[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
H.R. 1706, THE PROTECTING CONSUMER ACCESS TO GENERIC DRUGS ACT OF 2009
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMERCE, TRADE,
AND CONSUMER PROTECTION
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 31, 2009
__________
Serial No. 111-25
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan JOE BARTON, Texas
Chairman Emeritus Ranking Member
EDWARD J. MARKEY, Massachusetts RALPH M. HALL, Texas
RICK BOUCHER, Virginia FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York ROY BLUNT, Missouri
GENE GREEN, Texas STEVE BUYER, Indiana
DIANA DeGETTE, Colorado GEORGE RADANOVICH, California
Vice Chairman JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania GREG WALDEN, Oregon
JANE HARMAN, California LEE TERRY, Nebraska
TOM ALLEN, Maine MIKE ROGERS, Michigan
JAN SCHAKOWSKY, Illinois SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas TIM MURPHY, Pennsylvania
JAY INSLEE, Washington MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York STEVE SCALISE, Louisiana
JIM MATHESON, Utah PARKER GRIFFITH, Alabama
G.K. BUTTERFIELD, North Carolina ROBERT E. LATTA, Ohio
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA CHRISTENSEN, Virgin Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE BRALEY, Iowa
PETER WELCH, Vermont
(ii)
Subcommittee on Commerce, Trade, and Consumer Protection
BOBBY L. RUSH, Illinois, Chairman
JAN SCHAKOWSKY, Illinois CLIFF STEARNS, Florida
Vice Chair Ranking Member
JOHN SARBANES, Maryland RALPH M. HALL, Texas
BETTY SUTTON, Ohio DENNIS HASTERT, Illinois
FRANK PALLONE, New Jersey ED WHITFIELD, Kentucky
BART GORDON, Tennessee CHARLES W. ``CHIP'' PICKERING,
BART STUPAK, Michigan Mississippi
GENE GREEN, Texas GEORGE RADANOVICH, California
CHARLES A. GONZALEZ, Texas JOSEPH R. PITTS, Pennsylvania
ANTHONY D. WEINER, New York MARY BONO MACK, California
JIM MATHESON, Utah LEE TERRY, Nebraska
G.K. BUTTERFIELD, North Carolina MIKE ROGERS, Michigan
JOHN BARROW, Georgia SUE WILKINS MYRICK, North Carolina
DORIS O. MATSUI, California MICHAEL C. BURGESS, Texas
KATHY CASTOR, Florida
ZACHARY T. SPACE, Ohio
BRUCE BRALEY, Iowa
DIANA DeGETTE, Colorado
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
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Page
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 1
Prepared statement........................................... 3
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, opening statement.................................. 5
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 6
Prepared statement........................................... 8
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 11
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 12
Witnesses
J. Thomas Rosch, Commissioner, Federal Trade Commission.......... 17
Prepared statement........................................... 20
Answers to submitted questions............................... 310
Scott Hemphill, Associate Professor of Law, Columbia University.. 45
Prepared statement........................................... 47
Joanne Handy, Board Member, AARP................................. 182
Prepared statement........................................... 184
Diane Bieri, General Counsel, Pharmaceutical Research and
Manufacturers of America....................................... 194
Prepared statement........................................... 197
Barry Sherman, Chief Executive Officer, Apotex, Inc.............. 214
Prepared statement........................................... 216
Ted Whitehouse, Willkie Farr and Gallagher, on Behalf of Teva
Pharmaceuticals................................................ 230
Prepared statement........................................... 232
Submitted Material
Paper entitled, ``An Economic Assessment of Patent Settlements in
the Pharmaceutical Industry,'' by Bret Dickey, Jonathan Orszag,
and Laura Tyson, dated March 2009, submitted by Mr. Stearns.... 269
Letter of March 30, 2009, from Compass Lexecon to Subcommittee,
submitted by Mr. Stearns....................................... 309
H.R. 1706, THE PROTECTING CONSUMER ACCESS TO GENERIC DRUGS ACT OF 2009
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TUESDAY, MARCH 31, 2009
House of Representatives,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 11:12 a.m., in
Room 2123 of the Rayburn House Office Building, Hon. Bobby L.
Rush (chairman) presiding.
Members present: Rush, Schakowsky, Sarbanes, Sutton,
Stupak, Barrow, Space, Dingell, Waxman (ex officio),
Radanovich, Stearns, Whitfield, Pitts, Terry, Gingrey, Scalise,
and Barton (ex officio).
Staff present: Christian Tamotsu Fjeld, Counsel; Anna
Laitin, Professional Staff; Michelle Ash, Counsel; Valerie
Baron, Legislative Clerk; Shannon Weinberg, Minority Counsel;
Will Carty, Minority Professional Staff; and Brian McCullough,
Minority Senior Professional Staff.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. Good morning, everyone. I want to thank you for
coming to today's hearing. I will begin this hearing by
recognizing myself for 5 minutes for the purposes of an opening
statement. This hearing is on the bill H.R. 1706, Protecting
Consumer Access to Generic Drug Act of 2009.
Today's legislative hearing is on a bill that Chairman
Waxman and I introduced last Congress, and this subcommittee
held a legislative hearing on our bill on May 2, 2007. We have
introduced the bill again with the intent that it becomes law.
H.R. 1706 bans what are known as exclusion payments, reverse
payments or reverse consideration in patent settlements between
name brand and generic drug companies. This is a practice in
which the brand name company pays or provides value to the
generic company, and the generic company agrees to delay the
marketing of its generic drug product.
First the bill is fully supported on a bipartisan basis by
the FTC. The commission believes that a legislative fix is
needed because the courts have thwarted their enforcement
efforts. Both Republican and Democratic chairman and
commissioners have historically supported congressional action
cracking down on these uncompetitive settlements. This is not a
partisan issue.
Second, the bill does not ban all settlements in all patent
cases. Quite the contrary. H.R. 1706 only bans exclusion
payments and legal settlements. Brand name and generic
companies are still free to settle their differences. In fact,
before the court invalidated the FTC's enforcement efforts,
drug companies were selling their patent disputes without any
exclusion payments. It wasn't until the courts struck down the
FTC's enforcement action in 2005 that these very unique type of
settlements came back from the dead.
Third, these types of settlements were completely unique to
the drug industry. They do not appear in any kind of patent
dispute other than this drug industry. In all other patent
disputes, the litigants settle in two ways. One, they enforce
or the accused pays a patent holder a royalty to market its
products. Or two, the parties agree to an early entry date.
Only in the drug industry do we see the unusual behavior of
a patent holder, which is the brand name company, suing the
accused infringer, the generic company, and then settle by
paying the infringer to stay off the market. These unique
settlements are the result of the equally unique regulatory
framework of Hatch-Waxman.
I don't believe that the drug companies are acting in bad
faith. I believe that they are perfectly logical under their
fiduciary duty to their shareholders. They are being
responsible, and they are simply responding to the incentives
they face under Hatch-Waxman.
Lastly, H.R. 1706 will save taxpayers, businesses, and
consumers tens of billions of dollars. That is the ultimate
purpose of this bill. Congress is currently considering ways to
save money in order to provide affordable health insurance to
all Americans. I believe that H.R. 1706 can play an important
role in reducing prescription drugs costs in our economy.
We cannot afford to do nothing on this unique uncompetitive
way of doing business that costs consumers millions of dollars.
I want to thank our witnesses for appearing before this
committee in this first step in the legislative process.
[The prepared statement of Mr. Rush follows:]
[GRAPHIC] [TIFF OMITTED] T7822A.001
[GRAPHIC] [TIFF OMITTED] T7822A.002
Mr. Rush. And I will now yield back the balance of my time,
and now I want to recognize the ranking member of this
subcommittee, my friend Mr. Stearns from Florida.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Good morning, and thank you, Mr. Chairman. I
am glad we are having this hearing on H.R. 1706, Protecting
Consumers' Access to Generic Drugs Act. On this side of the
aisle we perhaps see this bill a little differently. We see it
as a solution looking for a problem. The Hatch-Waxman Act of
1984 we think is working, and we are not sure. Maybe a little
bit of steering might be implied but not necessarily
eliminating with a brand new bill with this H.R. 1706.
You know when you look at the history of the availability
of generic drugs over the past 25 years, which have helped
millions of people live healthier lives and most importantly
reduce the cost of health care, in the face of ever increasing
health care costs for families, I asked my staff to pull up
some statistics. And since the Hatch-Waxman passage, the
generic industry share of the prescription drug market has
jumped from around 19 percent to over 70 percent today. So
again I say let us be careful. Do no harm.
It is clear that the Hatch-Waxman Act and current practices
have been successful in bringing low-cost alternatives to
families and to the market. So I do have a few concerns which I
will outline here. This bill addresses two facets of the
generic pharmaceutical trade: reverse-payment settlement, which
I am going to use the word payment settlement. I notice the
chairman used the words exclusion payments and reverse
payments, but I think the actual term which is payment
settlements. And the other issue is the 180-day exclusivity
period granted to first filers under the Hatch-Waxman Act.
This latter consideration is really there as a incentive
for generic drugs who take the risk to sue. So I am not sure
that it should be changed. Now, opponents of the payment
settlement argue that this practice delays the introduction of
generic drugs to market and permit drug innovators to continue
their patent protection and market exclusivity, even if it is
for a shorter period of time than the patent allows.
In reality though, the opposite is true. These settlements
often bring drugs to market sooner than would otherwise be
permitted by the completion of the brand drug's patents.
Critics also argue these settlements encourage patent
challengers to abandon their claims in litigation when an
alleged 70 to 80 percent of challenges succeed. This statistic
can be misleading and does not take into account that while a
challenger may win on four out of five claims, it is the
invalidation of just one of those challenges that is necessary
to prevent the launch of a generic drug.
Now, according to recent studies, the success rate of
challenges that lead to the early introduction of a generic
drug is actually closer to 45 percent, not the 70 percent that
people talk about. Furthermore, patent litigation is expensive,
unpredictable, and can last for many years. The emphasis in
patent litigation, as in any other litigation area, is to
settle. In many cases, it is a win-win situation. The brand
company wins by saving money on protecting its patent. The
generic company wins by saving money on litigation expenses and
gaining earlier market entry. And the consumer wins with early
access to a less expensive generic product.
Now, unfortunately this legislation that we are talking
about this morning would outlaw anything of value to be
exchanged in a patent settlement. Therefore, an innovative drug
company would have no incentive to do anything but defend its
patent until expiration, inadvertently creating a chilling
effect on early generic drugs introductions which the consumers
would enjoy.
Given this reality, generic companies could be discouraged
from investing capital in patent prosecutions until it is
assured of a success, a virtual impossibility in any patent
litigation scenario. If longer, drawn-out litigation was not
enough of a disincentive to challenge a patent, eliminating a
generic company's ability to recover its litigation costs to
the 180-day exclusivity period is enough to put the final nail
in the casket of generic challenges.
As a carrot to encourage patent challenges, the Hatch-
Waxman Act provides the first filer 180 days of exclusivity as
the only generic drug permitted on the market, simply enabling
a successful generic company challenger to recoup its
significant litigation costs. It is this reward that encourages
the risk of challenging a patent. If this exclusivity is no
longer granted, the result will be the opposite of what this
bill intends. Fewer drugs patients will be challenged, and
consumers will have to wait much longer until patents expire or
litigation come to conclusion before cheaper generic drugs can
be made available.
So I look forward to the testimony of our witnesses today,
and thank you again, Mr. Chairman, for having this hearing.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the chairman of the full committee, the gentleman
from California, Mr. Waxman, for five minutes for the purposes
of opening statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you very much, Mr. Chairman. I want to
thank you for holding this important hearing. This year is the
25th anniversary of the Drug Price Competition and Patent Term
Restoration Act, commonly known as Hatch-Waxman or Waxman-
Hatch, and that law established our generic drug approval
system.
Generic drugs play a critical role in promoting public
health where they are available. They promote competition,
which in turn lowers prices. Lowering drug prices reduces
overall health care bills. More importantly though, lower drug
prices mean access to important medications for many patients
who might not otherwise be able to afford them.
Today in the U.S. a remarkable 67 percent of prescriptions
are filled with generic medicines, saving consumers and the
federal and state governments tens of billion dollars annually.
Unfortunately in recent years, we have seen that the vibrant
competition we envisioned has not flourished as well as we had
hoped.
The Federal Trade Commission has highlighted a significant
cause of this problem. Generic and brand name drug companies
have increasingly been entering into patent settlement
agreements that have an anti-competitive effect. These
settlement arrangements frequently involve agreements in which
the generic drug makers stay out of the market in exchange for
some form of compensation from the brand-name drug makers.
