[Senate Hearing 108-250]
[From the U.S. Government Publishing Office]
S. Hrg. 108-250
LEGISLATIVE AND REGULATORY RESPONSES TO THE FTC STUDY ON BARRIERS TO
ENTRY IN THE PHARMACEUTICAL MARKETPLACE
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 17, 2003
__________
Serial No. J-108-16
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas JOHN EDWARDS, North Carolina
Bruce Artim, Chief Counsel and Staff Director
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa,
prepared statement............................................. 50
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 77
Schumer, Hon. Charles E., a U.S. Senator from the State of New
York........................................................... 17
prepared statement........................................... 85
WITNESSES
Bradshaw, Sheldon T., Deputy Assistant Attorney General, Office
of Legal Counsel, U.S. Department of Justice, Washington, D.C.. 10
Jaeger, Kathleen D., President and Chief Executive Officer,
Generic Pharmaceutical Association, Washington, D.C.;
accompanied by John Yoo, Professor of Law, University of
California at Berkeley, Berkeley, California................... 23
Kuhlik, Bruce N., Senior Vice President and General Counsel,
Pharmaceutical Research and Manufacturers of America,
Washington, D.C................................................ 24
Metzenbaum, Howard M., Former U.S. Senator, and Chairman,
Consumer Federation of America, Washington, D.C................ 20
Muris, Timothy J., Chairman, Federal Trade Commission,
Washington, D.C................................................ 3
Troy, Daniel E., Chief Counsel, Food and Drug Administration,
Rockville, Maryland............................................ 5
SUBMISSIONS FOR THE RECORD
Federal Trade Commission, Washington, D.C., prepared statement... 27
Jaegar, Kathleen D., R.Ph., J.D., President and CEO, Generic
Pharmaceutical Association, Arlington, Virginia, prepared
statement...................................................... 51
Kuhlik, Bruce N., Senior Vice President and General Counsel,
Pharmaceutical Research and Manufacturers of America, prepared
statement...................................................... 66
Metzenbaum, Hon. Howard M., Chairman, Consumer Federation of
America, prepared statement.................................... 79
Troy, Daniel E., Chief Counsel, Food and Drug Administration,
Department of Health and Human Services, Rockville, Maryland,
prepared statement............................................. 94
LEGISLATIVE AND REGULATORY RESPONSES TO THE FTC STUDY ON BARRIERS TO
ENTRY IN THE PHARMACEUTICAL MARKETPLACE
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TUESDAY, JUNE 17, 2003
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch, Chairman of the Committee, presiding.
Present: Senators Hatch and Schumer.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Chairman Hatch. Today, the Committee will hold a hearing in
an area of great importance to the American public--competition
in the pharmaceutical marketplace. This Congress has witnessed
a growing spirit of bipartisan cooperation on pharmaceutical
issues. After so many years of searching for consensus, we are
all encouraged that the Finance Committee has now approved by a
bipartisan majority the medicare reform and prescription drug
benefit bill that we are now considering on the Senate floor.
President Bush deserves credit for encouraging the Congress
to act in the best interests of the public on these matters. We
owe a debt of gratitude, as well, to Senators Grassley and
Baucus, Chairman and Ranking Member on the Finance Committee,
for the work that they did over the last number of years which
culminated last week in a passage of the bill out of committee.
I will give them my wholehearted support as the Senate
debates the bill over the next two weeks. Having been a member
of the so-called tripartisan group which developed and advanced
the basic structure of this Medicare reform bill over a number
of years, I am excited at the prospect of finally getting the
job done for our seniors and those who are disabled in our
society. But there is another set of issues relating to
pharmaceuticals that promises to benefit the American public
through increased competition in the pharmaceutical
marketplace, and that is the subject of our hearing today.
This Committee held a hearing in May of 2001 on the issue
of competition in the pharmaceutical marketplace. At that time,
we discussed the anticompetitive behaviors made possible in
part by the sometimes complex and admittedly confusing text of
a law I coauthored, the Drug Price Competition and Patent Term
Restoration Act of 1984, sometimes called the Hatch-Waxman
bill.
Since our last hearing on this issue, much has happened.
Indeed, the HELP Committee has recently approved S. 1225,
legislation which builds on that Committee's earlier McCain-
Schumer initiative to address the cost of prescription drugs.
I must also single out both the Federal Trade Commission
and the Food and Drug Administration for playing a constructive
role in attempting to end several mechanisms by which some
research-based and generic drug firms were attempting to game
the system to avoid competition in the marketplace. Senator
Leahy is to be commended, as well, for his legislative
initiative, the Drug Competition Act, which I have cosponsored.
The agency has succeeded in winning several consent decrees
with a variety of offending firms under the existing antitrust
statutes. In addition, the FTC conducted an exhaustive survey
and study of how certain provisions of the 1984 Waxman-Hatch
Act affected competition in the pharmaceutical industry.
The FTC study contained two major recommendations, both of
which we will examine today. The first addressed the use of the
statutory 30-month stay granted by the 1984 law in situations
where patents are challenged by generic competitors. The second
responds to those situations in which R and D and generic firms
were entering into agreements not to impede generic
competition.
Our hearing will also examine how well the Bush
administration's final rule effectuates a fair and thoughtful
one, and only one, 30-month stay policy. Since the rule was
finalized just last Thursday, none of us can understand all of
its nuances. However, it does appear to be a good-faith attempt
to implement the first FTC recommendation. But in an area this
complex, no one should be surprised if we find that the agency
inadvertently created new loopholes or unintentionally imposed
unfair hardships that may need to be refined.
We will also examine today the patent provisions of the
HELP Committee legislation, a bill I find much improved over
last year's initiative, due in large part to the considerable
influence of Chairman Gregg and, of course, Senator Schumer's
work as well.
While I do have some concerns over this legislation which
we will pursue in some detail this morning, I need to commend
the sponsors of S. 1812 for moving in the right direction. I
recognize that the language is something of a moving target,
since there is under development a package of technical
corrections that selected governmental and industry experts
have commented upon. We will ask our witnesses today to comment
on the legislation and the possible need for amendment.
It is unfortunate that the PTO was unable to present a
witness today, albeit on short notice, and I will continue to
press the agency for comments on how the bill and the final
rule affect patent rights. It would have been preferable for
the Committee to have the benefit of an agency official who
could sit with his sister agencies and advise us on the patent
provisions of S. 1225.
In closing, I have said many times that I prefer a
comprehensive approach to Hatch-Waxman reform that includes a
discussion of augmenting the existing intellectual property
incentives and consideration of whether and how to create a
fast-track approval process for off-patent biologics.
Nevertheless, I stand prepared, and the Judiciary Committee
stands prepared to participate in any effort to revise the Drug
Price Competition and Patent Term Restoration Act of 1984.
So I look forward to today's hearing, and we will look
forward to our panels of witnesses and hope we can arrive at
some good, effective work here today. On our first panel, we
are pleased to have a number of witnesses from the
administration.
First, we will hear from our friend, Tim Muris, Chairman of
the Federal Trade Commission. The FTC allocates a significant
share of its resources toward overseeing the health care
sector, including the pharmaceutical industry. The July 2002
FTC study on generic drug entry prior to patent expiration is a
key document for policymakers.
So we welcome you, Chairman Muris, and look forward to
hearing your testimony here today.
Our second witness is Dan Troy, Chief Counsel for the Food
and Drug Administration. The FDA just issued a final rule last
Thursday that is intended, in part, to implement one of the
major recommendations of the FTC report. Dan will help us to
understand what the FDA rule does and how the rule would work
with legislation under development that appears in large part
an attempt to codify key elements of the FDA rule. It is my
understanding that staff from both FTC and FDA have provided a
considerable amount of so-called technical assistance toward
the end of protecting the language that came out of the HELP
Committee last week.
Our third witness on the panel, Sheldon Bradshaw, Deputy
Assistant Attorney General, Office of Legal Counsel, will not
submit prepared testimony. We are pleased that Mr. Bradshaw
could appear here on relatively short notice.
Some have raised constitutional objections on the aspects
of S. 1225, as reported. As the Department is still reviewing
this issue and the language may be in flux, we do not expect
Mr. Bradshaw to give any final administration views on this
issue. He may be able to answer questions on what type of
interagency review process may be underway to help answer this
question and give us an idea when the Committee can expect a
response.
Although I extended an invitation, absent from this panel
is the representative from the Patent and Trademark Office.
