[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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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
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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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