These settlements are beneficial to both the brand-name
company and the generic challenger. The brand gets additional
time to sell its drug at monopoly prices. The generic gets
payments without any need to make or market the drug. Both the
brand and generic firms profit, but they do so at the expense
of the consumers who much continue to pay monopoly prices. This
is the last thing Congress intended when we enacted Waxman-
Hatch.
The law was intended to give consumers access to generics
at the earliest possible opportunity, not to line the pockets
of generic and brand-name drug companies. Some courts have
erroneously concluded that these agreements were condoned by
Hatch-Waxman. These courts are sorely mistaken. The use of our
law to prevent generic competition is contrary to intent of
that law.
Now Congress must act to prevent the continued erosion of
these principles, the Protecting Consumer Access to Generic
Drugs Act of 2009, the bill under discussion today, is a
sensible solution that will help put an end to the practice of
paying generic drug companies to stay out of the market. I
recognize we need to proceed with care. Some patent settlement
agreements can provide benefits across the board. Settlements
can allow the parties involved to avoid expensive protracted
litigation. Consumers can sometimes gain access to generic
drugs that might otherwise have been deferred by litigation.
This legislation recognizes that reality and permits
settlements in which nothing more than the date of entry is
negotiated. And if FTC decides that other exceptions need to be
made to enhance competition and benefit consumers, then FTC can
implement those changes through rule making.
In effect, it is designed to rid us of the bad settlements
and leave us with the good ones. I look forward to the
testimony of the witnesses today and working with all the
members of the committee to get this bill enacted into law.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Waxman follows:]
[GRAPHIC] [TIFF OMITTED] T7822A.003
[GRAPHIC] [TIFF OMITTED] T7822A.004
Mr. Rush. The chair thanks the chairman of the full
committee. Now the chair recognizes the gentleman from
Kentucky, Mr. Whitfield, for the purposes of opening statement
for 2 minutes.
Mr. Whitfield. Mr. Chairman, thank you very much. We look
forward to this hearing on H.R. 1706, Protecting Consumer
Access to Generic Drugs Act. I think this legislation has the
very best intents, and obviously we want to protect all sides
in this debate. We want to be sure that innovative drug
companies continue to spend money and research and developments
come through with drugs that help curtail disease. We also want
the consumer to be able to get generic drugs as soon as
possible at a less cost to improve health care.
And one of the issues that I am going to be interested in
today is that it was my understanding that in all the legal
actions filed by the FTC about these exclusion agreements that
they had lost all of the lawsuits. But then in reading the
memorandum, I see that in the Sixth Circuit Court of Appeals
held that such agreements are per se violations of the Federal
Anti-Trust Law. But in the Second and the Eleventh Circuit
Court of Appeals, they have ruled that agreements do not
violate anti-trust laws and merely reflect the give and take of
legal settlements.
So I hope that as we proceed with our witnesses today that
we can certainly get some clarification on that issue as well
as others. And I yield back the balance of my time.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the gentleman from Maryland, Mr. Sarbanes, for 2
minutes for the purposes of opening statements.
Mr. Sarbanes. Thank you, Mr. Chairman. I am looking forward
to the testimony today and anxious to see this proposal move
forward, which I think is a very common sense solution to the
distortion in the regime that has occurred as a result of the
court conclusion that the FTC didn't have authority to regulate
here and tries to remedy that.
It is particularly important as we embark on looking at how
to apply similar regimes to other arenas, which of course is a
discussion that is going on now, we got to make sure we fix
this one. Businesses and lawyers are clever in finding ways to
get around impediments. That is what they have done here. And
to use the vernacular, we just need to be cleverer and try to
fix this. And that is what this legislation intends to do.
So I look forward to the discussion today, and I yield back
my time.
Mr. Rush. The chair thanks the gentleman from Maryland. It
is my pleasure to allow Mr. Pitts from Florida--I am sorry,
from Pennsylvania to allocate 2 minutes to him for the purposes
of opening statement.
Mr. Pitts. Thank you, Mr. Chairman. I would like to thank
you for convening a hearing on this bill. I think we all agree
that our goal should be to make generic drugs available to the
consumers who need them. I am somewhat concerned that the
legislation will have a chilling effect on patent challenges by
generic drug companies resulting in longer waiting periods for
generic drugs for consumers who depend on them.
This bill would place a total ban on all patent settlements
in which the company that holds the patent on the brand-name
drug gives anything of value to the generic company challenging
the patent except for an early entry date into the market. What
will the results be? With no incentive to settle, cases will be
litigated to the very end as brand drug companies fight to hold
onto their authorized monopoly on the drug, the only way they
have to recoup the millions of dollars they have put into
developing and testing new drugs.
With millions of dollars of legal fees on the line, generic
companies will only challenge a patent if they are virtually
assured of a successful outcome. This goes completely against
the incentives for generics to challenges patents that are
built into Hatch-Waxman.
Finally, since 2003, Congress has required that litigants
notify federal anti-trust authorities of their pharmaceutical
patent settlements. DOF and FTC are already notified of all
patent settlements, and they can sue if they believe the
outcome of a case is anticompetitive.
FTC has filed suit in a number of cases, and in the vast
majority, the courts have found these settlements acceptable
and refused to strike them down. So, Mr. Chairman, the system
is working. These settlements should be reviewed on a case-by-
case basis, and to ban these settlements will only keep
generics off the market for a longer period of time, hardly a
pro-consumer outcome.
I would like to thank all of our witnesses for coming to
testify today, and I yield back the balance of my time.
Mr. Rush. The chair thanks the gentleman. The chair now
will recognize the chairman emeritus of the full committee, my
friend from Houston, Mr. Dingell, for 5 minutes for the purpose
of an opening statement.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, thank you, and I want to commend
you for your leadership and for holding this hearing. At issue
before the committee today is the very fundamental question of
fairness. Should pharmaceutical companies be able to continue
to enjoy the right to collude the legal settlements in order to
stifle consumer access to generic drugs?
As the cost of health care continues to increase, mainly
due to the cost of drugs, we must dispose of this question with
a view towards providing consumers with a greater choice and
lower prices while at the same time preserving for the industry
the inviolability of intellectual property rights for
manufacturers of pharmaceuticals.
At the root of this debate lie the Hatch-Waxman's
amendments to the Federal Food, Drug, and Cosmetic Act, whose
intent it is to promote the aggressive entry of generic drugs
into the marketplace to benefit consumers. Curiously, this has
not occurred. This intent has been undermined of late by the
growing practices of the pharmaceutical industry in settling
patent disputes by the so-called practice of ``exclusion
payments'' in which a patent holder pays a generic challenger
in exchange for delay in the generic drug's entry into the
market.
Who gets screwed here? The consumer. In my view, should a
generic challenger prove its product does not infringe upon the
patent held by a brand-name pharmaceutical manufacturer
secretive agreements of a legal character between private
parties should not prevent the generic drug's introduction into
commerce.
Clearly this goes well against the intent of the committee
and the Congress when we passed Hatch-Waxman. This in mind, the
exclusion payments strike me as a counter to the interests of
consumers and more pointedly, an unfair method of competition,
which would otherwise be prohibited under section five of the
Trade Commission Act.
At this juncture, I would like to note that prohibiting
exclusion payments may have a beneficial effect for state
budgets and indeed for the federal government because the
budget of Medicare, Medicaid and S-CHIP roles are going to be
stressed by both the depression that we now undergo and the
awful situation we confront of the increased need of people
from groups that were formerly benefited by health coverage
which they had lost. So we have a very serious problem of
widespread economic displacement that is increasing these
costs.
By acting proscribed uncompetitive practices like exclusion
payments, we could reduce the strain on the states of providing
their citizens with health care, something which I believe is a
fundamental right of all Americans. I look forward to working
with you, Mr. Chairman, to seeing this legislation through and
to make it become law. And I urge my colleagues to be of
assistance in this great undertaking. Thank you, Mr. Chairman.
I yield back the balance of my time.
Mr. Rush. The chair thanks the chairman emeritus. And now
it is my pleasure to recognize the gentleman from Nebraska. I
am sorry--recognize my friend--I didn't see him down there--my
friend from Texas, the ranking member of the full committee,
Mr. Barton, for 5 minutes for an opening statement.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman, and I look forward to
the day we have a hearing on your bill and my bill to reform
the BCS football championship series.
Mr. Rush. Will the gentleman yield for a moment?
Mr. Barton. I would be happy to yield.
Mr. Rush. I talked about our bill this morning. I want you
to know.
Mr. Barton. Very good. Well, the Senate is beginning to
steal our thunder, Mr. Chairman, so we----
Mr. Rush. We can't let that happen.
Mr. Barton [continuing]. Don't let that happen.
Mr. Rush. They wouldn't know what to do with it.
Mr. Barton. But I do want to thank you, Mr. Chairman, for
this hearing on generic drugs, which is part of this committee
and this subcommittee's jurisdiction. Access to lower cost
drugs has not only helped Americans beat diseases, it has been
a boon for health care in a world that depends on the drugs
that we, the United States, manufacture. We need to recognize
that it won't be all good news if we don't weigh the pros and
cons of generics competing with brand names.
Sick people depend on affordable drugs, but they also
depend on innovation and research to create the drugs that they
need. Without adequate reward, innovation fades, research
declines, and life-saving medicine doesn't happen. The framers
got it right in Article 1, Section 8 of the Constitution, and I
quote ``promote the progress of science by securing for a
limited time the exclusive right to discoveries.'' We should
heed Section 8. It has worked well for over 200 years.
American innovation is a cornerstone of intellectual
property rights, and we need to ensure that our domestic
industry continues to get the benefits of these property
rights, especially in dealing with our trading partners
overseas.
Pharmaceutical companies should have the opportunity to
pursue constitutionally protected inventions. We should not
diminish the incentive to undertake the substantial risk
involved. As everybody here knows, the risk associated with new
drug approvals are significant. First comes the R&D component,
followed by a lengthy FDA approval process, both of which
require large amounts of money, which may not be recouped if
the R&D falters or the FDA approval doesn't happen. At no point
does anybody guarantee any drug innovator that the competition
won't invent a similar drug first and get to the market first.
I believe that when a new drug successfully makes it to
market, we need to provide the innovator with intellectual
property protection. It is important to get the balance right.
In that spirit, Congress has always recognized the necessity of
providing these protections. We have also recognized obviously
the benefits of generic drug competition in the marketplace,
which lowers cost and increases access.
Congress made the wise decision 20 years ago when we passed
Hatch-Waxman. I started to say Waxman-Hatch. I have always
supported this concept of providing a balanced incentive for
both sides of the industry because it works. Inevitably,
however, patent disputes arise between generic firms and brand
manufacturers. Litigation can and often does take years to
reach a final verdict.
However, both sides decide sometimes to settle a case when
the outcome isn't certain and the parties have a negotiated
settlement based on the possible benefits and the probabilities
of winning the case outright. To be very clear, consumers
should have the best drugs available at the cheapest possible
price. But I think the best way to achieve that is to provide
innovators with their strong intellectual property protection
while providing a clear path for generics to enter the market.
I have a serious concern about imposing a ban on the
exchange of anything of value in a private patent litigation
settlement. Limiting the options of private litigants to settle
out of court should be avoided if at all possible. The right to
depend or challenge patents should be preserved.
Unfortunately, Mr. Chairman, I think the bill that you have
introduced, H.R. 1706, would remove incentives parties have to
settle, could force many more cases into lengthy litigation
where years may elapse before a decision is reached.
Forcing drug companies down this path probably would erode
any benefit to the consumer. Since the FTC seems to me to have
adequate authority to challenge these improper settlements in
court, I am anxious to hear from the witnesses as to why the
judicial system is not the appropriate venue to resolve these
issues.
Finally, Mr. Chairman, as I said almost two years ago at
our last hearing on this issue, I am very interested in the
economics of the industry and whether changing the structure of
incentives and rewards, including some of the changes
contemplated by your bill, will ultimately benefit consumers in
the long run.
I want to hear from the witnesses their views of this issue
and also whether they feel that there are anti-trust concerns
with these settlements, given the fact that the courts and the
federal anti-trust authorities don't seem to agree on the
issue.
But in any event, Mr. Chairman, this is an important
hearing. I am very pleased that you are holding it, and I look
forward to hearing from the witnesses and also the questions
from our distinguished members of the subcommittee. And I yield
back.
Mr. Rush. The chair thanks the ranking member, and now it
is my pleasure to recognize the gentleman from Michigan, Mr.