This is unfortunate but understandable, given that it may take
some time for the experts at PTO to assess how the developments
of last week, the FDA final rule, and the reporting of S. 1225
will affect patent law and policy. Even if we can't hear from
them today, I expect them to present their views on these
matters in a reasonable period of time.
Now, let's start with Chairman Muris. I would like you to
summarize your remarks in seven minutes, if you can, and we
will go from you to Dan Troy.
STATEMENT OF HON. TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE
COMMISSION, WASHINGTON, D.C.
Mr. Muris. Well, thank you very much, Mr. Chairman. I am
not even sure I will take seven minutes, but let me just very
briefly address three points. First is the context of Hatch-
Waxman, second is our enforcement agenda, and finally, briefly,
a few evidentiary points from our study.
In terms of the Hatch-Waxman context, as I think we all
know, advances in pharmaceuticals bring enormous benefits to
Americans. Because of innovation, many medical conditions often
can now be better treated with drug therapy than with
alternative means such as surgery. We must maintain appropriate
incentives for the development of such drugs.
In 1984, Congress enacted Hatch-Waxman. The amendment
sought to balance incentives for continued innovation by
research-based pharmaceutical companies, on the one hand, and
opportunities for market entry by generic drugs on the other.
Without question, Hatch-Waxman has increased generic entry. By
purchasing generics, consumers have saved billions. Even
greater savings are possible in the future.
Moving to the FTC's enforcement agenda, we have challenged
conduct by firms allegedly gaming Hatch-Waxman to deter or
delay generic competition. Our first generation of such matters
involved agreements through which a brand name manufacturer
allegedly paid a generic firm not to enter and compete, and to
use the generic's rights under Hatch-Waxman to impede entry by
others.
Our second generation of enforcement activities involves
allegations that brand name manufacturers have delayed generic
competition through a particular Hatch-Waxman provision that
prohibits the FDA from approving a generic applicant for 30
months.
Brand name drug manufacturers sometimes act strategically
to obtain more than one 30-month stay of FDA approval of a
particular generic by listing patents in FDA's Orange Book
after a generic company has submitted its application. The
Commission recently obtained strong, and in some cases
unprecedented relief against Bristol-Myers for this type of
activity for its cancer drugs Taxol and Platinol, and its anti-
anxiety drug BuSpar.
Finally, let me briefly discuss our study. It examined 104
brand name drugs between 1992 and 2000. We asked whether and
how generic drug companies competed against brand name drug
manufacturers before the patents expired.
Under Hatch-Waxman, brand name companies must list patents
that claim each brand name drug in the Orange Book. A generic
applicant then may certify that its product does not infringe
the relevant patents or that those patents are invalid. If the
brand name manufacturer sues the generic applicant for patent
infringement, then the FDA may not approve the generic's
application until a court determination of patent invalidity or
non-infringement, or 30 months after receipt of the
certification.
Our study found that 30 months has approximated the time
necessary for FDA review and approval of a generic's
application, as well as the time necessary for a district court
to resolve the patent litigation. Nevertheless, for eight brand
name drug products, the manufacturers have obtained more than
one 30-month stay. This has caused considerable delay of FDA
approval of the generic's application, ranging from 4 to 40
months of additional delay.
Our study recommends a limit of one automatic 30-month stay
per drug product, per generic application, to resolve
infringement disputes over patents that were listed in the
Orange Book prior to the filing of the generic's application.
And we are certainly pleased that the FDA has adopted
substantially that approach and that it is also in the new bill
that you mentioned.
Our study also examined the Hatch-Waxman provision that
awards 180 days of marketing exclusivity to the first generic
to apply to enter the market before patent expiration. During
this time, the FDA may not approve a subsequent generic. This
provision provides an incentive for companies to challenge
patent validity and to design around patents.
The data in our study found that generic applicants
prevailed in about 75 percent of the patent litigation resolved
by a court decision. Sometimes, however, the case is not
litigated to a decision and there is a settlement. We found 14
settlement agreements that, when executed, had the potential to
park the first generic applicant's 180-day exclusivity for some
time, and thus prevent subsequent generic entry.
Because they can raise antitrust issues, the Commission
supports the Drug Competition Act of 2001, introduced by
Senator Leahy and passed by the Senate during the last
Congress, that would require the filing of these types of
agreements with the FTC and the Department of Justice.
Our study also made three minor recommendations to clarify
the regulations governing the triggers for the 180-day
marketing exclusivity. These recommendations should reduce any
potential for the 180-day exclusivity provision to be a
bottleneck to subsequent generic entry.
The Commission will continue to protect consumers from
anticompetitive practices that inflate drug prices. We will
continue to work closely with the Committee. I want to thank
you, Mr. Chairman, on behalf of the Commission for your support
of our work. I welcome your questions.
[The prepared statement of Mr. Muris appears as a
submission for the record.]
Chairman Hatch. Thank you, Chairman Muris. We appreciate
it, and we have appreciated the work you have done on this and
the FTC has done.
We will go to Mr. Troy.
STATEMENT OF DANIEL E. TROY, CHIEF COUNSEL, U.S. FOOD AND DRUG
ADMINISTRATION, ROCKVILLE, MARYLAND
Mr. Troy. Thank you, Mr. Chairman. It is characteristic of
your modesty that you referred to the law we are discussing
today as Waxman-Hatch. Let me assure you, though, that everyone
at the FDA talks about it as Hatch-Waxman.
Chairman Hatch. I am sure that is going to make Henry
really happy, I will tell you.
Mr. Troy. That is not my goal.
I also want to say what an honor it is to sit next to
Chairman Muris, whose leadership in this area has really been
very useful for the FDA. We have tried to work closely together
with the FTC, and I think it is fair to say that at least from
where we sit the relationship between the FDA and the FTC on a
wide variety of counts has never been stronger.
I want to begin by stressing that Dr. McClellan's main goal
for the FDA in this area is to promote innovation, while also
promoting rapid access to low-cost, safe and effective generic
drugs. Our recent improvements to the implementation of Hatch-
Waxman are really just part of a set of FDA initiatives that
will reduce drug costs, while again encouraging innovation by
speeding up the drug development and approval process without
compromising FDA's high standards for safety and effectiveness.
We are taking a lot of steps to reduce the time and cost of
new drugs so people have wider access to safe and effective new
drugs. You need the new drugs in order to ultimately have the
generic drugs. And with respect to generics, we believe our
recent rule changes will help. But far more important, other
reforms in the generic approval process that were announced at
the same time will shave months off the time to availability of
generic drugs across the board.
Similarly, under Dr. McClellan's leadership, we have
charted new pathways for improving inhaled and topical drugs
that will potentially affect many products. These broad
improvements in drug availability, both new drugs and generic
drugs, will have a major impact on all patients, not just those
affected by imperfections in the current law. With all due
respect, we truly believe that the additional $13 million to
the Office of Generic Drugs will make the biggest difference in
the area of generic drug reform.
That said, since its enactment in 1984, Hatch-Waxman has
become an extremely valuable tool in making medications more
affordable to American citizens. Of course, you know this, Mr.
Chairman. To date, FDA has approved more than 10,000 generic
drug products, providing high-quality, lower-cost prescription
drugs to millions of consumers.
Of course, there are two provisions that have been
associated with some anticompetitive behavior--the submission
of brand name drug patents for listing by FDA, and the role of
those patents in generating 30-month stays in the approval of
generic drugs while patent infringement issues are litigated.
I am not going to go over what Chairman Muris said, but
essentially the way I conceptualize Hatch-Waxman is as a
complex signaling mechanism between generics and innovators,
where the innovators declare their set of relevant patents. And
the generics, when they submit their abbreviated new drug
applications, have to declare the status of their product vis-
a-vis those patents. And then, of course, there is the 45-day
provision and 30-month stay to allow time for the patent issues
to be worked out.
Some have suggested that FDA should take a much more active
role in policing the patents that go into the Orange Book. I
want to make clear that we do not undertake an independent
review of the patents submitted by the NDA sponsor. We have
tried in our new rule to make it clear which patents must and
must not be listed, and to have a beefed-up declaration.
But as we understand the statute, it requires us to publish
patent information on approval of the NDA, thus making the
agency's role ministerial, and courts have so held. I think
that one of the signal features of Hatch-Waxman is that generic
and innovator firms are supposed to resolve their disputes
about patent listings and about patents in general in private
litigation in the courts, where the expertise really resides
with respect to patent questions.
