the Prescription Drug Market
        BCBS Plans believe the best way to lower prescription drug costs is
    to encourage vigorous competition in the marketplace by improving
    access to generics. BCBSA urges Congress to pass the Greater Access to
    Affordable Pharmaceuticals Act (GAAP). This legislation, sponsored by
    Senators John McCain and Charles Schumer and in the House by
    Representatives Sherrod Brown and Jo Ann Emerson, would:

       Improve access to generic drugs by eliminating barriers to
            market entry, including the automatic 30-month stay of FDA
            review of a generic application which is triggered as soon as a
            brand manufacturer files suit;

       Accelerate generic drug competition by transferring the
            market exclusivity granted to the first eligible generic
            applicant to other applicants if the former does not go to
            market; and

       Strengthen the citizen petition process by curbing abuses
            that delay competition in the marketplace.

    Eliminate Barriers to Generic Drugs: 30-Month Stay
        Several provisions of current law have the unintended consequence
    of delaying market entry of generic drugs. First, consumer access to
    generics is often delayed for 30 months because the law requires the
    FDA to automatically defer approval of a generic application if the
    brand manufacturer sues for patent infringement, costing consumers
    billions. The GAAP bill would eliminate the automatic 30-month stay,
    and brand manufacturers would retain the ability to seek a preliminary
    injunction from the courts to protect their interests.
        A second barrier to generic market entry is created when brand
    manufacturers list patents with the FDA as late as a year or more after
    a generic application has been filed--which triggers a 45-day window
    during which a lawsuit to resolve the patent status can be filed. Brand
    manufacturers can and do use this strategy to delay generic competition
    because they currently are not required to list all patents with the
    FDA. The GAAP bill would remove this barrier by requiring brand
    manufacturers to list all patents for which an infringement claim could
    reasonably be asserted and to certify to the FDA that the listing is
    complete and accurate, to prevent unforeseen infringement suits.
        A third barrier to market entry for generic drugs is the
    aforementioned 45-day period allowed for a brand manufacturer prior to
    suing a generic company for patent infringement. During the waiting
    period, a generic company's right to market its product is unprotected,
    discouraging market entry. The GAAP bill would allow generic
    manufacturers to seek a declaratory judgment that their product will
    not violate any patent listed with the FDA, expediting consumer access
    to affordable medicines if the challenge is successful.
        In addition, under the GAAP legislation, if a patent is listed a
    year or more after a generic application is submitted, generic
    manufacturers could bypass the 45-day waiting period and immediately
    seek a declaratory judgment of invalidity or noninfringement for any
    patent listed with the FDA.

    Accelerate Generic Drug Competition: 180-Day Exclusivity
        Current law grants a 180-day period of market exclusivity to the
    first generic applicant who certifies that the patents on the brand
    product it intends to copy are either invalid or will not be infringed
    by the manufacturing and marketing of a generic version of the drug.
    However, the 180-day period does not begin until the first applicant
    goes to market or litigation surrounding the certification is resolved.
    In the interim, all other generic applicants are kept out of the
    market. For this reason, brand name drug manufacturers have an
    incentive to pay the first generic applicant to stay out of the market,
    preventing competition among generic companies and delaying consumer
    access to generics for an extended period.
        The GAAP bill allows the 180-day market exclusivity rights to
    become available to the next-to-file generic applicant if the previous
    applicant meets one of several conditions, including reaching a
    financial settlement with the brand name drug manufacturer to stay out
    of the market until the patents have expired.

    Strengthen the Citizen Petitions Process
        The citizen petition process is an important vehicle for public
    concerns regarding a drug's approval, but it is subject to abuse by
    those seeking to delay competition in the marketplace.
        The GAAP bill would require the FDA to instruct the Federal Trade
    Commission to investigate any citizen petitions submitted to the FDA
    that are suspected of being filed for anticompetitive purposes. The
    bill also would require petitioners to notify the FDA whether the
    petitioner has received, or will receive, consideration for filing the
    petition and to identify the party furnishing consideration.

    BCBSA Strongly Supports the GAAP Bill
        BCBS Plans strongly support the GAAP bill because its provisions
    would encourage vigorous competition in the prescription drug
    marketplace. BCBSA has endorsed the bill and has organized a Coalition
    to focus solely on moving this bill forward. The Coalition includes
    representatives from large businesses, unions, consumer groups, the
    insurance industry, and generic drug manufacturers.
        In addition, BCBSA is sponsoring research to highlight the costs to
    consumers of delayed access to generic drugs.

    IV. Conclusion
        Health plans have developed a number of strategies for addressing
    the rising cost of prescription drugs, with some success. However, as
    drug costs continue to skyrocket, Congress must re-examine current laws
    that contribute to rising costs. Legislation such as GAAP that promotes
    vigorous competition in the prescription drug market by improving
    access to generic drugs will assure that health care coverage remains
    available and affordable for consumers.
        Thank you again for the opportunity to testify today.

        Senator Dorgan. Mr. Martin, thank you very much.
        Finally, we will hear from Ms. Shelbie Oppenheimer, from
    the ALS Association. Ms. Oppenheimer, you may proceed.

                   STATEMENT OF SHELBIE OPPENHEIMER,
                            ALS ASSOCIATION

        Ms. Oppenheimer. Thank you, Mr. Chairman and distinguished
    Committee Members. My name is Shelbie Oppenheimer, and I'm
    grateful to have been invited here to share with you what I
    think is an important perspective on generic versus innovative
    drugs.
        To me, this debate is more important than policy, law, and
    politics. It's about the reality of life and health and death.
    I have a disease that cannot be cured today, Amyotrophic
    Lateral Sclerosis, ALS, also known as Lou Gehrig's Disease.
    It's a progressive disorder that causes my motor nerve cells to
    die. And as a result, I am steadily losing muscle control.
    Without a treatment or cure, I will eventually become paralyzed
    and die. This happens to most patients within two to 5 years
    after diagnosis.
        Research, drug development, and innovation are the answer
    for people like me with ALS. At any given time, there are about
    30,000 people living with ALS, so drugs for my condition would
    not be a so-called blockbuster. A pharmaceutical research and
    development project directed to finding new drug treatments for
    ALS is viewed as costly and difficult and a very high risk for
    a company. The market will never be huge, so the chance of a
    big return on investment is a question mark. As I see it, a
    patent on new drugs is the one thing a company can count on to
    justify its investment.
        Mr. Chairman, I'm a realistic person. I know that
    innovation in medicine comes down to a business decision. The
    size of the patient population, the ultimate potential profit,
    and patent protection are key components in that decision. I
    want, perhaps I should say I need, ALS drug development to be
    competitive in a business environment. I want innovative
    companies to have the desire to apply their skills to ALS drug
    development, and I want their business considerations to be
    protected so ALS drugs can be worthwhile to bring to market.
    They'll certainly be worthwhile to me and to my family.
        Legislation that lessens the incentives for innovation and
    research is a death sentence for too many Americans. I'm not an
    expert in the legislative process. I come before you as a
    mother, a wife, a daughter, and a person living and dying with
    ALS.
        Although I devote my days to caring for, loving, and
    nurturing my daughter Isabel, and not wasting days consumed by
    what may be, I can't help but worry which muscle will fail me
    next and how will that affect my ability to care for her. When
    will my physical limitations become too big to hide for her?
    When will she need to feed me as I once fed her?
        Without research, I'm destined to fade away physically
    while being completely aware of it mentally. Other Americans
    with other diseases face similarly horrific fates. There must
    be a better way to make prescription drugs more affordable than
    to steal the hope of research breakthroughs from the
    fractionalized suffers of an array of fatal diseases.
        Thank you for listening, and I and my colleague, Steve
    Gibson, would be happy to answer any questions. Thank you.
        [The prepared statement of Ms. Oppenheimer follows:]

           Prepared Statement of Shelbie Oppenheimer, ALS Association

        Thank you, Mr. Chairman and distinguished Committee members. My
    name is Shelbie Oppenheimer. I am grateful to have been invited here
    today to share what I think is an important perspective on the issue of
    generic drugs versus innovative drugs. To me, this debate is more
    important than policy, law and politics. To me, this is very personal.
    To me, drug development is less about the science of chemistry or
    biology or the complex economics involved or the enormous financial
    stakes. It's about the reality of life and health. Let me be very
    straightforward. I have a disease that cannot be cured today. I have
    Amyotrophic Lateral Sclerosis--ALS, also known as Lou Gehrig's Disease.
    It is a progressive disorder that occurs when motor nerve cells in the
    nervous system cease functioning and die. Muscle control becomes
    completely lost, resulting in paralysis.
        The life expectancy of an ALS patient averages about two to five
    years from the time of diagnosis and there is no known cause,
    prevention or cure. ALS can strike anyone. There is just one drug
    available that may extend life expectancy for some ALS patients for a
    few months, but that drug--as significant as it is--is not the answer
    for my condition. While I recognize the critical importance of the
    basic scientific research being done by the National Institutes of
    Health and The ALS Association, hope for me . . . and for others
    dealing with ALS . . . today is the discovery or development of better
    therapies and, perhaps, one day soon, even a cure.
        Research, drug development and innovation are the answer for people
    with ALS. Like many other neurological disorders, ALS is a difficult
    disease to understand. It's causes and mechanisms are complex and
    therefore treatment is a maddening, multi-layered puzzle. ALS is not a
    disease that affects millions of people. At any given time there are
    about 30,000 people with ALS. So, a drug for my condition will not be a
    so-called ``blockbuster'' on the marketplace. A pharmaceutical research
    and development project directed to finding new drug treatments for ALS
    is viewed as costly and difficult, and a very high risk for a company.
    The market will never be huge. So, the chance of a big return on
    investment is a question mark. As I see it, a patent on a new drug is
    one thing a company can count on to justify its investment.
        Mr. Chairman, I am a realistic person. I know that innovation in
    medicines is not only an intellectual exercise. It is also a business
    decision. I know that if a project to develop a drug for high blood
    pressure is weighed against the choice of developing a drug for ALS, I
    will lose. The size of the patient population, the ultimate potential
    profit, and patent protection are key components in that decision. I
    want, perhaps I should say I need, ALS drug development to be
    competitive in a business environment. I want innovative companies to
    have the desire to apply their skills to ALS drug development and I
    want their business considerations to be protected so ALS drugs can be
    worthwhile to bring to market. They'll certainly be worthwhile to me .
    . . to my family.
        Unfortunately, drug innovation is not a walk in the park. As an ALS
    patient who has seen many potential products fail, I want to stress and
    repeat what many before me have said, ``there are very few initial drug
    candidates that ever reach patients.'' There are multiple reasons for
    this, but one of them is just simply that drug research and development
    is a risky expensive business. Sometimes, a company with very good
    intentions simply can't afford to go out on a limb to develop a
    ``maybe'' product that may help very few people. I am interested in any
    legislation that affects pharmaceutical research and development. I
    don't want to see legislation that would put people like me at risk of
    facing a future without incentives for innovation.
        Companies that develop brand-name drugs are good at research.
    Companies manufacturing generic drugs essentially don't do research.
    They both make positive contributions to health care and are essential
    factors in economic considerations on many levels. I am simply asking
    you to be sure any legislation being considered is about patients- all
    patients, including those who have diseases that are relatively rare
    and those who are disabled, not just those whose conditions are treated
    by huge best seller drugs. Today, I am asking you to be careful and
    fair. There are some tempting headlines and sound bites here. But I
    urge your thoughtful consideration because vote-driven legislation in
    this case can hurt patients like me.
        I am asking you please not to go for what may seem like an easy
    answer. Instead, think of the effect changes will have on my future.
    The drugs that will combat ALS, that will treat very rare cancers,
    which will truly change our world may only be dreams or vague ideas or
    they may be right around the corner. We don't know. We do know that
    people and companies must desire to pursue them and make them a
    reality. Incentives for companies to develop these drugs must be
    preserved and must be part of policy. I am not an expert in the
    legislative process; I come before you as a person living with ALS.
    Please don't do anything, however well-intended, that will discourage
    the pursuit of a treatment and eventually a cure for my horrific
    disease.
        Although I devote myself every day to caring for, loving, and
    nurturing my daughter Isabel, and not wasting days consumed by what may
    be, sometimes I can't help but worry . . . which muscle will fail me
    next and how will that effect my ability to take care of her? When will
    my physical limitations become too big to hide from her? Will she need
    to feed me as I once fed her? Instead of thinking about a career,
    weekend plans, what to serve for dinner, and which school for my
    daughter to attend, I can't help but be angry that I must think about
    slowly fading away physically and being completely aware of it
    mentally. I cry at the thought of losing my ability to speak and not
    being able to tell my daughter and my husband Jeff that I love them. I
    weep at the thought of not knowing if I will be able to dance at my
    daughter's wedding. This is my future. This future can change if the
    right drug is available for me.
        Thank you for listening, Mr. Chairmen and Members of the Committee.
    I would be happy, along with my colleague, Steve Gibson from The ALS
    Association, to answer any questions you might have.