Stupak, for 2 minutes for the purposes of an opening statement.
Mr. Stupak. Mr. Chairman, I am supportive of the bill, and
I will waive my 2 minutes. And I will ask that it be added on
for questioning later.
Mr. Rush. The chair thanks the gentleman. Now, the chair
recognizes my friend from Ohio, Mr. Space, for 2 minutes for
the purposes of an opening statement.
Mr. Space. Thank you, Mr. Chairman, for holding this
important hearing on an issue that, at its core, is designed to
provide inexpensive and effective prescriptive medications to
the people that we serve.
I think in addressing this issue, like so many other issues
that affect the pharmaceutical world, we have to walk a
delicate line between fostering innovation and providing
inexpensive access to constituents. Particularly the latter
issue becomes important in light of the fact that so many
people are hurting financially right now and actually making
conscious decisions between purchasing prescription medication
and buying food.
I hope that we will consider these issues of intellectual
property and patent settlements in a very deliberate process,
being very careful and mindful to maintain that balance between
fostering innovation while protecting consumers. And I am
hopeful that today's testimony will shed some important light
on this topic. I yield back.
Mr. Rush. The chair thanks the gentleman. Now for the
second time now the chair recognizes the gentleman from
Nebraska, Mr. Terry, for 2 minutes for the purposes of opening
statement.
Mr. Terry. Well, I appreciate you asking me twice.
Mr. Rush. I am trying to get to you.
Mr. Terry. I will waive.
Mr. Rush. All right, the chair thanks the gentleman. Now it
is my pleasure to recognize the gentleman from Louisiana, Mr.
Scalise, for 2 minutes for the purposes of an opening
statement.
Mr. Scalise. Thank you, Mr. Chairman. I will waive as well
and hold that time for questioning.
Mr. Rush. Well, we thank you. Now, it is my pleasure to
recognize the gentleman from Georgia, Mr. Gingrey--Dr. Gingrey
for 2 minutes for the purposes of an opening statement.
Mr. Gingrey. Mr. Chairman, the third time is the charm. I
want to thank you for calling this hearing today on H.R. 1706,
The Protecting Consumer Access to Generic Drugs Act of 2009. I
believe that it goes without saying how valuable generic drugs
have been for consumers in the prescription drug market. And
this hearing will pick up where the subcommittee left this
issue back in 2007 when I was not a member.
As a physician for nearly 30 years and a member of this
health subcommittee, I know that access to generic drugs
provides proven medical remedies and improvements to the
quality of life and often at a much lower cost. As this
subcommittee examines such an important issue for consumers
across the country, we must act in a way that preserves and
bolsters access to generic drugs.
However, Mr. Chairman, despite the intent of H.R. 1706 to
expedite the process by which generic drugs get to the
consumer, I am concerned that this legislation may indeed have
unintended consequences causing consumers to wait even longer
to get access to generic versions of brand-name drugs. At the
very heart of this legislation is the legitimacy of an out-of-
court settlement between a drug company holding a patent on a
drug and one seeking to create the generic version.
Mr. Chairman, patent law in this area is very unique. When
companies are able to settle their disputes out of court,
consumers are the ultimate winners. Unfortunately H.R. 1706
would prohibit the practice, thus reducing the incentive for a
generic company to take on financial burden of challenging
patents and potentially delaying some generics from actually
coming to the market.
Mr. Chairman, for the sake of all health care consumers, I
urge we use the utmost caution and care as we move forward on
this legislation. I certainly look forward to hearing the
thoughts of our panel this morning on such an important issue,
and I yield back the remaining 30 seconds.
Mr. Rush. The chair thanks the gentleman. Now, the chair
recognized my friend from Georgia, Mr. Barrow, for 2 minutes
for the purposes of an opening statement.
Mr. Barrow. I thank the chair. In the interest of time, I
will waive an opening.
Mr. Rush. Thank you very much. Now the chair recognizes my
friend from Illinois, Ms. Schakowsky, the vice chair of the
subcommittee for 2 minutes for the purposes of an opening
statement.
Ms. Schakowsky. Thank you, Mr. Chairman. I am an original
cosponsor of H.R. 1706, the Protecting Consumer Access to
Generic Drugs Act of 2009, because I believe that the
availability of generic drugs is a critical component to
lowering health care costs for the consumer, for businesses,
for the taxpayer.
The legislation would prohibit patent settlements in which
a brand-name drug maker pays off a generic drug maker to
prevent the generic medicine from entering the market. These
payments are known as reverse or exclusion payments, and it
strikes me as incredibly disingenuous that those who would tout
the importance of free markets and competition would also take
exclusive action to prevent fair competition in the case of
necessary and sometimes lifesaving prescription medications.
Settlements that include exclusion payments may be good for
the brand-name manufacturer that gets to keep its monopoly, and
it may be a good thing for the generic company that gets paid
not to produce a drug, but such settlements are a bad deal for
consumers.
My state of Illinois has joined others in successfully
taking on anti-trust actions by brand-name drug companies. In
2003, Illinois was part of a multi-state settlement of an
action against Aventis for entering into an exclusion payment
settlement with a generic challenger which delayed competition
with its heart drug Cardizem.
However, the Cardizem case predated recent circuit court
decisions that have made it more difficult for anti-trust
enforcers to challenge reverse payments. The case which
garnered millions of dollars for Illinois consumers might not
have been successful in the current environment.
According to a 2004 FDA analysis, the average patient
taking several medications could save 14 to 16 percent on drug
costs if they can replace some of their prescriptions with
generics. If they were taking medications that could be
completely replaced with generics, their prescription drug
costs could be reduced by 52 percent.
I think that ensuring lower cost generics on the market is
a key component of reigning in health care spending, and I
believe that setting the bar any lower would be irresponsible
on the part of this Congress. Thank you, Mr. Chairman.
Mr. Rush. The chair thanks the gentlelady. Now, the chair
wants to exercise a moment of personal privilege this morning
by recognizing the chairman of the Federal Trade Commission who
has come here to be with us this morning. I am not sure, Mr.
Chairman, how long you will be able to stay, but you are always
welcome here. We want you to know any time you want to drop in,
just drop in, all right. Mr. John Lebowitz is recognized. We
thank you so much for your presence.
And now we would like to welcome our expert and esteemed
panel that have come. I want you to know that you are the
finest panel that have ever assembled before us this morning,
all right. And we recognize you so much, and we thank you so
much for being here with us.
I want to recognize from my left to right, beginning with
the Honorable J. Thomas Rosch, who is the commissioner of the
Federal Trade Commission. And I want to recognize you,
Commissioner Rosch. I think that is how you pronounce your last
name. Thank you so much.
Next to him is Mr. Scott Hemphill, who is an associate
professor of law at Columbia University. Welcome, Mr. Hemphill.
Next to Mr. Hemphill will be Ms. Joanne Handy. She is a board
member of an organization I just recently joined, AARP.
Welcome, Ms. Handy.
Next to her is Ms. Diane Bieri. She is a general counsel
for PhRMA. Welcome, Ms. Bieri. And next to Ms. Bieri is Dr.
Barry Sherman, who is a chief executive officer for Apotex
Incorporated. Dr. Sherman, you have been here before and you
are familiar. And we welcome you once again.
And next to Dr. Sherman is Mr. Ted Whitehouse of the firm
Willkie Farr and Gallagher, who has been before the committee
before. And he is here on behalf of Teva Pharmaceuticals. We
certainly want to again welcome each and every one of you and
thank you for taking out moments of your important day to be
here with us.
And now we will recognize Commissioner Rosch for 5 minutes
for the purposes of an opening statement.
STATEMENTS OF J. THOMAS ROSCH, COMMISSIONER, FEDERAL TRADE
COMMISSION; SCOTT HEMPHILL, ASSOCIATE PROFESSOR OF LAW,
COLUMBIA UNIVERSITY; JOANNE HANDY, BOARD MEMBER, AARP; DIANE
BIERI, GENERAL COUNSEL, PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA; BARRY SHERMAN, CHIEF EXECUTIVE
OFFICER, APOTEX, INC.; AND TED WHITEHOUSE, WILLKIE FARR AND
GALLAGHER, ON BEHALF OF TEVA PHARMACEUTICALS
STATEMENT OF J. THOMAS ROSCH
Mr. Rosch. Thank you, Chairman Rosch, Congressman Stearns,
and members of the subcommittee.
Mr. Rush. Turn the mike on please. Pull it closer to you.
Mr. Rosch. OK, I appreciate the chance to appear before you
today. The written statement that we submitted represents the
views of the commission as a whole. My oral testimony is my
own, and it doesn't necessarily reflect the views of any other
commissioner.
There are several compelling reasons why it is imperative
that Congress enact legislation in this area. Reverse payment
agreements strike at the heart of the special statutory
framework Congress created in the Hatch-Waxman Act. That
framework was designed to balance two policy goals that are
critically important to the pharmaceutical industry.
Hatch-Waxman gave branded companies a longer patent life.
The tradeoff was the generic companies were given a strong
incentive to challenge questionable brand patents and start
competing with the branded companies if they win. And that
tradeoff was 180 days of generic exclusivity. In that way,
generic companies were supposed to protect consumers from
unwarranted patent monopoly pricing by branded companies.
But reverse payment settlements frustrate the purpose of
Hatch-Waxman in two ways. First, the settlements incentivize
the generic to abandon the patent challenge, leaving a suspect
patent intact for the entire extended patent period.
Second, they can incentivize the generic to challenge
patents that shouldn't be challenged in hopes of getting paid
off for settlement. In other words, the anticompetitive
settlements have ended up vesciating the incentives for
generics to protect consumers and instead can result in
generics feathering their own nests. By virtue of the reverse
payment settlement agreement, the brand stops the generic's
challenge and so it doesn't lose its patent monopoly even if
its patent is invalid or not infringed.
The generic meanwhile gets a share of the brand's monopoly
profit in the form of the reverse payment, but the consumer,
including the federal government as has been pointed out, ends
up being a huge loser since consumers continue to pay monopoly
profits until the generic starts to compete.
This is demonstrated by the pie chart on page 12 of the
commission's written remarks, and a good example is our
Cephalon case where the CEO of the brand boasted that his deals
generated an additional $4 billion in sales. Most of the
profits from those sales will come from consumers pockets. Now,
imagine if there are 10, 15 or even more of these settlements
each year.
Beyond that, on their face reverse payment agreements are
market division agreements between potential competitors. That
is why the Sixth Circuit in the Cardizem case held that they
were per se illegal, and that holding is consistent with the
1990 Supreme Court Palmer decision, which held that market
division agreements between potential competitors are per se
illegal. So reverse payment agreements not only violate the
purpose of Hatch-Waxman but also seemingly violate the Palmer
holding.
So why am I here supporting congressional legislation?
Well, recent circuit court decisions have ignored Palmer and
Cardizem, substituting their own judicial policy judgments. The
market division agreements should be permissible to settle
patent litigation.
For example, the 11th Circuit's Schering decision in which
the circuit court declined to follow Palmer or Cardizem
emphasized that its decision was based on ``policy.'' But
Congress is the body with the responsibility to set patent
policy.
In short, the courts have disturbed the balance that
Congress struck in Hatch-Waxman by permitting reverse payment
settlement agreements and Congress should correct that
imbalance. Congress shouldn't wait for the Supreme Court to
review these erroneous judicial decisions either. There is no
reason to think that the court will set things right any time
soon. It has decided to review both Schering and Tamoxifen,
which followed Schering. That is the Second Circuit decision
and the petition currently before the case in the Cipro case,
the most recent of these decisions.
In that petition, the petitioner actually suggests that the
Supreme Court defer ruling on the petition until the parties
file a petition in a parallel action.
More important, however, Cipro represents the extreme case.
It holds that reverse payment settlements are in effect per se
legal, not illegal, but per se legal. Even if the court
concludes that Cipro is wrong and that reverse payment
agreements are not per se legal, that still leaves open the
question of whether, as Schering and Tamoxifen held, the
strength of the patent is a threshold issue that has to be
litigated before the public or private plaintiff can litigate
the anti-trust merits.
I have said publicly, Mr. Chairman, that litigating the
strength of the patent may be one way to avoid Schering and
Tamoxifen, but I will be the first to admit that that may be
costly and duplicative. Hatch-Waxman contemplated that the
generic would litigate the strength of the patent.
Mr. Rush. Mr. Rosch, would you please bring your comments
to a close? You are a minute and 47 seconds over your time.
Mr. Rosch. OK, can I just conclude by saying----
Mr. Rush. Please.
