[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
     BIOLOGICS AND BIOSIMILARS: BALANCING INCENTIVES FOR INNOVATION

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


                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 14, 2009

                               __________

                           Serial No. 111-73

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov




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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
BRAD SHERMAN, California             GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida               BOB GOODLATTE, Virginia
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       DARRELL ISSA, California
BRAD SHERMAN, California             GREGG HARPER, Mississippi
MIKE QUIGLEY, Illinois

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JULY 14, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2

                               WITNESSES

The Honorable Anna G. Eshoo, a Representative in Congress from 
  the State of California
  Oral Testimony.................................................     7
  Prepared Statement.............................................    10
Mr. Bruce A. Leicher, Senior Vice President and General Counsel, 
  Momenta Pharmaceuticals, Inc., Cambridge, MA
  Oral Testimony.................................................    14
  Prepared Statement.............................................    16
Mr. Jeffrey P. Kushan, on behalf of the Biotechnology Industry 
  Organization (BIO), Woodrow Wilson School of Public and 
  International Affairs, Princeton, NJ
  Oral Testimony.................................................    38
  Prepared Statement.............................................    40
Mr. Alex M. Brill, Research Fellow, American Enterprise Institute 
  (AEI), Washington, DC
  Oral Testimony.................................................   173
  Prepared Statement.............................................   175
Mr. Jack W. Lasersohn, General Partner, Verticle Group, on behalf 
  of National Venture Capital Association (NVCA), Arlington, VA
  Oral Testimony.................................................   181
  Prepared Statement.............................................   184
Mr. Larry McNeely, Healthcare Reform Advocate, U.S. Public 
  Interest Research Groups (USPIRG), Washington, DC
  Oral Testimony.................................................   189
  Prepared Statement.............................................   191
Ms. Teresa Stanek Rea, President, American Intellectual Property 
  Law Association (AIPLA), Washington, DC
  Oral Testimony.................................................   196
  Prepared Statement.............................................   198

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Howard Coble, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Courts and Competition 
  Policy.........................................................     4
Prepared Statement of the California Healthcare Institute (CHI) 
  submitted by the Honorable Darrell Issa, a Representative in 
  Congress from the State of California, and Member, Subcommittee 
  on Courts and Competition Policy...............................   224
Bloomberg Article submitted by the Honorable Darrell Issa, a 
  Representative in Congress from the State of California, and 
  Member, Subcommittee on Courts and Competition Policy..........   233
Bloomberg Article submitted by the Honorable Brad Sherman, a 
  Representative in Congress from the State of California, and 
  Member, Subcommittee on Courts and Competition Policy..........   239

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Bruce A. Leicher, Senior 
  Vice President and General Counsel, Momenta Pharmaceuticals, 
  Inc., Cambridge, MA............................................   244
Response to Post-Hearing Questions from Alex M. Brill, Research 
  Fellow, American Enterprise Institute (AEI), Washington, DC....   252



     BIOLOGICS AND BIOSIMILARS: BALANCING INCENTIVES FOR INNOVATION

                              ----------                              


                         TUESDAY, JULY 14, 2009

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:20 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Johnson, Gonzalez, Jackson Lee, 
Watt, Sherman, Issa, Goodlatte, and Coble.
    Staff Present: (Majority) Christal Sheppard, Subcommittee 
Chief Counsel; Eric Garduno, Counsel; Rosalind Jackson, 
Professional Staff Member; (Minority) and Blaine Merritt, 
Counsel.
    Mr. Johnson. This hearing of the Subcommittee on Courts and 
Competition Policy will now come to order.
    Without objection, the Chair will be authorized to declare 
a recess of the hearing.
    Under current law, generic versions of the chemical 
pharmaceutical products may be introduced through an expedited 
pathway that allows generic makers to rely on the safety and 
efficacy test data of an original Food-and-Drug-Administration-
approved drug. This dramatically reduces the cost of entry for 
generics, which has translated into substantial savings to 
customers. The Congressional Budget Office has estimated that 
consumers save $8 billion to $10 billion a year, thanks to the 
price competition from generics.
    There is, however, no equivalent statutory pathway for 
generic versions of biological pharmaceutical products, 
otherwise known as biosimilars. Congress has explored the 
creation of a generic pathway for biosimilars for some time, 
but it wasn't until this Congress that real momentum has built 
behind such a legislative endeavor. This is in large part due 
to the effort by Congress and the Obama administration to pass 
comprehensive health care reform. Many believe that 
establishing a pathway for biosimilars will contribute to our 
efforts to reduce the cost of health care.
    Creation of a pathway for biosimilars has been a 
contentious issue. Much of the debate concerning such a pathway 
revolves around whether the science is perfected enough to 
determine if a biosimilar that relies on an innovator's test 
data will have the same health benefits as the innovator drug 
without additional health risks. Additional concerns center on 
the intellectual property protections afforded drug innovators 
and how the nature of those protections will impact 
competition, future biotechnology industry investment and the 
cost of biological pharmaceutical products.
    It is, without a doubt, that the development of new 
biologics is an expensive endeavor. Estimates put average 
development costs as much as $1.37 billion. It is also without 
a doubt that the cost of pharmaceutical products, and in 
particular biologics, is huge. In 2007, pharmaceutical 
expenditures accounted for $231.3 billion in health care costs, 
and biologics represented $40.3 billion of this total.
    The question before us today is how to frame the 
intellectual property protections in a pathway for biosimilars 
that incentivizes the extraordinary investment required to 
develop new biologics but does not discourage biosimilar 
introduction.
    I look forward to our hearing with the distinguished 
witnesses that we have on board who will comment on whether 
there should be a long data exclusivity period that 
significantly delays biosimilar competition, whether 
biotechnology patents are broad enough to apply to biosimilar 
products and processes, and the extent to which other factors 
provide market-entry barriers that will limit biosimilar entry 
and thereby protect innovators.
    I now recognize my colleague, Mr. Howard Coble, the 
distinguished Ranking Member of the Subcommittee on Courts and 
Competition Policy for his opening remarks.
    Mr. Coble. Thank you, Mr. Chairman, and I thank you for 
having called the hearing which addresses an important health 
care issue and directly affects subject matter that is a 
portion of the Judiciary Committee's jurisdiction.
    Mr. Chairman, I will try not to be too verbose, but this 
subject is very detailed and very complex; perhaps not so 
detailed and complex to the scientifically adept, but I belong 
to the scientifically inept group, and to me, it is very 
complex.
    The Hatch-Waxman Act, which is almost a quarter century 
old, gave birth to the generic chemical drug industry, as we 
all know. By most accounts, it has worked well by balancing the 
interests of brand manufacturers, generic companies, and 
patients. It has generated greater price competition in the 
pharmaceutical industry without destroying the incentive for 
brands to conduct further research and roll out new products 
that benefit patients worldwide.
    In recent years, Mr. Chairman, legislators and other health 
care experts have contemplated the creation of a similar 
legislative pathway for a generic biologics industry. This 
discussion not only resurrects some of the same issues 
confronting Congress during consideration of Hatch-Waxman, it 
also invites debate over the wisdom of using Hatch-Waxman as an 
appropriate template for biosimilars.
    As I said at the outset, I am no expert in the fields of 
biology, chemistry, or recombinant DNA, but I do understand the 
basic difference between chemical pharmaceuticals and 
biologics.
    Chemical drugs are usually produced in pill form. They are 
chemically synthesized and comprised of small molecules. 
Compared to biologics, chemical pharmaceuticals are far easier 
to manufacture and replicate.
    Biologics are made, as we know, from living organisms. They 
are normally comprised of protein and are increasingly a part 
of recombinant DNA research and production. Their 
characteristic properties include a high molecular weight, 
varying levels of hard-to-remove biological impurities, and a 
high degree of sensitivity to environmental conditions. The 
manufacturing process is therefore critical to the final 
product. This complexity means one cannot guarantee that 
reproduction of a biological drug results in an exact 
duplicate.
    This is not the case for chemical pharmaceuticals regulated 
under Hatch-Waxman since it is chemically identical to the 
innovator drug. That is why the term generic biologic is 
technically inaccurate, it seems to me. Biosimilar or follow-on 
biologic would be preferred.
    In our quest to develop a legislative pathway for 
biosimilars, we must keep these differences in mind. While the 
Judiciary Committee's jurisdiction does not include public 
health and related safety issues, all Members, whatever their 
Committee assignments, cannot discharge the importance of 
protecting patients. Any bill we end up supporting cannot 
sacrifice public safety on the alter of potential cost savings.
    I have some more to say, Mr. Chairman, but in the interest 
of time, I would ask unanimous consent to have my entire 
statement put into the record, and we hope that we will have a 
balanced and talented roster of witnesses, which we will have, 
who will add to our understanding of this complex subject.
    I look forward to participating and thank you again, Mr. 
Chairman, for having called the hearing.
    Mr. Johnson. Without objection, that will be done, Mr. 
Coble.
    I thank the gentleman for his statement.
    [The prepared statement of Mr. Coble follows:]
 Prepared Statement of the Honorable Howard Coble, a Representative in 
    Congress from the State of North Carolina, and Ranking Member, 
             Subcommittee on Courts and Competition Policy







                               __________
    Mr. Johnson. Without objection, other Members' opening 
statements as well will be included in the record.
    I am now pleased to introduce the witness for the first 
panel of today's hearing. Our first panel will feature 
Congresswoman Anna Eshoo.
    Representative Eshoo, you are the top dog on this panel, 
there is no question about it.
    Ms. Eshoo. Wait until I tell my children.
    Mr. Johnson. You may want to put this in the new book that 
you are coming out with also.
    Representative Eshoo has served in Congress since 1993 and 
represents California's 14th Congressional District, which 
includes large portions of Silicon Valley. She serves on the 
House Energy and Commerce Committee and on the House Permanent 
Select Committee on Intelligence. In addition, Representative 
Eshoo co-chairs the Congressional High-Tech Caucus and the 
House Medical Technology Caucus and serves as Vice Chair of the 
21st Century Health Care Caucus.
    Representative Eshoo, please proceed with your testimony.

