[Senate Hearing 110-4]
[From the U.S. Government Publishing Office]
S. Hrg. 110-4
PAYING OFF GENERICS TO PREVENT COMPETITION WITH BRAND NAME DRUGS:
SHOULD IT BE PROHIBITED?
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JANUARY 17, 2007
__________
Serial No. J-110-4
__________
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin, prepared statement.................................. 97
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa. 40
prepared statement........................................... 99
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 30
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 5
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 116
Schumer, Hon. Charles E., a U.S. Senator from the State of New
York........................................................... 28
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 3
WITNESSES
Downey, Bruce L., Chairman and Chief Executive Officer, Barr
Pharmaceuticals, Inc., Washington, D.C.,....................... 23
Hirsh, Merril, Partner, Ross, Dixon and Bell, LLP, Washington,
D.C............................................................ 21
Leibowitz, Jon, Commissioner, Federal Trade Commission,
Washington, D.C................................................ 6
Tauzin, Billy, President and Chief Executive Officer,
Pharmaceutical Research and Manufacturers of America (PhRMA)
Washington, D.C................................................ 18
Wroblewski, Michael, Project Director, Consumer Education and
Outreach, Consumers Union, the Non-Profit Publisher of Consumer
Reports, Washington, D.C....................................... 16
QUESTIONS AND ANSWERS
Responses of Bruce L. Downey to questions submitted by Senators
Schumer, Feinstein and Kohl.................................... 41
Responses of Merril Hirsh to questions submitted by Senators Kohl
and Feinstein.................................................. 45
Responses of Jon Leibowitz to questions submitted by Senators
Kohl, Feinstein, Leahy and Hatch............................... 71
Responses of Billy Tauzin to questions submitted by Senators
Schumer, Feinstein and Kohl.................................... 76
Responses of Michael Wroblewski to questions submitted by
Senators Kohl and Feinstein.................................... 83
SUBMISSIONS FOR THE RECORD
Downey, Bruce L., Chairman and Chief Executive Officer, Barr
Pharmaceuticals, Inc., Washington, D.C., prepared statement.... 87
Hirsh, Merril, Partner, Ross, Dixon and Bell, LLP, Washington,
D.C., prepared statement....................................... 100
Leibowitz, Jon, Commissioner, Federal Trade Commission,
Washington, D.C., prepared statement........................... 120
Tauzin, Billy, President and Chief Executive Officer,
Pharmaceutical Research and Manufacturers of America (PhRMA)
Washington, D.C., prepared statement........................... 147
Wroblewski, Michael, Project Director, Consumer Education and
Outreach, Consumers Union, the Non-Profit Publisher of Consumer
Reports, prepared statement, Washington, D.C................... 164
PAYING OFF GENERICS TO PREVENT COMPETITION WITH BRAND NAME DRUGS:
SHOULD IT BE PROHIBITED?
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WEDNESDAY, JANUARY 17, 2007
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, Pursuant to notice, at 10:02 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Kohl, Schumer, Cardin, Whitehouse,
Specter, Hatch, and Grassley.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Good morning. This hearing today is the
continuation of a longstanding, bipartisan effort by several
members of this Committee to provide consumers more choices and
lower-cost medicines. My focus is on making lower-cost generic
medicines available not only to our families but to our
seniors. The existing law is being misused by some brand-name
and generic drug companies. The fact we have scheduled this
hearing so early in this new Congress is a sign, I hope, that
people realize that this is going to be a high priority for
this Committee. It deserves to be and consumers want it to be.
We will examine the harmful effects of a type of collusion
that limits consumer choices and that keeps consumer prices
artificially high. Now, rarely do we have such a clear-cut
opportunity to remove impediments that prevent competition and
keep the marketplace from working as they should, to benefit
consumers. Basically, as you know, we have had the situation
where a drug company will actually pay a generic producer not
to put a drug on the market so that they can keep the prices
high.
Now, Congress never intended for brand-name drug companies
to be able to pay off generic companies not to produce generic
medicines. We never intended that. That would be a sham, it
would be harmful to consumers, and it would be a crime.
In fact, the history and text of the Hatch-Waxman laws make
it clear that the opposite of delay was the goal.
Now, it is no secret that prescription drug prices are
rising. They are a source of considerable concern to many
Americans, especially senior citizens and working families. In
a marketplace that is free of manipulation--free of
manipulation--generic drug prices can be as much as 80 percent
lower than the comparable brand-name version.
In June of last year, I sponsored a bill that was
introduced by Senator Kohl of Wisconsin, also sponsored by
Senators Grassley, Schumer, Feingold, and Johnson, which would
have stopped these payoffs to delay access to generic
medicines. Working with Senators Kohl and Grassley and with
many others, we will try to enact a new version.
You know, it is unfortunate we even have to do this. As I
said in June, there are still some companies driven by greed
that may be keeping low-cost, life-saving generic drugs off the
marketplace, off pharmacy shelves, and out of the hands of
consumers by carefully crafted anticompetitive agreements.
Since some of these deals used to be done in secret, behind
closed doors, I am glad that because of a bill that was
reported out of this Committee, Congress is now aware of this
problem. In 2001, I worked with Chairman Hatch and later with
Senator Grassley to make sure that our law enforcement
agencies--the Federal Trade Commission and the Department of
Justice--at least were made aware of the secret, sometimes
potentially criminal deals.
The New York Times and others published major investigative
stories on how the manufacturer of a hypertension drug used to
help prevent strokes and heart attacks--Cardizem CD--had made
deals to pay a potential generic competitors $10 million every
3 months to stop it from developing a generic version of
Cardizem. Of course they did. They were making a fortune, and
they did not want those people who needed that drug to be able
to buy a lower-cost generic. This led to my introduction of S.
754, the Drug Competition Act, which was reported out of this
Committee and was finally passed as part of the Medicare
Modernization Act Amendments with significant help from Senator
Grassley.
The concept of that law is simple: It requires if a brand-
name company and a generic firm enter into an agreement that is
related to the sale of either the brand-name drug or its
generic version, then both companies must file copies of any
agreements with the FTC and with the Department of Justice so
those agencies can enforce the law. Incidentally, once the
Cardizem deal was exposed and challenged, the U.S. Circuit
Court held that the ``horizontal market allocation
agreement...[was] per se illegal under the Sherman Act.''
Now, Commissioner Leibowitz will testify about what the FTC
has found regarding these deals--the deals between the brand-
name companies and generic companies.
I will once again strongly support a legislative effort led
by Senator Kohl and Senator Grassley to allow the FTC to do its
job. Two subsequent circuit court decisions have undermined the
Cardizem approach and relied on the general rule favoring
settlements between private litigants, even though private
corporate litigants have duties to their shareholders, not
consumers, to maximize profits. The problem with respect to
deals not to compete is that the interests of millions of
senior citizens, millions of children, and millions of others
are not taken into account. Those cases ignore the decision in
Associated General in which the U.S. Supreme Court noted that
``the Sherman Act was enacted to assure our customers the
benefits of price competition....'' The focus is on consumers,
not on whether private companies should be able to make back-
room deals that harm consumers as part of a settlement of a
lawsuit.
Our bipartisan bill will solve that problem by making
payments by brand-name companies to delay introduction of a
generic drug unlawful. My initial position is to follow this
bright-line approach. I will be interested in hearing from
others, of course, and it will be a major priority of this
Committee.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
With that, I would yield to the distinguished senior
Senator from Pennsylvania.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Thank you, Mr. Chairman.
This Judiciary Committee is used to hearings on important
competing values and complex conceptual matters, and today's
hearing is a top-drawer illustration of the issues which we
confront and which are confronted here.
We have two very important values at issue here. One is to
encourage pharmaceutical companies to develop life-saving
drugs, and I can speak with some authority personally on that
subject, having been the beneficiary of some very important
drugs in battling Hodgkin's. Every 2 weeks I got a cocktail--
not the kind of cocktail I would prefer. It was in the morning,
and I did not like the ingredients, but it was life-saving. And
the pharmaceutical companies take a decade or so to develop
these drugs at a cost in the range, reportedly, of $1 billion.
And only one out of thousands make it. They have a patent
period no longer than 20 years to encourage them to develop
further life-saving drugs. That is one very important value. On
the other side of the issue is the matter of holding down costs
so that these life-saving drugs in generic form can be
available to more people to save their lives.
There are three studies which I think are worth noting at
the outset of our hearing. One is a study, published by the
Food and Drug Administration in 2005, that determined that once
generics begin competing, prices fall by almost 50 percent.
Second, according to the Generic Pharmaceutical Association,
generic drugs account for 56 percent of all drug sales in the
United States, while revenues from generic drugs are only one-
tenth that of brand-name manufacturers. A third study,
Pharmaceutical Care Management Association recently published
findings that Medicare would save over $23 billion between now
and 2010 by purchasing newly available generic drugs instead of
the brand-name drugs that are currently purchased.
In my capacity as Chairman of the Appropriations
Subcommittee dealing with the Department of Health and Human
Services, I can attest to the grave difficulties of finding
funding for very important medical matters like the National
Institutes of Health and the Centers for Disease Control so
that we deal with these kinds of savings that are very, very
important.
The legal issues here are conceptually very complicated. We
have had one circuit court, the Sixth Circuit, conclude that
these settlement agreements are so-called per se antitrust
violations. That is fancy Latin for meaning all you have to
show is the settlement agreement and there is a violation of
the antitrust laws. Two other circuits--the Second and the
Eleventh Circuit--have said that a rule of reason applies, so
it is a balancing test. And the articulated rule of reason is
this: that patent settlements are reasonable so long as the
exclusionary effects of the settlement do not exceed the
exclusionary effects of the patent.
I do not think this hearing will be quite long enough to
determine what that succinctly stated formula means. I have an
expert in antitrust law, Ivy Johnson, and she has been trying
to explain it to me for several days. And I have had experience
in the antitrust field in the private practice of law before
coming to the Senate and considerable experience here on this
Committee.
In reviewing the leading cases, Cardizem, where the Sixth
Circuit said it was a per se violation, and Valley Drugs and
Schering-Plough, where the Eleventh Circuit said it was rule of
reason, and the Tamoxifen case, where the Second Circuit said
it was rule of reason, involve extraordinarily complicated
factual situations. One idea which occurs to me is whether when
the lawsuits are settled where there is litigation between the
generic maker and the patent holder, a condition of the
settlement ought to be for the presiding judge to examine it
and see if the settlement does or does not violate the
antitrust laws, instead of inviting a later lawsuit where
purchasers want lower costs and come in and sue the parties to
the agreement.
The distinguished representative from the Federal Trade
Commission, who performed--he just raised his eyebrows. You
must agree with that--a lot of service for this Judiciary
Committee and for Senator Kohl's Subcommittee, is going to
testify, according to his written presentation, that there
ought to be a per se violation. And the thought crosses my
mind, if the FTC thinks that, why doesn't the FTC act on it?
There is a gesture of ``Who knows?'' And maybe it is more
appropriately left to the Congress. Sometimes the gestures and
the body language tell more than the long, verbose written and
oral statements.
But as I look at this field, it is fraught with complexity
on the competing values and fraught with complexity on what the
parties have entered into. And I do think there is a burden on
people making these settlements to show that they are not
anticompetitive, because why settle the case unless it is in
the advantage of the patent holder and raises a question which
I am not prepared to answer: Is the generic company being
bought off to the detriment of the public? But I commend the
distinguished Chairman for convening this hearing and the work
that Senator Kohl has done, and I regret that I am going to
have to excuse myself early to attend a meeting by the National
Security Counselor, who has invited a group of Senators to meet
on the Iraq issue. We are being buffeted on all sides by
complex issues.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you, Senator Specter, and I
appreciate your being here for this because this will be a
priority.
Before introducing Commissioner Leibowitz and swearing him
in, I did want to yield to Senator Kohl, who will also take
over and chair this hearing when I have to leave for another
one of those similar kinds of things. There seems to be a lot
of discussion in Washington about the war in Iraq of late, and
I think that is a very good thing.
Senator Kohl?
STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF
WISCONSIN
Senator Kohl. I thank you, Mr. Chairman, for calling this
hearing here today. This hearing will examine legislation that
you and I have sponsored, along with Senators Grassley and
Schumer, that will end an anticompetitive abuse which denies
millions of consumers access to generic drugs. Our bill does
this by forbidding the collusive payoffs between brand-name
drug companies and generics which are designed to keep low-cost
alternatives off the market.
As health care costs continue to spiral upwards, the high
price of prescription drugs leads the way. A recent independent
study found that prescription drug spending has more than
quadrupled since 1990. One way to tame the cost of prescription
drugs is to promote the introduction of generic alternatives.
Consumers realize substantial savings once generic drugs enter
the market. One study estimates that every 1-percent increase
in the use of generic drugs could save $4 billion annually in
health care costs in our country.
