[Senate Hearing 109-685]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-685
 
 THE GENERIC DRUG MAZE: SPEEDING ACCESS TO AFFORDABLE LIFE-SAVING DRUGS

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             JULY 20, 2006

                               __________

                           Serial No. 109-28

         Printed for the use of the Special Committee on Aging



                                 _____

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30-710 PDF              WASHINGTON : 2006
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                       SPECIAL COMMITTEE ON AGING

                     GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama              HERB KOHL, Wisconsin
SUSAN COLLINS, Maine                 JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri            RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
MEL MARTINEZ, Florida                EVAN BAYH, Indiana
LARRY E. CRAIG, Idaho                THOMAS R. CARPER, Delaware
RICK SANTORUM, Pennsylvania          BILL NELSON, Florida
CONRAD BURNS, Montana                HILLARY RODHAM CLINTON, New York
LAMAR ALEXANDER, Tennessee           KEN SALAZAR, Colorado
JIM DEMINT, South Carolina
                    Catherine Finley, Staff Director
               Julie Cohen, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Herb Kohl...........................     1
Opening Statement of Senator Gordon Smith........................     3
Prepared Statement of Senator Hillary Rodham Clinton.............    55

                                Panel I

Gary Buehler, director, Office of Generic Drugs, Center for Drug 
  Evaluation and Research, Food and Drug Administration, 
  Rockville, MD..................................................     4
Jon Leibowitz, commissioner, Federal Trade Commission, 
  Washington, DC.................................................    18

                                Panel II

Heather Bresch, senior vice president of Corporate Strategic 
  Development, Office of the Chief Executive Officer, Mylan 
  Laboratories, Inc., Canonsburg, PA.............................    59
Mark Merritt, president and chief executive officer, 
  Pharmaceutical Care Management Association, Washington, DC.....    74

                                APPENDIX

Letter to Senators Smith and Kohl from Generic Pharmaceutical 
  Association (GPhA).............................................    97

                                 (iii)




 THE GENERIC DRUG MAZE: SPEEDING ACCESS TO AFFORDABLE LIFE-SAVING DRUGS

                              ----------                              --



                        THURSDAY, JULY 20, 2006

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Herb Kohl 
presiding.
    Present: Senators Kohl, Smith and Clinton.

             OPENING STATEMENT OF SENATOR HERB KOHL

    Senator Kohl. We will call this hearing to order at this 
time, and we welcome our witnesses. As always, I thank our 
Chairman, Gordon Smith, for the opportunity to put this hearing 
together today.
    We will examine today the bureaucratic and legal barriers 
that stop new generic drugs from entering the market and what 
we can do about it. This is of particular interest to this 
Committee as we work to help seniors cope with the high costs 
of prescription drugs.
    But rising drug prices don't only harm the elderly; they 
hurt us all as they undermine our private and public health 
systems. Health insurance premiums continue to skyrocket in 
large part due to escalating drug costs. The Federal 
Government, with the new Medicare prescription drug benefit, 
also feels the squeeze.
    Yet, the pharmaceutical industry, as you know, remains one 
of the most profitable industries in the world, returning more 
than 15 percent on investment. As a businessman myself, I 
respect an industry's right to maximize profits. Nevertheless, 
I believe they are charging Americans the highest drug prices 
in the world--that is almost beyond dispute--and forcing many 
employers to drop health coverage for their employees and 
squeezing the budgets of State and Federal Governments as well.
    As we will examine in this hearing today, government needs 
to consider action if companies unfairly and or evenly 
illegally manipulate the private market. According to the CBO, 
generic drugs save consumers $8 to $10 billion every year. Just 
last week, this Committee heard from Richard Wagoner, the CEO 
of General Motors, who stated how important using generic drugs 
are in reducing General Motors' health costs.
    General Motors employees and retirees substitute generic 
drugs for brand name drugs in 90 percent of the cases in which 
a generic exists, and this has come about, this 90 percent, 
because General Motors pushes it with such great energy. 
General Motors estimates savings of $400 million every year as 
a result of using generic drugs.
    So we need to find every possible way to get government, 
companies and individuals to emulate what General Motors has 
done. If we could do that, health care savings in this country 
as a result of using generic drugs could be astronomical. One 
way to make that happen is for Congress to monitor more closely 
and adequately fund FDA's Office of Generic Drugs.
    Earlier this year, the FDA had a backlog of more than 800 
applications to bring new generic drugs to the market. That was 
an all-time high. This backlog continues to grow as more brand 
drugs lose their patent protection. According to FDA 
guidelines, the agency should take no longer than 6 months to 
review a generic application, and yet the wait averages nearly 
2 years.
    We have been working with the FDA to reduce this time. 
Earlier this year, we were able to add $10 million for generic 
drug review at FDA in the Ag appropriations bill, and we hope 
to keep these dollars in conference. While increasing funding 
for this program is just step one, we are pleased that the 
Director of the Office of Generic Drugs is here today to 
outline steps two, three and four so that we get generics to 
pharmacy shelves much more quickly.
    Since passage of the Drug Price Competition and Patent Term 
Restoration Act, commonly known as Hatch-Waxman, we have seen a 
wider availability of generic drugs with little effect on the 
profitability of drug manufacturers and their ability to do 
research and development. Unfortunately, some brand name 
pharmaceutical manufacturers have learned to circumvent Hatch-
Waxman using litigation and other means to extend the life of 
patents and keep generics from entering the market.
    Courts and the FTC have determined that some brand name 
drug manufacturers have even colluded with generic drug 
manufacturers to delay the marketing of competing generic 
products. One form of collusion is to use payoff settlements. A 
drug company that holds a patent on a blockbuster brand name 
drug will pay off a generic drug maker to delay the sale of a 
competing generic drug. So while the brand name drug company 
and generic manufacturer make out extremely well, consumers, as 
we can readily understand, can lose out.
    The FTC has taken a strong stand against these types of 
payoffs, but they still flourish because of recent court 
rulings which allow back-room deals to occur. I have introduced 
bipartisan legislation to prohibit these payoffs. We hope to 
talk about this bill today, as well as other ways to address 
practices used by the drug industry to delay generic drug entry 
into the market. In our effort to cut down the cost of health 
care in this country, there is nothing more important than 
making sure that consumers, employers and governments have full 
access to affordable generic drugs.
    So we look forward to this hearing today, and at this time 
I turn to our esteemed Chairman, Gordon Smith.

     OPENING STATEMENT OF SENATOR GORDON H. SMITH, CHAIRMAN

    The Chairman. Thank you, Senator Kohl.
    Senator Kohl is our Chairman for this day. We have a 
relationship on this Committee that allows us to pass the gavel 
back and forth, and I want to thank Senator Kohl for his 
leadership on this issue. We jointly share a real concern about 
affordable prescription drugs.
    Clearly, the biggest problem we have in health care today 
is just simply the skyrocketing cost that far outpaces overall 
inflation for other goods and services. In fact, from June 2004 
to 2005, prices for health care grew at a rate double other 
types of consumer goods. Obviously, driving much of this growth 
in costs are prescription drugs. Prices for brand name 
prescription drugs have grown 4 percent since January of this 
year alone.
    For some medications like the sleeping aid Ambien, 
increases have been in the double digits. Frankly, if this 
trend continues, drug therapies important to seniors will just 
simply be undermined. The gains we have achieved with the 
implementation of Medicare Part D will just simply be lost.
    Generic drug alternatives do hold some promise in helping 
to provide consumers more affordable options. The CBO estimates 
that generic drugs save health care consumers $8 to $10 billion 
a year. With a number of popular brand name drugs soon going 
off patent, Americans and the Federal Government could save 
billions of dollars by choosing to purchase generic 
alternatives.
    Such savings will only be realized if the drugs get to 
market in a timely manner, and as Senator Kohl has just 
indicated, we are very concerned about the practice of paying 
by brand to keep generics off the market. This is of great 
concern to us. Obviously, we want the market to work, but it is 
not working when it is done in that way.
    So given the potential cost savings that could be gained by 
getting more generic drugs to market, Congress needs to 
carefully consider whether it is appropriately funding the 
FDA's approval activities. An even greater impediment to 
generic drug access is this practice of paying off. That simply 
needs to stop. As Senator Kohl noted, Congress is already 
taking steps to prohibit brand name drug companies from 
entering into these kinds of agreements so they can delay less 
expensive alternatives from coming to market.
    So I look forward to learning more about this important 
topic and I appreciate very much the effort that our Committee 
is making on this. Senator Kohl has assembled an excellent 
group of witnesses today and I know they will provide us with 
useful information on this issue.
    Senator Kohl. Thank you, Senator Smith.
    We are very pleased to welcome our first panel here today. 
The first witness will be Gary Buehler. Mr. Buehler has been 
the director of the FDA's Office of Generic Drugs, Center for 
Drug Evaluation and Research, since July 2001. Besides working 
for FDA for the past 10 years, Mr. Buehler has compiled a great 
deal of experience with various aspects of the issues that we 
will be examining today. Mr. Buehler's testimony, I believe, 
will help us understand some of the factors that slow the 
approval of generic drug applications.
    After him, we will hear from Jon Leibowitz, who has been an 
FTC commissioner since 2004. Before joining the executive 
branch, Mr. Leibowitz served in a variety of different offices 
in the Congress, including my own as my chief counsel on 
Judiciary from 1989 to 2000. Additionally, he has prior 
experience on the U.S. Senate Antitrust Subcommittee as the 
Democratic chief counsel and staff director from 1997 to 2000. 
Mr. Leibowitz will discuss current efforts by the FTC to 
protect consumers from anti-competitive practices of the 
pharmaceutical industry.
    We welcome you both here today and we look forward to your 
testimony.
    Mr. Buehler.

