[Senate Hearing 107-1081]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1081
GENERIC PHARMACEUTICALS: MARKETPLACE ACCESS AND CONSUMER ISSUES
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HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
APRIL 23, 2002
__________
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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
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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
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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.