        Senator Dorgan. Ms. Oppenheimer, thank you very much, and
    thanks for your courage to come, and, Ms. Wolff, thank you for
    your courage to be here, as well. And our thoughts and prayers
    are with you as you battle this disease, Ms. Oppenheimer.
        Let me also say that the goal that many of us have had of
    doubling the amount of money available for the National
    Institutes of Health in 5 years is now going to be achieved
    this year. We've gone from $12 billion a year for the National
    Institutes of Health to nearly $24 billion a year. Why have we
    done that? Because that investment in research will provide
    enormous benefits, and that investment will open the doors to
    cures for a wide range of diseases, we believe. So doubling,
    from $12 billion to $24 billion, the research that's occurring
    at the National Institutes of Health and then is spread out all
    over this country in healthcare facilities, I think and hope is
    a source of great hope to you and many, many others.
        Let me ask a question of Dr. Glover first. Dr. Glover,
    you've heard the testimony of the chairman of the Federal Trade
    Commission, and I have a list of a wide range of issues here of
    companies that have been involved in attempting to delay or
    prohibit or in other ways impede the opportunity for a generic
    to come to the market. Are you saying that there isn't a
    problem here, or the problem is a small problem? I think, as
    you contemplate that, if someone were to say to me, ``Well, in
    drunk driving there's not a problem, because 90 percent of the
    people driving are sober, only 10 percent are drunk,'' I'd say,
    ``Well, but drunk driving is a pretty serious problem.'' Is
    there, with respect to the behavior of some companies,
    according the FTC, is there a problem in some magnitude here?
    And if so, what is that? Or is it your position, ``This thing's
    working just fine. There's no problem''?
        Dr. Glover. It is our position that the problem is small.
    Even with the cases that are cited by Chairman Muris and the
    Federal Trade Commission, we're talking about fewer than ten
    cases out of more then 8,000. In that circumstance,
    nevertheless, these ten cases are circumstances where--if you
    even take the facts as presented by the Federal Trade
    Commission as being accurate, these are circumstances where it
    is not going to solve the problem to change the Hatch-Waxman
    Act, because those cases outline facts and presented facts that
    would have been violations of the antitrust laws and/or the
    patent laws whether the Hatch-Waxman Act existed or not.
        It is our view, also, that while there may be issues that
    should be addressed for the benefit of the pioneers and for the
    benefits of the generics in the Hatch-Waxman Act, this is an
    immensely complicated statute, whereby what we have works so
    well that making certain changes will not really benefit either
    party in any circumstance.
        The last thing to understand is that where you have a
    statute that was originally designed as a compromise of
    balancing two conflicting interests, that you cannot manipulate
    and tweak that statute in an environment where one of the
    parties is deemed to be a villain and the other party is deemed
    to be an angel. We know that neither of those is completely
    true. This is an issue of business and commerce and
    competition. So unless we can move the debate having accurate
    discussions about what the Hatch-Waxman Act really does, and
    what the alleged abuses really are and where the genuine issues
    are, and leave out some of the rhetoric, we cannot move to a
    position where you can manipulate the act and get a result that
    will remain and maintain the balance.
        Senator Dorgan. Dr. Glover, prescription drug companies,
    pharmaceutical manufacturers, have every right to patent
    protection. That is the umbrella under which they make
    investments and expect to be able to recover those investments.
    I fully support that.
        On the other hand, the questions of today's hearing are
    questions about the Hatch-Waxman Act and the potential misuse
    of it. And let me give you an example. You say that it is
    really not of great significance--that is, the attempts to
    block generics. Generics are delayed so often that of the drugs
    that should have expired in 2000, 50 percent were delayed to
    2001 or still have no generic competition. The majority of the
    abuses have occurred to protect some of the most profitable
    blockbuster drugs; 67 percent of the top 30 worldwide selling
    drugs subject to Hatch-Waxman's legislation are involved now in
    litigation.
        There is a whole set of information that would suggest what
    you are saying is not accurate. I mean, you're saying that
    there's really no problem, and yet there's a substantial amount
    of other information, including the testimony by the Federal
    Trade Commission today, that there is, in fact, a problem.
        Dr. Glover. Well, first, with respect to the Federal Trade
    Commission, we cannot comment on allegations by the Federal
    Trade Commission about investigations that are not yet public.
    We know about, they have told us about five public
    investigations, and each of those, I will remind you, are
    investigations where, if the facts alleged by the Federal Trade
    Commission are taken to be accurate, each of those cases would
    have alleged facts that would have been in violation of the
    antitrust laws or the patent laws in the absence of the Hatch-
    Waxman Act. Therefore, changing the Hatch-Waxman Act is not
    going to affect that.
        Second, the mere fact that cases are in litigation does not
    indicate that there is a problem. Remember that the Hatch-
    Waxman Act was designed with a fundamental premise that you
    should not get the generic drug on the market until the patent
    on the pioneer's product is expired. There is never a patent
    infringement suit unless the generic has taken the position
    that they want to market their product before the patent
    expires, and that's when you get a patent infringement suit.
        Senator Dorgan. But, Dr. Glover, if I might just continue,
    Biovail amended its label in April 2000 to indicate that Tiazac
    may be sprinkled on applesauce.
        Dr. Glover. I am not aware of that, and that's not----
        Senator Dorgan. Well, let me make you aware of it just for
    a moment here.
        Dr. Glover. Okay.
        Senator Dorgan. Biovail amended its label in April 2000 and
    indicated that Tiazac may be sprinkled on applesauce. Ergo,
    generic manufacturers were then required to test their products
    with applesauce, further delaying FDA approval. What if this
    company said, ``Well, now, you've tested it with applesauce. We
    believe it should also be sprinkled on pizza.''
        My question is, do you think this kind of thing probably
    goes somewhere near the crevice or corner of Hatch-Waxman in a
    way that was not intended?
        Dr. Glover. If I assume that those facts are accurate,
    which I doubt, yes, that would go beyond the edge. But the
    problem with that is if, indeed, there were a new indication
    that indicated that Tiazac could be spread on applesauce, the
    generic has the opportunity to eliminate that indication from
    the label. They don't have to certify it to the patent, and
    they can go on the market with their generic product. So these
    allegations that come up with these spurious suggestions about
    things that have occurred that are keeping things off the
    market generally are not accurate.
        Senator Dorgan. Well, I'll go through a series of them in a
    few moments, but what I'd like to do is ask Senator Wyden to
    inquire at this point.
        Senator Wyden. Thank you, Mr. Chairman. And, Ms. Wolff,
    we're glad you're here. Gray Panthers have a long history of
    being gutsy, but you have brought new meaning to the concept of
    putting your body on the line----
        [Laughter.]
        Senator Wyden. And we thank you for being here and your
    testimony.
        Dr. Glover, let me begin with you, if I might, because I
    was around for Hatch-Waxman. That legislation was about
    striking a balance. It seems to me there now is a good case for
    adjusting the balance, and adjusting the balance on both sides,
    making generics more available and promoting innovation, the
    kind of thing that you have been talking about.
        And what I'd like to do is, first, have you described how
    you think the Schumer-McCain proposal is going to discourage
    innovation? Because right now, and I referred to it earlier,
    there was a remarkable story last week in the New York Times,
    for example, where people within the industry said there was a
    clear fall in productivity right now. So we ought to be looking
    at ways to encourage productivity and innovation. Let's start
    by having you flesh out the statement you made this morning
    about how you think the legislation we're looking at is going
    to discourage innovation.
        Dr. Glover. Right, let's start and understand where we
    started out before Hatch-Waxman. Before Hatch-Waxman, the
    pharmaceutical industry, as every other industry in the United
    States, even today, had the ability to prevent a potential
    infringer from making, using, or selling a patented product.
    One of the things that occurred in the Hatch-Waxman Act is that
    that right, at least to prevent someone from making and using a
    patented product, was taken away from the pioneers.
        In exchange for that--and this is the so-called Bolar
    Amendment--in exchange for that, the Hatch-Waxman Act enacted a
    series of litigation protection procedures for the intellectual
    property. Those include the Orange Book listings, the Paragraph
    IV certifications, the 30-month stay, et cetera. Those were
    necessary, because, unlike every other industry, we cannot
    stop, by a patent infringement suit, a generic applicant from
    making and using our product to compete with us. That is the
    attempt that they're making. And we're only allowed to do so as
    of the time that they file a generic drug application, which is
    earlier than we otherwise would be allowed to do so under the
    special provision that applies to pharmaceuticals, but later
    than we would be allowed to do so for the procedures that apply
    to every other industry in the United States.
        Having done that, it is very important that we have a way
    to adjudicate, or at least start adjudicating, the actual
    issues related to the patent that covers the pioneer product
    before the generic product gets approved. Bear in mind that
    when you live in a world, which is the Hatch-Waxman Act, where
    the underlying premise is that the generic will not go to
    market until the pioneer's patent has expired, the assertion by
    the generic that they intend to go to the market early, and
    having the 30-month stay occur during the patent term, is not
    truly delaying the generic product. It is merely putting a
    delay on the generic product within the period where the delay
    was going to occur anyway. All 30-month stays occur during the
    patent term. There's only one 30-month stay per patent, and the
    30-month stay never extends a patent.
        Senator Wyden. I want to get into some other areas, as
    well. I'd like you to flesh out in writing how you think this
    legislation would discourage innovation, because I don't think
    you all have made the case.
        Tell me, if you would, why you think changes in the Orange
    Book would be detrimental to the consumer and to the public. I
    think, again, there's been a very strong argument made that
    there have been abuses in this area. And, of course, this is a
    book that, if you walk down the street, nobody would know what
    it's all about, but it's right at the heart of getting generics
    out there to the public. Are you saying that there shouldn't be
    any changes in the Orange Book, even with misleading
    information and delays coming to light?
        Dr. Glover. First off, the delays that have come to light
    have been those two cases that are so-called second-generation
    cases that were mentioned by Mr. Muris and appear in his
    testimony. And in each of those cases, the Orange Book listing
    itself is not the provision that was creating the problem. The
    problem was created by alleged bad-faith behavior according to
    the facts that were described in Chairman Muris's testimony as
    well as in some of those consent decrees, so that the mere fact
    that you change the Orange Book listings may or may not take
    care of those problems, but certainly will eliminate the
    ability of other good-faith actors to list appropriate patents
    in the Orange Book.
        Senator Wyden. So you are for no changes with respect to
    the Orange Book.
        Dr. Glover. First off, the S. 812 does not propose changes
    in the Orange Book, so please give me an example of the types
    of changes that you would be interested in.
        Senator Wyden. Well, I think what we have learned today is
    that this has been a tool. And I think we've gotten some
    information on the record today that suggests that it is
    another vehicle for keeping the public from getting information
    and learning about generics. And I wanted to give you the
    opportunity to say this was an area perhaps that Congress could
    look at, and could be part of a new balance between the brand-
    name concerns and the generic concerns.
        Dr. Glover. We do not believe that you can possibly take
    away the Orange Book listing process in the entire Hatch-Waxman
    litigation procedures unless you also do something to put the
    Bolar situation back to where it was prior to the Hatch-Waxman
    Act. These are not independent matters. The reason that we have
    the procedures in the Hatch-Waxman Act to help protect our
    intellectual property is because so much of our intellectual
    property protection was taken away by the Bolar Amendment.
        Senator Wyden. One question for the generic folks. Mr.
    Muris indicated that he's concerned about collusion among
    generic companies. What are you all doing about that, and do
    you think it's a concern?
        Ms. Jaeger. Well, Senator Wyden and Cchairman, if I may
    have Karen Walker here, our FTC counsel, answer that question
    for you.
        Senator Wyden. Sure.
        Ms. Walker. Thank you, Senator. I'm Karen Walker. I serve
    as counsel to the GPHA. And the issues that Chairman Muris was
    speaking to, I am familiar with.
        The first thing is, there are antitrust guidelines and
    rules and laws when there is true collusion where there are
    violations of the Sherman Act that can be addressed. I think
    that what we saw from Chairman Muris's presentation, however,
    that's important is there are very few that they have
    challenged. With the vast array of different products that have
    been brought to market, the fact that they have only brought
    three of the particular kinds of cases that were--we've been
    discussing indicates a couple of things.
        The issue is, why is that? And one of them may be that the
    question we should be addressing here is not just how many
    cases there are there, but how many generic products are not
    being brought to market at all because of the obstacles that
    were not intended by Congress that have come about because of
    the loopholes that are available under Hatch-Waxman?
        And the other issue is that the lawful acts that companies
    may engage in may not be antitrust violations. The companies