 STATEMENT OF GARY BUEHLER, DIRECTOR, OFFICE OF GENERIC DRUGS, 
    CENTER FOR DRUG EVALUATION AND RESEARCH, FOOD AND DRUG 
                 ADMINISTRATION, ROCKVILLE, MD

    Mr. Buehler. Good morning, Mr. Chairman and Ranking Member 
Senator Kohl. I am Gary Buehler, Director of the Office of 
Generic Drugs in the Center for Drug Evaluation and Research at 
the U.S. Food and Drug Administration. Thank you for the 
opportunity to testify about FDA's efforts to expedite the 
approval of generic drug products.
    FDA understands that Congress and the public are concerned 
about the high cost of prescription drugs. Generic drugs play 
an important role in granting access to affordable products 
that will benefit the health of consumers and especially 
seniors. Generic drugs typically cost 50 to 80 percent less 
than their brand name counterparts, and prompt approval of 
generic drug product applications, also known as abbreviated 
new drug applications, or ANDAs, is imperative in making 
generic products available to American consumers at the 
earliest possible date.
    FDA has taken a number of significant steps to provide 
greater access to affordable prescription medicines. In 2003, 
FDA published a final rule to improve access to generic drugs 
and lower prescription drug costs for millions of Americans. 
This rule was first proposed in response in part to FTC 
recommendations and other changes that the agency identified as 
being useful in improving generic competition.
    The rule limits an innovator drug company to only one 30-
month stay of a generic drug applicant's entry into the market 
for resolution of a patent challenge. These changes will save 
Americans over $35 billion in drug costs over the next 10 
years, and will also provide billions in savings for the 
Medicare and Medicaid programs. We were pleased that elements 
of this rule are prominent in part of the Medicare law, and 
that with FDA's technical assistance, the law added additional 
mechanisms to enhance generic competition in the marketplace.
    In addition, since fiscal year 2001, the administration and 
Congress have increased funding for FDA's generic drug program 
by 66 percent--a clear sign of the important role played by the 
Office of Generic Drugs. These increases have enabled FDA to 
hire additional expert staff to review generic drug 
applications more quickly and initiate targeted research to 
expand the range of generic drugs available to consumers.
    While there remains work to be done, as I will discuss, we 
have been able to produce significant reductions in approval 
times for generic drugs since 2002. These reductions, coupled 
with changes to reduce the time for developing generic drugs 
and making them available, will save consumers billions.
    Much concern has been raised from the public and Congress 
about a backlog of pending ANDAs currently under OGD review. 
OGD generally maintains a first in, first reviewed policy for 
ANDAs to ensure the integrity of the approval process. A number 
of factors govern the timing of generic drug approvals, 
including whether the application is of high quality, meets the 
inspection standards and the scientific and technical 
requirements for approval, and whether patent protection and 
exclusivity periods have expired on the innovator drug.
    Over the last 5 years, the number of applications submitted 
to OGD has increased by 150 percent, which is shown in detail 
on the graph to my right. The receipts are in yellow and the 
tentative approvals are in green. You can see the receipts from 
1995 through 2001 remained at around 300. They were very, very 
static at that point. In the year 2002, they increased to 364, 
and continued to increase in 2003 to 449; in 2004, 563, and 
then in 2005, 766 applications. This year, since we are three-
quarters of the way through the year, I can report that we 
expect to receive almost 800 applications for generic drug 
applications by the end of September.
    Just last month, we approved 45 applications, but received 
92. Clearly, this rate of increase in applications resulted in 
a dramatic increase in the workload. It is important to stress 
that the ANDAs in the backlog are not all unreviewed, but may 
be applications that have had an initial review and are now 
waiting a second or subsequent review of the company's attempts 
to satisfy our approval requirements.
    Although OGD still has a backlog, the graph demonstrates 
that we have managed to increase the number of approvals each 
year, and in 2001 OGD approved or tentatively approved 310 
ANDAs, and this number increased to 467 in fiscal year 2005. 
OGD's efforts are also evident when looking at the median 
approval time. The median approval times have decreased from 
the 18.4 figure in fiscal year 2001 to 16.3 months in fiscal 
year 2005. Some of these applications were approved in less 
than a year.
    FDA has taken significant steps to improve our resources. 
With additional resources each year, FDA has increased its 
generic drug FTE positions from 134 in fiscal year 2001 to 201 
in fiscal year 2006. In addition, OGD has taken actions to 
streamline the ANDA review process, which includes addition of 
a third chemistry review division and a fifth review team in 
OGD's division of bioequivalence. Also, a number of new review 
practices have been implemented to improve interactions with 
the generic drug companies. Other new efficiencies to the 
application review process are described in detail in my 
written statement.
    Because of these efforts, on the very day that the last 
patents or exclusivities expire on an innovator product, OGD 
has been able to approve at least one generic application in 
most cases. Recently, FDA approved applications for generic 
versions of the popular brand names Pravachol, Zoloft and Zocor 
on the day the innovator protections expired. Just yesterday, 
OGD approved 13 applications for Meloxicam, the generic 
equivalent for Mobic, a popular analgesic used for 
osteoarthritis. These applications were approved in just over 9 
months from the date they were submitted. The approvals of 
these four products should produce savings measured in the 
billions of dollars per year. We will work to continue our 
success in staying ahead of the curve on first-time generics 
and responding to all pending applications.
    An issue of particular focus in OGD is streamlining the 
citizen petition review process. Citizen petitions may be 
submitted at any time, requesting FDA to impose new criteria 
for approval of ANDAs. These petitions often make serious 
challenges to whether or not a generic product can be approved; 
that is, whether a specific application or group of 
applications would meet the statutory requirements for 
approval.
    FDA must consider and address the merits of the challenges 
to generic drug approvals. It is not required that FDA respond 
to citizen petitions before approval of a related ANDA, and it 
is very rare that petitions present new issues that CDER has 
not fully considered. But the agency must nevertheless assure 
itself of the fact by carefully reviewing these citizen 
petitions.
    A high percentage of the petitions to OGD are denied. While 
the citizen petition process is a valuable mechanism for the 
agency to receive information from the public, it is noteworthy 
that very few of these petitions on generic drug matters have 
presented data or analyses that significantly altered FDA's 
policies. CDER's recent efforts to improve the process for 
responding to citizen petitions are described in detail in my 
written statement.
    An issue garnering discussion among many stakeholders is 
that of authorized generics. The term ``authorized generic'' is 
generally used to describe an instance when an innovator 
company, in the face of pending generic competition, repackages 
its own product and markets it as a generic. Generic drug 
companies, through citizen petitions and lawsuits, have sought 
FDA's intervention to halt the marketing of authorized 
generics, especially during the 180-day exclusivity period. FDA 
determined, and the courts have upheld, that the Federal Food, 
Drug and Cosmetic Act does not give FDA authority to intervene 
in this matter.
    Thank you for the opportunity to highlight some of the 
areas that OGD is working diligently to address. FDA 
appreciates the Committee's interest and concern about 
expediting the approval of generic drug products and the 
opportunity to discuss these important issues. In spite of an 
increasing workload, be assured that there is a sense of 
purpose and knowledge among my staff and the administration 
that we are working to fulfill an important public health 
mission.
    FDA will continue to work toward greater efficiency in ANDA 
review and attempt to deal with the issues discussed today and 
the many emerging challenges ahead. We are committed to 
continue to make additional generic products available to the 
American public as soon as legally possible.
    I would be pleased to respond to your questions.
    [The prepared statement of Mr. Buehler follows:]

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    Senator Kohl. Thank you very much, Mr. Buehler, and now we 
will turn to Mr. Leibowitz.