Mr. Rosch [continuing]. Mr. Chairman that at the commission
at least, this is not a partisan issue. Eleven members of the
commission over the years that this has been at issue, all the
Republicans, all of the Democrats have joined in these cases,
and all four of us, two Republicans and two Democrats who are
currently on the commission, strongly support the legislation
that is before the committee. Thank you.
[The prepared statement of Mr. Rosch follows:]
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Mr. Rush. Thank you very much. Now the chair recognizes the
gentleman, Mr. Scott Hemphill, for 5 minutes or thereabouts for
purposes of an opening statement.
STATEMENT OF SCOTT HEMPHILL
Mr. Hemphill. Thank you. Chairman Rush, Congressman
Stearns, and members of the subcommittee, I am Scott Hemphill,
an associate professor at Columbia Law School. My scholarship
and teaching focus on the balance between innovation and
competition, established by anti-trust law, intellectual
property and regulation.
I thank you for the opportunity to testify today about
anti-competitive, pay-for-delay agreements between brand name
drug makers and their generic rivals. These remarks draw upon
my ongoing academic research into the economic effects of these
settlements and their appropriate legal treatment. Most
recently an article forthcoming in the ``Columbia Law
Review''--I hope these articles might be included in the
hearing record.
Mr. Rush. So ordered.
Mr. Hemphill. Advise the Federal Trade Commission on the
anti-trust issues raised by pay-for-delay settlements, but the
views I express today are mine alone.
For 25 years, the Hatch-Waxman Act has provided a way for
generic drug makers to introduce a competing version of the
patented brand name drug even before the relevant patent or
patents expire by arguing that the patent is invalid or not
infringed. The generic firm has a large incentive to do this:
180 days of exclusive sales free from generic competition when
it later enters the market. Usually the brand name firm files a
patent infringement suit in response. Often, the generic firm
wins the suit, and when it does, drug prices fall.
But sometimes the brand name firm, instead of taking that
chance, decides to settle the suit. The parties dismiss the
suit and agree on a particular date when the generic firm can
enter the market. That date is the result of a hard bargain
between the two companies. The brand name firm pushes for as
late a date as possible, arguing that it is likely to win the
case at trial if put to the test. The more persuasive that
argument is, the later the entry date.
Now, such a settlement which rests solely upon the inherent
strength of the patent is properly permitted, but now think
what happens when a brand name firm instead makes a payment to
the generic firm, rather than relying solely on its prospects
at trial. In that case, the payment secures a later date than
is warranted by the likely validity of the patent alone. That
payment to a rival made to secure additional delay in the
generic entry ought to be prohibited.
This pay-for-delay settlement problem is growing. To get a
better sense of the problem, I collected a data set using
public information of 143 brand generic settlements between
1984 and August 2008. Of these, 60 settlements raised pay-for-
delay issues. Settlements as to just 10 drugs, whose form is
particularly troubling and which currently block generic entry,
account for U.S. sales of about $17 billion each year.
The problem is not just growing worse. It is also getting
harder. In the early days of pay-for-delay settlements, the
brand name paid cash, a couple hundred million dollars in the
case of the antibiotic Cipro. These deals are, relatively
speaking, easy to understand. But today firms also pay by
making contemporaneous side deals that help to disguise the
payment, and they can even use the 180-day period I mentioned a
moment ago as a source of payment.
Let me explain. A generic firm gets 180 days if it fights
the patent and wins. It loses 180 days if it fights the patent
and loses. But what if it settles? In that case, it keeps the
180 days. Now, this is important because it means that a brand
name firm can approach the generic and say let me keep my
patent and in exchange, I will let you have the 180 days, just
much later.
For a blockbuster drug such as Lipitor, such forbearance is
worth hundreds of millions of dollars to a generic firm. The
current approach to pay-for-delay settlement is just not
working. H.R. 1706 is an important step forward in identifying
and determining pay-for-delay settlement. Section 2A of the
bill prohibits a settling brand name firm from providing a
generic firm with ``anything of value beyond a negotiated entry
date'' and with a few specified exceptions.
It is important that the subcommittee recognize that
anything of value, properly understood, includes all forms of
compensation that induce delay, including effective guarantees
of exclusivity. The subcommittee might wish to make this point
explicit in the bill.
To conclude, the pay-for-delay problem is getting worse as
new deals are made and as deal structures become more and more
complicated. Congress can help by prohibiting these anti-
competitive arrangements. Thanks are due to the subcommittee
for taking a leadership role on this important issue. I look
forward to hearing your questions and concerns.
[The prepared statement of Mr. Hemphill follows:]
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Mr. Rush. The chair thanks the gentleman. Now, the chair
recognizes Ms. Joanne Handy for 5 minutes for the purposes of
an opening statement.
STATEMENT OF JOANNE HANDY
Ms. Handy. Mr. Chairman, members of the subcommittee, I am,
as you know, Joanne Handy, a member of the AARP board, also a
nurse and a health care provider. On behalf of our more than 40
million members, thank you for the chance to testify about H.R.
1706. AARP has endorsed this legislation, and we call on
Congress to enact this legislation this year.
Older Americans, as has been referred to several times by
members of the subcommittee, use prescription drugs more than
any other segment of the U.S. population. Unfortunately the
cost for brand name drug products continue to rise at rates
that far exceed inflation, causing a strain on the budgets of
both consumers and other health care payers, including the
government.
Spiraling drug costs are particularly for older adults who
are disproportionately affected by chronic disease and more
likely to need multiple medications. When faced with higher
drug costs, they frequently skip doses, reduce doses, and let
prescriptions go unfilled. The result is preventable and
expensive hospitalizations and adverse health outcomes.
This occurs far less often for those taking generic drugs,
which have proven to be one of the safest and most effective
ways for consumers to lower their prescription drug costs. AARP
encourages its members to use generic drugs whenever possible.
AARP strongly supports efforts that provide timely market entry
of generic drugs. We are concerned, however, about the recent
trends in reverse payments, which occurs when generic
manufacturers receive anything of value in exchange for
agreeing not to research, develop, manufacture, or sell its
generic products.
These reverse payments delay market entry of new generic
drugs, and thus increase the odds that older Americans will be
forced to cut back or go without needed medicines because of
the rising cost. AARP believes that H.R. 1706 is an appropriate
remedy to end the problem of reverse payments. This legislation
is needed because when brand and generic pharmaceutical
companies engage in conduct that delays market entry of generic
drugs, consumers and other health care payers pay higher
prices. And as a result, older Americans are more likely to go
without the drugs they need because of the higher costs.
Stopping or delaying market entry of the first generic drug
prevents all the other generic drugs from competing and
ultimately extends the brand name manufacturer's market
exclusivity. This creates a powerful incentive for companies to
negotiate, to collude with the first to file generic
manufacturer to delay market entry of the generic product.
Legislation is necessary because, as you have heard, there
have been recent court decisions that have held that reverse
payment agreements do not violate the antitrust laws. These
decisions have unquestionably lead to an increase of such
agreements and hampered the Federal Trade Commission's ability
to prevent these abuses.
In fact, the FTC has reported a marked increase in the
number of questionable settlements. 50 percent of the 2006
settlement agreements between brand and generic manufacturers
included some form of payment as well as an agreement to delay
market entry. Ending these costly patient abuses is one
essential component in our efforts to reduce skyrocketing brand
name drugs prices and provide affordable comprehensive health
care options to all Americans.
Again AARP strongly supports H.R. 1706. We are pleased to
see the committee and members from both houses of Congress and
both sides of the aisle moving forward on this issue. Thank you
for inviting us to be here.
[The prepared statement of Ms. Handy follows:]
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Mr. Rush. Thank you. Now, the chair recognizes Ms. Diane
Bieri who is the general counsel for PhRMA for 5 minutes for
the purposes of opening statement. Welcome.
STATEMENT OF DIANE BIERI
Ms. Bieri. Thank you. Chairman Rush, Congressman Stearns,
and members of the subcommittee, thank you for the invitation
to participate in today's hearing on legislation that could
have a significant impact on pharmaceutical company settlements
of patent disputes. My name is Diane Bieri, and I am the
executive vice president and general counsel of PhRMA.
In 2008 alone, PhRMA members including both large and small
biotech and pharmaceutical companies invested more than $50
billion in discovering and developing new medicines. What is
more, roughly 70 percent of this research was made right here
in the United States, representing a significant number of
American jobs and other contributions to the economy.
In the past 10 years, over 300 new medicines have made it
through the increasingly complex FDA review process and into
the hands of physicians and patients. These new medicines are
increasing life expectancy, decreasing disability, and
providing hope to patients and their loved ones who are
fighting life-threatening and debilitating diseases such as
cancer, cardiovascular disease, diabetes, rheumatoid arthritis,
and many others.
America's biopharmaceutical companies are facing more
challenges than ever in terms of bringing new medicines to
market. It takes on average 10 to 15 years and more than $1
billion to bring one new medicine to patients. That is why
research-based companies and their investors need to be
confident that the law will respect and uphold the critical
role of intellectual property, including patents, in providing
the opportunity to recoup these substantial investments.
Patent protection is the engine that allows America's
research-based biopharmaceutical companies to take risks and
strive to develop the next generation of life-saving and life-
enhancing treatments.
Of course, it is important to remember that pharmaceutical
products effectively have a shorter period of patent life than
other types of products. Pharmaceutical companies must obtain
FDA approval before marketing their products, and much of the
patent term is spent before the medicine actually comes to
market. Recognizing these challenges, the Hatch-Waxman Act of
1984 attempted to balance the interests of both innovative and
generic companies.
The law made it easier for generics to come to market but
also restored to innovators some of the patent time lost during
the clinical research and regulatory review process. But even
after Hatch-Waxman, the useful patent life of a pharmaceutical
product is limited. For example, one study showed that for
medicine whose generic competitors entered the market between
2002 and 2005, the average time on the market before generic
competition was only 11.2 years.
In addition, you have to look at the tremendous increase in
competition between brand medicines, but particularly between
brand medicines and generics. Since passage of Hatch-Waxman,
the generic industry share of the prescription drug market has
jumped from less than 20 percent to over 71 percent today. This
is, of course, due in part to the fact that Hatch-Waxman has
spawned more patent challenges as it was meant to do.
Hatch-Waxman gives generic companies incentives to
challenge patents as soon as four years after the brand
medicine receives FDA approval, without requiring the generic
to take the risk of actually marketing the product before the
patent challenge is resolved.
Given this construct, patent challenges have become
commonplace, but patent litigation is still lengthy, expensive,
and risky for all concerned. Generic companies do not have
perfect information when they bring challenges, and brand
companies cannot be sure their view of the strength of their
patents will carry the day at trial.
The rapid expansion in generic utilization has been fueled,
in part, by the fact that innovators and generics have had the
flexibility to resolve some of these patent suits in fair and
appropriate ways without taking every case the whole way
through trial and appeal.
There is no doubt that H.R. 1706 would significantly reduce
that flexibility. Courts and experts tell us that patents
settlements between brand and generic companies, even those
that include some payment from the brand to the generic, can
benefit consumers. Yet H.R. 1706 would prohibit a wide variety
of patent settlements just because the brand company transfers
something of value to the generic.
This kind of broad ban would chill all patent settlements
and is likely to reduce innovation and also reduce the number
of patent challenges filed. Broad limits on options for patent
settlements would force both sides to spend valuable resources
litigating rather than developing new medicines or bringing
generic versions to market. Statistics from recent years show
that innovators are likely to win over 50 percent of the cases
litigated through appeal, which means that generic entry in
those cases could not come until the patent expires.
In contrast, a settlement might include provisions allowing
a generic product to come to market well before the patent
expires and could produce other collateral benefits such as
licenses for generics to market products unrelated to the
patent dispute. Instead of a blanket rule banning certain types
of patent settlements, enforcement agencies and courts should
continue to evaluate settlements on a case-by-case basis to
determine whether on the whole they benefit consumers.
The Medicare Drug Improvement and Modernization Act of 2003
enhanced the FTC and Department of Justice's ability to make
those determinations. The approach preserves the delicate
balance between intellectual property protection that fosters
innovation and competition principles that encourage access to
generic medicines and a strong healthy generic industry.
I look forward to answering any questions you may have, and
PhRMA looks forward to working with you on this legislation.
Thank you again for your attention to these important policy
issues.
[The prepared statement of Ms. Bieri follows:]
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Mr. Rush. The chair thanks Ms. Bieri, and it is now my
honor to introduce and to allow Dr. Barry Sullivan 5 minutes
for the purposes of opening--Sherman, I am sorry--Sherman 5
minutes for the purposes of opening statement. Dr. Sherman, you
are recognized for 5 minutes.