    involved may be doing something that is not a violation of the
    Sherman Act, for example. It's a perfectly lawful act to have
    engaged in, but it's not good public policy, and it's not
    something that the Congress intended when it passed Hatch-
    Waxman. That's the reason that the GPHA believes that the
    reforms that Ms. Jaeger outlines in her testimony are very
    important.
        Senator Wyden. I would only wrap up by way of saying that
    the people at this table may have enough clout to keep us from
    moving forward and adjusting the balance. I think that would be
    unfortunate, because I think a lot of time has passed since the
    original law, and I think there are opportunities to address
    concerns that industry has with respect to innovation and to
    clearly speed the access of generics to the public. But if you
    all can't get together, as you did close to 20 years ago, we're
    not going to be able to address either of those concerns.
        That was a remarkable article, Dr. Glover, in the New York
    Times, where people from the industry are talking about a clear
    fall in productivity. We've got to address that. We've got to
    address that to speed cures to the public. And I think what the
    generic people and what Ms. Wolff are talking about with
    respect to people who are walking this economic tightrope not
    being able to afford medicine is an equally critical concern,
    and we ought to go back to the statute and look at ways to
    modernize the law and bring it in line with the times. And
    that's why this hearing has been particularly good, Mr.
    Chairman, and I thank you for having it.
        Senator Dorgan. Senator Wyden, thank you very much. Senator
    Breaux?
        Senator Breaux. Thank you, Mr. Chairman. I want to thank
    the panel, and particularly Ms. Wolff and Ms. Oppenheimer for
    your courageous statements. And if you think about it, I mean,
    really what we're trying to do is to do better things, from a
    drug standpoint, for both of you. Both of you have slightly
    different approaches to the problem, but the bottom line is
    that what we're trying to do is to help create a system which
    helps both of you. And because your testimony today I think was
    very important, and we thank you very sincerely for it.
        It would seem that some would make the case that the poor
    generic industry is not doing very well. The industry has
    increased their percentage of the sales from about 19 percent
    to almost 49 percent last year. It's a wonderful thing when you
    get into the Internet; you can find out all kind of things I
    know nothing about; but then after you find them, you sort of
    feel better educated. And I was looking through it on this
    issue of brand names versus generics, and I ran across--Ms.
    Jaeger, I'll ask you the question--a thing in the Internet
    called Barr's Generic Pharmaceutical Business. And Barr, as you
    probably know, is a manufacturer and markets more than 80
    generic pharmaceutical products. Their Internet Web site was
    really interesting. It's got a whole thing on how to challenge
    patents, ``The Patent Challenge Strategy,'' with blocks about
    where you start, how you finish, what you do.
        But the thing that I want to ask you--I'll read it to you,
    and tell me where you differ from this, if at any place. It's
    about the future of generics, the market dynamics and generic
    opportunities as they say in their publication. And I'll read
    you the paragraph and see if you disagree with what they're
    saying, because I think it makes the case that they're doing
    very well. ``Expiring patents over the next decade will drive
    the growth in the generic pharmaceutical industry. Financial
    analysts project that brand products accounting for more than
    $41 billion in annual sales will lose patent protection and be
    available for generic competition. Twenty blockbuster drugs
    with sales greater than a half a billion dollars are scheduled
    to lose patent or market exclusivity in the next 10 years. And
    half of these products will lose exclusivity in the next 24
    months alone. A total of 45 of the 100 most prescribed drugs
    will face competition from generics within the next 5 years.
    And, in addition, approximately $7 billion in brand name
    products are already off patent with no generic competition.''
        To me, that sounds like the generics are doing very well.
    In the paragraph I read, what in that paragraph would you
    disagree with, if anything?
        Ms. Jaeger. Senator, well, the industry is doing well. I
    think that, with some modest reform, we could put more generics
    into the marketplace. And if we start to look at the statistics
    that you're citing to, of the products in 2000 that should have
    had generic competition, about 50 percent were either delayed
    or still blocked. And of the products that should have had
    generic competition in 2001, 70 percent of those products
    either have delayed competition or do not have competition. So
    the modest reforms that we are advocating are basically to
    accelerate those products into the marketplace.
        One of the major reforms that we are advocating is to
    eliminate the 30-month stay provision and go to a merit-based
    system whereby the brand company would have to establish the
    likelihood of success with the merits. And that system, in and
    of itself, should be able to get more products into the
    marketplace sooner, again, increasing competition. It's good
    for the consumer, it's good for the industry, because it will
    foster more true R&D.
        Senator Breaux. Well, I appreciate that, but, I mean, the
    statement from one of the larger generic manufacturers pointing
    out that $7 billion in brand-name products that are already off
    patent with no generic competition, why would that be, if
    they're off patent?
        Ms. Jaeger. Some products are--do not have patent
    protection, are actually protected by what we call market
    exclusivity. The 1984 law basically wanted to ensure that
    research and development was actually rewarded. And in the 1984
    law, they created these market exclusivity provisions which are
    basically mutually exclusive from patent protection, and it
    provides for exclusivity, whether it be 5 years for a new
    product or 3 years for a variant or a change in an existing
    product. And these provisions also stop some of the generic
    competition from going to the marketplace.
        Senator Breaux. Is that a--I mean, don't you have a 180-day
    market exclusivity for generic after you've made your
    application against that brand name drug? Don't you get that
    same type of protection among other generics?
        Ms. Jaeger. That is correct, Senator, that the law creates
    180 days of a generic exclusivity. And what that is to do is
    that's to reward and to encourage companies to take on
    challenges, basically to break down patents that they believe
    to be questionable, either that are invalid or that will not be
    infringed by their product.
        Senator Breaux. I understand.
        Ms. Jaeger. And, if successful, they will be 180 days to go
    into the marketplace and to recoup their litigation costs. And
    it's important to note, when they go into the marketplace,
    they're about 20 to 30 percent less than the brand product. And
    immediately after that 6-month expiration period, you'll see a
    number of products going into the marketplace dropping the
    product price down to about 67 percent.
        Senator Breaux. Okay. I don't have a lot of time. Thank you
    very much.
        And, Dr. Glover, one final question. The 30-day--excuse me,
    I keep saying 30 days--the 30-month stay that brand-name
    products can acquire when they challenge, does that ever extend
    the life of a patent, or does it have to be within the context
    of an existing patent? How does that work? I mean, I'm getting
    the impression that some are saying that somehow you're getting
    a 30-month extension of the patent merely by going to court.
        Dr. Glover. Right, that is a frequent misstatement of what
    actually occurs. First off, there is only one 30-month stay
    permitted per patent. The 30-month stay occurs when the generic
    company asserts that it wants to market its product before
    patent expires, and the pioneer sues. It does not occur if the
    pioneer does not sue. When it occurs, it begins on the date
    that the generic has provided notice of the Paragraph IV
    certification to the pioneer. All the 30-month stay occurs
    during the term of the patent. If, for some reason, the generic
    applicant files the ANDA late in the term of the patent, and
    the patent expires before the otherwise end of the 30 months,
    there is a procedure whereby the generic recertifies to a
    Paragraph II and is immediately approved by FDA if they
    otherwise meet the approvable requirements that FDA has set
    out.
        Senator Breaux. Well, thank you very much. Thank all of
    you, particularly Ms. Wolff and Ms. Oppenheimer, for being with
    us.
        Senator Dorgan. Senator Edwards?
        Senator Edwards. Thank you, Mr. Chairman. Dr. Glover, I
    agree with something you said a few minutes ago. You said this
    was not a case of good guys versus bad guys. I agree with that
    completely. Ms. Oppenheimer, sitting next to you, gave such
    moving testimony about her own situation as a perfect example
    of that. I do think, though, that there's some clear evidence
    that abuses are occurring. And when drug companies abuse their
    patents, ordinary folks are the ones who pay the price, and
    that's what my concern is.
        Let me ask you about, I've got here an article written by
    Terry Mann in the Food and Drug Law Journal. And in this
    article, he's giving advice to drug company lawyers about what
    to do. And I just want you to comment on this, if you could. He
    says, and this is advice to, quoting, ``maximize future
    earnings of their clients' drug patents.'' And I'm quoting now
    from his advice to drug company lawyers. This is published in
    the Food and Drug Law Journal.
        He says, ``Orange Book listing elevates every patent as a
    potential source of delay to generic competition. As both
    innovator and generic drug manufacturers have learned, the
    Orange Book can be a strategic weapon giving the patentee NDA
    holder almost automatic injunctive relief for even marginal
    infringement clients. Brand drug companies literally are
    encouraged by FDA rules to evergreen their drug patents. By
    filing and refiling improvement patents for the same basic drug
    product, they are able to create a minefield for generic
    applicants. Inactive ingredient and device-related claims that
    are drafted carefully can be bootstrapped into the Orange Book
    with little risk. Patent agents and attorneys acutely aware of
    the advantages that accrue from Orange Book listing have
    learned to tip the Hatch-Waxman balance in favor of
    patentees.''
        I actually have spent a little time as a lawyer. And
    reading this--and this is advice, I understanding, being given
    in a reputable journal, about how to use the Orange Book--I
    guess my concern about it is, it seems to me, and I would like
    to know what your thoughts are about this, it seems to me there
    are two things that operate in deadly combination. One is the
    ease of getting a listing in the Orange Book. Basically, the
    drug company says, ``Here it is. List it.'' The FDA lists it.
    And that, combined with the 30-day--excuse me, 30-month period
    of injunctive relief, as Mr. Mann is saying to drug company
    lawyers, tips the balance, the Hatch-Waxman balance, in favor
    of the patentee, the drug company that has the patent on the
    drug.
        I wonder if you could respond to that.
        Dr. Glover. Sure. As diplomatically as possible, I'm going
    to have to distance myself from Mr. Mann's statement. I believe
    that comment was actually made at a hearing in perhaps 1998 or
    1999, and that what you're reading from, the Food and Drug Law
    Journal, is a summary of the individual panelists' statements
    from that hearing. Even before the Federal Trade Commission
    began its scrutiny of Orange Book listings and actions taken by
    pioneer companies under the Hatch-Waxman Act, I believe that
    there are--certainly most people in the industry that represent
    pharmaceutical companies would not have suggested that it would
    have been appropriate to use Orange Book listings in the way
    that were described there.
        Now, with respect to the ease of listings and what happens
    when you make a listing, under current law, the only thing that
    happens when a listing is made by itself is that you have put
    the generic on notice of the patents that the pioneer intends
    to assert. The next step of the puzzle is a certification that
    comes from the generic. And the only thing that occurs under
    the current law when you make that certification is that the
    generic preserves for him or herself, if they are first, the
    180 days of exclusivity, assuming they eventually get to
    market.
        The next step that occurs requires an additional judgment
    by the pioneer company, the patent holder, and that judgment is
    whether you bring suit, based on the patent that is listed,
    against the generic company. And that decision is based on
    whether you have a good-faith basis to bring the suit, and you
    are subject to all of the other rules that prevent you from
    bringing frivolous suits, Rule 11 and other things of that
    nature. You're also subject to patent-misuse rules, which are
    very much an antitrust type of concept under the patent law,
    where you are pursuing a patent against a product where you
    know the patent does not appropriately cover the product or you
    have reason to believe that the patent is invalid.
        And then there are separate, independent, true antitrust
    rules that prevent you from pursuing a patent that you have
    reason to believe does not appropriately apply to the product
    you're applying it to in bad faith against another party.
        So all of those things go into play when a pioneer company
    makes a decision to sue a generic applicant. And those are
    particularly on the minds of companies as a result of the
    scrutiny that the FDA has been placing. So as a result, I'm not
    really willing to admit at this point that the mere fact that
    the Orange Book listing process does not get intense scrutiny
    by FDA, and scrutiny in a way that FDA does not have the
    expertise or experience to provide, is going to create a
    problem. Because I believe, as Mr. Muris has described to us,
    their ability to sue companies for allegedly bad-faith Orange
    Book listings under his so-called second-generation cases will
    have a substantial effect in taking away any alleged abuses
    that occur by virtue of people trying to game that Orange Book
    listing process.
        Senator Edwards. Now I remember that you're a lawyer in
    addition to a doctor.
        [Laughter.]
        Senator Edwards. Let me ask you this. What I understand
    Hatch-Waxman says is that if you listed in the Orange Book, if
    you decide that a lawsuit should be filed, you get an automatic
    30-month stay. What McCain-Schumer is proposing--and that's a
    special deal. I mean, that doesn't normally exist in the law,
    as you well know. What McCain-Schumer is saying, as I
    understand it, is that we're going to treat drug companies who
    bring such a lawsuit like anybody else who's trying to stop