    STATEMENT OF JON LEIBOWITZ, COMMISSIONER, FEDERAL TRADE 
                   COMMISSION, WASHINGTON, DC

    Mr. Leibowitz. Chairman Smith, Co-Chairman Kohl, protecting 
competition, as you know, in the pharmaceutical sector is a 
mainstay of our work at the FTC, and your hearing is both 
timely and important. Let me start, though, with the usual 
disclaimer. The written statement that we submitted today 
represents the views of the Commission. My oral testimony today 
reflects my own views and not necessarily the views of any 
other Commissioner or the Commission itself.
    Mr. Chairman, the savings that generic drugs offer are 
particularly important for older Americans. Research indicates 
that 87 percent of persons aged 65 or older take at least one 
prescription drug on a regular basis. On average, seniors take 
four different prescription drugs daily. Persons over 65--and 
they only compose about 13 percent of the population--account 
for 42 percent of every dollar spent on prescription drugs.
    There is a particular urgency to pharmaceutical competition 
issues right now. Recent decisions by some appellate courts are 
making it difficult to challenge agreements that delay generic 
competition. If these decisions are allowed to stand, 
prescription drug costs, already the fastest growing segment of 
our Nation's spending on health care, will rise even more 
dramatically.
    These increased costs will burden not only individual 
consumers, especially older Americans, but also the Federal 
Government's new Medicare Part D drug program, which you 
mentioned, Senator Kohl, in your opening statement, and 
American businesses striving to compete in a global economy, 
for example, like General Motors, and I know you had their CEO 
testify here last week.
    In my oral remarks this morning, I will focus primarily on 
what are called exclusion payments. By this I mean settlements 
of patent litigation in which the brand name drug firm pays a 
generic challenger to stay out of the market. Then I will 
briefly touch on two other issues: bottlenecks that keep 
subsequent generic filers off the market and so-called 
authorized generics.
    Now, when Congress enacted the Hatch-Waxman statute in 
1984, it encouraged speedy introduction of generics. That 
statutory framework, while ensuring that our pioneer drug firms 
remain the envy of the world--and they are--has also delivered 
enormous consumer savings. Indeed, as a general matter, when 
the first generic enters the market, it does so at a 20- to 30-
percent discount off the brand prices, and prices drop even 
further, by as much as 80 percent, after other generic 
competitors go to market, and that is usually 6 months after 
the first generic entrant.
    The consumer and government savings that result from 
generic entry will be lost, however, if companies settle 
through arrangements in which they share the monopoly profits 
that are preserved by delay. Sadly, the incentives to enter 
into these pernicious settlements are substantial because 
generic entry causes the branded drug firm to lose far more in 
revenues than the lower-priced generic can possibly earn. As a 
result, if both companies agree to delay entry, both firms are 
better off financially. Of course, it is consumers who are left 
holding the bag, or more precisely footing the bill.
    For the past decade, the FTC has made challenging patent 
settlements that delay generic entry a bipartisan priority. In 
the late 1990's, when we started seeing these disturbing 
settlement payments, we acted to stop them. The Commission 
obtained two major consents involving anti-competitive payments 
and we put pharmaceutical companies on notice that we would 
consider all available remedies, including disgorgement of 
profits, against similar conduct in the future.
    As a result, our action stopped this conduct cold. It set 
forth rules that everyone in the pharmaceutical industry 
understood. If you settled a pharmaceutical patent case by 
paying off a generic, you would face antitrust scrutiny. As a 
result, to the best of our knowledge there were no such 
settlements between 2000 and 2004.
    The Commission did rule in 2003 that in an earlier 
settlement in, I think, 1998, a payment from Schering-Plough, 
the brand, to Upsher-Smith, the generic, violated the antitrust 
laws. That case, by the way, involved a potassium supplement 
that was widely used and still is widely used by older 
Americans. The Eleventh Circuit reversed us in 2005, and the 
Second Circuit, in a two-to-one decision in the In re Tamoxifen 
case, issued a similar opinion late last year.
    These decisions, which essentially hold that a patent-
holder has a right to compensate a generic except where the 
brand's infringement suit is a sham, have dramatically altered 
the legal landscape, and we believe it has done so to the 
detriment of consumers.
    Mr. Chairmen, this is not idle speculation. Thanks to the 
reporting requirement that Congress included in the 2003 
Medicare Modernization Act--and you passed this law presumably 
because you were also troubled by these agreements--the FTC 
reviews each and every Hatch-Waxman settlement. Tellingly, here 
is what the data for the last few years tell us and what it 
reveals.
    For fiscal year 2004 and the early part of 2005, none of 
the nearly 20 agreements reported contained a payment from the 
brand to the generic accompanied by a deferred generic entry. 
In other words, parties could and did settle patent litigation 
without money flowing to the generic.
    In sharp contrast, the most recent data for the first half 
of fiscal year 2006--and that reflects agreements after the 
Schering and the Tamoxifen cases--is far more disturbing. Seven 
of the ten agreements between brands and generics during this 
period included a payment from a brand and an agreement to 
defer generic entry. In other words, just before Schering and 
Tamoxifen, there were almost no such payments. Just after these 
decisions, it appears to be the new way of doing business.
    From our perspective, we will continue to be vigilant in 
looking for ways to challenge anti-competitive settlements, and 
I certainly hope the Supreme Court will eventually weigh in on 
this problem. A legislative approach, however, could provide 
swifter and a more comprehensive solution. For that reason, we 
strongly support the intent behind the Preserve Access to 
Affordable Generics Act, the bipartisan bill that you 
introduced, Senator Kohl, with Senator Grassley, Senator Leahy 
and Senator Schumer. But drafting such a measure is 
challenging, so we are happy to work with you as the bill moves 
forward.
    Let me very briefly raise two other issues. The first is 
yet another strategy that thwarts consumer access to generic 
drugs and which we believe undermines congressional intent, and 
we discuss this bottleneck issue in detail in our written 
submission. It involves legal complexities unique to Hatch-
Waxman.
    But boiled down into plain English, it is this: subsequent 
generics are supposed to have an alternative way to enter the 
market when the first generic delays its own entry. Instead, 
because of recent case law, they are stuck in a sort of 
pharmaceutical catch-22. The courts won't let them bring a 
patent challenge and the FDA won't let them market without 
winning one. It is a sort of drug purgatory and we believe one 
that results in considerable delays for consumers. We made a 
legislative recommendation to solve this problem in 2002 before 
I came to the Commission and it is in our written statement. We 
are happy to work with you on that.
    The second matter is authorized generics, a product, as you 
know, that involves a chemically identical drug to the brand 
drug and the brand firm when the brand firm introduces its own 
generic. In recent years, brand firms have increasingly begun 
to market authorized generic drugs at precisely the same time 
that the first generic entrant begins its 180-day exclusivity 
period. In the short run, the entry of an authorized generic 
may benefit consumers by creating additional competition that 
lowers prices.
    But critics assert that in the long term, consumers will be 
harmed because of the competition from authorized generics, and 
the significantly lower profits for the generic industry that 
result will basically decrease the incentives of generic firms 
to pursue entry especially for non-blockbuster drugs. At the 
Commission, we are now undertaking a study to examine the 
competitive impact of authorized generics.
    Mr. Chairman, at a time when this Nation faces the 
challenge of ever-mounting health care costs, ensuring that 
seniors and other consumers have access to low-cost 
pharmaceuticals is a matter of critical concern. The FTC is 
committed to doing whatever we can to promote drug competition 
and we stand ready to assist your Committee.
    Thank you.
    [The prepared statement of Mr. Leibowitz follows:]
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    Senator Kohl. Thank you, Commissioner Leibowitz. 
Commissioner Leibowitz, after the FTC lost the Schering case, 
as you pointed out, I introduced legislation to prevent brand 
name drug companies from paying off generics to stay off the 
market. I understand that the FTC has not taken a formal 
position on our bill as of yet.
    Can you tell us why the FTC has not endorsed this 
legislation?
    Mr. Leibowitz. Well, we strongly support the intent of your 
legislation, but the FTC is the epitome of a consensus-driven 
agency. We haven't reviewed the legislation in detail. By the 
way, I believe it will go to Senator Smith's subcommittee, 
which is the FTC subcommittee on the Commerce Committee. But we 
are very supportive of what you are trying to do and we are 
very supportive of a legislative solution.
    Senator Kohl. Is the FTC pursuing other cases to challenge 
different payoffs in an effort to get a better result in court? 
Is the FTC holding public hearings on this issue?
    Mr. Leibowitz. We are looking to find cases so that we can 
create, for example, a split in the circuits that would 
militate toward the Supreme Court taking a case. I can't 
discuss any of our individual investigations publicly, but we 
are looking to find a case. As for a public hearing, we have 
not initiated one. I would be glad to take that back to the 
Commission and talk to them about it.
    Senator Kohl. You referred to authorized generics. As you 
pointed out, the FTC is currently studying the effects of 
authorized generics. The question is does the FTC have the 
authority to address this anti-competitive practice, or do you 
believe that we also need to find a legislative fix for this 
issue. What is your opinion on that, Commissioner Leibowitz?
    Mr. Leibowitz. Well, I don't know that authorized generics 
rises to the level of an antitrust violation, which is really 
what is within our purview at the FTC. We certainly think that 
it is an important public policy issue and we are committed to 
doing a very thorough study and looking at both the potential 
short-term benefits and the potential long-term problems that 
it may cause.