Unfortunately, recent years have seen the growing practice
of collusion between some brand-name drug manufacturers and
generic manufacturers to prevent competition. This collusion
consists of payments, often as much as hundreds of millions of
dollars, made by brand-name companies to generic companies to
settle patent litigation. In return for this money, the generic
company promises to keep its competing drugs off the market.
The brand-name company profits so much by delaying competition
that it can easily afford to pay off the generic company. The
losers, of course, are the American people who continue to pay
unnecessarily high drug prices for years to come.
Just two examples of the benefits of early generic entry
prior to patent expiration. No. 1, the generic version of
Prozac, which entered the market in 2001, approximately 3 years
before the patent expired, resulted in consumer savings of
about $2.5 billion. No. 2, generic competition to Paxil in
2003, 3 years before the last patent would have expired, saved
consumers about $2 billion.
The patent settlements targeted by our bill would eliminate
such practices. The FTC has found that these agreements violate
antitrust law. However, two circuit court decisions in 2005
allowed these agreements, regardless of their obvious
anticompetitive impact, and the effect of these court decisions
has been stark. In the year after these decisions, the FTC has
found half of all patent settlements, 14 of 28, did involve
payments from the brand-name to generic manufacturer in return
for an agreement by the generic manufacturer to keep its drug
off the market. In the year before these decisions, not a
single patent settlement reported to the FTC contained such an
agreement.
So I believe the time has now come to forbid these
anticompetitive, anticonsumer, reverse payment patent
settlements. The bill that we are introducing today does just
that. It will state clearly and simply that it is unlawful
under the antitrust laws for any drug maker to settle patent
litigation by paying off a competitor in return for an
agreement to keep a competing product off the market.
So I urge my colleagues to join us in supporting this
legislation to end this anticompetitive practice that enriches
drug companies at the expense of consumers. Offering consumers
generic alternatives is essential to bringing high drug prices
down, and we ought to have zero tolerance for efforts by big
brand-name drug companies to pay off their competitors to keep
competition off the market. These payoffs help big drug
companies maximize their profits while ordinary consumers pay
the price.
I am very pleased that we have a distinguished group of
witnesses here today, and we are looking forward to their
testimony.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you, Senator Kohl. And I know our
first witness, Commissioner Leibowitz of the Federal Trade
Commission, has had a long and distinguished public service. He
was Democratic chief counsel and staff director for the U.S.
Senate Antitrust Subcommittee from 1997 to 2000. He served as
chief counsel and staff director for the Senate Subcommittee on
Terrorism and Technology from 1995 to 1996 and the Senate
Subcommittee on Juvenile Justice from 1991 to 1994. And very
important to this Committee, he served as chief counsel to
Senator Herb Kohl from 1989 to the year 2000. In the private
sector, Mr. Leibowitz served most recently as vice President
for Congressional affairs for the Motion Picture Association of
America from 2000 to 2004. He is a Phi Beta Kappa graduate of
the University of Wisconsin with a B.A. in American History,
and he also graduate from the New York University School of Law
in 1984.
Mr. Leibowitz, would you please stand so I can swear you
in? Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. Leibowitz. I do.
Chairman Leahy. Thank you. And, Mr. Leibowitz, please go
ahead with your testimony. I am going to switch seats with
Senator Kohl because I will be leaving shortly after you
finish.
STATEMENT OF JON LEIBOWITZ, COMMISSIONER, FEDERAL TRADE
COMMISSION, WASHINGTON, D.C.
Mr. Leibowitz. Thank you, Mr. Chairman.
Chairman Leahy, Ranking Member Specter, Senator Kohl,
Senator Cardin, other members of the Committee, we applaud your
early hearing on legislation to ensure that consumers continue
to have access to low-priced generic drugs. It is critical to
eliminate the pay-for-delay settlement tactics employed by the
pharmaceutical industry. Simply put, companies should not be
able to play ``Deal or No Deal'' at the expense of American
consumers.
Mr. Chairman, I am particularly honored to return to the
Committee for which I worked for so many years. In the
introduction, you made me sound much more impressive than I
know myself to be, but I do appreciate it. I am honored to come
back here.
But let me start with the usual disclaimer. The written
statement that we submitted represents the views of the
Commission. My oral testimony reflects my own views, and not
necessarily the views of any other Commissioner.
There is a particular urgency to pharmaceutical competition
issues today. Recent appellate decisions make it difficult to
challenge so-called exclusion payments--that is, patent
settlements in which the brand-name drug firm pays the generic
firm to stay out of the market. If these decisions are allowed
to stand, drug companies will enter into more and more of these
agreements, and prescription drug costs, which slowed in 2005
after years of precipitous growth, will begin to rise again.
These increased costs will burden not only individual
consumers, but also the Federal Government's new Medicare
program, State governments, and American businesses striving to
compete in a global economy--like General Motors, which reports
that employee health care costs add $1,500 to the price of each
and every car that rolls off its assembly line.
Mr. Chairman, as our 2006 Patent Settlement Report released
today confirms, this is not just a theoretical concern. In the
past year, we have seen a dramatic increase in these types of
settlements.
Now, when Congress enacted the Hatch-Waxman statute in
1984, you encouraged speedy introduction of generics by
establishing mechanisms to challenge invalid or narrow patents
on branded drugs. This statutory framework ensures that our
pioneer drug firms remain the envy of the world--and they are--
while also delivering enormous consumer savings. When the first
generic enters the market, it generally does so at a 20- to 30-
percent discount off of the brand price. Prices drop even
further, by 80 percent or more, after other generic competitors
go to market, usually 6 months later. Generic competition
following successful patent challenges in just four products--
and, Senator Kohl, you alluded to some of these--Prozac,
Zantac, Paxil, and Platinol--is estimated to have saved
consumers more than $9 billion alone.
But these benefits will be at risk, as will the legacy of
Hatch-Waxman itself, if companies are able to settle litigation
through arrangements in which brands can pay generics to sit it
out. Sadly, the incentives to enter into such pernicious pay-
for-delay agreements are substantial because generic entry
causes the branded drug firm to lose far more in sales than the
lower-priced generic could ever possibly earn. As a result,
with these agreements both firms are better off than they would
be if they competed. Of course, consumers are left holding the
bag or, more appropriately, footing the bill.
For the past decade, the FTC has made challenging these
pharmaceutical patent settlements a bipartisan priority. In
2000 and 2001, the Commission obtained two major consents
involving anticompetitive payments between brands and generics.
We put companies on notice that we would consider all available
remedies, including disgorgement of profits, against this
behavior in the future, and our actions stopped this conduct
cold.
The Commission set forth rules that everyone understood. If
you settle a case by paying off a generic to stay out of the
market, we will not let you get away with it. As a result, to
the best of our knowledge, there were plenty of settlements
between 2000 and 2004 and no exclusion payments.
In 2003, the Commission ruled that a 1997 settlement with a
payment from Schering-Plough, which is the brand, to Upsher-
Smith, the generic, violated the antitrust laws. The case
involved a potassium supplement widely used by older Americans
taking medication for high blood pressure. The Eleventh Circuit
reversed us in 2005, and the Second Circuit, in a 2-1 decision
in the Tamoxifen case, which Senator Specter alluded to, issued
a similar holding later that year. These decisions, which
essentially allow a patent holder to compensate a generic
except under very limited circumstances, have dramatically
altered the legal landscape--and, we believe, to the detriment
of consumers.
Mr. Chairman, how do we know this to be accurate? Well,
thanks to the reporting requirement that you, Senator Leahy,
and Senator Grassley included in the 2003 Medicare
Modernization Act, the FTC reviews each and every Hatch-Waxman
settlement. Tellingly, here is what the data for the last few
years reveals.
As you can see from the chart, for fiscal year 2004 and the
early part of fiscal year 2005, none of the nearly 20
agreements reported between brands and generics contained both
a payment from the brand and an agreement by the generic to
defer entry. In other words, the parties could--and they did--
settle patent litigation without money flowing to the generic.
But data from fiscal year 2006 is far more disturbing. The
report that we released this morning shows that half of all
settlements, 14 out of 28, involve some form of compensation to
the generic and an agreement by the generic not to market its
product for a period of time. Almost all the settlements with
first filers, 9 out of 11, involve similar restrictions. In
other words, just before Schering and Tamoxifen, there were no
such payments. Just after these decisions, it appears to be the
new way of doing business.
Mr. Chairman, given how profitable these agreements are for
both the brands and the generics, it is not surprising that the
industry has reacted so quickly to recent court decisions.
After all, they do have responsibilities to their shareholders.
Nor should it be hard to predict what will happen if nothing
changes. There will be more and more of these settlements with
later and later entry dates. No longer will generic companies
vie to be the first to bring a drug to market. Instead, they
will vie to be the first to be paid not to compete.
From our perspective, we will continue to be vigilant in
looking for ways to challenge anticompetitive settlements. It
is a matter of public knowledge that we are looking to bring a
case that will create a clearer split in the circuits and
encourage the Supreme Court to resolve this issue. But that
could take years and the outcome is uncertain.
A legislative approach could provide a swifter, more
certain, and more comprehensive solution. For that reason, we
strongly support legislation to prohibit these anticompetitive
payments, and we strongly support the intent of the bipartisan
bill to be introduced by Senators Kohl, Leahy, Grassley, and
others, which takes a bright-line approach to prohibiting these
deals. Drafting such a measure is challenging. The deals are
obviously very difficult or complex, so we are happy to work
with you as the bill moves forward.
Mr. Chairman, we do have enormous respect for the
pharmaceutical industry, both brands and generics. Brand drug
companies pursue hundreds, perhaps thousands, of unsuccessful
candidates for each one that comes to market, and these
companies have brought significant health benefits to
consumers--as Senator Specter said, life-saving drugs. For
their part, generic drug companies have produced low-cost
pharmaceuticals and pushed the brands to innovate even further
and faster. And we are not opposed to all settlements. Let me
try to briefly dispel that urban myth. We have brought only a
handful of cases involving pharmaceutical agreements and none
involving deals between 2000 and 2005--that is, before the
Schering decision. But we do not and we cannot support
settlements when brands and generics resolve their disputes at
the expense of consumers.
Mr. Chairman, at a time when our Nation faces the challenge
of rising health care costs, the antitrust laws and the Hatch-
Waxman Act should be used to ensure innovation and lower
prices. They should not be used to undermine competition, nor
to evade congressional intent--though, of course, ultimately
that is for you to decide.
Thank you so much. I am happy to answer questions.
Chairman Leahy. I will be leaving now, as I said, turning
over to Senator Kohl. I will submit some questions for the
record. I am especially interested in your views on why the
Justice Department declined the FTC's request on cert. after
Schering-Plough to find out--to get some clarity. I would have
thought that clarity would be in the interest of all of us, and
I was surprised that they did not agree with you on that.
So, Senator Kohl, thank you very much.
Mr. Leibowitz. Thank you, Senator.
Senator Kohl [Presiding.] Thank you, Chairman Leahy.
Commissioner Leibowitz, patent settlements between brand-
name and generic drug manufacturers in which brand-name
companies pay generic companies many millions of dollars to
keep their product off the market, how does this harm
consumers? And are you in a position to quantify in any way the
amount of higher drug prices that consumers have had to pay as
a result of some of these settlements?
Mr. Leibowitz. Well, there was a CBO study from 1994 that
said consumers save $8 to $10 billion a year from generic
drugs. But now there are many, many more generics on the
market, many more drugs on the market, and so we think the
savings are substantially greater.
It is hard to quantify the harm that we see from what we
believe are these anticompetitive exclusion payments, but what
they tend to do, essentially, the brand will pay the generic
some form of consideration--it could be a cash payment; it
could be not offering an authorized generic; it could be a
licensing deal--and the generic will stay out of the market
longer. It will not enter sooner. And the longer it stays it
out of the market, of course, the more consumers are forced to
pay higher prices for their drugs.
There is a huge incentive, obviously, to make these deals
because the price goes down so much after the first generic
and, really, subsequent generics enter. So there is always
really a large ``sweet spot'' where the brand can pay the
generic and the generic will earn more by not competing than by
competing. And the brand will earn more by not having
competition in the market, notwithstanding it has made this
reverse payment.
Senator Kohl. Potentially, what will happen to the whole
generic movement, in your opinion, if brand-name manufacturers
are in a position to pay off generics to keep their product off
the market and recognize how profitable this is to them, this
whole generic movement which is saving consumers so much money,
what will happen to it?
Mr. Leibowitz. Well, I don't think you will see the end to
the generic industry. Obviously, there are a number of generic
drugs--hundreds, thousands--that are already out there. But
what you would see is generic entry will be pushed back to the
end of the patent of the brand--or 6 months before the patent
of the brand--so it can retain that exclusivity. And I do not
believe--although, again, this is for the three of you and the
Committee to decide--we do not believe that that was the intent
of Hatch-Waxman. The intent of Hatch-Waxman was to allow
generics--when they were not infringing on the patent, or if
the patent of the brand was invalid--to enter the market sooner
and to bring these low-cost drugs to consumers.