    this kind of behavior by a generic company. And we're going to
    say you're got to go to court, and you've got to get a
    preliminary injunction instead of an automatic protection.
        I gather that from the answer you just gave me, that you
    don't want the drug companies to be treated like everybody
    else.
        Dr. Glover. Actually, if you're willing to treat us like
    anyone else, we'll take that deal. The everyone-else deal,
    though, is that we can sue at the beginning of the point that
    the generic begins to make and use our drug for commercial
    purposes. We're not able to do that right now. So the thought
    that we're being treated special is because the Hatch-Waxman
    Act puts us in a special position to begin with. And so while
    we would like to----
        Senator Edwards. What is--excuse me for interrupting--what
    is your objection to having to show, through a preliminary
    injunction proceeding, the same thing that most folks would
    have to show in order to stop the generic, show cause?
        Dr. Glover. Because you're not letting us do it earlier
    enough. You're only letting us do it at the time the generic
    has already done the studies to submit information to FDA,
    which, by virtue of statistics that FDA has published, they're
    only about 18 months from getting approval at that point. If
    you would let us do it when they started making and using our
    drug for commercial purposes, i.e. the development to do the
    bioequivalent studies and things, that----
        Senator Edwards. Before they even go to market with it?
        Dr. Glover. Exactly, which is the way that you can do it in
    every other industry. In every other industry, you are allowed
    to stop someone from manipulating, making, and using your
    product before they market it, if their intent is to use it in
    a commercial process.
        Senator Edwards. Even though the patent is expiring.
        Dr. Glover. The patent has not expired in any of these
    circumstances that you're talking about. None.
        Senator Edwards. Well, I'm talking about a situation where
    the patent is expiring and youve filed a new--under what we've
    just been talking about, you file one of these new patent
    applications, and you're asking to be listed in the Orange
    Book----
        Dr. Glover. Okay.
        Senator Edwards.--which would occur. And under those
    circumstances, you're resistant to the notion that you have to
    go to court, show that the patent is valid, the new patent is
    valid, in order to stop the generic from going forward. You
    don't agree with that, I gather.
        Dr. Glover. I don't agree with that, but I just want to
    make sure that you understand that this 30-month stay that
    everyone has been talking about, that you are referring to as
    automatic, occurs for every patent. This is a patent that was
    listed as soon as we got the new drug approval as well as the
    patents that people have--are alleged to be late listed
    patents. Those patents are not truly late listed, they are late
    issued. They are listed timely under FDA rules.
        But I do want to go forth and explain how the system works.
    The later-issued patent circumstance is a relatively rare
    circumstance. Even based on the information that is put out by
    the generics, it seems to be fewer than about ten circumstances
    out of 8,000 or so. And let me describe why it is so rare.
        Senator Dorgan. But, Dr. Glover, with due respect, you're
    answering a question he hasn't asked. The question that Senator
    Edwards has asked is the one we'd like you to address, if you
    would.
        Dr. Glover. Okay, I thought I was answering it, but go
    ahead.
        Senator Edwards. Thank you, Mr. Chairman. The question I
    was trying to ask was, do you have an objection to the notion
    that, under the McCain-Schumer bill, in order for there to be a
    stop to the generics actually going to market with their
    product, that the people who are claiming they have patent
    protection, the drug company, have to actually go to court,
    show, in fact, that it's a valid patent, and get a preliminary
    injunction under the way the law applies to preliminary
    injunctions?
        Dr. Glover. Right. I object to that if you don't treat us
    the same way you treat everyone else with respect to allowing
    us to bring the suit earlier.
        Senator Edwards. Okay. Mr. Chairman, I wanted to ask one
    last question, if I could.
        Senator Dorgan. Proceed. I just--if you'll yield on that
    point. Essentially what you're saying is if you don't allow us
    to block it earlier, you object to the remedy in the bill.
        Dr. Glover. Well, that's----
        Senator Dorgan. The whole purpose of----
        Dr. Glover.--because they both go together.
        Senator Dorgan. The whole----
        Dr. Glover. Those were designed to go together.
        Senator Dorgan. But the purpose of the----
        Dr. Glover. The Bolar Amendment and the 30-month stay, by
    taking one away, you are, by definition, diminishing our
    intellectual property.
        Senator Dorgan. Dr. Glover, the purpose of this hearing is
    to describe conditions under which generics would be able to be
    brought to market and provide competition. And Senator Edwards
    was asking a question that presumed that the patent protection
    would have expired. The conditions then were under what
    circumstances would you act to block that competition. I think
    you're saying, ``Well, we need to be able to block it
    earlier.''
        Dr. Glover. If there is no patent, there is no 30-month
    stay, if there is no patent certification, none of this
    applies. I am completely confused by the----
        Senator Dorgan. Well, I understand that.
        [Laughter.]
        Dr. Glover.--circumstances you're trying to describe here--
    --
        Senator Dorgan. I understand that, Dr. Glover.
        Dr. Glover.--where the patent has expired and you're still
    complaining about certifications, Orange Book listings, and 30-
    month stays. That circumstance never exists.
        Senator Dorgan. Well, what I understand is you're saying we
    need to be able to block this competition earlier. That's what
    I--I've taken Senator Edwards' time. You wanted to ask one
    additional question.
        Senator Edwards. Actually, my question was for Ms. Jaeger.
    Ms. Jaeger, did you want to respond to that, first of all?
        Ms. Jaeger. Well, I just wanted to clarify. I think that,
    from the industry's perspective, what we're having really
    concerns with is these patents are actually listed in the
    Orange Book that do not cover the drug product that is marketed
    in the United States. So it's--basically these patents are
    blocking our products from getting in.
        Case in point, there's a product called Durantin. The
    generic name is Gavopantin. Basically, there's two patents that
    are in the Orange Book that are for unapproved formulation and
    unapproved medical use, each of which it basically caused the
    generic company to certify to those patents and kicked in in
    the 30-month stay, because, of course, the brand company sued.
    So at this point, we're in litigation trying to knock out those
    patents, going into court, demonstrating to the court that yes,
    indeed, these products do not cover the generic product.
        If, with the reform measure, going to preliminary
    injunction standard, we would be very hopeful that the court
    would let FDA approve the product and we'd be able to get this
    product to consumers a lot faster. And basically, at this
    point, it's costing consumers about $1.5 million a day.
        Senator Edwards. I just had one last question for Mr.
    Jaeger, Mr. Chairman.
        Senator Dorgan. Proceed.
        Senator Edwards. Ms. Jaeger, this had not been talked about
    very much. I wonder if you would talk about the issue of the 3-
    year exclusivity for new uses and what effect that has on
    consumers?
        Ms. Jaeger. The 3-year exclusivity provision was intended
    to reward innovation for important product changes. However,
    over the course of the last couple of years, the brand
    companies have been using this particular provision to obtain
    exclusivity for minor product variations. The industry has a
    very large concern with this. We think it's another major
    loophole that we're looking at, and we think that this issue
    should be fixed.
        Dr. Glover. May I comment on that, please?
        Senator Dorgan. Certainly.
        Dr. Glover. First off, the spurious use of the word
    ``loophole'' is merely in the eyes of the beholder. One
    person's loophole is another person's statutory provision that
    it just don't like--somebody else doesn't like. Second, we have
    seen in Mr. Muris's testimony, as well as in his oral
    testimony, complaints that we have patents on formulations that
    will take a drug, for example, from being injectable to being
    oral, from taking a drug from being four times a day to being
    one times a day. And now we have heard Ms. Jaeger complain
    about 3-year market exclusivity for new-use indications.
        The new uses that come out in the marketplace that require
    separate FDA approval, additional FDA data, and may be covered
    by additional patents, are appropriate products for additional
    exclusivity and additional patent protection. None of those new
    uses and none of the patents that cover the new uses prevent
    the generics from going on the market with the original form of
    the drug. And that's what the generics will not tell you, is
    that the reason that they are complaining is that the
    improvements that have been made that physicians and consumers
    have determined are commercially valuable because they provide
    a significant improvement to the public health, it is that that
    they can't go on the market with, but they can still go on the
    market with the original products.
        Senator Dorgan. Dr. Glover, you are invaluable to the
    industry. You do a great job in testifying and reflecting their
    perspective. I would really like you and I to have an exchange
    of letters with respect to the use of applesauce.
        Dr. Glover. Certainly.
        Senator Dorgan. I know you dismiss that out of hand, but
    let's you and I decide to get to the bottom of that case. We'll
    do it after this hearing.
        Dr. Glover. Absolutely.
        Senator Dorgan. But that represents just one more
    sprinkling of how one wishes to retain patent protection well
    beyond the expiration.
        Ms. Oppenheimer, you're here in support of strong patent
    protection in order that an industry may retain--or may
    experience the profits that are necessary to drive the research
    and development and investment, and I support that. You don't
    find detractors on this Committee with respect to patent
    protections for prescription drugs.
        I mentioned there are several ways by which we see
    innovation in life-saving medicines in this country. One is
    private investment. The other is public investment. The
    commitment that I and others have had to public investment I
    demonstrated earlier by saying we are doubling the investment
    of the National Institutes of Health. And so I assume, having
    listened to all of this, however, you're not here testifying
    that it is irrelevant if there are companies trying to extend
    patent protection by knocking a generic off track using
    approaches as suggested by the Federal Trade Commission
    chairman? I think I've heard from your testimony you're here
    supporting patent protection because that's important to the
    development of new medicines. Is that correct?
        Ms. Oppenheimer. That's correct.
        Senator Dorgan. I think it's important to say that, while
    we are dramatically increasing funding at the NIH, doubling it,
    the pharmaceutical manufacturing industry, I believe, is the
    most profitable industry in this country I wish for them to
    succeed. But miracle medicine and life-saving medicine is of
    very little value to someone who cannot afford to have it or
    cannot get access to it. And so that's why price is very
    important.
        And we're talking, Mr. Martin, in your testimony about
    what's happening with respect to your insurance premiums.
    You've sat patiently and listened to Dr. Glover. And what Dr.
    Glover has said, and I think in a very aggressive way on behalf
    of the industry he represents, Dr. Glover says, ``This is much
    ado about nothing. There's not an issue here with respect to
    generics. The legislation by Senator Schumer and Senator McCain
    is not necessary. In fact, it would be counterproductive.''
    Tell me again, is this an issue? Is Dr. Glover right that this
    is much ado about nothing? Tell me from your perspective.
        Mr. Martin. Well, from our perspective, it's not much ado
    about nothing. Affordability is essential for Americans who
    purchase health coverage. The issue here that we see is having,
    in an industry that, as you mentioned, does very well, that in
    the one place we can open more competition, make sure--this is
    a very complex industry--that the complexities over time can
    stack on each other. And it's these things we'd like to have
    examined. We think this bill examines those things and opens
    the door for more competition, for Americans to have more
    choice in the drugs that they can select, not just in having
    more choice--not just in product, but price.
        Senator Dorgan. Thank you, Mr. Martin. Dr. Glover, on March
    19th, the Wall Street Journal had a fascinating article about,
    ``Drug makers face battle to preserve patent extensions.'' I
    want to read you one paragraph. ``Executives at three of the
    top ten manufacturers, Merck and Company, Pharmacia Corp., and
    Eli Lilly, have expressed concern about other companies'
    aggressive patent extension tactics. Worried that perceived
    abuses could lead to a broader dismantling of their patent
    protections, they privately suggest they could support a
    crackdown against some techniques to extend patents.''
        Merck, Eli Lilly and so on, are they part of the
    Pharmaceuticals Manufacturers group?
        Dr. Glover. Yes, they are.
        Senator Dorgan. How do you respond that? Here you've got a
    couple of very large members of your group saying that what you
    say isn't happening is, in fact, happening, and it worries
    them.
        Dr. Glover. The statement that you read, I don't think is
    accurate on its face, which is that it suggests that they're
    concerned about companies' abilities to extend patents. The way
    in which you extend the patents are all provided by statute and
    there are really no games you can play on that.
        If what they are suggesting is that the ways in which
    companies attempt to extend protections for a product that may
    be covered by multiple patents, then there's, of course,
    disagreement on that. But in each of those cases, where those
    companies have not been involved in the actual facts, I would
    submit that they are probably reading the press accounts,
    which, in many circumstances, are inaccurate.
        Now, if we go farther to say, however, that where there
    have been alleged abuses, and these abuses, I believe, we can
    say, in some circumstances, there have been facts elicited that
    show other activities, unrelated to the Hatch-Waxman Act, per
    se, that the companies should not have engaged in, I believe
    their issue is accurate in that circumstance.
        That is, you don't want a circumstance where someone has