    Senator Kohl. Mr. Buehler, over the last 5 years, as you 
have been discussing this morning, the number of generic drug 
applications have increased 150 percent, while your budget to 
work with this increase has not increased nearly to that 
percentage. Of the close to 800 applications that you have 
already received this year, as you pointed out, you have only 
approved a little more than half. So what is your plan to 
eliminate this backlog? How long do you expect it to take 
before we can eliminate this backlog?
    Mr. Buehler. To be able to eliminate the backlog, we would 
have to increase the monthly average of approvals from our 
present 40 applications to somewhere between 65 and 70. To be 
able to do that, we have submitted a plan that we believe, with 
additional resources, FTEs, of about 70 to 100 over 3 years--
this would entail $16 to $19 million annually. We would be able 
to create new review teams, continue to enhance the efficiency 
of our review process, and be able to first attain parity with 
the number of applications that we are receiving, and we are 
about a minus 300 right now. Once we attain parity, we will be 
able to address the backlog, and hopefully within 3 to 4 years 
be able to begin to whittle down this number.
    Senator Kohl. With respect to the amount of time that it 
takes to review these petitions, since the start of your 
process over a year-and-a-half ago, what is the average time 
right now?
    Mr. Buehler. For the petitions, sir?
    Senator Kohl. Yes.
    Mr. Buehler. Citizen petitions usually take about 6 months 
to review. We have a statutory 6-month timeframe to review 
citizen petitions. They are taking about that time, although we 
do get scientifically challenging ones that can run quite a bit 
longer than that.
    Senator Kohl. Senator Smith.
    The Chairman. Gary, is the backlog, in your view, then just 
a manpower issue?
    Mr. Buehler. For the most part, yes. These applications are 
all types, and we have done a number of analyses on the types 
of applications in our backlog and we have analyzed them by 
patent certification and we have found that there are about an 
equal number of paragraph I and paragraph II certification 
applications, which are applications that either have no 
patents or the patents have expired. These tend to be older 
drugs and drugs that probably already have generic competition.
    The Chairman. So there is nothing in your processes that 
you think could be streamlined without compromising safety?
    Mr. Buehler. We have looked at our process very carefully 
and I have said to my division directors that we have got to 
identify things that we do that we don't have to do that don't 
impact the safety and efficacy of the products. But at the same 
time, we have to be very aware of what we do do that does 
impact safety and efficacy.
    My mandate, my mission in life is to make sure that every 
generic drug that goes out on the market is safe, effective and 
bioequivalent and the American public can take these products 
with confidence. So we can reduce our process and the fat in 
our process, but only to a certain point. These are all full-
standing applications with full data packages that have to be 
reviewed.
    The Chairman. I don't in any way want you to take from my 
question that we want to compromise safety or efficacy of these 
drugs. We are counting on you for that, but obviously if there 
is something that can be streamlined systemically, great, do 
it, but don't compromise those two things.
    As to the manpower issue, have you sought the authorization 
from the appropriate committee and are you getting the 
appropriations to add the staff?
    Mr. Buehler. We have provided our plan to Senator Kohl. He 
had requested a plan from us a few months ago and we have 
provided it to Senator Kohl.
    Mr. Leibowitz. If I could just add one thing, Chairman 
Smith.
    The Chairman. Yes.
    Mr. Leibowitz. We work very closely with the FDA and in 
response to a request from them several years ago, we did raise 
the potential for abuse of citizen petitions. Very often, they 
are filed at the eleventh hour. As Mr. Buehler's testimony 
points out, they usually raise redundant issues that have been 
resolved by the FDA. I was really heartened to see that in his 
testimony it looks like FDA is looking at ways to sort of tweak 
their rule so that maybe you would have to raise a citizens' 
petition earlier. That might solve part of the problem.
    The Chairman. OK, so you are not barring the citizen, but 
you are just saying it can't be unduly dilatory in this 
process.
    Mr. Leibowitz. Yes, that is right.
    The Chairman. Well, I hope you will succeed. You have got 
the ear of the right person in the Appropriations Committee. I 
guess it is the Health, Education and Welfare Committee that 
gives you the authorization for more, and if I can help, let me 
know.
    Mr. Buehler. Thank you, Mr. Chairman.
    The Chairman. I assume that with patents expiring, this 
issue is going to grow. It is not going to go down, and I think 
that is what your chart is saying.
    Mr. Buehler. It doesn't look like our submissions are 
declining, no.
    The Chairman. Jon, I am troubled by the holding. I am not 
an antitrust lawyer, but I do know something about antitrust 
law and I can't imagine a lower court finding that this was not 
uncompetitive action. What was their rationale and what was 
their holding?
    Mr. Leibowitz. Well, I think rather than looking at it from 
an antitrust perspective, which is the way we look at these 
cases--and I think the way Senator Hatch, one of the drafters 
of Hatch-Waxman, does--I think they looked at it more as patent 
case, and also wanted to ensure the benefit of settlements.
    Having said that, what we found from 2000 to 2004 when we 
pretty much stopped this practice cold was that there were 
plenty of settlements; there were just no settlements with 
money. So, of course, reasonable people can disagree. The 
Eleventh Circuit disagreed with us, but we think our position 
is the right one.
    The Chairman. On what basis did they disagree? I am not 
expecting you to agree with them, but I mean what was their 
rationale?
    Mr. Leibowitz. Well, their rationale essentially was that 
settlements are very important and as long as the settlement 
didn't go beyond--in the Eleventh Circuit--as long as the 
settlement didn't go beyond the scope of the patent, then this 
was an agreement that really shouldn't be analyzed under a rule 
of reason or a per se analysis or any antitrust approach.
    The Chairman. So antitrust wasn't even considered?
    Mr. Leibowitz. I guess I would say that it was looked at, 
but it wasn't considered; at least it wasn't considered 
sufficiently.
    The Chairman. Obviously, that would fall under the Justice 
Department to bring that action, I suppose, under antitrust.
    Mr. Leibowitz. We bring antitrust cases. We share that 
jurisdiction----
    The Chairman. With them?
    Mr. Leibowitz. With the Justice Department. That is right.
    The Chairman. The Supreme Court denied certiorari?
    Mr. Leibowitz. The Supreme Court denied cert. You know, the 
Supreme Court gets a lot of applications for cert. Some people 
believed that there wasn't a sufficient split in the circuits 
to make it a case that they wanted to take or they ought to 
take. Hopefully, some other cases will come with better case 
law--if we bring further cases perhaps someday they will take 
it, perhaps someday soon.
    The Chairman. But as you saw it from the FTC, you clearly 
could demonstrate monetary impact to the marketplace.
    Mr. Leibowitz. Yes, we thought we did. We thought we did it 
compellingly. The Eleventh Circuit disagreed with us.
    The Chairman. But they didn't consider the antitrust 
implications?
    Mr. Leibowitz. From our perspective, at least, not 
sufficiently.
    The Chairman. That is amazing to me. You know, I am not an 
antitrust lawyer, but it seems like an antitrust violation, per 
se.
    Mr. Leibowitz. It certainly seemed to us like an antitrust 
violation. I wasn't on the Commission when we wrote our own 
opinion, but it was very compelling when I read it and I wasn't 
as persuaded by the Eleventh Circuit. But that is the nature of 
judicial review here.
    The only other point I want to mention is during the debate 
on the 2003 Medicare Amendments where Congress gave us the 
authority and really required us to review all of these 
settlements, Senator Hatch himself, one of the coauthors of 
Hatch-Waxman, said these types of reverse payments are 
``appalling''. I think what Congress intended to do by 
requiring us to review all of these settlements was to see 
which ones were anti-competitive.
    The Chairman. So the legislation you have given to Senator 
Kohl's care provides the legal clarifications necessary under 
patent law to remedy this?
    Mr. Leibowitz. It basically would prohibit under the FTC 
Act these types of agreements where there was compensation, 
cash compensation particularly, given to the generic from the 
brand for the generic to stay out of the market. We don't think 
that was the intent of Hatch-Waxman. We don't think the 
Eleventh Circuit got it right. Reasonable people can disagree, 
but that is our hope.
    The Chairman. Well, we will surely take it up in the 
Commerce Committee post haste.
    Mr. Leibowitz. Thank you so much. We appreciate that.
    The Chairman. To your reference on the catch-22 issue, talk 
to me about the legal clarifications there that you need.
    Mr. Leibowitz. Well, under Hatch-Waxman, as I understand 
it, usually the first filer gets 180 days of exclusivity. That 
is the approach that Congress took when it designed Hatch-
Waxman. But if the first filer for some reason--sometimes it 
might be because of a payment, sometimes because their 
challenge is weak--agrees to not enter for several years, there 
is supposed to be a way for subsequent patent challengers to 
trigger the 180 days by winning a declaratory judgment.
    Because of decisions in the D.C. Circuit and the Federal 
Circuit, they haven't been able to do that. So we have a 
proposal, again written by the staff in 2002, that is in my 
testimony that would solve that problem, and we believe do it 
in a constitutional way. There are different ways you can do 
it.
    The Chairman. Where is that legislation now?
    Mr. Leibowitz. That legislation is in my testimony, but has 
not been introduced.
    The Chairman. So we need it introduced.
    Mr. Leibowitz. Certainly, if you decide that introducing 
that legislation is a good idea, we would be supportive of it.
    The Chairman. Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Chairman Smith.
    We are joined today by our colleague, Senator Clinton, from 
New York. We will turn to you for your thoughts, comments and 
questions.
    Senator Clinton. Thank you very much, and once again thanks 
to Senator Smith and Senator Kohl for doing these very 
informative hearings. I would ask unanimous consent to submit 
my statement to the record.
    The Chairman. Without objection.
    [The prepared statement of Senator Clinton follows:]