We therefore strongly believe that FDA should not be asked
to, or expected to review drug patents because we do not have
the expertise to make these assessments. And we believe, for
reasons that my written testimony goes into greater detail,
that it would actually fail to speed the availability of
generic drugs. We would end up in litigation, rather than
litigation being worked out between the generics and the
innovators.
As I mentioned, we really commend the FTC for their
comprehensive study on these issues. It has been enormously
useful to us. The factual information in the report was very
valuable in our own discussions on the generic drug approval
process.
Of course, the FTC recommended only one 30-month stay be
allowed for infringement disputes over patents listed in the
Orange Book before the filing of the ANDA. We agree that there
should be one 30-month stay. We recognize, as our new rule
says, that recently more ANDAs have been the subject of 30-
month stays than in years past, and that more patents on
average are now being litigated per generic drug application
than in the past.
But we would note that the FTC report, number one, did not
say how the single 30-month stay should be implemented. We
tried to do it through dealing with the statute as it currently
is, and we think we did so successfully, but we are happy to
talk about that. We note that the FTC report recognized that we
do not have the capacity to review the appropriateness of
patent listings.
As you know and as you said, on June 12 we announced our
final regulations that will streamline the process for making
safe, effective generic drugs available to consumers. We expect
that rule to save patients over $35 billion in drug costs over
10 years. We also think it will avoid unnecessary litigation
and protect the process of developing new breakthrough drugs.
Brand name drug manufacturers will be limited, as you have
said, to only one 30-month stay to resolve allegations that a
generic drug maker is infringing a listed drug patent. Multiple
30-month stays will not be permitted. As I mentioned, we have
tightened the requirements and increased the information
required for drug patent submission and listings, and brand
name drug manufacturers will not be allowed to delay access to
generic drugs by submitting additional patents for listing in
the Orange Book for drug packaging or other minor matters not
really related to effectiveness.
The required submissions include patent information on
active ingredients, drug formulations and composition, and
approved uses of the drug. There is a much more detailed signed
attestation accompanying the patent submission that is
required, and we say on the declaration that false statements
in the attestation can lead to criminal charges. We think these
actions will significantly reduce opportunities to list
inappropriate patents just to prevent access to low-cost
generic alternatives.
We are pleased to note again, as you mentioned, that last
week the Senate Committee on Health, Education, Labor, and
Pensions unanimously reported legislation on accelerating
access to generic drugs. We recognize and appreciate Chairman
Gregg's leadership in achieving the bipartisan agreement with
the original sponsors of the bill.
We are pleased that this proposed legislation has key ideas
embodies in FDA's regulation to improve access to generic
drugs, and that it doesn't include some of the most problematic
provisions of S. 812, which passed the Senate last year.
Not surprisingly, in this complex, very technical area of
the law, we have concerns with the workability of that draft
that we believe must be resolved for the legislation to achieve
its intended effect. I know of no more of the law in which the
law of unintended consequences operates with more force than
this one.
We are working with the sponsors and other members to
address various technical and policy issues. We are actively
addressing the issues that have been raised by brand name and
generic companies about the operation of the statute. We
continue to work very, very hard to implement the Hatch-Waxman
amendments as best we can, given the statutory text, the
history of the legislation, as well as the numerous court
challenges.
You know, it is sometimes liberating to know that no matter
what you do, you are going to get sued. It frees you to try and
do the right thing. In doing so, FDA has tried to maintain a
balance between protecting innovation in drug development and
in expediting the approval of lower-cost generic drugs.
I appreciate the opportunity to discuss these issues with
you and I am happy to answer your questions.
[The prepared statement of Mr. Troy appears as a submission
for the record.]
Chairman Hatch. Well, thank you.
Let me begin with Chairman Muris. It has been my experience
that Government reports usually just simply gather dust. So let
me start by congratulating you and your agency for producing a
report that appears to be gaining more and more traction with
policymakers.
In addition to the two major recommendations we have
already talked about, your report also contains three minor
recommendations. Could you please briefly describe for the
Committee or provide for the record, if you wish, what these
three minor recommendations are, what their status is with
respect to acceptance within the administration and
implementation, and how our Committee might best assist you
with them if we decide they have merit?
Mr. Muris. Yes, and thank you again, Mr. Chairman, for your
kind words about the FTC. We made three minor recommendations
about the 180-day exclusivity triggers. The first one was that
commercial marketing, which is one of the triggers, includes
generic marketing of a branded product. That is in the Gregg-
Schumer bill.
The second is that the court decision trigger be a decision
of the district court, which is the current rule. That is not
in the Gregg-Schumer bill; it identifies they have the circuit
court. Although there are clearly countervailing arguments on
both sides of that issue, we think from the standpoint of
consumers the district court rule is better. It provides the
appropriate incentives, although we recognize that in some
cases it could work a hardship on generics. It is a question of
looking across the total of the circumstances and balancing
what we think is in consumers' best interest, which is the
fundamental lodestone of FTC action.
Finally, the study's third recommendation was that
dismissal of a declaratory judgment action be a decision of the
court to trigger the 180 days. The D.C. Circuit in Teva held
that a dismissal for lack of case or controversy would trigger
the generic's exclusivity period. That is not in Gregg-Schumer.
We would recommend that this provision be added to Gregg-
Schumer.
Chairman Hatch. Okay, thank you.
Mr. Troy, what is your opinion of whether we should view
the 30-month stay provisions of S. 1225, if enacted, as
superseding, complementing, or having some other relationship
with the recently finalized FDA rule?
Mr. Troy. Well, we believe that our rule has addressed the
issue of single 30-month stays. Our rule does not address at
all some of the other things that are addressed in S. 1225, in
particular the 180-day exclusivity. I think a lot of the fixes
that are talked about with respect to S. 1225 with respect to
the 180 days are things that we might not--we haven't taken a
hard look at this, but we might not be able to do by rule, as
we felt we were able to change the prior interpretation because
we thought the language was ambiguous and change the prior
interpretation from multiple 30-month stays to single 30-month
stays.
That said, again, without conceding that legislation is
necessary because we don't believe legislation is necessary, if
Congress were to codify a workable single 30-month stay
provision, it is obviously easier to defend legislation than it
is to defend a change in interpretation in the rule. But it has
got to be workable, and our main concern--and we have been
making very good progress working on a bipartisan basis with
the staff--our main concern is to make sure that it is workable
because this is a very complex area of law. It is very
technical.
Again, I will go back a number of times to the law of
unintended consequences. In part, because of our experience in
trying to administer Hatch-Waxman, we see things that others
might not because of our immense experience with--and it is not
mine; it is the people on my staff, many of whom you know.
There is no end to the originality of the arguments that are
made in this area. The dollars are very large, the issues are
extremely well-lawyered.
So we see pitfalls and traps in many different places, and
so we have been trying to work with the staff, again we think
in a way that has been making progress, to try and address
those concerns.
Chairman Hatch. You may have referred to this briefly, but
what, if any, of the patent listing and the 30-month stay
provisions of the rule would need to be revisited if
legislation is patterned after the outlines of S. 1225?
I will give you an example. For example, does the final
rule limit the 30-month stay to those patents listed prior to
the submission of the abbreviated new drug application, the
ANDA?
Mr. Troy. Not in all cases, no. What the rule says is that
there is one 30-month stay per ANDA. But if there is no
paragraph IV certification with respect to the initial NDA, if
you will, when the ANDA is filed, if there is a later listed
patent and it is the first four, then you could have a 30-month
stay. Let me suggest that that is likely to be a relatively--in
fact, extremely infrequent occurrence.
But let me say that the other two parts of our rule,
tightening up on the patent declaration and making clear which
patents must and must not be listed in the Orange Book, we
think have already, to be immodest, made the world better by
addressing the concerns that the FTC has raised and by
providing clarity in this area and by limiting the
opportunities for gaming.
If S. 1225 were to pass in this or any of the forms that
are being discussed, those two parts of the rule would continue
to operate, and again would continue to make the world better.
Legislation codifying a single 30-month stay would clearly
supersede, if you will, that part of the rule that says single
30-month stay because Congress will have directly spoken to the
precise question at issue. Again, that aspect of the rule would
presumably be, if the legislation were passed, superseded.
Chairman Hatch. Mr. Bradshaw, I have some questions and
comments for you on one of the important matters in this.
Of course, Chairman Muris and Mr. Troy, you can comment, if
you wish, on any of these questions.