Senator Kohl. Thank you.
Senator Specter, do you have questions?
Senator Specter. Yes, thank you very much, Mr. Chairman.
Commissioner Leibowitz, is there any latitude under
existing law for a brand holder and a generic manufacturer to
enter into an agreement which can be kept secret and not
disclosed to the FTC or otherwise be made public, any latitude
at all?
Mr. Leibowitz. If it is a pharmaceutical patent settlement,
under Hatch-Waxman, I do not believe that is possible. They
must notify us under the Medicare Modernization Amendment that
Senator Leahy, Senator Hatch, and this Committee passed in
2003.
Senator Specter. Commissioner, why not have the court which
has the litigation on the underlying patent issue, litigation
between the patent holder and the generic, make a decision as
to whether there is an antitrust violation? We have a
proliferation of cases in the Federal court. The dockets are
very, very heavy. There are many illustrations where there is a
public interest involved. If two private parties are involved
and they come to a settlement, that is between them. But when
there is a public interest involved, it is not unusual for the
court to examine the public's interest and see if the public
interest is being respected. Why not short-circuit all of this
complex antitrust litigation by requiring the court to approve
the settlement, taking into account the public interest?
Mr. Leibowitz. Well, I think that is a very interesting
approach, and I suppose you could--if you are interested in
writing legislation to require the court to do that. Of course,
we would want to work with you. But the courts have been very
reluctant, as you point out, to look into the merits of the
patents themselves, in part because they are interested in
settlement.
Senator Specter. But the courts are looking into it in
extraordinarily complicated cases to read these decisions in
Schering-Plough v. FTC or the Tamoxifen case or Valley Drugs,
you have to have a chart to diagram it to figure out all the
parties. And the patent is recognized in many cases right up to
the expiration date. There are very complex considerations. Why
burden another court? Why not have the court making the
settlement make that part of its duty? They have already got
the issues before them.
Mr. Leibowitz. Well, I would make a couple of points in
response to that. I mean, I think it is an interesting idea,
and obviously you are troubled by these settlements, as I think
the whole Committee is.
First of all, it is partly the substantive standard that
courts are applying. As you pointed out, the Sixth Circuit in
Cardizem applies a sort of per se illegality approach. The
Tamoxifen court--the Second Circuit in a 2-1 decision--and the
Schering court apply I would almost say something that is less
than rule of reason--almost sham, fraud on the Patent Office or
beyond the scope of the patent in years. So I think--
Senator Specter. Well, wait a minute. If the court says it
is rule of reason, you call it sham?
Mr. Leibowitz. Well, it also says that they are looking to
see whether there is a sham or fraud. In the Commission's
decision in Schering, the FTC decision that was reversed on
appeal by the Eleventh Circuit, we took a rule-of-reason
approach.
Senator Specter. Let me interrupt you to ask you two more
questions because I only have 5 minutes. When the Congress
intervenes to declare conduct a per se violation of the
antitrust laws, an automatic violation, we do so where we have
substantial certainty as to the anticompetitive effects as to
what went on. When I read these cases and you have very
distinguished courts--the Eleventh Circuit on two occasions and
the Second Circuit on one occasion--examining these complex
factual situations--which we can't anticipate. No way we can
anticipate in the law the varieties of what will come up. And
they come to a conclusion that it is not anticompetitive after
going through it on a detailed case-by-case analysis. Is it
wise for the Congress to make a sweeping generalization to have
a per se violation?
Now, the second question before my red light goes on. Once
the red light goes on, you are not limited. I would like you to
address, after you answer that question, what is meant by
patent settlements are reasonable so long as the exclusionary
effects of the settlement do not exclude the exclusionary
effects of the patent?
Mr. Leibowitz. The exclusionary effects of the settlement
and the exclusionary effects of the patent. All right--
Senator Specter. Well, that is not my phraseology. That is
what the courts have said.
Mr. Leibowitz. Well, I think it points out how to answer
your second question first--you said that you and your staffer
had been trying to figure out exactly what the court was trying
to say--and we have been trying to figure out the meaning of
that case for quite some time ourselves. It is a very, very
complicated decision, and these settlement agreements are also
very complicated.
Jumping back to your first question on per se illegality,
the way I read Senator Kohl's bill--I have not seen the newest
iteration, but I read the bill that was introduced last year--
it does not really call these deals per se illegal. It is a
bright-line approach to say you can have settlements, but what
you cannot do is have compensation flowing from the brand to
the generic and an agreement by the generic which inherently
pushes the generic toward a later entry date. And you can see,
based on the chart, from 2004, before Schering and Tamoxifen,
we did not see any of these deals which we would label as sort
of exclusionary payments. In 2006, fiscal year 2006, after
Schering and Tamoxifen, 14 out of the 28 final settlements we
have looked at have resulted in what we would all call an
exclusionary payment, compensation from the brand to the
generic, agreement by the generic to defer entry. In terms of
the first filer--and if you can lock in the first generic who
files, you can often--you can pretty much--ensure subsequent
generics will not be able to enter. The settlements with first
filers have gone from 0 out of 8 in fiscal year 2004 before
Schering and Tamoxifen, to, I think, 9 out of 11, more than 80
percent of the time.
Senator Specter. Well, Mr. Chairman, I am going to have to
excuse myself, as I said earlier. The National Security
Counselor has scheduled a meeting with Senators to talk about
Iraq. But I leave this side of the podium with the
distinguished Senator Hatch, who is the author of Hatch-Waxman,
1984. He is a real veteran around here, having chaired the
Committee, and he knows this field backward and forwards. So I
leave our side in Senator Hatch's hands.
Mr. Leibowitz. Thank you, Senator Specter.
Senator Hatch. Thank you very much.
Senator Kohl. Thank you very much, Senator Specter.
Senator Hatch? Then Senator Whitehouse following you.
Senator Hatch. Thank you.
Well, Jon, welcome back to the Committee.
Mr. Leibowitz. Thank you.
Senator Hatch. We are happy to have you here. We appreciate
your service. In my view, the principal concern regarding
settlement practices identified--
Senator Kohl. Your speaker, Orrin? Your speaker is not on.
Senator Hatch. I am sorry.
Mr. Leibowitz. That is OK.
Senator Hatch. Did you hear me?
Mr. Leibowitz. Yes.
Senator Hatch. OK. Other witnesses, they appear to raise
two distinct sets of policy issues. Now, the first set of
issues arises from the core concern that settlements predicated
on an agreement in which the brand-name companies confers
something of value to a generic company, a generic drug
company, in exchange for a promise not to enter the market
until some future date precludes the consumer benefits that
would result from earlier entry by the specific generic drug
company that would be a party to the litigation.
The second set of issues arises from the operation of a
principle that grants the first generic company to file an
ANDA, an Abbreviated New Drug Application, a 180-day period of
marketing exclusivity which generally precludes the FDA from
granting approval to competing generics until after the 180-day
period has ended.
Mr. Leibowitz. That is right, Senator. Sometimes we call
that the ``bottleneck problem.''
Senator Hatch. Right. Thus, a settlement in which the
generic company entitled to the exclusivity period agrees to
delay its entry into the market can effectively prevent
competitive entry by any other generic company. Now, while the
majority of today's witnesses favor addressing one or both of
these problems, there are significant differences of opinion
regarding the approaches that have been proposed by members of
the panel, as well as by academic experts and various Members
of Congress.
Now, the principal difference voiced here today involves
whether a bright-line rule prohibiting reverse payments is
appropriate or whether some form of case-by-case analysis is
necessary to allow litigants the flexibility to enter into
settlements that potentially allow competitive entry prior to
expiration of the patent at issue, which arguably provides
consumer benefits that would be less certain if more cases were
litigated to conclusion due to restrictions on the ability of
litigants to settle prior to final judgment.
Now, it seems to me that, in addition to the options of
engaging in case-by-case review of settlements or adopting a
bright-line rule prohibiting reverse payments, there is a third
potential approach to resolving this issue. Now, this third
approach would involve removing some of the unintended
consequences and perverse incentives arising from the manner in
which the grant of the 180-day exclusivity period currently
operates.
As nearly as I can tell, the most serious antitrust
implications arise from the scenario where a settlement
agreement not only prevents a single generic company from
entering the market, but by virtue of the 180-day exclusivity
period effectively prevents entry by any other generic
competitor.
Now, a variety of suggestions have been made regarding how
do you resolve or how to resolve this problem. For example,
some suggest conditioning the exclusivity period on the ability
of the generic company to mount a successful defense in court.
This would preclude any other or any generic company that
enters into a settlement from getting the benefit of the
exclusivity period. Others have suggested a stronger ``use it
or lose it'' provision that would ensure forfeiture of the
exclusivity period if the first generic to apply for approval
did not enter the market within a reasonable period of time.
And, of course, the whole purpose of Hatch-Waxman was to get
them into the market quickly and without having to pay
practically $1 billion per drug approval that the PhRMA company
has had to pay, which caused PhRMA during the negotiations on
this tremendous angst, as you can imagine. They felt like--it
was a very, very serious set of negotiations.
Mr. Leibowitz. Sure.
Senator Hatch. Conducted in my office.
Now, Commissioner, if as many allege a significant portion
of a reverse payment settlement is predicated on the ability to
deter entry, then my question is whether it is sufficient to
remove the ability of the parties to the settlement to obtain
an exclusionary benefit from such an agreement or whether an
outright prohibition of reverse payments is necessary. And I
would like your opinion on that.
Mr. Leibowitz. Well--
Senator Hatch. Now, let me just add one other thing.
Mr. Leibowitz. Sure.
Senator Hatch. Additionally, if you would expand on your
discussion of the benefits of a bright-line rule as opposed to
a case-by-case analysis, I think all of us up here would
appreciate it as well.
Mr. Leibowitz. Well, Senator, we appreciate your concern
about these exclusionary payments and the thoughtful way that
you are trying to sort of look at stopping them. I read your
statement from 2003 where you called some of these deals
``appalling,'' and we want to work with you on whatever
approach you want to take.
The benefits of a bright-line approach are fairly simple.
First of all, you stop the problem, right? There will not be
any payments from a brand--compensation flowing from a brand to
a generic--and the generic deferring entry. And we have seen
from 2004 to 2006 a sea change--
Senator Hatch. That also stops legitimate deals, too.
Mr. Leibowitz. Well, I would not say that. We have a period
of time from 2000 to 2004 where most of the industry--or the
industry--believe--that all of these deals were illegal, and
there were plenty of settlements during that time. I think that
there were 18 in 2004 and 2005 alone before the Schering
decision. We do not believe you would stop legitimate deals.
What you would have is sort of a migration of a delayed entry
date plus--from a delayed entry date plus money--to a less
delayed entry date, to a different entry date, shorter, and
consumers getting the benefits sooner.
The other benefit you get from the bright-line test is
certainty because businesses know what they can and cannot do.
And those, it seems to me, are the principal benefits of a
bright-line test.
Now, I want to think a little bit about your approach and
get back to you on it.
Senator Hatch. Would you?
Mr. Leibowitz. It is an interesting idea, but keep in mind
that there is always going to be--there may still be a huge
incentive for the brands to pay the generics and the generics
to stay out of the market, even if they are paying multiple
generics, because of the economics of this industry. So let us
get back to you on that, and we want to work with your staff.
Senator Hatch. Well, I have to admit I don't think either
side would very much like that suggestion either.
Mr. Leibowitz. Well, we have managed to unify the brands
and generics, but only in opposition to our position on
exclusion payments. So welcome to the club, Senator.
Senator Hatch. I have been there. I am in the club.
[Laugher.)
Mr. Leibowitz. We are happy in our lonely eminence, though.
Senator Hatch. Thank you, Mr. Chairman.
Senator Kohl. Thank you, Senator Hatch.
Senator Whitehouse?
Senator Whitehouse. Thank you, Mr. Chairman.
I had a question in response to your description of the
manner in which the financial incentives of these transactions
operate on the generics and on the brands, and the conclusion
that they encourage anticompetitive effects and really not
legitimate purposes from a consumer perspective.
To turn that on its head, can you think of any legitimate
purpose for these types of pay-to-delay settlements that would
cause public harm if there were to be an outright prohibition?
Mr. Leibowitz. Well, again, there is a legitimate purpose
to these payments. The legitimate purpose is to settle cases.
But what we think in these instances in the aggregate--not
necessarily with respect to each individual instance, but in
the aggregate--they inherently give the patent holder, the
brand, more protection than the brand ought to have. That is
the problem. If you take the money or the compensation out of
the equation and you make companies pick a date, an entry date
based on the strength of their case--which is what happened in
dozens of agreements between 2000 and early 2005--we think that
consumers will be served because they will get earlier entry
and cheaper drugs; drugs will go down by 20 or 30 percent with
the first generic and up to 80 or 90 percent 6 months later
when multiple generics come in.