    obtained a patent in inappropriate circumstances or where
    someone has listed a patent that they knowingly should not have
    listed, to therefore, cast aspersions on the way the Hatch-
    Waxman Act is otherwise intended to work so that you start
    changing things systemically that have great benefit to the
    great majority of the industry for the benefit of trying to
    capture those fewer than ten cases our of 8,000.
        Senator Dorgan. So you're saying that three of your member
    companies are not concerned--as the Wall Street Journal
    suggests--about these tactics? The story says that these
    companies--Merck, Lilly, and others--are worried that perceived
    abuses could lead to a broad dismantling and so on. You're
    saying that----
        Dr. Glover. I think----
        Senator Dorgan.--they're not concerned about that?
        Dr. Glover. I think that is, on its face, accurate. That
    is, for the industry as a whole, perceived abuses are the
    reason that we're having this hearing, are the reason that the
    FTC is providing greater scrutiny. So everyone is going to be
    concerned about perceived abuses. The real question is, are the
    abuses accurate abuses? Are the descriptions accurate? Do they
    suggest that there need to be changes in the Hatch-Waxman Act,
    or do they suggest that we already have the legal and statutory
    authority to take care of these so-called abuses through the
    antitrust laws?
        Senator Dorgan. But it says they've expressed concern about
    other companies' aggressive patent extension tactics. Have you
    been involved in discussions at which Merck and Lilly and
    others were around and they said, ``Look, we've got some
    problems here if this behavior continues''? Have you been
    involved in any of those discussions in your industry?
        Dr. Glover. I have not been involved in those discussions.
    However----
        Senator Dorgan. Do you think the discussions have taken
    place and you're simply not there, or are these discussions
    that are not taking place and the reports are inaccurate?
        Dr. Glover. My expectation is that those discussions did
    not take place in a collective group. And what has probably
    occurred is that the reporter individually interviewed the
    three executives and came up with a comment that suggests that
    they were all together.
        Second, as I mentioned to you, it is not uncommon for
    anyone in the industry to say that they're concerned about the
    perceived abuses and the effect that the perceived abuses will
    have on the way that everybody does business. But that does not
    mean that we believe the changes that are required to prevent
    the perceived abuses require changes in the Hatch-Waxman Act.
        Senator Dorgan. Let me make one additional comment. The
    chart that I showed at the start of this hearing shows that the
    cost of prescription drugs last year increased 17 percent. That
    follows, I think, four or five successive years of double-digit
    cost increases, partly due to utilization, partly to price
    inflation. That is unsustainable, in my judgment. We cannot, in
    this country, sustain double-digit after double-digit after
    double-digit year cost increases in prescription drugs. It'll
    just break the back of consumers. It'll break the back of
    people who are sick. It'll break the back of Medicare, break
    the back of state governments and the Medicaid system. It'll
    break the back of the Federal Government. We just can't do
    that. It is not sustainable. The question is, how do we respond
    to it?
        Now, the point I made at the start of the hearing is that
    we don't have prescription drug controls in this country, with
    the exception of the fact that the pharmaceutical manufacturers
    themselves control the price. There are controls with respect
    to that, but we don't, like most other countries, have
    prescription drug price controls. I'm not suggesting that
    today. We will have a second hearing on the issue of
    reimporting prescription drugs, from Canada, especially, in
    which prices are more moderate on the same pill put in the same
    bottle made by the same company, FDA approved, I might add.
        But let me, as I finish my questioning, say this about the
    industry. I want the pharmaceutical industry to do well, want
    them to succeed, but we have competing interests here, and we
    have to resolve them.
        The pharmaceutical industry has announced in recent weeks
    programs for lower-income senior citizens, or senior citizens
    with up to 200 percent of average income, I believe. And, look,
    I think that the industry is recognizing a problem, and I
    applaud them for it. They're addressing that in that narrow
    area. But this is a broader problem and one that begs, it seems
    to me, for public policy discussion, and that's the purpose of
    this hearing.
        This is the first hearing on the general area of
    prescription drug pricing, generic drug policy. We will have a
    second followup hearing on the issue of reimportation. Then we
    will have a third hearing, as well.
        Dr. Glover, we will be inviting you back, as well as other
    members from the Pharmaceutical Manufacturers Association. This
    is not a search for a bad actor. This is a search for public
    policy that will advance the interests of everyone in this
    country. The interests of the pharmaceutical manufacturers is
    important. Ms. Oppenheimer, who suffers from an insidious
    disease, makes the case that we need research and development
    and life-saving discoveries in order to address the battle that
    she and so many others are fighting. I agree with that.
        And so, as we balance all of these interests: the
    profitability of the industry, the needs of the patients, the
    ability for the insurance plans and the Federal Government,
    Medicare to deal with cost increases, we need to come to some
    conclusion. And my hope is that we can perhaps reach that
    conclusion this year.
        Now, I'm going to ask Senator Wyden for his last round of
    questioning, and I must depart for the floor of the Senate
    while he does that, so Senator Wyden will chair and adjourn the
    hearing following his last round of questioning. Senator Wyden?
        Senator Wyden. Thank you very much, Mr. Chairman.
        Dr. Glover, I want to go back to this issue of the
    significant decline in productivity in the industry. And I was
    just struck last week, when Dr. Frank Douglas--he's the chief
    scientific officer of Aventis--was quoted in the paper as
    saying, ``There's been a clear fall in productivity.'' Now,
    some would say, well, maybe this is due to the fact that
    pharmaceutical companies spend money on advertising that they
    should put into research and development. There may be some who
    say, well, the FDA holds everything up, that the fact that it
    takes so long to get through the FDA system is behind it. But I
    think it would be very helpful to have on the record the
    industry describing what they think is behind a very ominous,
    you know, development. Now, this is not somebody who's anti-
    industry. These are the words of people within the industry
    saying that there's been a clear fall in productivity. I think
    we all know that this ought to be a spectacular time with all
    the innovations and the genome and computers and the like.
        Tell us, for the record, what you think is behind this fall
    in productivity.
        Dr. Glover. Senator, of course we will supplement my
    comments with a more elaborate position, but I think there are
    several things to understand about research and development in
    the pharmaceutical industry. One is that it is not linear. It's
    not predictive. It is a high-risk proposition. As a general
    circumstance, you start off with about 5,000 or so drugs that
    you will use in the preclinical animal studies for every one
    that eventually gets to market. And of those products that get
    to market, only one out of ten recovers the research and
    development costs associated with it. So you can just see, by
    virtue of what we're doing as an industry, it is very, very
    risky, and the likelihood of success is very small.
        The second thing to understand is where we have come and
    where we are in the series of trying to treat diseases, where
    some 30 or 40 years ago we really had very little success in
    doing so. We have over the years, by virtue of just the way
    science works, we have started with perhaps the easiest
    diseases to treat because they were the most obvious. We had
    the technology early on. You start by replacing molecules that
    are absent in the body, then you start by trying to manipulate
    certain disease systems through the immune functions and things
    of that nature. And as time goes on, we move toward more and
    more subtle and sophisticated diseases that we're trying to
    treat that require much longer clinical trials, require end
    result, by definition, and a much higher failure rate. These
    trials that are longer are also more expensive. So, therefore,
    the decisions that have to be made in the commercial process of
    when you decide to go forward in pursuing a drug or not
    pursuing a drug, critical important decisions are made earlier
    and earlier in the process because the dollar figures are so
    high.
        I think that's just the beginning of what the--what our
    more elaborate and complete answer is going to be, but I
    believe that is really what we're facing right now.
        Senator Wyden. Well, I think, again, this is part of the
    area that ought to be addressed in trying to look at creating a
    new balance in the statute, because patent protection was
    considered one tool--not the only tool, but one tool in
    promoting productivity and innovation among industry. Now we've
    got industry people saying we aren't being particularly
    productive. Certainly, supporters of the McCain proposal could
    say, well, if they're aren't making as many golden eggs, at
    least let consumers afford the ones that are out there.
        So I think that you are going to have to give some very
    specific answers with respect to what needs to be done to
    address this productivity question. Otherwise I think, first,
    the country is going to suffer, because citizens want the new
    cures, and, second, I will tell you that any legislator who
    faces a group of citizens, they say, ``Shoot, if they aren't
    making the new cures as fast as they said they would if they
    got patent protection, well, at least us be able to afford the
    medicines that are out there.'' And I think that is as
    compelling an argument as I know for getting this table back
    together to try to modernize this law, because that's really
    what we're talking about.
        I mean, you've had the head of the Federal Trade Commission
    saying that there's a pattern of gaming the system, and he
    essentially outlined it. And starting with the examples that
    came from Ms. Wolff and, you know, other consumers, this is in
    line with what we hear from constituents at home. I've got to
    be sensitive to that as a legislator. And especially given my
    roots in the consumer movement, I want to make sure that there
    are answers to those arguments.
        At the same time, I want to address concerns like those
    that were described in the paper about this, you know, fall in
    productivity. That would devastating to this country. You don't
    want that. Your association doesn't want that. But when people
    within the industry are talking about it--this article says
    that the industry is preoccupied with the fall in
    productivity--We're going to have to have some better answers,
    and I hope you can supply those.
        One that I'll be asking about, so you'll be ready for it
    down the road, will be the effect of mergers, because I think
    that mergers have taken a toll with respect to productivity, as
    well. But I'd like to see us strike a new balance. I'd like us
    to address the arguments that Ms. Wolff and other consumers
    have made, and I'd like to do it in a way that addresses these
    productivity concerns.
        And if any panel member would like to comment on this,
    you're welcome to do so. And otherwise, we'll adjourn.
        Ms. Wolff. Within 1 year, the price of Prilosec rose about
    $9.00, I think.
        Senator Wyden. Yeah. These price increases don't----
        Ms. Wolff. For a 90-day supply.
        Senator Wyden. Ms. Wolff, you've said it all. The price
    increases don't pass the smell test. There aren't that many new
    developments, you know, within a year. All of us in the
    Congress are hearing about it. There's got to be a better
    answer, and I want it done within the kind of framework that
    will address what the industry is basically describing as a
    productivity crisis.
        Dr. Glover. Senator, I just want to point out that the
    industry, and even the executive of Aventis, would not suggest
    that the industry is not productive. I mean, the industry has,
    over the last century, taken us from a society where people
    just didn't live very long to where the average expectancy is
    over 75 or 76 years or so. So we are productive. The real issue
    for us is that are we productive enough to continue to be able
    to put money into the research and development system, when we
    have competitive pressures that result from the appropriate
    entry of generics into the marketplace, that result from
    competition between pioneer companies and not just between
    generic companies, and, at the same time, when we know that
    every new drug we develop is likely to cost more than the last
    drug we developed.
        And I certainly agree with you that we will address your
    question, but I do want to point out that I don't think that
    it's fair to say that we are not productive. We're just not as
    productive as perhaps the industry would like to be.
        Senator Wyden. Nobody is saying that there is absolutely no
    productivity whatsoever, but when you have the chief scientific
    officer of a major company, Aventis, saying--this is his quote,
    Dr. Glover, ``There has been a clear fall in productivity,'' I
    think we've got to have some thoughtful answers to that. That
    was why I was trying to have you flesh out why you think that
    the McCain-Schumer legislation would discourage innovation.
    I'll look forward to your answer on that. I'd like to know what
    you think is behind the decline in productivity.
        I'm asking these questions for a reason. I think it's time
    to strike a new balance in the law. I think the consumer groups
    have made a good argument. I happen to agree with a number of
    the points that the generics have made, as well. I want to make
    sure at the end of the day, when and if we can modernize this
    law, we've done the kinds of things that we thought we were
    doing in the original Hatch-Waxman law, which is to encourage
    innovation and new cures, as well.
        What brought me to this hearing today is to get beyond the
    brawl between the brand names and the generics. I've watched
    that for years and years. I think there's an opportunity to do
    something that will speed generics and reasonably priced
    medicines to the public and also address what companies like
    Aventis are saying in terms of the decline in productivity.
        That, from my standpoint, is about as good a challenge as I
    can issue to the folks at the table. You all have made a good
    case. And, with that, the Committee is adjourned.
        [Whereupon, at 12:25 p.m., the hearing was adjourned.]