As you know, some, including Boyden Gray, former White
House Counsel under Bush I, have questioned the
constitutionality of proposed Section 271(e)(5) of Title 35 as
created by S. 1225. This section provides that the failure to
bring a patent infringement action establishes a case or
controversy sufficient to confer subject matter jurisdiction
for a declaratory judgment action in Federal court. I
understand that equally respected attorneys take a different
view than Mr. Gray, and I know that the Department has not
completed its analysis of this language.
Now, given that the so-called technical amendments package
may affect this provision, it is possible that we may have to
ask you to review different language at some point. I wonder if
your research to date has turned up any other similar provision
in the U.S. Code.
STATEMENT OF SHELDON T. BRADSHAW, DEPUTY ASSISTANT ATTORNEY
GENERAL, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE,
WASHINGTON, D.C.
Mr. Bradshaw. Thank you, Mr. Chairman. I am pleased to be
with you today to discuss constitutional concerns surrounding
S. 1225, the Greater Access to Affordable Pharmaceuticals Act.
On the specific language regarding the declaratory
judgments in Section 271, we do not yet have a definitive
position on whether cases brought pursuant to it would satisfy
the Article III case or controversy requirement. I do have
several general observations that I would make.
The requirement of an actual case or controversy, as set
forth in the Declaratory Judgment Act, is constitutionally
compelled rather than statutorily required. As such, like other
Article III requirements--for example, standing--it cannot
simply be granted by Congress, but must be satisfied by the
plaintiffs.
I have not had an opportunity to fully examine this
legislation or compare it with existing legislation. More
importantly, we would like to see the package that contains the
technical fixes which we have not yet seen before we opined on
that subject. But I would lead with those general observations
that the actual case or controversy requirement is
constitutionally compelled rather than statutorily required.
And as a result, Congress can't simply create a case or
controversy by statute, but the plaintiffs must establish the
constitutional requirements for bringing the case.
Chairman Hatch. I would also note that the FDA final rule
contains an informative discussion of how adoption of the one,
and only one 30-month stay policy might affect declaratory
judgment actions. If I read this discussion correctly, I think
the FDA concluded that it was not a barrier even without the
case or controversy provision contained in S. 1225.
Am I correct on that, Mr. Troy?
Mr. Troy. I am not an expert in this area, in part because
it really has more to do with patent law. But we believe that
in most cases--I think in virtually every case, a declaratory
judgment suit for invalidity would lie. Whether a suit for
infringement, or declaratory judgment with respect to
infringement would lie if the innovator hasn't taken any action
is an issue.
The courts haven't articulated a standard with respect to
that. I am certainly not going to opine. I haven't really
thought seriously about the constitutional issue. I would defer
to the Justice Department on that. But what we have tried to
say is that we believe that there can be mechanisms for the
generic to get the kind of certainty that it may want before it
goes to market.
Let's be clear that in many areas of industry people go to
market and they run the risk of a lawsuit for patent
infringement. That happens all the time. I could go into the
pen-making business and if I am infringing on somebody's
patent, I could be sued for patent infringement.
Generics, for good reasons, want more certainty than that
before they launch, and so the question is can they get it. And
we believe that, again, so long as they make sure that they do
not run afoul of the FTC's concerns about competition, there
may well be ways that we again articulated in the final rule
for the generic to write to the innovator and say--this is
outside the context of a 30-month stay where the notice is not
a requirement--to write to the innovator and say, here is what
we are doing, we invite you to sue us.
So the point is there may be ways for the generic to induce
the kind of lawsuit and the kind of certainty. If the innovator
is written and takes no action, then query whether or not there
is a reasonable apprehension of suit.
Chairman Hatch. I would highlight, Mr. Bradshaw, the fact
that the FDA pointed out in the 1999 Teva case that the D.C.
Circuit found that no case or controversy existed when a
patent-holder drug company disavowed an intent to sue. Now,
absent this intent, the court could not find the requisite
reasonable apprehension of suit.
I wonder if you have any preliminary thoughts on the case
or controversy language of S. 1225, including what factors you
need to analyze, and so forth. I also hope that the Department
might be able to suggest ways to avoid any constitutional
problematical language as work on the legislation continues.
Mr. Bradshaw. Sure, and I understand again that one of the
technical fixes under consideration may, I have been told, do
that, in fact. But you are right in citing the D.C. Circuit
case that the general test that courts have emphasized is
whether there is a reasonable apprehension of an infringement
suit as sort of the touchstone of justiciability in a case
under the Declaratory Judgment Act.
As a result, the applicant in this case would need to have
a reasonable apprehension that the patent-holder might bring an
infringement suit in order to have an actual case or
controversy for purposes of the declaratory judgment action.
And if there was a case like the facts in the D.C. Circuit
where the patent-holder expressly stated that, in fact, they
would not bring an infringement action, it may be difficult for
an applicant under those facts to establish an actual case or
controversy.
Chairman Hatch. I hope you will get us your opinion as soon
as possible.
Mr. Bradshaw. We are in the process of working with the
administration in formulating the administration's views on the
constitutional questions, and just as soon as we receive a copy
of the different technical fixes, we will go about reviewing
them.
Chairman Hatch. Now, as the Department looks more closely
at how S. 1225 reforms civil justice proceedings, you may very
well have further comments on the bill. And if that is the
case, I would like you to communicate your concerns to the
Committee as soon as possible, okay?
Mr. Bradshaw. Yes.
Chairman Hatch. Let me just ask you, is the Department
currently looking at any other aspects of S. 1225, and if so,
what are you examining?
Mr. Bradshaw. Well, as you are aware, Mr. Chairman, the
Office of Legal Counsel advises the administration on the
constitutionality of all legislation that is introduced in
Congress. So as a matter of course, our office is reviewing S.
1225 for constitutionality and we are in the process of
advising the administration on our views.
Without going into any details on what we have advised
people within the administration, because that process is still
ongoing, I would note that others have raised questions related
to whether or not portions of the bill are impermissibly
retroactive. Again, like the Article III question, we have not
yet taken a definitive position on that.
Chairman Hatch. All right.
For Mr. Muris and Mr. Troy, in its statement of
administration policy opposing the McCain-Schumer bill of last
year, the White House cited its fear that S. 812 might
encourage excessive litigation. I am concerned that the unique
and, in my view, not fully justified advantage granted to first
filers with respect to the 180-day marketing exclusivity
incentive may already be encouraging earlier lawsuits of
dubious merit.
FDA''s shared exclusivity policy also, it seems to me,
plays a role in this dynamic. I have seen the June 2 issue of
the Pink Sheet that came out which contains an article
detailing that the incredible pressure to be the first to file
a paragraph IV challenge might result in a marked increase in
willful infringement cases. The article described a case in
which a Federal court ruled against a generic firm which filed
an ANDA application before obtaining outside counsel opinion on
either non-infringement or invalidity.
To me, one of the most perplexing features of both S. 812
from last year and the new bill, S. 1225, is the almost
unbelievable advantage given first filers of generic drug
applications. As you know, prior to the D.C. Circuit's Mova
decision in 1997, FDA had required a generic challenger to
successfully defend against the patent claim of an innovator
company.
Now, from a policy perspective, why should a mere first
filer be treated better than a party who actually wins a
lawsuit? And if we are to legislate in this area, why don't we
consider overriding Mova and reinstate the old successful
defense requirement?
We will start with you, Mr. Muris, or either one.
Mr. Muris. The Commission in its report doesn't view the
180 days as a reward for successfully defending a patent suit.
We view it as an incentive to file the ANDA in the first
instance.
Now, I know there are some proposals to actually avoid the
shanty town problem of people in line to file, and I am sure
Mr. Troy will address those. But we think that it does create
an incentive to go ahead and be clever and innovative. And if
you are so clever and innovative that the branded decides it
can't even sue you, then we think so much the better.
In fact, of the 104 brand-name drugs that we looked at, in
75 the brand did go ahead and sue the generic for infringement,
but in 29 it didn't. From the standpoint of an incentive, we
believe the generic, which develops a product and avoids
litigation, such as in those 29 cases, should benefit from the
exclusivity.
Mr. Troy. We certainly agree with you about S. 812 and we
thought that it would unduly induce too much litigation, and
the administration opposed S. 812.
With respect to the 180-day exclusivity, what Chairman
Muris was referring to is right now there are sometimes
limousines, sometimes vans, sometimes cars, sometimes tents in
the Metro North parking lots that come days, weeks, and in some
cases even months in advance of a particular date. Why we
should reward someone because they camp out longer in the
parking lot is a good question as a matter of policy. It is a
good question.