We think in the aggregate the public is not served by these
deals. If you take a bright-line approach--and we are, of
course, willing to look at other approaches--but if you take a
bright-line approach, you will encourage early generic entry,
and consumers will be able to get more affordable drugs sooner
rather than later. And we really do believe, as Senator Hatch
alluded to, that this is really what Hatch-Waxman was all
about, which has been a wonderful piece of legislation that has
allowed profits for the brands and the generics, but has
created a vibrant generic industry.
Senator Whitehouse. Other than the public purpose of
allowing cases to settle more rapidly, is there any other
public purpose served by these agreements?
Mr. Leibowitz. For these exclusionary agreements? No, I do
not believe there is another public purpose. That is my sense,
at least.
Senator Whitehouse. OK. Thank you.
Mr. Leibowitz. Thank you, Senator.
Senator Whitehouse. Thank you, Chairman.
Senator Kohl. We thank you so much, Commissioner Leibowitz.
You have added a lot to the discussion, and we appreciate your
being here today.
Mr. Leibowitz. Thank you so much, Senator.
[The prepared statement of Mr. Leibowitz appears as a
submission for the record.]
Senator Kohl. We have a second panel, and we would like to
call the four witnesses on that panel to step forward.
Our first witness is Hon. Bill Tauzin, who is President and
Chief Executive Officer of PhRMA. Prior to joining PhRMA, Mr.
Tauzin was a 12-term member of the U.S. House of
Representatives representing Louisiana's 3rd Congressional
District. Mr. Tauzin served as Chairman of the Energy and
Commerce Committee from 2001 to 2004, and Mr. Tauzin graduated
from Nicholls State University and earned his law degree from
LSU.
Our second witness is Mr. Merril Hirsh. Mr. Hirsh is a
partner at Ross, Dixon and Bell, LLP, in Washington. He has
also worked as a trial attorney in the Civil Division of the
U.S. Department of Justice, and he has authored several well-
known articles on antitrust law.
Also joining us today is Mr. Bruce Downey, Chief Executive
Officer of Barr Pharmaceuticals. Mr. Downey has received
several awards for special achievements during his time in
Government service, and he is Chairman of the Board of
Directors for the Generic Pharmaceutical Association. Mr.
Downey graduated with honors from Miami University in Ohio, and
he received his law degree from Ohio State.
Finally, we will hear from Mr. Michael Wroblewski of
Consumers Union, the non-profit publisher of Consumer Reports.
Prior to joining Consumer Reports, Mr. Wroblewski acted as
Assistant General Counsel for Policy Studies at the FTC and as
attorney adviser. Mr. Wroblewski is a graduate of Loyola
College and received his J.D. from the University of Texas
School of Law and his MPA from the Lyndon Baines Johnson School
of Public Affairs in 1992.
We hope, gentlemen, that you will limit your testimony to 5
minutes, and before you begin, I would like you to rise and
take the oath of office, please. Please raise your right hand,
and do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. Tauzin. I do.
Mr. Hirsh. I do.
Mr. Downey. I do.
Mr. Wroblewski. I do.
Senator Kohl. We thank you so much.
We will start with you, Mr. Wroblewski.
STATEMENT OF MICHAEL WROBLEWSKI, PROJECT DIRECTOR, CONSUMER
EDUCATION AND OUTREACH, CONSUMERS UNION, THE NON-PROFIT
PUBLISHER OF CONSUMER REPORTS, WASHINGTON, D.C.
Mr. Wroblewski. Mr. Chairman, members of the Committee,
thank you for the invitation to testify today. Consumers Union
is the independent non-profit publisher of Consumer Reports. We
investigate and report extensively on the issues surrounding
the costs, safety, and effectiveness of prescription drugs so
that we can provide our 7.3 million subscribers with expert
advice to help them manage their health. Consumers Union
publications carry no advertising, and we receive no commercial
support.
The hearing today asks the question, ``Should paying
generics to prevent competition with brand drugs be
prohibited?'' Consumers Union responds with an emphatic
``Yes.'' We strongly support prompt Congressional action to
create a bright-line rule to end the use of patent settlements
in which a brand-name company compensates a generic applicant
to delay market entry. These settlements can deny consumers
access to lower-priced generic drugs for many years. They also
jeopardize the health of millions of Americans who have
difficulty obtaining safe and effective medicines at
competitive prices. I would like to highlight three reasons for
our support.
First, generic drugs are critical to managing health care
costs today. Health care costs continue to surge at double or
triple the rate of inflation, in part due to the high cost and
rate of inflation of brand-name prescription drugs. Generic
drugs can dampen health inflation because they cost up to 70 or
80 percent less than the brand-name drug.
We have started a free public education initiative,
``Consumer Reports Best Buy Drugs,'' to provide consumers with
reliable, easy-to-understand advice about the safest, most
effective, and lowest-cost prescription drug available. We
currently provide information for 16 different classes of
medicine, and we will expand to more classes in the future.
Consumers can use this information to check to see if there is
a safe, effective, and low-cost alternative to any medicine
that they are taking. We encourage consumers to talk to their
doctors about this information. Access to these low-cost
generic drugs saves consumers substantial sums.
The second reason we support legislation is to counter the
incentives that we heard about this morning that brand-name and
generic companies have to enter lucrative settlement
agreements. It is an economic fact that the brand company's
total profits from sales of its brand drug prior to generic
entry exceed the combined profits of the brand and the generic
company after generic entry occurs. The upshot is that the
brand-name company has a powerful incentive to pay the generic
to delay entry. The payment is still less than the amount it
would lose if the generic applicant entered the market.
The generic applicant, on the other hand, also gains by
earning more from the settlement than it would by competing in
the market. These incentives are inadvertently exacerbated by
the 180-day marketing exclusivity provision of the Hatch-Waxman
Act. Any settlement with the first filer blocks any subsequent
generic entrants from coming into the market. So the brand-name
company can forestall generic competition for years by settling
with just the first-filed generic. And the generic who is first
in line has powerful incentives to ask for a payment because
not only will it get the payment, but it also retains its 180
days of marketing exclusivity. The irony, of course, is that
the intent behind the act was to speed generic entry, not to
provide the generic a windfall to delay its market entry.
The third reason we support legislation is because the
courts, we believe, will not fix this in a timely manner. Two
recent appellate court decisions have taken a lenient view, in
our view, of these patent settlements. As a result of these
rulings, a patent holder can now pay whatever it takes to buy
off a generic applicant during the life of the patent. These
rulings, in our view, are based on two fault premises.
First, the courts seemed to require that unless the patent
can be proved to be invalid or not infringed, a court cannot
declare a settlement illegal. This test, we believe, as the FTC
discussed in its Schering opinion, may sound good in theory,
but it is nearly impossible to make work from a practical point
of view.
Second, these courts have elevated the generally held
principle that public policy favors settlements above the
statutory incentives in the act that encourage generic
applicants to challenge weak patents. Industry experience shows
that Congress struck the right balance when it established
these statutory incentives.
Between 1992 and 2000, generic companies that challenged
weak patents won their cases 73 percent of the time. Indeed,
these challenges have resulted in generic entry earlier than
what otherwise would have occurred absent the generic
challenge.
For all three of these reasons, we urge Congress to act now
so that consumers get the benefit of timely generic
competition.
Thank you very much, and I would be happy to take any
questions that you have now or at the end of the panel.
[The prepared statement of Mr. Wroblewski appears as a
submission for the record.]
Senator Kohl. Thank you, Mr. Wroblewski. We will first hear
testimony from Mr. Tauzin and then Mr. Hirsh and then Mr.
Downey.
STATEMENT OF BILLY TAUZIN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA
(PhRMA), WASHINGTON, D.C.
Mr. Tauzin. Senator Kohl, thank you. This is my first
opportunity to testify before Congress, and I welcome the
chance to be before your Committee. Senator Hatch, Senator
Whitehouse, I also thank you for the chance.
Let me first acknowledge something. I am not only the
President of PhRMA; I also a cancer survivor, like Senator
Specter. Just 2 years ago, I finished chemotherapy following a
cancer that left me with about a 5-percent chance of survival.
And yet, after that year of chemotherapy, with a brand-new
miracle drug that came out of this industry, I am with you
today and with my family, and I have them to thank for that.
And so, like Senator Specter, I am deeply concerned not
only from my position as a representative of this industry but
also as a patient who is still next week going through another
cancer test, as I have to go through it every 4 months.
I am interested in making sure that the process by which
these new miracle drugs are brought to market is not severely
damaged by changes in public policy, that we take very careful
concern for the patent protection that is provided, the
incentive to spend the $50 billion that was spent last year in
trying to find a new cancer drugs that saves lives today.
So let me start by doing what Senator Specter did in his
opening statement, which is to illustrate that this is about a
14.2-year process. When a company that is inventing a new drug
that is going to save our lives or battle disease for us first
files for its patent and it gets its patent approved, it needs
another 14.2 years of that patent life just to bring it to
market, to do all the testing, the clinical analysis, the proof
to the FDA, the proof to itself that it has a product that is
both efficacious and also worth the risk, because every drug,
every medicine, has certain risks attached to it, certain side
effects. It has got to make sure before it brings it to market
that it is safe and effective, in effect. So it uses about 14
years of its patent life and spending about $1 billion to bring
that drug to market so that my life could be saved 2 years ago.
That is the story. But that is not the end of the story.
The next chart shows you what happens next in comparison to
other products that are invented in our society. What happens
next is that after the final market approval, there is only
about 5 or 6 years left, generally, on the patent life of a
brand-new drug, a cancer-fighting drug. And if you get the
benefit of patent term restoration that comes from Hatch-
Waxman, the maximum ever you can have on your patent life is
about 14 years. The average today is 11 to 12 years.
Now, I am going to ask one of my colleagues to pass out a
pen to you. It is a little cheap pen. It does not violate your
rules so you can keep it as a gift. There are some words on it.
It says, ``This pen's patents have more protection than those
for cancer medicine.'' And I am going to illustrate to you how
true that is.
By the way, unfortunately, this pen is made in Mexico, like
so many products that we buy in America. But it was patented
here in this country.
I am going to prove it to you. This pen and other products
we manufacture, invent and manufacture in this country, go
through the same patent approval process as a drug, except they
do not have to go through 14 years of testing to see whether
they are safe and effective. They go to market immediately. So
the guy who invents this pen starts selling it the day after he
gets his patent approved, protected by the patent. The drug, on
the other hand, has to spend about 14 years in testing. And so
the effective protection for this pen is about 17\1/2\ years.
The protection for the patent on a new medicine that saves my
life and saves yours is about 11 to 12 years.
Now, the settlements we are talking about, Senator Kohl,
involve challenges to those patents. Hatch-Waxman allows that
challenge to come as early as 4 years after the drug goes to
market. It involves a challenge to the patent. It involves
somebody saying, ``Your patent is invalid. You did not do it
right.'' It involves somebody saying, you know, ``We are going
to copy your work, copy your drug, and put it on the market as
a generic product because we think our drug does not infringe
on your patent,'' or, ``Your patent is invalid.'' Start with
that proposition. It is a challenge to the patent, and a desire
to enter the marketplace before you would ordinarily be
entitled to enter the marketplace.
Now, Hatch-Waxman encourages that, and before Hatch-Waxman,
about 20 percent of the drugs sold in America were generic
drugs. Today 60 percent are generic drugs, according to the
latest numbers. The utility and usefulness of generic drugs in
America exceeds that of any country in the world. Generic drugs
are very important to the marketplace of health care in this
country. We can see that. We admit that. We support that.
What we are asking today is, however, to think very
carefully about whether or not you interfere with, in a broad
and overreaching way, the ability of generic drugs and patent
drugs to settle these kind of cases that challenge the validity
of patents.
Now, why do we ask you to be careful? One, I am not here to
defend bad or ugly settlements that do not meet a test of
antitrust law. They ought to be discarded, and the FTC has that
authority today to invalidate any of those settlements. Every
settlement has to be turned over to the FTC and the Justice
Department. Somebody gets a second look at it, and they can
say, ``No, sorry. That settlement violates antitrust law. We
turn it down.'' The FTC does that. It is hard work. They do not
like to do it. I understand that.
Sometimes the courts will overturn them, as they did in
Schering-Plough. Sometimes the courts will agree with them. But
this Congress several years ago declared that any one of these
settlements have to go through that test. If you want to put
them through a different test, fine. But to outlaw them
completely does something I hope we don't do for the sake of
consumers, not just for drugs companies, but for patients like
me. What those settlements very often do is bring generic drugs
sooner to the marketplace than they would be allowed to if
those patents were respected until the end of their patent
term.
What very often a good settlement does is end costly
litigation that consumers pay for in the end and end
uncertainty in the marketplace, which is critical for this
model to work, and allow generic drugs on the marketplace
sooner than later.