STATEMENT OF BARRY SHERMAN
Mr. Sherman. OK, Mr. Chairman, members of the subcommittee,
thank you for the opportunity to testify again today. Apotex
Inc. is very eager to do its jobs of challenging weak patents
and bringing to the market products as quickly as possible for
the benefit of our customers, who are the pharmacy industry of
America and through them to American consumers.
We are therefore eager to help elucidate the fundamental
problem that is blocking generic entry, and that, in our view,
is settlements by first filers that whereby they accept unduly
late, very late entry dates, cheap their exclusivity and
thereby block market entry to others such as us who would
continue to fight and thereby gain much earlier market entry.
And the cost to the American consumer is enormous. Billions
of dollars for individual products and certainly many tens of
billions of dollars in total. One example is the drug Modafanil
whereby the Cephalon settled with four generic suppliers
challengers some years ago and thereby got delayed generic
entry until the year 2012. The patent is very weak. We would be
prepared to launch the product now if we could, and indeed, in
Canada, we have already succeeded in the patent challenge. And
the product is on the market in Canada as a generic sold by
Apotex. So the problem is quite enormous.
There have been legislative initiatives including this one
to address the problem by trying to prohibit reverse payments,
settlements that include reverse payments. In our view, reverse
payments per se are not the problem. They are simply a symptom
of a problem.
Why are brand companies prepared to make large payments? It
is not because they are fair payments to the particular company
with whom they are settling. It is because when they settle
with the first filer, they know the first filer retains the
exclusivity and blocks all others. So they are paying not to
get the one settlement, to get the entire block of the market
until near patent expiry, and that is the fundamental problem.
In our view, there are two flaws that need to be addressed
and can easily be addressed. The first is that the first filer
who settles and doesn't do what was intended by the Hatch-
Waxman gets to keep that exclusivity to block all others.
And the second problem is that these agreements almost
always contain poison pill provisions whereby if a subsequent
filer does succeed to get early entry, the settler simply
accelerates entry and takes away the benefit to the subsequent
filer who actually succeeded.
One example that brings the point home is the case of
Altace Ramapril. The first filer was Cobalt. They settled for
very late entry, but in 2007, Lupin won--even though they were
not the first filer, won in the court of appeal. What then
happened? Cobalt used its poison pill provision to accelerate
its entry, launch the product, and Lupin could not launch even
though they were the ones who invested and won. So all of the
benefit went to Cobalt, who had settled. None of the benefit
went to the successful litigant who was not the first filer.
The message from that case is clear to all who would
subsequently challenge a patent. Don't do it. It isn't worth
it. You can't succeed. So the effect is that the litigation by
those who would actually fight to win is paralyzed.
In our view, there are two simple amendments that are
needed to fix this problem. The first amendment is to give a
shared exclusivity to a subsequent filer who does fight and
wins. And the second provision that is needed is to override
the poison pill provisions which would, in essence, provide
that if a first filer settles for very late entry, FDA can then
not give final approval to that first filer until that date.
And that date can then not be accelerated by reason of a
subsequent win by a subsequent filer.
These two provisions would accomplish two very important
things. Number one, it would give--when there is an
anticompetitive settlement whereby a first filer has agreed to
defer to a very late entry date, it would given an incentive to
a subsequent filer to pick up the battle, challenge the patent
and win and get earlier entry.
And the second effect would be that it would eliminate the
anticompetitive settlements because if these provisions were
enacted, a brand company would no longer make a reverse payment
to a first filer because it wouldn't have the effect of
blocking all challengers. It would only block the one, and
therefore there would be no reason to make that big payment.
And secondly, it would tell the first filer they couldn't
settle for too late a date because if it does, it will be stuck
with that date. And then we will lose the opportunity launch if
a second filer, subsequent filer, wins an earlier entry date.
So in our view, the attacking or trying to eliminate
reverse payments really will not solve the problem.
Anticompetitive settlements will continue with the same
anticompetitive effect only without the reverse payments. And
what is necessary to address the problem is to give shared
exclusivity to a subsequent filer who does take up the battle
and wins and to eliminate the poison pill provisions whereby a
first filer who agrees to late market entry can then accelerate
that entry on the basis of an earlier win by someone who does
invest in the challenge and wins.
We very much urge the committee, subcommittee, to consider
our suggestions because we have been at this a very long time.
We understand what the issues are. We are fighting the battles
every day. We are most eager to do the job, which the Hatch-
Waxman provisions incentivized used to do, to fight, to win, to
bring our products to market early.
We are blocked by these anticompetitive settlements, and
these are the challenged that we are convinced are needed to
solve the problem. Thank you very much.
[The prepared statement of Mr. Sherman follows:]
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Mr. Rush. The chair thanks the gentleman. Now the last
witness, the chair recognizes for 5 minutes Mr. Whitehouse. You
are recognized now for 5 minutes for the purposes of opening
statement.
STATEMENT OF TED WHITEHOUSE
Mr. Whitehouse. Thank you. Chairman Rush and Congressman
Stearns and members of the subcommittee, good morning. I am Ted
Whitehouse. Now it is good afternoon. I am a partner at Willkie
Farr and Gallagher and appearing today on behalf of Teva
Pharmaceuticals, which, as you know, is the leading
pharmaceutical company that participates both on the generic
and the brand sides of the industry. Teva and I appreciate the
opportunity to appear and be heard on these important issues.
As I think you know, Teva has been an active participant in
the last Congress and in the current Congress in the
deliberations on the matters at issue in this hearing. We hope
it has been apparent to everyone that Teva is very concerned
about this and similar legislative proposals but also very
willing to work constructively with Congress and the FTC in an
effort to ensure that the concerns being raised here are
addressed without doing harm to the vital concerns and
incentives at the heart of Hatch-Waxman.
Teva believes that the intricately crafted Hatch-Waxman
process that Congress put in place 25 years ago has worked and
is working very well. Teva's basic position is that no new
legislation is needed. Teva is therefore opposed to H.R. 1706.
Teva believes the ability to reach reasonable, timely and pro-
consumer settlements in Hatch-Waxman paragraph four litigations
is absolutely essential to Teva's efforts to bring low-cost
generic drugs to market as soon as possible. And that is Teva's
fundamental business, to work to bring products to market as
soon as possible.
From the perspectives of consumers, settlements that result
in bringing products to market sooner with more certainty than
might otherwise be the case are a very good thing. Teva
believes that the members and staff should give particular
attention to a recent paper written by three prominent
economists including Dr. Laura D'Andrea Tyson, a professor of
economics at Berkeley who served as a chair of the counsel of
economic advisors and is director of the National Economic
Counsel in the Clinton Administration. She is joining the Obama
Administration to advise on tax policy as we understand it.
This paper, copies of which we believe have been
distributed to all members and their staff, confirms on the
basis of economic analysis and theory some of the conclusions
that Teva reached from this practical experience. First, that
settlements can be good for consumers. Second, that reasonable
settlements are more likely to be achieved if parties have more
than one or two issues over which to bargain. And third the
paper emphasized the importance of case-by-case analysis of
settlements rather than a blanket ban on particular terms.
As Dr. Tyson's coauthor said in a letter sent yesterday to
the chair and ranking member, ``a broad ban on certain types of
patent settlements, such as that considered in the proposed
legislation, will likely make American consumers worse off.''
Teva does not contend that all Hatch-Waxman settlements are
necessarily good for consumers, but it takes strong issue with
the legislation that would have prevented Teva from engaging in
any of the recent settlements that Teva reached that produced
real benefits for consumers. For example, 10 settlements
entered into by Teva between 1999 and 2007 took approximately
80 years of the lives of the patents at issue and will end up
saving consumers more than $67 billion.
Teva believes that more serious considerations should be
given to legislative alternatives that were extensively
discussed in the last Congress, such as mandatory expedited
review by the courts or a more formal expedited FTC pre-
effective review process. If the subcommittee determines to
proceed with the approach embodied in H.R. 1706, Teva strongly
urges that the exceptions or carveouts in the bill be broadened
to make clear that at least the kinds of terms that Teva has
successfully employed in the past to reach settlements that
produced real benefits for consumers remain permissible.
And those provisions include, among other things, early
generic entry on other products in addition to the one in suit,
a full release for damages and a covenant not to sue on all
patents on the generic products involved in the settlement, a
limited exclusive license, and case-by-case authority for the
FTC.
Now, most of H.R. 1706 is directed to patent settlements;
however, section four addresses a different set of issues not
tied or limited to patent settlements. Essentially section four
would broaden the circumstances under which the first generic
company to challenge a brand company's patents could lose or
forfeit the 180 days of marketing exclusivity provided to first
filers under Hatch-Waxman.
As you have heard today, there are people in the industry
who don't like the 180-day exclusivity provisions, but it is
important to be very clear that those provisions have been in
Hatch-Waxman from the start and are absolutely essential to the
incentive structure that has brought this country the vibrantly
competitive and publicly beneficial generic drug industry from
which consumers, third-party payers, and the federal and state
governments benefit every day.
I respectfully invite your attention to my written
statement for a full explanation of Teva's concerns relating to
these complex provisions in section four. But very briefly, by
way of example, as written, subsection CC would result in
forfeitures of exclusivity before anyone has been cleared to
enter the market. Proposed subsection DD, we believe, is
confusingly unclear and potentially very overbroad.
On all of these issues, Teva hopes to continue an active
and constructive dialogue with members of Congress and their
staff and with FTC commissioners and the FTC staff, all with a
view of trying to address any legitimate concerns while
carefully preserving all that is good and necessary about the
existing and highly successful Hatch-Waxman process.
Thank you very much, and I would be pleased to answer any
questions that you may have.
[The prepared statement of Mr. Whitehouse follows:]
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Mr. Rush. The chair thanks Mr. Whitehouse, and now the
chair will begin the round of questioning by recognizing
himself for 5 minutes for the purposes of questioning the
witnesses. And I just want to ask the witnesses if we need to
go into a second round of questions, the chair is willing to do
that if the witnesses can make themselves available for an
additional round of questioning from the members of the
subcommittee.
Chair recognizes himself for 5 minutes. Exclusion payment
settlements are unique to the pharmaceutical industry. In all
other industries, as I stated in my opening statement, patents
are usually settled in two ways. One, the accused infringement
pays a royalty to the patent holder or two, the two parties
agree to an early entry date. It is my belief and has been
stated earlier that only in the pharmaceutical industry do we
see a very unusual behavior of a patent holder, which the brand
name drug company suing the accused infringer, the generic
company, and then paying the accused infringer to stay off the
market. Only in the pharmaceutical industry.
I am going to ask Commissioner Rosch, do these types of
settlements happen in any other sector? And while you are
answering that, think about this question: why are these
settlements unique to the drug industry? And what keeps them
from occurring in other industries or commercial sectors? And
how does the framework of Hatch-Waxman impede or enhances this
kind of activity? Those are the questions I have for you.
Mr. Rosch. Thank you, Mr. Chairman. Let me take them up one
by one. First of all, yes I do believe that these kinds of
settlements, that is to say the kinds of settlements with which
this legislation is concerned, are unique to the pharmaceutical
industry.
I think I take issue with characterizing them as payment
settlements. They are not that. They are reverse payment
settlements. They are settlements in which the holder of the
patent actually pays the person who is alleging infringement
some money or other thing of value. We do not frankly see that
kind of settlement in any other industry. So that is the answer
to the first question.
Second, why don't we see it in any other industry? It is
not because we consider either the branded or the generics to
be nefarious. It is simply a matter of economics. Now what am I
talking about in terms of economics? First, state substitution
laws as well as various kinds of formularies very much
encourage switching, switching to a lower cost drug from a
branded drug that is under patent.
Second, because of that encouragement, generic drugs are
inclined and incentivized to switch their drugs as quickly as
possible. And to do that, they are willing to actually take a
haircut on their prices, well below that that the brand charges
because the brand is able to charge monopoly prices.
Third, that threatens however the brand tremendously
because the brand's drug is still under patent, and it is able
to avail itself of monopoly pricing, brand monopoly pricing, as
well as brand monopoly profits.
Fourth, because it is so threatened, the brand is willing
and incentivized to go ahead and share some of those profits
with the generic. And that is what happens when it offers a
reverse payment. It is, in fact, a sharing some of those
profits with the generic.
So finally, the reverse payment settlement is a win-win
proposition for both the brand and the generic. It helps the
brand on the one hand maintain its patent monopoly. And
secondly however what it does is to incentivize the generic to
abandon its challenge to the patent monopoly and therefore to
eschew the kind of pro-consumer activity that the Hatch-Waxman
Act was originally designed to encourage.