                                A P P E N D I X

    Prepared Statement of Hon. Sherrod Brown, U.S. Representative, Ranking
             Member, House Energy and Commerce Health Subcommittee

        Prescription drug costs are growing at an unprecedented and
    unsustainable rate in the United States. Spending on prescription drugs
    doubled in the 1990s, and drug prices in the U.S. today are as much as
    four times higher than in other industrialized nations. On average,
    health insurance premiums increased 11 percent last year alone, largely
    due to high prescription drug costs. State Medicaid budgets were in the
    red last year, largely because of rising prescription drug costs.
        One in four Americans, 70 million, lack prescription drug coverage.
    Many are seniors on fixed-incomes. Prices for one-third of the drugs
    seniors use most increased by 10 percent or more last year, while
    Social Security checks increased only 3.5 percent. Brand-name drug
    prices are not just high, they are unjustifiably high. In the last 20
    years, drug prices in the United States have risen over 300 percent.
        In today's prescription drug market, the best way--actually, the
    only way--to achieve lower retail drug prices is to purchase generic
    drugs. Generic drugs are identical to their brand name counterparts--
    except for price. Generics are typically 40-80 percent less expensive
    than their brand-name counterparts. In some cases, the price
    differential is even greater than that. The anti-anxiety drug Vasotec
    sells for $180 per prescription. The generic version of Vasotec sells
    for $55.00 per prescription, a savings of $125.00.
        Unfortunately, loopholes in federal law have enabled brand-name
    drug manufacturers to delay access to generic drugs. These delays,
    which allow drug companies to sustain grossly inflated drug prices,
    translate into billions of dollars in lost consumer savings. To close
    these loopholes, Representative Jo Ann Emerson and I joined Senators
    Charles Schumer and John McCain in introducing the Greater Access to
    Affordable Pharmaceuticals Act (GAAP).
        The GAAP bill would get generic drugs to market faster in three key
    ways:

            1.  Under current law, brand name drug companies can earn 30
            additional months of market exclusivity by filing additional
            patents on an existing drug, whether or not these new patents
            are legitimate. While the 30-month stay was part of a deal cut
            to win passage of the 1984 Waxman/Hatch Act, no one anticipated
            the extent to which this provision would be exploited to delay
            generic drug approvals. Brand-name drug companies have taken to
            filing frivolous patents right before a drug reaches the end of
            its patent life, which enables them to reap additional monopoly
            profits at the expense of American consumers. The GAAP bill
            eliminates the 30-month provision and the billions in lost
            savings it represents.
            2.  Under another provision of the Waxman/Hatch Act, the first
            generic drug company to challenge the legitimacy of a brand-
            name patent is rewarded with 180 days of market exclusivity. By
            encouraging generics to identify and challenge inappropriate
            patents, the law seek to open up an unjustifiably closed market
            to generic competition. Unfortunately, brand name drug
            companies have taken to cutting deals with their generic
            challengers to keep them off the market. This defeats the
            purpose of the law and costs consumers billions. Our bill
            restores the original intent of the law by rescinding market
            exclusivity from generics that cut such deals.
            3.  Our bill puts the force of law behind FDA's bioequivalency
            standards, preventing brand name drug companies from using
            endless court challenges to delay access to generics.