 TESTIMONY OF THE HONORABLE ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Good afternoon, Mr. Chairman, and thank you very 
much for allowing me to be here today to give testimony on the 
issue of biosimilars before this distinguished Subcommittee.
    Ranking Member, Mr. Coble, a good and long-time friend, to 
my friends Congressman Gonzales and Congressman Watt, thank you 
for being here.
    This is a very important, yet complex, discussion, to 
develop a regulatory pathway for biosimilars that, as Mr. Coble 
and others have said, protects patients--protects patients, 
that must be our number one goal--while balancing incentives 
for innovation.
    The field of biotechnology is the future of medicine. We 
are just beginning to scratch the service of the potential to 
harness the extraordinary power of biology and the astounding 
natural processes which occur in the human body, in animals, 
and in other living organisms to advance breakthrough medical 
discoveries and treatments.
    This vital future, in my view and I am sure yours, must 
advance. But the cost of biologic treatments are very 
expensive, and I think the time has come to develop a pathway, 
as the Congress did many years ago and was mentioned by the 
Ranking Member, to develop a pathway for biosimilar products in 
our country the way we did for pharmaceutical compounds.
    Now, what exactly do I mean when I say develop a pathway 
for biosimilars? In 1984, the Drug Price Competition and Patent 
Term Restoration Act, better known as the Hatch-Waxman Act, 
ushered in a new era of competition and cheaper drugs for 
traditional pharmaceuticals, called compounds. It is now 
appropriate for us to create a pathway for follow-on versions 
of biologics.
    But biologics and traditional drugs are fundamentally 
different, and they require different legal and scientific 
frameworks. First, we need to understand the differences 
between biologics and traditional drugs.
    Many of us take a prescription or an over-the-counter drug 
frequently. Each time we reach for a pill, we expect the same 
safety and efficacy, whether we are using a brand name or a 
generic drug.
    Small molecule chemical compounds of traditional drugs are 
ideal for replication as generics. These products have well-
defined structures that can be thoroughly characterized and 
copied, and generic drugs are chemically identical, chemically 
identical, to the brand name products they copy. Doctors and 
patients can expect the generics will have the same properties, 
the same efficacy and the same safety characteristics as the 
product that they copied.
    Biological products are fundamentally different. A biologic 
is a large complex molecule which is grown in living cells, in 
living systems, such as a microorganism, a plant, or an animal 
cell. The resulting protein is unique to the cell lines and the 
specific processes that are used to produce it, and even slight 
differences, even the slightest differences, in the 
manufacturing of a biologic can alter its nature. And that will 
have an effect on the patient.
    As a result, biologics are difficult and sometimes 
impossible to characterize, and laboratory analysis of the 
finished product is insufficient to ensure its safety and 
efficacy.
    I brought a chart. They say a picture is worth a thousand 
words. You see on the stand here the chart. These are both 
breast cancer treatments. The top is Tamoxifen. That is a 
small-molecule compound. You can see its simplicity. The 
picture says it all.
    Below it is Herceptin, and that is a biologic. Look at the 
complexity of that biologic.
    Even if a biosimilar is proven to be safe and effective, it 
will likely still have different properties than the original 
innovative product. There may be differences in dosing, 
different side effects or safety profiles, and differences in 
effectiveness for certain diseases or for different patient 
groups.
    Biologics are expensive, and they are risky to develop. A 
recently released study sponsored by the National Venture 
Capital Association analyzed the relative cost for investors in 
biotechnology and found that the cost of capital for startup 
biotech companies is more than double the costs that other 
companies must pay. These costs stem from long developmental 
timelines of typically 10 years or more and extraordinary 
levels of risk.
    Fewer than 1 percent of biologics make it to the market. 
Imagine that. Fewer than 1 percent. And the large amounts of 
capital required to support this development are at the other 
end of the scale.
    So, to preserve the existing incentives for investment and 
innovation, the Pathway for Biosimilars Act provides a data-
exclusivity period equivalent to patent protections for small 
molecules. The Congressional Budget Office has determined that 
11.5 years is the average length of time that drugs are 
marketed under patent. In other words, innovative drugs and 
biologics typically stay on the market for about 12 years 
before facing competition. My legislation maintains this level 
of protection for biologics.
    Now, today innovators are assured that the costly clinical 
trial results and data that they develop during their approval 
process cannot be used by competitors to secure approval and 
enter the market even if their patents do not prevent entry. In 
effect, innovators today have infinite data protection, which 
allows for competition but doesn't permit free-riding on their 
data.
    I am proposing to allow competitors access to their data 
and a shortcut into the market, but we preserve through the 
legislation the existing incentives for innovators by 
maintaining a 12-year period of exclusivity of concurrent data 
protection as a backstop to existing patent protections.
    In order to protect the rights of all parties and ensure 
that all patent disputes involving a biosimilar are resolved 
before, and I emphasis the word before, the expiration of the 
data-exclusivity period, H.R. 1548 also establishes a simple, 
streamlined patent resolution process.
    This process would take place within a short window of 
time, roughly 6 to 8 months after the biosimilar application 
has been filed with the FDA. It will help ensure that 
litigation surrounding relevant patents will be resolved 
expeditiously and prior to the launch of the biosimilar 
product, providing certainty to the applicant, the reference 
product manufacturer, and the public at large.
    Unlike any other proposal, our legislation also preserves 
the ability of third-party patent holders, such as universities 
and medical centers, to defend their patents.
    Once a biosimilar application is accepted by the FDA, the 
agency will publish a notice identifying the reference product 
and a designated agent for the biosimilar applicant. After an 
exchange of information to identify the relevant patents at 
issue, the applicant can decide to challenge any patents' 
validity or applicability. All information exchanged as part of 
this procedure will be maintained in strict confidence and used 
solely for the purpose of identifying patents relevant to the 
biosimilar product. The patent owner will then have 2 months to 
decide whether to enforce the patent, and if the patent owner's 
case is successful in court, the final approval of the 
application will be deferred until the patent expires.
    So this legislation I think sets forth a straightforward, 
scientifically-based process for an expedited approval of new 
biologics based on innovative products already on the market, 
with patient safety coming first. This new pathway will promote 
competition and lower prices and, most importantly again, 
protect patients and give them the safe and the effective 
treatments and I might say the hope that this represents to 
really conquer the most dreaded diseases that still plague 
humankind, and all through the scrutiny and testing by the FDA.
    The legislation enjoys today 130 bipartisan cosponsors, 
many on this Committee, the House Judiciary Committee, and it 
is known as the Kennedy Bill in the Senate. Last evening, the 
Health Subcommittee in the Senate voted the bill out 16-7, 
which I think is really quite a victory for the legislation. 
After all, it is complicated and enormously complex, as well as 
enormously important.
    I also want to note that the bill is endorsed by the 
Association of American Universities, the National Venture 
Capital Association, the Biotechnology Industry Organization, 
the Governors of four States, and a wide array of patient and 
industry groups.
    Mr. Chairman and distinguished Members of the Subcommittee, 
I appreciate being welcomed here today. It is an honor to 
testify before my House colleagues.
    I thank you, and I stand willing to answer questions, 
should you have any.
    [The prepared statement of Ms. Eshoo follows:]
          Prepared Statement of the Honorable Anna G. Eshoo, 
       a Representative in Congress from the State of California






                               __________

    Mr. Johnson. Thank you, Madam Congresswoman. It is our 
pleasure to host you today.
    Without objection, your written statement will be placed 
into the record.
    I now call for the second panel to take their seats. Thank 
you.
    I might add here also that Representative Waxman has 
introduced a similar bill, and he was offered the opportunity 
to come today, but he is very much tied up with the health care 
issue, so he could not make it.
    Ladies and gentleman, our second panel will begin with 
Bruce Leicher. Mr. Leicher is senior vice president and general 
counsel at Momenta Pharmaceuticals, which is an innovative 
biotechnology company engaged the development of novel and 
follow-on biologics. Prior to joining Momenta, Mr. Leicher 
served in leadership capacities in a number of other 
biotechnology companies.
    Mr. Leicher also served as a law clerk to the Honorable 
Thomas F. Hogan in the United States District Court for the 
District of Columbia.
    Welcome, sir.
    Next will be Jeffrey Kushan, who is a partner with Sidley 
Austin and serves as the Chair of the firm's D.C. Patent Group. 
Mr. Kushan specializes in Hatch-Waxman and biotechnology patent 
litigation, patent appeals, and complex patent administrative 
proceedings. He represents several biotechnology clients 
including, Genentech. Today he is representing the 
Biotechnology Industry Organization.
    Welcome, sir.
    Following will be Mr. Alex Brill, who is a research fellow 
at the American Enterprise Institute and CEO of the consulting 
firm Matrix Global Advisers. He is former chief economist and 
senior adviser to the House Committee on Ways and Means, and 
has served on the staff of the White House Council of Economic 
Advisers. His expertise lies in U.S. Federal tax policy, 
budget, trade and health care policy.
    Welcome, sir.
    Mr. Jack Lasersohn will be our next witness, who is a 
founding general partner of the Verticle Group, one of the 
Nation's oldest and most successful venture capital firms, 
which focuses on health care venture capital investments. Mr. 
Lasersohn has served on the board of directors of 40 public and 
private companies and currently serves on the board of 
directors of the National Venture Capital Association, which he 
is representing today. He is also the named inventor on six 
U.S. patents.
    Welcome, sir.
    Next will be Mr. Larry McNeely, who is a health care 
advocate for the United States Public Interest Research Groups, 
otherwise known as USPIRG. Mr. McNeely advocates for 
legislation that will tame rising health care costs and offer 
consumers better choices in the health care marketplace. Prior 
to joining USPIRG, Mr. McNeely dedicated nearly a decade of his 
life to working as a community activist, political organizer, 
and union representative.
    Welcome, sir.
    Last will be Ms. Teresa Rea, who is a partner in the 
Washington, D.C., office of Crowell and Moring and is a member 
of the firm's Intellectual Property Section. Her work there 
focuses on complex patent litigation, prosecution and 
procurement. Ms. Rea is also a registered pharmacist in the 
State of Michigan and worked for years as a hospital 
pharmacist. Ms. Rea is president of the American Intellectual 
Property Law Association and is representing the association 
today.
    Welcome, ma'am.
    Thank you all for your willingness to participate in 
today's hearing. Without objection, your statements will be 
placed into the record, and we will ask that you limit your 
oral remarks to 5 minutes.
    You will note that we have a lighting system that starts 
with a green light. At 4 minutes, it turns yellow, and then red 
at 5. After each witness has presented his or her testimony, 
Subcommittee Members will be permitted to ask questions subject 
to the 5-minute rule.
    Mr. Leicher, would you please commence with your testimony, 
sir.