          Prepared Statement of Senator Hillary Rodham Clinton

    Prescription drugs are vital to preventing and treating 
illness and helping to avoid more costly medical problems. 
Spending in the U.S. for prescription drugs was almost $189 
billion in 2004, over 4 and half times the amount spent in 
1990. And although prescription drug spending has been a 
relatively small proportion of national health care spending 
compared to hospital or physician services, it is one of the 
fastest growing components, increasing over the past decade at 
double-digit rates compared to single-digit increases for 
hospital or physician services.
    As the population ages and our healthcare system faces 
increasing pressures, finding real and legitimate cost savings 
must be a top priority. And prescription drugs are clearly a 
place we should be looking. The 2003 Medicare prescription drug 
law explicitly prohibited the government from using the 
collective purchasing power of more than 40 million seniors to 
negotiate lower drug prices, in stark contrast to the authority 
to reduce prescription drug costs that other federal agencies 
and programs have including the VA and DoD. In addition, many 
of my colleagues and I continue to call for passage of 
legislation to allow for the safe reimportation of prescription 
drugs. But I think the real potential--and I thank and commend 
the Chair and Ranking Member for having the foresight to hold 
this hearing--is in generic drugs.
    According to a 1998 CBO analysis, generics save consumers 
between $8 and $10 billion each year. And generic drugs are now 
used to fill more than half--approximately 55 percent--of all 
prescriptions each year, but account for only about 13 percent 
of spending on prescription drugs.
    It is estimated that every 1 percent increase in generic 
utilization results in a 1-2 percent total cost savings. But 
since generic substitution rates are in the range of 90 
percent, the greatest potential for cost savings rests with 
bringing new generics to the market. And the recent study that 
PCMA did, and that they talk about in their testimony today, 
really highlights the future potential of cost savings as brand 
drugs come off patent and generics are able to enter the 
market. The PCMA analysis found the potential for $49 billion 
in savings across the healthcare system from 14 drugs that are 
going off patent in the next five years. Medicare's share of 
that total is approximately $23 billion.
    One important component that I am particularly interested 
in for ensuring that generic drugs are able to come to market 
is the establishment of a clear pathway for generic biologics. 
Since the passage of Hatch-Waxman in 1984, scientific advances 
have made the biotechnology industry an integral part of the 
pharmaceutical industry and we must update this law to reflect 
the critical role biologics now play in treatment.
    And biologics are a major driver of increasing prescription 
drug costs. Six biotech pharmaceuticals--Procrit, Epogen, 
Neuposen, Intron-A, Humulin and Rituxan generated sales of more 
than $1 billion in 2003 and the top three biotech 
pharmaceuticals: Neupogen, Epogen and Intron A cost patients 
$23,098, $10,348 and $5,850 respectively, each year. As 
evidenced by these examples, generic competition for 
biopharmaceuticals has the potential to offer consumers 
dramatic and substantial savings.
    As the number of biologics grows, and the lifecycle of 
these products matures, the patents on these products expire. 
In 2004 there were more than a dozen biopharmaceuticals for 
which U.S. patents have expired, or will expire by 2006. 
Providing a clear pathway for bringing generic biologics to 
market provides a significant opportunity to save healthcare 
dollars and I look forward to exploring this in more detail 
this morning and as we move forward.
    Thank you, Mr. Chairman.

    Senator Clinton. Mr. Buehler, I recognize that the FDA has 
been very public about its belief that it does not have the 
legislative authority to develop a pathway that would allow the 
vast majority of generic biologics to enter the market. 
However, the FDA began working on drug-specific guidance 
documents 7 years ago during the Clinton administration to 
provide information to companies about two biologics--insulin 
and growth hormone--drugs that you have asserted authority 
over.
    While these guidance documents are not an explicit pathway, 
they would certainly facilitate bringing a biogeneric for each 
of these drugs to the market. But just last month, after 7 
years, the FDA announced that it is reversing course and will 
instead begin all over again and develop industry-wide guidance 
on this issue.
    Now, I am particularly concerned about this because since 
the passage of Hatch-Waxman in 1984, a lot of scientific 
advances have been made and the biotechnology industry is now 
an integral part of our pharmaceutical industry. I think we 
have to update the law to reflect the critical role that 
biologics are now playing in treatment of disease. Biologics 
are a major driver of increasing prescription drug costs. Six 
biotech pharmaceuticals are generating more than $1 billion in 
sales and the top three biotech pharmaceuticals--Neupogen, 
Epogen and Intron-A--cost patients $23,000, $10,000 and $5,000, 
respectively, each year.
    So as the number of biologics grows and the life cycle of 
these products mature, the patents on these products expire. In 
2004, there were more than a dozen pharmaceuticals for which 
U.S. patents have expired or will expire by the end of 2006. So 
providing a clear pathway for bringing generic biologics to 
market provides a significant opportunity to save health care 
dollars.
    So now even where the FDA has accepted authority to 
facilitate bringing a generic to the market and where you have 
spent 7 years, you have missed the opportunity to save millions 
of dollars for consumers and taxpayers. In fact, just for 
insulin and growth hormone alone, the Medicaid program spent 
$752 million last year. If a biogeneric had been on the market 
in 2005, the Medicaid program could have saved over $100 
million on these two drugs alone. Of course, the savings in 
Medicare and the health care system overall would be even 
greater.
    So with that preface, Mr. Buehler, why after 7 years did 
the FDA decide to change course, No. 1? No. 2, what happened to 
the insulin and growth hormone specific documents you were 
working on?
    Mr. Buehler. Well, first, let me preface, Senator Clinton, 
that through the extensive discussions we have been having at 
the agency over generic biologics, the initial feeling is that 
my office would not be involved in the review and approval of 
these products because of the complexity of the molecules and 
the feeling that there would be the need for some additional 
clinical work that would accompany the application that could 
not be submitted in an ANDA and could not be reviewed in the 
Office of Generic Drugs.
    So the direction that the discussions are going are that 
these particular applications would be what we call 505(b)(2) 
applications, which are a hybrid application that is reviewed 
in the Office of New Drugs and gives the applicant the 
capability to do a number of various studies that are requested 
by FDA.
    These are complex molecules. There is a lot of concern at 
the agency that when biogenerics are available, they are 
clearly--as the concern is for small molecules, they are 
clearly bioequivalent products that can be used interchangeably 
in the marketplace. So we are taking our time in making sure 
that the requirements for these products are clearly delineated 
and scientifically based.
    The reason I believe--and again I am not privy to a lot of 
these discussions because my office is not going to be involved 
in the review and approval of these products, but I believe the 
thought was that we wanted to put out a global document that 
would cover the class of biogenerics or follow-on protein 
products from the very simplest to the more complex, and that 
we can provide a road map for the industry that would outline 
the requirements for FDA approval.
    Senator Clinton. Well, Mr. Buehler, just so I understand, 
was your office involved in the 7 years of study with respect 
to insulin and growth hormone?
    Mr. Buehler. We were involved in the discussions, and 
clearly our scientists were involved in the discussions with 
the scientists from the Office of New Drugs. But at a certain 
point, the Office of New Drugs and the clinicians in the Office 
of New Drugs felt that these particular applications should be 
put in as a (b)(2) application so that it would allow us to 
request more information, if needed, for these particular 
products.
    Senator Clinton. So is it your understanding that the 
Office of New Drugs will handle both the original biologics and 
the generic version of the biologics?
    Mr. Buehler. At this point, I believe that is the direction 
we are going, yes.
    Senator Clinton. Now, would you or anyone else who is here 
with you from the FDA know who has possession of the guidance 
documents that were generated with respect to insulin or growth 
hormone?
    Mr. Buehler. I do not know.
    Senator Clinton. Is there anyone else from FDA who knows 
who has possession?
    Mr. Buehler. We can get back to you with that.
    Senator Clinton. I think it would be very useful because 
this is an area which is crying out for some legislative 
direction. It doesn't really have a specific pathway yet, and 
because the FDA has taken the position that it doesn't have 
authority, I think that we need to look to see how we are going 
to handle both the biologics and then, of course, the generic 
biologics. I think it would be useful to have those guidance 
documents because 7 years of effort went into those.
    So, Mr. Chairman, I might ask that we try to obtain those 
guidance documents to see if it can inform our concerns about 
the generic issue, in general, but specifically in this new 
field of biologics, because I am concerned that we don't yet 
have a framework for this and I think we need to work on that. 
So I look forward to getting more information from the FDA 
about this process and then trying to figure out what we might 
do to work with the FDA to create a better understanding of how 
this is going to be handled because I think Mr. Buehler very 
correctly said this is incredibly complicated and so we need 
some guidance.
    I understand from the reports I got that there was some 
very good questioning by the Chairman and the Ranking Member 
about whether the FDA has the resources to do what we are 
asking them to do, and I don't think it does. This new field 
which is about to explode on biologics will add even more 
burden, but there is no better place to put it if it is well-
resourced. So I think that has to be taken into account as 
well.
    Thank you.
    Senator Kohl. Thank you very much, Senator Clinton.
    We would like to thank the first panel. You have been 
really good, very informative, and at this point we will go on 
to the next panel.
    Mr. Leibowitz. Thank you.
    Mr. Buehler. Thank you.
    Senator Kohl. The first witness on our second panel is 
Heather Bresch, who is the senior vice president of Corporate 
Strategic Development at Mylan Laboratories. Mylan Laboratories 
is a leading U.S.-based generic pharmaceutical company and one 
of the world's leading providers of prescription medications. 
Ms. Bresch has 15 years of experience in the generic 
pharmaceutical industry, including multiple senior positions 
with Mylan Laboratories and the Generic Pharmaceutical 
Association. She is here to provide us with firsthand examples 
of the challenges generic pharmaceutical companies face in 
getting their medicines on the market. We welcome you.
    The second witness will be Mark Merritt. Mr. Merritt serves 
as president of the Pharmaceutical Care Management Association, 
the national association representing America's pharmacy 
benefit managers which administers prescription drug plans for 
more than 200 million Americans. Mr. Merritt will demonstrate 
the cost savings associated with increased utilization of 
generic drugs, as well as recent analysis showing the potential 
savings seniors and Medicare could realize over the next 5 
years.
    We thank you both for coming, and so we will start with 
you, Ms. Bresch.