That said, we are working, we think, very productively with
the staff on S. 1225 to embody more of a, shall we say, use it
or lose it approach so that someone can't park their
exclusivity. The FTC has done a great job in ensuring that
people can't park their exclusivity.
We don't have an official administration policy or position
on whether or not you should or shouldn't have 180 days of
exclusivity. We certainly think that the question of whether or
not you should get this reward for being the first and simply
the one to stand on line the longest is a worthy policy
question and is worth talking about and thinking about.
But as I understand all of the discussions that have been
going on, I think that there is a recognition that that is an
issue, and there have been some very good solutions that have
been talked about and thought about in order to try and solve
that problem.
Chairman Hatch. With respect to completing the rulemaking
in less than 1 year from proposed to final rule, it is quite an
accomplishment, and you and your staff, I think, need to be
commended for that.
Mr. Troy. Thank you, Mr. Chairman.
Chairman Hatch. That is great. Frankly, I am somewhat
envious, to be honest with you, because it has been almost 10
years since the Dietary Supplement Health and Education Act
passed Congress and there are still no final rules specifying
good manufacturing practices for those products.
Mr. Troy. We got out the proposal.
Chairman Hatch. I don't want any excuses. That is fine.
I am pleased that you adopted a one, and only one 30-month
stay principle, but I wonder how you respond to those in the R
and D industry, whose shenanigans with multiple stays started
the trouble in the first place, who say the way you drafted the
final rule allows the system to be gamed by ANDA applicants.
Here is the type of example some have raised with me with
respect to the new FDA rule. Suppose there were two patents
prior to the filing of an ANDA, one compound patent and one
formulation patent. A generic applicant may intend to challenge
both, but initially files a paragraph III certification on the
compound patent and a paragraph IV certification on the
formulation patent.
Determining that the generic firm has invented around the
formulation patent, the generic decides not to pursue the
paragraph IV litigation. Instead, the ANDA applicant decides to
allege invalidity and converts the paragraph III certification
on the compound to a full-blown paragraph IV challenge.
The question is this: Under the rule, is the 30-month stay
already used up, and if so, doesn't this open the door to such
tactics?
Mr. Troy. I think, in part, it depends on whether or not it
is within the first 45 days and whether litigation was
commenced. But let me say that there is no way, through
rulemaking or through legislation, to avoid all opportunities
for gaming. We tried within the limits of the law to plug as
many of the loopholes as we could.
I have never participated in a process like this, but we
would have 10 or 15 staffers in a room with the text of the
rule up on a screen and we would go through it, all of us, word
by word in order to look for opportunities that might be seized
upon to be gamed in an effort to try and say this argument
might be made here, this argument might be made here.
We tried as best we could to cut down on all opportunities
for gaming. We did not succeed in cutting down all
opportunities for gaming because no legislation is so good, no
rule could be so good as to cut down all opportunities for
gaming because there are unforeseen circumstances and
unintended consequences.
We think we have addressed 80, 85, maybe 90 percent of the
loopholes that are obvious and that we have seen in the past
within the limits of the law. This hypothetical that you have
mentioned was raised to us. We again tried to address it within
the context of what happens in the first 45 days. If there is
all sorts of switching, FDA, like all administrative agencies,
retains authority with respect to shams. If people are really
playing games, we think we have authority to deal with that.
But I am not smart enough, and the 20 people sitting around
the room aren't smart enough and far-sighted enough, despite
all of our expertise and experience, to see every single
situation that could be gamed. And that said, there were
obviously limits to what we could do because we are an
administrative agency trying to implement the statute.
But, again, we are having much the same discussions and the
same experience with respect to the legislation because either
way you tilt it, you can't write it so clearly that there are
no opportunities for gaming. And there is going to be tilting
one way or the other, and some of the issues that come up are
on which side of the table do you want to run the risk of
gaming.
I think the best way to approach this, frankly, is to say,
well, on this side with respect to this issue, we are going to
run a little more risk of gaming on this side, and on this side
for this issue we are going to run a little bit more risk of
gaming on this side. Hopefully, you end up with something that
has some degree of balance.
Chairman Hatch. Mr. Muris, let me ask you one last
question. Section III-C of your testimony discusses some of
your enforcement activities with respect to settlements between
generic manufacturers.
Do you think it is advisable to work with Senator Leahy to
consider amending the text of the Drug Competition Act to
require the reporting to FTC and DOJ of certain potentially
troublesome generic-generic or brand name-to-brand name
agreements, in addition to the generic-brand name agreements
that the bill currently addresses?
Mr. Muris. We had 20 brand-generic agreements. We only had
six generic-generic agreements, but some of those did raise
potential anticompetitive problems. In fact, we did bring one
case involving that. It is certainly not something to which I
would object. Based on the evidence, it was not as big a
problem as the brand-generic.
Chairman Hatch. For the two of you, I have one last
question that has come up, and that is I want to bring out in
this question some of the complex policy tradeoffs at play in
this area.
First, would one of you be so kind as to give the Committee
a short explanation of what a polymorph is? And please make it
a discussion at the level of polymorphs for dummies, okay?
Mr. Troy. The most simple example of what a polymorph is is
water, ice, and steam; same molecule, different form. It is all
H20.
Chairman Hatch. Second, I note from comments that the FTC
submitted to FDA in December that the FTC's view of the proper
treatment of polymorph patents is somewhat different from the
FDA's.
Could each of you briefly describe your agency's views on
the legal and policy arguments regarding the appropriateness of
listing polymorph patents in the FDA Orange Book?
Mr. Muris. Let me put this in context. With the single 30-
month stay, if it is upheld by courts or put in the
legislation, this problem becomes much less important. The
problem with these later listed patents, however would be
eliminated by a single 30-month stay. We found questionable
patenting practices in six of the eight later listed patents in
which there is a court decision or FTC action. Those listings
have been found to be questionable.
Second, the FDA did address to some extent our concern--and
we appreciate that--in changes they made from the proposed rule
to the final rule, and I am sure Mr. Troy will explain those,
and I will defer to him on the empirical evidence. But I think
they believe it would have taken care of most of the problems
that we saw.
There was a difference of opinion in how to read the
statute and that was the source of our disagreement. Obviously,
under our system and under the Chevron decision, they have the
final say in reading their statute, subject to court review,
and that court review gives fairly significant deference.
Chairman Hatch. Thank you.
Mr. Troy?
Mr. Troy. I just want to reiterate what Chairman Muris
said. We think that the single 30-month stay and the tightened-
up patent declaration and making clear which patents must and
must not be listed will substantially alleviate this issue
because the incentive to come in with later listed patents, if
you have a single 30-month stay, largely falls away. So that is
the first point.
This was, at least for me, the most vexing issue as a
policy matter and as a legal matter in the rule because, on the
one hand, the FTC articulated an interpretation that said the
inquiry for listing is different than the inquiry for
bioequivalence. The other argument was made, well, that is
trying to have it both ways. You can't say it is not the same
when it comes to listing, but it is the same when it comes to
approval. You are trying to have it both ways. There is a bias
here.
And so we really struggled with the issue and ultimately we
felt that because the courts have, in fact, given us so much
flexibility with respect to interpreting what is the same, we
thought that we diminished our legal risk by going in that
direction. I am not going to suggest that it was an easy
decision. It was probably the most hotly debated issue
internally with respect to the rule.
But we think that particularly with the change from the
proposal to the final which says that--it sort of squares the
circle, if you will, and says if you are maintaining that it is
the same, innovator, then you have to have done the work
internally to prove that it is indeed the same; i.e., to have
satisfied at least yourself and to be willing to certify that
there is a degree of bioequivalence there.
We think that that is going to dramatically limit any
opportunity for the indiscriminate listing of polymorph patents
and gaming of the system even on its own, separate and apart
from the fact that the single 30-month stay is going to reduce
the incentives for the gaming with these later listed patents.
So it is a hard issue. I am not pretending it is not a
difficult issue. We found the input of the FTC very helpful and
very useful and we think we have come up with a solution that
works.
Chairman Hatch. Well, thank you.
We will turn to Senator Schumer.
STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE
STATE OF NEW YORK
Senator Schumer. Well, thank you, Mr. Chairman, and I first
want to thank you not only for holding this hearing, but for
your leadership on this issue. I said this a while back that I
think Hatch-Waxman was one of the great pro-consumer pieces of
legislation of the last 25 years. Your authorship of it is a
very important feather in your cap that I hope you wear
proudly, and I am glad to see that you are still involved and
interested in this issue, which I know you are from the last
few years that we have been involved.