   TESTIMONY OF BRUCE A. LEICHER, SENIOR VICE PRESIDENT AND 
 GENERAL COUNSEL, MOMENTA PHARMACEUTICALS, INC., CAMBRIDGE, MA

    Mr. Leicher. Thank you, Mr. Chairman.
    Good afternoon, Mr. Chairman, and Members of the Committee. 
Thank you for the opportunity to participate today. I am Bruce 
Leicher, senior vice president and general counsel at Momenta 
Pharmaceuticals. I believe I offer a unique perspective.
    Serving as counsel to biotech companies for almost 20 
years, I have worked on the development and launch of some of 
the earliest breakthrough products, including EPO, recombinant 
factor VIII and IX, and many others. I have participated in 
numerous financings and collaborative research deals between 
biotech and large pharma. I have served on product development 
committees that seek to balance risk versus reward. I have 
experienced the joy of meeting parents whose children's lives 
have been transformed by biologics. I have also participated in 
many of the seminal biotech patent cases that determined market 
exclusivity and biologic patent strength. I understand 
biotechnology's potential to save lives.
    Momenta also offers a unique perspective in this debate. We 
are a biotech company that develops both generic and novel 
therapeutics. We use innovative technology to characterize or 
better understand the picture that Congresswoman Eshoo 
presented earlier, and we use this technology to control the 
manufacture of complex drugs and potentially biologics. We are 
seeking a balanced approach. We believe Waxman-Deal offers that 
approach, and I will explain why Eshoo-Barton does not.
    I would like to address three key points. First, the law 
should let science drive both brand and biogeneric innovation 
so that we can develop breakthrough therapies and affordable 
biologics to patients. Second, we must not use data exclusivity 
and other barriers to reward inefficient and non-innovative 
R&D.
    Third, thee patent clearance process should promote health 
care reform through timely access to affordable products. It 
must be transparent, efficient and respectful of both brand and 
biogeneric intellectual property. Each of these objectives we 
believe are best served by the Waxman-Deal bill.
    Patents drive innovation. They drive speed to market and 
already favor biologics. A complex web of patent rights 
provides substantial protection for each biologic, its genetic 
code, its biologic pathway, the technology it uses, its 
manufacture and formulation. While some argue that individual 
patent claims may be somewhat less certain, the aggregate of 
this web provides many multiple defenses.
    Notably, biologics generally have more market exclusivity 
during their brand life than drugs. Add to this 5 years of 
patent extension, and I have to ask, why should biologics need 
more data exclusivity than drugs to recoup investment?
    Beyond that, brand innovation and competitiveness are 
motivated by limited data exclusivity as well. Extended data 
exclusivity will attract capital, but the wrong kind. It will 
promote low-risk, non-innovative development, and make biotech 
in the long run far less competitive. Biotech funding should be 
directed to innovative, patentable new cures. Or is our goal to 
offer brand exclusivity profit for me-too products?
    Biogeneric innovation and safer biologics also need limited 
data exclusivity to attract capital. Momenta's first project 
was to characterize low molecular weight Heparin, a biologic-
like drug. Having an ANDA pathway available made it possible to 
finance Momenta and develop its innovative technology.
    We thoroughly characterized Heparin, including its 
potential for immunogenicity. Notably brand companies assert 
that this is not possible, yet continue to market the products. 
This matters today and tomorrow.
    We are applying these tools to develop the first 
biogenerics and to enhance patient safety. Last year, Momenta 
used these tools to assist MIT and other academic centers, in 
collaboration with the FDA, to identify the contaminant in 
Chinese-sourced Heparin. Because of the ANDA incentive and 
limited data exclusivity, we were able to do the work and knew 
what should and should not be in the Heparin product.
    So let me sum up. The wisdom of Hatch-Waxman was that it 
did not dictate investment decisions. Rather it put guardrails 
and incentives in place that reward innovation and assured 
affordability at a time when products matured. Breakthrough 
innovation was aligned with return on investment, and biotech 
flourished in the 1980's and 1990's, creating high-paying jobs 
and critical new cures.
    As the first generation of breakthrough biologics emerges 
from patent protection, will we learn from this experience?
    Will we support legislation like Waxman-Deal that uses the 
competitive incentive of biogenerics to promote long-term 
competitive advantage, global leadership and job growth? Or 
will we ignore this wisdom and allow R&D investment to veer off 
track?
    Will we create a fertile environment for biologics 
companies to invest in the hard science, to understand and make 
biologics safer and better, and will we let the patent system 
drive efficiency and high rewards for breakthrough biologics as 
biogenerics provide affordable access to mature products?
    As I see it, this is exactly what health care reform is all 
about.
    Thank you for this opportunity, and I would be pleased to 
answer any questions.
    [The prepared statement of Mr. Leicher follows:]
                 Prepared Statement of Bruce A. Leicher












































                               __________

    Mr. Johnson. Thank you, Mr. Leicher.
    Mr. Kushan, will you proceed with your testimony now, sir?

TESTIMONY OF JEFFREY P. KUSHAN, ON BEHALF OF THE BIOTECHNOLOGY 
 INDUSTRY ORGANIZATION (BIO), WOODROW WILSON SCHOOL OF PUBLIC 
            AND INTERNATIONAL AFFAIRS, PRINCETON, NJ

    Mr. Kushan. Thank you, Mr. Chairman and Members of the 
Committee, for providing BIO with an opportunity to testify 
today.
    BIO supports creation of an abbreviated regulatory pathway 
for biosimilar products. A viable biosimilar pathway will 
increase competition and improve access to the remarkable 
biomedical advances our industry has delivered over the past 20 
or 30 years.
    A biosimilar pathway will be successful only if it 
preserves the incentives that exist today in our vibrantly 
competitive and innovative biotechnology industry. If it does 
not, fewer new biological products and treatments will ensue to 
the detriment of patients with unmet medical needs. And given 
the decade-plus time that it takes to bring a new biological 
product to market, we simply cannot afford to guess wrong about 
the proper incentives for this field.
    BIO is encouraged to see there is widespread support for 
several critical elements of any biosimilar regime. First, 
nearly all stakeholders agree that data exclusivity must be 
part of an abbreviated biosimilar pathway.
    Data exclusivity is a regulatory mechanism that functions 
by deferring when biosimilar products can be approved on the 
basis of the innovator's clinical data. The differences of 
opinion that exist now revolve around how long the data 
exclusivity period should be and how it should relate to 
continued clinical development of products.
    Currently, as Representative Eshoo pointed out, biological 
products have an unlimited period of data exclusivity. This is 
because there is no pathway today that lets another biotech 
company free-ride on the clinical investments of a first 
innovator.
    Biotech innovation has flourished in this environment. We 
have seen constant innovations resulting in new protein 
therapeutics, new ways of exploiting cellular processes to 
treat diseases, new diagnostic tools, and new manufacturing 
techniques for making proteins. Indeed, the manufacturing 
innovations Mr. Leicher just pointed out that his company has 
developed have been made in this environment where there is 
unlimited data exclusivity.
    Actual experience shows that innovators also do not stop 
clinically developing their products in this environment, 
despite being given essentially an unlimited period of data 
protection. Instead, it shows that innovators continue to 
invest heavily in new clinical development and research on 
their approved biological products and have brought hundreds of 
important new treatments to the market for the benefit of 
patients.
    I think these real-world results are the simplest answer to 
the various theories we have heard suggesting that excessive 
data exclusivity will somehow hinder innovation and slow the 
delivery of new clinical benefits to patients.
    The real question is not whether it should be provided; it 
is, how much should it be shortened by a biosimilar pathway?
    Some have suggested that data exclusivity provided today 
for small-molecule drugs will be adequate for biological 
production. Several factors explain why this is not true.
    Studies have shown that in the small-molecule area, on 
average, generic competition starts around 12 to 14 years after 
the innovator product is launched. Patents are why that 
happens. Patents can do that because any generic drug must be 
structurally identical to the innovator product.
    That means drug innovators do not need broad patent claims 
to protect their investments. They can protect their innovative 
drug products with what we call picture claims on the exact 
molecule. All this means is that a small-molecule drug 
innovator deciding whether to make the investment and start the 
10 to 15 year path to develop and bring a new drug to market 
today can assume that their patents, if they are upheld, will 
prevent the marketing of an infringing generic product until 
those patents expire.
    This is not going to be true for biological products. 
Biosimilar products will invariably have different structures 
than innovator products. The biosimilar bills we see today all 
do not require structural identity.
    Compounding this problem is the problem that most biotech 
patents issuing today are narrow. Let me say very clear, these 
are not weak patents. They are very strong and effective 
patents. They are just narrow patents. The same uncertain 
science that makes it difficult to make an exact copy of a 
biological product is actually why we have narrow patent 
rights.
    Together, these two factors make it impossible for an 
innovator to predict when it is deciding to invest in 
development of the product whether its patent estate is going 
to provide effective protection against a future biosimilar 
product, and that is why the Hatch-Waxman model as it exists 
today cannot be directly applied to the biosimilar environment. 
This patent loophole must be closed by the data exclusivity 
provisions.
    BIO strongly supports the data exclusivity provisions of 
H.R. 1548, introduced by Representative Eshoo. We believe that 
provides the appropriate balance. It also incorporates fair and 
balanced patent review procedures that will precede approval of 
a biosimilar, and importantly includes regulatory linkage.
    Thank you.
    [The prepared statement of Mr. Kushan follows:]
                Prepared Statement of Jeffrey P. Kushan






























































































                              ATTACHMENT A


















































                              ATTACHMENT B
















                              ATTACHMENT C




































































































                              ATTACHMENT D






                               __________

    Mr. Johnson. Thank you.
    Mr. Brill, please proceed with your testimony, sir.

     TESTIMONY OF ALEX M. BRILL, RESEARCH FELLOW, AMERICAN 
           ENTERPRISE INSTITUTE (AEI), WASHINGTON, DC

    Mr. Brill. Thank you.
    Thank you, Chairman Johnson, Ranking Member Coble, and 
other Members of the Committee for the opportunity to appear 
before the Committee today to testify on an important matter 
currently before Congress, creating a pathway to allow for more 
competition within the biologic drug sector.
    My name is Alex Brill, and I am a research fellow at the 
American Enterprise Institute.
    Biologic drugs offer great promise for improving outcomes 
in health care. While it is costly and risky to produce 
products for development, they offer some of the best hopes for 
treating some of the Nation's most deadly and debilitating 
diseases.
    As you noted in your opening statement, Mr. Chairman, 
currently there is no expedited process by which a biogeneric 
product could enter the U.S. market. While many experts who 
discuss the expected market dynamic for biogeneric competition 
make reference to small-molecule drugs and generic small-
molecules that emerged after enactment of Hatch-Waxman 
legislation, it is important to understand the critical 
differences between traditional pharmaceutical and biologics 
drug markets.
    Not only are there scientific differences between these 
drugs, as Congresswoman Eshoo described in her testimony, but 
because of the cost, uncertainty and complexity in biologic 
drug development, a competitive biologic drug market will be 
very different than the market for small-molecule generics.
    As described in the recently released FTC report on this 
issue, ``Competition from follow-on biologic drug entry is 
likely to resemble brand-to-brand competition rather than 
generic drug competition. Branded manufacturers are likely to 
continue to reap profits after follow-on biologic entry.''
    As the FTC reports, high barriers to entry will limit the 
number of generic competitors to only a few. The result, 
according to FTC, will be price declines for biogenerics of 10 
to 30 percent. However, in small-molecule drugs, generic prices 
typically decline up to 80 percent. These more modest price 
effects on a percent basis relative to small-molecule drugs 
means that the need for additional market protection for 
biologic drugs facing competition is weaker as innovator drug 
companies will continue to be able to profit from their 
innovations after a follow-on competitor has entered the 
market.
    The additional protections granted by the Hatch-Waxman 
legislation for small-molecule drugs gives innovators greater 
confidence that they would have sufficient time to generate the 
necessary rents to recoup their R&D costs. This additional 
protection was deemed necessary due to the particular dynamics 
of that industry.
    However, the FTC argues that biologic drug patents are 
collectively stronger than small-molecule drug patents, making 
the need for additional protections unnecessary. In the eyes of 
the FTC, none of the problems inherent to small-molecule drug 
patents apply to biologic drugs, and they advocate no 
additional protection beyond that given by the patent system.
    I do not take as strong a stand against an exclusivity 
period as does the Federal Trade Commission. The cost of 
providing modest additional intellectual property rights to 
drug originators will likely outweigh the potential costs.
    Research I conducted demonstrates that an exclusivity 
period of 7 years is sufficient to ensure that innovator drug 
companies continue to earn the necessary economic rents. 
Modeling included in the recent FTC report further extends that 
model and finds support for the view that 7 years of market 
exclusivity will be sufficient. Proposals that establish a long 
period of market protection will lead to unreasonably large 
rent for originator drug companies and provide no additional 
benefit to consumers.
    Ultimately, it is a balancing act, promoting innovation by 
shielding the company from market competitors, and promoting 
innovation and price competition by allowing market entrance.
    Yet as these proposals have become more complex, another 
important issue has come to the fore, that of tiered 
exclusivity. Post-launch R&D involves costs, albeit less than 
the original development costs, and should be encouraged, since 
it only stands to reason that a drug's original developer has 
the best knowledge of their own invention.
    However, when thinking about the optimal amount of 
protection to give an improvement to an existing drug, we must 
once again return to the basic question of the particular 
market dynamic. An improvement that enlarges market share would 
increase profits further, thereby mitigating the amount of 
needed exclusivity. Furthermore, the more exclusivity that is 
expected to be attached to a drug for its improvements, the 
shorter the period that needs to be given to a newly approved 
drug initially. In my view, the total exclusivity period, 
including extensions, should be close to 7 years.
    Thank you. That concludes my statement. I look forward to 
your questions.
    [The prepared statement of Mr. Brill follows:]
                  Prepared Statement of Alex M. Brill