STATEMENT OF HEATHER BRESCH, SENIOR VICE PRESIDENT OF CORPORATE 
 STRATEGIC DEVELOPMENT, OFFICE OF THE CHIEF EXECUTIVE OFFICER, 
            MYLAN LABORATORIES, INC., CANONSBURG, PA

    Ms. Bresch. Thank you, Chairman Smith and Co-Chairman Kohl 
and members of the Committee on Aging. I am Heather Bresch, 
with Mylan Laboratories, one of the world's leading providers 
of prescription drugs.
    Fifty-five percent of all drugs dispensed today in the 
United States are filled by generic drugs. However, this 55-
percent generic utilization only consumes 15 percent of 
America's drug spend. The average cost of a brand drug is about 
$95, while the average cost of a generic drug is less than $30.
    My written testimony today addresses a number of issues. 
However, I wanted to devote my limited time with you today to 
talk about two of the more debilitating obstacles facing our 
industry: the misuse of authorized generics and the abuse of 
citizen petitions by brand companies.
    To save consumers billions of dollars, the Hatch-Waxman Act 
of 1984 created a balance encouraging innovation and promoting 
access to affordable medicines. The only incentive provided to 
generic companies to challenge questionable brand patents was 
the 180-day exclusivity period.
    Members of this Committee, the release of authorized 
generics during this exclusivity period is the single greatest 
threat to the viability of the generic industry going forward. 
Supporters of authorized generics claim that consumers benefit 
from this practice through lower prices, as cited by a recent 
study by PhRMA. A soon to be released independent study proves 
that nothing could be further from the truth.
    PhRMA's study looked at wholesale prices, not retail- level 
prices. The independent study replicates PhRMA's products and 
calculations, but uses the retail price. It is also important 
to note that this study shows that 90 percent of our population 
is insured by a third-party payer or the government. So while 
they realize savings with a generic product coming to market 
because it establishes a generic co-pay, the presence of an 
authorized generic provides no additional savings to this 
group.
    The remaining 10 percent of our population who pays cash 
saw virtually no additional savings from the presence of an 
authorized generic during the 180 days. Brand companies would 
never lower their price or launch an authorized generic without 
the presence of a true generic coming to the market.
    For brand companies, authorized generics are a long-term 
strategy designed to debilitate our industry because they 
understand this revenue very importantly generates and enables 
us to further challenge questionable patents in their pipeline. 
There is no short-term benefit and there is long-term detriment 
to the generic industry because of this practice.
    In fact, to use the exact words of J.P. Garner, CEO of 
Glaxo, quote, ``The idea was somebody has a 6-month 
exclusivity, but we are king-maker. We can make a generic 
company compete during a very profitable time. We are not a 
generic company and we do not wish to become one. If we 
acquired the most successful generic company in the world, it 
would barely move our needle on profit.'' Authorized generics 
are on the marketplace solely to cripple the industry. Eli 
Lilly CEO Sidney Laurel said back in December 2003, ``For this 
to really work, you would have to have the whole industry do 
this systematically each time a patent expires so that you 
would truly eliminate the incentive and the calculation that 
generic companies would make.'' Well, to my knowledge, since 
December of 2003, each and every generic launch has been met in 
the marketplace with an authorized generic.
    Brand companies also leverage authorized generics during 
settlement negotiations. We are aware, Senator Kohl, of your 
bill which seeks to prohibit any and all consideration but 
early entry of brand generic patent settlements. But we think 
this approach goes too far. The truth be told, unless and until 
the authorized generic problem is resolved, the patent 
settlement issue cannot rationally be discussed. Even if the 
generic company has invalidated a patent or believes that it 
will, the fact that a brand company can release an authorized 
generic during the 180-day period dramatically reduces the 
generic returns and leaves the generic with little choice and 
no bargaining power.
    During the time period that Commissioner Leibowitz 
discussed that they reviewed patent settlements, the phenomenon 
of authorized generics has escalated dramatically. So we do not 
think it is coincidental the types of patent settlements that 
you are reviewing and their coordination with the practice of 
authorized generics.
    The second tactic I want to discuss is the abuse of the 
citizen petition process to improperly delay competition. 
Frequently, a brand company will file a petition on the eve of 
FDA approval of a generic product to delay its approval. The 
brand strategy is that it will take months or longer for the 
FDA to answer the petition, during which time final approval of 
the generic drug will not be granted, and during which time 
brands can receive millions of dollars of day of revenue by 
delaying competition.
    A review of citizen petitions filed with the FDA over the 
last 3 years reveals a very clear picture. During the last 3 
years, brand companies have filed 45 petitions requesting the 
delay of FDA approval of a generic drug. Of these 45 petitions, 
the average time at the agency is 13 months. The FDA has ruled 
on 21, denying 20 of them, but not before causing delay 
anywhere from a few months to over a year.
    To bring this critical issue sharply into focus, consider 
Mylan's successful challenge to J and J's brand name 
incontinence drug Ditropan XL. On August 29, 2005, with a 
decision expected at any moment, J and J filed an eleventh-hour 
citizen petition requesting that the FDA rethink its standards 
for approving a generic version of this drug. On September 26, 
2005, not even a month later, a Federal district court found 
that J and J's patent was invalid and not infringed. However, 
today, 11 months later, the patent stands invalid, but 
consumers wait to enjoy the lower cost of a generic alternative 
because Mylan cannot receive final approval due to the citizen 
petition, even though we received tentative approval months and 
months ago.
    In conclusion, we believe that Congress cannot stand still 
with such threats facing our health care system and the 
viability of the generic drug industry. We applaud this 
Committee for conducting these hearings and urge Congress to 
take action now in two specific areas. We urge you to support 
legislation introduced yesterday by Senator Rockefeller and 
cosponsored by Senator Schumer and Senator Leahy.
    Let me be clear about a very important point. The generic 
industry is not opposed to honest competition. Following the 
180 days of exclusivity, we recognize the right of any company 
with an FDA-approved product, including the brand itself, to 
compete in the generic marketplace. But competition timed to 
hurt the long-term viability of our industry will lead to an 
escalation of the health care crisis, not its resolution.
    Second, in 1999 the FDA proposed a rule that would have 
separated the review of citizen petitions from the approval of 
the generic product, and the FTC weighed in on the rule and 
even enhanced it. With little explanation, the FDA withdrew 
this proposed rule in 2003. We urge Congress to call on the FDA 
to reissue its proposed rule of 1999. If the FDA fails to take 
such action, we urge Congress to act immediately to support the 
bipartisan bill, Stabenow-Lott, which implements effectively 
the same rule.
    I want to thank the Committee again for its time and 
interest in making sure seniors and all Americans have access 
to affordable, safe generic pharmaceuticals. I am happy to 
answer any questions you may have.
    [The prepared statement of Ms. Bresch follows:]
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    Senator Kohl. We thank you very much.
    Mr. Merritt.

   STATEMENT OF MARK MERRITT, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, 
                         WASHINGTON, DC