There is nothing wrong with the original Hatch-Waxman Act.
To the contrary, its incentives were perfectly aligned. It gave
the brands something. It gave the generics something for
challenging the brands. The problem is not with the Act. The
problem is with the court decisions, which have ignored the
teaching of the Supreme Court as well as what the framers of
the Act had in mind in enacting the Act to begin with.
Mr. Rush. The chairman's time has ended, and now the chair
recognizes my friend from Florida, Mr. Stearns, for 5 minutes
for the purpose----
Mr. Stearns. Thank you, Mr. Chairman. I ask unanimous
consent that the letter that was sent to you and Mr.
Radanovich, the academic study that draws reference by--that
Mr. Whitehouse mentioned, draws out the complexity of
determining whether reverse payment settlements are anti-
consumer and demonstrate that these settlements are actually
pro-consumer in most cases be made part of the record.
Mr. Rush. Hearing no objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Stearns. This is an interesting hearing, Mr. Chairman.
You have the pharmaceutical industry, and as I understand it,
the generic drug industry is aligned together. It is the most
unlikely alliance here. Mr. Whitehead and others I represent--I
mean as I understand it from my staff, Dr. Sherman, that you
are alone here. That most of the generics--isn't that true, Dr.
Sherman, that most of the generics are supporting--are not
supporting this bill. Is that true, Mr. Whitehead? Most of the
generic companies are not supporting this bill?
Mr. Whitehouse. That is correct.
Mr. Stearns. OK, and then the pharmaceuticals obviously,
Ms. Bieri, do not support it. So I say to Mr. Rosch, you have
here the pharmaceuticals against the bill, the generics against
the bill in this case, you pointed out, pretty in detail how
the courts have ruled that the Hatch-Waxman bill is working and
that these reverse payments that you use--you don't like my
term the settlement payment--that they actually are acceptable
legal remedy and they are not anticompetitive. Isn't that true,
Mr. Rosch?
Mr. Rosch. Some of the courts have done that.
Mr. Stearns. No, but in general, didn't all the courts show
that these agreements are not anticompetitive?
Mr. Rosch. No, that is not correct. The Sixth Circuit in
the Cardizem case held that they were in fact per se illegal.
The Eleventh Circuit and the Second Circuit however have held
otherwise as a matter of policy. And as I said before, I think
it is Congress's authority to make policy, not----
Mr. Stearns. Did you say the Supreme Court wouldn't even
rule on this because it was decided by the lower courts?
Mr. Rosch. No, the Supreme Court did not rule on it
because, as you know, the Supreme Court doesn't take--doesn't
review all circuit court decisions.
Mr. Stearns. Well, wouldn't you say the majority of courts
have ruled that this is not anticompetitive?
Mr. Rosch. Two to one, you are correct.
Mr. Stearns. Two to one, OK. So we establish two to one the
courts. So what this bill is trying to do is circumvent the
courts where the courts have heard legal arguments on both
sides and a two-to-one majority have said that this reverse
payment that you use, which I say is a settlement payment, is
not anticompetitive. Is that a true statement?
Mr. Rosch. No, it is not correct. First of all, because the
Supreme Court has held in other contexts, that is to say when
they are not part of a settlement, that exactly----
Mr. Stearns. But not in this context?
Mr. Rosch. No, the Supreme Court has not addressed this----
Mr. Stearns. That is what I am saying, OK. You know I think
when you look at the statistics that before the Hatch-Waxman
only 19 percent of the generic industry share the prescription
drug benefit was only 19 percent. After the Hatch-Waxman, it
went up to 70 percent. So that would show that it is working. I
hear no evidence that if we pass this bill that you are going
to go from 70 to 80 to 90 percent. In fact, you might go lower.
And, Mr. Whitehead, if this bill passes, the statistics I just
gave you before the Hatch-Waxman went to 70 percent, do you
think the statistics will go lower if this bill is passed?
Mr. Whitehouse. We believe it is documented in this
economic study that----
Mr. Stearns. Yes.
Mr. Whitehouse [continuing]. There is a very real risk that
there will be disincentive to the generic companies.
Mr. Stearns. So why would we want to do harm then with
something that the court says is not anticompetitive? We have
both people involved have indicated they don't want it to
happen, and we have a study to say the overwhelming statistic
that it is going up to 70 percent is working. And we have a
study that says in fact, if you pass this bill, that consumers
will have less choice. And so it is a little interesting to me.
Mr. Rosch, here is a question for you.
Mr. Rosch. Thank you.
Mr. Stearns. When you have statistics where it says that a
study claims that in all patent litigation initiated between
1992 and 2000, the generic prevailed in 73 percent of the
challenged drug products. But I don't think that is telling the
whole story. How many of these wins resulted in actual generic
products coming on the market?
Mr. Rosch. Well, let us assume that it is 45 percent as----
Mr. Stearns. No, let us just take 73 percent as the----
Mr. Rosch. OK.
Mr. Stearns [continuing]. Statistic that is used. Of that
73 percent, how many of those resulted in actual products being
put on----
Mr. Rosch. I can't----
Mr. Stearns. You know what? I can tell you it is probably
low because if a product consists of color, shape, compound,
and dissolution, and they might win three of the cases. They
say OK, we won on color, shape and dissolution, dissipation let
us say, but the actual content of that, the compound itself
they lose on, they can't do anything.
Mr. Rosch. Well, let us assume it is 45 percent as you
suggested earlier.
Mr. Stearns. OK.
Mr. Rosch. Let us assume it is 45 percent. That means that
in 45 percent of the cases, these reverse payments are actually
operating to hurt consumers. If it is----
Mr. Stearns. No, well ultimately with reverse payment,
settlement payment, my terms, with that means that generic drug
finally comes on. Otherwise, it would be, I think you
mentioned, 80 years or somebody in the panel said it would take
80 years of litigation. So you suddenly have this litigation
abruptly stopped. You have in six months the possibility of
generic coming on the market, and this whole litigation process
ends.
Mr. Rosch. Well, there is nothing in the bill that would
chill settlements at all. There were lots of settlements that
were made before the court ruled. And Schering, there have been
a number of settlements recently.
Mr. Stearns. OK, I just want--there is no evidence of
reverse settlements have actually reduced cost.
Mr. Rush. The time of the gentleman has ended. The chair
now recognizes Mr. Stupak for 7 minutes for the purposes of
questioning the witnesses.
Mr. Stupak. Thank you, Mr. Chairman. Dr. Sherman, let me
ask you this question. In June of 2008, Pfizer reached a
settlement with Ranbaxi concerning Lipitor, the world's top
selling drug. According to press reports, the settlement
delayed the entry of generic here in the United States until
November of 2011, up to 20 months later than many analysts had
been anticipating.
The settlement of litigation here in the United States was
part of a global settlement in which Pfizer granted licenses to
Ranbaxi authorizing Ranbaxi to sell generic Lipitor in seven
other pharmaceutical markets, Australia, Canada, Belgium,
Germany, Italy, the Netherlands, and Sweden. The deal is
reported to allow Ranbaxi to sell generic in those seven
countries two to four months earlier than the patents expire.
It was also reported that the deal would make generic Lipitor
available in Canada earlier than in the U.S.
Pfizer also dropped its challenge to Ranbaxi's current sale
of generic Lipitor in four countries, Brunei, Malaysia, Peru,
and Vietnam. Both Pfizer and Ranbaxi said the agreement did not
involve any payments. It seems to me that this global deal was
full of payments. Under the settlement, market entry for
Lipitor appears to have been permitted earlier in a host of
countries than here in the United States, which coincidentally
happens to be the largest market in the world.
So I have three questions if I may. If we pass legislation
solely banning reverse payments, will we see more arrangements
like this where delayed entry in United States is tied to
settlement of litigation permitting earlier access to generic
in markets outside the United States? Secondly, won't companies
attempt to evade the payment ban by taking the position that
settlements outside the United States are not subject to U.S.
requirements that settlement reported to the Federal Trade
Commission? And third, that the Federal Trade Commission
prosecutes them for any such effort, won't the length of time
it takes to do so be so long that any opportunity for savings
from generic competition really be lost?
Mr. Sherman. Yes, I have to say that----
Mr. Stupak. I would ask you to turn on your mike please.
Mr. Sherman. I am sorry. My concern is not only that
reverse payments are not the fundamental problem. It is the
ability to block other generics by reason of keeping the
exclusivity. That is the fundamental problem. But there is no
question in my mind that no matter how one tries to stop
reverse payments by legislation, not only is it--even if it
worked, it wouldn't have the significant effect.
But it can't work because the creative minds of thieves are
without limit, and there is no question that deals can be
simultaneously done outside of the United States, and Lipitor
is not the only example. For example, Ben Lefaxine, Effexor XR
is another example. Some years ago, Teva settled with Wyeth and
agreed to a very late entry in the United States. And at the
same time, they settled the Canadian litigation allowed them on
the market in Canada through their Nova Pharm division. So
Canadian consumers have had low-cost generic Effexor XR for
years, where it is delayed in the United States under two
agreements that were entered simultaneously, one outside of the
United States. And that probably is beyond the purview of the
American courts because the American courts don't have
jurisdiction over foreign countries operating abroad. And there
is no way to stop simultaneous signature of agreements that
appear to be unrelated or that can be said to be unrelated.
Also attempts to block anticompetitive agreements by the
FTC taking action will be futile because they will become mute
by the time it is decided. It may be decided five years after
an agreement is signed that it is improper, but in the
meantime, there is no other generic firm because that agreement
is there, able to justify investing to challenge the patent or
bring the product to market. So even if a challenge to an
agreement were to work, it would be moot by the time it
happened.
So the concern that we have is not only that attempts to
block anticompetitive deals by banning reverse payments won't
be affected, but it is not really addressing the fundamental
problem. That is not the payment itself but the fact that these
deals, whereby the subsequent filers who would fight, can't
fight because they can't get on the market. That is the problem
that has to be addressed. Give shared exclusivity with
subsequent filer who wins. That solves the whole problem. The
problem disappears, and consumers will get the benefit.
Mr. Stupak. Well, let me ask this one. I am going to ask
Professor Hemphill if he could answer this one. H.R. 1706 only
prohibits a very specific type of provision exclusive payments
in drug patent settlements. That is the bill only prohibits the
brand name drug from paying or providing value to the generic
company in exchange for the generic company delaying market
entry.
The bill does not ban legal settlements in general. History
has shown us that drug companies are perfectly capable of
settling their patent disputes without exclusion payments. When
the Federal Trade Commission and states crack down on these
types of settlements in 2000, they disappeared, and drug
companies settled their cases just like any other companies do
in other industries. However, when the courts then invalidated
the FTC's enforcement efforts in 2005, exclusion payment
settlements came back with a vengeance.
So, Professor, doesn't this show that drug companies are
perfectly capable of settling their patent disputes like any
other company? And is there any evidence from the settlements
from 2000 to 2005 which did not contain reverse payments, were
they any more costly or difficult to achieve than settlements
with reverse payments?
Mr. Hemphill. That is a terrific question. It is difficult
to get to the very bottom of the question using publicly
available information, though based on the work that I have
done as to settlements--with respect to information that it is
the public domain, the answer does seem to be yes, that is,
just as you have suggested, drug companies during that
interregnum when the FTC rules seem to be in effect did seem
able to settle, just not able to settle in a anticompetitive
manner.
Mr. Stupak. Right, OK. Commissioner Rosch, did you care
to--did you find the settlements during this period to be more
costly or more difficult to achieve by drug companies during
that 2000/2005 period when your enforcement mechanism was
there?
Mr. Rosch. No, we did not.
Mr. Stupak. Anyone else care to comment on that? Ms. Bieri,
did your companies find it more difficult or more costly to
sell when we did not have that five-year period of time?
Ms. Bieri. Thank you, Congressman. I would just say that I
think Mr. Hemphill is right, that the publicly available data
aren't sufficient to show that for a fact. And I would----
Mr. Stupak. How about your internal data on behalf of
PhRMA? You must track that, do you not?
Ms. Bieri. No, we do not track the number of settlements
each year.
Mr. Stupak. OK.
Mr. Rush. The gentleman's time has ended.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Rush. The chair now recognizes the gentleman from
Nebraska, Mr. Terry, for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman. I am one of the, I
think, maybe two or three trial attorneys on this side of the
aisle. Omaha, you are right. I knew there was something I liked
about you. And settled hundreds of cases, wrote, read
settlement agreements. But I got to tell you this one is a
little out of the box for me, so I am going to have to kind of
take some small steps and ask you some generic questions, pun
intended. That is as good as it gets up here, folks, so----
Mr. Rosch, just so I understand the scope of things, how
many--just take in the last five years, how many of these
reverse settlements have occurred? 5, 10, 500?