                               __________

    Mr. Johnson. Thank you, Mr. Brill.
    Next, Mr. Lasersohn, please proceed.

   TESTIMONY OF JACK W. LASERSOHN, GENERAL PARTNER, VERTICLE 
   GROUP, ON BEHALF OF NATIONAL VENTURE CAPITAL ASSOCIATION 
                     (NVCA), ARLINGTON, VA

    Mr. Lasersohn. Mr. Chairman, thank you for inviting me to 
testify today on behalf of the National Venture Capital 
Association, which represents nearly 500 venture capital firms 
who in turn invest more than 90 percent of all venture capital 
in the United States.
    Last year, we invested over $3 billion in over 100 new 
biotechnology companies and currently manage over 1,000 
biotechnology companies in our portfolios.
    It is probably not well-known that the venture community is 
the primary founder and funder of biotechnology in the United 
States. Indeed, it is not an exaggeration to say that venture 
capitalists founded the biotechnology industry in the 1970's 
and 1980's. For example, both Amgen and Genentech were founded 
by venture capital firms, and even today supply nearly all of 
the capital for early-stage biotechnology companies.
    In turn, our entrepreneurial biotechnology companies 
discover and develop the overwhelming majority of new 
biological drugs in the world. I cannot emphasize this point 
enough. The last time we looked at this, these companies were 
responsible for 80 percent of the new biological drugs in the 
entire pipeline of biotechnology development.
    While we have been actively involved in this behind the 
scenes, we have in fact not participated in testimony before 
the Congress before, and we did not have an opportunity to 
testify to the FTC. If we had, we would have said the 
following:
    We absolutely support a well-designed FOB process that will 
ultimately lower prices and improve access for biologicals for 
consumers while preserving investment in discovery and 
development of revolutionary new biotechnology drugs.
    The FOB system endorsed by the FTC will absolutely not 
accomplish these goals. Instead, it will result in a dramatic 
reduction in our ability to fund new drug discovery, leading to 
a Pyrrhic victory in which we have very cheap versions of old 
biologics and a vast reduction in the pipeline of new drugs 
which have the potential to revolutionize medicine. Both goals 
are important.
    Now, this may sound like a rehash of arguments against 
Hatch-Waxman in 1984, but this really is different. First, the 
current biotechnology industry bears no resemblance to the 
pharmaceutical industry in 1984. Most small-molecule drugs were 
discovered by large pharmaceutical companies in those days, and 
still are today.
    As I said, in contrast, virtually all new biological drug 
development today are discovered by small, private, VC-funded 
start-ups. This is an absolutely critical difference. These 
companies have no cash flow and depend entirely upon us for 
financing. We in turn invest in these incredibly risky, 
illiquid and very long-term investments, and usually lose money 
on about 50 percent of them.
    To justify this risk and time, we must produce a return 
that is much higher than you can get from less risky 
investments and much higher than large biotechnology and 
pharmaceutical companies need to make. If we don't get those 
returns, in turn our investors will not give us money to invest 
in biotechnology, and indeed, that is already beginning to 
happen.
    This return is our cost of capital and is much more than 
the 10 percent that has been assumed by supporters of other 
more aggressive FOB systems. In fact, it is over 20 percent, as 
a new Harvard and Boston University report showed that was just 
published last week. All of the published models demonstrate 
that with a 20 percent cost of capital, or even a blended cost 
of capital of 10 to 12 to 15 percent, we cannot break even on 
these enormously risky investments if generic follow-on 
biologicals competition can enter the market immediately or as 
little as 7 years after our drugs. If we cannot break even, we 
cannot invest.
    The second difference is how patents work in this system as 
compared to the generic biological system. The difference is 
obvious and simple. Under Hatch-Waxman, a simple composition-
of-matter patent gives you enormous certainty that you can 
preclude generic competition during the life of the patent. It 
gives you a reasonable period to recoup your investment. Under 
an FOB system, you have no such certainty, because an FOB does 
not have to be identical with the approved drug. So a 
composition-of-matter patent, which is the strongest type of 
patent, may be completely irrelevant and unprotective.
    The FTC dismisses this point by arguing that other 
biological patents may offset this risk. Unfortunately, this is 
just speculation with which many experts disagree. And what 
matters to us most is it creates uncertainty, which is what 
actually affects our investment decisions, venture capital 
investment decisions. I can tell you, despite the what the FTC 
argues, that I and other VCs cannot rely on patents alone to 
continue to make investments in early-stage biotechnology 
companies.
    The data exclusivity period of 12 years that we are 
requesting is merely insurance against the possibility the FTC 
and the proponents of more radical FOB systems are wrong in 
their speculations about how strong patents will be. If they 
are correct, patents will give us 12 years anyway and the data 
exclusivity will be completely irrelevant. But if they are 
wrong, the data exclusivity will simply give us the same period 
to recoup our investments that the pharmaceutical industry 
already has under Hatch-Waxman. This seems to us like a prudent 
compromise to avoid the enormous unintentional--unintended 
damage to our entire entrepreneurial biotechnology industry.
    Thank you for your attention, sir.
    [The prepared statement of Mr. Lasersohn follows:]
                Prepared Statement of Jack W. Lasersohn










                               __________

    Mr. Johnson. Thank you, sir.
    Last, but not least, Ms. Rea--Mr. McNeely. I am sorry.
    Mr. McNeely, please proceed.

 TESTIMONY OF LARRY McNEELY, HEALTHCARE REFORM ADVOCATE, U.S. 
    PUBLIC INTEREST RESEARCH GROUPS (USPIRG), WASHINGTON, DC

    Mr. McNeely. Not last, but perhaps least. We will see. I 
suppose you will judge.
    Thank you very much, Mr. Chairman, Mr. Ranking Member, and 
to Members of the Committee, for the opportunity and really the 
honor to testify here today.
    My name is Larry McNeely. I am the health care advocate for 
USPIRG, U.S. Public Interest Research Group. USPIRG is a 
federation of State-based public interest research groups. It 
is a nonprofit, nonpartisan public interest advocacy 
organization.
    I think much has been made about the truly miraculous 
results of some of these new biologic drugs, and I think, you 
know, that is a value that we all hold. But the one thing that 
hasn't changed with these new, more complex biologic drugs we 
are here to discuss, the laws of economics haven't changed. It 
is still true that those with the monopoly are going to 
continue to fight to keep that monopoly, whether it is in the 
marketplace or in the halls of public policy.
    Now, I suppose the Members of this Committee and Congress 
have a balancing act to strike here, to reward those who 
invested in the innovator drugs, the pioneer drugs, and also to 
encourage competition. And to give you that balance, I would 
like to actually return to where we started today, with the 
cancer biologic drug Herceptin.
    Approved by the Food and Drug Administration in 1998, this 
amazing medication, produced by Genentech, helps women fight 
off a particularly tough form of breast cancer. I believe it is 
related to the protein HER2.
    Herceptin has made a serious difference in that fight. Its 
use increases the disease-free survival rates of this type of 
breast cancer by 12 percent. And it did cost its maker--well, I 
say on average biologics like this cost their makers $1.2 
million to bring a drug to market. And, frankly, with that kind 
of risk, Genentech should, the maker of the drug, should profit 
for bringing a product to market that saves lives.
    But there is a serious danger in conferring too much 
intellectual property protection. In Herceptin's case, every 
year the drug manufacturer benefits from high monopoly prices 
conferred by exclusivity will cost patients both in dollars and 
in lives. Herceptin's high monopoly prices make it less likely 
and more expensive for insurers to cover it, and thus fewer 
patients with breast cancer have access to this life-saving 
medicine.
    Herceptin's patent protections, the legal mechanism that 
protects intellectual property in most industries, expired in 
2005, but Genentech continues to enjoy effective monopoly 
pricing power. They certainly made the most of it, charging 
$48,000 a year wholesale for their Herceptin treatment.
    So, how should a law strike a balance between access and 
future innovation on one hand and the manufacturer's need to 
profit from its investment in a great product? Rather than 
looking at research from one industry group or another, to fine 
the right balance, we examined an independent source, the 
Federal Trade Commission's report on follow-on biological drug 
competition. The report found that the patent system has a 
proven record of protecting and stimulating biotechnology 
innovation. In fact, they found in some ways biologic patents 
are stronger than chemical drug patents. In summary, FTC found 
that the pioneer biologic drug manufacturers can earn 
significant revenues many years after follow-on biologic entry, 
obviating the need for the 12- and 14-year exclusivity period. 
It is far too long.
    Finally, USPIRG's recommendations. The Hatch-Waxman Act 
established the generic drug program at FDA for chemical drugs 
and conferred patent extensions and 5 years exclusivity--
forgive me.
    It makes sense to learn from those successes. USPIRG 
believes that an approach such as that included in the 
Promoting Innovation and Access to Lifesaving Medicine Act of 
2009 represents the best option before Congress today.
    Mr. Chairman, we need a strong, vibrant markets for 
biologic drugs in this country, but we need markets that drive 
innovation, not those that reward monopoly.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. McNeely follows:]
                  Prepared Statement of Larry McNeely











                               __________
    Mr. Johnson. Thank you, Mr. McNeely.
    Last, but not least, Ms. Rea. Please.

      TESTIMONY OF TERESA STANEK REA, PRESIDENT, AMERICAN 
 INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA), WASHINGTON, DC