    Mr. Merritt. Thank you, Senator Kohl, Senator Smith, 
Senator Clinton, other members of the Committee. I am Mark 
Merritt, president of PCMA, the Pharmaceutical Care Management 
Association, which represents pharmacy benefit managers, or 
PBMs. PBMs administer drug benefits for more than 200 million 
Americans with coverage provided through private and public 
purchasers. We appreciate the invitation to be here today.
    PBMs work on behalf of employers, unions, government 
agencies and others to help offer their people drug benefits 
that are as generous and affordable as possible. We don't set 
the price, prescribe or produce these drugs. Our job is to use 
our enormous purchasing power on behalf of our thousands of 
clients to generate competitive pricing from drug manufacturers 
and drugstores so that payers and consumers get the best deal 
possible. As a result of these efforts, PBMs typically reduce 
costs for purchasers and consumers by an average of 25 percent.
    Regarding generics, PBMs do as much or more than anyone in 
America to increase generic utilization where appropriate, and 
we do this in a number of ways. First, we design formularies 
that offer consumers significant incentives to choose generic 
drugs when appropriate. We offer lower co-pays, step therapy 
programs and options like mail service pharmacy which tend to 
have a higher generic substitution rate than those achieved by 
retail pharmacies.
    Second, we educate consumers, physicians and pharmacists 
about the availability of generics themselves. It is not always 
apparent to them, and we do as much as we can through calls and 
letters, and so forth, to make sure everybody knows of the 
affordable alternatives available to them.
    Third, we have played a major leadership role in the e-
prescribing front, which empowers physicians and patients to 
better understand their options and to make more affordable 
choices while they are still in the doctor's office.
    PBMs routinely get generic substitution rates above 90 
percent, and this hearing is very timely. PCMA looked at the 
impact of generics coming to market and found an unprecedented 
number of brands coming off patent in the next few years. As a 
result, we believe the potential savings across the entire 
health system will be $49 billion over 5 years, from 2006 to 
2010, if these generic market entries happen when they are 
supposed to.
    The challenge for all of us is to not only increase the 
utilization of the current generics available, but to expand 
the number of generics that come to market. PCMA offers the 
following recommendations on how to bring this about.
    First, Congress should enact S. 2300, the Lower Price Drugs 
Act, cosponsored by you, Senator Kohl. Second, the funding of 
the Office of Generic Drugs needs to be increased so that 
generic applications can be moved through faster.
    Third, PCMA believes Congress should establish a clear 
legal pathway to approve biogenerics sooner rather than later. 
Last year alone, the cost of biologics soared 17.5 percent, 
compared with traditional drugs which increased by 10 percent, 
and biologic costs are expected to represent $90 billion of 
drug spend in 2009. Obviously, there are no generic 
alternatives to make prices more competitive in this area.
    Traditional drugs are created from chemicals, whereas 
biologics are derived from living organisms and are regulated 
differently by the Federal Government. While some argue that 
the science of creating generic biologics is not fully 
developed, progress is being made on a daily basis and the 
European Union has already approved legislation that creates a 
regulatory pathway for the approval of biogenerics. For these 
reasons, PCMA recommends that Congress create a clear legal 
pathway for generic biologics which would allow for some needed 
competition to bring down prices.
    Fourth, and finally, PCMA believes Congress should adopt a 
national, uniform e-prescribing standard to make it easier for 
physicians in both the commercial market and with Medicare 
patients to adopt this revolutionary technology. E-prescribing 
empowers the physician and patient by showing them the choices 
of drugs in a plan formulary, including low-cost generic 
options and mail service pharmacy options, and again all while 
everybody is still in the doctor's office, the doctor and 
patient working together on this.
    One e-prescribing demonstration project increased generic 
utilization by more than 7 percent in 1 year alone. Similarly, 
a recent study showed that widespread adoption of e-prescribing 
could save $29 billion annually, part of this because of 
increased generic utilization.
    The key is having one simple, uniform e-prescribing 
standard for physicians to actually encourage them to use this 
technology. A doctor in Washington, DC is much more likely to 
embrace and actually use e-prescribing if they are not required 
to comply with four different standards to accommodate their 
patients in DC, Maryland, Virginia, and now the Medicare 
program.
    PCMA is pleased to have the opportunity to testify here 
today and we look forward to working with the Committee as it 
considers these issues further. I would be happy to answer any 
questions the Committee may have.
    [The prepared statement of Mr. Merritt follows:]
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    Senator Kohl. Thank you very much, Mr. Merritt.
    Ms. Bresch, in your company's experience, what is the 
biggest roadblock that you face when trying to get one of your 
drugs to market?
    Ms. Bresch. Well, I think, Senator, I highlighted in my 
testimony the authorized generics and the citizen petition 
process. Certainly, in my written testimony I talk about 
several other obstacles such as declaratory judgments, as 
Commissioner Leibowitz discussed.
    I believe that as we look at generic biologics, which is a 
vital role of the next frontier, I think, for the 
pharmaceutical industry, brands and generics alike, if we do 
not fix the obstacles we face today, I can only imagine what it 
would do to health care costs if a generic company would need 
to take on the additional cost in litigation and whatever that 
pathway may be, the costs that it would take to bring a generic 
biologic to market if we faced an authorized generic at the 
same time competing with us in the marketplace.
    So while we know that generic biologics are going to be a 
vital component, we need a pathway sooner than later. If we 
don't fix some of these issues today, we believe that it is 
only going to lead to more billions of dollars in costs for the 
government and consumers. So that is why to fix authorized 
generics, declaratory judgments--we believe that you are going 
to restore a competitive marketplace in allowing a level 
playing field to be put back in place and give the generic 
company the leverage and bargaining power it had before these 
practices were implemented.
    Senator Kohl. Mr. Merritt, do you have a comment on that?
    Mr. Merritt. Well, I just think that we need to clarify 
whatever confusion there is on how we can get generics to 
market faster. In other words, if it is a funding problem with 
OGD, then let's solve that. On the generic biologic front, I am 
not a patent lawyer and I am not a scientist, but I know from a 
public policy point of view and from the point of view of all 
the people who pay for health care in this country who hire us 
to help them get more affordable care, the fact that there is 
no generic pathway right now is a big problem. Competition is 
the key to getting these prices lower. Without it, we are not 
going to get the savings that we need.
    Senator Kohl. What do you say to the comment that these 
roadblocks for the most part, if not entirely, are just there 
to prevent generic companies from getting products to market 
that are otherwise entirely safe, and the roadblocks are put 
there--and in many cases they are legal--just to maximize 
profits for the brand name manufacturer at the expense of 
customers all across the country? Is there any useful purpose 
that these roadblocks are serving, Ms. Bresch?
    Ms. Bresch. Certainly, not in my opinion. I believe that 
the FDA is well equipped to handle the scientific issues, the 
approval process for a generic drug. I think we heard Mr. 
Buehler talk about while there may be some backlog, certainly 
they are addressing the prominent issues that we face to make 
sure they put out their safe and effective medicines when 
approved.
    I believe that as you look historically at the delay 
tactics that brand companies have used, I can't say they have 
served any purpose in our health care system. Generic drugs 
continue to save everyone billions and billions of dollars. I 
think that while they are maximizing their franchise for their 
shareholders, there is certainly nothing being done to the 
benefit of the consumer or the health care system.
    Senator Kohl. Mr. Merritt, do you agree with that?
    Mr. Merritt. Well, I would prefer not to ascribe motives as 
to why it is not happening, but it needs to happen. Every time 
we talk to somebody, we get a different answer as to why it is 
not happening and it is always a rational, complex answer. But 
I mean if we can send a man to the moon, we can get a 
regulatory pathway for generic biologics. It is going to 
happen; it has to happen. There are too many people who need 
these drugs. They are great products.
    But to not have competition, to not find a scientific way 
that is both legal and is clinically sound--that, to me, 
doesn't make sense. I am sure there is a way to do it. I don't 
have the expertise on how to do it, but I think Congress needs 
to get involved to make sure there is consensus around how to 
do it and make it happen.
    Senator Kohl. Thank you very much.
    Mr. Chairman.
    The Chairman. Heather, you indicated that it was the FDA 
that had a regulation out in 2002 and pulled it?
    Ms. Bresch. They issued guidelines in 1999 that would have 
decoupled the citizen petition process from the ANDA approval 
process. So while we certainly are all for citizen petitions 
being filed and raising any issues that an interested party or 
a citizen wants to raise, we don't believe that blocking the 
ANDA approval was in the best interest because as our data 
shows, the majority of them are eleventh hour that don't raise 
any new issues.
    So what the rule did was put in place the mechanisms to 
still have the process, not delay----
    The Chairman. You have to timely file?
    Ms. Bresch. Timely filed, and allow the process to go on as 
it should. The FTC weighed in on that rule and said they 
thought that that was a great step to ensure that there wasn't 
a delay of the generic entry.
    The Chairman. Do you have to raise new issues under the 
proposed rule?
    Ms. Bresch. No, it didn't limit the issues you could raise. 
What it did limit is the direct attack on a specific company's 
product. So, for instance, if you wanted to raise an issue on 
the process of the generic drugs or a specific test or process 
that the FDA was doing, you could raise that. You couldn't make 
it product-specific, because a lot of times these petitions try 
to bring in some specific process on a specific product that 
they have known about for months and years specifically because 
we are usually in litigation for months and years prior. So 
they are familiar with all the information. So it doesn't limit 
what you can raise. It certainly just limits the fact that you 
can't use it to specifically tie it to a generic drug approval.
    The Chairman. In your view, why was it pulled?
    Ms. Bresch. As I stated, it was with very little 
explanation in 2003 that it was pulled. So it came under the 
Clinton administration and was pulled out under the Bush 
administration. The only thing on the record was that back in 
2003, they felt that there wasn't a backlog of citizen 
petitions. But I think recent testimony from Mr. Bradshaw, FDA 
counsel, and others within the FDA has now very much admitted 
on the record that they are seeing a dramatic increase and a 
backlog in citizen petitions.
    So we have been in to HHS and the FDA asking them to please 