        Last year the House of Representatives passed, by a 324-89 margin,
    an amendment I offered to the Agriculture spending bill which would
    allocate an additional $2.75 million to the Office of Generic Drugs.
    The dollars were to improve review times and raise public awareness of
    generic products.
        The fact that this amendment won overwhelming bipartisan support is
    telling. Members on both sides of the aisle recognize that it is time
    to do something about runaway prescription drug costs. Removing
    unjustifiable barriers to generic drug access is a logical first step.

                                     ______

                    Prepared Statement of the Gray Panthers

        Thank you for the opportunity to present the views of Gray Panthers
    and the ``Stop Patient Abuse Now'' SPAN coalition regarding the effect
    on consumers of anti-competitive practices by pharmaceutical
    manufacturers, and the need to reform the Hatch-Waxman Act.
        This Statement is presented to the Senate Commerce Committee by
    Marion Wolff, long time Gray Panther member and Tim Fuller, National
    Executive Director of the Gray Panthers and founder of the ``Stop
    Patient Abuse Now Coalition'' SPAN coalition.

    About Gray Panthers and SPAN
        Gray Panthers is a grassroots organization of over 25,000 activist
    leaders in 50 chapters across the country. The national office develops
    and coordinates national campaigns in which chapter members organize
    local alliances for effective public education and action. Currently,
    the Gray Panthers are initiating a national and state-based
    pharmaceutical reform campaign named RePhorma. This campaign is
    exposing abuses of Hatch-Waxman Act through public education forums and
    media events, filing class action law suits asking for triple damages,
    and pin pointing specific aspects of the industry's manipulations of
    the public trust.
        In support of the national RePhorma campaign, Gray Panthers has
    organized national partners in forming the ``Stop Patient Abuse Now''
    SPAN coalition.
        SPAN includes 125 senior and consumer organizations from 28 states
    that was founded last year specifically to respond to aggressive
    efforts by drug manufacturers that prevent timely access by consumers
    to safe and affordable medicine.

    The Pharmaceutical Market Needs Reform
        Consumers are extremely frustrated that Congress has refused over
    the past few years to address significant shortcomings in the 1984 Drug
    Price Competition and Patent Term Restoration Act (``Hatch-Waxman
    Act''), despite a clearly growing trend by drug manufacturers to abuse
    specific provisions of the act.
        Specifically, we are appalled that the so-called ``30-month stay''
    provision of the Hatch-Waxman Act is used by brand drug companies to
    routinely extend their market exclusivities without regard to the
    intent of the law. We are similarly appalled that among the thousands
    of patents listed in the FDA Orange Book, the majority have nothing to
    do with the discovery of new chemical entities or new methods of use as
    intended by Congress.
        Today, the Hatch-Waxman Act provides a regulatory scheme by which
    brand drug manufacturers ensure that generic drugs cannot compete with
    brand products for many years after original patents on the drugs
    expire. While it is true that the Hatch-Waxman Act led to significantly
    larger investments in drug research and a significantly expanded
    generic drug industry since 1984, in recent years the act has cost
    American consumers and other purchasers--including taxpayers--billions
    of dollars in lost savings.
        As a result, the Gray Panthers and our SPAN coalition allies joins
    many other important senior and consumer groups in the country and a
    growing list of Governors, employers, and other institutional
    purchasers, in supporting legislation to close loopholes in the Hatch-
    Waxman Act. We applaud Senators Schumer and McCain for their efforts,
    and are grateful for the efforts of many other members of Congress who
    are also now taking time to understand the problems with the Hatch-
    Waxman Act.

    The Hatch-Waxman Act Impedes Competition
        The Hatch-Waxman Act worked by providing brand manufacturers with
    17 years of patent protection and other market exclusivity protections,
    which ensured huge profits on successful drug applications. The Act
    also worked by streamlining the generic drug approval process to ensure
    competition from lower-cost alternatives as soon as patents expired.
    The brand industry will point out that their investments for new drugs
    have increased dramatically as a result of the Act, and that generics
    now make up over 40 percent of the market. These facts are a testament
    to the Act's effectiveness for a period of time after 1984.
        The brand industry will also state that only six percent of all
    generic applications since 1984 have been delayed as a result of brand
    industry efforts. The fact is, nearly all generic applications over the
    past few years have faced such delays, and all generic applications for
    blockbuster drugs have faced delay.
        What the industry will not tell us is that the six percent of
    generic products that have been delayed were to have replaced brand
    drugs that generate more than half of the industry's total profits. In
    other words, generics that threaten to erode market share for
    blockbuster drugs will always face delays, and consumers--including 40
    million uninsured Americans who pay out of pocket for these drugs--will
    be forced to wait months or years longer than intended by Congress for
    price breaks.

    No Regulatory Avenue for Relief
        It must be understood that the Hatch-Waxman Act allows brand drug
    companies to unlawfully delay competition with impunity. How many
    members of Congress are aware that Bristol-Myers Squibb obtained a
    secondary patent last year for its Buspar ' anti-anxiety
    drug (buspirone) by telling the patent office the new patent did not
    cover already approved uses of the drug, but then turning around and
    telling the FDA that the patent only covered approved uses of the drug?
    How many members of Congress are aware that Bristol could not possibly
    have obtained its new patent if the patent did, in fact, cover already
    approved uses of the drug, and that it could not possibly have listed
    the patent in the Orange Book if it, in fact, did not cover approved
    uses of the drug?
        How many members of Congress are aware that Bristol listed its new
    patent in the Orange Book on the very day its original patent expired,
    and that this action prevented shipment of millions of dollars worth of
    generic products that would have otherwise been available to consumers
    that afternoon? And how many members of Congress are aware that this
    simple effort cost consumers nearly $300 million?
        Finally, how many members of Congress are aware that the FDA did
    not do a single thing to stop this abuse of the public trust, and that
    consumers had no regulatory avenue for relief?

    Consumers are Taking Independent Action
        In fact, we know that most members of Congress have been swayed by
    the brand drug industry to avoid any effort to improve the Hatch-Waxman
    Act. As a result of inaction by Congress, consumers have taken matters
    into their own hands to respond to these abusive tactics.
        For example, Gray Panthers filed the first class action lawsuit
    against Bristol-Myers Squibb last year to recover damages that resulted
    from the company's anti-competitive efforts to delay generic
    competition for Buspar. Gray Panthers and SPAN members first petitioned
    the Federal Trade Commission and state Attorneys General to investigate
    the company's actions. Our goal was to make a claim against Bristol on
    grounds that the company violated anti-trust and competitiveness laws,
    and therefore should face treble damages.
        The FTC and 29 state Attorneys General subsequently filed suit
    against the company, and numerous class action suits have been
    consolidated in a single court. As a result, we anticipate that
    Bristol-Myers Squibb will ultimately be forced to spend far more than
    it stood to gain by its actions.
        Gray Panthes and SPAN coalition has since initiated similar actions
    against Biovail corporation for its efforts to delay generic
    competition for the heart drug Tiazac ', against AstraZeneca
    for its efforts to delay generic Prilosec ' (an ulcer drug),
    and against Bristol-Myers Squibb for its efforts to delay generic Taxol
    ' (a cancer drug). Gray Panthers and SPAN is also preparing
    new actions against other drug companies.
        These actions have led to similar efforts by numerous other
    groups--all of which have concluded they must now take matters into
    their own hands to deter drug company actions that prevent competition
    and delay timely access to lower-priced drugs.

    Inaction by Congress is Costing Taxpayers and Consumers Billions of
            Dollars
        It is critical that Congress act quickly to close loopholes in the
    Hatch-Waxman Act. The Act includes favors for the brand drug industry
    that are not afforded by any other law to any other industry. For
    example, brand manufacturers may sue generic manufacturers for alleged
    patent infringement under the act, but are under no obligation to post
    a bond to do so. They also face no penalty under the act for frivolous
    suits. Meanwhile, the simple filing of such a suit ensures a 30-month
    delay in the generic approval.
        Congress' decision to let brand manufacturers avoid any
    disincentive to sue generic manufacturers establishes a perverted
    system in which generic competition is certain to be delayed for all
    blockbuster drugs.
        For example, AstraZeneca sued 13 generic manufacturers for alleged
    patent infringement against its Prilosec ' heartburn drug,
    the best-selling drug in the world. The company stopped generic
    approvals for 2\1/2\ years as a result. The FDA finally granted
    approval to generic alternatives, months after the approval should have
    been granted, and only after pressure from consumers, including an
    unprecedented letter from 18 governors insisting on immediate action.
        Despite the approval, AstraZeneca is now pressing its claims in
    court, which continues to prevent generic manufacturers from marketing
    their products. The Gray Panthers has no objection to the right of drug
    companies to go to court to protect their intellectual property. We do
    object, however, to AstraZeneca's strategy of delaying the court case
    in order to prevent competition.
        In fact, the judge in that case, Honorable Barbara Jones, issued an
    order to AstraZeneca, in which she found the company had intentionally
    withheld critical material from defendants, and had taken other steps
    to delay the case.
        How many members of Congress know that AstraZeneca makes $11
    million from Prilosec sales every day it can delay competition? How
    many members of Congress know that this has so far cost U.S. consumers
    and taxpayers nearly $1 billion in extra prescription drug costs this
    year alone?
        And how many members of Congress know that AstraZeneca has switched
    35 percent of all Prilosec patients to its next-generation Nexium
    ' product--many without their knowledge according to
    lawsuits filed against AstraZeneca--despite the fact the FDA has found
    the drug to be no better for the vast majority of patients than either
    Prilosec or less expensive generic forms of Prilosec (see letter from
    Gray Panthers to DDMAC, dated January 15, 2002.)