Now, you heard a number saying, well, the companies lose 73
percent of the cases. That is not true. Seventy-three percent
of the cases represents the times the company lost, including
the times the company settled. If you look at current rates,
you will see that companies are winning more cases than losing
them now. And the reason they are winning them more is they are
learning from their past mistakes. They are learning how to
write better patents and defend them more properly.
So if you don't allow settlements, if you don't allow the
good settlements that are in the interest of the consumer to go
forward, the ones the FTC would approve, the ones the Justice
Department would approve, you may have the reverse effect of
hurting consumers by denying them the chance to get a generic
into the marketplace even during a valid patent term. That is
what settlements do.
So here I am at the Clint Eastwood moment. Clint Eastwood
made some great films. One I love is ``The Good, The Bad and
the Ugly.'' Now, he was like you. He was a law keeper--a law
maker and a law keeper and a law enforcer. And he rode into
town, and his job was to kill the bad and the ugly, but to
protect the good. And so I ask you one thing on behalf of
patients like me and all of us who depend upon this process to
keep these miracle drugs flowing, and there are 2,000 more in
the pipeline right now, 600 new cancer medicines in the
pipeline right now. If we are going to keep this model working
and new cancer drugs patented and approved and the new drugs
for diabetes and heart failure and everything else, I ask you
please not to shoot the good while you are trying to kill the
bad and the ugly.
The process ought to pick the bad settlements out and kill
them. It ought to pick the bad and the ugly and say you cannot
go forward. But you ought not sweep away the good settlements
that end unnecessary litigation that is very expensive. Some
expert testified 27 cents of every dollar spent in research and
development is spent in court fighting over this stuff instead.
You ought not throw out the good settlements that work to bring
generics sooner to the marketplace than later because it ends
the disputes, ends the litigation, ends the payment to lawyers,
and instead flows these products to patients who need them.
Don't shoot the good. Let's just keep shooting the bad and
the ugly.
Thank you, sir.
[The prepared statement of Mr. Tauzin appears as a
submission for the record.]
Senator Kohl. Thank you, Mr. Tauzin.
Mr. Hirsh?
STATEMENT OF MERRIL HIRSH, PARTNER, ROSS, DIXON AND BELL, LLP,
WASHINGTON, D.C.
Mr. Hirsh. Thank you, Senator. I want to thank the
Committee and its staff for affording me the opportunity to
comment on the proposed Preserve Access to Generics Act.
Although on this issue my law firm has generally represented
the interests of companies who pay the cost of drugs through
self-insurance, the views I express today are my own and not
necessarily those of either my firm or any of its clients. In
fact, my firm represents both plaintiffs and defendants in
various types of litigation, and I hope that whatever thoughts
I can convey to the Committee reflect the experience of having
been on both sides.
On March 20, 2006, the Philadelphia Business Journal
reported on an interview with the chief executive officer of
Cephalon, Incorporated. Cephalon had settled patent challenges
to Provigil, a drug for sleep disorders, by paying a total of
at least $136 million to several of its generic competitors. By
settling, Cephalon avoided a ruling on the generics' arguments
that Cephalon's patent was invalid and that the patent was not
infringed in any event by the generic substitutes.
As the CEO explained to analysts about the settlement, ``A
lot of [Wall Street's enthusiasm for Cephalon's stock] is a
result of patent litigation getting resolved for Provigil. We
were able to get six more years of patent protection. That's $4
billion in sales that no one expected.''
Now, you would ordinarily think that paying off a
competitor to obtain 6 more years of patent protection and $4
billion more in sales than you expected would be viewed as
anticompetitive, and there is currently a lawsuit pending
arguing that this violates the antitrust laws. The defendants
in that case, however, have moved to dismiss it. They are
arguing that, even when the CEO admits that the payments
achieve patent protection no one expected, these payments
cannot, as a matter of law, violate the current antitrust laws.
I think defendants should lose that motion, but honestly,
illogical as the motion seems, it is not frivolous, given the
current state of the law. The plaintiffs in the Tamoxifen case
have petitioned the Supreme Court for a review of the Second
Circuit's decision that people have discussed here that
otherwise may effectively immunize brand and generic companies
from paying any amount of money to resolve any patent case that
was not a sham case to begin with. And, as the FTC has reported
and Commissioner Leibowitz discussed today, a recent spate of
reverse payment settlements shows companies clearly emboldened
to make these settlements unless and until they are told not
to. These reverse payment settlements are indeed
anticompetitive, and they defeat the purposes of the Hatch-
Waxman Act.
Now, I think it is impossible not to be moved by
Representative Tauzin's personal story and his basic point of
attempting to capture the good and only deal with the bad and
the ugly. The problem is that reverse payment settlements are
the bad in this case, and, in fact, the preservation of reverse
payment settlements doesn't preserve the type of protections he
is talking about to the patents.
What reverse payment settlements do is create a tremendous
incentive to do two things: first, to have generic companines
pick patent fights in the hopes of being able to be paid off
for dropping them; and, second, to settle those fights in ways
that do no justice to the Hatch-Waxman Act and provide no
benefits to consumers.
Brand companies are not made better off by a system that
encourages people to sue them without the risk of putting drugs
onto market in the hopes of being paid off with enormous
amounts of money available to pay them. That does not lead to
fewer lawsuits. It leads to more lawsuits. And more lawsuits
are not better. In fact, not having lawsuits in the first place
is better than settling lawsuits after they are brought.
Second, once lawsuits are brought, reverse payment
settlements are not the only way to settle them. They are a
convenient way to settle them. They are convenient because
there is an extraordinary incentive, as everyone has discussed
today. A delay for some of these drugs involves a million
dollars a day--a million dollars a day for each day the generic
entry is excluded, a million dollars in additional sales. There
is an enormous incentive for companies who legitimately are
interested in profit for their shareholders to engage in a
sharing of this money rather than a result that actually brings
down the cost for consumers.
If you eliminate the reverse payment settlements, and this
is the reason you need a bright-line rule to solve this
problem, you eliminate that possibility. You allow for lawsuits
being brought where there are genuine patent challenges. This
is where the generic genuinely intends to market the product
and not just hold up the brand company. The brand and generic
companies are forced to negotiate at arm's-length over when the
generic can come in, and their agreement harnesses the market
force of an arm's-length negotiation, not just to benefit the
parties involved, but to benefit consumers.
Courts are unable to deal with this problem because it
involves a policy judgment that is Congress' to make. That is
why I strongly support the legislation before the Committee.
Thank you, Senator.
[The prepared statement of Mr. Hirsh appears as a
submission for the record.]
Senator Kohl. Thank you, Mr. Hirsh.
Mr. Downey?
STATEMENT OF BRUCE L. DOWNEY, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, BARR PHARMACEUTICALS, INC., WASHINGTON, D.C.
Mr. Downey. Thank you, Senator. It is very nice to be here
today appearing before the Senate Judiciary Committee again. I
am the Chairman and Chief Executive Officer of Barr
Pharmaceuticals, one of the largest generic companies in the
country. We are also probably the most prolific challenger of
brand patents. In my tenure at Barr, we have brought over 30
cases challenging the patents protecting pharmaceutical
products. We have completed about half of those cases; about
half are still pending. Of those we completed, 14 were settled,
and 13 of those settlements brought products to market prior to
patent expiry--that is, that shortened patent life of the brand
product allowed us to get into the market and compete earlier
than we otherwise could.
Now, we have also taken some cases to trial, and I think in
the statements of the Senators and the testimony of my
colleagues, two of our cases have been prominently mentioned.
One is the Prozac case, and it has been the poster child of
what should happen; that is, you should take a case to trial,
win it, and bring a product to market. The second was our
Tamoxifen case. It has been the poster child for what is wrong.
You should not settle a case in exchange for consideration
other than early entry. I want to examine those two cases in
detail because both of those cases brought significant value to
consumers, and both of those settlements would have been
impossible if this legislation were to pass. Let me start with
the Prozac case because I think that is the most misunderstood.
We brought the case against the Prozac patent. There were
three claims: one, it was invalid for double patenting; two, it
was invalid because of the best mode rule; and, third, it was
invalid because of the inequitable conduct of the Lilly Company
at the Patent Office. We lost the double patenting and best
mode arguments in summary judgment before the district court.
We thought those were our best claims. The judge dismissed
them, and we were stuck now with our inequitable conduct claim,
which we thought was the weakest. The judge set it down for
trial. To take that case to trial on appeal would have taken an
additional year before we could get our other claims before the
court of appeals. And we settled that claim on the eve of trial
for a cash payment, which would have been prohibited by this
legislation. But taking that payment, settling that claim,
allowed us to appeal the best mode and double patenting claim
to the court of appeals, which we ultimately won. It shortened
the case by a year, allowed us to bring generic Prozac to
market a year earlier than we could if we had gone to trial on
inequitable conduct. And that reverse payment saved consumers
about a billion and a half dollars. So in that case, the
reverse payment actually had the exact effect that all of the
other witnesses supporting the legislation want it to have.
Now, in Tamoxifen, we tried the case and we won, and our
opponents appealed. All of our strong arguments, in my opinion,
we lost at trial, and we had one argument remaining for the
court of appeals, and that was the inequitable conduct case. We
settled that on appeal because we thought we were going to
lose. We took payment, we took a license, and we entered the
market early with Tamoxifen. And over the course of our
license, we saved consumers about $300 million on that product.
Now, this was a great laboratory experiment because,
following our case where we accepted this payment, which others
think is illegal, three other generic companies tried to
challenge that patent. All three of them went to trial. All
three of them lost. All three of them went to the court of
appeals, and all three of them lost. I believe had we not
settled the case and entered the product with our license from
Zeneca, we also would have lost and consumers would have been
harmed.
So those two cases where we accepted what are called
reverse payments saved consumers nearly $2 billion that
otherwise would have been impossible. So I think the
legislation will have very serious unintended consequences. It
will reduce the number of patent cases we bring. It will force
us to take each of the cases that are brought to trial and sort
of fight to the death. And then, finally, it will prohibit
settlements that shorten the patent life and bring products to
market sooner than we otherwise could.
You know, it is not really the reverse payment that keeps
products off the market. It is the patent. The patent is a
monopoly granted by the Government that is entitled to a
presumption of validity. It can only be overturned by a showing
of clear and convincing evidence. You know, we do not bring
products to market in the face of a patent because of the
damages we risk. And I also disagree with the success rate that
has been given here. It is not 70 percent. Our success rate in
cases that have gone to trial is like 40 percent, and that is
in part because we have reached reasoned settlements that
shorten the patent life, we get less than we would get if we
win, we get more than we would get if we lose, and that benefit
is transferred to consumers. They get more than they would get
if we lose the case; they get less than if we would win it. I
think that is the way all settlements are. They are a
compromise. Each side gets something. In this case, we
compromised on the length of the patent term. We shortened the
patent life. We were in earlier. Other people can challenge the
patent if they want.
Now, there is an anomaly, Senator Hatch, and I will point
to that in the 180-day exclusionary provision. The MMA of 2004
does have sort of a loophole that makes it hard for second
challengers to challenge the patent, and I would like to work
with the Committee to help solve that problem. But it is not
solved by the proposed legislation. The proposed legislation
deals with settlements and not with the bottleneck loophole.
I would be happy to take any questions that you have.
[The prepared statement of Mr. Downey appears as a
submission for the record.]
Senator Kohl. Thank you.
A questions for Mr. Tauzin. Your organization, as we all
know, represents many large pharmaceutical companies. Isn't it
just common sense, Mr. Tauzin, that if a brand-name drug
company can forestall competition by paying a generic company
some fraction of its profits on a drug that it will do so?
Mr. Tauzin. Not necessarily. Again, remember, Senator Kohl,
this is a patent dispute fight. If it has a great patent and
that patent language has been tested and fought out in court
before and proven to be valid, it has great incentive to go
ahead and say, ``No, I am sorry. We are not going to settle
with you. We are going to defend our patent all the way, and we
are going to prevail because we have got a great patent.''
Now, if there is any kind of question about it, the
incentives flow in both directions. I think you have heard the
arguments from the generic association about why they have an
incentive to settle on some cases, where they think they might
have a chance of losing, and yet they can get their generic
drug to market a little quicker if they settle.
In the case of the patent company, if they think there is
some doubt about winning the case, they do what all lawyers do
when fighting a case. You figure out whether your risk of
losing merits the risk of settlement. In that case, very often
in that discussion a settlement is reached where a generic does
come into the market, even in the face of what otherwise they
believe is a valid patent.
But the incentives flow in both directions, and they are
going to be different in every case. And in some cases, as you
pointed out, as Mr. Leibowitz pointed out, those settlements
need to be examined to see whether or not they reach a public
interest standard. I agree with that.
But the bottom line is that the incentives work in both
directions, and in some cases, in some 50-some-odd percent of
the cases lately, the patent companies go all the way to trial
because they believe they have a valid patent and they have a
right to depend upon it.
Mr. Leibowitz, by the way, is not against patents, I do not
believe. I do not believe he is against patent protection.