reissue these guidelines, especially with the FTC comments that 
they made to them. It would certainly dramatically alter the 
way citizen petitions are used.
    The Chairman. Are they going to reissue it?
    Ms. Bresch. We have no commitment that they are going to 
reissue it. So as I mentioned, Senators Stabenow and Lott have 
introduced a bill that pretty much does the exact same thing 
that the rule did in 1999. So our feeling is it certainly could 
be done administratively. They do not need legislation, as they 
once did in 1999. They did need legislation then; we don't need 
it now. But if they won't act and reissue the guidelines, 
certainly the legislation would correct the problem.
    The Chairman. It needs to be fixed. We want consumers to 
have opportunities to petition, but, you know, if it amounts to 
no more than just an abuse of process, that abuse ought to 
stop.
    Ms. Bresch. We have had many personal experiences with 
citizen petitions, but right now with Ditropan XL, it has been 
11 months. We have had tentative approval, which means our 
application meets all scientific and regulatory issues. We have 
invalidated the patent. The Federal district court found it to 
be invalid, and yet we can't receive final approval because the 
FDA hasn't signed off on the petition J and J filed.
    The Chairman. Thank you.
    Senator Kohl. Thank you very much.
    Senator Clinton.
    Senator Clinton. I want to compliment these two witnesses. 
They are extremely informative and very clear in the 
information they are providing, and I appreciate both of you 
for being here.
    Mr. Merritt, I am really interested in your comments about 
e-prescribing because I think e-prescribing has been a great 
advance. When I went down to Houston after Katrina and visited 
a lot of the evacuees, one of the big problems they had was 
dealing with chronically ill people, frail elderly people who 
had been evacuated. They were evacuated often either without 
their medicine or without adequate supply. They didn't have any 
way of getting back to their physicians. Doctors' offices and 
hospital records were destroyed. Pharmacies were flooded.
    In talking with the physicians who were attempting to make 
sense out of all of this, the only good news was that for those 
patients who had shopped at a pharmacy that used e-prescribing, 
they could get into those national systems and that was the 
only way they could reconstruct what the dosage and the 
particular prescription was for an individual. So e-
prescribing, in general, has been a great gift.
    Now, e-prescribing also increases generic utilization and 
it is another example of why we need to adopt a national 
framework for the electronic exchange of information in our 
health care system. As you know, we have been trying here in 
the Congress. I worked with Senators Frist, Enzi and Kennedy, 
and last year the Senate unanimously passed a bill to set up a 
framework for electronic medical records which, of course, 
would include e-prescribing. We are trying to get it through 
the House, so if anybody has any influence over on the other 
side, I hope that you will help us with that.
    I think that the experience with e-prescribing provides us 
with a lesson about broader health information technology 
implementation. As your testimony notes, the Medicare law that 
was enacted included a provision that called for a uniform 
standard for e-prescribing, but it was implemented only to 
apply to the Medicare population. So your example was a good 
one. You might have a pharmacy trying to figure out how to deal 
with four different standards right here in the District--
Virginia, the District, Maryland and Medicare.
    We ended up, then, with 50 State e-prescribing laws, and a 
51st, namely the Medicare standard. That is too complicated, 
that is too expensive. We are once again shooting ourselves in 
both feet. We are making everything so expensive because we 
can't get rational about what we need to be doing to minimize 
the expense and maximize quality and safety.
    It is one of my biggest concerns about the broader 
implementation of health IT. If we don't pass a national 
legislative framework, that is what is going to happen across 
the board. GW Hospital will have a different system than 
Georgetown, which will have a different system than Johns 
Hopkins. You know, once again we are going to be in the Tower 
of Babel and we are going to be spending billions of dollars 
for no purpose. It is not going to cure anybody. It is not 
going to put a doctor or a nurse at anybody's bedside. It 
drives me crazy.
    I mean, we need a set of national standards and the only 
place to get that is from the national government that creates 
the architecture, systems that can talk to each other, systems 
that can cross-cut on quality and maximize savings.
    So I would appreciate perhaps, because as you can tell, I 
am passionate about this and I don't understand why we just 
don't do it, if you could expand perhaps on your testimony any 
lessons in implementation, any of the additional barriers or 
problems that you have seen with this increasing 
differentiation in e-prescribing that is going on.
    Mr. Merritt. Sure. Well, first of all doctors, if you talk 
to them, obviously--and, of course, you have talked to 
thousands of them--they don't want one more thing to have to do 
or one new gadget to have to figure out. So the key is how do 
we get them integrated into the system, and so adoption has got 
to be as simple as possible.
    One standard that not only one doctor can look at and find 
out that it is easy for her to do, but can also talk to the 
AMA, to other physicians organizations, and so forth, to get 
easy clarity, guidance, any education that needs to happen--
that is the best pathway to getting this done. So the biggest 
problem that we have seen is just the fact that it is new, the 
fact that people have no idea of the enormous benefits that it 
will have.
    Everybody talks about the very important IOM study, and 
they are releasing more information and probably already have 
by now on medical errors that will be prevented by e-
prescribing. But there is another huge cost saver that e-
prescribing offers, in that it brings doctors into the benefits 
and cost equation. Doctors currently have no idea of what 
formulary information people have. So they will go in and say, 
``Well, you have a cholesterol problem. I have got some free 
Lipitor. Why don't you take that?'' That is their way of 
helping them address the cost issue.
    But if they knew that this person had on their formulary a 
generic with a five-dollar co-pay or perhaps waived co-pay--or 
if they had generic samples available, that would even be 
better--but if they knew that and had it on a little PDA, a 
little hand-held computer, and could show the person, hey, 
there are a couple of different options here and they are all 
basically the same, but this one is cheaper, do you want it, 
bang, it gets rid of all the noise around this issue.
    Direct to consumer advertising pushes people in all kinds 
of ways. Physician detailing by PhRMA companies pushes them all 
kinds of ways. To have that little hand-held device with that 
information cuts through all of that in a moment and will save 
literally billions of dollars.
    Senator Clinton. May I ask just one more question?
    Senator Kohl. Sure.
    Senator Clinton. I wanted to ask Ms. Bresch, who raised 
another issue of great concern to me, the pediatric exclusivity 
issue--and I think it is very important that we do provide a 
path for testing drugs to make sure that they are safe on our 
children and we know what dosage is permissible. We have made 
some progress on that with the Pediatric Research Equity Act 
and the Best Pharmaceuticals for Children Act.
    Now, the Best Pharmaceuticals for Children Act provides 
pediatric exclusivity incentives to manufacturers that conduct 
pediatric studies, and I think that that has helped to improve 
confidence in the safety of drugs for children. The FDA allows 
companies to request waivers from requirements to conduct 
pediatric studies for drugs that are not likely to be used in 
the overall pediatric population, such as drugs for ovarian 
cancer, for example.
    Now, in your testimony you noted that some companies that 
should be seeking waivers are instead conducting pediatric 
studies to receive the 6 months of exclusivity made available 
under the Best Pharmaceuticals Act, and that is another abuse 
of the system because they have no intention of making this 
drug available for the pediatric population. But they go ahead 
and claim they are and take advantage of it and get the 6 
months of additional exclusivity.
    Do you have any suggestions about what actions the FDA 
could take to ensure that drugs that are obviously not geared 
to the pediatric population do not qualify for the exclusivity 
incentives?
    Ms. Bresch. I believe that the intention of the law and 
what it was seeking to do was a great act by Congress to make 
sure, as you said, that the drugs are safe on children and we 
know dosages, and so forth. I think as with anything, there are 
some loopholes and abuses that have taken place with this 
practice.
    I think the way the law was intentionally set out, the FDA 
would have to look at data, would look at a product and be 
interested in more information in the pediatric population. 
They would then have to request a PhRMA company to do the 
studies, and that would then earn them the 6 months of 
additional exclusivity in the marketplace.
    I can tell you today as one of the largest generic 
manufacturers, every product in our pipeline, every product 
that we look at, every timing that we look at, we automatically 
add 6 months of exclusivity to every single product we look at. 
So somewhere from the intention and the spirit of the law to 
its actions today, I think something has been lost in the 
translation because it is not limited to any specific universe 
of drugs or things that need to be looked at.
    So I think one thing that we would urge is to go back and 
look at the original framework, at how the request would be 
made to PhRMA to look at these studies. Just recently, within 
the last couple of weeks, a product that is a combination of a 
product with aspirin--we all know that aspirin is not 
recommended for children in the pediatric population. Yet, 
because of what you just explained, Senator Clinton, they 
received 6 months' exclusivity to show that this product should 
not be used in children. So we completely concur that, again, 
there is an abuse of this practice that needs to be looked at 
before I think the bill is reexamined next year as it sunsets.
    Senator Clinton. Thank you.
    Senator Kohl. Thank you very much, Senator Clinton.
    In closing this hearing, I just want to make, I think, a 
fairly obvious comment. There are few areas that provide more 
opportunity for us to serve consumers all across this country 
than tackling this whole issue of prescription drugs and 
bringing them to the American people at the lowest possible 
cost.
    We are fighting legitimate legal obstacles with respect to 
the pharmaceutical companies and their desire to do well by 
their stockholders. But that is not our job here. Our job is to 
do well by the American people, and there are a lot of barriers 
out there that we have to knock down and I think we have 
touched on many of them this morning. It is an urgent issue and 
I personally feel determined, and I know my colleagues feel the 
same way, to make measurable progress in a short amount of 
time.
    Your testimony this morning adds urgency and a lot of 
illumination to the problem, so we very much appreciate your 
being here. Unless there are any more comments--Senator Smith, 
would you like to add anything?
    The Chairman. No. Well said.
    Senator Kohl. Senator Clinton.
    Senator Clinton. No, thank you.
    Senator Kohl. Thank you very much for being here.
    Ms. Bresch. Thank you.
    Mr. Merritt. Thank you very much.
    Senator Kohl. We are adjourned.
    [Whereupon, at 11:28 a.m., the Committee was adjourned.]
                            A P P E N D I X

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