    Ms. Rea. Thank you. Mr. Chairman, Mr. Ranking Memberand 
Members of the Subcommittee, I am Teresa Stanek Rea, the 
president of the American Intellectual Property Law 
Association.
    For purposes of my testimony today, I represent the AIPLA, 
and I am not speaking on behalf of my firm or any firm clients. 
I am pleased to have the opportunity to present the views of 
the AIPLA at this hearing.
    As outlined in my biography, I have spent a good portion of 
my legal career working with patents related to biotechnology 
and pharmaceutical chemistry. I am also a registered pharmacist 
in the State of Michigan and have worked for many years as a 
hospital pharmacist. I think that this experience provides me 
with a unique perspective to discuss the issues before the 
Subcommittee today.
    AIPLA believes that should Congress create an abbreviated 
regulatory approval process for a follow-on biological product, 
it is essential that such a process contain a patent 
enforcement mechanism that preserves the value of intellectual 
property by including five specific provisions.
    First, a timely and confidential information exchange 
between patent owners and the biologic follow-on companies.
    Second, a streamlined, efficient litigation mechanism that 
encourages prompt resolution of patent infringement claims.
    Third, a corresponding opportunity for a follow-on product 
applicant to seek declaratory judgment.
    Fourth, procedures which apply the existing law of venue.
    And, five, have all remedies available to both parties, 
including damages and injunctive relief.
    The development of a new pharmaceutical or biological drug 
product is both expensive and unpredictable. Pharmaceutical and 
biotech companies depend on patents to protect their 
innovations and to provide some expectation that they can 
recoup their investments in high-risk research and costly 
clinical trials.
    The value of a patent is undermined if there is no 
effective mechanism to enforce it.
    With the Hatch-Waxman Act, Congress recognized the critical 
role of patents by creating a mechanism by which an innovator 
could enforce its patent before a generic product obtains FDA 
approval and is launched into the marketplace. The pending 
bills in the House attempt to develop procedures parallel to 
the Hatch-Waxman Act. They include mechanisms for prelaunch 
patent dispute resolution, which is the primary focus of my 
testimony today.
    If there were no procedures, or ones adopted were 
inefficient, this may undermine the value of valid patent 
rights and potentially cause an unnecessary drain on the 
resources of all parties as well as the judiciary. With these 
thoughts in mind, I would like to share some specific 
observations regarding the patent dispute resolution procedures 
proposed in the two bills.
    We believe that H.R. 1548 would encourage efficient, 
streamlined prelaunch patent litigation that would cover the 
follow-on product and employ procedures that would be less 
subject to gamesmanship and abuse.
    This bill addresses the need for an exchange of information 
concerning the follow-on product to allow a preliminary 
infringement analysis. The notice and certification provisions 
in H.R. 1548 would limit the patents that may be challenged to 
those which the patent holder believes are infringed by the 
follow-on product.
    This bill would also allow the follow-on applicant to bring 
a declaratory judgment action if an infringement suit is not 
filed on a timely basis.
    Conversely, H.R. 1427 has the potential to weaken the value 
of biotechnology patents by limiting the ability of the 
referenced product holder to assert its patents prior to market 
launch of a follow-on product.
    We believe that the bill lacks sufficient mechanisms for 
referenced product holders or third-party patent owners, such 
as universities, to obtain access to product and manufacturing 
information necessary to determine whether there is a good-
faith basis for asserting an infringement claim.
    At the same time, H.R. 1427 would appear to expand 
declaratory judgment jurisdiction to create opportunities for 
interested parties to challenge patents which may not cover 
either the referenced product or the planned follow-on biotech 
product.
    Lastly, the patent notification procedure in H.R. 1427 
includes ambiguous standards with severe penalties that may 
encourage additional patent challenges and create uncertainty 
in subsequent intellectual property transactions and 
litigation.
    Mr. Chairman, I appreciate the opportunity to present these 
views, and I look forward to any questions the Subcommittee may 
have concerning the observations and comments that I have 
presented.
    Thank you.
    [The prepared statement of Ms. Rea follows:]
                Prepared Statement of Teresa Stanek Rea




































