[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



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       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.

                                  
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