Mr. Rosch. At least 103 that I know about, Congressman. Our
staff reviewed that many at least, including, I should add,
reverse payment settlements in which there were side deals plus
a date certain for entry. So they were not always just payments
of money, but there were 103 of them. And our staff found that
all but a couple of them were very suspect.
Mr. Terry. Now, I am sorry, out of the 103, you found that
103 of them were suspect?
Mr. Rosch. No, two of them were not suspect.
Mr. Terry. Were not? So 101 of them----
Mr. Rosch. Were.
Mr. Terry [continuing]. Fell into the category of being
suspect?
Mr. Rosch. I guess that is why I have some problems with
Teva's thesis because they would like to exempt a lot of side
agreements.
Mr. Terry. OK, now as I understand, when the brand name
files their patent, I mean there is a date certain there of
when that patent ceases to exist and a generic can come in. I
mean that is very easy to find that information, right?
Mr. Rosch. Yes, but----
Mr. Terry. OK, what is the but?
Mr. Rosch. The but is that there is also provision in the
statute that, for a certain period of time after the brand is
entered, it will basically get a free pass. Normally, that is
five years, but it can go up to seven years in the case of some
pediatric drugs where there are relatively few sales.
In addition to that, they get something that you and I
never saw in our lifetimes as litigators, and that is that they
get a certain period of stay time with respect to an automatic,
if you will preliminary injunction. And there is nothing like
that----
Mr. Terry. How long----
Mr. Rosch [continuing]. In any other patent----
Mr. Terry [continuing]. Would that stay time average?
Mr. Rosch. I believe----
Mr. Terry. And who gives that stay time? That is not
statutory.
Mr. Rosch. It is statutory.
Mr. Terry. That is statutory?
Mr. Rosch. That is.
Mr. Terry. So statutorily, they get an extra amount of time
because of----
Mr. Rosch. It is 30 months.
Mr. Terry. Thirty months. So I guess is there then not
clarity on when the dates that the patent runs out that the
generic can just jump into the market without legal issue?
Mr. Rosch. No, again this is a matter of the statute. The
statute allows what is called the first filer----
Mr. Terry. Right.
Mr. Rosch [continuing]. Who goes to the FDA first, and
certifies that it is not infringing or that the patent is
invalid.
Mr. Terry. That is where--can I interrupt there?
Mr. Rosch. Yes.
Mr. Terry. Because that is where part of my confusion is
coming in. If the date for the patent has run out, why do they
have to declare or somehow adjudicate that there is something
wrong with the patent?
Mr. Rosch. Because the statute contemplates that before the
patent runs out the generic will be incentivized to challenge
patents which are not valid or infringed or in which validity
or infringement is questioned.
Mr. Terry. Well, even though they may be incentive, they
still have to find something wrong with the patent.
Mr. Rosch. Correct.
Mr. Terry. Unless they want to wait until the end of the
patent date. So it seems to me that if they are incentivized to
attack the validity of the patent because we want to have a
policy that gets those generics out there sooner than the end
date.
Mr. Rosch. Yes.
Mr. Terry. I am not sure if I would agree with the premise
that these are reverse payments. Out of the 103 then, let me
just jump to my conclusion for my--I am out of time but----
Mr. Rosch. Surely.
Mr. Terry [continuing]. Let me ask this question. How many
out of the 101 nefarious reverse settlements actually made the
date that the generic got to the market sooner than the clear
date that the name brand patent ran out?
Mr. Rosch. The answer is, I believe, in almost all of those
cases, it was sooner, but I would suggest most respectfully
that that is not the question. Brand names do not pay tens or
hundreds of millions of dollars in reverse payments to generics
in order to accelerate their entry into the market. They don't
do that. What instead they are doing is they are paying to keep
that--to skew if you will the incentives of the generic to
prevent the generic from actually challenging a patent that
should be challenged. So that is the pernicious part.
There is nothing wrong--I want to emphasize that. There is
nothing wrong with the incentives created by Hatch-Waxman. The
problem is created by the reverse payment settlement.
Mr. Rush. The gentleman's time has expired. The chair now
recognizes the gentlelady from Illinois, Ms. Schakowsky, for
five minutes.
Ms. Schakowsky. Let me just say that over 30 years ago, I
was involved in, because I was a director of a senior citizen
organization, working to get the state of Illinois to pass
generic drug legislation in the hopes that it would reduce the
cost, which has proven to be true. My colleague and friend Mr.
Stearns was talking about how incredible it was that the
generic drug, or at least the first filers anyway, and the
pharmaceutical companies were on the same side.
Obviously the problem is that they are because both are
benefiting to the detriment, it seems, of the consumers. Mr.
Whitehouse, you were probably citing this study, and you
certainly didn't mean to imply that because Laura Tyson was an
author that the Obama Administration is supporting this point
of view, did you?
Mr. Whitehouse. Not at all. I----
Ms. Schakowsky. OK, and who paid for this study?
Mr. Whitehouse. My understanding is that it was--funding
was provided by Ms. Bieri's association, PhRMA.
Ms. Schakowsky. PhRMA.
Mr. Whitehouse. But they make clear that they express their
independent views.
Ms. Schakowsky. I just think that is important to note for
the record, that the study that is being cited was paid for by
the pharmaceutical industry. Let me ask the commissioner,
Rosch--is it Rosch, I am sorry?
Mr. Rosch. That is perfectly fine.
Ms. Schakowsky. What is it really though?
Mr. Rosch. Rosch.
Ms. Schakowsky. OK, Rosch.
Mr. Rosch. Like the chairman's.
Ms. Schakowsky. No, you should accept your real name. OK,
sorry. That the suggestions made by Dr. Sherman, he proposed
that maybe we would consider two amendments to the legislation.
Do you--or Mr. Hemphill, if you want to comment on that--think
that would improve the legislation and why?
Mr. Rosch. Well, again I am just speaking for myself,
Congresswoman, but I am very reluctant to reduce the 180-day
exclusivity period or to water it down at all or to dilute it
at all because I think that is the carrot. That is the
incentive for the generic to challenge.
Ms. Schakowsky. Yes, but if this first filer makes a deal
and then the second filer--well, maybe you can explain it
better----
Mr. Rosch. That is why I don't want--that is why I want to
ban reverse payments because that----
Ms. Schakowsky. Period?
Mr. Rosch. Period.
Ms. Schakowsky. OK. Well, why is your suggestion preferable
then, Dr. Sherman?
Mr. Sherman. We are not suggesting that the 180 days be
reduced. We are suggesting that it go to or be shared by the
person who actually earns it, the one who actually carries the
challenge and succeeds in invalidating the patent. Right now,
the first filer can settle and keeps the 180 exclusivity, which
is a huge reward, for doing nothing, for agreeing not to
challenge a patent and for agreeing with the brand company to
defer generic entry until just before patent expires at
enormous cost to consumer. They are not earning it.
So we are saying in a case where a first filer has settled,
it is not entitled to that exclusivity, but let them keep it
anyway. Let us just give a shared exclusivity to the person who
then picks up the challenge, does what Congress intended,
invests in challenging the patent, and succeeds. If you don't
do that, there is no incentive for anybody to pick up the
challenge and to get early entry into the market in the face of
a settlement by a first filer who has agreed to undermine the
system and accept very late----
Ms. Schakowsky. OK, Mr. Hemphill, does that make any sense?
Mr. Hemphill. So the underlying policy concern is a real
one that a first filer could settle, retain the exclusivity,
and that that would create public policy problems. Perhaps a
simpler solution, a solution actually suggested by Apotex two
years ago would be that upon settlement, the exclusivity is
simply forfeited.
My concern about adding a new layer of exclusivity in
addition to the possibly of diluting existing incentives is
this is an extremely complicated scheme as it is. A lot of the
problems result from manipulation of the 180 days. Doubling the
set of possible--or multiplying the set of possible holders of
exclusivity, I think, promises some confusion and complexity.
To forfeit your alternative, which Apotex in the past
suggested in response to the same policy concerns, strikes me
as a simpler and maybe easier to implement alternative.
Ms. Schakowsky. OK.
Mr. Sherman. May I answer that? We did propose that two
years ago, and it certainly would be better than what we have
now, simply a forfeiture of exclusivity. But the problem there
is then there is no incentive for a subsequent filer to take up
the advantage, to take up the battle. And that is the very
thing that the full regime is intended to incentivize. So
giving a shared exclusivity to a subsequent who does take up
the battle is better because then you are going to have someone
investing to do it, and that will result in earlier entry into
the market for generics. It is very----
Ms. Schakowsky. OK, I appreciate this back and forth. Thank
you.
Mr. Rush. The chair now will recognize the ranking member
of the subcommittee, Mr. Radanovich, for 5 minutes for
questions.
Mr. Radanovich. Thank you so much, Mr. Chairman, and I beg
the forgiveness of the committee. I had a prior constituent
water issue that needed to be addressed. I am a little bit late
to this hearing. But I want to thank the panel for being here.
I do have a couple of quick questions.
First of all, to the honorable Mr. Rosch, Ms. Handy
testified that H.R. 1706 creates two safe harbors. The first
that the only value allowed for a generic is the right to
market a drug prior to patent expiration. Second, the generic
cannot be sued for infringement, thereby insulating them from
any damages. A settlement is usually an agreement where both
parties receive consideration. However, it seems that the
considerations are entirely one-sided. What would be the
benefit to the brand company to settle in this situation,
number one? And number two, why would a brand company ever
choose not to prosecute their patent to the fullest to see
litigation through to the bitter end?
Mr. Rosch. Well, with respect to the first issue, I think
it really goes to whether or not side agreements should be or
are covered by this legislation. And the answer is, as I
indicated earlier, based on our own studies internally, side
agreements can indeed end up being a part of the problem. So
that is the answer to the first part of the question.
The answer to the second part of the question really goes
to the extent to which you want to incentivize--it seems to me
you want to incentivize the generic to actually challenge what
may be an invalid or a patent that is not being infringed. And
again my view is that you want to give the--my own personal
view is you want to give the generic the broadest possible
incentive in that regard, which is what I think you do with the
180 days.
Mr. Radanovich. Um-hum, thank you very much. Ms. Bieri, is
it? Ms. Bieri?
Ms. Bieri. Yes.
Mr. Radanovich. Thank you. Why is it so important for
innovative pharmaceutical companies to retain the ability to
settle patent litigation with generic companies?
Ms. Bieri. Thank you, Congressman. Litigation is risky and
expensive, and to--it incurs significant cost for both the
brand companies and the generic companies. Companies have to
have a way to resolve their disputes without taking them the
whole way to trial. And so for both parties to this litigation,
it is important to have the flexibility to be able to come to
mutual arrangements that are still within the scope of the
patent and therefore beneficial to consumers and ultimately
which will bring these medicines, generic medicines, to the
market before the patent expires but still be a fair
arrangement for both parties to the settlement.
Mr. Radanovich. Wouldn't the brand companies be better off
if they successfully defended their patents in court?
Ms. Bieri. That would be true if, in fact, the outcome of
litigation were always certain. But litigation is risky,
expensive, and uncertain. And businesses like certainty as you
well know. So it is often better for the brand company to,
within the scope of its patent, have a date certain by which it
knows that the generic will come on the market.
Mr. Radanovich. I see. Yes. Question for the panel, anybody
who cares to respond. Our government and our American companies
engage in daily fights against intellectual property theft. It
seems, however, that a number of our witnesses are arguing for
less stringent IP protections when it comes to pharmaceuticals.
I think that we could agree that life-saving innovation must be
encouraged, but it seems, however, that you are arguing that
the IP rights of some innovators are less worthy of protection
afforded by the law than perhaps Hollywood or Silicon Valley or
Nashville.
Many can defensively disagree, but I would like to hear any
of your thoughts on the issues of intellectual property in
general. Mr. Hemphill?
Mr. Hemphill. Yes, I guess just to start, I think it is not
true at all that the proposed bill here runs any risk of
treating pharmaceutical companies, brand or generic as second
class citizens. As the matters stand, we have a very
complicated regime that is already very different from what
anybody else gets. Commissioner Rosch mentioned a few moments
ago the special 30-month stay granted to a brand name firm,
even if the patent is extremely trivial. A patent term
extension, of course, is another example.
There are examples on the other side, but to think of this
as an example of second class citizenship for PhRMA companies,
I think, is far from the fact here.
Mr. Radanovich. OK, anybody else care to comment? Dr.