                               __________

    Mr. Johnson. Thank you, Ms. Rea.
    And at this time, I will commence with my questions.
    Mr. Leicher and Mr. Kushan, in the Hatch-Waxman Act data 
exclusivity and patents work together to provide guaranteed 
market exclusivity for about 7.5 years. After that period, 
continued market exclusivity is contingent solely on the 
strength of the patents.
    Why wouldn't a similar system work in the biosimilar 
context?
    Mr. Leicher. We believe a similar system would work in the 
biosimilar and biogeneric context. Maybe it is worth taking a 
step back for a moment because there has been a use of the word 
biosimilar but not biogeneric this afternoon. We discussed this 
at the FTC as well. One of the things we believe Momenta is 
doing and many other biologics companies will begin to do over 
the next several years is develop the technology, and it's 
really the next generation of biologics, to characterize what 
happens in a cell after a protein is created from its gene, is 
understanding the black box that exists today in biologics 
manufacturing that's often referred to as post-translational 
events.
    I don't want to get too detailed, but that's what we have 
done at Momenta with the work with Heparin. We believe that 
once you are able to use this new technology, you are going to 
be able to characterize proteins and biologics with the same 
kind of specificity that one sees today with drugs. And that's 
what we have done in the heparin world.
    And so it's important to distinguish the two pathways. And 
the reason I bring that up is, I am very concerned, and we are 
very concerned, that if we adopt a law for the next 25 years, 
we are going to put in place a roof on the advancement of 
science. We need to have the pathway so that there's a reason 
for venture capitalists to invest in biotech companies to 
actually develop this new technology. And if we limit the world 
to biosimilars, we are going to fall behind in the global race 
in the biotech industry.
    Mr. Kushan. Thank you, Mr. Chairman.
    It's a very good question. The context for this debate, 
really is, when you center on Hatch-Waxman is, what is the 
expectation of the innovator regarding the time between the 
launch of the innovator drug and the time the generic 
competition begins? And that, in the Hatch-Waxman system, is 
predicated on the strength and the certainty that patent rights 
in that product will deliver.
    So when you are thinking, from an investment and pre-
innovation points of view, the Hatch-Waxman system is designed 
to provide, you know, the period that the patent will deliver 
for exclusivity.
    When you look at the statistics, that period is around 12 
to 14 years at this point. So for small-molecule drugs, you are 
seeing generic competition start 12 to 14 years.
    Now, the big difference when you shift over into the 
biosimilar environment is that there's a loophole that has been 
created. And that loophole is simply, unlike Hatch-Waxman, 
where it is prohibited to do this, a biosimilar manufacturer 
can essentially skirt the patent rights but then get the 
benefit of the clinical data to get on to the market much 
faster.
    And it's that character of the biosimilar product that 
creates the risk that is answered and addressed by a data 
exclusivity period that essentially provides a backstop for the 
patent rights.
    Now, one important perspective on this, I think 
Representative Eshoo pointed to this, if you have the system 
work as it has been designed, if you have it work as the FTC 
hopes it would work, where patents are delivering their 
intended purpose of 12 years or so of effective protection 
against biosimilar competition, then data exclusivity that is 
co-extensive with that period has no impact because the patents 
are working the way they should.
    The concern that is driving the call for a stronger data 
exclusivity period is precisely the uncertainty that exists 
that we can, as innovators, know that our patent rights will 
give us that protection, and that's essentially the major 
difference. You have in the Hatch-Waxman system, the ability to 
kind of get around the patents. You are similar enough, but not 
so similar to not rely on the clinical data.
    Mr. Johnson. Thank you.
    Mr. Brill, you suggest that 10 percent is the right value 
for the cost of capital.
    And Mr. Lasersohn, you suggest the figure should be closer 
to 20 percent.
    Can you both briefly explain this concept of the ``cost of 
capital'' and how you came up with different numbers and how 
they should affect data exclusivity?
    Mr. Brill. Thank you. The cost of capital is, without 
question, an important component into the calculation that 
investors would make when looking forward at a potential 
investment in a biologic. And it's also an important component 
into the modeling work that I have done, the FTC has done, and 
Henry Grabowski, a professor at Duke University, has done.
    The difference between 10, 11 or 12.5, which are cost-of-
capital estimates that I use in my modeling, and higher 
numbers, such as the 20 percent figure that was cited earlier, 
has to do with where in the process that cost of capital 
applies.
    Without question, the hurdle rates in venture capital are 
significantly higher than they are in later-stage development 
of biotech, but that's only one stage of the process. The 
proper cost-of-capital rate to consider is the average across 
the entire development process of a biologic drug. The cost of 
capital is very expensive at the beginning, but as a product 
develops and moves forward through the system, the risks 
decline and the cost of capital declines as well.
    So it may be expensive at the beginning to get funding, but 
many of our biologic drugs are provided by enormously large 
corporations that have access to equity markets as well as 
sophisticated debt markets, and cost of capital later in the 
process is much lower, thereby reducing the average cost of 
capital.
    Mr. Lasersohn. I think the simplest way to think about this 
is, there are two key points. The first is cost of capital is 
equivalent to going to a bank and borrowing money at 10 
percent. If you borrow money from a bank at 10 percent and 
invest it at 9 percent, you will be bankrupt.
    If you invest it at 11 percent, you will have positive cash 
flow. And so the rate of return that you need to make on an 
investment is related to what your cost of capital is.
    The problem with Mr. Brill's analysis is that, in fact, we 
have a chain of development that starts from universities, goes 
to the venture capital community, and then later goes to large 
pharmaceutical companies.
    If you break that chain at any point, if at any point in 
the cost of capital, the return on capital doesn't meet the 
requirements of whoever is supplying capital at that point, in 
particular, at that early linking of the chain, the chain is 
broken, and nothing gets developed; nothing ends up in the 
hands of large pharmaceutical companies.
    So that is really the key, the point that we are trying to 
make. If that chain is broken, which it indeed will be, if we 
have a data exclusivity, for example, if, in fact, our 
exclusivity is much less than what we think it needs to be, for 
example, under Hatch-Waxman, of 12 years, that chain will be 
broken, and there will be nothing left for the large 
pharmaceutical companies to buy and invest in because we will 
not have invested in them.
    Mr. Johnson. Thank you both.
    Thank you, Mr. Lasersohn.
    We have got one vote on the House floor in about 10 or 11 
minutes. So what we will do is have a brief recess so we can go 
over there and take care of that business, and we will be back 
quickly in about 15 or 20 minutes. Thank you.
    So we will stand in recess.
    [Recess.]
    Mr. Johnson. We are back in session, and Mr. McNeely is 
coming back; correct? I see some papers there.
    All right, what I would like to do is, Ms. Rea, I would 
like to ask you a question.
    You indicate that H.R. 1427 permits biosimilar makers to 
launch their products at risk. And if they do, is there not the 
potential for treble damages if a patent has been found valid 
and infringed? And isn't this a substantial enough risk to keep 
biosimilar products off the market until their patent has 
expired?
    Ms. Rea. I can't speak on behalf of all generic follow-on 
biologic companies, but the opportunity to launch at risk is 
rarely undertaken by most generic companies at this time.
    Business certainty is something that everyone wants, 
whether you are the patent holder or you are the follow-on 
biologic applicant. Yes, if there is litigation, there is the 
potential for treble damages. You run a potential risk that 
maybe the payment of treble damages--- it may be difficult to 
pay treble damages, depending on the economics of any 
particular company. So even if a patent holder succeeded in 
litigation and obtained treble damages, the likelihood of 
recovery is not something that would be guaranteed.
    Mr. Johnson. Okay. Thank you.
    Last, I would like to ask Mr. McNeely, most analysts, Mr. 
McNeely, believe that biosimilar market entry will only result 
in modest price increases. And, if so, how much would consumers 
and the Federal Government really save?
    Furthermore, will these savings be worth any uncertainty we 
may cause in the biotechnology company financing?
    Mr. McNeely. Mr. Chairman, thank you for the question.
    I would say that, especially given the value that the 
current market is putting on these high-tech biologic 
medicines, that, in fact, there is quite a bit to be saved. If, 
I believe the FTC's number was, if you will correct me, 10 to 
30 percent reduction in prices due to--or 10 to 30 percent 
market penetration if there is a generic competitor, and that 
that, one, would not have the effect of the generic competitors 
that now consume about--take about 70 percent of the chemical 
market when they come in.
    But the reality is, when you are talking about a drug like 
Herceptin, with $48,000 a year wholesale and we have seen 
reports of a lot more being charged to consumers, every little 
bit helps, and it helps a great deal in that respect.
    I am sorry, can you repeat your second question, Mr. 
Chairman?
    Mr. Johnson. Yes, I can. Will the savings that would be 
generated be worth any uncertainty we may cause in the 
biotechnology financing?
    Mr. McNeely. Sir, the biotech industry, while made up of 
small firms, certainly, is an extensive industry and a large 
industry, an important one. The reality is that the benefits of 
enhanced innovation that would come through a pathway, along 
the lines of what Hatch-Waxman did for chemical drugs, could 
actually benefit the industry as a whole over the long term and 
certainly would benefit consumers.
    Mr. Johnson. All right.
    And, Mr. Brill, would you respond to that part of the 
question?
    Mr. Brill. Thank you. I wanted to comment on the potential 
for cost savings from a competitive market for biologics.
    As was noted, the FTC and as well the Congressional Budget 
Office have made estimates of how much prices will decline. And 
it is far less than it does, than the price declines and the 
savings per drug that we see in small-molecule drugs.
    In aggregate, the savings will be quite substantial. It 
could be billions of dollars a year for the Federal Government 
and an equal amount for private payers. But because the prices 
won't collapse to the same extent they do for small molecules, 
that means that there are still opportunities for the innovator 
drugs to earn profits. They have a very large initial expense 
from developing this drug, over a billion dollars to bring a 
drug to market initially.
    We need a structure that ensures they can earn back profits 
to cover that expense. What's different in this market is that, 
even after we have generic entry, we will still have an 
opportunity for the innovator drug to make enough profit to 
help pay off that fixed, that sunk cost, that fixed cost. That 
is one of the differences in the dynamics of the market.
    It doesn't mean that there won't be savings, but there is a 
trade-off between the price decline effects and data 
exclusivity. So the less the prices are expected to decline, 
the less important it is, or, rather, the shorter duration of 
data exclusivity that we can have.
    Mr. Johnson. Thank you.
    Mr. Lasersohn.
    Mr. Lasersohn. Thank you, Mr. Chairman.
    I would just like to respond. I, with respect to the issue 
that increased generic or FOB competition, or that those 
competitors will be innovators, is something I have to admit I 
have heard over and over again, and I don't understand.
    It is absolutely the case that the FOB companies will 
produce price reductions, which may benefit consumers, but they 
have never been innovators. And I don't think they are 
suggesting, in fact, none of the ones I talked to suggest there 
are going be innovators in developing new drugs.
    That is my first point. Innovation will continue to come 
from branded, innovative, small entrepreneurial VC-backed 
companies.
    The second point is that the FTC's analysis was based, on 
what the effect of competition would be, it was based on many 
assumptions, which I have to say, I don't understand. One 
critical assumption is that their cost of entry would be very, 
very high, and that it is much higher than generic drugs, small 
molecules, and that they would have to make that return back. 
And this was in part based on the idea that they would have to 
spend $100 million or $200 million building plants to 
manufacture these drugs, which I can tell you is just not the 
case.
    I mean literally this morning we were approached, our firm 
was approached, by the Chinese-Taiwanese government with an 
offer to subsidize us to the tune of $50 million to build a 
bioreactor that could be accessed by the biotechnology, 
biosimilar industry. In essence, many governments around the 
world are going to build these plants essentially for nothing 
at their nickel. This is already happening in Singapore, 
Taiwan, Japan and in China.
    And the biosimilar companies are not going to have spend 
that kind of money. As a result, they are not going to have to 
make that money back, which means that they have much greater 
flexibility to reduce prices, far beyond what the FTC has 
assumed.
    So our group, the venture capital community, has looked at 
this very, very carefully. And we simply don't agree with that 
conclusion.
    Mr. Johnson. Thank you, sir.
    Mr. Leicher, did you have something you wanted to add also?
    Mr. Leicher. Yes, I just would like to comment, and that 
is, as I noted earlier, we really probably just disagree with 
the comment that the follow-on biologics industry is not an 
innovative industry. In fact, that is exactly what we are doing 
at Momenta and, we believe, at other companies.
    And that that data exclusivity actually works against that 
innovation, both on the brand side and on the innovator side. 
Let me just take a minute to say how. If you set up an 
excessively lengthy data exclusivity period, it is great from 
an investor point of view because it allows you to invest in 
lower-risk development activities, and that is what is being 
talked about when people are saying biosimilars have a patent 
loophole.
    If you invest in developing the second, third, and fourth 
version of an existing mechanism of action, all the hard 
science to discover the mechanism of action has already 
occurred. And what you are doing is essentially a drug 
development program, and that is a much lower-risk product. And 
you are not developing a new cure.
    And that was the beauty of Hatch-Waxman. What Hatch-Waxman 
did was it said to the brand industry, stick to your knitting, 
go out there and find new cures and get strong patent rights 
that lets you get the exclusivity you need.
    And it said to the generic industry, apply your science to 
find out how to make generic copies so that they can deliver 
affordable products that perform what the maturing biotech 
products today should be able to do in years to come.
    And if we are shortsighted enough, and this is what 
concerns us, to pass a law that assumes that we are only going 
to have biosimilars and assumes that it is not possible to 
advance this science, then we are going to make ourselves 
captive to what is happening in China because they will move 
ahead of us, and we will be competing with China.
    If we build our technology base in the United States and 
actually own the science here in our biotech industry for 
innovative biogeneric products, we really create an opportunity 
that keeps us ahead of the rest of the world.
    Mr. Johnson. This has turned into a spirited debate.
    I don't want us to take this too far. And I see a second 
round has been requested, but the water--I don't want to go 
near the water.
    So I am thinking probably now would be a good time to turn 
it over to the Ranking Member, Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman.
    And I thank the witnesses for appearing today.
    Mr. Brill, you mentioned it was costly and difficult to 
produce. It is indeed costly and difficult to produce. I don't 
know that the average person appreciates this, but if a 
chemical pharmaceutical company brings a state-of-the-art drug 
to market, it is going to incur a cost of about $800 million, 
give or take, give or take a dollar or two. It costs even more 
for a biotech firm to do the same thing in excess of a billion 
dollars. So you are talking about a whole lot of money, a heap 
of money as they say down home.
    Mr. Kushan, let me--strike that. I was going to get into 
the 12 versus 7 years, but I think that has pretty well been 
plowed through.
    Mr. Kushan, you don't endorse the findings of the 2009 FTC 
study on biosimilar drug competition. Explain briefly, if you 
will, why the study, in your opinion is flawed.
    And did you and other representatives of the innovator 
industry attempt to contribute to the study?
    Mr. Kushan. I will take the second half of that question 
first. We did, I mean, a number of companies, both biosimilar 
companies and innovator companies and a lot of different people 
spoke to the FTC and the process they were in. And it was a 
little bit surprising they didn't listen to any of us when they 
came up with a number of their assumptions that they then built 
a series of recommendations on.
    I think one of the things we take away from their report is 
that they believe, because patents will deliver 12-plus years 
of market security before biosimilars come on to the market, 
that justifies not providing any special data exclusivity 
period.
    And so that is the foundation of kind of why they--why they 
are saying, we don't need to create this data exclusivity 
period of 12 years.
    When I look at that, and then you kind of dig down into why 
they think there is no problem with patents, that is where I 
think the problems arise. They have looked at the patent 
standards in kind of an abstract way that doesn't reflect what 
actually happens in the patent office.
    One of the big issues we have flagged was that what we see 
in our current practices under current patent law standards is 
that, if a company does a research on a protein and you put 
that in a patent application and you send it to the patent 
office, the patent office will say, well, you can have that 
protein as your patent claim.
    And then you go back and forth, and you try to stretch out 
your claim to cover variations from this protein that you 
actually did your research on, and the PTO pushes back.
    And what that process ends up doing is giving you a 
relatively small number of alterations covered by a typical 
protein patent claim.
    Now, the FTC looked at the standards, and they said, oh, 
well, we think you can get variations up to 30 percent of the 
reference sequence. And that is where, they heard so many 
different people, practitioners, talking to them and saying 
this is not what is happening; we are seeing numbers in the 98, 
95 percent as a common one. And they just disregarded that.
    I think the other thing they failed to do was to really 
understand the impact of the loophole that we have been talking 
about today. What they said, again, their assumption, we don't 
need data exclusivity periods up to 12 years, is resting on the 
assumption that these patents are going to be protecting us.
    The design of the systems, the biosimilar systems, is they 
are being designed now to allow the proteins to change, the 
biosimilar to be different enough from the reference protein so 
that you don't have to infringe the patents, but you can still 
get the benefit of the clinical data that supported the 
innovator.
    And that is the hole that I think they didn't see that was 
communicated to them, and that is where I think our ultimate 
disappointment sits.
    Mr. Coble. Thank you, sir. I need to move along to meet the 
5-minute rule.
    Ms. Rea, what is the best way to resolve a patent dispute 
in a world that includes biosimilar competition?
    Ms. Rea. The best way to resolve the patent dispute in a 
world that involves biosimilar competition?
    Mr. Coble. Yes.
    Ms. Rea. I think that it is critical to have timely and 
confidential information exchange between all of the parties, 
prelaunch, in advance of any FDA approval of the drug product. 
You need a streamlined efficient litigation mechanism to make 
sure that everything can be resolved in an efficient manner.
    We need things like declaratory judgment, actions being 
available to the follow-on applicant. I think our existing law 
of venue would be very good. And I would like all remedies to 
be available to both parties whether it is in terms of damages 
or injunctive relief.
    Mr. Coble. Thank you.
    Mr. Chairman, if I may, one more question.
    Mr. Lasersohn, there are two competing bills, as we all 
know, that would create a pathway for biosimilars, the Waxman 
bill and the Eshoo bill. The economy, as we all know, is shaky 
now at best with unemployment hovering at around 10 percent. In 
light of these economic conditions, Mr. Lasersohn, is one bill 
more likely to be a job loser as opposed to a job creator?
    Mr. Lasersohn. Well, obviously, a very difficult question.
    We do support Representative Eshoo's bill that has a 12-
year date exclusivity period in it. We believe that that is the 
most reasonable compromise, which is, of course, what this is, 
between the interest of consumers for low prices versus 
innovation.
    As it affects jobs, the biotechnology industry does employ 
significant numbers of people. And our company specifically 
employs hundreds of thousands of people; that is our venture-
backed biotechnology start-up companies. And our view is that 
data exclusivity of much less than 12 years will jeopardize 
continued investments.
    So I would have to say that Ms. Eshoo's bill is more likely 
to protect the jobs than the alternative Waxman legislation.
    Mr. Coble. Thank you all.
    Mr. Chairman, I yield back.
    Mr. Johnson. Thank you, Mr. Coble.
    Mr. Issa is ready to proceed.
    Mr. Issa. Thank you, Mr. Chairman.
    I would like to ask unanimous consent that three 
submissions be put in the record. The first one is the 
California Healthcare Institute's position. California 
Healthcare Institute represents more than 250 of my constituent 
companies.
    [The information referred to follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Issa. Secondly, I would like to ask unanimous consent 
that an article from bloomberg.com--thank you.
    [The information referred to follows:]
    