Neither is this Committee. He worked for the Motion Picture
Association and got a 95-year patent on Mickey Mouse. You know,
on the other hand, a drug that saved my life and others' lives
may get only 11 or 12 years of protection. That is our concern.
If you mess with that model too much, you begin damaging the
incentive to go out and spend the billion to invest in new
medicine. That is happening all over the world. That is why 70
percent of the new medicines invented in the world are invented
here in America, because we still, to the extent we can, give
some reward for somebody spending those billions of dollars to
invent those new medicines.
So all we ask is that whatever you do in this area--and we
will work with you to try to find a solution that makes sense
for everyone here--is that we do not end up throwing out the
good with the bad.
Senator Kohl. Mr. Downey, the FTC reports that in the year
after the two court decisions that we have covered here today,
allowing these reverse payment settlements, half of all patent
settlements contained terms in which the brand-name company
paid generic in return for the generic's agreement in keeping
the drug off the market. And as we have discussed, in the year
before that court decision, no patent settlements contained any
such terms. So doesn't this data indicate that going forward,
unless we do something about that by way of our legislation,
increasingly there are going to be financial settlements
arrived at?
Mr. Downey. Well, I do not believe the data is exactly
right. First, I would say the later settlements where there
were payments, it is not the payment that keeps the product off
the market. It is the patent. And in one of those cases--it
happens to be ours I know about--there was a compromise where
we entered the market years before patent expiry, but some
number of years in the future, there was 12, 15 years left on
the patent, and we compromised at a point sort of halfway in
between.
In addition to that, we had some other arrangement with the
brand company. We think that is very pro-competitive--pro-
competitive in two parts: one, because we shortened the patent
life; and, two, because we got this collateral benefit in the
other part of the deal--all of which was submitted to the FTC,
and if they think it is improper, they could challenge it. I
think they would lose, but that data has been made available as
a requirement under existing law.
Also, I disagree that the years before those cases there
were not settlements that involved other consideration, because
I know we had at least one.
Senator Kohl. Mr. Wroblewski, would you like to comment on
this question? Then Mr. Hirsh.
Mr. Wroblewski. The only thing I would like to add is the
statistic rate that I quoted in my testimony in terms of how
frequently the generic challenger wins, that statistic comes
from looking at all of the court cases--not including the
settlements--but just the court cases. Between 1992 and 2000,
there were 30 decisions of a court, and in 22 of those
instances, the generic won. So that is the 73 percent. That
study ended in 2000, 2001, and that has not yet been updated.
I am familiar with a study by the American Intellectual
Property Law Committee that has basically come up with the same
70-percent number by looking at the defendant winning in patent
litigations, the challenger basically, in a broader spectrum of
industries, and it has been right around 70 percent.
So I think I will stick with, you know, that the incentive
has provided--has not been misused to challenge patents, as
they are picking the right patents to challenge.
Mr. Tauzin. Senator, if I could jump in, we are using data
from 2004 to 2006. That is much later than this study which did
not include settlements. And the data between 2004 to 2006
indicates innovative companies prevailed at the appellate level
52 percent of the time.
Senator Kohl. All right. Mr. Hirsh, do you want to make a
comment?
Mr. Hirsh. Yes. I think where the disconnect is going on in
this discussion is as follows: As a lawyer handling commercial
cases and intellectual property cases, you are frequently faced
with the situation where one of the possible outcomes you can
negotiate is anticompetitive. Negotiations inherently look for
win-wins between parties because there are ways of narrowing
gaps between people who would otherwise disagree. And I don't
know any commercial litigator who has not been in some
situation where at some point you look at someone across a
table and you say, ``Well, we could do that, but we can't
because it violates the antitrust laws. We need to find another
solution.''
What happens in those circumstances is not that the case
does not settle. What happens in those situations is it settles
in a way that is lawful.
In a Hatch-Waxman settlement, the question is what is the
money part being paid for. As Commissioner Leibowitz talked
about the question, nobody is against having cases brought that
are legitimate. Nobody is against having brand companies defend
patents to the end if they think they are right, or both
parties bringing them to litigation and getting a litigated
result if they think they are right, or settling those cases.
If they settle the case on the basis that they cannot
exchange money, the terms of the negotiation is over when can
the generic enter the market, with the generic incentivized to
enter the market sooner. The sooner the generic can enter into
the market, the sooner the generic can share in some of the
profits that come from the drug.
If there is money that changes hands in addition to that,
what is the brand company paying the generic the money for? It
is understandable that the brand is willing to pay it. It is
understandable that the generic is happy to take it. But the
logical terms of the negotiation is that the brand is paying
the benefit of having less competition, of moving the entry
date back.
Now, it is quite correct, as Mr. Downey points out, you
have settlements that have components of both: there is a
payment, and the generic can come in before the end of the
patent. There are situations in which the generic may not feel
that they have a 100-percent winning case and they would rather
settle.
The problem with the reverse payment is what you are paying
for is to have that settlement have the effect of having the
generic come in later. That is what the money is being
exchanged hands for, and that is what is anticompetitive. If
you eliminate that incentive, the case will still settle if the
parties think they are weak, and the case will not settle if
the parties think their cases are strong. What will happen is
that the settlement will reflect the strength of the patent
instead of ignoring that. That is why it is better.
Senator Kohl. Thank you. Before we--I am sorry. Mr. Tauzin,
go ahead.
Mr. Tauzin. Can I just add one thing? There is a great
dispute as to whether or not, when you eliminate the exchange
of things of value, you are going to encourage or discourage
settlements. I can tell you in the Schering-Plough case, for
example, there was a licensing agreement that went along with
the settlement. If you could not do that licensing agreement,
our information is that settlement probably would not have gone
forward. That is the one the FTC disapproved of and the court
approved of. That is a case where the settlement did bring the
generic product into the marketplace sooner.
You are going to get a dispute over that, and you will
always have that. That is our point, that case-by-case when you
look at them, you are going to see some cases where a
settlement made sense for the consumer and another case where
it possibly did not, where you ought to say, sorry, that cannot
go forward. That is a different matter.
Senator Kohl. Last comment, Mr. Downey.
Mr. Downey. Yes, a very important point here. The
collateral agreements that narrow the gap are not always cash
payments. In fact, they rarely are in our case. They involve
some other asset that has a different value for us than it does
the brand. Sometimes, for example, we have purchased a product
from the brand at a price we think is favorable--it is an asset
that is not key to them--as part of the settlement where we
have shortened the patent life. In other cases, we have
licensed a patent from a brand as part of a settlement where we
have shortened the patent life. In other cases, we have agreed
to co-promote products for the brand company as part of the
settlement where we have shortened the patent life. In other
cases, we have entered into an R&D agreement with a brand
company as part of a settlement where we shortened the patent
life.
So these collateral agreements provide value to us, value
to the brand, and simultaneously allow us to shorten the patent
life. And the reason they are very important is the parties
cannot always agree, in fact, seldom agree on the probability
of success. And so you have some rough approximation--we might
think it is 50 percent, they might think they are going to win
70 percent of the time--and you bridge that gap through these
agreements that provide value to both us and to the brand
company and ultimately to the consumer as these things work
their way through the system.
It is very important that these other opportunities be
allowed, or the settlements really are not going to happen.
That is why I think the law as it is drafted would take every
case to trial, every case to appeal, and there would be very,
very few settlements.
Senator Kohl. Very good. Before we turn to Senator Hatch,
Senator Schumer has requested a minute or two to make some
comments before he has to leave.
STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE
STATE OF NEW YORK
Senator Schumer. Thank you, Mr. Chairman. I apologize.
Finance is voting on the minimum wage, and they do not allow
proxy voting. That is the only Committee I am on that does not
allow proxy voting, so I apologize and thank you both for your
indulgence. And thank you for having the hearing today.
As you know, Mr. Chairman, I asked the Committee to hold a
hearing on this issue last May, and I am very pleased that you
in always your wisdom have chosen it as one of the first
hearings in the new 110th Congress. Many of us in this room are
strong proponents of competition that leads to lower drug
prices for consumers, most notably my friend Senator Hatch, who
paved the way in 1984 with the bipartisan Hatch-Waxman Act. And
in 2003, I authored with Senator McCain a law that closed
loopholes that had gradually been opened up since Hatch-Waxman
was passed in 1984. I worked closely, as Mr. Barr knows, with
the generic drug industry to try and close those loopholes.
They helped restore the integrity of Hatch-Waxman and preserved
access of consumers to generic drugs.
But it seems that every time we close a door on ways to
game the system, PhRMA opens up a window, and I really regret
to say that in this one, they are joined by many of my friends
in the generic drug industry.
Hatch-Waxman was written to help consumers, to lower the
price of drugs for everyday people, not to pad profits for
company shareholders. When the law is allowed to function
properly, consumers win, $8 to $10 billion a year worth. But
time and time again, we have needed to amend this law because
the industry, instead of spending its time innovating new
drugs, comes up with new ways to exploit loopholes and
increases its profit share at the expense of consumers.
Usually, these loopholes pit brand drug companies against
generics, but this time they are actually working together to
leave consumers out in the cold. So now we are seeing instances
where some brand drug companies are working with some generic
drug companies to make anticompetitive deals that benefit
everyone except the consumer. Give money to the generic company
to go away so that the brand company can continue to enjoy a
monopoly on the market. And, you know, I do not entirely blame
the generic drug company. Being sued is no fun. Any company
threatened with or actually faced with a lawsuit has good
reason to find a quick way out. And these companies, face the
facts, even though they do a lot of good and bring the cost of
drugs down, are not public servants. You are supposed to serve
your shareholders. And so if the company sees an opportunity,
the generic company, to increase their profits, they are
legally bound to do so. But we are not, and that is where the
Government comes in, because we are the only player in this
game who has the power to protect the consumer, preserve
competition, and restore the playing field to its original
condition.
There is simply no reason to allow these anticonsumer
settlements. Companies only utilize them when the opportunity
exists, and otherwise they function as the Hatch-Waxman law had
intended. For 5 out of the last 7 years, it has been illegal
for generic companies to accept money, as Mr. Downey noted, in
exchange for staying out of the market. Yet competition did not
drop off. In fact, the number of patent challenges actually
increased during the time these particular settlements were
outlawed, from 35 challenges in 2001 to 97 in 2004. It was not
until two courts suddenly legalized these payoffs in 2005 that
all of a sudden the industry cannot survive without them. And
let me reiterate: The Leahy-Kohl-Grassley-Schumer bill will not
prohibit drug companies from reaching settlements. It only
prohibits settlements in which a brand company pays a generic
company to stay off the market, something that generic
companies in every other instance fight tooth and nail. They
want to get into the market. And here all of a sudden they are
saying, Oh, no, give us some money and we will stay away. And
who is hurt? The consumer.
So there is no reason to make these specific settlements
illegal. We just need to make sure that the bright line we all
keep talking about is the right line and that we do not
accidentally trap settlements that are pro-consumer in with the
bad ones. When consumers have access to lower-cost drugs, we
all win. But as long as we let stand the appellate court
decisions that encourage brand and generic companies to split
up the pie between them and not give the consumer even a
forkful, we are accepting higher drug prices for the average
American.
Mr. Chairman, I am proud to have worked with you and your
very capable staff over the last several months on this issue
and proud to be a cosponsor of the act. I look forward to
continue to working with you to prohibit settlements that harm
the consumer, and I would ask unanimous consent, because now
they are beeping me and I have got to go to vote, to submit
written questions for the record.
Thank you, Mr. Chairman. Thank you, Senator Hatch.
Senator Kohl. Senator Hatch?
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE
STATEMENT OF UTAH
Senator Hatch. Well, Hatch-Waxman was not written just for
consumers. It was written for consumers. It was written to
create the modern generic drug industry, which it did. Like you
say, it went from about 16 percent to now close to 60 percent.
It was written to provide some of the solutions that Mr.
Tauzin mentioned of loss of patent life that just was not fair.
If you create a widget or a pen, you have got 20 years of
patent life. Like you say, 17\1/2\ years and you can have
market exclusivity for that pen that you used here today. Drug
companies are spending up to $1 billion for every drug they
create and lose up to 15 years of patent life, leaving them 5
years left in some cases. So we did a classic compromise by--
and the bill is called the Drug Price Competition Patent Term
Restoration bill.'' And because of that, PhRMA has done very
well. Generics have become dominant in the drug field without
killing PhRMA, and consumers have benefited greatly.
Now, what we are concerned about here is there are some
things that are wrong with the way this works, and Mr.
Wroblewski and Mr. Hirsh raise some issues here. And so do Mr.
Tauzin and Mr. Downey.
Now, interestingly enough, I know--I believe I know all
four of you, but I specifically know Mr. Downey and Mr. Tauzin
very well. Mr. Tauzin and I sat for hours and hours month after
month on that Medicare Modernization Act, and I saw a real
master in action there trying to bring about a way whereby
consumers would benefit, which they certainly have.