Chairman Hatch. Thank you so much. I appreciate that.
Senator Schumer. I also want to thank Senator Leahy, who
has been involved, and together with you, Mr. Chairman, worked
on the Drug Competition Act which the Senate passed last year.
Senator Leahy wanted to be here today, but couldn't, and I
would just ask unanimous consent that his opening statement be
put in the record.
Chairman Hatch. Without objection, and we will put any
statements in the record.
Senator Schumer. Thank you, Mr. Chairman.
I would also like to thank Senator Gregg for his leadership
in approaching me and bringing together Senators McCain and
Kennedy, with whom I have worked on this issue in the past few
years. Together, Judd and I, along with the others, have
crafted a strong bipartisan bill which is now poised to pass
the Senate, and I think has a real chance of making it through
the House as well.
The bill which passed out of Committee unanimously last
week achieves the goals of the original Schumer-McCain bill of
closing loopholes in the law which I know we are hearing about
from our witnesses today. But it does so my modifying certain
provisions to address the concerns that kept its critics from
supporting it last year, including my friend Senator Hatch, who
is always giving me some good advice on how to deal with these
kinds of issues.
Before I get into the discussion of the bill, I would like
to talk about the issue and how far we have come in bringing
these abuses to light over the last few years. Two years ago,
Chairman Hatch called a hearing on this very same issue. At the
time, we heard from the FDA, the FTC, and witnesses
representing consumers and States who all shared their concern
about ways in which the pharmaceutical industry was taking
advantage of one of the most pro-consumer laws passed in
decades, Hatch-Waxman.
The compromise that Senator Hatch and Congressman Waxman
crafted was carefully done, intended to strike a balance and
help save consumers billions of dollars, while rewarding brand
name companies for their innovations. For years, the law worked
to do exactly that, but as the profits became higher, and
frankly it seemed to me as the pharmaceutical industry, the
brand name industry, had a large number of blockbuster drugs
that were about to expire, and with their worry that they
couldn't replace them with other drugs that were just as
profitable, they began to find ways around this law, instead of
innovating new drugs, innovating new patents.
This is how America works; find a good lawyer and they will
find a good loophole, and that is what happened. Companies
began to do that, and even, to boot, some of the generic
companies were hardly blameless. They would make deals with the
brand name company and say, give us some money and we will keep
this drug off the market.
Congress began to look at all of these abuses 2 years ago
with Chairman's Hatch. What has happened since then? First, the
evidence mounted. In three additional hearings last year,
Congress--this Committee, the Commerce Committee, the HELP
Committee, the House Energy and Commerce Committee--heard how
double-digit growth in drug costs and anticompetitive activity
in the pharmaceutical industry has thrown not only citizens,
but corporations, State Medicaid programs, and insurers into a
tailspin as they struggle to pay for the drugs.
Then the FTC issued a report which documented abuse of
several key loopholes in the law, creating barriers to generic
entry. Most significantly, the report identified eight
blockbuster drugs, representing billions of dollars in sales
for which the brand companies listed patents late in the
process and triggered the successive 30-month stays of generic
competition.
The pharmaceutical companies have argued before Congress
that these patents and the delays have been legitimate. Well,
we have heard from the courts on five of these products, and so
far in every single instance the courts have decided that these
patents have been invalid or not infringed by the generic
challenger. That doesn't sound too legitimate to me; zero for
five is not a great batting record.
Let me illustrate with an example. The example is Paxil.
This is a $2.1 billion drug used to treat obsessive-compulsive
disorder. It has been in litigation since 1998. After the
lawsuit began and the first 30-month stay was triggered, the
brand company, Glaxo SmithKline, listed nine additional patents
on the drug, which ended up triggering five additional 30-month
stays.
Well, over the last year there have been court decisions on
four of those patents. The patent which began this litigation
was not found to be infringed upon by the generic, and the
other three were found to be flat-out invalid. But the 30-month
stays are still preventing the competition, costing consumers
$3 billion.
So this is a problem; it is a real problem. We have now the
State attorneys general banding together to bring multiple
suits against pharmaceutical companies. They have secured
hundreds of millions of dollars in damages. The administration,
under the FDA, has issued new regulations.
Before I get into the substance of what we are talking
about here--and I appreciate the opportunity to speak at some
length, Mr. Chairman--I would make a plea to the pharmaceutical
industry. You make a great product, you save people's lives.
This is a good thing. You deserve a rate of return that is a
fine rate of return. I don't dispute that. There are some who
do. I don't. But the bottom line is, by overdoing it on these
patents, you are ruining your goodwill.
This is not an area where we are talking about price
controls. It is not even an area we are talking about where
American consumers pay for the research for the whole world.
You have gotten what you are supposed to get on these patents,
a large amount of profitability. God bless you. You have come
out with a good product.
But then to come up with some of these changes and say they
are perfectly legitimate and say you are really just searching
for better ways to serve the consumer--everyone in America
knows that is bunk. This is one area where the pharmaceutical
industry should say, hey, we want to work with you to keep a
legitimate rate of return for wonderful drugs that save
people's lives, but not abuse it, and because we have made so
much money and we have to make more money. That is truly a
heartfelt plea.
We have some good companies in New York that employ
thousands of people and they do good things. But the bottom
line is don't kill the goose that laid the golden egg, because
that is what happening here. Instead of the pharmaceutical
industry being held in high esteem, which it was a decade ago,
you are beginning to lose it, and some of it is just because
the prices are high and people don't like that. But some of it
is because you are abusing certain privileges, and you are not
doing it in any area more so than generic drugs. So join with
us. Don't fight us.
I do want to say, Mr. Chairman, I think the proposal that
Senator Gregg and I have put together is fair and balanced, and
again saying to the pharmaceutical industry, I know you are not
fighting us head-on, but I am going to fight weakening this
bill. I am not going to allow loopholes, not going to allow
lack of enforcement. I am not going to let someone say, because
you can pluck out some lawyer somewhere who says something
might be unconstitutional, leave this bill denuded. I feel very
strongly about this.
So where are we now? The proposal we have put together
makes it easier for less expensive generic drugs to be sold in
pharmacies. It will significantly reduce overall drug spending
in the U.S. by billions. And yet, as Senator Gregg is always
mindful, it will continue to allow innovation. It will continue
to say to the industry, create something good and new and you
are going to get an excellent rate of return on it.
I think you have gone over what the bill does, but
basically the bottom line--I used to call it Mitch Daniels'
dream. Now, maybe we will have to call it Josh Bolton's dream.
It is free-market, it is pro-consumer, and it doesn't cost the
Government a penny. In fact, it will save the Government money.
The bill provides a critical complement to the work the FDA
has done in clarifying its regulations on patent listing, but
it goes much further. The FDA, to its credit, has said we can't
do it all; lots of this needs statute, when they came out with
their proposed regulations which are now in effect, I guess.
Chairman Hatch. Senator, your time is up. My problem is I
have to be out of here at twenty-five after eleven.
Senator Schumer. Let me just say quickly, on this chart,
the FDA regulations get you up to here. We take you all the way
through, and there are many other things that need to be done
and the FDA regulations are not sufficient.
I am going to ask that the rest of my statement be placed
in the record, Mr. Chairman, because I know you are busy.
Chairman Hatch. Without objection.
[The prepared statement of Senator Schumer appears as a
submission for the record.]
Senator Schumer. I have a question or two, but I will
defer.
Chairman Hatch. We will keep the record open for written
questions for any Senator on the Committee, and I will have
some, I think.
Senator Schumer. I will submit written questions to speed
this along, Mr. Chairman.
Chairman Hatch. Would you do that, because I am pressured
and I have to be out of here?
Senator Schumer. Yes, no problem.
Chairman Hatch. I want to thank the three of you for being
here. I think this has been an excellent time, and I want to
personally tell all three of you how much I respect you and the
work that you do. I think you are just terrific and you are
doing great work.
Mr. Troy, you have brought a breath of fresh air out there
at FDA, in my opinion, and I just want to compliment you for
it.
You know how highly I think of you, Mr. Muris.
Justice Department, get us that information as soon as you
can, will you?
Mr. Bradshaw. Yes.
Chairman Hatch. Well, thank you so much. We appreciate you
being here.
Mr. Muris. Thank you very much, Mr. Chairman.