    
                               __________

    Mr. Johnson. Without objection, those two.
    Mr. Issa. The first and second.
    And then the third one is simply a table of estimates that 
I am relying on for the return rate on pharmaceutical and R&D 
investments, the 15-year, if you will, basis.
    Mr. Johnson. Without objection.
    [Mr. Issa subsequently decided not to submit this material 
for the record.]
    Mr. Issa. I thank the Chairman.
    I would like to take a slightly different tack in my 
questions, because I am concerned about the future of patents 
as well as the future of bio follow-ons.
    So, Mr. Kushan, if I could start with you, from BIO's 
standpoint, assume for a moment that contract or, sorry, patent 
historical sanctity went away and you had zero patent 
protection.
    In the BIO-type developments, these large complex proteins 
of molecules, wouldn't it be possible to protect in perpetuity, 
or nearly in perpetuity, using complex series of trade secrets? 
In other words, if we failed to protect through patent, isn't 
it certainly possible that the bargain that we have enjoyed for 
decades of, you tell all, you make a duplicatable product; we 
agreed to a limited period, a defined limited period; and, when 
exhausted, or as it is exhausting, generics come on?
    Isn't that one of the risks if we don't get it right in 
either one of these pieces of legislation?
    Mr. Kushan. You are correct in several respects. The 
historical trend of restricting patent protection has been to 
push innovators to kind of keep their innovations secret. And 
that will have impacts on things like manufacturing technology 
or the ways that we make proteins, the way we enhance their 
properties. There are a lot of things that in kind of the 
business of making our products that will probably be hit by 
that kind of a practice.
    The other, you know, the molecule patents and things like 
that, as a practical matter, we won't be able to use trade 
secrets to protect because they will be publicly known and in 
circulation. And how you use them to treat new diseases, 
obviously, those procedures will be publically known.
    I think one general point to appreciate about the biotech 
industry; this industry grew out of the university community, 
and there is a cultural bias against keeping things 
confidential. It is hard for me to quantitate this, but if you 
had a discussion with a scientist, telling him not to publish 
something, so you could file a patent application, you will 
know what I mean.
    There is just a real culture of disclosure, which I think 
ultimately has helped our industry.
    Mr. Issa. And I appreciate that, although that is a culture 
of disclosure at our universities. That is not true in China, 
is it?
    Mr. Kushan. No. I think what my comment is really focused 
on just the practice, and it is also against a backdrop of 
having that patent protection available.
    Mr. Issa. Ms. Rea, when you look at the history of patents 
and the benefits versus those countries who either don't 
respect or don't have them, in general, isn't ultimately the 
trade secret route the only thing you could advise a client if 
they could not get a strong and durable patent?
    Ms. Rea. It if it was impossible to get a strong and valid 
patent----
    Mr. Issa. I like the term durable, because valid doesn't 
keep them from ripping you off.
    Ms. Rea. Okay, durable patent. I agree trade secrets would 
be the only alternative.
    But, in this day and age, it is difficult to maintain 
things as trade secrets with the very mobile work force we have 
today. But I guess you could do sequences of trade secrets in 
difference places, and thereby, unless somebody could put all 
the pieces of the puzzle together----
    Mr. Issa. Everybody but the CIA manages to keep at least 
some secrets.
    Mr. Brill, biosimilar, from a standpoint, this is a 
Committee that cares about patent. Our hook for today's 
legislation is our constitutional obligation for patents.
    But aren't we inherently heading toward, if we are not 
careful, similarity being defined as close enough, but you take 
your chances on the medical similarity actually not causing a 
problem? Isn't that inherently the problem? If the entire 
technology string of both the patented item and all of the know 
how involved, if that isn't passed on in some transparent way, 
aren't we essentially going to end up with, as I held up a 
couple of years ago in committee, a Rothschild wine being 
replaced by Mogen David?
    Mr. Johnson. And before you respond, I will say, Mr. Issa, 
that Ms. Eshoo was here earlier, and she would have appreciated 
your comment about the CIA.
    Mr. Issa. You know, everybody except Mr. Waxman did. He 
cringed when I held up these various California wines and said, 
not all California wines are created equal, but they are all 
California wines.
    Mr. Brill. Thank you, Congressman.
    I may know more about wine than I know about some of the 
scientific aspects of the complexity of developing biologics.
    Mr. Issa. If you know enough to know that there is such a 
thing as a Cabernet and something that you cook with, but they 
are both called Cabernet, then you probably know about some of 
my concerns.
    Mr. Brill. And I think that the scientific issues are 
important given the significantly greater degrees of complexity 
for the products that we are talking about here.
    With regard to the importance of ensuring that we have the 
intellectual property protection, I would echo a similar 
comment from Mr. Kushan, which is that the data exclusivity 
period can help ensure that protection. But I would also add 
that there is a period of which that protection is excessive 
and that the key here is to balance these factors.
    Mr. Issa. And just one last question that hasn't been 
asked, if I could, Mr. Chairman.
    It is not currently in either bill, but if this Committee 
wanted to find a fair compromise between the bills, if we 
provided, for example, Ms. Eshoo's period, but strengthened or, 
let me rephrase that, but made a bargain that in order to take 
advantage of it, you must have exhausted all of your, if you 
will, similar patent claims so that small changes, incremental 
changes, the bar would rise at the patent office, and to get 
that protection, you essentially forego later patents still in 
the process.
    Now whether we set that at 2 years or 30 years, really it 
doesn't matter. Is that something that any of you foresee being 
part of the bargain, meaning, if I am going to give you 15 
years from the day your product is approved, can I expect that 
your continuations that are still coming and--Ms. Rea, you are 
laughing, because you know how many of those sometimes are 
stacked up behind, is that, in fact, part of the bargain that, 
if you will, if you get something extraordinary separate from 
the normal patent period, this Committee may have to consider 
whether or not that is a terminal disclaimer, so to speak, of 
some or all of your claims?
    I am not proposing it. I am just asking about it.
    Ms. Rea. I do not think that it is a good idea. But, even 
so, to change the entire patent office and how all patent 
applications are followed, just to try to come out with a 
compromise in this area in the manner that you suggested, I 
think is not viable and would be difficult to implement and is 
not appropriate. Our patent system has existed the way it has 
for 220 years. It has worked well. I think it is why innovation 
drives our economy and we are where we are today.
    So I don't think a compromise on the order that you 
suggested would be viable. Thank you.
    Mr. Issa. And by the way, I hope you feel the same on the 
patent reform that we are wrestling with in this Congress, but 
I know you might not be quite with us on that.
    Yes, sir.
    Mr. Lasersohn. I just wanted to add that there is, in fact, 
a provision that relates to this and these bills would have to 
do with the idea of evergreening.
    In other words, what is entitled to data exclusivity, to 
additional data exclusivity, and in fact, it is very 
restricted. They really are new drugs, new indications. It is 
not just tweaking this and tweaking that or a slightly 
different root of administration. So that had--in particular, 
in the Senate bill, that was looked at very, very carefully. 
And I think a very reasonable balance was struck there.
    Mr. Issa. Yes, sir. You are the last one, because the 
Chairman will cut me off.
    Mr. Kushan. Thank you, I will try to be quick.
    I think that approach would be a very bad approach for the 
way the biotechnology industry innovates today because you 
shouldn't think of biotechnology innovation as being limited to 
making new proteins that become blockbuster drugs. It is a 
whole environment, you know, of innovation that has a lot of 
opportunities at various levels.
    That issue should not be a problem. What happens typically 
is that innovations will be incremental. They will have limited 
protections, and you can work around them, such as 
manufacturing techniques. And I think that is essentially the 
self-solving problem for those later issuing patents.
    Mr. Issa. Thank you all for clearing that up.
    Thank you, Mr. Chairman.
    Mr. Sherman. [Presiding.] I will now recognize the 
gentlelady from Texas.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman.
    And I want to thank Chairman Johnson for doing a real good 
balancing act. I think we have a team that can represent the 
issues that have been expressed by the Eshoo bill and the 
Waxman-Hatch bill very well.
    Let me anecdotally say that this Judiciary Committee room 
seems to be the bastion or the holding place for tensions 
between disparate but very important issues. For those of you 
who are aware of something called the Performance Rights Act, 
H.R. 848, you would believe on the surface that the legislation 
is all about pop artists and maybe reflecting on the man in the 
mirror, and against radio stations.
    But, Mr. Chairman, as you well know, we have worked for a 
very long time to recognize that both of those entities are 
needed and that they are working together and coming together 
to resolve how you would best effectuate a response to the art 
and talent of a performance artist, and as well, how would you 
respond to championing radio stations which provide an 
important and powerful service?
    But the record is clear, for those of us who are supporting 
that legislation, that we want to strike a balance. Now we have 
come full circle on questions that you are concerned about, 
which are represented in the legislation by a very dear 
colleague, Congresswoman Eshoo, and, as well, interesting 
points that are being made by the Waxman bill as well.
    So my interest is to find that balance. I think we did it 
well, as you well know, that we were working on patent reform. 
And there was this whole tension on how you account for the 
work that has been put into patent, and how do you, in essence, 
assess the monetary value of a patent? How do you determine 
that a patent has not been copied, using layman's terms? So we 
have had that challenge here in Judiciary, and I think we have 
clearly worked through it.
    For that reason, let me try to raise these questions 
quickly.
    The National Venture Capital Association asserts that, 
without 12 to 14 years, the cost of capital will drive away 
venture capital investment from biotech and derail innovation.
    Mr. Leicher, would you tell me whether that is correct as 
we look at this effort to balance? Would we drive venture 
capital away, which is, the big pharmaceuticals might make that 
argument?
    Mr. Lasersohn. Yes, is the short answer. And the question 
is, how much? Our view is that, at the extreme that the FTC 
took, for example, where there would be no data exclusivity and 
the ability for a, quote,generic biosimilar to be introduced 
the day after a new drug was approved, that that would have a 
devastating impact.
    At 12 years, we believe we can manage it. That is what we 
have under Hatch-Waxman. We have lived with it. Obviously, some 
investments are not being made because of that under Hatch-
Waxman, but we have learned to live with 12 years.
    And at 7 years, the models, for example, Mr. Brill's model, 
other models that we have run when we used the real cost of 
capital of the innovation sector of this industry, which is the 
venture, the small entrepreneurial venture-backed sector, 
relatively few drugs can break even.
    It doesn't mean there might not be some investment 
continuing in the most extraordinary breakthroughs, but the 
volume of that investment activity will clearly decline 
substantially even at 7 years.
    Ms. Jackson Lee. Mr. Leicher, why don't you give me an 
answer on that question? Remember, you are talking to someone 
who really does believe we can get into a room and address this 
question that brings balance to what we are all trying to do, 
but let me not put words in your mouth.
    Mr. Leicher. Thank you for the opportunity.
    And let me start with the first basic point, and it was a 
point that was brought up earlier that I think there is some 
disagreement on the panel, and that is the notion that there is 
a patent loophole.
    I actually believe that if we engage Mr. Kushan to file 
patents for us on some of our novel products in the biologic 
space, I have no doubt they would be strong, effective, and 
work as long as we were operating at the novel end of 
developing new mechanisms of action that really provide new 
cures. And we would be able to get patents that cover not just 
the product, which is what he was talking about earlier, but 
patents covering portions of the product, patents covering the 
biologic pathway, patents that would cover the whole range of 
biologic activity that could provide a lot of exclusivity and 
well more than--potentially more than 12 years in the 
experience of biologics.
    And what I think everyone is missing is, if we provide an 
excessive exclusivity period, we are going to create a huge 
incentive for the biotech industry to derisk their portfolios, 
because now, without having to innovate, without having to get 
patents, you can get a product developed and, by virtue of 
getting it approved by the FDA, guarantee 12, maybe 14 years of 
exclusivity.
    Ms. Jackson Lee. And that kills innovation?
    Mr. Leicher. I think it kills innovation.
    Ms. Jackson Lee. What about investment?
    Mr. Leicher. I think it would hurt--it might not kill 
investment. What it might do--but let's talk about that over 
the long term. It is a little puzzling to me, in 2009, you 
know, in the year that GM declared bankruptcy and perhaps 
declared bankruptcy because it stopped innovating in the 1990's 
and focused on high-margin SUVs as opposed to innovative cars--
and I am concerned, having lived in biotech for 20 years, that 
we are going to push biotech from the innovative scale and the 
leadership in the world to the non-innovative scale.
    And if you step back from a historical point of view, look 
at what it was----
    Mr. Sherman. We thank you for your answer.
    Ms. Jackson Lee. Thank you, Mr. Chairman.
    We may have to revisit this again.
    Thank you very much. I will look forward to visiting with 
you.
    Mr. Sherman. Without objection, I will enter into the 
record a Bloomberg article about Mylan's recent deal with 
India's biggest biotechnology company for the development, 
production, and marketing of biosimilars.
    [The information referred to follows:]
    