Mr. Downey has been one of the leaders, and he took a
company that was not all that dominant to where it is not only
dominant in the generic drug industry, but also becoming very
influential in the area of the PhRMA industry as well. And I
commend you for that.
But, you know, let's be honest about it. This I don't think
should be a question between a bright line and doing nothing.
There may be some way that we can do this so that consumers
benefit, generics benefit, brand-name companies benefit. If we
take the incentives away, which the House bill just did a week
ago--we are the leading pharmaceutical country in the world
because we have--even with the fact that we lose so many years
of patent life, because of a robust set of PhRMA companies and
set of generic companies.
Well, my principal question for the panel is the same, and
I will start with you, Mr. Tauzin, and I for one know both of
you have benefited from very important drug discoveries. And
thank God for that. You are both tremendous people, leading
your industries in what I consider to be tremendously
influential ways. And I believe that you two consumer advocates
are doing the same for your people.
But my principal question for the panel is the same one
that I focused on with Commissioner Leibowitz. I would like
each of you to expand on the arguments regarding the relative
merits of a bright-line rule versus a case-by-case review--you
will notice I did not say do nothing, but a case-by-case
review--and then I would like each of you to address the
question of whether it would be sufficient to reduce the
incentives to enter into settlements predicated on reverse
payments by modifying the 180-day exclusivity period.
Now, it seems to me that changing the way the exclusivity
period operates would substantially reduce the incentives to
agree to reverse payments agreements, or whether you believe
adopting a bright-line rule--and I take it the two in the
middle probably do agree with that--whether that bright-line
rule is necessary.
I would also be interested in hearing specific changes to
the 180-day exclusivity period that you would support.
Why don't we start with you, Mr. Downey, and then go across
the table. And then I have a couple of questions for Mr.
Downey, if I could, before this is over.
Mr. Downey. Well, as I have testified, we oppose the
bright-line rule. We think it has very serious unintended
consequences that are negative for our company, for our
industry, and for consumers, and I--
Senator Hatch. Well, you have argued that the bill would
prohibit several of the statements which occurred over the past
decade, even those which have allowed generics to enter the
market earlier than would have been possible had the lawsuit
not been brought or lost.
Mr. Downey. It probably would have prohibited half a dozen
or more of the settlements that we have that brought the
products to market earlier than patent--
Senator Hatch. Would you provide the Committee with the
cost to consumers if this legislation had been in effect in the
last 10 years, this proposed legislation?
Mr. Downey. Yes, we can provide that, and I have said just
in the two cases--
Senator Hatch. Could you do that for us?
Mr. Downey. The two instances I testified about, Prozac and
Tamoxifen, those two alone saved consumers over a billion and a
half dollars, and clearly would not have been available had we
not settled.
Senator Hatch. Almost $2 billion, actually.
Mr. Downey. Well, Prozac was decided a year early. We would
have still gotten some benefit in Prozac, but the year
accelerated would have been lost without the settlement.
Senator Hatch. OK.
Mr. Downey. Now, I also heard from Senator Specter what I
thought was a very interesting idea in the case-by-case method,
and that is to have the settlements presented to the court for
approval at the time they are entered into. That is something
that is very standard procedure in securities litigation and
class action litigation to ensure that members of the class are
adequately protected by the settlement. And I think it would be
entirely appropriate to have those settlements presented to the
court for the court's review. I think that would be an
excellent suggestion or alternative to the proposed
legislation.
Senator Hatch. The court could decide at that time whether
it was a violation--
Mr. Downey. Yes, they could decide at the time whether it
was a violation or not. You know, without taking too much time,
I think there is a very clear area of the law--and this applies
to patents all over, you know, whether it is electronics,
automotives, plastics, whatever--and that is, patent holders
have a monopoly that is granted by the Government, and they can
settle cases so long as they do not expand that monopoly power
that has already been granted; that is, they cannot expand its
scope or the duration of the patent.
If you take the Andrx case, the Sixth Circuit case, which
ruled that something was per se legal, that case did expand the
patent, and it was properly found to be unlawful under existing
law. The Tamoxifen case and the Valley Drug case did not expand
the scope of the patent and properly determined under existing
law to be valid, and I think that kind of analysis could be
handled by the court very readily and under existing law and
then there is no need for legislation.
Senator Hatch. Before I move across the table, let me just
say while you are talking, why can't the money that is now paid
as a pharmaceutical patent settlement--or pharmaceutical patent
settlements, why can't that money always be translated into
additional days of early market entry for the generic company?
Mr. Downey. Because the parties generally have a different
view of the case in two different respects: one, the strength
of the case; and, second, the value of the entry for the
generic and the cost of allowing that entry from the brand. And
those variables change over time, as you learn more about the
case or as new products get introduced or whatever. So there is
a huge amount of uncertainty. Just restricting it to that one
variable of early entry, I think it is very hard to bridge the
gap on these variables. We have had settlement discussions in
20- some cases that I have conducted and settled about three-
quarters of them. And when we cannot settle, it is because you
cannot bridge that gap.
What these collateral arrangements do, whether it is an R&D
partnership, whether it is buying a product, licensing a
patent, these other exchanges of value have different--those
assets have different value for the two parties, and you are
able to bridge the gap that you cannot bridge on the early
entry through these collateral agreements. In every case that
we have settled, except Prozac, we got early entry, and that
reduced the patent life, demonstrably pro-competitive, and many
of the settlements had these other collateral issues. The only
ones that get settled for early entry only are two kinds of
cases: one, where the product itself is very small, or where
the remaining patent life is very short. In those two cases, we
have settled maybe a half a dozen times for early entry only
without some collateral agreement. The rest of the time the
complexity that I have just described makes it impossible to
bridge the gap on early entry alone, and it is most readily
bridged by these collateral agreements, which we have done a
number of.
Senator Hatch. All right. Thank you.
Mr. Wroblewski?
Mr. Wroblewski. Three thoughts to relate to you.
First, in terms of why we support the bright-line rule,
other than what we talked about in the testimony, in the
written testimony, when you go back and you look at really the
only comprehensive study of agreements in which each agreement
has been examined, settlement agreement, which is in the FTC's
Generic Drug Study, from the period 1992 through 2002 every
settlement agreement that had some type of compensation being
paid from the brand company to the generic company, in nearly
every one of them the entry date was actually at the date when
the patent expired. There may be anecdotal evidence in terms of
maybe entry comes in 6 months before the patent expires. But if
you look at the evidence--and the only evidence that is really
out there in terms of an examination of each agreement--my
concern is that in the future they will just push the generic
entry basically in line with when the patent expires. That, of
course, goes against the entire intent in my reading of Hatch-
Waxman.
Senator Hatch. But if the court had a right to review that,
I think the court would find that offensive.
Mr. Wroblewski. Sure. My only concern with having a court
review it is, unlike the idea of when, say in an antitrust
case, the judge is looking to see whether the class action
settlement is fair, it is really applying the same law that it
has just had the trial on. In this particular instance, you are
asking a patent judge who has just been looking at the patent
issues to now apply a whole different--a new set of laws. They
are going to have to look at antitrust law to measure whether
the settlement is in the public interest. And my concern with
that is, with the split in circuits between the Sixth Circuit
and the Second Circuit, which law, what law is the patent judge
now going to apply when looking at the settlement agreement
from an antitrust point of view?
My concern with using kind of a case-by-case analysis is
that my reading of Tamoxifen and the Schering decision, the
Eleventh Circuit's Schering decision, I do not really believe
that the courts have given sufficient deference to Congress in
terms of the incentives that have been put into Hatch-Waxman to
encourage early challenges.
For what other purpose was the 180 days implemented but to
encourage generic challenges? And so I do not think the
Congress--or I do not think the courts have kind of given that
deference to the law that has really kind of altered the
balance of the way patents work in this particular industry.
And it is within Congress's ability, and it is in your right,
to alter the patent rights as you see fit.
My last comment is on the 180 days, whether there are
suggestions to change it. I think when Congress amended Hatch-
Waxman back in 2003 and we had this whole discussion then, I
think at the time, talking about whether to go back to the
successful defense that the FDA had used or the use it or lose
it, I think we can keep the use-it-or-lose approach to the 180
days. I do agree with Mr. Downey in terms of making sure that
there is a way to trigger--having a second generic being able
to trigger that 180 days so, you know, it does not cause the
bottleneck, the 180 does not cause the bottleneck. And I think
we have put in our testimony, as I am sure he has in his, ways
to amend that 180-day trigger. But I would not amend the entire
structure that was settled in 2003.
You know, the one thing I keep kind of looking back at,
when Congress looked at that in 2003, the state of the world in
terms of these types of settlement agreements was that you had
two district courts who had basically said these are per se
illegal. You know, these appellate courts in Tamoxifen and in
the Schering case had not yet ruled, and Congress thought the
only way to--it is my reading that Congress thought the only
way--that we should keep that, that that is a fine balance to
have. So the per se rule was actually in effect back in 2003.
It is only subsequent events that have changed that through the
two court decisions.
So I would leave Hatch-Waxman as it stands with that one
amendment to change the trigger to eliminate the bottleneck.
Senator Hatch. Well, if you will recall, the Schumer-McCain
bill passed overwhelmingly. It only had one vote against it in
the Senate. Guess who that vote was?
Mr. Wroblewski. I do remember, yes.
Senator Hatch. And it never passed. To me it was a great
overreach and would have screwed up Hatch-Waxman. This is a
very complex bill, but it has worked very, very well. And it
took a lot of time to negotiate this and a lot of fights. And
one time I threatened to kill all of the people representing
PhRMA and the generic industry. I literally did. I had a bad
tooth that needed a root canal, and I was in no mood, and they
were arguing and yelling around, and I just threatened to kill
them all. Frankly, that seemed to bring them together a little
bit.
[Laughter.]
Senator Hatch. Mr. Hirsh, you are next.
Mr. Hirsh. Senator Hatch, I guess I should begin by saying
I absolutely agree that this is a wonderful piece of
legislation and has achieved a great deal, and I am not just
saying that because you threaten to kill witnesses.
[Laughter.]
Senator Hatch. Well, I have not threatened you yet.
Mr. Hirsh. Let me address what I think are the points that
you are raising and that are being raised in response.
The first issue really relates to a patent being a
monopoly, and it goes back to Senator Specter's remarks at the
beginning about what did the Eleventh Circuit mean when they
had this phrase about, ``exceeding the scope of the patent''.
The difficulty you have in these settlements is the
following: Everybody agrees if a patent covers Drug A and you
enter into a settlement where you also agree not to compete
about Drug B, you are off the reservation. I mean, there is no
case that is going to accept that result: that is beyond the
scope of the patent. That is not really the issue, and it is
not what we are here discussing.
The issue is this: Suppose you have patents where
privately, like the example I gave during my oral testimony and
in my written testimony about Cephalon, where the companies
believe there is a 30-percent chance that the brand company
will prevail in this fight--or you can give it another
percentage, 40, 50, 60. If the law says you can avoid that
fight going to resolution by having the brand company pay the
generic to drop the fight, what you are saying is if the cases
went to resolution, the brand company would win whatever
percentage, 3 out of 10, 4 out of 10--say there are 10 cases, 5
or 6--and they would lose in the remaining number of cases.
Let's take the number 5 for convenience. If you allow the
payment from the brand to the generic, you are allowing a
situation in which all 10 of those cases result in zero
competition and zero benefits for the consumer. If you have
those cases go to litigation, you end up with the result that 5
of them expect to come to the result that there is competition
and 5 not. If you have a settlement in which they cannot
negotiate on the basis of money, but instead have to argue
about the length of the time on the patent, you end up with an
agreement in which at arm's--length the generic and the brand
company have weighed the strength of the patent and come in
with a time of entry that reflects the weakness of the patent.
Now, Mr. Downey says, well, we have got these settlements
with collateral agreements, and Representative Tauzin gave the
example of Schering-Plough. Schering-Plough is really a good
example on the collateral agreements of what I do not
understand this legislation to raise as a problem, which is
there may well be win-wins between brand and generics on other
things. In Schering-Plough, there was a cross license. The
generics had some drugs under patent, and the brand company--in
that case, Schering-Plough--paid money and they said, ``We are
paying for the cross license.''
Now, there is a factual dispute in the case--and nobody
here is going to be able to sort it out--as to whether that was
a real payment or not--whether these cross licenses were worth
it. But if those cross licenses are worth it, if they are
legitimate, that is not a situation where the brand is paying
off for the generic. The brand is paying the generic for a
license. That is a legitimate deal. And if that is a win-win
and that you helps you close the settlement, it helps you close
the settlement, and there is nothing that I understand in this
bill that necessarily prohibits that. The problem is when the
money is not being paid for that. When it is not being paid for
some other value, that is what creates the problem.