Mr. Troy. Thank you.
Chairman Hatch. Now, we will go to our next panel. Our
first witness on the second panel is my friend, Howard
Metzenbaum, former Senator from Ohio, representing the Consumer
Federation of America.
We welcome you back, Howard. You used to be a member of
this Committee and we look forward to hearing your testimony.
The second panelist will be Ms. Kathleen Jaeger, President
of the Generic Pharmaceutical Association. We are very happy to
have you here, Ms. Jaeger.
Finally, we will hear from Bruce Kuhlik, General Counsel to
the Pharmaceutical Research and Manufacturers of America.
It is possible that these three witnesses might not see eye
to eye on all of these issues, so it will be interesting to
hear what you have to say. We will put your full statements in
the record. If you can summarize very quickly, I would
appreciate it, in 5 minutes, because I have to leave here in
about ten minutes. So if you can, I would appreciate it.
Senator Metzenbaum, we will turn to you first.
STATEMENT OF HOWARD M. METZENBAUM, FORMER UNITED STATES
SENATOR, AND CHAIRMAN, CONSUMER FEDERATION OF AMERICA,
WASHINGTON, D.C.
Mr. Metzenbaum. As one who participated in so many
filibusters with you, it would be difficult for me to summarize
that briefly, but I will do the best I can, Mr. Chairman.
Chairman Hatch. Listen, I recognize that well.
[Laughter.]
Mr. Metzenbaum. Mr. Chairman and Senator Schumer, it is
good to be back at the Judiciary Committee. My name is Howard
Metzenbaum. I serve as Chairman of the Consumer Federation of
America. I appreciate your invitation to offer my comments,
which I am presenting on behalf of the Consumer Federation and
Consumers Union, which publishes Consumer Reports magazine.
The FTC report detailed the many specious tactics used by
drug companies to stall or thwart public access to less
expensive generic drugs. It is actually outrageous that the
same companies that charge Americans the highest drug prices in
the industrialized world would use secret payoffs, flimsy legal
maneuvers, and back-room deals to eliminate generic
competition, line their pockets, and harm consumers.
Every time a drug company blocks a safe generic drug from
getting into the hands of the American people, they are not
only placing a tax on the uninsured, the sick and the elderly,
but are doing untold harm to millions of Americans. These
outrageous attempts to keep drug prices high are particularly
disgraceful because they undermine the effectiveness of one of
your major achievements, Mr. Chairman, the Hatch-Waxman Act.
You and Congressman Waxman provided great and wise leadership
in drafting a law that carefully balances the need for drug
innovation and affordability.
Hatch-Waxman dramatically increased access to generic
drugs, saved consumers billions of dollars, and ensured that
the drug manufacturers have adequate patent protection to
justify substantial investment in research and development.
However, in recent years, as a number of top-selling
blockbuster drugs were due to come off patent, brand drug
manufacturers have used their political muscle and legal
resources to block generic drugs from coming to market.
When crass legislative efforts to pass unjustified patent
extensions failed in Congress in the late 1990's, the drug
industry turned to their platoon of legal talent for help. They
filed late patent claims just before a drug was to come off
patent. Sometimes, those claims had nothing to do with the
therapeutic equivalent of a generic drug, such as the shape or
color of a pill.
They filed numerous nuisance lawsuits on the same drugs for
violation of those late patents. This triggered Hatch-Waxman's
30-month stay on the approval of a generic drug, and they made
secret payments to some generic companies to keep generic
alternatives off the market. To the drug industry, I say you
should be ashamed of your conduct. You have abused the free
market system.
I will not discuss the additional $13 million that has been
appropriated to the FDA for speedy approval of generic drugs.
Let me assure you, however, that we strongly support that
appropriation if it helps reduce the 20 months, on average,
that it takes now for approval of a generic drug.
I would like to comment briefly on two of the major
responses to the FTC's report that we have seen--the Senate
bipartisan legislation that was reported out of the HELP
Committee last week and the FDA's new generic rule. These two
responses are somewhat complementary, but the Senate
legislation will be far more effective in protecting the public
from the range of abuses I have detailed.
First, it would limit the ability of brand name drug
manufacturers to block generics through multiple 30-month
stays. The bill would generally allow a drug company to receive
only one stay per drug. The FDA rules on restrictions on
multiple stays, by contrast, are far weaker and would allow
brand drug companies to continue to game the system.
Second, generic drug companies would have the right to
assure that their drugs are not in violation of any patents
before going to market by seeking a declaratory judgment.
Third, the bill would take some moderate steps to reduce
nuisance patent lawsuits. Unfortunately, however, this is one
area where the bipartisan compromise will not be as effective
as legislation passed overwhelmingly by the Senate last year.
Unlike last year's bill, the compromise does not provide as
many disincentives to stop brand drug companies from filing
unjustified late patents. I will give you an example. Last
year's bill gave generic companies a private right of action to
de-list improper patents, and it didn't allow the brand drug
companies to file an infringement lawsuit unless the patent in
question was listed at the time the drug was approved.
Regarding the FDA's generic rule which took effect last
week, it has some strengths. For instance, it requires brand
drug companies to provide more information about the patents
they are listing. Overall, however, it is a disappointment. It
is unlikely to reduce the many anticompetitive tactics that
have been cited today. Even worse, it requires the listing of
some new categories of patents. This may actually encourage
brand drug companies to play patent hanky-panky once again.
In closing, let me reiterate, Mr. Chairman and Senator
Schumer, that the pharmaceutical industry has repeated used
improper delaying tactics to thwart access to generic drugs.
Their activities have been and continue to be shameful. This is
not only a threat to the pocketbooks of many Americans, but to
their health, and it is blight upon the free enterprise system.
When faced with high drug costs, many people will go without
needed medication or reduce the consumption of these drugs
below the prescribed label.
Senator Hatch and Senator Schumer, I urge you and members
of the Committee to support actively the bipartisan compromise
legislation that will soon reach the floor. Although the bill
is not as strong as legislation that passed the Senate last
year, I applaud the efforts of Senators Kennedy, Schumer,
McCain, and Gregg to find a compromise that will decrease drug
costs and increase the flow of cheaper generic drugs to
Americans in need.
I am very grateful to you, Mr. Chairman, for the
opportunity to appear before your Committee. I think that we
need action promptly and I am hopeful that we will see such
action provided by your leadership, Senator Schumer, and other
members of this Committee.
[The prepared statement of Mr. Metzenbaum appears as a
submission for the record.]
Chairman Hatch. Thank you, Senator Metzenbaum.
We will turn to you, Ms. Jaeger, and take your testimony at
this time.
STATEMENT OF KATHLEEN D. JAEGER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, GENERIC PHARMACEUTICAL ASSOCIATION, WASHINGTON, D.C.;
ACCOMPANIED BY JOHN YOO, PROFESSOR OF LAW, UNIVERSITY OF
CALIFORNIA AT BERKELEY, BERKELEY, CALIFORNIA
Ms. Jaeger. Thank you, Mr. Chairman, distinguished members
of the Committee. My name is Kathleen Jaeger. I am the
President and CEO of the Generic Pharmaceutical Association. On
behalf of GPhA and its members, I especially want to thank you,
Mr. Chairman, for your leadership on this issue as the original
author of the landmark Hatch-Waxman Act, and for convening this
hearing today.
We applaud the Senate and the administration for their
commitment to a package of administrative and legislative
measures that, if taken together and not weakened, will make
American health care more affordable.
As you know, Senate bill 1225, the Greater Access to
Affordable Pharmaceuticals Act, sponsored by Senators Gregg,
Schumer, McCain, and Kennedy, was unanimously passed out of the
Senate HELP Committee last week. We echo the President's
intention to work with both the House and the Senate on this
legislation to make certain that prescription drugs are more
affordable to the American public.
We believe that Senate bill 1225 will remove some of the
most serious market barriers to generic competition. We also
believe that the administration's regulatory initiatives,
coupled with the compromise bill, will make American health
care more affordable and provide consumers with timely access.
But given that, instead of actually discussing the actual
compromise that is on the table, you have raised some very
important issues with respect to constitutionality with respect
to the declaratory judgment provision, and out of respect for
your time, Mr. Chairman, I ask that Mr. John Yoo, who is here
today, actually speak to that issue. Mr. Yoo served as General
Counsel to this Committee under your chairmanship from 1995 to
1996. In addition, Mr. Yoo has clerked for Supreme Court
Justice Clarence Thomas, and currently is a visiting fellow at
the American Enterprise Institute and a professor of law at
Berkeley.