    
                               __________

    Mr. Sherman. By contrast, the innovative biotechnology 
industry is uniquely American, and most of its companies are 
based in the United States. In fact, most of them are based in 
our best State, California.
    As the U.S. is struggling with the highest unemployment 
numbers in recent memory, now is not exactly the right time for 
Congress to be taking actions that would imperil future jobs in 
the United States.
    Mr. Lasersohn, I realize a similar question was asked, I 
just wasn't here for the answer. And, actually, before I ask 
that question, I will start with an observation.
    There has been talk about the biotechnology industry being 
able to recover its sunk costs on a particular drug. And if 
they can't recover their sunk costs on that drug, obviously, 
there will be no more innovation. I think this massively 
understates the situation, because the vast majority of drugs 
are--the vast majority of drug development projects are 
failures.
    And even when they lead to success, they may be outmarketed 
by some other cure for that disease. So unless an innovator is 
able to recover double, triple or quadruple its sunk costs on 
the successful drug, we can basically pack up this industry and 
say we are not going to have any more innovation.
    Now, Mr. Lasersohn, I think that venture capital is the 
lifeblood of this industry, particularly some of the smaller 
and newer firms, and there is no denying that a lot of that 
investment is based on strong patent laws.
    In your view, is data exclusivity absolutely critical for 
the continuing development of biotech products, and, if so, how 
long should that period of exclusivity be?
    Mr. Lasersohn. The easy part of the answer is, yes, I do 
think it is necessary. The hard part is, how long? I guess we 
believe that 12 years is something that we have learned to live 
with. Our best guide here is Hatch-Waxman, small-molecule 
development has continued to exist under Hatch-Waxman.
    When we run our analysis of our cost of capital, making 
exactly the point that you have just made, Mr. Chairman, that 
we must recover all of the losses that we also take on drugs, 
12 years appears to give us a reasonable chance to break even.
    I might just add one other thing about data exclusivity. I 
think there is a real misunderstanding. It is not market 
exclusivity. This doesn't prevent anybody from competing at 
all. It just means that they can't free-ride on the data 
produced by the innovator.
    Mr. Sherman. They can't copy the innovator's product or 
infringe on the innovator's patent and use their data. They can 
just go out and perhaps develop an entirely different way of 
curing that same disease.
    Mr. Lasersohn. Or agreeing to clinical trials.
    Mr. Sherman. Yes.
    Mr. Lasersohn. And if we did, and the other key point is 
that the data exclusivity is merely a backstop for the patents. 
The question to ask yourself is, what if the FTC is wrong in 
their analysis? I mean, they are just speculating about what's 
going to happen with all of the patent laws. I mean, what if 
they are wrong? If they are wrong, and we don't have data 
exclusivity, and they just turn out to be wrong about how good 
these patents really are, we are in deep trouble.
    If, on the other hand, we have data exclusivity, it doesn't 
add anything more to the 12 years that the FTC is saying we 
should have. It simply ensures that we actually get it. It is 
just an insurance system.
    Mr. Sherman. Mr. Leicher, as I understand my good friend 
Congressman Waxman's bill or Chairman Waxman's bill, the bill 
prevents a patent holder from getting an infringed patent off 
the market even after a court has found the patent is valid, 
the patent is enforceable, and the patent has been infringed. 
And it does so if the suit was not initiated within the narrow 
window determined by the infringer.
    Now how does this compare with all other litigation in 
America, and particularly patent litigation? Would this impose 
upon the biotech industry a patent-minus as compared to every 
other kind of patent that is issued?
    Mr. Leicher. I don't believe it would impose a patent-
minus. I think there is a trade-off in the Waxman approach 
versus the current Orange Book approach in the current Hatch-
Waxman statute. The trade-off is, because we have a complex web 
of biologics patents that are often embracing the pathway and 
the biology, it requires more of a process of identification, 
and it is not as susceptible to an Orange Book, which was the 
criticism raised by some in developing the bills.
    There is an opportunity to the bring the suit, and we don't 
see that as an issue. It actually provides an opportunity to 
clear patents that are invalid, and move forward with some 
innovative biogenerics.
    Mr. Sherman. Let me hear from somebody from the 
biotechnology industry. I believe Mr. Kushan is raising his 
hand, and I believe he will be our last speaker.
    Mr. Kushan. Yes. I think I can say, obliterating a patent 
right is a patent minus. The procedures that they have laid out 
essentially result in a loss of the patent right. And whether 
you call it a limitation on the recovery or just a lack of 
ability to enforce it, hinging that kind of a sanction on an 
administrative error is unprecedented in U.S. law.
    And I think it is important to also appreciate, this will 
change patent rights in a way that I think go against our 
international obligation. We are not supposed to make patent 
rights in biotech weaker compared to patent rights in other 
areas.
    Mr. Sherman. So if we pass this kind of law, other 
countries could question all U.S. patents, and industries not 
even realizing we having a hearing today could be subject to 
lawsuits in other countries saying, well, the United States is 
in violation of the internationally accepted rule that patents 
come in one flavor, one level of strength, if you will.
    So there are a lot of people not here who could be hurt by 
that.
    Mr. Brill.
    Mr. Brill. Yes. If I could just very quickly address the 
comment about the sunk costs, the fixed costs, and the 
modeling, and as well the differences between the industries.
    Mr. Sherman. If you can do it in 30 seconds.
    Mr. Brill. Okay. Very quickly, the costs assumed for 
bringing a biologic to market, generally discussed to be over 
$1 billion, that number includes the cost of failure, not just 
the cost of the successful drug.
    The modeling that I have done, that Professor Grabowski has 
done, BIO has done, all includes the cost of that failure. In 
addition, that modeling work also assumes that the only 
protection provided is the data exclusivity. The models that 
the FTC, that Grabowski and I have all used, do not model the 
existence of the patent. It is a very conservative assumption 
in that regard.
    Mr. Sherman. Yes, although, it would be hard to figure out 
why we would try to protect a patent one way but not protect it 
another way; it would be an odd policy for us to say, well, we 
want to encourage copying and we want to prevent copying both 
on the same bill.
    I would also point out that I believe the Waxman bill has 
limits on the forum in which the suit can be brought. And this 
Committee gets bills limiting where plaintiffs can bring 
lawsuits all the time, and 99 percent of those proposals this 
Committee does not adopt.
    I don't know if we have ever adopted anything quite as 
strict as Congressman Waxman's bill.
    With that, I would like to--and at the same time, I want to 
voice again not only my affection but my incredible respect for 
Chairman Waxman and his knowledge of health care and 
pharmaceuticals in particular.
    I would like to thank all witnesses for their testimony 
today.
    Without objection, Members will have 5 legislative days to 
submit additional questions which we will forward to the 
witnesses and ask that you answer promptly in writing and that 
will be made--your answers and the questions, of course, will 
be made part of the record.
    Without objection, the record will remain open for 5 
legislative days for the submission of any additional 
materials.
    With that, we stand adjourned. I would like to talk to the 
witnesses, but I have got to rush off to the floor. Thank you.
    [Whereupon, at 4:30 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Response to Post-Hearing Questions from Bruce A. Leicher, Senior Vice 
     President and General Counsel, Momenta Pharmaceuticals, Inc., 
                             Cambridge, MA


















                                

Response to Post-Hearing Questions from Alex M. Brill, Research Fellow, 
          American Enterprise Institute (AEI), Washington, DC



                                 
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