Now, as for the 180-day provision, that is a glitch in the
statute. It is something that should be fixed, but it does not
solve this problem for a number of reasons. First of all, even
if you have a situation where you can have multiple generics
come in to challenge the patent, there is enough money to enter
into settlements with all of the generics. That is exactly what
happened in Cephalon, and there is not--it is in some ways
worse to have--five sets of patent litigation settled with
reverse payment settlements. It involves more litigation, more
payments by the brand company, and no more competition in that
scenario than any other scenario. So it does not really address
the incentive to do it.
Second, the 180-day provision really does create a special
incentive for competition. It is one of the brilliant aspects
of the legislation itself. Every other generic manufacturer has
less incentive to compete than the one you are settling with if
they are the ones holding the 180-day exclusivity provision. So
you already enter into a deal that in any other setting--''Pick
off your main competitor and pay them not to compete'' are
words for an antitrust violation. There is no reason why you
should permit that, and so the two are really different
problems.
The final point is the alternative of having a court review
it. Conceptually, it is a conceivable resolution to the
problem. It has some weaknesses. First of all, it does not get
you the benefits of a bright-line rule in stopping the lawsuits
in the first place and making the process legitimate. And it
does not allow, ironically, the market solution of having the
arm's-length resolution. Instead what you have is a
superimposed solution of what the court thinks a resolution is
right. And often per se rules are opposed for the opposite
reason. We do not want courts to do that.
But a second basic problem with it is the one that Mr.
Wroblewski talked about, which is ``what standard should be
applied? '' It does not solve the entire problem. If you simply
say we will have courts look at it, look at it as they did in
Tamoxifen, look at it as they are going to do in Cephalon, who
knows what they are going to do with it; look at it as they did
in Schering-Plough; look at it as they did in Cardizem. If the
court does not have any guidance to do it, you solve no problem
at all by saying let's have the court look at it. The court
still needs to be instructed.
Senator Hatch. Well, but one standard by making this a pro
se violation--I mean per se, excuse me, violation, that may not
work well either.
Mr. Hirsh. I think it does because I think what you are
eliminating by the reverse payment is what you want to
eliminate. It is a situation in which a payment is the problem.
It is not the settlement. Once you eliminate the payment, you
have incentivized the brand and generic to reach a competitive
settlement, and that is fine. And they can settle by saying,
``I have something of value to sell to you, and you are willing
to pay for it.''
Senator Hatch. So that just creates more litigation.
Mr. Hirsh. No, it does not because, first of all, when--
currently under the system, if you have a blockbuster drug, if
you have a drug that is selling a billion dollars a year, there
is an inherent incentive for a generic company to come up with
any argument to file an ANDA-IV. It is true they have to show
that it is a bioequivalent. It is not no work at all. But there
is a huge incentive to come in there. Why? Because if they can
pick any plausible fight at all, they have something that has
potential value to it, which is $2 billion of potential sales
of a competitor with an awful lot of money to pay off.
Now, any plaintiff's lawyer will tell you if you have got a
pot of gold to go after, if you look at securities suits with
the market capitalization involved in securities suits, people
bring them because there is an enormous amount of money at the
end, and far less because there is tremendous merit in every
single one of the cases that is being brought. We are
incentivizing people to go after that money as opposed to a
system that incentivizes people to come in when they really
genuinely want to compete and settle the case by agreeing for a
time for competition to start. If you take away the payment
they will agree they will come in and genuinely compete.
Imagine what would happen to securities litigation if you
eliminated a damage remedy. You would not have more litigation.
You would have vastly less if you had just injunctive relief.
So the system creates a bad incentive for that type of
litigation and less focusing on what the genuine disputes are,
less teeing up the right issues for the right dispute with a
resolution that harnesses the market.
Senator Hatch. Let me hear from Mr. Tauzin, and I am sorry
I have taken so longer here, but these are important questions,
and your responses are very important to us.
Mr. Tauzin. Senator Hatch, Senator Kohl, let me first set
some records straight.
One, we are not again generic companies. I am holding up a
generic pill made by Teva that I take, that a half-hour before
surgery prevented me from having to go through serious surgery
this summer on my liver, and I proudly take it every day. It is
a good drug. It is a copy of a patented drug that somebody else
spent a lot of money to develop, and it is now on the market as
a generic, and I am using it. You know, I have got some
interest in this as well on a personal level.
Second, we are not just talking about big brand companies
and small generic companies. In some cases, we are talking
about big generic companies and very small innovators who are
members of our association. We have got some companies who just
had their first drug approved in our association. And there are
lots of small, innovative companies that haven't had their
first drug approved, and they have been in business for 10 or
12 years. They are still waiting for that first approval. And
so these are contests very often over the patent life of those
drugs that involve different size players. It is not just big
and little, as you might, you know, think ordinarily.
Third, we are talking about a patent life that the patent
holder is entitled to unless his patent is invalid. We are not
talking about settlements that extend the patent life beyond
what the law gives them. So, you know, you hear comments in
here that seem to indicate we are somehow settling cases to
keep generic drugs of the market even longer than the patent
life that the law allows for the inventor. That is not true. We
are simply talking about whether or not the patent life is
going to be shortened for the inventor because of a dispute
over whether it is a valid patent, done properly, or the new
generic company that wants to come in is not infringing. That
is a debate. And in those cases, there are issues, obviously,
that will yield to settlement rather than to litigation. So
that is what we are talking about.
Now, could we help make sure those settlements are in the
public interest? Yes, I think there are some ideas that you
have discussed today that we would love to talk to you some
more about.
I am a little concerned, Senator Hatch, about the 180-day
provision. It was one of the beautiful elements of Hatch-Waxman
that really encouraged generic companies to come in and test
patents.
Senator Hatch. It is a critical element.
Mr. Tauzin. Yes, and it is part of the balance. That has
produced 60-percent generic use in this country, bigger than
any country in the world, again. So I would be concerned about
messing with it too much.
On the idea of letting the judge who is handling the
dispute under whatever standard that makes sense review it,
that is worth discussing. That might be an idea that works.
First of all, even Senator Schumer indicated, you know,
even though he favors a bright line, he has indicated there are
good settlements, and we ought to have some review to see which
one is a good one and which one is a bad one. My concern,
again, is that if you begin saying what elements of a
settlement you cannot ever have, you may make some of these
settlements impossible. And, therefore, you may hurt consumers
in the end, and you may require small innovators to stay in
court longer than they should, at great expense, to protect
their patents and, therefore, damage their viability.
You may damage generic companies by forcing them to stay in
court longer than they should to get a resolution of the legal
issues involved.
So, Senator Hatch, Senator Specter, I respectfully say we
would love to sit down and talk some more and visit and see
whether there is some other solution. Senator Kohl, I--
Senator Hatch. Well, we would love to hear from all of you.
Mr. Tauzin. I am just concerned about saying here is an
element you cannot have in a settlement just because it looks
bad. If it looks bad but it really is good for consumers, maybe
the court ought to have the right to say that. If it just looks
bad and it is bad, kick it out. It should not be there.
In the end, the judgment ought to be that this helps
resolve legal disputes that create uncertainty create legal
fights that last too long, cost the companies, cost consumers
unnecessarily and in favor of settlements that end these
disputes, and let Hatch-Waxman work the way it was intended to
by allowing generic companies to enter into the field when they
should have a right to be there.
Senator Hatch. Mr. Chairman, I love both sides of the
industry and consumers, and, frankly, these matters are not
simple matters. This is complex. Hatch-Waxman is complex. There
are not too many people that understand it at all in the
Congress of the United States. I have to say there are some
very good staffers who do in many respects.
But there has been a lot to think about here today, but I
have got to tell you these two industries have done so much for
America, no question about it. And I get tired of people
picking on one or the other, to be honest with you. Both have
served this country well.
But there are wrongs, and when there are, current laws many
times take care of them. But there needs to be some tinkering
here. Even you admit, Mr. Tauzin, that there are bad deals
sometimes, and I think you would agree with that, Mr. Downey,
as well.
Mr. Downey. We do.
Senator Hatch. And if the law is not taking care of those
bad deals, then we have to come up with a way of doing it.
In the case of you, Mr. Wroblewski, and you, Mr. Hirsh, we
would like your ideas on this. Personally, I am having some
troubles with having a one-size-fits-all answer to this. I have
got an open mind on it, and you have certainly--not that I mean
that much, but the fact of the matter is that I would like to
see if there is some way that we can bring everybody together
still in the best interests of the two manufacturers and the
consumers as well.
Mr. Tauzin. Senator, would you indulge me just 1 second
longer? I just want to give you an insight that came to me in
the last several years since I have been in this job. I have
had a chance to go visit a lot of the young scientists working
on these new medicines. There is a guy in California, a young
scientist working on a medicine for hepatitis B and C, and
there are 500 million people on this planet who are going to
die from those diseases, about 10 years before they effect on
you, kill you. This guy is working on a solution. One guy.
All I am asking you to consider is the long-term effects of
what you do in terms of that process, because there are
patients all over the world waiting for that scientists and
others to invent the drug that eventually the generic companies
will copy and bring in at a cheaper cost later on, but who are
spending years and years of their life and who dream of nothing
else but finding the answer to hepatitis B or C or whatever
disease plagues us.
There is a balance here. You talked about it. All we ask is
that we make sure this model does not break down, because if it
breaks down, for the sake of patients who are currently getting
the benefit of a medicine, if we give up what is happening in
terms of the incredible research to find the new medicines that
are going to take care of those diseases that wreck us and ruin
us, that you got to be a little careful that you do not damage
that model to the point where it does not work anymore. We are
on that brink right.
Senator Hatch. Well, Mr. Chairman, I am sorry I have taken
so long, but I do not want either of these industries hurt.
There are some people here who think PhRMA is all big
businesses. I think you have made a pretty good case that it is
a wide variety of businesses, including big businesses. There
are some very big generics right now. Yours is one of them,
Barr, Teva, a number of others.
In the end, if we hurt these companies by bad legislation,
we are going to hurt the consumer in the end. On the other
hand, if we allow really what is improper activities to
continue--and I have to say I have been pretty forthright about
some of what I consider to be improper activities--then we hurt
the consumer even more.
So we have to find some way of resolving these problems so
that the system works, but we certainly do not want to kill our
industry. I love the Washington Post coming out against the
House bill over there, which seems to be a political
retribution bill more than a bill to protect consumers. And the
Post recognized, as I have noticed they do, they recognize that
we do not want to kill these industries. We are the leaders in
the world today, and our hope for the future of controlling
health care costs is going to be just how successful you folks
are and what we can do with stem cell research and bio as we go
down through the years. And if we are successful in those,
especially bio and stem cell research, if we are successful in
individual therapies based upon genetics for individual people,
I got to tell you, we might be able to avoid an awful lot of
Medicaid and Medicare costs that are going to swamp the Federal
budget in the future unless we can find some ways around it.
So I want to commend you for the work that you do, and I am
sorry I have taken so long, but--actually, you have taken most
of the time. I have just been very reasonable.
[Laughter.]
Senator Hatch. But this has been an extremely interesting
hearing to me, and I just want to compliment all of you, and
compliment you, Mr. Chairman. I am going to really enjoy
working with you, as I always have, and this is a very
important hearing, and I hope we will hold some others as well
on other matters.
Senator Kohl. Thank you for your contribution, Senator
Hatch.
Senator Grassley?
STATEMENT OF CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE STATE
OF IOWA
Senator Grassley. Mr. Chairman, I am not going to ask any
questions. First of all, I did not think I was going to be able
to be here at all. I am very interested in this subject and am
a cosponsor of the bill, but I was working with Senator Baucus
to get a small business tax provision out of the Finance
Committee, which we just got done, so it would be ready for the
minimum wage bill. But now that this Committee was still
meeting, I wanted to stop by and let everybody know that I am
going to continue working with the Chairman of the Committee
and other members of this Committee on this legislation. I
think it is needed. I would not preclude the possibility of
compromise and listening to every point of view as just
expressed by Senator Hatch. But I think there is a lot in this
area that needs to be done, and I think the most important
thing is to make sure that the marketplace works and is not
frustrated from the standpoint of when patents have expired, we
ought to expect generics to get to market as soon as possible.
So in the process of doing that, I wanted to stop by and
express my support and regret why I could not be here for the
entire hearing. I will have a chance to be briefed on
everything that was said. And I assume that it is Chairman
Leahy's intent to move ahead with this legislation. I, at
least, hope so.
So I thank Senator Leahy and you for your work and for
putting my statement in the record. Thank you.
[The prepared statement of Senator Grassley appears as a
submission for the record.]
Senator Kohl. Thank you very much, Senator Grassley.
Gentlemen, we appreciate your being here, as well as
Commissioner Leibowitz. This has been a very good hearing on a
very complicated and a very important topic. You have shed a
lot of light with your discussion this morning. We appreciate
the time you have given us and the wisdom that you have brought
to the issue. Thank you so much.
The hearing is adjourned.
[Whereupon, at 12:10 p.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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