Sherman?
Mr. Sherman. Yes, what distinguishes pharmaceuticals from
other industries is this unique provision whereby the first
filer has exclusivity to block others. So what you have when
you have, under this regime, a brand company and the first
filer negotiating, the parties that are not at the table are
the public and the other generic firms who would be prepared to
continue to fight. And the settlement to which they are not a
party, affects them because it precludes the other generics
from fighting to win because they are blocked by the continuing
exclusivity. And the consumers aren't at the table, and they
are the ones who are paying the billions of dollars of extra
money as a result of the settlement.
So sure, this bill would treat pharmaceutical differently
because it would ban reverse payments, but the question that
should be asked is why are they happening in this industry? And
it is happening because the present regime permits a first
filer to settle on behalf of all of the generic industries and
consumers who are not at the table.
So the way to fix it is not to have special provisions that
bar reverse payments but to stop--to fix the regime so that a
first filer who settles is settling only for himself and is not
blocking another generic who would, in fact, continue to invest
and fight for earlier entry.
Mr. Radanovich. Thank you.
Mr. Rush. The gentleman's time has concluded.
Mr. Radanovich. Thank you, Mr. Chairman.
Mr. Rush. The chair now recognizes the gentleman from
Louisiana, Mr. Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman. The first question
just open up to the whole panel. If you can explain or give an
example of a case where Congress has actually specified that a
certain industry specific private settlement would be illegal.
Start with Mr. Whitehouse and work down.
Mr. Whitehouse. We are certainly not aware of any, and we
think in fact it is important to recognize and these economic
papers do point out, make the important point, that this isn't
unique to PhRMA, that every settlement and any litigation, as
any litigator will tell you, involves some mutuality of
consideration, or there wouldn't be a deal. And so it is the
technicality of how the money or the compensation moves in any
particular transaction. It is an artifact, but it is in the end
of any interest because a settlement is not going to happen
unless both sides are getting something out of it.
Mr. Scalise. Mr. Sherman?
Mr. Sherman. Well, again, the problem is that this industry
is unique because the first filer in this case who settles is
settling on behalf of everybody and entering into an agreement
which blocks all others from getting to market. That is what
distinguishes this industry, and that is what is wrong. That is
what should be fixed.
Mr. Scalise. Do you know of any other cases in other
industries where this type of proposal that is brought forward
is----
Mr. Sherman. No, because there is no other industry where
somebody gets an exclusivity by reason of doing a challenge and
can block all others. That is the problem.
Mr. Scalise. Not sure that that is the case, but Ms. Bieri?
Ms. Bieri. Congressman, I am not aware of any other
industry in which a bill target settlements of a particular
type. I would say that the courts, when they look at these, and
to some extent the agencies, have approached these on a case-
by-case basis so that they start from the proposition that
settlements are pro-competitive if, in fact, they would allow
the generic to enter prior to the expiration of the patent. And
if in fact they don't, then they may be anticompetitive. So
they pursue a case-by-case analysis which to us is more
sensible than a per se ban.
Mr. Scalise. Ms. Handy.
Ms. Handy. Respectfully, Congressman, I don't know the
answer, but I think whether or not it occurs, the issue is
whether it is good for consumers.
Mr. Scalise. And we will get into that later in the
questioning. Thanks. Mr. Hemphill.
Mr. Hemphill. Yes, the litigation, the settlements, and the
proposed fix are all industry specific and unusual.
Mr. Scalise. Unusual. Thank you. Mr. Rosch?
Mr. Rosch. That is correct.
Mr. Scalise. All right. Well, thank you.
Mr. Rosch. But the----
Mr. Scalise. First round. Well, let me ask Mr. Rosch and
then----
Mr. Rosch. As has been pointed out, however, Congressman,
this industry is very unusual as well.
Mr. Scalise. I am sure, and many are in their own rights.
Many industries are. According to your reports on settlements,
there have been over 50 settlements filed with the FTC in the
last three years. Your testimony, I think, said a large number
of them have side agreements, yet of those 50, the FTC has not
filed legal challenges against any of them. And private
plaintiffs have brought suits against only two of them. Why has
the FTC not challenged any of those settlements?
Mr. Rosch. It is quite simple, Congressman. We are trying
to pick those settlements which we think are more pernicious
and we think we can win. We want to win one of these cases
because we feel that we are not only the guardians of consumers
in this fight but also the guardians of you folks who enacted
Hatch-Waxman.
Mr. Scalise. I guess that means you don't feel you could
have won the other ones that have been filed.
Mr. Rosch. No, I don't mean to leave that impression. What
I do mean to leave is the impression that the ones that we have
challenged, we think, are the ones that are most obviously
pernicious to consumers and most----
Mr. Scalise. But obviously you make a calculated decision
then if you don't--you only bring a suit if you feel that you
can win.
Mr. Rosch. No, that is not necessarily----
Mr. Scalise. But that is what you just said.
Mr. Rosch. If we had unlimited resources, we would probably
be challenging all of them, but we don't.
Mr. Scalise. Well, the same is the case with the generic
company that brings a case to court as well. They don't have
unlimited resources either, but obviously they feel they have
merit. And that is why they bring the case, and then this bill
would remove their ability to settle. Several settlements,
including those involving Prozac and Tamoxifen have saved
consumers and taxpayers billions of dollars. Looking back, do
you believe such settlements were anticompetitive merely
because they contained some type of settlement or reverse
payment as you call it?
Mr. Rosch. Do I think that Tamoxifen and----
Mr. Scalise. Well, do you feel that those settlements were
anticompetitive? They were legal. They would be illegal under
this bill, yet they did save consumers billions of dollars. So
how do you justify trying to take away that ability to save
consumers billions of dollars, as has been the case in past
settlements?
Mr. Rosch. We certainly thought Tamoifen was a bad
settlement. We thought that was an anticompetitive settlement,
and we saw nothing, no data whatever, that would suggest to us
that it could save consumers billions of dollars.
Mr. Scalise. Mr. Whitehouse--I know I am running out of
time--experts have testified that collateral agreements, side
business deals like these licenses or co-promotion agreements
on products unrelated to the patented product in dispute can
help the litigants in the patent suit bridge the gap and reach
a settlement on patent litigation. Have you experienced that?
You have taken some of these cases before.
Mr. Whitehouse. Yes, absolutely. That is crucial to the
point that we have made in our testimony is that the ability to
reach these settlements and bring these products to market
sooner in cases that we must not forget we could have lost. I
mean everybody sort of assumes if we didn't settle, we would
have won. It is very important to remember that something else
could have happened. We could have lost, and the consumers
would not have any benefit until the expiration of the patent.
And so the opportunity to come up with these alternative or
additional terms that enable the parties to bridge their
different perceptions of the case bring about a settlement that
on average and typically will bring these products to market
sooner to the benefit of consumers.
Mr. Scalise. I see I am out of time. I yield back.
Mr. Rush. Chair now recognizes Dr. Gingrey for 5 minutes.
Mr. Gingrey. Mr. Chairman, thank you very much, and direct
my question to Commissioner Rosch. Commissioner Rosch, I think
you have been very forthright in your response to the questions
throughout the hearing. Having said that, I guess you are
anticipating I am fixing to blast you.
Mr. Rosch. Yes.
Mr. Gingrey. Not really but----
Mr. Rosch. I call it piling on.
Mr. Gingrey. Yes.
Mr. Rosch. That is fine.
Mr. Gingrey. But in a number of ways, I do find your
testimony to be counterintuitive. You say that the reverse
payment settlements negatively impact consumers by delaying
entry of generic drugs to the market. Based on the testimony of
the other witnesses, many times these reverse payment
settlements, they actually allow the patent holding company and
the generic company to negotiate terms by which the generic can
begin being marketed before the expiration of the patent.
Presumably because of the unique nature of patent law in this
area, the settlements actually help consumers, it would seem to
me.
But what then is anticompetitive or anti-consumer about
this kind of settlement? And before you respond to that, a
quick second. I think it was Mr. Radanovich that was asking you
about the question about side deals, and you may have talked
about other consideration in a settlement not including reverse
payments.
Mr. Rosch. Payment of dollars, correct.
Mr. Gingrey. Yes, but this bill, as I understand it, would
prohibit any of that, not just dollar payments, reverse
payments, but any other side deals. So if this bill passes,
then what incentive would the brand name company have to
settle? Certainly it would appear none whatsoever to negotiate
with the generics. So two questions, and go ahead.
Mr. Rosch. OK, I think you are correct about the bill. As I
read it, it would indeed go to side deals as well as to direct
payments of money. As I said before, that doesn't really
trouble me because our staff has taken a look at these
agreements, including side deals, and they have concluded that,
except in a very small number of instances, those side deals
are anti-consumer and they are anticompetitive.
And incidentally, Congressman, there is nothing at all
unique about banning this kind of deal within the context of a
settlement. The United States Supreme Court said that an
anticompetitive aspect of a settlement agreement could be
struck down as per se illegal many, many years ago in the
Singer case. So this is not brand new.
But let me get to sort of the first part of your question.
Why, I ask myself, if indeed the effect of a reverse payment
settlement would be to stifle entry, early entry, to delay
early entry, why are these deals occurring? We are seeing them.
Why is the brand willing to pay, as I say, millions of dollars
in these settlements? And I would suggest to you that the
reason is to delay entry because the brand is enjoying patent
monopoly profits and prices. It is kind of as simple as that.
Now, should we be litigating these cases on a case-by-case
basis? I would suggest to you that we should not. There is
already in the bill sort of a safety net if you will in our
rulemaking authority. If we find that some of these deals
shouldn't--that we shouldn't be challenging them on a case-by-
case basis, we can carve those out as a safe harbor.
Mr. Gingrey. Commissioner, reclaim my time, and I am down
to 45 seconds because this is going to segue----
Mr. Rosch. I didn't mean to----
Mr. Gingrey. No, I appreciate your response. Segue into my
question that I wanted to ask Ms. Bieri and Mr. Whitehouse. As
representatives of PhRMA and the generic drug companies
respectively, you know through practical implementation that
both the FTC and the Department of Justice already had the
ability to challenge any settlements that--and I think that is
what the commissioner was about to say--that are
anticompetitive and thus harm consumers.
If the blanket ban on settlements, and H.R. 1706 is
implemented, what incentive do your respective industries have
to settle patent litigation out of court? And how would that
affect consumers?
Ms. Bieri. Thank you. I will begin by saying that I think
because litigation is risky and expensive, I think there would
still be incentives for companies to try to settle patent
litigation even if H.R. 1706 were to pass. Unfortunately the
options for them to do so are what would be very limited. And
so you would be left in a situation where the brand and the
generic company would be only able to negotiate over the date
of entry for the generic.
This is the heart of the patent dispute and obviously the
parties are going to have very different views on that point.
And so in many of these cases we think it would be unable to
reach an agreement, and the case would then have to proceed to
litigation. And recent statistics show that in most of those
cases, at least the majority, the brand company would
ultimately be able to defend its patents. And so generic entry
would be delayed.
Mr. Gingrey. And, Mr. Whitehouse--Mr. Chairman, if you
would bear with me, if Mr. Whitehouse can respond to that
question as well.
Mr. Whitehouse. Yes, Congressman. And the important point
to focus upon here is that if you make it harder to settle, you
are going to reduce the incentive to bring these cases in the
first place. And the whole point of Hatch-Waxman was to
precipitate litigation over doubtful patents and bring generic
products to market sooner, if you diminish in any way the
incentive in the generic companies to initiate those
litigations, which is an inevitable consequence of making it
harder to settle them, that is inherently anti-consumer and
undesirable. And that is why we are opposed to this mechanism.
Mr. Rush. The chair initially offered that we would go into
a second round of questioning, but there is a vote on the
floor, and in light of this fact, the chair wants to call this
subcommittee hearing to an adjournment. But before he does
that, he wants to make sure that the witnesses recognize the
fact that we are indebted to you so deeply because of your--the
investment of your time into this matter. You have really shed
some tremendous light on this issue, and we will be referring
to your statements more so in time for the duration of this
legislative process on this particular matter.
I just want to also alert you that we ask that you should
be prepared to receive and respond to written questions
submitted by members of the subcommittee, and I want for the
record to remain open for 10 days to receive additional
statements.
And the final matter is that the ranking member of the
subcommittee, Mr. Radanovich, has an opening statement that he
wants to place into the record, and with hearing no objection,
it is so ordered.
[The information was unavailable at the time of printing.]
Mr. Rush. This subcommittee is now adjourned. Thank you
very much.
[Whereupon, at 1:20 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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