    Congress Must Act This Year to Reform the Hatch-Waxman Act
        The Hatch-Waxman Act promoted pharmaceutical competition at one
    time. Today, it results in a system of anarchy in the pharmaceutical
    market where brand manufacturers prevent competition with impunity,
    generic manufacturers must cut deals to stay alive, and consumers and
    other drug purchasers become litigants to force fairness in the system.
        The brand industry has stated it will oppose reform of the Hatch-
    Waxman act ``with every ounce of its strength.'' This is no surprise to
    any pharmaceutical purchaser--PhRMA has a sweetheart system under the
    Act that allows it to stifle generic competition. For example:

       Brand companies can use the Act to avoid scrutiny by the FDA
            for blatantly false and unlawful patent listings because the
            agency interprets its role under the act as only ministerial;

       Brand companies can initiate litigation under terms of the
            Act in order to avoid posting bonds or facing penalties for
            losing such cases;

       Brand companies can even get away with pressing non-Hatch-
            Waxman Act claims under the Act in order to simply trigger a
            30-month stay on generic approvals.

    Conclusion
        We believe that, while the Hatch-Waxman Act was well intentioned,
    it long ago ceased to be effective or fair. It is clear today that the
    Act is stifling rather than promoting competition. And it is clear that
    certain provisions in the Act actually encourage drug manufacturers to
    prevent the very competition intended by the Act, at an annual cost of
    billions of dollars to consumers, taxpayers, and other pharmaceutical
    purchasers.
        As a result, a system of anarchy prevails under the Hatch-Waxman
    Act, where brand drug manufacturers subvert the intent of the Act to
    prevent competition, and generic manufacturers and purchasers must find
    ways to work outside the Act to preserve competition.
        The situation will only get worse unless Congress acts quickly to
    fix the system. Consumer groups are no longer content to wait for
    systemic change. Rather, they are initiating expensive class action
    litigation and are lobbying the FTC and states to write new rules to
    govern the pharmaceutical market outside--or on top of--the Hatch-
    Waxman Act.
        We encourage action by this Committee and others in Congress to
    close the loopholes in the Hatch-Waxman Act this year. Hatch-Waxman
    reform is the best way to help all Americans afford prescription
    medicine, and is critical to restore the congressional intent of the
    1984 initiative.
        Thank you.
        Timothy Fuller
        Marion Wolff
        Gray Panthers
                                     ______

        Prepared Statement of Jody Hunter, Georgia-Pacific Corporation,
                 Co-Chairman, Business for Affordable Medicine

        Mr. Chairman and Members of the Committee, it is a pleasure to
    provide testimony to the Senate Commerce Committee. My name is Jody
    Hunter and I am Director of Health & Welfare Benefits at Georgia-
    Pacific Corporation.
        I serve as co-chairman of Business for Affordable Medicine (BAM), a
    growing national coalition of leading U.S. employers, governors, and
    labor organizations dedicated to improving pharmaceutical competition
    by closing loopholes in the federal Hatch-Waxman Act this year. I am
    here representing BAM's corporate membership, which includes companies
    such as the following:

       Verizon Communications

       Wal-Mart

       K-Mart

       Weyerhaeuser Corporation

       Eastman Kodak

       Albertson's

       General Motors

       Motorola

        All prescription drug purchasers, including the corporations that
    belong to BAM, are frustrated by the rising cost of prescription drugs.
    Every year, the impact on our bottom lines gets bigger, forcing
    employers to either absorb these growing costs or pass them along to
    employees and retirees.
        Now, let me cut to the chase because I want to set the record
    straight on exactly what our coalition is seeking to accomplish this
    year.
        The Hatch-Waxman Act is broken and needs to be fixed. Unintended
    loopholes are providing drug manufacturers with opportunities to engage
    in anti-competitive practices that are designed to delay the
    introduction of lower-cost alternatives to branded pharmaceuticals.
        Their tactics are costing drug purchasers billions of dollars every
    year in lost savings because generic drugs are not available when they
    should be--namely, as soon as brand drug patents expire.
        Let me be very clear that BAM members do not seek to undermine the
    critical safeguards provided to intellectual property owners by the
    patent process. Most, if not all, of our corporate members hold
    numerous patents. None of us would advocate Hatch-Waxman reform if we
    felt the proposed changes would violate intellectual property rights.
        Neither do BAM members begrudge brand drug manufacturers the
    profits they make on their products. In fact, our companies enjoy
    excellent working relationships with many of the manufacturers.
        So why are we here asking Congress to reform the Hatch-Waxman Act
    this year? I can sum it up in one word: fairness.
        What we are saying is this:

       Loopholes in the Hatch-Waxman Act allow drug manufacturers
            to unfairly delay competition.

       These delays cost U.S. purchasers billions of dollars
            annually.

       Congress must close these loopholes this year and restore
            the Act to its original intent.

        Meanwhile, drug manufacturers are trying to convince Congress that
    all is well and nothing needs to be done to fix these problems. Here
    are some of the things they are saying:

       The Hatch-Waxman Act is working as intended, and there is no
            need to change it.

       Thousands of generic drugs have successfully reached the
            market over the past 18 years.

       Fewer than 6 percent of generic applications face any delay
            at all.

       Closing loopholes in the Act will result in inability of
            drug manufacturers to develop new medicines.

       Closing loopholes in the Act will undermine intellectual
            property rights.

        You may even see colorful charts that illustrate these points, but
    the devil is in the details. Drug manufacturers, however, do not want
    to discuss the following points:

       First, of course the Act works well if you are the
            beneficiary of its loopholes, which effectively extend patents
            on blockbuster drugs beyond their expiration dates. If I were
            in the shoes of brand drug manufacturers, I would not want to
            change the law that allows me to delay competition with little
            effort.

       Second, the 6 percent of cases in which generic drug
            approvals have been delayed are for products that cost
            purchasers like Georgia-Pacific the most, such as Prilosec and
            Buspirone most recently--a small percentage in terms of total
            drug applications, but a huge percentage in terms of actual
            pharmaceutical profits.

       Third, patent expirations are the sole incentive for
            investment in development of new drugs. Brand industry
            investments in research and development have increased from
            11.4 percent as a percentage of sales in 1970 to 18.5 percent
            in 2001, according to PhRMA. This increase coincides with the
            impending expiration of billions of dollars worth of patents.

        Let me share some of the challenges we are facing at Georgia-
    Pacific, as well as those faced by the other corporate members of BAM.
        At Georgia-Pacific we provide healthcare plans that include
    prescription drug coverage for approximately 70,000 active employees
    and their covered dependents. We also cover more than 26,000 retired
    employees and their dependents. Our prescription drug costs in 2001
    exceeded $42 million (up 21 percent from 2000) for our self-funded
    plans, which cover approximately half of our employee base. Increased
    Rx costs also added significantly to HMO fully-insured premiums we pay
    for the remaining half. Our 2002 HMO premium increases ranged from 16
    to 42 percent. Most of these increases were related to increasing Rx
    costs. Our total medical and prescription drug healthcare costs for
    2001 exceeded $300 million.
        The actions we are taking at Georgia-Pacific to control these
    unsustainable double digit cost increases are similar to actions taken
    by other corporations, including:

       Changing medical and prescription drug coverage plan
            designs.

       Sharing more cost with employees and retired employees.

       Reviewing and analyzing the need for customized prescription
            drug formularies.

       Using co-payment or coinsurance incentives to promote
            greater use of generic drugs.

       Reviewing the possibility of using alternative medical and
            prescription drug plans for our retired employees that may
            result in greater financial risk on their part in order to
            reduce their premium contributions.

        Like the governors who are trying to identify healthcare cost
    savings at a time when budgets are extremely tight, corporate
    purchasers of prescription drugs are anxious to have full access to
    lower-cost generic alternatives as soon as brand patents expire.
        Last year the corporate members of BAM spent more than $132 million
    to purchase the 17 brand name drugs that face patent expiration before
    2004. Our collective cost for just the 5 drugs that face patent
    expiration this year was $58.4 million--almost half of the total spent
    for all 17 drugs.
        What's more, BAM corporate members spent more than $188.5 million
    last year to purchase the 10 brand name drugs that face patent
    expiration in 2005.
        In preparation for this testimony, we used data provided by all BAM
    member corporations to determine the annual cost to all S&P 500
    corporations for these 17 drugs.
        Using conservative estimates, we concluded that nearly $1.9 billion
    was spent by the Fortune 500 companies last year alone to purchase just
    these drugs. More importantly, we estimate that these companies will
    save over $950 million annually if Congress simply ensures that
    generics are allowed to enter the market on time, as intended by the
    1984 Hatch-Waxman Act. This savings can only be assured if Congress
    acts this year to close the loopholes in the Act.
        If Congress will act this year to close these loopholes, all drug
    purchasers--including 40 million uninsured Americans--could anticipate
    saving an average of 50 to 60 percent on prescription drugs once their
    patents expire and lower cost generic alternatives become available.
        In our view, this could go a very long way in helping Congress and
    the Administration deliver on its promise in the last election to
    address the problem of escalating pharmaceutical costs.
        Like all purchasers, we want access to lower-cost alternatives on
    time after brand name patents expire. Closing the loopholes in the
    Hatch-Waxman Act will restore certainty to the prescription drug market
    and help purchasers manage the cost of these expensive drugs.
        Until that happens, the writing on the wall is quite clear--
    experience has taught us that delays are inevitable, especially for the
    blockbuster drugs that are driving our cost increases through the roof.
        The reason some pharmaceutical manufacturers oppose closing the
    Hatch-Waxman Act loopholes is clear--continue to delay reform, at
    significant cost to all purchasers, while prolonging monopoly profits
    on blockbuster drugs.
        Corporations like Georgia-Pacific joined BAM in order to convince
    this Committee and all of Congress that we cannot survive under the
    present system. We believe that enough is enough. All BAM members
    believe that the best interests of prescription drug purchasers--
    including consumers across America--far outweigh the arguments put
    forward by those drug manufacturers that engage in unfair, anti-
    competitive practices in order to extend their profits.
        Mr. Chairman and Members of the Committee, if Congress is to make
    good on its promise to seniors to deliver a Medicare prescription drug
    benefit, the issue of pharmaceutical costs must first be addressed.
        Prescription drug purchasers need the certainty that can only be
    provided by closing loopholes in the Hatch-Waxman Act. We encourage
    this Committee and all of Congress to act this year to stop the anti-
    competitive practices that result from loopholes in the Hatch-Waxman
    Act.
        Thank you for the opportunity to provide this testimony.