With your permission, may I turn over the floor to Mr. John
Yoo, please.
Chairman Hatch. Sure.
John, welcome back to the Committee. You are an old friend
and a terrific law professor.
Mr. Yoo. Thank you, Mr. Chairman, and I will just very
quickly provide some advice to the Committee.
Chairman Hatch. Real quickly, though.
Mr. Yoo. I hope that unlike past time when I worked for
you, you actually listen to my advice a little bit this time.
[Laughter.]
Chairman Hatch. Well, I think we have heard enough from
you.
[Laughter.]
Chairman Hatch. Go ahead.
Mr. Yoo. Just on the two points of the Declaratory Judgment
Act and the 30-month stay provision, it is my view that both
provisions are constitutional. The Declaratory Judgment Act is
a more difficult issue than the 30-month stay provision, but
this is exactly the kind of circumstance that the Declaratory
Judgment Act was passed to address, cases where potential
patent infringers need to bring a suit to get some kind of
declaration about their rights because the patent-holder might
not bring suit.
In fact, when Congress passed the bill in 1934, it
specifically discussed this exact situation, and the Supreme
Court, as you know, 3 years later in the Aetna case upheld the
Declaratory Judgment Act.
The only potential issue is whether the case law of the
Federal Circuit and this reasonable apprehension test raises
any doubt about the constitutionality of this legislation.
There are a number of reasons why I don't think it does. One is
that the reasonable apprehension test itself may not be an
interpretation of the Article III case or controversy
requirement, but might be an exercise of the Federal Circuit's
prudential discretion not to hear certain kinds of suits.
Second, I think it is perfectly appropriate for Congress to
articulate a standard that might be odds with a lower Federal
court if it wants the Supreme Court to determine finally
whether this is a proper interpretation of the Article III case
or controversy requirement.
On the 30-month stay, just very quickly, a 30-month stay
provision is just a change in the procedures that are used to
enforce a Federal property right. It doesn't actually affect
the Federal property right itself. As the Supreme Court has
said most recently in the Plout case, Congress has full
authority to make changes in cases that have not been finally
decided by the Article III courts, and the procedures and even
the substantive rights at issue, so long as, again, there has
been no final determination of those rights and a final
judgment by the Article III courts.
Thank you, Mr. Chairman.
Chairman Hatch. We would appreciate any further scholarship
you can give us on this in writing. It would be helpful to us
because it is a matter of concern.
Ms. Jaeger. We would be happy to.
Chairman Hatch. Thank you both for being here.
[The prepared statement of Ms. Jaeger appears as a
submission for the record.]
Chairman Hatch. Mr. Kuhlik, you are the last one and if you
could keep your remarks--I am in trouble here, but if you can
keep your remarks within 5 minutes, I would appreciate it.
STATEMENT OF BRUCE N. KUHLIK, SENIOR VICE PRESIDENT AND GENERAL
COUNSEL, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA,
WASHINGTON, D.C.
Mr. Kuhlik. I have been crossing out as you go along. Thank
you, Mr. Chairman.
I am Bruce Kuhlik, Senior Vice President and General
Counsel of the Pharmaceutical Research and Manufacturers of
America. We are pleased to have the opportunity to testify this
morning.
Landmark legislation passed by Congress in 1984, commonly
known as the Hatch-Waxman Act, has fulfilled its twin goals of
expediting generic drug entry and encouraging pharmaceutical
innovation. By any measure, the law has been an enormous boon
to the generic industry, as Chairman Muris explained this
morning.
For 3 years, though, we have had a debate over the need for
new legislation. Until the FTC issued its report last year,
however, the debate lacked any shared understanding of the
facts. We were therefore pleased when the FTC issued its report
last July. The report confirmed that the Hatch-Waxman Act
works. Out of approximately 6,000 generic drugs approved since
1984, the FTC identified only 8 instances in which innovator
companies had received so-called multiple 30-month stays. Even
accepting the view that there is something wrong with these
stays, a law that works 5,992 times out of 6,000 is a law that
works and, in our view, works well.
The FTC called for two principal changes in the law: first,
a limitation on 30-month stays to patents listed with FDA in
the Orange Book before an ANDA is filed, and, second, a
requirement that certain agreements between innovator and
generic companies be reported to the FTC.
A number of legislative and regulatory proposals have
emerged since last July, none limited to the comparatively
modest suggestions made by the FTC. First, the Senate passed a
bill last year, Senate bill 812, that would have created a new
cause of action for patent de-listing, cut off the right to a
30-month stay for a broad universe of patents, subjected
innovator companies to a 45-day statute of limitations, and
forfeited patent enforcement rights altogether in certain
cases.
Mr. Chairman, you testified last year that this bill,
quote, ``goes too far without a compelling demonstration of
systemic abuse, and it upsets the carefully crafted balance,''
unquote, in the law.
Next, FDA proposed new Hatch-Waxman regulations last
October which were issued in final form last week. The FDA rule
attempts to address the multiple 30-month stay question within
the confines of the current law, but we believe that it raises
significant technical concerns regarding generics' ability to
avoid any 30-month stay. In this regard, the agency said in the
preamble, and Mr. Troy indicated as well this morning that it
cannot completely prevent manipulation of the rule.
Also, last week the HELP Committee marked up a bill, S.
1225, that attempts to address the 30-month stay issue
precisely as the FTC suggested. This bill, we believe, is a
significant improvement over previous legislative proposals and
is close, Mr. Chairman, I think, to what you have suggested as
appropriate.
Senator Schumer, we congratulate you, Senator Gregg, and
the other sponsors of this bill for your leadership in
developing it.
In its present form, however, as marked up by the
committee, the bill does present significant technical and
workability concerns regarding operation of the 30-month stay.
Mr. Troy discussed some of those earlier this morning. It also
goes beyond the FTC report by addressing other issues in a
problematic fashion. We have heard discussion this morning of
the constitutional issues raised by the declaratory judgment
provision.
As Mr. Boyden Gray said, former White House Counsel, quote,
``The bill takes the absence of a live case or controversy and
defines it as a live case or controversy,'' unquote. We look
forward to hearing what the Justice Department has to say about
that constitutionality provision.
The bill would also limit the availability of treble
damages in certain cases involving willful infringement by
generics. At a time when generic abuses of the statute are
growing, it would make little sense to discriminate against
pharmaceutical patent-holders by curtailing the remedies for
this sort of behavior.
Where does this leave us? We believe that the FTC report
vindicates our longstanding view that legislation to amend the
Act in a manner adverse to research and innovation is
unnecessary. At the same time, the technical concerns presented
by both the FDA rule and S. 1225 as marked up counsel in favor
of addressing the complex 30-month stay issue correctly. We
would be pleased to work on a bipartisan basis toward this
goal, with the priority of seeing such a bill passed and signed
into law as quickly as possible.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Kuhlik appears as a
submission for the record.]
Chairman Hatch. Thank you so much.
I am going to turn to Senator Schumer for just a very short
statement.
Senator Schumer. I will submit written questions.
Chairman Hatch. We will all submit written questions, and
we have got a lot of questions.
Senator Schumer. Thank you, Mr. Chairman. I just wanted to
say Senator Gregg and I spent a lot of time working on this
compromise and we consulted numerous constitutional experts on
the declaratory judgment provision in the bill. They were
virtually unanimous that there was no constitutional problem,
so I am not worried about it.
That is what I wanted to say for the record, Mr. Chairman.
Chairman Hatch. Well, thank you.
I want to thank each of you for being here. Mr. Yoo, please
submit any scholarship you can on this, and I know you will,
knowing you, and you also, Mr. Kuhlik. These are important
issues. I think you, Ms. Jaeger, have represented the generic
industry well.
Senator Metzenbaum, the consumers of America are well
represented by you. There is no question about that. I still
remember you rushing onto the floor at the last minute trying
to stop this effort, talking to Ralph Nader and trying to stop
Hatch-Waxman. But I had slipped it through on you before you
got in there, and you just immediately went back to work to
stop some other things you thought were wrong.
But I will tell you it is a privilege to have you here in
the Judiciary Committee room again, and it is a privilege to
have your testimony. So we appreciate you taking the time to do
it.
Thank you all for being here.
With that, we will recess and I will get to my next
meeting.
[Whereupon, at 11:34 a.m., the Committee was adjourned.]
[Submissions for the record follow.]
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